Writ Not Maintainable Against MSME Council Award When Remedy Exists Under Arbitration Act: Madras High Court

The Madras High Court has reiterated that a writ petition challenging an arbitral award passed by a Micro and Small Enterprises Facilitation Council cannot ordinarily be entertained when the aggrieved party has an effective statutory remedy under Section 34 of the Arbitration and Conciliation Act.

A single bench of Justice V. Lakshminarayanan observed that parties cannot invoke writ jurisdiction under Article 226 to set aside such awards when the arbitration statute itself provides a mechanism for challenge.

“Hence, the law declared by the Supreme Court as on 06.11.2023 is that, it is impermissible for a person, who has a remedy under Section 34 of the Arbitration and Conciliation Act, 1996, to resort to a proceeding under Article 226 of the Constitution of India to quash an Arbitral award,” the court observed.

The ruling came while hearing a challenge by RS Development and Construction India Pvt. Ltd. to an award passed by the Micro and Small Enterprises Facilitation Council directing it to pay about Rs 2.38 Crore to Anitech Infra along with compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.

The dispute arose after Anitech Infra approached the council under Section 18 of the Micro, Small and Medium Enterprises Development Act seeking recovery of its dues from RS Development and Construction India Pvt. Ltd. Conciliation before the council failed, following which the matter proceeded to arbitration. The council later passed an award directing payment of the claimed amount along with compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India.

RS Development and Construction India Pvt. Ltd. challenged the award before the High Court, arguing that it had attempted to join the hearings virtually but was unable to log in, which it said led the council to wrongly record its absence. The company also argued that the council ignored the counter statement it had filed and that the same authority had acted both as conciliator and arbitrator in violation of Section 80 of the Arbitration and Conciliation Act.

Anitech Infra opposed the plea and argued that the writ petition was not maintainable because the arbitration law provides a specific remedy under Section 34 to challenge such awards.

The court said the company's reliance on the Supreme Court's decision in Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan was misplaced. That ruling, the court explained, applies to situations where a facilitation council passes an award immediately after conciliation without initiating arbitration proceedings.

“This judgment would apply to a situation, where, without calling upon the parties to appear for arbitration, if a MSEF Council were to pass an award immediately on the closure of the conciliation proceedings, then the award so passed cannot be treated as an award itself. The Court had not held that an award, even when validly passed after the issuance of summons, is still susceptible to challenge by way of a writ petition under Article 226 of the Constitution of India,” the court said.

Referring to the Supreme Court's decisions in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. and India Glycols Ltd. v. MSEF Council, the court said the current legal position requires parties to challenge such awards through the statutory mechanism under the Arbitration Act.

The court also noted that although the issue has been referred to a larger bench of the Supreme Court, the reference remains pending and the existing precedent continues to bind courts.

The court therefore dismissed the writ petition while leaving it open to RS Development and Construction India Pvt. Ltd. to challenge the award through proceedings under Section 34 of the Arbitration and Conciliation Act.