MSME Council Cannot Decide Post-Award Enforcement Disputes: Gujarat High Court

The Gujarat High Court on 6 August, held that a Micro and Small Enterprises Facilitation Council becomes functus officio after passing an arbitral award and cannot thereafter adjudicate disputes concerning enforcement of the award or determine whether the awarded amount has been fully paid.

A Division Bench comprising Chief Justice Sunita Agarwal and Justice D.N. Ray modified a Single Judge's order directing the Madhya Pradesh MSME Facilitation Council to reconsider Mahakali Foods Pvt. Ltd.'s claim for post-award interest against Gujarat State Civil Supplies Corporation Ltd. (GSCSCL), holding that the Council had no jurisdiction to decide such post-award disputes. The judges held:

“We have reached at the opinion that the MSME Council established under the MSMED Act, 2006 shall act as an Arbitrator rendering the award in a proceeding which will be governed by the Arbitration and Conciliation Act, 1996. However, apart from making arbitral award in accordance with the provisions of the Arbitration Act, 1996, the MSME Council has not been conferred any power or jurisdiction to deal with any dispute in relation to the enforcement of the award, i.e. to examine whether the award rendered by it is duly enforced or not.”

An MSME arbitral award dated 11 September 2014 directed GSCSCL to pay Rs. 5.21 crore to Mahakali Foods, along with compound interest in case of non-payment within the stipulated period.

GSCSCL challenged the award and deposited 75% of the awarded amount, along with interest calculated up to 10 December 2014, amounting to Rs. 4.34 crore, before the District Court, Gandhinagar. The challenge was dismissed on 20 August 2018. The subsequent appeal before the Gujarat High Court was dismissed on 13 November 2019.

The matter thereafter reached the Supreme Court, which directed GSCSCL to deposit the remaining 25% of the principal amount. The challenge ultimately ended with dismissal of the Civil Appeal on 31 October 2022. A dispute subsequently arose over the amount allegedly remaining payable under the award.

On 13 March 2023, Mahakali Foods approached the MSME Council seeking further post-award interest based on a calculation prepared by its Chartered Accountant. On the same day, the Industries Commissioner, MSME Council, Bhopal forwarded a computation of Rs. 34.89 crore to the Collector, Gandhinagar for recovery, following which land revenue recovery proceedings were initiated against GSCSCL. GSCSCL challenged the recovery action before the High Court.

On 10 December 2025, a Single Judge quashed the recovery communication and consequential notices but directed the MSME Council to reconsider Mahakali Foods' claim for outstanding interest after hearing both sides.

Mahakali Foods challenged this direction before the Division Bench, arguing that depositing money in Court during challenge proceedings did not amount to payment to the award-holder and that interest therefore continued until the amount was actually received. GSCSCL, on the other hand, contended that its deposit of 75% of the award along with up-to-date interest stopped further accrual on that portion and that the MSME Council had no jurisdiction to decide disputes concerning execution of the award.

Accepting GSCSCL's contention on jurisdiction, the Bench held that the MSME Council's mandate ends once it renders the final arbitral award. It observed that thereafter the Council can exercise only the limited powers under Section 33 of the Arbitration and Conciliation Act, 1996, including correcting or interpreting the award or making an additional award, and cannot act as an executing court. It held:

“Once the arbitral award has been made by the MSME Council or the ADR institutions on a reference made by the MSME Council, with the termination of the arbitral proceedings, the MSME Council or the ADR institutions, as the case may be, becomes functus officio, and cannot be approached to adjudicate any dispute arising between the parties at the post-award stage"

On the question of interest, the Bench held that the “interest clock” stopped running on the 75% amount deposited with up-to-date interest. However, interest continued to accrue on the remaining 25% because only the principal amount had been deposited. It therefore directed the Collector's office, and not the MSME Council, to calculate the interest payable on the remaining 25% after hearing both parties.

Accordingly, the High Court quashed the 13 April 2023 communication and the consequential recovery notices and directed that any fresh recovery proceedings be undertaken in accordance with law.

Appearances for appellant (M/s Mahakali Foods Pvt. Ltd.): Senior Advocate Mihir Joshi with Advocates Saurabh G. Amin and Dimple A. Thaker.

Appearances for respondent (Gujarat State Civil Supplies Corporation Ltd.): Senior Advocate Shalin Mehta with Advocates Rhes Sewak, Kunal Vyas and Yash Modi for Gandhi Law Associates.

Appearances for Respondent Nos. 3 and 4: Assistant Government Pleader Sanjay Udhwani