Supreme Court Wrestles with MSME Act Disputes: Writ Petitions and Arbitration Powers Sent to Larger Bench

The Supreme Court has spotlighted critical questions regarding the Micro, Small, and Medium Enterprises Development Act (MSMED Act) by referring two pivotal issues to a larger bench for clarity. The case centers on whether High Courts can entertain writ petitions challenging awards made by the Micro and Small Enterprises Facilitation Council (MSEFC) and whether MSEFC members can transition from conciliators to arbitrators in disputes.

Writ Petition Dilemma

Under the MSMED Act, orders issued by the MSEFC are often seen as final, with limited recourse through the Arbitration and Conciliation Act (A&C Act). However, the Supreme Court questioned whether this precludes writ petitions under Article 226 of the Constitution. While a prior ruling in M/s India Glycols Limited deemed writ petitions impermissible against MSEFC orders, the current bench—led by the Chief Justice—highlighted potential exceptions. These include instances involving natural justice violations, jurisdictional overreach, or fundamental rights breaches.

The bench posed a critical question: “Can the High Court’s writ jurisdiction be invoked even when alternative remedies exist, particularly under extraordinary circumstances?”

Arbitrator-Concilator Dual Role

Another thorny issue concerns whether MSEFC members who conduct conciliation proceedings can later serve as arbitrators if conciliation fails. The legal friction arises from Section 80 of the A&C Act, which generally prohibits conciliators from acting as arbitrators unless the disputing parties agree otherwise.

Conflicting precedents further complicate matters. In Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan, the Court ruled against such dual roles, emphasizing the need for impartial arbitration. Conversely, in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods, the Court allowed it, citing no explicit prohibition.

Questions for the Larger Bench

Acknowledging these contradictions, the Court framed three questions for resolution:

1. Does the ruling in M/s India Glycols Limited categorically bar writ petitions against MSEFC orders?
2. If not, under what circumstances can writ petitions bypass the restriction of alternative remedies?
3. Can MSEFC members legally transition from conciliators to arbitrators under Section 18 of the MSMED Act and Section 80 of the A&C Act?

Context and Implications

The case originated from a dispute where a company, M/s Tamil Nadu Cements Corporation Limited, contested the statutory requirement to deposit 75% of the awarded amount before challenging an MSEFC order. The company argued that such a pre-deposit made the appeal process prohibitively burdensome, rendering justice inaccessible.

The Supreme Court recognized the gravity of this claim, observing that the High Court’s writ powers might still be invoked to ensure fairness and access to justice, even when statutory remedies are available. However, the Court deferred the final decision to a larger bench for definitive interpretation.

This referral underscores the delicate balancing act between statutory mandates and constitutional safeguards, with significant implications for businesses navigating disputes under the MSMED Act.