The Madras High Court has firmly held that writ petitions under Article 226 of the Constitution are not a permissible route to challenge arbitral awards passed by the Micro and Small Enterprises Facilitation Council under the MSMED Act. This ruling reinforces the legislative intent behind the Act’s streamlined dispute resolution mechanism and closes a procedural loophole that could undermine mandatory pre-deposit requirements.
Background & Facts
The Dispute
The petitioner, M/s. Kinetic Industries (P) Ltd., is a buyer of goods supplied by the second respondent, M/s. J.S. Masix Tooling Solutions, a registered micro enterprise under the MSMED Act. A payment dispute arose regarding unpaid dues for goods supplied, leading the second respondent to file a claim before the first respondent, the Micro and Small Enterprises Facilitation Council (MSEFC), Chennai Region, under Section 18 of the MSMED Act.
Key Facts
- The second respondent claimed unpaid dues of Rs. 5,58,400/- for goods supplied to the petitioner
- The MSEFC passed an award on 15.07.2025 directing the petitioner to pay the principal amount along with compound interest with monthly rests
- The petitioner contends that no conciliation proceedings were conducted as mandated under Section 18(2) of the MSMED Act prior to the arbitration
- The petitioner filed this writ petition on the ground that the Council violated statutory procedure by bypassing mandatory conciliation
- The petitioner did not challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996, nor did it make the mandatory 75% pre-deposit under Section 19 of the MSMED Act
Procedural History
- Date of supply of goods: Not specified in judgment
- Date of claim filed by respondent: Not specified
- 15.07.2025: MSEFC passed arbitral award in Case No. MSEFC/CR/452/2022
- 10.04.2026: Writ petition reserved for orders
- 17.04.2026: Writ petition pronounced and dismissed
The Parties' Positions
For the Petitioner: Argued that the MSEFC failed to conduct conciliation as required under Section 18(2) of the MSMED Act, rendering the award illegal and void. Relied on procedural irregularity as grounds for immediate judicial intervention via writ.
For the Respondent (MSEFC): Contended that conciliation was attempted and failed, leading to arbitration as per statutory mandate. Argued that the petitioner’s remedy lies only under Section 34 of the A&C Act with mandatory pre-deposit.
Relief Sought
The petitioner sought quashing of the MSEFC’s award dated 15.07.2025 on the ground of non-compliance with Section 18(2) and a direction to conduct fresh conciliation.
The Legal Issue
Can a writ petition under Article 226 of the Constitution be maintained to challenge an arbitral award passed by the MSEFC under the MSMED Act on the ground of non-compliance with mandatory conciliation under Section 18(2), before the aggrieved party has exhausted the remedy under Section 34 of the Arbitration and Conciliation Act, 1996?
Arguments Presented
For the Petitioner
The petitioner contended that the absence of conciliation under Section 18(2) rendered the entire arbitral proceeding void ab initio, as conciliation is a mandatory pre-condition under the MSMED Act. It argued that such a fundamental procedural defect amounts to a jurisdictional error, which is challengeable by writ under K. S. Puttaswamy v. Union of India. The petitioner relied on the principle that violations of mandatory statutory procedures can be corrected at any stage, including through writ jurisdiction.
For the Respondent
The Special Government Pleader submitted that the MSMED Act creates a self-contained, exclusive mechanism for dispute resolution. The Act does not provide any statutory remedy to challenge procedural lapses before the award is passed. The petitioner’s remedy lies exclusively under Section 34 of the A&C Act, subject to the mandatory pre-deposit of 75% of the award amount under Section 19 of the MSMED Act. Any attempt to bypass this statutory scheme through writ jurisdiction defeats the legislative intent of speedy resolution.
The Court's Analysis
The Court began by examining the nature of the MSEFC under the MSMED Act. It emphasized that the Council functions as a statutory arbitral tribunal with powers derived from a special statute designed to protect MSMEs. Section 18 of the MSMED Act mandates conciliation before arbitration, but crucially, it does not provide any remedy for challenging non-compliance with conciliation prior to the issuance of an arbitral award.
"The MSMED Act does not stipulate that if the conciliation procedure contemplated under Section 18(2) of the MSMED Act is not complied with, a party aggrieved by the same is entitled to approach the Court of law even before an arbitral award is passed."
The Court then drew a parallel with the Arbitration and Conciliation Act, 1996, noting that under Section 16, challenges to the tribunal’s jurisdiction must await the final award and can only be raised under Section 34. The MSMED Act, while incorporating the procedural framework of the A&C Act, does not create an exception for pre-award writ petitions. The Court held that allowing such petitions would undermine the very purpose of the MSMED Act - expeditious resolution of payment disputes.
The Court relied on the binding precedent of India Glycols Limited v. Micro and Small Enterprises Facilitation Council [(2025) 5 SCC 780], which unequivocally held that writ jurisdiction under Articles 226/227 is impermissible to challenge MSEFC awards. The Court noted that although a larger bench has been convened in Tamil Nadu Cements Corporation Ltd. v. MSEFC [(2025) 4 SCC 1], the India Glycols decision remains binding until overruled.
The Court further emphasized that Section 19 of the MSMED Act, which mandates a 75% pre-deposit for challenging an award, is a substantive legislative safeguard to prevent frivolous appeals. Allowing writ petitions to circumvent this requirement would nullify the legislative intent behind the provision.
The Verdict
The writ petition was dismissed as not maintainable. The Court held that the petitioner’s remedy lies exclusively under Section 34 of the Arbitration and Conciliation Act, 1996, subject to the mandatory pre-deposit of 75% of the award amount of Rs. 5,58,400/- under Section 19 of the MSMED Act. The time spent in filing this writ petition shall be excluded for the purpose of computing limitation under Section 14 of the Limitation Act, 1963. No costs were awarded.
What This Means For Similar Cases
Writ Petitions Cannot Bypass Mandatory Arbitration Remedies
- Practitioners must not file writ petitions under Article 226 to challenge MSEFC awards on procedural grounds such as non-conciliation
- Any challenge to the award must be filed under Section 34 of the A&C Act within 90 days of receipt of the award
- Failure to make the 75% pre-deposit under Section 19 will render the Section 34 petition non-maintainable
Conciliation Defects Are Not Jurisdictional Errors
- Non-compliance with Section 18(2) conciliation is not a jurisdictional defect that can be challenged at any stage
- Such defects must be raised as grounds for setting aside the award under Section 34, not as grounds for writ jurisdiction
- Courts will treat procedural lapses under the MSMED Act as matters for arbitral review, not constitutional review
Strategic Implications for MSME Claimants and Buyers
- MSMEs should ensure conciliation records are meticulously maintained to preempt challenges
- Buyers must not rely on writ petitions to delay enforcement; instead, they must act promptly under Section 34 with the required pre-deposit
- Legal notices and internal compliance protocols should be updated to reflect that post-award remedies are exclusive and non-negotiable
