Introduction:
The Hon’ble Supreme Court (“SC”)[1] debated on the seminal question of maintainability of writ petitions against an order/ award under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”). In M/s Tamil Nadu Cements Corporate Limited v. Micro and Small Enterprises Facilitation Council and Another[2] (“T.N. Cements v. MSEFC”), the Hon’ble SC also delved into the evolving jurisprudence and conflicting views from a catena of its earlier decisions, examining the divergent judicial interpretations and analysing the interplay between the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), and the MSME Act before ultimately escalating the matter to a five judge Constitution Bench for a comprehensive settled resolution.
Brief Factual Scenario:
Disputes arose between Tamil Nadu Cements Corporation Limited (“Appellant/ TANCEM”), a wholly-owned undertaking of the Government of Tamil Nadu, and M/s Unicorn Engineers, a micro-enterprise supplier (“Unicorn Engineers”), over delays in payments for civil works undertaken at a cement manufacturing unit in Ariyalur, Tamil Nadu. Unicorn Engineers, registered under the MSME Act, sought recourse through the Micro and Small Enterprises Facilitation Council (“MSEFC”) for recovery of its dues, and filed a petition under Section 18 of the MSME Act before the MSEFC claiming payments with interest.
Vide an order dated June 04, 2016 (“Impugned Order”), the MSEFC stated that conciliation attempts have taken place and Unicorn Engineers is free to approach arbitration. The MSEFC further issued directions to TANCEM to make payments with interest, in accordance with Section 15 and 16 of the MSME Act. Aggrieved by this Impugned Order, TANCEM filed a petition under Section 33 of the Arbitration Act to recall the Impugned Order, which was later dismissed by the MSEFC on the grounds that (i) it was barred by limitation and (ii) TANCEM had not furnished 75% of the amount as pre-deposit, as mandated by Section 18 of the MSME Act.
Subsequently, on December 31, 2016, TANCEM filed a petition under Section 34 of the Arbitration Act before the High Court of Judicature of Madras (“Madras HC”) to set aside the Impugned Order and to direct Unicorn Engineers to pay the amount due for the losses incurred. Thereafter, TANCEM also filed a writ petition before the Madras HC in 2017, challenging the vires of Sections 16 to 19 of the MSME Act, which was transferred before the SC. However, the same could only be listed after the disposal of Special Leave Petitions, raising a similar challenge before the SC.
Vide an order dated September 09, 2021, objections filed by TANCEM under Section 34 of the Arbitration Act were held to be not maintainable on account of being barred by limitation and were dismissed along with the appeal preferred against the order.
Under such circumstances, TANCEM preferred a fresh writ petition, assailing the impugned Order before the Madras HC. However, the same was dismissed as the relief sought by TANCEM would be governed by the fate of proceedings challenging the vires of Sections 16 to 19 of the MSME Act, which were pending before the SC and the writ appeal filed thereafter was also dismissed.
Aggrieved by these set of facts, TANCEM filed the present SLP.
Evolving Jurisprudence
The Hon’ble SC, in the case, highlighted differing and evolving views in its earlier judgements, which are as follows:
A two-judge SC bench in Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan & Ors[3] (“Jharkhand Urja Vikas Nigam Ltd.”)examined the provisions of the MSME Act, observing that the MSEFC order under challenge was not an award in the eyes of law and hence, recourse to Section 34 of the Arbitration Act was not required and the writ petition was held to be maintainable.
On the other hand, a two-judge SC bench in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited[4] (“Gujarat State Civil Supplies Corporation”) held that the specific non-obstante clauses in Section 18(1) & (2) of the MSME Act will have an overriding effect on any other law, including the Arbitration Act. It was also held that the provisions relating to conciliation and thereupon, arbitration in the MSME Act being statutory in nature, would override an arbitration agreement as contracted by the parties.
Thereafter, a three-judge SC bench in M/s India Glycols Limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal – Malkajgiri and Ors.[5] (“India Glycols”) held that a writ petition under Articles 226/ 227 of the Constitution was not maintainable as Section 18 of the MSME Act provides for recourse to statutory remedy for challenging an award under Section 34 of the Arbitration Act.
Observations of the Hon’ble Supreme Court
Demonstrably, there is divergence of opinion that has led to judicial uncertainty, necessitating clarification. The Hon’ble SC in the case made the following observations:
- There is a direct confrontation in the cases of Jharkhand Urja Vikas Nigam Ltd. and Gujarat State Civil Supplies Corporation. The SC has its own reservations regarding the dictum in India Glycols, which states that writs are non-maintainable against orders passed by the MSEFC, and the only recourse available is in terms of Section 34 of the Arbitration Act.
- The present case is regarding statutory arbitration, which is mandatory in nature. Section 18 of the MSME Act overrides the principle of party autonomy when they enter into an arbitration agreement that prescribes the procedure and conduct of arbitral proceedings. The statute further prescribes very high rates of interest, and an order or award can be challenged by the buyer only on deposit of 75% of the awarded amount. Additionally, pre-deposit is a condition for hearing a decision on the objections to the award. However, the main issue that requires consideration is whether there is an absolute and complete bar on invoking writ jurisdiction under Article 226 of the Constitution, even in exceptional and rare cases.
- The SC further observed that access to High Courts by way of writs is not just a constitutional right, but a part of the basic structure. The rule of availability of alternative remedy is not an omnibus rule of exclusion of writ jurisdiction, but a principle applied by the High Courts as a form of judicial restraint and refrain in exercising the jurisdiction. Furthermore, it is well settled that writs are maintainable, despite the availability of alternative remedies, in situations wherein:
- there is violation of the principles of natural justice or fundamental rights;
- an order in a proceeding is wholly without jurisdiction; or
- the vires of an Act is challenged.
- The Hon’ble SC also noted the rationale in Harbanslal Sahnia and Anr. v. Indian Oil Corporation and Others[6], which held that the rule of exclusion of writ jurisdiction is a rule of discretion and not compulsion and in appropriate cases, in spite of alternate remedies available, the writ courts can exercise its jurisdiction in the three aforementioned contingencies.
- The SC thereafter observed that the existence of a statutory remedy does not affect the jurisdiction of a High Court to issue a writ. However, as a rule, parties adhere to alternative statutory remedies as this reinforces the rule of law and in exceptional cases, writs can still be exercised. In Himmatlal Harilal Mehta v. State of Madhya Pradesh and Ors.[7], it was observed that the principle that writs should not be exercised when alternative remedy is available may not apply when statutory remedies available are onerous and burdensome in character.
- Equally important were the observations of this Court in Shyam Kishore and Ors. v. Municipal Corporation of Delhi and Anr.[8], which was affirmed by a five-judge Constitution Bench in Govind Parameswar Nair and Ors. v. Municipal Corporation of Greater Bombay and Ors.[9], wherein it was held that resorting to Articles 226 and 227 of the Constitution should be discouraged when there is an alternative remedy available as a more satisfactory solution on the terms of the statute itself.
- Recently, in Tecnimont Private Limited v. State of Punjab and Others[10],the SC has again observed thatthere is some divergence of opinion w.r.t. the maintainability of writs when equally efficacious alternative remedies are available. In light of the same, the Hon’ble SC, noting that the conflicting precedents reflect deeper jurisprudential questions, referred the following questions to a larger bench of five Judges:
- Whether the rationale in India Glycols that a writ petition could never be entertained against any order/ award of the MSEFC, completely bars or prohibits maintainability of the writ petition before the High Court?;
- If the bar/ prohibition is not absolute, when and under what circumstances will the principle/ restriction of adequate alternative remedy not apply?; or
- Whether the members of MSEFC, who undertake conciliation proceedings, upon failure, can themselves act as arbitrators of the arbitral tribunal in terms of Section 18 of the MSME Act, read with Section 80 of the Arbitration Act?
Conclusion
The case of T.N. Cements v. MSEFC acknowledges the fundamental tension between contractual freedom and statutory protection. By referring the matter to a larger bench, the SC has recognised the need for doctrinal clarity in reconciling the MSME Act with the Arbitration Act and the decision is a step in the right direction. The larger bench’s decision will be pivotal in determining the future trajectory of statutory dispute resolution mechanisms vis-à-vis contractual autonomy, with profound implications for businesses and small enterprises alike.
Strictly speaking, the parties ought to and should adhere to alternative statutory remedies available. However, mere existence of a statutory remedy does not and must not affect the jurisdiction of a High Court to issue a writ and thus, writs should be exercisable and encouraged in instances where the statutory remedies available are either onerous or inefficient. It will, therefore, be interesting to see how the Hon’ble SC answers the questions raised, while balancing contractual freedom with the protective objectives of the MSME Act. The Act aims to facilitate the promotion and development of micro, small and medium enterprises, while upholding fairness, promoting economic stability and aligning with the legislative intent.
For further information, please contact:
Vikash Kumar Jha, Partner, Cyril Amarchand Mangaldas
vikashkumar.jha@cyrilshroff.com
[1] Bench comprising the CJI Sanjiv Khanna, Justice Sanjay Kumar and Justice Manmohan
[2] M/s Tamil Nadu Cements Corporate Limited v. Micro and Small Enterprises Facilitation Council and Another 2025 INSC 91
[3] Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan & Ors (2021) 19 SCC 206.
[4] Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (2023) 6 SCC 401
[5] M/s India Glycols Limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal – Malkajgiri and Ors. 2023 SCC OnLine SC 1852
[6] Harbanslal Sahnia and Anr. v. Indian Oil Corporation and Others (2003) 2 SCC 107
[7] Himmatlal Harilal Mehta v. State of Madhya Pradesh and Ors. (1954) 1 SCC 405
[8] Shyam Kishore and Ors. v. Municipal Corporation of Delhi and Anr. (1993) 1 SCC 22
[9] Govind Parameswar Nair and Ors. v. Municipal Corporation of Greater Bombay and Ors (2001) 9 SCC 166
[10] Tecnimont Private Limited v. State of Punjab and Ors. (2021) 12 SCC 477
