Introduction
It is a trite position in law that writ petitions before High Court and Supreme Court are not maintainable in cases where an alternative and efficacious remedy exists.1 A similar judicial consideration is required wherein the Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 ("MSMED Act") passes an Arbitral Award under the procedure laid down therein and the same is under-challenge by way of a writ petition before the concerned High Court. In light of the aforesaid, several rulings in favour of the maintainability of writ petitions even though an alternative remedy of challenging the Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") exists. Following the above, the present article attempts to analyse the recent ruling in the M/s Srirasthu Shopping Mall v. Micro and Small Enterprises & Ors.2 by the Hon'ble High Court of Telangana wherein the writ petition against the Award passed by the Facilitation Council was held maintainable considering the facts of the case.
Relevant Provisions governing the proceedings under the MSMED Act, 2006 and Arbitration Act, 1996
Chapter V of the MSMED Act, 2006 (Section 15 to 25) provides for provisions about 'Delayed payments to Micro and Small Enterprises'. It provides that a reference3 can be made to the Micro and Small Enterprises Facilitation Council ("Council") in relation to any dispute arising out of goods supplied or services rendered by the 'supplier' and the buyer fails to pay the unpaid amount.4 Wherein a reference has been made in terms of Section 18(1) of the MSMED Act, 2006, the Council shall first attempt to resolve the dispute through conciliation5 and only where the conciliation fails and stands terminated without any settlement between the parties, the Council shall proceed for Arbitration either by itself or through any institution or centre provided Alternative Dispute Resolution services.6 Pertinently, such a reference is deemed to be a reference in terms of Section 7(1) of the Arbitration Act, 1996.7
Part III of the Arbitration Act, 1996 (Sections 61 to 81) stipulates the provisions governing Conciliation proceedings. Section 76 of the Arbitration Act lays down the modes for termination of conciliation proceedings. It can be done either by signing a settlement agreement by the parties, a written declaration by Conciliator that further efforts are not justified, written declaration by either or both parties stating the proceedings to have been terminated. Therefore, on a conjunctive reading of the relevant provisions of the MSMED Act, 2006 and the Arbitration Act, 1996 clarifies that even the Conciliation proceedings under the MSME Council stands terminated by any mode provided under Section 76 of the Arbitration Act, 1996.
Analysis of Srirasthu Shopping Mall v. Micro and Small Enterprises & Ors.
In the given case, an entity (herein, Respondent) being registered with the Ministry of Micro, Small and Medium Enterprises on 10.03.2021 supplied goods to the Shopping Mall (herein, Petitioner) for orders placed during 2019-20 and raised invoices, accordingly. Having received the goods, the Petitioner failed to clear the dues. Accordingly, a reference was made to the Council under MSMED Act, 2006.
Pursuant to the reference, the Council passed an Award dated 30.04.2022 holding the petitioner to pay the principal amount and interest with effect from the appointed day.
Aggrieved by the said Award, the petitioner filed a writ petition before the High Court of Telangana under Article 226 of the Constitution of India on the grounds that (a) That the Council did not follow the procedure laid down under Section 18(2) and 18(3) of the MSMED Act, 2006 and Section 65 to 81 of the Arbitration Act, 1996 and, (b) That the Respondent was not a 'supplier' in terms of Section 2(n) of the MSMED Act, 2006 as on the date when it entered into contract with the Petitioner for the present supply of goods.
On the other hand, the Respondent primarily contested the writ petition on the premise that the present petition was not maintainable in view of the availability of an alternative and efficacious remedy under Section 34 of the Arbitration Act, 1996.
On the aspect of maintainability, the High Court with reference to the judgements passed by the Hon'ble Supreme Court in Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd.8 and Punjab State Power Corporation Ltd. v. Emta Coal Ltd.9 and recent judgement by the Hon'ble High Court of Delhi in Surender Kumar Singhal & Ors. v. Arun Kumar Bhalotia & Ors.10 held that if the mandatory procedure laid down under Sections 18(2) and 18 (3) of the MSMED Act, 2006 and Section 65 to 81 of the Arbitration Act, 1996 is not followed by the Council while adjudicating the subject reference filed by any party and if there is any violation of the said procedure, the High Court can interfere with the Award by invoking its inherent jurisdiction under Article 226 of the Constitution of India.
Following the above, the issue framed in the present case was if there existed any violation of mandatory procedure laid down under Sections 18(2) and 18(3) of the MSMED Act, 2006 and Sections 65 to 81 of the Arbitration Act, 1996 by the Council while passing an impugned award. The High Court observed that there was no mention in the impugned award that the Council followed the procedure laid down under Sections 65 to 81 of the Arbitration Act, 1996, especially, Section 76, i.e. Termination of Conciliation proceedings. Thus, it held that there was no compliance of the procedure laid down under Section 76 of the Arbitration Act, 1996 and hence, a violation of mandatory procedure provided under Section 18(2) of the MSMED Act, 2006.
As regards the second issue on the concept of 'supplier' and its applicability, the High Court followed the recent Apex Court ruling in Gujarat State Civil Supplies Corporation v. Mahakali Foods Pvt. Ltd. (Unit 2)11 and held that registration of the Respondent will operate prospectively but not retrospectively. Thus, the Respondent cannot submit a reference in terms of Section 18 (l) of the MSMED Act, 2006 for the supplies made before registration.
Therefore, in view of the contravention of the provisions under both the MSMED Act, 2006 and the Arbitration Act, 1996, the High Court held the present writ petition maintainable and accordingly, the impugned award was set aside.
Footnotes
1. Radha Krishan Industries v. State of Himachal Pradesh, (2021) 6 SCC 771
2. W.P. No. 38797 of 2022 filed before the High Court of Telangana
3. Section 18(1) of Micro, Small and Medium Enterprises Development Act, 2006
4. Section 17 of Micro, Small and Medium Enterprises Development Act, 2006; Section 2(n) of Micro, Small and Medium Enterprises Development Act, 2006
5. Section 18(2) of Micro, Small and Medium Enterprises Development Act, 2006
6. Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006
7. Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006
8. (2019) SCC Online SC 1602
9. SLP(C) No. 8482/2020 filed before the Supreme Court of India
10. CM(M) 1272/2019 filed before the High Court of Delhi
11. 2022 SCC Online SC 1492
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