Access to Writ Jurisdiction Under Article 226 is Not an Absolute Bar Against MSEFC Awards: Supreme Court Refers Key Questions on Writ Jurisdiction to Larger Bench

Supreme Court referred significant legal questions to a five-judge Constitution Bench. The judgment, authored by Chief Justice Sanjiv Khanna and supported by Justice Sanjay Kumar and Justice Manmohan, addressed the interplay between the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) and Article 226 of the Constitution of India, with specific focus on whether writ jurisdiction can be invoked to challenge orders or awards passed by the Micro and Small Enterprises Facilitation Council (MSEFC) under Section 18 of the MSMED Act.

The Court emphasized that “the power under Article 226 to issue writs is plenary and cannot be restricted by statute. However, such power is discretionary and ordinarily not exercised when an alternative statutory remedy is available, unless exceptional circumstances are demonstrated.”

The Core Question: Maintainability of Writ Petitions Against MSEFC Awards

The key legal issue before the Court was whether a writ petition under Article 226 of the Constitution can be maintained to challenge MSEFC orders, or whether the remedies under the MSMED Act, particularly Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) (challenging arbitral awards), preclude such writ petitions. The Court referred to its earlier rulings, noting conflicting precedents.

In its analysis, the Court observed that “the rule of alternative remedies is a principle of judicial self-restraint, not an exclusionary rule of law. While High Courts ordinarily insist on exhaustion of statutory remedies, there are well-recognized exceptions where writ jurisdiction can be invoked, including violations of natural justice, lack of jurisdiction, or a challenge to the vires of legislation.”

Referring to Radha Krishan Industries v. State of Himachal Pradesh (2021), the Court reiterated that:

“The existence of an alternative remedy does not oust the jurisdiction of the High Court under Article 226. However, such jurisdiction is sparingly exercised to avoid undermining statutory frameworks unless the case falls into exceptional categories.”

"Exceptional Circumstances Justifying Writ Jurisdiction"

The Court identified three key scenarios where writ jurisdiction can be exercised despite the existence of alternative remedies:

Violation of Natural Justice: The Court emphasized that if a party is denied the opportunity of a fair hearing, writ jurisdiction may be invoked.

Orders Without Jurisdiction: If the MSEFC acts beyond its statutory authority, such orders can be challenged under Article 226.

Challenge to the Vires of Legislation: The Court noted that constitutional challenges to statutory provisions remain within the exclusive purview of the High Courts and the Supreme Court.

The Court quoted Harbanslal Sahnia v. Indian Oil Corporation (2003) to emphasize that “the rule of exclusion of writ jurisdiction is a rule of discretion, not compulsion, and where statutory remedies are onerous, alternative remedies may not suffice.”

"Statutory Arbitration Under MSMED Act and its Unique Features"

The judgment highlighted the unique framework under Section 18 of the MSMED Act, which mandates statutory arbitration for disputes involving micro and small enterprises. This provision overrides party autonomy in arbitration agreements and imposes stringent conditions, such as the requirement under Section 19 that a buyer must deposit 75% of the award amount to challenge an MSEFC award.

The Court observed, “The MSMED Act provides for a statutory scheme of arbitration that ensures expeditious resolution of disputes involving micro and small enterprises. However, the high pre-deposit requirement under Section 19 could, in certain cases, justify writ jurisdiction, particularly if it imposes unreasonable restrictions on the right to challenge an award.”

Referring to Shyam Kishore v. Municipal Corporation of Delhi (1993), the Court noted:

“The statutory right of appeal must not be rendered illusory or excessively burdensome. While pre-deposit conditions have been upheld in tax and arbitration cases, they cannot operate as an unreasonable restriction on access to justice.”

"Conflict Between MSMED Act and A&C Act"

The Court addressed a critical issue of whether the MSEFC, which acts as a conciliator under Section 18(2) of the MSMED Act, can also act as an arbitrator under Section 18(3). The conflict arises from Section 80 of the A&C Act, which explicitly prohibits conciliators from acting as arbitrators in the same dispute unless both parties agree otherwise. The Court observed:

“Section 18 of the MSMED Act provides for a statutory conciliation and arbitration framework, which overrides party autonomy under the A&C Act. However, Section 80 of the A&C Act raises concerns about the impartiality and fairness of such proceedings, especially when the same body acts as both conciliator and arbitrator.”

The Court noted that this issue had been inconsistently addressed in earlier judgments. In Gujarat State Civil Supplies Corporation v. Mahakali Foods (2023), the Court upheld the dual role of the MSEFC, while in M/s India Glycols Ltd. v. MSEFC (2022), the Court questioned the validity of such proceedings.

"Conflicting Precedents Highlight Need for Larger Bench"

The Court flagged a direct conflict between two significant judgments:

Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan (2021): This ruling permitted writ petitions against MSEFC awards, especially where procedural lapses or jurisdictional issues were evident. The Court had held that an MSEFC order could be quashed if conciliation and arbitration proceedings were improperly conflated.

M/s India Glycols Ltd. v. MSEFC (2022): In this case, the Court categorically barred writ petitions against MSEFC orders, emphasizing that the statutory remedy under Section 34 of the A&C Act, coupled with the pre-deposit requirement under Section 19 of the MSMED Act, was sufficient.

The Court stated:“The divergence in judicial opinions necessitates a comprehensive examination by a larger bench to reconcile these conflicting views and provide clarity on the maintainability of writ petitions against MSEFC orders.”

Reference to Larger Bench

The Supreme Court referred the following key questions to a five-judge Constitution Bench:

Whether writ petitions under Article 226 are completely barred against MSEFC orders/awards, as held in M/s India Glycols Ltd..

If not, under what circumstances writ jurisdiction can be exercised despite the existence of statutory remedies under the MSMED Act and A&C Act.

Whether the dual role of MSEFC as both conciliator and arbitrator under Section 18 of the MSMED Act violates the prohibition under Section 80 of the A&C Act.

The Court concluded by stating: “The balance between statutory remedies and constitutional writ jurisdiction must be struck in a manner that ensures fairness, equity, and justice. Exceptional cases may warrant judicial intervention despite the existence of alternative remedies.”

The case is now set to be heard by a five-judge bench, which will provide clarity on these significant legal issues.

Date of Decision: January 22, 2025