MSME Award Cannot Be Challenged Under Article 226 To Avoid Mandatory Pre-Deposit Under Section 19: Allahabad High Court

"Acceptance of the petitioner’s submission would result in every arbitral award being subjected to writ scrutiny on allegations of procedural irregularity, thereby rendering the statutory mechanism under Section 34 redundant, which is impermissible in law," Allahabad High Court, in a significant ruling, held that a writ petition challenging an arbitral award passed by the MSME Facilitation Council is not maintainable when a specific statutory remedy under Section 34 of the Arbitration and Conciliation Act, 1996, is available.

A bench of Justice Saral Srivastava and Justice Garima Prashad observed that the High Court should ordinarily decline to exercise writ jurisdiction where disputed questions of fact arise and an alternative remedy is provided by statute.

The petitioner, Shri Krishna Nutrition India Pvt. Ltd., challenged an ex-parte award passed by the MSME Facilitation Council, Kanpur, which directed a payment of Rs. 24,15,835/- including interest. The petitioner contended that the award was passed without due service and that the underlying claim was barred by limitation, as the last supply was made in 2017 while the reference was filed in 2020. Having already approached the Executing Court with recall applications, the petitioner moved the High Court alleging a violation of natural justice.

The primary question before the court was whether a writ petition under Article 226 of the Constitution is maintainable against an award passed under Section 18 of the MSME Act when the Arbitration Act provides a remedy. The court was also called upon to determine if issues of limitation and improper service constitute "exceptional circumstances" warranting a bypass of the statutory pre-deposit requirement under Section 19 of the MSME Act.

Issues Of Service And Limitation Are Mixed Questions Of Fact

The bench observed that the challenge raised by the petitioner essentially rested on the absence of proper service and the claim being barred by limitation. The court emphasized that these are not pure questions of law but are mixed questions of fact and law. Determination of proper service requires an examination of the mode of service, acknowledgments, and addresses, which cannot be adjudicated in writ jurisdiction.

"Where adjudication requires appreciation of evidence and determination of disputed questions of fact, such issues are required to be examined by the forum competent under the statute."

Writ Jurisdiction Cannot Be Used To Bypass Pre-Deposit Requirement

The court highlighted that proceedings under Section 18 of the MSME Act culminate in an arbitral award, for which Section 34 of the Arbitration and Conciliation Act, 1996, is the prescribed remedy. Relying on the Supreme Court’s decision in India Glycols Ltd. v. Micro and Small Enterprises Facilitation Council, the bench held that a party cannot invoke writ jurisdiction primarily to avoid the 75% pre-deposit condition mandated under Section 19 of the MSME Act.

"A party cannot bypass the statutory remedy and invoke writ jurisdiction to challenge such an award, particularly so as to avoid compliance of the requirement of pre-deposit under Section 19 of the 2006 Act."

Limited Scope Of Interference In Arbitral Matters

The High Court clarified that the scope of interference under Articles 226 and 227 in arbitral matters is extremely limited. Referring to recent precedents, the bench noted that such jurisdiction is confined to cases of patent perversity or exceptional circumstances. In the present case, the court found no manifest perversity on the face of the record, as the grievances regarding ex-parte proceedings are matters for the competent forum to decide.

"Interference under Articles 226 and 227 in arbitral matters is extremely limited and can be exercised only in cases of patent perversity or exceptional circumstances."

Distinguishing Procedural Irregularity From Jurisdictional Nullity

The petitioner had relied on Jharkhand Urja Vikas Nigam Ltd. to argue that the award was a nullity. However, the bench distinguished the case, noting that while a total failure to follow mandatory statutory procedure might render an award void, alleged improper service does not automatically render an award a nullity on its face. Such procedural grievances must be tested through the statutory mechanism provided by the legislature.

"Whether a claim is barred by limitation depends upon factual determination... the said decision does not permit bypassing of the statutory remedy under Section 34."

The court dismissed the writ petition as not maintainable, affirming that the petitioner must utilize the statutory remedies provided under the Arbitration and Conciliation Act. However, it directed the Executing Court to decide the petitioner's pending recall applications and objections expeditiously. The bench concluded that allowing a writ challenge in such instances would undermine the efficiency of the MSME Act's dispute resolution framework.

Date of Decision: 30 April 2026