Allahabad High Court Dismisses Writ Petition Challenging Facilitation Council Award Due To Absence Of Required Pre-Deposit Under Section 19 Of MSME Act

Allahabad High Court Dismisses Writ Petition Challenging Facilitation Council Award Due To Absence Of Required Pre-Deposit Under Section 19 Of MSME Act

The Allahabad High Court dismissed a writ petition challenging an award issued by the Zonal Micro and Small Enterprises Facilitation Council (MSEFC), Meerut Zone, Meerut, under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006. The petitioners, Tamil Nadu Generation And Distribution Corporation Limited and others, had failed to make the mandatory pre-deposit under Section 19 of the MSME Act.

Despite acknowledging the violation of principles of natural justice, the Court stated that such violation does not preclude the Court from directing the parties to seek an alternative remedy available under Section 34 of the Arbitration and Conciliation Act, 1996.

Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, allows parties to approach the Facilitation Council in case of disputes regarding amounts owed.

Sub-section (3) of Section 18 states that if conciliation efforts fail, the Council may either arbitrate the dispute itself or refer it to arbitration institutions. It further specifies that such arbitration shall adhere to the provisions of the Arbitration and Conciliation Act, 1996, if the arbitration agreement complies with Section 7(1) of the Act of 1996.

Section 19 of the MSME Act mandates a deposit of 75% of the decretal amount for applications seeking to set aside the decree/award.

According to the petitioners, including the Tamil Nadu Generation and Distribution Corporation Limited, Respondent no.3, a registered Firm, engaged them for executing a tender. However, after the purchase order was issued, the Firm failed to deliver the goods. Upon the Corporation's notification of the default, the Firm sought recourse by approaching the Zonal Micro and Small Enterprises Facilitation Council (MSEFC), Meerut Zone, Meerut, under Section 18 of the MSME Act.

The Facilitation Council awarded a total sum of ₹.1,49,48,762/- in favor of the Firm. In response, the Petitioner-Corporation petitioned the High Court under Article 226 of the Constitution of India.

The Firm contested the maintainability of a writ petition against the award issued by the Facilitation Council under Section 18 of the MSME Act, citing the remedy of appeal under Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 18(3) of the MSME Act, 2006.

Counsel for the Petitioner-Corporation argued that the writ petition was maintainable due to the ex-parte nature of the award, which violated principles of natural justice. It was contended that the video link for the last hearing day was sent to the Corporation's head office despite requests to send it to the counsel directly.

Additionally, the petitioner's counsel argued that as a government entity, the Petitioner-Corporation could be exempted from the 75% pre-deposit requirement. The Court noted that although it had suggested a 75% pre-deposit before proceeding with the arguments on merit, the counsel for the Corporation declined to comply.

The Court determined that under Section 18(3) of the MSME Act, the provisions of the Arbitration Act are applicable if disputes under the MSME Act are referred to arbitration, and the arbitration agreement aligns with Section 7(1) of the 1996 Act. Consequently, the Court affirmed that the petitioner has the option to raise objections under Section 34 of the Arbitration Act.

Additionally, the Court emphasized that the requirement for challenging the award by the Council explicitly mandates a 75% pre-deposit. Thus, the Court ruled that to pursue relief under Section 34 of the 1996 Act, the petitioner must fulfill the mandatory pre-deposit of 75% of the awarded amount.

Referring to the decision in M/s India Clycols Limited and another Vs. Micro and Small Enterprises Facilitation Council, Medchal - Malkajgiri and others, the Court reiterated that High Courts cannot be approached under Article 226/227 of the Constitution to circumvent the statutory prerequisite of a 75% pre-deposit.

While acknowledging the violation of principles of natural justice, the Court expressed willingness to entertain the petition if the petitioner-corporation had consented to depositing 75% of the amount awarded by the Facilitation Council.

The bench, consisting of Justice Manoj Kumar Gupta and Justice Kshitij Shailendra, emphasized, "We recognize this despite knowing that the breach of natural justice doesn't invariably preclude alternative recourse. If the petitioners had consented to deposit 75% of the amount as per the contested award in this Court, we would have entertained the writ petition without redirecting them to the alternative remedy under Section 34 of the 1996 Act."

Consequently, the writ petition contesting the Facilitation Council's award was dismissed.