Supreme Court Refers Key Questions on Writ Jurisdiction Over MSEFC Orders Under MSMED Act to Larger Bench

 The Supreme Court of India, in a pivotal ruling delivered by Chief Justice Sanjiv Khanna alongside Justice Sanjay Kumar and Justice Manmohan, has referred critical questions concerning the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, to a larger bench. This decision arose from the case of Tamil Nadu Cements Corporation Limited (TANCEM) vs. Micro and Small Enterprises Facilitation Council and Another (Civil Appeal arising from SLP(C) Diary No. 3776 of 2023).

Background of the Case

TANCEM, a government-owned entity, challenged an arbitral award issued by the Micro and Small Enterprises Facilitation Council (MSEFC) in favor of M/s Unicon Engineers. The dispute originated from delays and alleged substandard performance in the execution of a Rs. 7.5 crore contract for Electrostatic Precipitators (ESP) at TANCEM’s Ariyalur Cement Works. After failed conciliation efforts, the MSEFC awarded significant sums with compounded interest to M/s Unicon Engineers, invoking Sections 15 and 16 of the MSMED Act.

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TANCEM contended that the MSEFC had exceeded its jurisdiction and subsequently filed multiple legal challenges, including a writ petition under Article 226 of the Constitution, which eventually reached the Supreme Court.

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Key Legal Issues

The Supreme Court identified three principal questions warranting consideration by a larger bench:

1. Maintainability of Writ Jurisdiction: Whether writ petitions under Article 226 can challenge orders or awards by the MSEFC, despite statutory remedies under the Arbitration and Conciliation Act, 1996 (A&C Act) and MSMED Act.

2. Scope of Alternative Remedies: Under what circumstances the existence of alternative statutory remedies would not bar writ jurisdiction.

3. Dual Roles of MSEFC Members: Whether members who conduct conciliation proceedings can later act as arbitrators under Section 18 of the MSMED Act, given the restrictions in Section 80 of the A&C Act.

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Court’s Observations

Highlighting the plenary nature of writ jurisdiction, the court emphasized its role as a constitutional safeguard:  

“The access to High Courts by way of a writ petition under Article 226 of the Constitution is not just a constitutional right but also a part of the basic structure.”  

The bench acknowledged the tension between the MSMED Act and the A&C Act. It noted the rigid preconditions for appeal under Section 19 of the MSMED Act, which mandates a 75% pre-deposit of the award amount by the appellant, a requirement often criticized as onerous.

Decision and Referral

Given the conflicting precedents, such as Jharkhand Urja Vikas Nigam Limited vs. State of Rajasthan and M/s India Glycols Limited vs. MSEFC, the court opted for clarity through a larger bench. This referral underscores the need for consistency in interpreting statutory arbitration mechanisms and constitutional remedies.

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Key Takeaways

1. Judicial Access: The judgment reinforces the principle that statutory remedies, while ordinarily preferred, do not completely preclude writ jurisdiction in cases involving fairness, equity, or jurisdictional challenges.

2. Procedural Duality: The case raises fundamental questions about the procedural integrity of MSEFC proceedings, particularly the appropriateness of members transitioning from conciliators to arbitrators.

Lawyers and Representation

The appellant, TANCEM, was represented by Senior Counsel Deepak Guglani. The respondents, MSEFC and M/s Unicon Engineers, were represented by a team led by Advocate Priyanka Mehta.

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