Article

The Hon’ble Supreme Court, in a recent judgment in Tamil Nadu Cements Corporation vs. Micro and Small Enterprises Facilitation Council [(2025) 4 SCC 1], held that writ petition under Article 226 of the Constitution is maintainable against an order of the Micro and Small Enterprises Facilitation Council (hereinafter referred to as “MSEFC“) passed under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act“), where such order is passed contrary to the statutory procedure, or amounts to a nullity and is therefore, without jurisdiction. It was further held that the remedy under section 34 to challenge the award under the MSMED does not bar the exercise of writ jurisdiction in exceptional cases.

The appellant, Tamil Nadu Cements Corporation Limited (“Appellant“), invited tenders for the design, supply, erection, and commissioning of Electrostatic Precipitators for Cement Works. The contract was awarded to M/s Unicon Engineers. However, M/s Unicon Engineers failed to complete the project within time. Appellant issued several warning letters about poor performance and substandard work. M/s Unicon Engineers filed a petition under Section 18 of the MSMED before the MSEFC, claiming Rs. 2.66 crores with interest. MSEFC, on hearing the parties, held that conciliation had failed and while placing reliance on Sections 15 and 16 of the MSMED Act, directed the Appellant to pay Rs. 39.66 lakhs as balance retention money and Rs. 1.57 crores towards additional expenditures with interest.

The Appellant challenged the order before the High Court of Madras under Section 33 and Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act“), and also filed a writ petition challenging the vires of Sections 16 to 19 of the MSMED Act. The High Court dismissed the petition od Appellant for two reasons, firstly, for being time-barred and secondly, for not complying the statutory requirement of the mandatory 75% pre-deposit under Section 19 of the MSMED Act. The petition under section 37 of the 1996 Act and writ petitions filed by Appellant were also dismissed on the ground that the Appellant had exhausted all remedies. Appellant approached the Hon’ble Supreme Court challenging the dismissal of writ petitions against MSEFC orders.

The issue was whether a writ petition under Article 226 is maintainable against orders of the MSEFC passed under Section 18 of the MSMED Act, and if so, under what circumstances.

The Hon’ble Supreme Court placed its reliance on Jharkhand Urja Vikas Nigam Ltd. vs. State of Rajasthan [(2021) 19 SCC 206]. In Jharkhand Urja Vikas Nigam Ltd. , it was held that conciliation and arbitration under Section 18(2) and (3) are distinct stages. In the event conciliation fails, the MSEFC must formally initiate arbitration under the 1996 Act. If an order passed without following due process, a writ petition is maintainable even bypassing Section 34 proceedings.

The Court also referred the judgments in Gujarat State Civil Supplies Corporation Ltd. vs. Mahakali Foods Pvt. Ltd. [(2023) 6 SCC 401] and India Glycols Ltd. vs. MSEFC [2023 SCC OnLine SC 1852], wherein it was held that the MSMED Act, being a special statute with overriding non-obstante clauses, prevailed over the 1996 Act and the MSEFC could therefore act as arbitrator after failed conciliation, and its orders could be challenged only under Section 34 of the 1996 Act and that writ petitions are not maintainable against MSEFC orders due to existence of a statutory remedy under Section 34. The Supreme Court observed that there is a direct conflict between Jharkhand Urja and Gujarat State Civil Supplies, and expressed reservations about India Glycols, which excludes the writ remedy even where the MSEFC’s order is passed without jurisdiction or contrary to the statutory procedure. The Court noted that Section 18 of the MSMED Act contemplates mandatory conciliation and thereafter arbitration “as if” an arbitration agreement existed, but it does not empower the MSEFC to collapse the two processes or issue directions akin to an award without proper arbitral proceedings. The Supreme Court held that writ jurisdiction under Article 226 may still be invoked where the MSEFC acts in excess of jurisdiction, in violation of natural justice, or where the order is a nullity.