LI Network
Published on: February 4, 2024 at 21:43 IST
In a recent ruling, the Allahabad High Court has clarified the proper legal recourse for challenging an arbitral award made under Section 18 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act).
The Court emphasized that such challenges should be pursued in accordance with the provisions of Section 19 of the MSMED Act, read in conjunction with Section 34 of the Arbitration and Conciliation Act, 1996.
Section 19 of the MSMED Act stipulates that any application seeking to set aside a decree, award, or other orders issued by the Council or any institution providing alternate dispute resolution services under the MSMED Act shall not be entertained by any court unless the appellant deposits 75% of the decretal amount.
The case in question involved a contractual dispute between a petitioner and a respondent company, both registered under the MSMED Act. After failed attempts at conciliation, the matter was referred for arbitration in accordance with Section 18 of the MSMED Act.
The petitioner participated in the arbitration proceedings, raising objections to the claims made by the respondent. However, due to COVID-19-related restrictions, the petitioner could not continue its participation, and an award was subsequently passed on March 23, 2021. The petitioner became aware of the award only when recovery proceedings were initiated against it in November 2022, prompting the filing of a writ petition challenging the arbitral award.
During the proceedings, respondents’ counsel argued against the maintainability of the writ petition, citing the alternate remedy provided under Section 19 of the MSMED Act for challenging the award.
It was contended that the arbitral award should be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. Additionally, it was asserted that the dispute between the parties was of a private nature and therefore not within the writ jurisdiction of the High Court.
The Court referred to the Supreme Court’s decision in Bhaven Construction Vs. Sardar Sarovar Narmada Nigam Ltd, emphasizing that judicial interference should be exercised sparingly, especially when an alternative statutory remedy exists.
The Allahabad High Court observed that the petitioner had a remedy under Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 19 of the MSMED Act, to address all grievances raised in the writ petition.
Highlighting the importance of timely challenges, the Court noted that Section 36 of the Arbitration and Conciliation Act, 1996, requires awards to be challenged within a specified time frame. As the mandatory time period had lapsed, the Court dismissed the petition, reiterating that no writ petition is maintainable against an arbitral award in disputes between private parties.
The case in question is titled ‘M/S Sahbhav Engineering Ltd. Ahmedabad Thru. Authorised Representative Mr. Pramod Dave v. U.P. State Micro Small And Medium Enterprises Facilitation Council, Kanpur Thru. Chairman And Others [WRIT – C No. – 3774 of 2023].’ “