The Limits of Writ Jurisdiction in MSMED Disputes: A Case for Judicial Restraint
Introduction
The Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) establishes a clear, time bound and self contained mechanism for resolving delayed payment claims of micro and small suppliers. The Sections 15 to 17 of the MSMED Act imposes strict payment obligations and heavy interest, while Section 18 of the MSMED Act creates a streamlined two stage process of conciliation followed by statutory arbitration before the Micro and Small Enterprises Facilitation Council (“MSEFC”), overriding contractual mechanisms where necessary. The Supreme Court has affirmed that the statutory mechanism under the MSMED Act prevails over the Arbitration and Conciliation Act, 1996 (“A&C Act”) and over inconsistent contractual arbitration clauses to preserve the integrity of this special scheme.[1]
The Two-Stage Mechanism Before the MSEFC
The two-stage mechanism of the MSEFC looks as follows:
(a) Reference to MSEFC for the resolution of the dispute;
(b) The MSEFC sends a notice to the buyer to appear before them calling for their response to the dispute;
(c) Section 18(2) of the MSMED Act mandates that the MSEFC must first attempt to resolve the dispute through conciliation;
(d) If conciliation is successful, a settlement agreement is reached and recorded. This settlement is binding on both parties as a decree;
(e) Upon failure of conciliation, the MSEFC proceeds to act as an arbitrator;
(f) At the conclusion of the arbitration proceedings, the MSEFC passes an arbitral award. The award determines the amount payable by the buyer to the supplier;
(g) The only remedy available to an aggrieved party by the MSEFC award is to file an application under Section 34 of the A&C Act. Here, section 19 of the MSMED Act requires a buyer challenging an MSEFC award to deposit 75% of the award amount before an application under Section 34 of the A&C Act (“Section 34 Application”) is entertained;
(h) If no Section 34 Application is filed within the limitation period (three months from the date of receipt of the award), or if the Section 34 Application is dismissed, the award becomes final and executable. The award-holder can execute the award as a decree.
Despite this integrated framework, High Courts are routinely approached under Article 226 of the Constitution to challenge orders passed by MSEFCs. While the existence of constitutional review power is unquestioned, the central issue is structural: does entertaining such writ petitions undermine the statutory scheme? The Supreme Court’s reference in Tamil Nadu Cements Corporation Ltd v Micro and Small Enterprises Facilitation Council[2] recognises the conflict in precedent and frames the issue not just as one of maintainability, but of structural compatibility between writ jurisdiction and the MSME dispute resolution framework.
The Statutory Architecture
Section 18 of the MSMED Act requires the MSEFC first to undertake a genuine attempt at conciliation before arbitration can commence. In Jharkhand Urja Vikas Nigam Ltd v State of Rajasthan,[3] it was held that an “award” rendered by the MSEFC without properly recording the failure of conciliation and without following the statutory sequence is not an arbitral award in the eye of the law, underscoring that adherence to the conciliation to arbitration sequence is jurisdictional and not a mere procedural formality.[4]
Courts have also recognised that the MSMED Act contains multiple non-obstante clauses that confer an overriding effect on its provisions vis-à-vis other laws. In Gujarat State Civil Supplies Corporation Ltd v Mahakali Foods Pvt Ltd (Unit 2), the Supreme Court clarified that once a supplier invokes Section 18 of the MSMED Act, the Councils may act first as conciliator and, upon failure of conciliation, as arbitrator, notwithstanding the prohibition contained in Section 80 of the A&C Act, and remain competent to rule on their own jurisdiction under Section 16 of the A&C Act. The judgment emphasises that the statutory process under the MSMED Act is a special, self-contained mechanism that overrides private contractual arrangements and the general provisions of the A&C Act where the two conflict.[5]
However, the Act’s goal is a tightly contained, single forum adjudicatory chain ending in a narrowly defined post award challenge. Allowing writ petitions at post-award stages disturbs this chain and introduces judicial scrutiny where the Act intends relative autonomy.
The MSMED Framework and Writ Intervention
High Courts have consistently emphasised that jurisdiction under Article 226 is discretionary, not appellate. In arbitration contexts generally, and MSME matters specifically, writ proceedings tend to frustrate statutory timelines. Writ jurisdiction is open ended and often accompanied by interim reliefs, while the MSMED Act depends on uninterrupted progression from conciliation to arbitration. Although the A&C Act allows very limited intervention,[6] the MSMED mechanism demands even greater restraint because conciliation and arbitration are part of a single statutory continuum, not independent stages.
This contrast in judicial approach becomes stark when one compares the treatment of arbitration under the A&C Act with that under the MSMED Act. The A&C courts have repeatedly demonstrated considerable restraint, intervening only within narrowly circumscribed parameters, i.e., patent lack of inherent jurisdiction, fraud vitiating consent, or errors going to the root of the matter. The principle of minimum judicial intervention was established in ONGC v Saw Pipes[7] and consistently reiterated in subsequent decisions, ensuring that ordinary commercial arbitrations proceed unimpeded by parallel writ proceedings.
By contrast, writ petitions challenging MSEFC orders are routinely entertained by High Courts, often without insistence on compliance with Section 19's pre-deposit requirement. It becomes doctrinally difficult to justify that, if the A&C Act, which contemplates court intervention at defined stages (occasionally under Sections 8, 9, 11, 34, 37) and then nonetheless demands strict writ restraint, then the MSMED Act, which intentionally excludes such staged intervention and provides only a single post-award remedy under Section 34, is logically expected to attract even stricter judicial discipline. However, practice reveals the opposite, where MSMED disputes encounter frequent writ intervention precisely where legislative design calls for institutional autonomy.
Several High Courts articulated this position. For instance, the Jharkhand High Court in Gannon Dunkerley & Co. Ltd v MSEFC[8] held that permitting a writ to bypass the statutory structure would defeat the purpose of the MSMED Act. Even the Himachal Pradesh High Court,[9] similarly rejected attempts to sidestep Section 19’s requirements by invoking Article 226. These decisions show a broader judicial understanding that the statutory scheme must remain intact for the MSMED Act to function effectively.
The Central Role of Section 19 and the Problem of Bypassing It
Section 19 of the MSMED Act requires a buyer challenging an MSEFC award to deposit 75% of the award amount before a Section 34 Application is entertained. The Supreme Court has time and again[10] reaffirmed that this pre deposit is not procedural but a mandatory legislative choice. Relying on Goodyear (India) Ltd v Norton Intech Rubbers,[11] the Supreme Court emphasised that such provisions reflect economic policy and cannot be diluted by reading them as directory in nature.
If writ petitions are entertained at the post award stage without insisting on the statutory deposit, then parties effectively obtain a cost free route to challenge awards. This ‘zero deposit window’ allows parties to secure interim reliefs or stays, therefore, avoiding the financial discipline that the Parliament had intended to impose. The statutory purpose of ensuring partial liquidity or security for MSMEs during an award challenge is thus neutralised. Courts have repeatedly cautioned that statutory safeguards must not be rendered otiose by parallel judicial pathways.[12] Several High Court decisions, including Divakar Kumar Singh v Jharkhand MSEFC[13] reflect this reasoning in their refusal to entertain writs, insisting that the use of Section 34 Application route remains available.
Why Exception Based Writ Intervention Remains Problematic
Courts often maintain that writ petitions may still be entertained in ‘exceptional circumstances’, such as lack of jurisdiction or gross violations of natural justice. However, in Bhaven Construction v Executive Engineer, Sardar Sarovar Narmada Nigam Ltd,[14] the Supreme Court noted that constitutional remedies under Articles 226 and 227 should not circumvent the carefully structured statutory mechanism under the A&C Act. Interference with arbitral proceedings or orders should be rare, reserved for genuinely exceptional cases where no effective alternative remedy exists. The Court cautioned that routinely entertaining writ petitions would undermine the principle of minimal judicial interference that is central to modern arbitration law.
This phenomenon is especially acute in MSME disputes, where almost every disagreement is framed as a procedural defect in conciliation or arbitration. High Courts that have followed the reasoning of the Apex Court in M/s India Glycols Ltd v MSEFC, Medchal–Malkajgiri have recognised this risk and refused to treat such allegations as sufficient to depart from the statutory pathway, maintaining the primacy of Section 34 of A&C Act.[15]
Conclusion
Therefore, the Constitutional Bench reference in T.N. Cements acknowledges the importance of clarity in this area but does not overturn existing precedent. Until such clarification, Courts are bound by the precedent established by the Apex Court, which upholds that writ petitions against MSEFC orders are not maintainable when the Act provides an alternative remedy.
More broadly put, the MSMED Act is a deliberate policy choice to provide MSMEs a speedy, insulated, and predictable mechanism for recovering delayed payments. Writ intervention, though constitutionally permissible in theory, is structurally incompatible with this design in practice. Allowing such interventions disrupts the statutory sequence of conciliation and arbitration, compromises the deterrent force of Section 19 of the MSMED Act, and weakens the institutional authority of the MSEFC. Until the Constitution Bench settles the issue in T.N. Cements, the current understanding is that non-intervention in favour of the statutory remedies under the MSMED Act and the A&C Act is not just prudent but required by prevailing Supreme Court and High Court precedents.
References
[1] M/s Silpi Industries etc. v Kerala State Road Transport Corporation & Anr., 2021 SCC OnLine SC 439.
[2] 2025 INSC 91.
[3] Jharkhand Urja Vikas Nigam Ltd v State of Rajasthan, Civil Appeal No 2899 of 2021.
[4] Tamil Nadu Cements Corporation Ltd v Micro and Small Enterprises Facilitation Council, 2025 INSC 91.
[5] 2022 SCC OnLine SC 1492.
[6] Bhaven Construction v Executive Engineer, Sardar Sarovar Narmada Nigam Ltd & Anr., (2022) 1 SCC 75.
[7] AIR 2003 SC 2629.
[8] Gannon Dunkerley & Co. Ltd v State of Jharkhand & Anr. (Jharkhand MSEFC), 2019 SCC OnLine Jhar 1020.
[9] Kohinoor Foods Ltd v H.P. Micro and Small Enterprises Facilitation Council & Ors., 2022 SCC OnLine HP 2597.
[10] Tirupati Steels v Shubh Industrial Components, (2022) 7 SCC 429.
[11] (2012) 6 SCC 345.
[12] Kanaiyalal Lalchand and Sachdev and others vs. State of Maharashtra and others, (2011) 2 SCC 782.
[13] Divakar Kumar Singh v Jharkhand MSEFC, W.P.(C) No. 923 of 2023.
[14] (2022) 1 SCC 75.
[15] 2024 SCC OnLine Tel 1234.