Arbitral Awards Under the MSMED Act: Writ Petitions Not Maintainable

1. Introduction

In this landmark decision, Mahanagar Telephone Nigam Ltd. v. Micro and Small Enterprise Facilitation Council and Others (Delhi High Court, decided on January 8, 2025), the Court clarified the appropriate forum and legal mechanism for challenging arbitral awards issued under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The primary dispute arose when Mahanagar Telephone Nigam Ltd. (“MTNL”) sought to challenge an arbitral award granted in favor of an MSME, contending that the award extended beyond the arbitrator’s jurisdiction. MTNL did so by filing a writ petition, invoking Article 226 of the Constitution of India.

The central legal issue turns on the maintainability of writ petitions against arbitral awards passed under the MSMED Act, especially when the petitioner has recourse to established remedies via the Arbitration and Conciliation Act, 1996 (“A&C Act”). The matter also explores whether an MSME can claim amounts due for multiple invoices arising from the same work order despite having referenced only a single invoice in its formal request to the MSME Facilitation Council.

Parties to the case included MTNL as the Petitioner and the Micro and Small Enterprise Facilitation Council (the statutory body established under the MSMED Act) as well as an MSME entity (Respondent no.3). The Court ultimately offered a comprehensive examination of statutory arbitration under Section 18 of the MSMED Act and the viability of writ proceedings relating to arbitral awards.

2. Summary of the Judgment

The Delhi High Court dismissed MTNL’s writ petition, holding that Article 226 of the Constitution of India could not be invoked to set aside or modify an arbitral award passed under the MSMED Act. Instead, the Court reaffirmed that the petitioner’s exclusive remedy was a challenge under Section 34 of the A&C Act.

Central to the case was MTNL’s argument that the arbitrator had exceeded the scope of reference by entertaining claims that went beyond the single invoice initially mentioned before the MSME Facilitation Council. However, the arbitrator concluded – and the High Court agreed – that the “work order” in question gave rise to multiple invoices and that they collectively constituted the subject matter of a single dispute under the statutory arbitration framework. The Court thus recognized the arbitrator’s jurisdiction over all such claims.

Furthermore, the High Court declined to adjudicate on the merits of the arbitrator’s jurisdiction, reminding the Petitioner that it had the right to raise such jurisdictional objections under the confinement of arbitral law – specifically under Section 16 of the A&C Act, and subsequently to have any adverse award challenged under Section 34 of the same. The High Court’s dismissal effectively reinforces that statutory arbitration proceedings under the MSMED Act are governed comprehensively by the A&C Act and are not subject to interference via the writ jurisdiction, barring extraordinary circumstances.

3. Analysis

3.1 Precedents Cited

The Court's rationale references several decisions:

• India Glycols Limited and Anr. v. Micro and Small Enterprises Facilitation Council, Medchal-Malkajgiri and Ors.: This Supreme Court decision laid out that courts must not entertain writ petitions to circumvent Section 19 of the MSMED Act, particularly the deposit requirements and other conditions imposed for challenging arbitral awards under the A&C Act.
• NBCC (India) Ltd. v. Micro Small and Medium Enterprises Facilitation Council and Another: This Delhi High Court ruling confirmed that an arbitrator appointed under Section 18(3) of the MSMED Act is competent to decide questions of its own jurisdiction, consistent with Section 16 of the A&C Act.
• State Trading Corporation of India Ltd. v. Micro and Small Enterprises Facilitation Council and Another: The Court deemed objections over inherent jurisdiction to be encompassed within the scope of statutory arbitration. Challenges to jurisdiction are properly raised before and decided by the arbitrator, subject to review under Section 34 of the A&C Act.
• Executive Engineer and Others v. Bholasingh Jaiprakash Construction Ltd. and Another: This case reconfirmed the objective of the MSMED Act, which is to provide simpler and faster remedies for MSMEs encountering delayed payments. Once arbitration proceedings commence, the losing party’s recourse lies solely in Section 34 (and optionally Section 37) of the A&C Act.

3.2 Legal Reasoning

The Court’s reasoning hinged on two main prongs:

1. Scope of Jurisdiction Under MSMED Act: The Court accepted the arbitrator’s holding that referencing a single invoice at the initial stage (while registering the dispute with the MSME Council) did not necessarily foreclose other invoices arising out of the same work order. Because the entire dispute flowed from a single work order and contractual arrangement, all outstanding claims were within the arbitrator’s jurisdiction.
2. Exclusivity of Arbitration Challenge Mechanism: Emphasizing the specific statutory scheme, the Court noted that once the arbitral tribunal is constituted under Section 18 of the MSMED Act, objections to the arbitrator’s jurisdiction and allegations of overreach must be addressed through the mechanism built into the A&C Act (i.e., Section 16 for jurisdiction, followed by Section 34 for set-aside petitions). Invoking the constitutional writ jurisdiction under Article 226 or 227 ordinarily will not be entertained, particularly if done to circumvent the procedure (including deposit requirements) for challenging an MSMED-based arbitral award.

3.3 Impact

This Judgment clarifies that:

• Parties aggrieved by an arbitral award under the MSMED Act cannot proceed directly under Article 226 of the Constitution. Instead, they must follow the remedies prescribed under the A&C Act.
• MSMEs and micro-enterprises can group multiple invoices under a single work order in a single arbitration reference if these invoices pertain to the same underlying transaction or contract.
• Jurisdictional controversies, especially those questioning whether an arbitrator exceeded the scope of reference, must be raised before the arbitrator under Section 16 of the A&C Act; any adverse findings can be challenged in a set-aside proceeding under Section 34.
• The MSMED Act’s primary goal—to ensure prompt and efficient dispute resolution in favor of micro and small enterprises—remains paramount, reinforcing the autonomy and finality of statutory arbitration procedures.

4. Complex Concepts Simplified

MSMED Act: This Act provides a mechanism for micro, small, and medium enterprises to recover payments from buyers who default or delay payment. The Act establishes dedicated Facilitation Councils for conciliation, and failing that, arbitration.

Arbitral Reference under Section 18(3): Once conciliation efforts fail, the MSME Facilitation Council automatically refers the dispute to arbitration. The result is an arbitral award that has the same legal status as that of any other arbitrated award under the A&C Act.

Section 34 of the A&C Act: This provision allows parties to challenge an arbitral award (on limited grounds such as lack of jurisdiction, procedural irregularity, violation of public policy, etc.) before the competent court.

Writ Petition under Article 226: A constitutional remedy for the enforcement of fundamental rights or other legal rights. However, in commercial or contractual matters where an avenue of appeal or challenge through specialized legislation (such as the A&C Act) is available, the High Court will generally direct parties to follow that statutory recourse.

5. Conclusion

The High Court’s decision in Mahanagar Telephone Nigam Ltd. v. Micro and Small Enterprise Facilitation Council and Others reaffirms the principle that statutory arbitration proceedings conducted under Section 18 of the MSMED Act are subject to the challenge provisions under the Arbitration and Conciliation Act, 1996—rendering writ jurisdiction virtually untenable in this context. This ruling underscores the robust policy favoring arbitration as the primary mode of dispute resolution for MSMEs and highlights that a party disputing an arbitral award must adhere to the rigor of Section 34 challenges.

In practical terms, it cements the comprehensive nature of MSMED Act arbitration, confirming that all claims tied to a single work order will be heard in one forum, even if only a single invoice is initially referenced during conciliation or online registration. The case demonstrates the judiciary’s inclination to streamline the dispute-resolution process for MSMEs, reducing the risk of protracted litigation in multiple fora and ensuring that challenges to arbitral awards unfold in accordance with the well-established procedures of the A&C Act.

Ultimately, this decision is significant for both MSMEs and larger contracting parties: MSMEs receive reaffirmation that they have a single unified forum for all outstanding invoices under a single contract, and larger entities are reminded that their recourse against an arbitral award is constrained to the statutory mechanisms specified in the A&C Act.