Revisiting Writ Jurisdiction under the MSMED Act: A New Guideline for Challenging MSEFC Orders

Introduction

The Supreme Court of India’s judgment in M/S TAMIL NADU CEMENTS CORPORATION LTD v. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL (2025 INSC 91) addresses critical legal and procedural issues surrounding disputes resolved through the Micro and Small Enterprises Facilitation Council (MSEFC) under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

The principal question concerns whether, and under what circumstances, a writ petition under Article 226 of the Constitution can be entertained against orders passed by the MSEFC in the exercise of its statutory power. The MSMED Act envisages mandatory conciliation and arbitration for disputes involving micro and small enterprises. This case also highlights the interplay between the MSMED Act and the Arbitration and Conciliation Act, 1996 (A&C Act), exploring the tension between party autonomy in arbitration agreements and the statutory arbitration provisions of the MSMED Act.

The judgment arose in the context of multiple legal proceedings initiated by M/s Tamil Nadu Cements Corporation Limited (TANCEM) after an award from the MSEFC favored M/s Unicon Engineers. TANCEM contended that the award was null and void on various grounds, including violations of procedural norms and fundamental principles of arbitration. Ultimately, the Supreme Court referred core questions to a larger Bench.

Summary of the Judgment

The Court analyzed the fractured legal landscape resulting from seemingly conflicting decisions:

In Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan, it was held that a writ petition could be maintainable if the order by MSEFC was not strictly an arbitral award or if it was passed in violation of mandatory provisions.
In Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited, the Court found no incompatibility in the MSEFC conducting conciliation and later continuing as the arbitral tribunal, by virtue of the non-obstante clauses under Section 18 of the MSMED Act.
In M/s India Glycols Limited v. Micro and Small Enterprises Facilitation Council (a three-Judge Bench), the Court took the view that once an award is passed, the only remedy is under Section 34 of the A&C Act, subject to the obligatory pre-deposit of 75% of the award amount under Section 19 of the MSMED Act.

Observing that these decisions created conflicting perspectives on the scope of judicial review via writ petitions, the Supreme Court has referred three critical questions to a five-Judge Bench:

Whether M/s India Glycols Limited absolutely bars the filing of a writ petition against an MSEFC order.
If not, when and under what circumstances would a writ petition be maintainable despite the specific arbitration remedy provided by the MSMED Act.
Whether MSEFC members who act as conciliators can, upon failure of conciliation, act as arbitrators in terms of Section 18 of the MSMED Act in light of Section 80 of the A&C Act, which generally prohibits a conciliator from performing an arbitral function in the same dispute.

Thus, while the judgment does not finally decide the substantive issues, it clarifies that there is a pressing need for resolution of these fundamental questions by a larger Bench, particularly in light of potentially conflicting precedents.

Analysis

1. Precedents Cited

The Court’s detailed discussion cites judgments that have interpreted Section 18 of the MSMED Act in different ways:

Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan: Established that an MSEFC order can be interfered with under writ jurisdiction if it fails to comply with mandatory provisions, such as using conciliation and then arbitration properly.
Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited: Endorsed the validity of the MSEFC acting first as conciliator and then as arbitrator, holding that the MSMED Act overrides Section 80 of the A&C Act, unless specifically agreed to otherwise by the parties.
M/s India Glycols Limited v. MSEFC: A three-Judge Bench ruling which insisted that parties must generally challenge MSEFC awards under Section 34 of the A&C Act, subject to the 75% pre-deposit condition of Section 19 of the MSMED Act. It cast doubt on the ongoing availability of a writ petition against an MSEFC award.

By juxtaposing these rulings, the Court identified that different Benches have taken diametrically divergent positions on the same statutory scheme.

2. Legal Reasoning

The Court focused on whether the existence of a statutory remedy, coupled with an onerous pre-deposit requirement (75% of the award amount), could entirely preclude invoking Article 226 of the Constitution. Classical administrative law principles dictate that where alternative remedies exist, courts should exercise caution in entertaining writ petitions. However, Indian jurisprudence also recognizes exceptions, especially where statutory authorities act ultra vires, violate natural justice, or contravene fundamental rights.

The Supreme Court repeatedly referenced the principle that the High Court’s writ jurisdiction is part of the basic structure of the Constitution and cannot be ousted entirely by statute. At the same time, the Court acknowledged that the legislature can channel disputes to specific forums, including mandatory arbitration under the MSMED Act, to expedite dispute resolution and protect micro and small enterprises.

According to the Court, the key lies in striking a balance: ensuring that micro and small enterprises do not face undue litigation delays while also preserving the High Court’s power to step in if fairness, equity, or fundamental procedural safeguards have been seriously compromised. This careful balancing act underpins the Court’s reference to a larger Bench for a conclusive determination.

3. Impact of the Judgment

The immediate impact is that the legal framework for disputing MSEFC awards remains unsettled. Parties seeking relief against MSEFC orders must exercise caution, as some High Courts could still follow M/s India Glycols Limited strictly and require a 75% pre-deposit before entertaining challenges, while others might apply the Jharkhand Urja Vikas Nigam approach, allowing limited writ jurisdiction where the order is deemed a nullity.

Should the larger Bench confirm that the MSEFC’s orders are wholly open to writ jurisdiction, we may see more frequent challenges raised under Article 226. Conversely, if the Bench curtails such jurisdiction, the statutory scheme’s mandatory pre-deposit requirement would become the norm. Either outcome will shape the commercial and legal landscape for micro and small businesses, as well as government and private entities contracting with them, particularly regarding quick recovery of dues and the finality of MSEFC-held arbitrations.

Complex Concepts Simplified

Several legal ideas feature prominently in this decision:

Article 226 of the Constitution: Empowers High Courts to issue prerogative writs for enforcing fundamental rights or any other legal right. While broad, it is subject to judicially crafted limitations, such as the principle that alternative statutory remedies should generally be exhausted before invoking writ jurisdiction.
Mandatory Conciliation and Arbitration: Section 18 of the MSMED Act obliges parties to engage first in conciliation. If that fails, the MSEFC proceeds to arbitrate or refers the dispute to an institution for arbitration. This mandatory statutory arbitration overrides typical private arbitration agreements.
Pre-deposit Requirement (Section 19 of the MSMED Act): To challenge an award against them, buyers (non-MSME entities) must deposit 75% of the award sum in court. This provision is intended to deter frivolous challenges and ensure liquidity for micro and small businesses.
Section 80 of the Arbitration and Conciliation Act: Ordinarily prohibits a conciliator from becoming an arbitrator in the same dispute unless parties agree otherwise. The tension arises because the MSMED Act allows the MSEFC to perform both roles sequentially, creating potential conflict with Section 80 of the A&C Act.

Conclusion

In M/S TAMIL NADU CEMENTS CORPORATION LTD v. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL, the Supreme Court recognized that conflicting precedents have created uncertainty regarding the maintainability of writ petitions challenging MSEFC awards. While the MSMED Act emphasizes swift resolution of payment disputes involving MSMEs—reinforced by mandatory arbitration and significant interest rates—the Court upheld that the High Court’s constitutional prerogative under Article 226 cannot be ousted overnight.

By referring the matter to a five-Judge Bench, the Court has effectively sought a definitive resolution of the following critical questions: whether and when a writ petition is permissible in MSME disputes, the correct conceptualization of MSEFC members’ dual roles as conciliators and arbitrators, and the overall validity of the pre-deposit requirement in restricting access to judicial remedy. The forthcoming ruling of the larger Bench will have far-ranging consequences for MSMEs, government entities, and private buyers alike, setting the tone for expedition, fairness, and finality in business disputes under the MSMED Act.