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Access to Justice is the Cornerstone of the Constitution: Supreme Court on Writ Jurisdiction and MSMED Act

Summary of the Judgment


  • Case Name: M/s Tamil Nadu Cements Corporation Limited vs. Micro and Small Enterprises Facilitation Council & Anr.

  • Date: 22 January 2025

  • Judges: Hon’ble Chief Justice Sanjiv Khanna, Hon’ble Justice Sanjay Kumar, Hon’ble Justice Manmohan

  • Acts & Sections:  Article 226 of the Constitution of India, Section 18 of the MSMED Act, Arbitration and Conciliation Act, 1996

  • Cited Judgements:  Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan, Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited, M/s India Glycols Limited v. MSEFC, Whirlpool Corporation v. Registrar of Trade Marks


Introduction


The recent Supreme Court judgement in M/s Tamil Nadu Cements Corporation Limited vs. Micro and Small Enterprises Facilitation Council & Anr. examines the maintainability of writ petitions under Article 226 of the Constitution against orders passed under Section 18 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The ruling provides significant insights into statutory arbitration, alternative remedies, and the discretionary powers of writ courts.


Statutory Arbitration under Section 18 of MSMED Act


Section 18 of the MSMED Act establishes mandatory conciliation and arbitration processes to resolve disputes. The Court analysed whether these statutory provisions override general laws and restrict the jurisdiction of writ courts. The Bench observed that while Section 18 grants significant powers to the MSEFC, it does not completely oust the jurisdiction of writ courts.

Hon’ble Chief Justice Sanjiv Khanna remarked,

“The access to High Courts by way of a writ petition under Article 226 is not only a constitutional right but also a basic structure of the Constitution.”

Key Observations on Alternative Remedies


  1. Rule of Alternative Remedies: The Court reiterated that the rule requiring parties to exhaust statutory remedies is not absolute. Exceptions include cases involving violation of fundamental rights, lack of jurisdiction, or breach of natural justice.

  2. Balance Between Statutory Processes and Writ Jurisdiction: The Bench clarified that writ petitions could be entertained even when alternative remedies exist, particularly in situations where fairness, equity, or justice demand such intervention.


Key Statutory Provisions Discussed


  1. Section 18 of the MSMED Act:

    • Establishes a framework for mandatory conciliation and arbitration.

    • Overrides conflicting contractual arbitration clauses.

  2. Section 19 of the MSMED Act:

    • Mandates a 75% pre-deposit of the award amount for challenging decisions under Section 34 of the Arbitration and Conciliation Act (A&C Act).

  3. Sections 15 and 16 of the MSMED Act:

    • Entitle suppliers to receive payment with compound interest in cases of delayed payments.

    • Interest is calculated at three times the Reserve Bank of India's notified bank rate.

Conciliation and Arbitration by MSEFC


The Bench also discussed whether members of the MSEFC who act as conciliators can later serve as arbitrators. Referring to Section 80 of the Arbitration and Conciliation Act, the judgment highlighted that such dual roles could raise concerns about impartiality.

The Court opined, “The statutory framework must ensure both efficiency and fairness in dispute resolution, avoiding any potential conflicts of interest.”


Judicial Precedents and Conflicting Interpretations


The judgment delves into conflicting views from prior cases, including:

  • Jharkhand Urja Vikas Nigam Limited v. State of Rajasthan: This case clarified the distinct roles of conciliation and arbitration under Section 18 and held that the Facilitation Council must adhere to due procedure.

  • M/s India Glycols Limited v. MSEFC: This decision restricted the maintainability of writ petitions, favouring statutory remedies as the primary recourse. However, the current judgment questions its absolute applicability.


Role of the MSEFC and Procedural Concerns


The Court addressed concerns about procedural lapses during arbitration and conciliation by the MSEFC, including allegations of bias when the same members acted as both conciliators and arbitrators. Highlighting Section 80 of the A&C Act, the judgment stressed the importance of maintaining impartiality in statutory arbitration.


Relevance of Pre-Deposit Requirements


Section 19 of the MSMED Act imposes a 75% pre-deposit condition for challenging awards. While this provision aims to discourage frivolous appeals, the Court acknowledged the financial burden it places on buyers, particularly government entities like TANCEM.


Conclusion


This judgment underscores the nuanced approach required to balance statutory frameworks and constitutional remedies. It reaffirms the judiciary’s role as a guardian of fundamental rights while ensuring the efficient resolution of disputes under the MSMED Act. The decision also sets the stage for further scrutiny of arbitration mechanisms and the interplay between specialised statutes and general laws.


By referring the matter to a larger Bench, the Court aims to settle key questions on writ jurisdiction, alternative remedies, and the scope of powers under the MSMED Act, thus paving the way for clarity and consistency in similar cases.

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