Commissioner v. Karnataka Micro and Small Enterprises Facilitation Council & Anr.

What happened

On 25 August 2011 the Government of Karnataka invited tenders for handheld devices for its Bhoomi Project, a supplier was declared the successful bidder and received a work order on 9 January 2012, and it supplied 100 devices against an invoice of 22 March 2012 for ₹46,90,900 and a second tranche, the State having raised concerns about the working of the devices by a letter of 3 September 2012. On 1 March 2013 the Government approved payment of ₹17,58,087, and the supplier approached the Karnataka Micro and Small Enterprises Facilitation Council for the balance of ₹29,32,813 and obtained an award of 8 January 2017 under section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 for that sum with interest at 8% a year. The State did not apply under section 34 of the Arbitration and Conciliation Act, 1996 within the time allowed and filed Writ Petition No. 36552 of 2017 on 11 August 2017, after the time had expired, challenging the award on its merits and not on any ground of jurisdiction, and giving no reason for not availing the section 34 remedy. By an order of 25 June 2024 the Single Judge examined the merits, found no error in the award and dismissed the petition, and the State appealed, seeking a merits review of the award.

Questions before the court

• Can the State challenge an award of the Micro and Small Enterprises Facilitation Council under section 18 of the MSMED Act by a writ petition seeking a merits review, filed after the period for a section 34 application had expired?

Why the court ruled this way

In India Glycols, following Gujarat State Civil Supplies Corporation v. Mahakali Foods, the Supreme Court held that a writ petition under articles 226 and 227 is not maintainable against an award under section 18 of the MSMED Act because section 34 of the Arbitration and Conciliation Act gives a statutory remedy (paragraph 10). The State pointed out that in Tamil Nadu Cements Corporation v. Micro and Small Enterprises Facilitation Council the Supreme Court expressed reservations about India Glycols and referred to a larger Bench of five Judges whether a writ petition is absolutely barred and, if not, when the alternative remedy rule does not apply (paragraphs 11-12). The Division Bench read that decision as expressing reservation about a total bar, noting its observations that access to the High Court under article 226 is part of the basic structure, that the alternative remedy rule is one of restraint, and that writ courts may act despite an alternative remedy where there is a violation of natural justice or fundamental rights, an order wholly without jurisdiction or a challenge to the vires of an Act, as the principles in Radha Krishan Industries v. State of Himachal Pradesh also state (paragraphs 13-14). The State's petition relied on none of those grounds and only sought to agitate the dispute on the merits (paragraph 14), and article 226 is not available for a merits review of an arbitral award, so that, even without deciding whether a writ petition can be maintained against a section 18 award in some circumstances, the petition ought not to have been entertained (paragraph 15). Despite the reservations and the reference, India Glycols remains a binding precedent for this Court (paragraph 16). The State had also filed the petition after the award became final and the time for a section 34 application had expired, with no explanation, and it cannot overcome limitation by avoiding the statutory remedy and invoking article 226 (paragraph 17).

Controlling point

A writ petition seeking a merits review of an award of the Micro and Small Enterprises Facilitation Council under section 18 of the MSMED Act ought not to be entertained, particularly when it is filed after the time for a section 34 application has expired without explanation, and India Glycols remains binding on the High Court notwithstanding the reference to a larger Bench.

Order and next steps

The Division Bench did not concur with the Single Judge's decision to entertain the writ petition on the merits, held that it ought to have been rejected at the threshold, dismissed the appeal and disposed of the interlocutory applications.

Practical implications

A party that wishes to challenge an award of a Micro and Small Enterprises Facilitation Council should apply under section 34 of the Arbitration and Conciliation Act within the time allowed, because in Karnataka a writ petition filed after limitation to re-argue the merits will not be entertained, whoever the party is, including the State.

Limits of this ruling

• The Bench did not decide whether, and in which circumstances, a writ petition can be maintained against a section 18 award, which the Supreme Court has referred to a larger Bench in Tamil Nadu Cements, and the outcome of that reference is not stated. It did not examine the merits of the award, which the Single Judge had found to be free of error.