The Supreme Court Constitution Bench will decide whether writ petitions can be filed against decisions made by the MSEFC. The MSEFC, created under the MSMED Act, deals with problems related to late payments to micro and small businesses. It acts as a semi-judicial body to help resolve disputes.
New Delhi: A Constitution Bench of the Supreme Court will determine the maintainability of writ petitions filed in High Courts under Article 226 of the Constitution against orders issued by the Micro and Small Enterprises Facilitation Council (MSEFC).
This decision follows a referral from a three-judge bench, which included Chief Justice of India (CJI) Sanjiv Khanna and Justices Sanjay Kumar and Manmohan.
The Constitution Bench will also explore the conditions under which High Courts may entertain writ petitions despite the availability of alternative remedies, should the petitions be deemed maintainable.
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Additionally, the Court will consider whether MSEFC members, acting as conciliators under Section 18 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, can later serve as arbitrators in the same dispute. This inquiry will involve reconciling Section 18 of the MSMED Act with Section 80 of the Arbitration and Conciliation Act of 1996, which prohibits conciliators from taking on the role of arbitrators unless explicitly agreed to by the parties involved.
MSEFC was established under the MSMED Act to resolve issues related to delayed payments to micro and small enterprises (MSEs). It functions as a quasi-judicial body that facilitates the resolution of disputes between MSEs and their buyers, serving both as conciliator and arbitrator.
The council is responsible for reviewing cases filed by MSEs regarding delayed payments and ensuring that buyers adhere to payment schedules. If conciliation fails, the MSEFC can issue an arbitral award in accordance with the Arbitration and Conciliation Act of 1996, usually within a stipulated timeframe of seven days from the application submission via the MSME Samadhaan portal. Orders from the MSEFC can be contested under Section 34 of the Arbitration and Conciliation Act.
In a 2023 ruling in India Glycols Vs MSEFC, a three-judge bench of the Supreme Court decided that a writ petition was not maintainable against an MSEFC order, as the statute provided an appeal mechanism.
However, today’s judgment prompted the Court to question the validity of India Glycols.
The bench stated,
“We also have reservations on the dictum in M/s India Glycols Limited (supra) which holds that a writ petition is not maintainable against any order passed by the MSEFC and the only recourse available is in terms of Section 34 of the A&C Act,”
The Court further remarked that completely barring writ petitions against an order could not be justified, as the remedy under Article 226 is integral to the Constitution’s basic structure.
The Court noted,
“The access to High Courts by way of a writ petition under Article 226 of the Constitution of India is not just a constitutional right but also a part of the basic structure. It is available to every citizen whenever there is a violation of their constitutional rights or even statutory rights,”
The bench highlighted that in many instances, courts have exercised writ jurisdiction even when alternative remedies exist.
It outlined three specific scenarios where writ jurisdiction may be invoked:
- When there is a violation of principles of natural justice or fundamental rights;
- When an order is entirely outside the jurisdiction of the authority;
- When the constitutionality of an Act is challenged.
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Citing the case of Harbanslal Sahnia v. Indian Oil Corporation, the Court stated that “the rule of exclusion of writ jurisdiction is a rule of discretion and not of compulsion,” emphasizing that in appropriate cases, writ courts can exercise jurisdiction despite the availability of alternative remedies.
The Bench concluded,
“However, in exceptional cases, writ jurisdiction can still be exercised as a power to access the court for justice and relief,”
Consequently, the question of law was referred to a five-judge Constitution Bench.
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