1. Appeal against Single Judge order requiring 75% pre-deposit under MSMED Act before hearing Section 34 challenge to Facilitation Council award. (Para 1 , 2 , 3 )
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2026 Supreme(Del) 1070
IN THE HIGH COURT OF DELHI AT NEW DELHI
V. KAMESWAR RAO, MANMEET PRITAM SINGH ARORA, JJ.
WAPCOS Limited – Appellant
versus
Virgo Aqua – Respondent
FAO (OS) (COMM) 97 of 2024 CM Appl. 30515 of 2024 CM Appl. 9694 of 2026 CM Appl. 15561 of 2026
Decided On : 01-07-2026
Advocates appeared:
For the Appellant :Ms. Malvika Trivedi, Sr. Advocate with Mr. Tushar Sannu, Mr. Priyanakr Tiwary, Mr. Mohit Bhardwaj, Mr. Shailendra Slaria and Mr. Fajallu Rehman, Advocates alongwith Mr. Arjun (addtional Chief Engineer)
For the Respondents:Dr. Amit George, Mr. Saurabh Bhargavan, Mr. Dushyant Kishan Kaul and Mr. Bhrigu A. Pamidighantam, Advocates
For the Appellant :Ms. Malvika Trivedi, Sr. Advocate with Mr. Tushar Sannu, Mr. Priyanakr Tiwary, Mr. Mohit Bhardwaj, Mr. Shailendra Slaria and Mr. Fajallu Rehman, Advocates alongwith Mr. Arjun (addtional Chief Engineer)
For the Respondents:Dr. Amit George, Mr. Saurabh Bhargavan, Mr. Dushyant Kishan Kaul and Mr. Bhrigu A. Pamidighantam, Advocates
An award passed by a Facilitation Council without following the mandatory conciliation-arbitration sequence under Section 18 of the MSMED Act or violating natural justice is a nullity. The pre-deposit requirement under Section 19 does not bar a court from examining the nullity of such an award.
Headnote:(A) Micro, Small and Medium Enterprises Development Act, 2006 - Sections 18(2), 18(3), and 19 - Arbitration and Conciliation Act, 1996 - Sections 34 and 37 - Award passed by Facilitation Council - Mandatory two-stage mechanism under Section 18 of the MSMED Act envisages conciliation under Section 18(2) followed by arbitration under Section 18(3) upon failure of conciliation - Compliance with this sequence is a jurisdictional precondition; an award rendered without this statutory transition is a nullity and devoid of legal force from its inception (Paras 24, 42, and 43) - Requirement of pre-deposit under Section 19 of the MSMED Act presupposes the existence of a valid award - Where a credible case of nullity is made out, the Court under Section 34 or 37 of the Arbitration and Conciliation Act, 1996, can examine the issue of nullity without insisting upon the pre-deposit requirement (Paras 24 and 25).
(B) Principles of Natural Justice - Ex-parte award passed without affording a reasonable opportunity to present a case or ignoring a prompt request for a hearing is vitiated - Such a violation renders the award a nullity under Section 34(2)(a)(iii) and 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 (Paras 49 and 50).
(C) Appeal - Maintainability under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 - An order dismissing a Section 34 petition for non-compliance with statutory pre-deposit, which results in the award attaining finality, is a final order and amenable to appeal (Paras 16, 18, and 19).
Facts of the case:
A micro enterprise filed claims for outstanding dues for consultancy services before a Facilitation Council. The Council passed an ex-parte award directing payment of a principal sum and compound interest. The buyer challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Single Judge directed a pre-deposit of 75% of the awarded amount as per Section 19 of the MSMED Act and subsequently dismissed the petition for non-compliance. The buyer appealed under Section 37, contending the award was a nullity due to non-compliance with the mandatory conciliation-arbitration sequence and violation of natural justice.
Findings of Court:
Upon perusal of the record, it was found that the buyer was neither served with notice of conciliation proceedings nor was there any formal order recording the failure of conciliation before the Council initiated arbitration. Furthermore, the Council proceeded ex-parte without considering the buyer's request for a hearing and without providing sufficient notice that it would decide the matter ex-parte. The award was thus found to be a nullity.
Issues: Whether an appeal under Section 37 is maintainable against the dismissal of a Section 34 petition for non-deposit, and whether the pre-deposit requirement under Section 19 of the MSMED Act bars the court from examining a plea that the award is a nullity.
Ratio Decidendi: An award passed in violation of the mandatory procedure under Sections 18(2) and 18(3) of the MSMED Act or in breach of the principles of natural justice is a nullity. Because a null award has no legal existence from the start, the pre-deposit condition under Section 19 does not prevent a court from recognizing the non-existence of a valid legal award.
Result: Appeal allowed; impugned award set aside; matter remanded to Facilitation Council for fresh adjudication on merits.
Legal Category Hierarchy
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arbitration and conciliation
- arbitral award
- commercial courts
- practice and procedure
Table of Contents
2. Appellant: award nullity due to non-compliance with mandatory conciliation then arbitration process; Respondent: pre-deposit mandatory before any hearing on merits. (Para 5 , 6 )
3. Record shows no notice of conciliation or arbitration transition; Facilitation Council failed to consider Appellant's request to present case after single absence. (Para 37 , 38 , 39 , 40 , 41 , 47 , 48 , 49 , 50 , 51 , 54 )
4. Award passed without complying with mandatory two-stage MSMED conciliation-arbitration process violates jurisdictional pre-condition and is a nullity. (Para 36 , 42 , 43 )
5. Appeal allowed; impugned award set aside as nullity; matter remitted to Facilitation Council for fresh adjudication on merits after hearing both parties. (Para 61 , 63 )
6. Is an arbitral award under the MSMED Act a nullity if the mandatory two-stage conciliation-arbitration process under Section 18 is not followed?
Yes, the Facilitation Council must first conduct conciliation and formally record its failure before commencing arbitration; non-compliance renders the award a nullity. (Para 36 , 37 , 38 , 39 , 40 , 42 , 43 )
7. Is the requirement of pre-deposit under Section 19 of the MSMED Act applicable when the award challenged is argued to be a nullity?
No, where a credible ex-facie case of nullity is made out, the court is not denuded of jurisdiction to examine the issue even if pre-deposit is not made. (Para 24 , 25 , 27 )
8. Is an order dismissing a Section 34 petition for non-compliance with a pre-deposit direction appealable under Section 37 of the Arbitration Act?
Yes, such an order results in finality of the award and extinguishes the remedy, making it appealable under Section 37(1)(c). (Para 16 , 18 , 19 )
9. Does a failure to grant a hearing before passing an ex-parte award, after a single absence and a prompt explanation, violate natural justice?
Yes, the Facilitation Council must consider a party's request for hearing after a single absence before proceeding to an ex-parte award, especially when no deliberate default is shown. (Para 46 , 47 , 48 , 50 )
JUDGMENT
MANMEET PRITAM SINGH ARORA, J.
1. The Appellant has preferred the present appeal under Section 13(1A) of the Commercial Courts Act, 2015 read with Section 37 of the Arbitration and Conciliation Act, 1996 [‘Act of 1996’], assailing the orders dated 20.03.2024 and 22.08.2024 passed by the learned Single Judge in OMP (Comm.) No.132 of 2023.
By impugned order dated 20.03.2024, learned Single Judge directed the Appellant to deposit 75% of the awarded amount as a pre-condition for entertaining the petition filed by Appellant under Section 34 of the Act of 1996 [‘Section 34 petition’] challenging the ex-parte arbitral award dated 02.12.2022 [‘impugned award’] passed by the Micro and Small Enterprises Facilitation Council, Kerala [‘Facilitation Council’] in terms of Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 [‘MSMED Act’].
By subsequent impugned order dated 22.08.2024, the learned Single Judge dismissed OMP (Comm.) No. 132 of 2023 on account of the Appellant’s failure to comply with the said direction of pre-deposit.
2. Before the learned Single Judge, Section 34 petition was filed by the Appellant assailing the impugned award passed the Facilitation Council under Section 18(3) of the MSMED Act.
3. The Facilitation Council vide the impugned award held that the appellant is liable to pay principal amount of Rs. 5.33 crores, w.r.t., three work orders under O.A. 32/2021 and principal amount of Rs. 43.31 crores w.r.t two work orders vide O.A, 33/2021, along with compound interest on monthly rests calculated at three times of bank rate notified by the Reserve Bank of India [‘RBI’].
FACTS
4. Facts narrated by the Appellant in the present appeal are as under: -
4.1 The dispute arises out of various Memorandum of Understanding [‘MOUs’] (dated 29.02.2016, 07.09.2018, 10.01.2019 respectively) and agreements executed between the Department of Fisheries, Government of Andhra Pradesh, and the Appellant, pursuant to which five work orders were awarded to the Respondent for consultancy services. The details of the work orders issued in favour of the Respondent are:
a) Work Order No. WAP/P&H/AP-Fish/2016/1 dated 28.03.2016
b) Work Order No. WAP/P&H/AP-Fish-2017/1 dated 09.12.2017
c) Work Order No. WAP/PH&IW/AP/EDDU/2019/1 dated 26.02.2019
d) Work Order No. WAP/PH&IW/AP/AQF/2018-19/01 dated 18.09.18
e) Work Order No. WAP/P&H/OD/ODFISH/2018-19/01 dated 25.10.18
4.2 Alleging non-payment of its dues, the Respondent invoked Section 18 of the MSMED Act by filing two separate applications before the Facilitation Council in September 2020, in respect of different work orders executed under the contractual arrangement. The first application, bearing No. KL02D0005169/M/00001, pertained to the work orders dated 28.03.2016 and 09.12.2017. The second application, bearing No. KL02D0005169/M/00002, pertained to the work orders dated 18.09.2018, 25.10.2018, and 26.02.2019.
4.3 The said applications were registered as O.A. Nos. 32 of 2021 and 33 of 2021. According to the Appellant, it received first notice for participating in the said proceedings for hearing dated 30.06.2022. As per the Appellant, it understood that the proceedings before the Facilitation Council on 30.06.2022 were at the stage of conciliation, as contemplated under Section 18(2) of the MSMED Act; notice was issued for conciliation proceedings to be held on 30.06.2022. It contends that no formal order recording failure of conciliation was ever passed by the Facilitation Council, nor was any formal order of initiating arbitration under Section 18(3) of the MSMED Act issued by the Facilitation Council or communicated to the Appellant.
4.4 Thereafter, the Facilitation Council issued a notice fixing the hearing on 26.10.2022. The Appellant asserts that it failed to attend the hearing dated 26.10.2022, however, by an email dated 31.10.2022 addressed to the Facilitation Council explained the reasons for its absence and sought an opportunity to participate in the proceedings. It st
