Writ petition not maintainable against MSMED Council orders; must challenge via Section 34 A&C Act with 75% pre-deposit.

ORDER :

Abdul Quddhose, J.

This writ petition has been filed challenging the impugned order dated 15.07.2025 passed by the Micro and Small Enterprises Facilitation Council, Chennai Region, (MSEFC) (in short “Council”) under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (in short “MSMED Act”).

2. The impugned order came to be passed on a claim made by the second respondent under the MSMED Act against the petitioner for the non-payment of the value of the goods supplied by the second respondent to the petitioner. The first respondent Council through the impugned order allowed the said claim and directed the petitioner to pay the principal amount of Rs.5,58,400/- along with compound interest with monthly rests.

3. According to the petitioner, the statutory procedure contemplated under Section 18(2) of the MSMED Act, namely, the conciliation proceedings was not adhered to by the first respondent Council before passing the impugned order. According to the petitioner, no conciliation took place as per the provisions of Section 18(2) of the MSMED Act before the first respondent Council, and therefore, the impugned order is arbitrary and illegal.

4. The learned counsel for the petitioner drew the attention of this Court to the documents filed along with this writ petition in support of the petitioner’s contention that the conciliation procedure as provided under Section 18(2) of the MSMED Act was not complied with.

5. On the other hand, the learned Special Government Pleader for the first respondent would submit that the conciliation procedure as per Section 18(2) of the MSMED Act was adhered to by the first respondent Council and only after the conciliation failed, the dispute was referred to arbitration, which culminated in the passing of the impugned order. According to him, there is no statutory violation committed by the first respondent Council.

DISCUSSION:

6. Before going into the merits of the respective contentions as to whether the statutory procedure of conciliation as provided under Section 18(2) of the MSMED Act was fulfilled or not, this Court has to primarily decide as to whether a writ petition is maintainable challenging the order passed by the Council under the MSMED Act for the alleged non-adherence to the conciliation procedure contemplated under Section 18(2) of the MSMED Act.

7. Section 18 of the MSMED Act provides a mandatory, fast track dispute resolution mechanism for Micro, Small and Medium Enterprises (MSMEs) in respect of delayed payments. It empowers the first respondent Council to handle conciliation and arbitration overriding other laws and private arbitration agreement.

8. The key aspects of Section 18 of the MSMED Act are as follows:-

(a) Reference to the Council – any party can refer a payment dispute as provided under Section 17 of the MSMED Act to the Council.

(b) The Council conducts conciliation treating it under the Arbitration and Conciliation Act, 1996 (in short “the A&C Act”).

(c) If the conciliation fails, the Council itself or an institution handles the arbitration applying the provisions of the A&C Act.

(d) The Council has jurisdiction where the supplier is located regardless of where the buyer is located in India.

(e) The MSMED Act mandates that reference should be decided within 90 days from the date of reference.

(f) The key implications of Section 18 of the MSMED Act is that it overrides the arbitration clause in the existing contract; and that the conciliation must be attempted before the formal arbitration.

9. The arbitration under the MSMED Act (Section 18) more or less is bound by the provisions of the A&C Act with the exception of special provisions under the MSMED Act which are exclusively applicable to arbitration under the MSMED Act. MSMED Act is a special statute that overrides the A&C Act only in case of conflict. While the MSMED Act adopts the procedural framework of A&C Act, its mandatory provisions--specifically regarding jurisdiction and pre-deposits prevail.