Karnataka High Court Rules State Cannot Bypass Limitation To Challenge MSME Award

Bench holds that a writ petition seeking merits review of a Facilitation Council award is not maintainable, especially when filed after the statutory limitation period has expired.

The Karnataka High Court has delivered a significant ruling affirming that the State cannot circumvent the statutory limitation period under Section 34 of the Arbitration and Conciliation Act, 1996 by invoking the writ jurisdiction of the High Court to challenge an award passed by the Micro and Small Enterprises Facilitation Council (MSEFC) under the MSMED Act.

A Division Bench comprising Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha dismissed an appeal filed by the Commissioner, Bhoomi Monitoring Cell, Revenue Department, Government of Karnataka, against a Single Judge's order that had upheld the Facilitation Council's award of Rs. 29.32 lakh in favour of M/s Connoinseur Electronics Pvt. Ltd. However, the Division Bench held that the Single Judge ought not to have entertained the State's writ petition on merits at all.

The Bhoomi Project Dispute

The case arose from a tender floated by the Bhoomi Monitoring Cell in August 2011 for supply of handheld devices for the Bhoomi Project. Connoinseur Electronics was declared the successful bidder and a work order was issued in January 2012. The supplier delivered 100 devices and raised invoices totalling Rs. 46.9 lakh. After the government raised concerns about the devices' functioning, it approved payment of only Rs. 17.58 lakh in March 2013, leaving a balance of Rs. 29.32 lakh unpaid.

Connoinseur Electronics approached the Karnataka Micro and Small Enterprises Facilitation Council, which on 8 January 2017 passed an award under Section 18 of the MSMED Act directing the State to pay the outstanding amount with 8% interest per annum.

State's Failed Statutory Challenge

The State did not challenge the award under Section 34 of the Arbitration and Conciliation Act within the prescribed period. Instead, it filed a writ petition under Article 226 of the Constitution on 11 August 2017—after the limitation period had expired—seeking a merits review of the award. The petition did not raise any jurisdictional objections and contained no explanation for the delay.

A learned Single Judge examined the matter on merits and dismissed the petition in June 2024, finding no error in the Council's award. The State then appealed to the Division Bench.

Supreme Court Precedent and the Larger Bench Reference

Before the Division Bench, the State argued that the Supreme Court's decision in M/s India Glycols Limited v. Micro and Small Enterprises Facilitation Council (2023), which held that writ petitions under Articles 226 and 227 are not maintainable against MSEFC awards, had been doubted in the subsequent case of M/s Tamil Nadu Cements Corporation Limited v. Micro and Small Enterprises Facilitation Council (2025). In that case, the Supreme Court referred to a larger bench the question of whether the bar on writ petitions is absolute.

The State contended that until the larger bench decides, the writ petition should be entertained.

Court's Reasoning: Merits Review Not Permissible

The Division Bench rejected the State's argument, holding that it was unnecessary to decide the larger question because the State's petition sought only a merits review of the arbitral award—not a challenge on grounds of jurisdiction, natural justice, or vires.

"Thus, even without going into the question as to whether in certain circumstances, a writ petition can be maintained against an award passed under Section 18 of the MSMED Act , the petition preferred by the appellant ought not to have been entertained as it sought merits review of the award passed by the Facilitation Council."

The court emphasised that the writ jurisdiction under Article 226 is not a substitute for the statutory remedy under Section 34. Moreover, the State had allowed the limitation period to expire without any explanation.

"Plainly, the appellant cannot be permitted to overcome the period of limitation by avoiding the statutory remedy and seeking the extraordinary remedy under Article 226 of the Constitution of India ."

The court also noted that India Glycols remains binding on the Karnataka High Court until overruled by a larger bench. The reference in Tamil Nadu Cements does not alter its precedential value.

Decision and Implications

The Division Bench dismissed the appeal but clarified that the Single Judge's order was wrong in entertaining the writ petition on merits. The court held that the petition should have been rejected at the threshold.

"We do not concur with the learned Single Judge's decision to entertain the writ petition on merits; the writ petition ought to have been rejected at the threshold ."

The ruling reinforces the finality of MSEFC awards and prevents parties—including the State—from bypassing statutory timelines by resorting to writ petitions. This decision provides greater certainty for MSMEs seeking enforcement of their dues under the MSMED Act, reducing prolonged litigation and improving cash-flow reliability.

(Appearances: Sri. S.R. Khamroz Khan, Additional Government Advocate for the appellant; Sri. N. Dinesh Rao, Advocate for respondent No. 2.)