When the Micro and Small Enterprises Facilitation Council (MSEFC) passes an award against a buyer through the MSME Samadhan mechanism, the first question is simple: how do you challenge it? The standard route involves filing a Section 34 application under the Arbitration and Conciliation Act, 1996. However, this path demands a steep 75% pre-deposit under Section 19 of the MSMED Act, 2006.
Consequently, many buyers try to challenge MSME Samadhan awards through writ petitions under Article 226 of the Constitution. This approach bypasses the pre-deposit entirely. But is it legally permissible? As of April 2026, the answer remains unsettled. A five-judge Constitution Bench of the Supreme Court will soon deliver the definitive ruling.
The Statutory Framework: How MSEFC Awards Work
Before examining the writ question, understanding the MSEFC process is essential. The MSMED Act, 2006 creates a specialised dispute resolution mechanism. It protects suppliers who face delayed payments from buyers.
Section 18: Conciliation and Arbitration
Under Section 18, when a supplier refers a dispute to the MSEFC, the Council first attempts conciliation. If conciliation fails, the Council itself takes up the dispute for arbitration. Notably, Section 18(3) makes the Arbitration Act applicable to this process “as if the arbitration were in pursuance of an arbitration agreement.”
Furthermore, Section 18(1) contains a non-obstante clause that overrides any pre-existing arbitration agreement. Therefore, even if the buyer and supplier agreed to private arbitration, the supplier can still approach the MSEFC.
Section 19: The 75% Pre-Deposit Requirement
Section 19 of the MSMED Act imposes a mandatory condition on buyers who challenge an MSEFC award. No court can entertain a set-aside application unless the buyer deposits 75% of the awarded amount. In essence, this provision protects MSMEs from frivolous challenges. It also ensures that small businesses receive timely payments.
In practice, however, this creates a significant barrier. Many buyers — especially government corporations and public sector undertakings — cannot deposit such large sums before arguing their case.
The Central Question: Can You File a Writ Petition Instead?
Article 226 of the Constitution empowers High Courts to issue writs for enforcing fundamental rights and “for any other purpose.” This broad power forms the backbone of judicial review in India.
Accordingly, the question is straightforward. Can a party bypass the Section 34 route (with its 75% pre-deposit) and directly challenge an MSEFC award through a writ under Article 226?
Three conflicting Supreme Court decisions have created significant uncertainty on this point.
The Three Conflicting Supreme Court Positions
1. India Glycols v. MSEFC (2024 AIR SC 285)
The three-judge bench in M/s India Glycols Ltd. v. Micro and Small Enterprises Facilitation Council established the strictest position. Specifically, the Court held that a writ petition under Articles 226/227 is not maintainable against an MSEFC award.
Its reasoning was clear. Section 18 of the MSMED Act provides a specific statutory remedy — namely, challenging the award under Section 34 of the Arbitration Act. Since an adequate alternative remedy exists, High Courts should not entertain writ petitions. Additionally, allowing writs would enable parties to circumvent the mandatory 75% pre-deposit under Section 19.
After this ruling, High Courts across India routinely dismissed writ petitions challenging MSEFC awards and directed buyers to pursue Section 34 applications instead.
2. Jharkhand Urja Vikas Nigam v. MSEFC
A two-judge bench took a starkly different view. In this case, the Court examined the MSEFC order and found that it lacked the essential characteristics of an arbitral award. The Council had not followed proper arbitration procedures under Section 18.
Accordingly, the Court held that the order “was not an award in the eyes of law.” Since no valid arbitral award existed, recourse to Section 34 of the Arbitration Act was unnecessary. Therefore, the writ petition was maintainable.
This ruling opened an important door. It recognised that not every MSEFC order qualifies as a valid arbitral award. Where the MSEFC acts without jurisdiction or violates basic procedures, writ jurisdiction remains available.
3. Gujarat State Civil Supplies Corporation v. Mahakali Foods (2022)
Another two-judge bench added a further dimension. In Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., the Court held that the MSMED Act’s non-obstante clauses in Sections 18(1) and 18(4) override “any other law for the time being in force.” This includes the Arbitration Act.
Moreover, the Court ruled that a conciliator under the MSEFC can subsequently act as arbitrator. Section 80 of the Arbitration Act prohibits this dual role, but the MSMED Act prevails as special legislation.
Nevertheless, this decision raised fairness concerns. The same person who attempted conciliation could then decide the dispute as arbitrator.
Tamil Nadu Cements Corporation v. MSEFC (2025 INSC 91): The Turning Point
Recognising the irreconcilable conflict, the Supreme Court in Tamil Nadu Cements Corporation Ltd. v. MSEFC (2025 INSC 91) referred the question to a five-judge Constitution Bench.
The Facts
TANCEM (Tamil Nadu Cements Corporation) awarded a turnkey contract to M/s Unicon Engineers for Rs. 7.50 crore. When disputes arose, Unicon filed a reference before the MSEFC under Section 18. Subsequently, the MSEFC passed an award, and TANCEM sought to challenge it through a writ petition.
The Court’s Concerns
Notably, the three-judge bench comprising Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and Manmohan expressed serious reservations about the India Glycols dictum. Specifically, the Court observed that:
First, Article 226 is “not just a constitutional right, but also a part of the basic structure of the Constitution.” An absolute bar on writ jurisdiction could render the right to challenge an MSEFC order illusory.
Second, the 75% pre-deposit requirement under Section 19 creates an exceptionally high threshold. For large disputed amounts, this requirement may effectively deny access to justice.
Third, the dual role of conciliator-turned-arbitrator raises fairness concerns that necessitate judicial oversight.
The Four Questions Referred
The Court referred four specific questions to the five-judge bench:
(i) Whether a writ petition under Article 226 is maintainable against an order passed by the MSEFC under Section 18 of the MSMED Act?
(ii) Whether the ratio in India Glycols — that writ petitions are categorically barred against MSEFC orders — is correct and absolute?
(iii) If the bar is not absolute, under what circumstances will the principle of alternative statutory remedy not apply?
(iv) Whether members of the MSEFC who undertake conciliation can thereafter act as arbitrators in proceedings under Section 18 read with Section 80 of the Arbitration Act?
The Current Legal Position (April 2026)
As the five-judge bench decision remains pending, the law stands in a transitional state. Several practical implications follow.
What Buyers Should Know
Currently, the India Glycols ruling remains binding until the five-judge bench overrules it. Therefore, filing a writ petition as the primary challenge carries significant risk. Indeed, most High Courts continue to follow India Glycols and dismiss writs against MSEFC awards.
However, writs may still succeed in exceptional circumstances. These include cases where the MSEFC acted without jurisdiction, violated natural justice, or passed an order that fails to qualify as a valid arbitral award.
The Safer Strategy
Until the Constitution Bench delivers its verdict, the prudent approach combines both routes:
First, file a Section 34 application within the limitation period — three months from receiving the award, extendable by 30 days. Simultaneously, arrange the 75% pre-deposit or seek the court’s indulgence for a reduced deposit.
Second, if the MSEFC committed jurisdictional errors or violated natural justice, file a writ petition in parallel. Clearly articulate the exceptional circumstances that justify bypassing the alternative remedy.
Third, if the pre-deposit creates genuine hardship, raise this ground in the writ petition. The Tamil Nadu Cements observations about access to justice may persuade the High Court.
Grounds for Challenging an MSEFC Award
Whether through Section 34 or a writ petition, the available grounds for challenge remain important to understand.
Under Section 34 of the Arbitration Act
Section 34(2) permits setting aside an award on limited grounds. These include incapacity of a party, invalid arbitration agreement, lack of proper notice, the award exceeding the scope of the reference, or improper tribunal composition. Additionally, Section 34(2)(b) allows challenge if the award conflicts with the public policy of India.
Under Article 226 (Where Maintainable)
Writ jurisdiction, where available, addresses broader concerns. These include lack of MSEFC jurisdiction, violation of natural justice (such as inadequate hearing), and patent illegality on the face of the record. Moreover, breach of Section 18 procedures and the conciliator-arbitrator dual role creating apparent bias also qualify.
Impact on MSMEs and Buyers
This legal uncertainty affects both sides of the transaction.
For MSMEs (Suppliers)
The MSMED Act’s protective framework — mandatory conciliation, MSEFC arbitration, and the 75% pre-deposit — exists to protect small businesses from delayed payments. If the five-judge bench permits writs freely, buyers may exploit this route to delay payment further. Consequently, the very purpose of the MSMED Act could stand undermined.
For Buyers
Conversely, buyers face a genuine constitutional concern. The 75% pre-deposit essentially forces them to pay before proving the award is flawed. For awards running into crores, this creates an enormous burden. Moreover, if the MSEFC process itself was procedurally defective, requiring full pre-deposit appears unjust.
Practical Guidance for Parties
For Buyers Facing an MSEFC Award
Do not delay. The three-month limitation under Section 34(3) runs from the date of receiving the award. File the application promptly and arrange the 75% deposit.
Simultaneously, evaluate whether exceptional circumstances justify a writ petition. In particular, document any jurisdictional errors, natural justice violations, or procedural defects carefully.
For MSME Suppliers
Ensure that the MSEFC proceedings follow proper procedure. Specifically, adequate notice, opportunity to be heard, and separate conciliation and arbitration stages strengthen the award’s enforceability.
Furthermore, if the buyer files a writ petition, raise the India Glycols objection on maintainability at once. Argue that the buyer must exhaust the statutory remedy under Section 34 with the mandatory pre-deposit.
Frequently Asked Questions
- Can you challenge an MSME award through a writ petition under Article 226?
The answer remains unsettled. In India Glycols (2024 AIR SC 285), the three-judge bench held that writs are not maintainable against MSEFC awards. However, the Supreme Court in Tamil Nadu Cements Corporation (2025 INSC 91) referred this very question to a five-judge Constitution Bench, expressing serious doubts about an absolute bar on writ jurisdiction.
- What is the standard route for challenging an MSEFC award?
The standard route requires filing an application under Section 34 of the Arbitration and Conciliation Act, 1996. Additionally, the buyer must deposit 75% of the awarded amount as a mandatory pre-condition under Section 19 of the MSMED Act before the court entertains the challenge.
- What is the 75% pre-deposit requirement under Section 19?
Section 19 of the MSMED Act mandates that no court shall entertain an application to set aside an MSEFC award unless the buyer deposits 75% of the awarded amount. This requirement applies only to buyers (non-supplier parties), not to suppliers challenging the award.
- What did the Supreme Court decide in India Glycols v. MSEFC?
The three-judge bench in India Glycols held that writ petitions under Articles 226/227 are not maintainable against MSEFC awards. Instead, parties must challenge awards under Section 34 of the Arbitration Act, subject to the mandatory 75% pre-deposit under Section 19 of the MSMED Act.
- Why did the Supreme Court refer the issue to a five-judge bench in Tamil Nadu Cements?
Essentially, the Court found irreconcilable conflicts among three earlier decisions — India Glycols, Jharkhand Urja Vikas Nigam, and Gujarat State Civil Supplies Corporation. Moreover, the Court noted that an absolute bar on writs could violate the basic structure of the Constitution, since Article 226 jurisdiction forms part of the basic structure.
- Can the MSEFC act as both conciliator and arbitrator?
Gujarat State Civil Supplies Corporation (2022) held that MSEFC members who attempted conciliation can subsequently act as arbitrators, overriding Section 80 of the Arbitration Act. However, the Tamil Nadu Cements referral specifically questions this dual role as one of the four referred questions.
- What happens if the MSEFC passed the order without following proper arbitration procedure?
In Jharkhand Urja Vikas Nigam, the Supreme Court held that if an MSEFC order lacks the essential characteristics of an arbitral award, it cannot qualify as an “award” under law. Consequently, Section 34 of the Arbitration Act does not apply, and a writ petition remains maintainable.
- What is the limitation period for filing a Section 34 challenge?
Under Section 34(3) of the Arbitration Act, the application must reach the court within three months from the date of receiving the arbitral award. However, the court may grant a further extension of 30 days if sufficient cause exists, but not beyond that.
- Does the Madras High Court have specific guidance on the 75% pre-deposit timing?
Yes. In November 2025, the Madras High Court ruled that a Section 34 petition challenging an MSEFC award counts as filed only on the date when the 75% deposit reaches the court — not on the date of filing the petition. Therefore, buyers must complete the deposit within the limitation period itself.
- What should buyers do while the five-judge bench decision is pending?
Buyers should adopt a dual strategy. File the Section 34 application within the limitation period and arrange the 75% deposit. Simultaneously, if exceptional circumstances exist — such as jurisdictional errors or natural justice violations — file a writ petition raising these specific grounds.
- How does this affect MSME suppliers who hold an MSEFC award?
Until the five-judge bench rules, the India Glycols decision protects suppliers. If a buyer files a writ petition, the supplier should immediately raise the maintainability objection citing India Glycols. Suppliers should also ensure that the MSEFC proceedings followed proper procedure to insulate the award from challenge on procedural grounds.
About the Author
Advocate Suresh Kumar has a law practice specialising in debt recovery, commercial litigation, and dispute resolution for domestic and international clients. He is enrolled with the Bar Council of Tamil Nadu and Puducherry and represents clients before all courts and forums in Chennai, Tamil Nadu. This article reflects his understanding of the current legal position and is intended solely for informational purposes.
Disclaimer
This article is published by Aran Law Firm for informational purposes only. It is not intended to constitute legal advice or to create an attorney-client relationship. The contents are based on Indian law as applicable at the time of writing and are subject to change. Readers should not act upon the information in this article without seeking independent legal counsel. Every legal situation is unique, and the application of law depends on specific facts and circumstances. Past results do not guarantee future outcomes. This publication is made in compliance with the Bar Council of India Rules, which prohibit advertising or solicitation by advocates. Any information received through this article should not be construed as legal advice.
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