Dodal Electro Instruments v. The Micro and Small Enterprises Facilitation Council & Ors.

15. Mr. Agarwal would urge that the submission on behalf of the Petitioner that MSEFC has clubbed the stages of conciliation and arbitration is a subterfuge. Laying emphasis on the contents of the notices addressed by MSEFC to the Petitioner, Mr. Agarwal urged, with a degree of vehemence, that the notices were issued for hearing in regard to the complaint of nonpayment of dues. After having succeeded in protracting the proceedings before the MSEFC by non-appearance and seeking time on multiple occasions, the Petitioner cannot be heard to urge that MSEFC clubbed the conciliation and arbitration proceedings.

16. Mr. Agarwal joined the issue on the point that Mexim (R[2]) is not the supplier, by placing reliance on the registration certificate of Mexim as a small scale industry in the year 2004 itself. Even otherwise, all these contentions ought to be raised in the proceeding challenging the award under Section 19 of the Act, 2006 and not before the writ Court, was the thrust of the submission of Mr. Agarwal. It was submitted with tenacity that, entertaining the petitions despite the existence of a statutory remedy would defeat the object of the provisions of the Act, 2006, especially the avowed purpose of the provisions contained in Section 19 of the Act, 2006, under which the Court is precluded from entertaining any proceedings for setting aside a decree, award or order, unless the appellant, not being a supplier, deposits 75% of the amount. A defaulting party cannot be permitted to circumvent the statutory requirement by invoking writ jurisdiction, submitted Mr. Agarwal.

17. To buttress this submission, Mr. Agarwal placed reliance on the judgment of a learned Single Judge of the Himachal Pradesh High Court in the case of Surinder Sharma V/s. Himachal Pradesh Micro Small Enterprises Facilitation Cuncil and Ors.3.

18. At any rate, according to Mr. Agarwal, the conduct of the Petitioner is such that no relief can be granted to the Petitioner. Mexim (R[2]) has been made to run from pillar to post since the year 2014 for a legitimate claim. The instant Petitions came to be instituted only when Mexim (R[2]) filed execution proceedings and coercive orders were about to be passed therein. In these circumstances, the Petitions deserve to be dismissed.

19. To begin with the aspect of tenability of the writ petitions against the orders passed by the MSEFC under Section 18 of the Act, 2006. The availability of an efficacious alternate remedy is self-imposed restraint on the exercise of the writ jurisdiction by the High Court. Normally, the exceptions to the rule of efficacious alternate remedy arise where the writ petition has been filed for the enforcement of a fundamental right; there has been a violation of principle of natural justice; the impugned order or proceedings are wholly without jurisdiction or vires of the legislation under which the orders have

3 Manu/HP/1136/2025 been purportedly passed itself is challenged. When a right is created by a statute which has also prescribed the remedy or procedure for enforcing such right or liability, resort must be had to that particular statutory remedy before invoking extra-ordinary writ jurisdiction under Article 226 of the Constitution. This rule of exhaustion of the statutory remedy is a rule of policy, convenience and discretion.

20. To put it in other words, the existence of the statutory remedy does not affect the jurisdiction of the High Court to issue a prerogative writ. Nonetheless, the writ jurisdiction being discretionary, as a matter of policy, writ Courts insist that the parties exhaust the alternate statutory remedy. However, in exceptional cases, the writ jurisdiction can be exercised by the High Court.

21. As the aforesaid legal position is well settled, it may not be necessary to refer to the precedents on the limits of the exercise of the writ jurisdiction, in the face of the availability of the statutory remedy under various enactments. In the backdrop of the controversy at hand, reference can be made to a three Judge Bench judgment of the Supreme Court in the case of India Glycols Ltd. and Anr. v/s. Micro and Small Enterprises Facilitation Council, Medchal and Ors.[4] wherein the Supreme Court enunciated in clear and explicit terms that Section 18 of the Act, 2006 provides for recourse to a statutory remedy for challenging an award under the 1996 Act. That recourse to the remedy is subject to the discipline of complying with the provisions of Section 19. The entertaining of a petition under Articles 226/227 of the Constitution, in order to obviate compliance with the requirement of predeposit under Section 19, would defeat the object and purpose of the special enactment which has been legislated upon by Parliament.

22. In the case of Tamil Nadu Cements Corporation Ltd. V/s. Micro and Small Enterprises Facilitation Council and Anr.5, another three Judge Bench of the Supreme Court expressed its reservations on the aforesaid dictum in the case of India Glycols Ltd. and Anr. (supra). It was observed that whether there would be an absolute and complete bar to invoke writ jurisdiction under Article 226 of the Constitution, even in exceptional and rare cases where fairness, equity and justice may warrant the exercise of writ jurisdiction, warranted consideration. Thus, a reference was made to a larger Bench of five Judges on the following questions:

23. Mr. Keswani would urge that, in view of the aforesaid reference and enunciation of law in the case of Tamil Nadu Cements Corporation Ltd. (supra), the High Court is not completely denuded of the power to exercise writ jurisdiction, especially in the case like the present one, where the justice of the claim is firmly in favour of the Petitioner.

24. I am conscious of the settled position in law that, the mere fact that the decision is referred to a larger Bench does not erode the precedential value of the decision under reference. In my considered view, it may not be necessary to adopt a doctrinaire approach regarding the binding efficacy of the three Judge Bench judgment in the case of India Glycols Ltd. (supra). I propose to evaluate the case on the touchstone, whether any of the exceptional circumstances to exercise the writ jurisdiction, despite existence of the statutory remedy, is made out.

25. First, the ground of alleged violation of the principles of natural justice. Though Mr. Keswani made a valiant attempt to draw home the point that no effective opportunity of hearing was given to the petitioner, and, at times, the notices were served on the petitioner after the date of hearing had passed by, yet, the ground of failure to adhere to the principles of natural justice appears to be in the nature of a litany of grievances; unsubstantiated. It is imperative to note that as early as 24th July, 2018 itself, the petitioner had informed MSEFC that a notice in regard to the listing of the matter on 11th July 2018 was received on 23rd July, 2018 and a request to reschedule the hearing was made. This communication implied that the petitioner became aware of the proceedings before MSEFC in the month of July, 2018 itself. That gives heft to the submission on behalf of the respondents that the petitioner has approached this Court with an incorrect assertion that the petitioner for the first time became aware of such proceedings before the MSEFC on 5th February, 2020. On the own showing of the petitioner, the petitioner had sought adjournments and rescheduling of the hearing on a number of occasions during the period 2018 to 2023. Therefore, the submission on behalf of the petitioner that the impugned orders were passed in flagrant violation of the fundamental principles of natural justice and, therefore, this Court would be justified in exercising the writ jurisdiction, despite the existence of the statutory remedy, does not commend itself.

26. The edifice of the next ground, assiduously canvassed by Mr. Keswani, that Mexim was not qualified to make a reference under Section 18 and, thus, MSEFC lacked jurisdiction to pass the impugned order, was sought to be built on the premise that there is no material to show that Mexim was duly registered under the Act, 2006 before it entered into the subject transactions with the petitioner. Mr. Keswani would urge that in the absence of material to show that the Mexim had filed a Memorandum in accordance with the provisions of the Act, 2006 the dispensation under the regime enshrined by the Act, 2006 is not at all attracted. A very strong reliance was placed on the judgment in the case of Silpi Industries (supra).

27. In the aforesaid case, the Supreme Court enunciated that for the supplies pursuant to the contract made before the registration of the unit under the provisions of the Act, 2006 no benefit can be sought by such entity, as contemplated under the Act, 2006. By taking recourse to filing Memorandum under sub-section (1) of Section 8 of the Act, 2006, subsequent to entering into a contract and supply of goods and services, one cannot assume the legal status of being classified under the Act, 2006, as an enterprise to claim the benefits retrospectively from the date on which a party (appellant therein) entered into a contract with the respondent. The observations in paragraph 44 of the judgment in the case of Silpi Industries (supra) were pressed into service by Mr. Keswani. They read as under:

28. It must be recorded that Mr. Keswani fairly invited the attention of the Court to a two-Judge Bench judgment of the Supreme Court in the case of NBCC (India) Limited vs. State of West Bengal and others[6], wherein the Supreme Court observed that Silpi Industries (supra) is not an authority on the issue that a reference under Section 18 cannot be made by a micro or small enterprise if supplies were made or contracts were executed before filing of the memorandum under Section 8 of the Act, 2006. Though it was possible for the two-Judge Bench to arrive at the conclusion that the judgments in Silpi Industries (supra) and Gujarat State Civil Supplies Corporation Limited vs. Mahakali Foods Private Limited (Unit-2) and another[7] coupled with the subsequent orders in Vaishno Enterprises vs. 6 (2025) 3 Supreme Court Cases 440. 7 (2023) 6 Supreme Court Cases 401. and Nitesh Estates Ltd. vs. Outsourcing Xperts[9] cannot be considered to be binding precedents on the issue that had arisen for the consideration of the Division Bench, yet, taking into account the compelling need to ensure clarity and certainty about the applicability of the precedents on the subject, the Division Bench deemed it appropriate to refer the said appeal to a three-Judge Bench.

29. This Court is of the considered view that, in the facts of the instant case, the character and qualification of Mexim to invoke the remedies under the Act, 2006 does not appear debatable. Under the first proviso to Section 8(1) of the Act, 2006, any person, who before commencement of the Act, 2006, has established a Small Scale Industry and obtained a registration certificate, may, at his discretion, file the memorandum in accordance with the provisions of the Act, 2006. In contrast, a person who established a industry covered by the Notification of the Government of India in the erstwhile of Ministry of Industry (Department of Industrial Development) dated 25th July, 1991, shall within one hundred and eighty days from the commencement of the said Act, 2006, file the memorandum in accordance with the provisions of the Act, 2006. The Parliament has thus designedly made a distinction in the matter of filing of the memorandum, in accordance with the provisions of the Act, 2006, in the case of a small scale industry which had a registration certificate and an industry which had filed an Industrial Entrepreneur’s Memorandum. It was thus not obligatory for the person, who had established a small scale industry and obtained a registration certificate, prior to the commencement of the Act, 2006 to file such memorandum within one hundred eighty days from the commencement of the said Act, 2006. The Parliament has used the word ‘may’ as well as the expression ‘at his discretion’ in the matter of the filing of a memorandum by the person who established the Small Scale Industry and obtained a registration certificate also, before the Act, 2006 came into force.

30. In the case at hand, Mexim was registered as a Small Scale Industry on 13th February, 2004. The MSME Udyog Aadhar issued on 13th January, 2016, records the fact that Mexim commenced the business on 19th April, 2001. It had obtained registration as a small scale industry on 13th February, 2004. In this view of the matter, prima facie, it appears that Maxim having been registered as a small scale industry in the year 2004 itself was not obligated to file the memorandum under the proviso to Section 8(1) of the Act, 2006 within one hundred and eighty days from the commencement of the said Act, to claim the benefits of the provisions under the Act, 2006.

31. This propels me to the main plank of Mr. Keswani’s submission that the impugned orders have been passed by MSEFC in gross violation of the mandate of the provisions contained in Section 18(3) of the Act, 2006, in as much as the MSEFC had not at all resorted to arbitrate the dispute as warranted by the provisions contained in the Arbitration and Conciliation Act,

1996. The conciliation and arbitration proceedings were arbitrarily clubbed, which is in teeth of the express statutory provisions and the governing judicial precedents.

32. For a proper evaluation of the aforesaid submission, recourse to the provisions contained in Section 18 of the Act, 2006, becomes imperative. Upon receipt of a reference, the MSEFC was required to follow the procedure as delineated in sub-sections (2), (3) and (4) of Section 18, which read as under: “(1)……. (2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act. (3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the disputes as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act. (4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. ”

33. A perusal of the aforesaid provisions would indicate that the Parliament has devised a two stage mechanism for the resolution of the dispute. First, under sub-section (2) of Section 18, MSEFC was obligated to itself conduct the conciliation or refer the parties for conducting the conciliation. The mandate to either conciliate or refer the parties to conciliation was emphasised by the use of the word “shall”, and by further providing that, once the parties are referred to conciliation, the provisions of Section 65 to 81 of the Act, 1996 shall apply to such a dispute as if the conciliation was initiated under Part III of the said Act, 1996. Upon the failure of the conciliation or termination of the conciliation proceedings, the next stage of arbitration was to be compulsorily resorted to by the MSEFC. Sub-section (3) of Section 18, MSEFC was empowered to itself arbitrate the dispute or refer the parties to arbitration. Once the parties were referred to arbitration, the provisions of the Arbitration and Conciliation Act, 1996 would then apply to the dispute resolution process.

34. The aforesaid dispute resolution mechanism, envisaged under subsection (3) of Section 18, is in contrast to the fundamental principle of arbitration i.e. party autonomy. Section 18(3) introduces a measure of compulsory arbitration, de hors the consent of the parties. To ensure that such compulsory arbitration is in accord with the regime of arbitration governed by the Act, 1996, the Parliament has not only provided that the provisions of Arbitration and Conciliation Act, 1996, should apply to the disputes which are taken up for arbitration, or referred to arbitration, by MSEFC, but also that, the Act, 1996 would apply as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of the Act, 1996. Thus, by a deeming fiction, the arbitration agreement is presumed to exist between the parties to the reference under Section 18(1) of the Act, 2006 before the MSEFC.

35. Keeping in view the aforesaid scheme of the dispute resolution by MSEFC, the decision of the Supreme Court in the case of Jharkhand Urja Vikas Nigam Ltd. V/s. State of Rajasthan and Ors. (supra), deserves to be consulted. In the said case, MSEFC had issued notices to the appellant therein. As the appellant did not respond to the notices, the Council had issued summons for appearance to the appellant before the Council. On 6 August 2012, on the ground that the appellant did not appear on that day, the Council passed an order on the very day directing the appellant to make the payment to the third respondent therein, as claimed.

36. In the backdrop of the aforesaid facts, the Supreme Court after extracting the provisions of Section 18 of the Act, 2006, expounded the legal position as under:

37. In the case of Silpi Industries (supra) also, the Supreme Court enunciated the import of the provisions contained in Section 18(3) of the Act, 2006 in relation to the provisions contained in the Arbitration and Conciliation Act, 1996. The observations in paragraph No.33 are material, and, hence, extracted below:

38. Whether the aforesaid enunciation of law governs the facts of the case at hand ? For an answer, a reference to the impugned order which spells out the manner in which the MSEFC approached the matter of resolution of the disputes, becomes necessary. Relevant observations in Case No.75 read as under: “In this matter, the Conciliation proceedings were initiated udner the MSMED Act, 2006. As per the Section 18 of Chapter V of the Act, the said case is referable to the MSEF Council. The Section 17 of the Act is with reference to recovery of the due amount and the reference of outstanding amount which are due is required to be made under section 18 of the Act, which has been done by the Petitioner. Accordingly, the Council constituted under the MSMED Act, 2006 continued with the hearing of the said case and initiated conciliation proceedings. The matter was heard on 30/01/2019, 27/05/2019, 15/11/2019, 10/02/2020, 23/10/2020, 12/01/2021, 17/02/2021, 19/08/2021, 31/07/2023, 14/08/2023, 31/08/2023 and 22/09/2023. The Purchaser /Buyer has remained absent from hearing. However, purchaser / buyer has submitted letter on dated 29/08/2023, 21/09/2023 and Email on dated 22/09/2023 for request to time for settlement. After the perusal of records and documents, the claim of the Seller towards the purchaser is genuine and the Purchaser has failed to repay the amount for the goods supplied, and, hence, the Council allows the claim submitted by the Seller.”

39. Critising the approach, evinced by the aforesaid observations, of MSEFC, Mr. Keswani would urge that, at no point of time, MSEFC decided to proceed to the next stage of arbitration. Inviting attention of the Court to the notices of hearing, Mr. Keswani would urge that, none of the notices referred to the fact the MSEFC had taken up the dispute for arbitration. On the contrary, in each of the notices the Petitioner was called upon to submit response for settlement of the dispute.

40. Mr. Agarwal, learned Counsel for Respondent No.2, joined the issue by canvassing a submission that the notices cannot be read in a selective manner. Laying emphasis on the statement in the body of notices that the matter was fixed for hearing on the complaint of non-payment of dues, Mr. Agarwal would urge that the Petitioners cannot be permitted to take advantage of their own wrong in not appearing before the MSEFC, despite multiple notices of hearing, and, yet, contend that the provisions of the Act, were not followed.

41. In my considered view, the contents of the notices may not have the decisive significance. The pivotal question that comes to the fore is, whether the MSEFC decided to proceed to the stage of arbitration, and, if so, whether the arbitration proceedings were conducted in conformity with the provisions of the Act, 1996 ?

42. From the perusal of the observations in the impugned order (extracted above), it becomes evident that the MSEFC has referred to initiation of conciliation proceedings. The consideration on the said point, stops at that. The impugned order does not indicate that the MSEFC reckoned that the conciliation proceedings did not succeed and stood terminated. Even if one were to presume that, on account of the non-appearance of the Petitioners, in the proceedings before the MSEFC, despite notices, the MSEFC construed, by implication, that the conciliation proceedings failed, yet, further question as to whether MSEFC resorted to itself arbitrate the dispute or refer the parties to arbitration, is neither answered by the impugned order nor any other material on record. It does not appear that the proceedings were recorded in the Reference that the MSEFC took upon itself the task of arbitration.

43. On the contrary, upon perusal of the observations in paragraph No.2 (extracted above), one gets an impression that the MSEFC proceeded to pass the impugned orders as the Petitioners did not appear, and, on 22 September 2023, the Petitioners had sought time for settlement.

44. As noted above, once the stage of arbitration under Section 18(3) was reached, the dispute was required to be arbitrated in accordance with the provisions contained in the Arbitration and Conciliation Act, 1996. It does not appear that MSEFC adverted to any of the provisions contained in the Act,

1996. The parties were not called upon to file statements of claim and defence. Even when the Petitioner did not appear, the MSEFC was enjoined to follow the procedure contained in Sections 23 and 25 of the Act, 1996; which provides for the procedure to be adopted in the event of a default of a party.

45. Under Section 25 clause (b) of the Act, 1996, where the Respondent fails to communicate his statement of defence in accordance with sub-section (1) of Section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited. Under clause (c) of Section 25, where a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it. Thus, there are adequate provisions under the Act, 1996, which regulate the arbitral proceedings where the respondent commits default in appearance.

46. I am mindful that it could be urged that the Petitioner’s right to file the statement of defence could be deemed to have been forfeited. However, for that purpose, there ought to be a clear indication either in the order or in the record of proceedings or other material to unmistakably demonstrate that the MSEFC having crossed the stage of conciliation and embarked upon the adjudication of the dispute by itself taking up arbitration. In the absence thereof, the order passed by the MSEFC like the one, extracted above, where it is simply recorded that the claim of the seller appears genuine and the purchaser committed default, does not cloth it with the character of an arbitration award.

47. Thus, I find substance in the submission of Mr. Keswani that the impugned orders do not constitute an arbitration award, as envisaged by the provisions of the Act, 1996. The impugned orders, therefore, become unsustainable and susceptible to interference in exercise of the writ jurisdiction as the orders have been passed in breach of the mandatory provisions of the Act, 2006 and the Arbitration and Conciliation Act, 1996. Failure to adopt express statutory provisions in conformity with which only the decisions were required to be rendered, furnishes a surer foundation for the exercise of the writ jurisdiction.

48. It is true, the conduct of the Petitioners in the matter of the participation in the proceedings before the MSEFC cannot be said to be unblemished. Yet, the failure of MSEFC to adhere to statutory mandate cannot be brushed aside as inconsequential on the premise that the Petitioners did not diligently participate in the proceedings before the MSEFC. The Court is also required to be sensitive to the fact that out of the total amount ordered to be paid in Case No.75 i.e. Rs.28,49,940/-; the outstanding principal amount was Rs.1,47,610/- and the balance Rs.27,02,330/- was the interest component. Likewise, in Case No.74, out of the total awarded amount of Rs.42,35,504/-, the principal amount was Rs.300,631/- only and the balance Rs.39,34,873/was formed by interest. Therefore, the element of justice of the claim, notwithstanding the provisions contained in Sections 16 and 19 of the Act, 2006, is such that a rare and exceptional situation on account of the failure of the MSEFC to follow the mandatory procedure in passing the award, can be said to be made out.

49. The upshot of aforesaid consideration is that the Petitions deserve to be partly allowed and the impugned orders are required to be quashed and set aside and the References under Section 18 of the Act, 2006 are required to be remitted back to the MSEFC for afresh decision in accordance with law.

50. Hence, the following order: ORDER

(i) The Writ Petitions stand partly allowed.

(ii) The impugned orders stand quashed and set aside.

(iii) Proceedings under Reference Nos.75 and 74 stand remitted back to the MSEFC at Daman, for afresh determination by way of arbitration.

(iv) The parties shall appear before MSEFC, Daman on 6 October

2025.

(v) On that day, MSEFC, Daman, shall pass appropriate orders to regulate the arbitral proceedings.

(vi) In the event of default in appearance of the parties, MSEFC shall be at liberty to pass appropriate orders in accordance with the provisions of the Act, 1996.

(vii) MSEFC, Daman, is requested to decide Reference Nos.75 and

74 on their own merits and in accordance with law and without being influenced by any of the observations hereinabove, which were confined to evaluate the legality, propriety and correctness of the impugned orders, in the light of the aforesaid challenges thereto. It is clarified that this Court has not entered into the merits of the matter.

(viii) Rule made absolute in the aforesaid terms with no order as to costs.