Writ petitions against MSMED act proceedings are not maintainable: Madras high court applies India glycols

Madras High Court Rules Writ Petitions Against MSMED Act Proceedings Unmaintainable, Impacting India Glycols Case

Case: Kinetic Industries Pvt. Ltd. v. Micro Small Enterprises Facilitation Council and Anr.

Bench: Justice Abdul Quddhose, High Court of Madras Background

Kinetic Industries Pvt. Ltd. filed a writ petition before the Madras High Court under Articles 226 and 227 of the Constitution of India challenging an order dated July 15, 2025 passed by the Micro and Small Enterprises Facilitation Council, Chennai Region, under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006. The Council had allowed a claim filed by the second respondent, a supplier, against Kinetic Industries for non-payment of the value of goods supplied, and directed Kinetic Industries to pay the principal amount of Rs. 5,58,400 along with compound interest with monthly rests. The Petitioner's Challenge

Kinetic Industries contended before the High Court that the statutory procedure under Section 18(2) of the MSMED Act, which requires conciliation proceedings to be conducted before arbitration can be initiated, had not been followed by the Council before passing the impugned order. It argued that no conciliation had in fact taken place and therefore the order was arbitrary and illegal. Documents were produced before the Court in support of this contention.

The Council, on the other hand, submitted that the conciliation procedure under Section 18(2) had been duly followed and that it was only after conciliation failed that the dispute was referred to arbitration, culminating in the impugned order. It denied any statutory violation. The Threshold Question: Maintainability

Before examining the merits of whether conciliation had in fact been conducted, the Court framed a prior question: whether a writ petition is maintainable at all against an order passed by the Council under the MSMED Act, particularly where the complaint is non-adherence to the conciliation procedure under Section 18(2).

The Court set out the statutory scheme of Section 18 of the MSMED Act. The provision operates with a non-obstante clause and creates a mandatory, fast-track dispute resolution mechanism for payment disputes of Micro, Small and Medium Enterprises. Any party can refer a payment dispute under Section 17 to the Council. The Council first conducts conciliation under the framework of the Arbitration and Conciliation Act, 1996. If conciliation fails, the Council itself, or an institution designated by it, handles arbitration applying the provisions of the Arbitration Act. The MSMED Act overrides any private arbitration agreement between the parties. The reference is required to be decided within ninety days from the date of reference under Section 18(5).

The Court noted the interplay between the MSMED Act and the Arbitration Act. The procedural framework of the Arbitration Act applies to arbitration under Section 18 of the MSMED Act, but the substantive and special provisions of the MSMED Act prevail wherever they are in conflict. One such special provision is Section 19 of the MSMED Act, which requires a party challenging an award under Section 34 of the Arbitration Act to mandatorily pre-deposit seventy-five percent of the award amount. No such pre-deposit is required under the Arbitration Act itself. What the Court Held on Maintainability

The Court held that the writ petition was not maintainable. Its reasoning proceeded on the following lines.

First, the MSMED Act does not provide that if the conciliation procedure under Section 18(2) is not followed, a party is entitled to approach a court even before an arbitral award is passed. The remedy for jurisdictional or procedural objections during the proceedings lies in filing an application under Section 16 of the Arbitration Act before the Council itself. If such a challenge under Section 16 is rejected, the party must await the final award and then challenge both the rejection and the award by filing a petition under Section 34 of the Arbitration Act.

Second, the Court relied on the Supreme Court's three-judge bench decision in India Glycols Limited and Another v. Micro and Small Enterprises Facilitation Council, Medchal, reported as (2025) 5 SCC 780, which held that recourse to jurisdiction under Articles 226 and 227 of the Constitution is clearly impermissible without first following the remedy under Section 34 of the Arbitration Act, which requires the mandatory pre-deposit of seventy-five percent of the award amount under Section 19 of the MSMED Act. Entertaining writ petitions of this kind would allow parties to circumvent the pre-deposit requirement, defeating the legislative intent behind Section 19. Third, the Court noted that the decision in India Glycols had been referred to a larger bench by the Supreme Court in Tamil Nadu Cements Corporation Ltd. v. Micro and Small Enterprises Facilitation Council and Others, reported as (2025) 4 SCC 1. However, the Court held that since the India Glycols decision by the three-judge bench had not been reversed, it continued to hold the field and was binding on the High Court until the larger bench decided otherwise.

Consequentially, the Court held that an earlier single judge decision of the Madras High Court in Sri Valli Process v. Micro Small Enterprises Facilitation Council, 2022 SCC Online Mad 3537, which had entertained a writ petition arising out of MSMED Act proceedings, was no longer good law in view of the Supreme Court's decision in India Glycols.

The Court accordingly held that even if there was a violation of the statutory conciliation procedure under Section 18 of the MSMED Act, Kinetic Industries would have to wait for the final arbitral award, and only thereafter challenge the award under Section 34 of the Arbitration Act by making the mandatory pre-deposit under Section 19 of the MSMED Act. A writ petition under Articles 226 and 227 to bypass that route is not maintainable.