Company tried to skip 75% deposit. Supreme Court said no.

A company owed Rs 40 lakh to a small supplier. Instead of paying 75% upfront to challenge the award, it went to the High Court directly. The Supreme Court just blocked that shortcut.

The dispute was simple. S R Technologies, a micro-enterprise protected by the MSMED Act 2006 (a law designed to stop big buyers from delaying payments to small suppliers), had not been paid. It went to the Micro and Small Enterprises Facilitation Council in Medchal-Malkajgiri, Telangana. On October 28, 2021, the council ruled: India Glycols Limited must pay Rs 40,29,862 with interest under Section 16 of the MSMED Act (the provision that makes buyers liable to pay on time).

India Glycols did not want to pay. But the law gave it one clear door to challenge the award: file under Section 34 of the Arbitration and Conciliation Act, 1996 (the provision that allows a court to set aside an arbitral award). That door had a lock. Under Section 19 of the MSMED Act, anyone challenging a council award must first deposit 75% of the amount — roughly Rs 30 lakh.

The company decided to find a window instead.

When the company walked through the wrong door

India Glycols did not file under Section 34. It went to the High Court of Telangana through a writ petition under Articles 226/227 of the Constitution (the High Court's power to review government decisions). A writ petition is a constitutional remedy meant for cases where a government body has acted illegally. The company argued the council's award was bad law — filed too late, barred by limitation.

A Single Judge agreed. On September 14, 2022, the judge set aside the award on limitation grounds. S R Technologies appealed. The matter reached a Division Bench (two judges). On March 21, 2023, the Division Bench reversed. Its finding was sharp: the writ petition itself should not have been entertained. The company had deliberately tried to avoid the 75% pre-deposit. The proper route was Section 34.

India Glycols appealed to the Supreme Court.

The Supreme Court's answer: a flat no

The bench — Chief Justice Dr Dhananjaya Y Chandrachud, Justice J B Pardiwala, and Justice Manoj Misra — heard the matter on November 6, 2023. The courtroom fell still as the arguments unfolded. The company's legal team shuffled papers, their arguments familiar: the award was passed beyond limitation, so the council had acted without jurisdiction. A writ petition, they insisted, was the correct remedy. The bench listened without interruption, the weight of the file before them a quiet presence.

The court did not buy it.

The reasoning turned on how the two laws fit together. Section 18(3) of the MSMED Act says that when a dispute goes to the Facilitation Council, the council must conduct proceedings as if they were arbitrations under the Arbitration and Conciliation Act, 1996. That means the entire arbitration framework — including Section 34 (the provision for challenging awards) — applies to council awards. Section 19 then adds a special condition: deposit 75% before you challenge.

The Supreme Court held that Parliament had designed a complete code. A specific remedy — Section 34 — with a specific condition — 75% pre-deposit. Allowing a party to bypass this by filing a writ petition would defeat the very purpose of the law. As the court held, entertaining a writ petition under Articles 226/227 to challenge a Facilitation Council award, when the purpose is to obviate the mandatory 75% pre-deposit requirement under Section 19 of the MSMED Act, would defeat the object and purpose of the special enactment legislated by Parliament. The words hung in the air, a final verdict on the company's strategy.

The court relied on its own recent decision in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (Unit 2) and Another — (2023) 6 SCC 401, which had already settled that writ petitions are not maintainable against Facilitation Council awards. That precedent, decided earlier the same year, had examined the same interplay between the MSMED Act and the Arbitration Act. In that case, the Supreme Court had held that the Facilitation Council's award is an arbitral award under the 1996 Act, and the only remedy is under Section 34 with the mandatory pre-deposit. The bench in the present case found no reason to deviate. The smell of old paper and the quiet rustle of robes filled the chamber as the judges conferred briefly before delivering their order.

The procedural journey in detail

The case had travelled a long road before reaching the Supreme Court. On October 28, 2021, the Micro and Small Enterprises Facilitation Council, Medchal-Malkajgiri, passed the award in favour of S R Technologies, decreeing the claim for Rs 40,29,862 with interest under Section 16 of the MSMED Act. The council had acted under Section 18, which governs references to the Facilitation Council. Section 18(3) mandates that the council conduct proceedings as arbitrations under the 1996 Act, and Section 18(4) confers jurisdiction on the council to decide disputes.

Instead of filing under Section 34 of the 1996 Act — the statutory remedy — India Glycols filed a writ petition under Articles 226/227 of the Constitution before the High Court of Telangana. On September 14, 2022, a Single Judge set aside the award on limitation grounds. S R Technologies then appealed to a Division Bench, which on March 21, 2023, reversed the Single Judge. The Division Bench held that the writ petition was not maintainable because the proper remedy was under Section 34 of the 1996 Act, and entertaining the writ petition would allow the company to circumvent the mandatory 75% pre-deposit under Section 19 of the MSMED Act.

India Glycols then filed a Special Leave Petition before the Supreme Court, which was converted into Civil Appeal No. 7491 of 2023. The bench — Chief Justice Dr Dhananjaya Y Chandrachud, Justice J B Pardiwala, and Justice Manoj Misra — heard the matter on November 6, 2023. The company argued that the award was passed beyond limitation and that the council had acted without jurisdiction, making a writ petition the correct remedy. The court rejected this argument, affirming the Division Bench's finding that the writ petition was not maintainable.

The two reasons the court gave

The ratio decidendi (the court's central reasoning) was two-fold. First, a writ petition under Articles 226/227 is not maintainable to challenge a Facilitation Council award because Section 18(3) read with Section 19 provides a specific statutory remedy under Section 34 of the Arbitration Act, subject to a mandatory 75% pre-deposit. Second, entertaining a writ petition when the purpose is to avoid that deposit would defeat the object of the MSMED Act.

The court's logic was rooted in the legislative scheme. The MSMED Act was enacted to ensure timely payment to micro and small enterprises, which often lack the bargaining power to demand payment from larger companies. The Facilitation Council provides a swift dispute resolution mechanism, but Parliament knew that large buyers might try to delay payment by challenging awards. The 75% pre-deposit was designed to prevent exactly that — a party cannot simply challenge an award and sit on the money while the litigation drags on. By attempting to bypass this through a writ petition, India Glycols was trying to do precisely what the law was designed to stop.

The court also examined the interplay between the provisions. Section 18(3) of the MSMED Act makes the 1996 Act applicable to Facilitation Council arbitrations. Section 34 of the 1996 Act is the proper remedy for challenging an arbitral award. Section 19 of the MSMED Act imposes the mandatory 75% pre-deposit. Entertaining a writ petition to obviate this deposit, the court held, would defeat Parliament's legislative purpose. The court left the writ jurisdiction under Articles 226/227 undisturbed in general, but held that it cannot be used to bypass a specific statutory remedy with a mandatory pre-deposit condition.

What this means for practitioners

The message from the Supreme Court is unambiguous. The Facilitation Council's award is an arbitral award under the 1996 Act. The only way to challenge it is through Section 34, and the 75% pre-deposit under Section 19 of the MSMED Act is mandatory. No writ petition can circumvent this requirement.

For lawyers advising companies that have lost before a Facilitation Council, the path is clear: deposit the 75% and file under Section 34, or do not challenge at all. Attempting to use constitutional remedies to avoid the pre-deposit will not only fail but may result in the challenge being dismissed at the threshold, as happened here.

For micro and small enterprises, the judgment provides reassurance. The special protection Parliament gave them — the mandatory pre-deposit — cannot be circumvented by a large buyer's legal maneuvering. The award stands until it is challenged through the proper channel, and that channel requires the buyer to put its money where its mouth is.

The Supreme Court affirmed the Division Bench. The appeal was disposed of. The Single Judge's order setting aside the award was itself set aside. The company was back where it started — facing a Rs 40-lakh award with interest, and no way to challenge it without first depositing 75%.

THE PLAY: If your client loses before a Facilitation Council, file under Section 34 of the Arbitration Act with the 75% pre-deposit — or do not file at all.

The company owed Rs 40 lakh. It still does.