Generator Supplier’s ₹19.71 Lakh Refund Award Stands; Madras HC Says Corporation Had To Challenge It Through a Section 37 Appeal

On 20 May 2009, the appellant placed an order with the second respondent for the supply and installation of 130 diesel generator sets, followed by a repeat order for four more sets.

The appellant deducted ₹19,71,049 from the bills as liquidated damages for delayed delivery.

The second respondent invoked Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”).

After conciliation failed, the Facilitation Council acted as an arbitral tribunal and, on 28 November 2016, directed repayment of the withheld amount with statutory compound interest.

The appellant’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”), read with Section 19 of the MSMED Act, was dismissed by the Commercial Court at Kanpur Nagar on 30 October 2023.

The appellant then filed a writ petition challenging the award; the Single Judge dismissed it, and the appellant appealed.

Under Section 18(3) of the MSMED Act, following unsuccessful conciliation, the Facilitation Council may arbitrate the dispute itself or refer it for arbitration, and the provisions of the 1996 Act apply as if there were an arbitration agreement.

Section 18(4) confers statutory jurisdiction on the Council to act as an arbitral tribunal.

The 1996 Act provides for a challenge to an arbitral award under Section 34 and a statutory appeal under Section 37 against an order granting or refusing to set aside an award.

The Court applied the principle that where legislation provides an exhaustive mechanism for redress, a party cannot use Article 226 to bypass that statutory hierarchy.

The appellant had itself challenged the Council’s decision under Section 34, treating it as an arbitral award, and had also raised a ground under Section 29A of the 1996 Act, which concerns the time limit for making an arbitral award.

Having pursued that statutory route and received an adverse order, the appellant’s recourse was an appeal under Section 37, not a writ petition seeking to reopen the dispute.

The Court also considered that the award had merged into the Commercial Court’s order and held that allowing a writ challenge would circumvent the statutory scheme and undermine the legislative aim of speedy dispute resolution.

It dismissed the writ appeal, affirmed the Single Judge’s order, made no order as to costs, closed the connected miscellaneous petitions, and vacated the interim order.