Observations in Section 36 proceedings cannot influence adjudication on the merits under Section 34.

The petitioner invoked the Gujarat High Court’s supervisory jurisdiction under Article 227 of the Constitution to challenge the order dated 29 June 2026 passed by the Special Judge, Commercial Court and 6th Additional District Judge, Rajkot, rejecting the petitioner’s application under Section 36 of the Arbitration and Conciliation Act, 1996, seeking stay of operation of an arbitral award.

The award had been rendered by the MSME Council. In accordance with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006, the petitioner deposited 75% of the awarded amount while pursuing its Section 34 challenge to the award, and sought stay in respect of the remaining 25%.

The petitioner’s Section 34 challenge included the contention that the underlying works contract was outside the jurisdiction of the MSME Council.

The respondent subsequently stated that it would not pursue withdrawal of the deposited amount or execution proceedings and was ready to proceed with the Section 34 application. The matter was fixed before the Commercial Court for 29 September 2026.

1. Whether the High Court should interfere under Article 227 with the Commercial Court’s rejection of the petitioner’s application under Section 36(3) of the Arbitration and Conciliation Act, 1996, seeking stay of the arbitral award?

2. Whether the Section 34 application challenging the MSME award should be directed to be heard and decided expeditiously, particularly when the award-holder agreed not to pursue withdrawal of the deposited amount or execution during its pendency?

3. Whether observations made by the Commercial Court while deciding the Section 36(3) application could prejudice the determination of the Section 34 challenge on merits?

The Court exercised its supervisory jurisdiction under Article 227 of the Constitution of India over the Commercial Court.

Under Section 34 of the Arbitration and Conciliation Act, 1996, a party may challenge an arbitral award before the competent court, while Section 36(3) empowers the court to grant a stay of operation of the award subject to such conditions as it considers appropriate.

Section 19 of the MSMED Act, 2006 requires a party challenging an award made by the MSME Council to deposit 75% of the awarded amount.

The Court also applied the principle that adjudication of an interim application under Section 36(3) should not prejudge the merits of the pending Section 34 proceedings; observations made for interim purposes must not influence the final adjudication.

The High Court noted that the respondent was ready to argue the Section 34 application and had undertaken not to pursue withdrawal of the deposited amount or execution proceedings during its pendency.

Since both parties agreed to an early determination of the Section 34 challenge, and the Section 34 hearing was already fixed for 29 September 2026, the Court considered expeditious adjudication to be the appropriate course rather than entering into the merits of the Section 36(3) dispute.

The Court therefore left the rival contentions—including the challenge to the MSME Council’s jurisdiction over the works contract—to be decided by the Commercial Court in the Section 34 proceedings.

To prevent prejudice, it expressly directed that any merits-related observations in the impugned Section 36(3) order would be treated as confined to that interim application and would not guide the Section 34 decision.

The Commercial Court was directed to hear the Section 34 application on 29 September 2026 itself, or on another date within two weeks thereafter, and to endeavour to decide it expeditiously, preferably within six weeks from 29 September 2026, after giving both parties due opportunity of hearing.

The parties’ advocates were directed to cooperate, with liberty to the Commercial Court to proceed ex parte in case of unnecessary adjournments.

The Court further clarified that the observations in the impugned order would not prejudice the adjudication of the Section 34 application on merits.