Calcutta High Court stays MSME Facilitation Council award for Bridge & Roof, citing natural justice violation. | The Legal Observer
The Calcutta High Court has granted an interim, unconditional stay on the execution of an arbitration award passed by the MSME Facilitation Council in Konkan, observing concerns over violation of the principles of natural justice.
Factual Background & Procedural Posture
In a petition under Section 36(2) of the Arbitration and Conciliation Act, 1996, Bridge and Roof Company (India) Ltd sought an unconditional stay, with exemption from furnishing security, against M/s FEPL Engineering Pvt. Ltd. The award in question originates from an arbitration proceeding before the MSME Facilitation Council, Konkan. Live Law
The petitioner argued that the MSME Council award was tainted by violation of the principles of natural justice, which rendered it susceptible to interference even at the interim stage. Live Law
The Calcutta High Court agreed, granting an interim stay on execution of the award, unconditionally. Live Law
Legal Reasoning & Key Observations
Natural Justice & Interim Relief
The Court’s decision underscores that natural justice violations—such as denial of opportunity to be heard, biased procedure, or lack of fair notice—can justify interim relief even in arbitration settings under MSME framework. The Court seems to have accepted that the petitioner’s contentions raised a prima facie case warranting suspension of execution. Live Law
Interplay: MSMED Act & Section 36(2)
Ordinarily, in MSME arbitration disputes, a petitioner seeking to set aside or challenge an award must comply with Section 19 of the Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act). That provision mandates a pre‑deposit of 75 percent of the awarded amount before applying to annul the award. Many High Courts, including Calcutta, have held that without this deposit, an application under Section 34 of the Arbitration Act becomes “stillborn,” and consequentially a stay application under Section 36(2) lacks a valid foundation. IBC Law+3SCC Online+3latestlaws.com+3
However, in this instance, the High Court appears to have carved out an exception: by focusing on the urgency and the gravity of alleged breach of natural justice, it granted an unconditional stay even possibly bypassing or relaxing the security / pre‑deposit requirements. Live Law
Standards for Granting Stay
While the award is stayed, courts must carefully balance (i) the prima facie validity of the challenge, (ii) the risk of prejudice to the award‑holder, and (iii) protection of the status quo. The Calcutta High Court’s unconditional stay suggests that the Court found the petitioner’s arguments weighty enough to tilt this balance in favor of freezing execution pending fuller adjudication. Live Law
Implications & Cautions
- Exceptional Relief in MSME Awards
This decision indicates that even within the tight framework of MSME arbitration, courts may grant unconditional interim relief in truly exceptional cases involving procedural unfairness. - Precedent for Natural Justice Challenges
Parties can rely on this line of reasoning to raise natural justice objections early and seek relief under Section 36(2) without waiting for final disposal. - Unclear Treatment of Pre‑Deposit Requirement
It remains to be seen whether this decision will be treated as a narrow, fact‑sensitive exception or evolve into broader flexibility. Caution is essential: many earlier decisions refused stays without compliance with Section 19. SCC Online+2latestlaws.com+2 - Strategic Use by Litigants
In future MSME arbitrations, parties might emphasize natural justice challenges at the earliest possible stage to secure interim protection.
