In CIVIL APPEAL NO. 2941 OF 2022-SC- Pre-deposit of 75% of awarded amount u/s 19 of MSMED Act, 2006 is mandatory requirement, rules Apex Court Justices M.R. Shah & B.V. Nagarthana [19-04-2022]

 Read Judgment: M/S TRIPATHI STEEL Vs. M/S SHUBH INDUSTRIAL COMPONENT AND ANR 

Mansimran Kaur 

New Delhi, April 20, 2022: Referring to its judgment in Gujarat State Disaster Management Authority Vs. Aska Equipments, the Supreme Court has observed that pre-deposit of 75% of awarded amount u/s 19 of Micro, Small and Medium Enterprise Development Act, 2006, is a mandatory requirement.

A Division Bench of this Court comprising of Justice M.R. Shah and Justice B.V. Nagarthana observed that the   proposition of law that as per Section 19 of the MSMED Act, 2006  pre-deposit of 75% of the awarded amount was directory in nature is no more res integra.

Brief facts of the case were that the parties were  governed by the provisions of the MSMED Act, 2006. The appellant  preferred a claim petition before the Micro and Small Enterprises Facilitation Council constituted under the MSMED Act, 2006 for recovery of Rs.1,40,13,053/ and interest amounting to Rs.1,32,20,100/ which came to a total amounting to Rs. 2,72,33,153/. On the failure of conciliation, the dispute was referred to the Arbitrator. The Arbitrator, appointed through the MSME Facilitation Council at Chandigarh, passed an award in favor of the appellant by an award dated July 16, 2018. Thereafter, the appellant instituted the execution petition before the District and Sessions Judge, Faridabad. Pursuant to the same the first respondent filed an application under Section 34 of the Arbitration Act, 1996 for setting aside the arbitral award before the Special Commercial Court, Gurugram.

Thereafter,  the appellant  submitted an application under Section 19 of the MSMED Act, 2006 directing first respondent- judgment debtor to deposit 75% of the arbitral award. The  Additional District Judge & Special Commercial Court, Gurugram allowed the said application moved by the appellant and granted six weeks’ time to first respondent to deposit 75% of the arbitral award before the application filed under Section 34 of the Arbitration Act, 1996 could be entertained by the Court. 

Feeling aggrieved with the order passed by the Special Commercial Court, the respondent instituted a commercial appeal before the High Court. The Court by relying on the decision of the Division Bench of the High Court in the case of M/s Mahesh Kumar Singla and another Vs. Union of India and others(CWP No. 23368 of 2015), observed  that the pre-deposit of 75% of the arbitral award under section 19 of the MSMED Act, 2006 is directory and not mandatory in nature. Consequently, the Court  permitted the proceedings under Section 34 of the Arbitration Act, 1996 to continue without insistence on making a pre-deposit of 75% of the awarded amount. 

Feeling aggrieved and dissatisfied with the impugned order passed by the Division Bench of the High Court permitting the proceedings under section 34 of the Arbitration Act, 1996, to go on without insistence for making pre-deposit of 75% of the awarded amount, the appellant herein – original judgment creditor  preferred the present appeal.

The question of law before this Court was pertaining to  whether the pre-deposit of 75% of the awarded amount as per section 19 of the MSMED Act, 2006, was  mandatory or directory in nature, in circumstances wherein the award was in challenge  under  Section 34 of the Arbitration Act, 1996. 

The Apex Court observed that the proposition of law that as per Section 19 of the MSMED Act, 2006  pre-deposit of 75% of the awarded amount is directory in nature is no more res integra. Reliance was placed on the decision of this Court in  Gujarat State Disaster Management Authority Vs. Aska Equipments Limited  wherein the Court while interpreting Section 19  of the MSMED Act, 2006 and after taking into consideration the earlier decision of this Court in Goodyear (India) Ltd. Vs. Norton Intech Rubbers (P) Ltd observed and held that the requirement of a deposit of 75% of the amount in terms of the award as a pre-deposit as per section 19 of the MSMED Act, is mandatory. However, it was also stated that in case the appellant faces any hardship before the Appellate Court concerning the deposition, the same can be done in installments. 

In view of the aforesaid decision, the Apex Court observed that the impugned order passed by the High Court permitting the proceedings under section 34 of the Arbitration Act, 1996 without insistence for making pre-deposit of 75% of the awarded amount was unsustainable and the same deserved to be quashed and set aside. 

It was further held that while passing the impugned order, the Division Bench of the High Court relied upon an earlier decision of the Division Bench in the case of M/s Mahesh Kumar Singla (supra) which took  a contrary view. Therefore, the decision of the Division Bench in the case of M/s Mahesh Kumar Singla (supra), which was relied upon by the Division Bench of the High Court while passing the impugned order, was held to be not good law and was  specifically overruled to the extent wherein it held that pre-deposit of 75% of the awarded amount under section 19 of the MSMED Act, 2006, is directory and not a mandatory requirement.

Thus, in light of the observations made above, the Apex Court allowed the present appeal. The impugned order of the High Court was accordingly set aside and quashed. Directions were issued to the first respondent to deposit 75% of the awarded amount if he wanted his application under Section 34 of the Act to be entertained. Thus, it was stated that unless the deposit was made, the application of the respondent assailing the award would not be entertained on merits and, in that case the execution proceedings might continue.