In a recent legal development, an important decision has been made regarding the mandatory pre-deposit under the MSMED Act for challenging arbitral awards. This ruling emphasizes the significance of complying with the statutory requirement before seeking relief under the Arbitration Act. Let’s delve into the court’s legal analysis and implications of this decision.
Facts
- Respondent No.1 filed an application under section 34 of the Arbitration Act, 1996 for setting aside the arbitral award before the Special Commercial Court, Gurugram.
- Appellant submitted an application under section 19 of the MSMED Act, 2006 directing respondent No. 1 to deposit 75% of the arbitral award.
- Appellant filed a claim petition before the Micro and Small Enterprises Facilitation Council for recovery of a total amount of Rs. 2,72,33,153/-.
- Division Bench of the High Court directed the first appellate court to proceed under section 34 of the Arbitration Act, 1996 without insistence for the pre-deposit of 75% of the awarded amount.
- Appellant appealed the decision of the High Court, arguing that the pre-deposit under section 19 of the MSMED Act, 2006 should be mandatory.
- High 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.
- Appellant, dissatisfied with the High Court’s decision, filed the present appeal challenging the order.
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Issue
- Question Before the Court: Whether pre-deposit of 75% of the awarded amount under section 19 of the MSMED Act, 2006, is mandatory when challenging an award under section 34 of the Arbitration Act, 1996?
- Referencing the Decision: Mention of the case of Gujarat State Disaster Management Authority Vs. Aska Equipments Limited; (2022) 1 SCC 61.
- Indication of Precedent: Suggesting that the issue is no longer open to debate given the decision in the referenced case.
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Analysis
- The Division Bench decision in the case of M/s Mahesh Kumar Singla is overruled as it held that pre-deposit of 75% of the awarded amount under section 19 of the MSMED Act, 2006, is not mandatory.
- Pre-deposit of 75% of the awarded amount under section 19 of the MSMED Act, 2006 is held to be a mandatory requirement.
- The appellate court may allow the pre-deposit to be made in instalments if undue hardship is shown by the appellant/applicant.
- Section 19 of the MSMED Act, 2006 mandates the appellant-applicant to deposit 75% of the amount in terms of the award as a pre-deposit before entertaining the application for setting aside the award made under Section 34 of the Arbitration and Conciliation Act.
- The deposit of 75% of the amount as a pre-deposit is considered mandatory based on a fair reading of the MSMED Act, 2006 and the Supreme Court’s decision in Goodyear (India) Ltd. Vs. Norton Intech Rubbers (P) Ltd.
- The impugned order passed by the High Court permitting proceedings under section 34 of the Arbitration Act, 1996 without insisting on a pre-deposit of 75% of the awarded amount is unsustainable.
- The decision of the Division Bench in the case of M/s Mahesh Kumar Singla was relied upon by the High Court, which took a contrary view and is therefore not applicable in this case.
- Considering the undue hardship that may be caused to the appellant-applicant to deposit 75% of the awarded amount at once, the appellate court can allow the pre-deposit to be made in instalments.
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Decision
- The present appeal is allowed.
- The impugned order passed by the High Court is quashed and set aside.
- Respondent No. 1 is directed to deposit 75% of the awarded amount before its application under section 34 of the Arbitration Act, 1996 is entertained.
- Unless respondent No. 1 deposits the 75% of the awarded amount, its application under section 34 of the Arbitration Act, 1996 challenging the award will not be entertained and decided on merits.
- Execution proceedings may continue in that case.
- No order as to costs shall be given.
Case Title: M/S TIRUPATI STEEL Vs. M/S SHUBH INDUSTRIAL COMPONENTS (2022 INSC 439)
Case Number: C.A. No.-002941-002941 / 2022
