Explained| Pre-deposit of 75% of arbitration award amount under Section 19 of the MSME Act, 2006 mandatory or discretionary?

Supreme Court: The bench of MR Shah* and AS Bopanna, JJ has held that in an appeal/application filed under Section 34 of the Arbitration & Conciliation Act, 1996 read with Section 19[1] of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act, 2006), the appellate court would not have any discretion to deviate from deposit of 75% of the awarded amount as a pre-deposit.

The Court held that as per Section 19 of the MSME Act, 2006, at the time/before entertaining the application for setting aside the award made under Section 34 of the Arbitration & Conciliation Act, the applicant/appellant has to deposit 75% of the amount in terms of the award as a pre-deposit.

Hence, the requirement of deposit of 75% of the amount in terms of the award as a pre-deposit is mandatory. However, at the same time, considering the hardship which may be projected before the appellate court and if the appellate court is satisfied that there shall be undue hardship caused to the appellant/applicant to deposit 75% of the awarded amount as a predeposit at a time, the court may allow the pre-deposit to be made in instalments.

In Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345, the Court had taken the same view wherein it was held that in the manner directed by such court” would indicate the discretion given to the court to allow the pre-deposit to be made, if felt necessary, in instalments. Otherwise the deposit of 75% as a pre-deposit is mandatory and the appellate court would have no discretion at all to deviate from the mandate under Section 19 of the MSME Act, 2006.

Hence, considering the language used in Section 19 of the MSME Act, 2006 and the object and purpose of providing deposit of 75% of the awarded amount as a pre-deposit while preferring the application/appeal for setting aside the award, it has to be held that the requirement of deposit of 75% of the awarded amount as a predeposit is mandatory.

[Gujarat State Disaster Management Authority v. Aska Equipments Limited, 2021 SCC OnLine SC 917, decided on 08.10.2021]

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Counsels

For appellant: Advocate Ajay Kumar

For Respondent: Advocate Jitender Chaudhary

*Judgment by: Justice MR Shah

Know Thy Judge | Justice M. R. Shah


[1] 19. Application for setting aside decree, award or order – No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.

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