Calcutta High Court: A single-judge bench comprising of Moushumi Bhattacharya,* J., held that compliance with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is mandatory for seeking a stay of an award and dismissed the petitioner’s application for stay on arbitral award.
“The petitioner must first comply with Section 19 of the MSMED Act to breathe life into the application.”
Brief Facts
In the instant matter, the West Bengal State Micro Small Enterprises Facilitation Council vide order dated 28-04-2022 passed an arbitral award. The petitioner filed the present application seeking an unconditional stay of the impugned award under the second proviso to Section 36(3) of the Arbitration and Conciliation Act, 1996 (1996 Act). The petitioner argued that the Council became de jure unable to perform its functions, rendering the award without jurisdiction and void, as the reference was made on 04-12-2017, and the award was passed on 28-04-2022, beyond the prescribed time limits under the MSMED Act and the 1996 Act.
Moot Point
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Whether compliance with Section 19 of the MSMED Act is mandatory for seeking a stay of an award?
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Whether filing an application under Section 34 of the 1996 Act without the pre-deposit under Section 19 of the MSMED Act makes the application for seeking a stay of the award under Section 36(2) of the 1996 Act imperfect in the eye of the law?
Parties’ Contentions
The respondent takes a preliminary objection to the maintainability of the application and contended that the petitioner must first comply with the requirement of Section 19 of the MSMED Act, which mandates depositing 75% of the awarded amount before applying to set aside the award. The respondent further asserts that failure to make the pre-deposit renders the application for stay “stillborn” under Section 19 of the MSMED Act.
On the other hand, the petitioner contended that the Court can consider the application for stay of the award based on the mere “filing” of an application under Section 34 of the 1996 Act, as the words “file” and “entertain” in Section 36(2) and Section 19 of the MSMED Act respectively create a distinction between the two proceedings.
Court’s Findings
The Court observed that Section 19 requires the buyer to deposit 75% of the awarded amount an such a pre-deposit is a condition precedent for a buyer to seek setting aside of an award under the MSMED Act, and without it, the application for stay would be stillborn. The Court held that compliance with section 19 of the MSMED Act is indeed mandatory for seeking a stay of an award.
The Court also clarifies that the filing of a Section 34 application for setting aside the award under Section 36(2) of the 1996 Act must be a valid application, complying with the limitation period prescribed under Section 34(3) of the 1996 Act. The Court further stated that without the pre-deposit under Section 19 of the MSMED Act, Section 34 application remains invalid and cannot serve as the basis for an application for stay of the award under Section 36(2) of the 1996 Act.
“Since the petitioner has admittedly not made the pre-deposit under section 19 of the MSMED Act, the Section 34 application filed by the petitioner remains eclipsed in the eye of law as the foundation for a prayer for stay of the arbitral award under Section 36(2) of the 1996 Act. Therefore, the present application for stay of the impugned award filed under section 36(2) of the 1996 Act cannot be entertained as the said application is foisted on a stillborn section 34 application.”
Court’s Verdict
The Court dismissed the application for stay as the same is not maintainable due to the lack of compliance with Section 19 of the MSMED Act. The Court also de-tagged the application for setting aside the award from the present application.
[Board of Major Port Authority for the Shyama Prasad Mookerjee Port, Kolkata v. Marine Craft Engineers (P) Ltd., 2023 SCC OnLine Cal 2200, order dated 31-07-2023]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case :
Mr. Kishore Datta, Sr. Adv., Mr. Ashok Kr. Jena, Counsel for the State;
Mr. Sabyasachi Chowdhury, Mr. S. E. Huda, Mr. Arjun Mookherjee, Mr. Shounak Mukhopadhyay, Mr. Shreyan Bhattacharyya, Ms. Anwesha Guha Ray, Mr. Abhijit Guha Ray, Counsel for the Respondent.
Buy Arbitration and Conciliation Act, 1996 HERE
