Date:October 3, 2022
Section 19 of the MSME Act, of 2006 relates to an application for setting aside a decree, award or order passed in an alternate dispute resolution process under a reference made by the facilitation council.
Thus, when a decree, award or order is passed in an arbitration proceeding pursuant to reference under section 18 of the MSME act and a party against whom such decree, award or order is passed files an application under section 19 for setting aside such decree award or order before the appellate court, as per section 19 of MSME Act, such an application is not to be entertained unless 75% of the amount in terms of such decree, award or order, as the case may be is deposited by the applicant.
There have been challenges to this provision in courts, where the contentions were raised that this provision is not mandatory and there can be deviation by the Appellate court.
The same issue came before the honourable Supreme Court recently in the case of Gujarat State Disaster Management Authority vs. M/s Aska Equipments Limited. [Read excerpts | Read full Judgement]
The appellate court directed the appellant to deposit 75% of the awarded amount. Despite several times given by the appellate court, the appellant did not deposit 75% of the awarded amount pursuant to the order, and ultimately the challenge came before the honourable Supreme Court.
Supreme Court observed that:
On a plain reading of section 19 of the MSME act, at the time/before entertaining the application for setting aside the award made under section 34 of the arbitration and conciliation act, the applicant/appellant has to deposit 75% of the amount in terms of the award as a pre-deposit.
The requirement of a deposit of 75% of the amount in terms of the award as a pre-deposit is mandatory.
The Supreme Court also cited the case of Goodyear India Limited vs Norton Intech Rubbers Private Ltd. 2011 3 LW 626 wherein a similar proposition of law came before the honourable court and the court decided the issue on the same line.
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 a pre-deposit of 75% of the awarded amount was unsustainable and the same deserved to be quashed and set aside.
Thus, the Supreme Court has made it clear that the provision of section 19 of the MSME Act is mandatory in nature.
There cannot be any deviation as to the requirement of the deposit of 75% amount under a decree, award or order passed in an arbitration proceeding under section 18 of the MSME Act.