MSME Articles

Can deposit of 75% u/s 19 of MSME Act be in Instalments?

Can the court order a deposit of 75% under section 19 of the MSME Act in Instalments? That is the question we are going to discuss here.

Section 18 of the MSME Act provides the adjudication of the money claims of an MSME through an alternate dispute resolution mechanism i.e. arbitration. Such arbitration is called statutory arbitration.

Section 19 of the MSME Act provides that an application for setting aside decree, award or order of arbitration proceedings can be filed before an appellate court. Such an application is filed under the provisions of section 34 of the Arbitration and Conciliation Act read with section 19 of the MSME act, 2006.

Section 19 provides no such application for setting aside any decree, award or order to be entertained by any court unless the appellant has deposited 75% of the amount in terms of the decree, award or order in the manner decided by the appellate court.

There have been challenges to the provision of the deposit of 75% of the amount in various courts and it has always been held that this condition of pre-deposit is mandatory and there cannot be a deviation from the condition of 75% deposit.

Now the question is whether the use of the word  “in the manner directed by the such court” gives the discretion to the appellate court to direct the deposit of 75% of the amount in instalments.

This question was settled by the honourable Supreme Court of India in the case of Gujarat State Disaster Management Authority vs M/S Aska Equipment Ltd (Civil appeal no.6252 of 2021)

The Supreme Court held that considering the hardship which may be projected before the appellate court if the appellate court is satisfied that there shall be undue hardship caused to the appellant/applicant to deposit 75% of the amount as a pre-deposit at a time, the court may allow the pre-deposit to be made instalments.

The Honourable Supreme Court in this case also cited its earlier decision in the Good Air India Ltd case wherein the court held that the expression “in the manner directed by the such court“ would, in our view, indicate the discretion given to the court to allow the pre-deposit to be made, if necessary, in instalments.

Thus, on an application moved by the appellant /applicant, if the Appellate court finds that a hardship would be caused to the applicant/appellant, it can order the deposit of 75% of the amount in instalments.

The important aspect is the pleading of the hardship, which may be the great probability of winning the appeal or the patent illegality of the decree, award or order in the arbitration proceeding.


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Please note:

This Article is written by Managing Partner Naveen Bhardwaj with assistance and research from the NB Associates team.

The content(s) of this Article cannot be copied or reproduced without the express written consent of NB Associates.

NB Associates, Advocates & Solicitors provides comprehensive legal services related to MSME claims or recovery of dues or debt.