Whether it is mandatory to deposit 75% of the awarded amount in terms of Section 19 of Micro, Small and Medium Enterprises Development Act, 2006?
In the recent judgment passed by the Hon’ble Supreme Court in Gujarat State Disaster Management Authority v. M/s Aska Equipments Limited [CIVIL APPEAL NO. 6252 OF 2021] the pure question of law that came for consideration was whether it is mandatory to deposit 75% of the awarded amount in terms of Section 19 of Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”).
An award dated 10.11.2017 passed by the Facilitation Council under section 18 of the MSME Act was challenged before Additional District Judge, Dehradun (“Appellate Court”) under Section 34 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) read with Section 19 of the MSME Act. The award was in favour of the MSME (Respondent) and the Appellant was directed to pay a sum of Rs. 105,053,387/- (“Awarded Amount”) to the MSME. The Appellant was required to deposit 75% of the Awarded Amount before the Appellate Court. As per section 19 of the MSME Act, “[n]o 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”.
The issue arose when the Respondent did not deposit the requisite pre-deposit amount and filed a writ petition before the Uttarakhand High Court, challenging the order of the Appellate Court that directed the Appellant to deposit 75% of the awarded amount. The Hon’ble High Court dismissed the petition.
The Appellant therefore preferred an appeal before the Hon’ble Supreme Court. While issuing notice dated 23.10.2019 in the matter, the Supreme Court also directed the Appellant to deposit a sum of Rs.2,50,00,000/- before the Appellate Court and further directed the Appellate Court to take up the appeal under section 34 on deposit of the amount by the Appellant. Before the next hearing in the Supreme Court, the Appellant deposited the amount and the application under section 34 was heard by the Appellate Court and the order was reserved to be pronounced on 12.10.2021.
When the matter came for hearing before the Supreme Court, the Appellant appeared and prayed before the Supreme Court that the appeal be disposed of as the Appellate Court had heard the matter under section 34. However, the Respondent argued that the amount directed to be deposited by the Supreme Court vide notice dated 23.10.2019 was not even 25% of the Awarded Amount whereas as per the decision in Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345, it was mandatory to deposit 75% of the awarded amount as a pre-deposit under section 19 of the MSME Act. The Respondent further argued that section 19 only gives to the court discretion to the extent of directing the ‘manner of deposit’ and no discretion has been given to deviate from the prescribed percentage of amount mandated under law.
The Hon’ble Supreme Court, on hearing the parties, reiterated the legal position that 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 pre-deposit at a time, the court may allow the pre-deposit to be made in instalments.”
However, the Court also held that having laid the law, the interim arrangement as per order dated 23.10.2019 in the present matter be maintained till final disposal of the appeal under Section 34. However, the Court cautioned that the same will not be treated as a precedent.
