Supreme Court of India was dealing with the petition challenging order dated 09.04.2019 passed by the Division Bench of the High Court of Punjab and Haryana at Chandigarh in Commercial Appeal Case, by which, the Division Bench of the High Court has directed the first appellate court to proceed under section 34 of the Arbitration Act, 1996 without insistence for making pre-deposit of 75% of the awarded amount, the judgment creditor has preferred the present appeal.
Brief Facts:
The parties are governed by the provisions of the MSMED Act, 2006. The appellant herein preferred a claim petition before the Micro and Small Enterprises Facilitation Council constituted under the MSMED Act, 2006 for recovery of some money and interest. On the failure of conciliation, the dispute was referred to the Arbitrator. The Arbitrator, appointed through the MSME Facilitation Council at Chandigarh, passed an award in favour of the appellant. Respondent No.1 herein filed an application under section 34 of the Arbitration Act, 1996 for setting aside the arbitral award. The appellant submitted an application under section 19 of the MSMED Act, 2006 directing respondent No. 1 herein – judgment debtor to deposit 75% of the arbitral award. The learned Additional District Judge allowed the said application. Feeling aggrieved with the order directing the judgment debtor – respondent No. 1 herein to deposit 75% of the arbitral award and on that condition the petition under section 34 of the Arbitration Act, 1996 was to be entertained, which order was passed on considering section 19 of the Arbitration Act, 1996, respondent No. 1 filed the commercial appeal before the High Court.
HC’s Decision:
By the impugned order, the Division Bench, while upholding the vires of section 19 of the MSMED Act, 2006, held that the pre-deposit of 75% of the arbitral award under section 19 of the MSMED Act, 2006 is directory and not mandatory, has permitted the proceedings under section 34 of the Arbitration Act, 1996 to continue without insistence on making a pre-deposit of 75% of the awarded amount.
SC’s Observations:
The question before the SC was whether, the pre-deposit of 75% of the awarded amount as per section 19 of the MSMED Act, 2006, while challenge to the award under section 34 of the Arbitration Act, 1996, is made mandatory or not?
SC while interpreting section 19 of the MSMED Act, 2006 and after taking into consideration the earlier decision in the case of Goodyear (India) Ltd. Vs. Norton Intech Rubbers, observed and held that the requirement of deposit of 75% of the amount in terms of the award as a pre-deposit as per section 19 of the MSMED Act, is mandatory.
SC observed that 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. Therefore, it is specifically observed and held that pre-deposit of 75% of the awarded amount under section 19 of the MSMED Act, 2006 is a mandatory requirement.
SC Held:
After evaluating submissions made by both the parties the SC held that “the impugned order passed by the High Court permitting the proceedings under section 34 of the Arbitration Act, 1996 without insistence for making pre-deposit of 75% of the awarded amount is unsustainable and the same deserves to be quashed and set aside. The impugned order passed by the High Court is hereby quashed and set aside. Respondent No. 1 is directed to deposit 75% of the awarded amount before its application under section 34 of the Arbitration Act, 1996 challenging the award is entertained and considered on merits.”
Case Title: M/s Tirupati Steels v. M/s Shubh Industrial Component & Anr.
Bench: J. and M. R. Shah and J. B.V. Nagarathna
Citation: CIVIL APPEAL NO. 2941 OF 2022
Decided on: 19th April 2022
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