M/S Tirupati Steel vs M/S Shubh Industrial Components

M/s Tirupati Steels ..Appellant (S)

Versus

M/s Shubh Industrial Component & Anr. ..Respondent (S)

JUDGMENT

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with impugned order

dated 09.04.2019 passed by the Division Bench of the

High Court of Punjab and Haryana at Chandigarh in

Commercial Appeal Case No. FAO­COM/4/2019 (O&M), by

which in the proceedings under section 37 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred

to as the Act, 1996) which was filed under section 19 of

the Micro, Small and Medium Enterprise Development Act, Signature Not Verified Digitally signed by DEEPAK SINGH Date: 2022.04.19 17:39:57 IST Reason:

2006 (hereinafter referred to as the ‘MSMED Act, 2006’),

1 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.

2. 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 Rs. 1,40,13,053/­ and interest amounting to

Rs. 1,32,20,100/­ which comes to a total amounting to Rs.

2,72,33,153/­. 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 vide award

dated 16.07.2018. Thereafter, the appellant herein filed

the execution petition before the District and Sessions

Judge, Faridabad. Respondent No.1 herein filed an

application under section 34 of the Arbitration Act, 1996

for setting aside the arbitral award before the Special

2 Commercial Court, Gurugram. That the appellant herein

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 cum Special Commercial Court,

Gurugram allowed the said application moved by the

appellant herein granting six weeks’ time to the

Respondent No.1 herein to deposit 75% of the arbitral

award before the application filed under section 34 of the

Arbitration Act, 1996 could be entertained by the Court.

Feeling aggrieved with the order passed by the Special

Commercial Court, Gurugram 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 being FAO­COM/4/2019

before the High Court. By the impugned order, considering

the decision of the Division Bench of the High Court

rendered in CWP No. 23368 of 2015 (M/s Mahesh Kumar

3 Singla and another Vs. Union of India and others), by

which, 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 pre­deposit of 75% of the awarded amount.

Feeling aggrieved and dissatisfied with the impugned order

passed by the Division Bench of the High Court permitting

the proceedings under section 34 of the Arbitration Act,

1996, to go on without insistence for making pre­deposit of

75% of the awarded amount, the appellant herein –

original judgment creditor has preferred the present

appeal.

3. We have heard learned counsel appearing on behalf of the

respective parties at length.

4. The question which is posed for consideration of this Court

is, whether, the pre­deposit of 75% of the awarded amount

4 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, is now no longer res integra in

view of the decision of this Court in the case of Gujarat

State Disaster Management Authority Vs. Aska

Equipments Limited; (2022) 1 SCC 61. While

interpreting section 19 of the MSMED Act, 2006 and after

taking into consideration the earlier decision of this Court

in the case of Goodyear (India) Ltd. Vs. Norton Intech

Rubbers (P) Ltd.; (2012) 6 SCC 345, it is observed and

held that the requirement of deposit of 75% of the amount

in terms of the award as a pre­deposit as per section 19 of

the MSMED Act, is mandatory. It is also 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 pre­deposit at a time, the

court may allow the pre­deposit to be made in instalments.

Therefore, it is specifically observed and held that pre­

5 deposit of 75% of the awarded amount under section 19 of

the MSMED Act, 2006 is a mandatory requirement. In

para 13 of the aforesaid judgment, it is observed and held

as under:­

“13. On a plain/fair reading of Section 19 of the MSME Act, 2006, reproduced hereinabove, at the time/before entertaining the application for setting aside the award made under Section 34 of the Arbitration and Conciliation Act, the appellant­ applicant has to deposit 75% of the amount in terms of the award as a pre­deposit. 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 appellant­applicant to deposit 75% of the awarded amount as a pre­deposit at a time, the court may allow the pre­deposit to be made in instalments.”

5. In view of the aforesaid decision of this Court, the

impugned order passed by the High Court permitting the

proceedings under section 34 of the Arbitration Act, 1996

without insistence for making pre­deposit of 75% of the

awarded amount is unsustainable and the same deserves

to be quashed and set aside. As observed hereinabove,

while passing the impugned order, the Division Bench of

the High Court has relied upon an earlier decision of the

Division Bench in the case of M/s Mahesh Kumar Singla 6 (supra) which has taken a contrary view. Therefore, the

decision of the Division Bench in the case of M/s Mahesh

Kumar Singla (supra), which has been relied upon by the

Division Bench of the High Court while passing the

impugned order, is held to be not good law and is

specifically overruled to the extent that it holds that pre­

deposit of 75% of the awarded amount under section 19 of

the MSMED Act, 2006, is directory and not a mandatory

requirement.

6. In view of the above discussion and for the reasons stated

above, the present appeal is allowed. 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.

It is observed and held that unless and until

respondent No. 1 deposits the 75% of the awarded

amount, its application under section 34 of the Arbitration

7 Act, 1996, challenging the award shall not be entertained

and decided on merits and, in that case, the execution

proceedings may continue. The present appeal is

accordingly allowed. There shall be no order as to costs.

…………………………………J. (M. R. SHAH)

…………………………………J. (B.V. NAGARATHNA) New Delhi, April 19, 2022.

8