Pre-Deposit Of 75% Of Awarded Amount U/s 19 MSMED Act Mandatory While Preferring Application To Set Aside Arbitration Award: Supreme Court

The Supreme Court observed that the the requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act of deposit of 75% of the awarded amount as a pre deposit while preferring the application/appeal for setting aside the award, is mandatory.

In this case, the High Court of Uttarakhand upheld the order passed by a Additional District Judge (Commercial), Dehradun in which he directed a party who preferred a petition under Section 34 of the Arbitration and Conciliation Act to deposit 75% of the awarded amount in terms of MSMED Act.

In appeal before the Apex Court, the issue raised was whether in an appeal/application filed under Section 34 of the Arbitration & Conciliation Act read with Section 19 of the MSME Act, the appellate court would have any discretion to deviate from deposit of 75% of the awarded amount as a pre-deposit?

The bench comprising of Justices MR Shah and AS Bopanna, in this regard, noted the judgment in Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345 in which it was held that requirement of deposit of 75% as a pre-deposit is mandatory. The court observed thus:

9.2 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 & Conciliation Act, the applicant/appellant has to deposit 75% of the amount in terms of the award as a pre-deposit. 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 predeposit at a time, the court may allow the pre-deposit to be made in installments.

11. In view of the above and considering the language used in Section 19 of the MSME Act, 2006 and the object and purpose of providing deposit of 75% of the awarded amount as a pre-deposit while preferring the application/appeal for setting aside the award, it has to be held that the requirement of deposit of 75% of the awarded amount as a predeposit is mandatory.

The court, therefore, while disposing appeal, observed that both the High Court as well as the Additional District Judge (Commercial)  were justified in directing the appellant to deposit 75% of the awarded amount as a pre-deposit.

Click here to Read/Download Judgment