Court Under Section 19 Of MSMED Act, 2006 Empowered To Allow Predeposit In Installments: Allahabad High Court

Section 19 of the MSME Act:

“Application for setting aside decree, award or order.—

No 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:

Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case subject to such conditions as it deems necessary to impose.”

Brief Facts:

The matter pertained to an order issued by Commercial Court, Lucknow, dismissing the petition filed by the Appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), for failure to pre-deposit 75% of the awarded amount as per the provisions of Section 19 of the Micro Small and Medium Enterprises Development Act, 2006 (“MSME Act”). The Appellant dissatisfied with the arbitral award filed the petition before the Commercial Court and concurrently submitted an application seeking waiver of pre-deposit, which was dismissed.

In response, the Appellant sought further time to deposit the amount, stating that there were ongoing loan/overdraft processes with a bank. However, the Commercial Court did not entertain this application and consequently passed the order dismissing the Section 34 petition due to non-deposit of the required amount. Feeling aggrieved, the Appellant approached the Allahabad High Court (“High Court”) and challenged the order of the Commercial Court.

The Appellant contended that the orders were erroneous and argued that the Commercial Court overstepped its jurisdiction by mandating dismissal of the proceedings in case of non-deposit. It contended that the dismissal of the appeal without considering the Appellant's subsequent readiness to deposit the amount within a week constituted a miscarriage of justice.

Observations by the High Court:

The High Court held that the application for waiver was appropriately dismissed by the Commercial Court. However, the additional directive issued by the Commercial Court, stating that failure to deposit the specified amount within the designated timeframe would lead to automatic dismissal of the proceedings, was deemed unjustifiable by the High Court.

In doing so, the High Court held that the Commercial Court neglected to exercise its authority under Section 19 of the MSME Act, which grants the Court discretion to impose suitable conditions. The High Court referred to the decision of the Supreme Court in Goodyear India Ltd. Vs. Norton Intech Rubbers Pvt. Ltd. and Another 2012 (6) SCC 345 and held that the expression “in the manner directed by such court” in Section 19 indicates the discretion given to the Court to allow the predeposit to be made, if felt necessary, in installments also.

Given the appellant now intended to deposit the required 75% of the awarded amount within one week, the High Court found that the peremptory nature of the orders given by the Commercial Court, resulting in the dismissal of the petition, cannot be upheld.

Consequently, the appeal was allowed. The Appellant was directed to deposit 75% of the awarded amount by 29th April 2024.

Case Title: M/S Docket Care Systems vs M/S Hariwill Electronics India Pvt. Ltd. 2024 LiveLaw (AB) 266

Case Number: APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 29 of 2024

Case Citation: 2024 LiveLaw (AB) 266

Advocate for the Appellant: Sri Sudeep Kumar, Sri Madhusudan Srivastava and Ms. Radhika Varma Advocates.

Advocate for the Respondent: Sri Suryansh Narula and Sri Amit Yadav, Advocates.

Click Here To Read/Download Order