Condition Of Pre-Deposit U/S 19 MSME Act Mandatory, Prevails Over Exemption To Govt Under Order XXVII Rule 8A CPC: Allahabad High Court

Order XXVII Rule 8A prescribes that no security as mentioned in Order XLI shall be required from the Government or, where the Government has undertaken the defence of the suit, from any public officer sued in respect of an act alleged to be done by him in his official capacity.

A Single Judge Bench comprising Justice Saumitra Dayal Singh observed,

"Inasmuch as the language of Section 19 of the MSME Act is mandatory, as it provides that no application to set aside a statutory award shall be entertained unless the appellant pre-deposits 75% of the disputed awarded amount, the provisions of Order XXVII Rule 8-A C.P.C. would remain inconsistent to the mandatory requirement contained in Section 19 of the MSME Act."

The observation was made while allowing a writ petition that challenged an order passed by the District Judge, rejecting an application filed by the Petitioner seeking a deposit of 75% of the awarded amount under the statutory arbitration award. The District Jude had cited the provisions of Order XXVII Rule 8-A CPC in the proceedings instituted under Section 34 of the Arbitration Act read with Section 19 of the MSME Act.

When the Order was challenged before the Allahabad High Court, a Single Judge Bench of Justice Sanjay Misra, by an order dated 04.09.2013, stayed the effect and operation of the impugned judgment.

When the matter was listed for hearing on 31.03.2022, the Bench delved into an understanding of the interaction between Section 34 of the Arbitration Act with Section 19 of the MSME Act. Essentially, the Bench was posed with two fundamental questions: First, whether the nature of a pre-deposit of the awarded amount is mandatory or directory, and second, whether the provisions of the MSME Act would prevail over other enactments.

The Court held that it is indisputable that an application filed under Section 34 of the Arbitration Act does not mandate a pre-deposit of any part of the awarded amount and the deposit of the awarded amount may be enforced on the judgment debtor only by way of execution proceedings. However, the Court held that the interaction of Section 34 Arbitration Act with a combined reading of Section 18 of the MSME Act in respect of applications/objections to set aside a statutory award, Section 19 which imposes a pre-condition of deposit of 75% of the awarded amount, and Section 24 which gives, inter alia, Section 18 and Section 19, a clear and sweeping overriding effect to any law that may be inconsistent, make it clear that:

"Section 19 of the MSME Act being one which has been given overriding effect over any other law, clearly the requirement of pre-deposit prescribed under Section 19 would prevail over the provisions of Order XXVII Rule 8-A C.P.C. and any other law that may allow the Courts discretions while dealing with the requirement to pre-deposit the disputed amount of award in an application filed under Section 34 of the Arbitration Act. Inasmuch as the language of Section 19 of the MSME Act is mandatory, as it provides that no application to set aside a statutory award shall be entertained unless the appellant predeposits 75% of the disputed awarded amount, the provisions of Order XXVII Rule 8-A C.P.C. would remain inconsistent to the mandatory requirement contained in Section 19 of the MSME Act."

Having observed this, the Court held that the impugned order passed by the District Judge had failed to take into account the effect of Section 24 of the MSME Act, which, thereby, made the order wholly erroneous and unsustainable.

Accordingly, the Court allowed the petition and set aside the order passed by the District Judge. Additionally, it granted the respondent-State a month's time to pre-deposit 75% of the disputed award to maintain its application under Section 34 of the Arbitration Act, a failure of which shall make the application liable to be dismissed.

Case Title: M/s Tirupati Stationary Pvt. Ltd v. State of U.P.

Citation: 2022 LiveLaw (All) 156