Supreme Court of India
M/S TIRUPATI STEELS versus M/S SHUBH INDUSTRIAL COMPONENT & ANR. on 19 April 2022
356
SUPREME COURT REPORTS
[2022] 3 S.C.R.
A
M/S TIRUPATI STEELS
v.
M/S SHUBH INDUSTRIAL COMPONENT & ANR.
(Civil Appeal No. 2941 Of 2022)
BAPRIL 19, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Micro, Small and Medium Enterprise Development Act, 2006(MSMED Act) – s.19 – Parties governed by provisions of MSMEDAct – Appellant preferred claim petition before Micro and SmallCEnterprises Facilitation Council constituted under the MSMED Act– On failure of conciliation, dispute referred to Arbitrator –Arbitrator, appointed through MSME Facilitation Council, passedaward in favour of appellant – Appellant filed execution petition –Respondent No.1 filed application u/s.34 of the Arbitration Act forDsetting aside the arbitral award – Appellant submitted applicationu/s.19 of the MSMED Act for direction to respondent no.1-judgmentdebtor to deposit 75% of the arbitral award – Special CommercialCourt allowed the application moved by appellant granting sixweeks’ time to Respondent No.1 to deposit 75% of the arbitral awardbefore its’ application u/s.34 of the Arbitration Act, could beEentertained by the Court – Respondent No.1 filed appeal beforeHigh Court which permitted proceedings u/s.34 of the ArbitrationAct to go on, without insisting for pre-deposit of 75% of the awardedamount – Whether pre-deposit of 75% of the awarded amount asper s.19 of the MSMED Act, while challenge to the award u/s.34 ofFthe Arbitration Act is made mandatory or not – Held: Requirementof deposit of 75% of the amount in terms of the award as a pre-deposit as per s.19 of the MSMED Act, is mandatory – However,considering the hardship which may be projected before theappellate court and if the appellate court is satisfied that there shallbe undue hardship caused to the appellant /applicant to depositG75% of the awarded amount as a pre-deposit at a time, the courtmay allow the pre-deposit to be made in installments – Unless anduntil respondent No.1 deposits 75% of the awarded amount, itsapplication u/s.34 of the Arbitration Act, challenging the awardnot to be entertained and decided on merits and, in that case, theH
execution proceedings to continue – Arbitration and ConciliationAct, 1996 – s.34.
Allowing the appeal, the Court
HELD:1.1. The requirement of deposit of 75% of theamount in terms of the award as a pre-deposit as per section 19of the Micro, Small and Medium Enterprise Development Act,2006, is mandatory. However, at the same time, considering thehardship which may be projected before the appellate court andif the appellate court is satisfied that there shall be undue hardshipcaused to the appellant /applicant to deposit 75% of the awardedamount as a pre-deposit at a time, the court may allow the pre-deposit to be made in installments. Therefore, pre-deposit of 75%of the awarded amount under section 19 of the MSMED Act,2006 is a mandatory requirement. [Para 4][360-A-C]
1.2. The impugned order passed by the High Courtpermitting the proceedings under section 34 of the Arbitrationand Conciliation Act, 1996 without insistence for makingpre-deposit of 75% of the awarded amount is unsustainable.[Para 5][360-F]
Gujarat State Disaster Management Authority v. AskaEquipments Limited, (2022) 1 SCC 61 and Goodyear(India) Ltd. v. Norton Intech Rubbers (P) Ltd., (2012) 6 SCC 345 – relied on.
M/s Mahesh Kumar Singla and another v. Union of Indiaand others [Decision of High Court in CWP No. 23368 of2015] – partly overruled.
2. Respondent No.1 is directed to deposit 75% of theawarded amount before its application under section 34 of theArbitration and Conciliation Act, 1996 challenging the award isentertained and considered on merits. Unless and untilrespondent No.1 deposits 75% of the awarded amount, itsapplication under section 34 of the Arbitration and ConciliationAct, 1996, challenging the award shall not be entertained anddecided on merits and, in that case, the execution proceedingsmay continue. [Para 6][361-A-C]
A
B
C
D
E
F
G
H
ACase Law Reference
A
B
C
D
E
F
G
H
[2022] 3 S.C.R.
ACase Law Reference
(2022) 1 SCC 61
relied onPara 4relied onPara 4
(2012) 6 SCC 345
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2941Bof 2022.
From the Judgment and Order dated 09.04.2019 of the High Courtof Punjab and Haryana at Chandigarh in FAO-Com No.4 of 2019.
Pankaj Bhagat, Adv. for the Appellant.
Dr. Vinod Kumar Tewari, Adv. for the Respondents.CThe Judgment of the Court was delivered by
M. R. SHAH, J.
Citations and Judicial Treatment
Cited by
0
Decisions in the index citing it
Cites
2
Decisions referred to
In this index
0
Of the decisions it cites
Overruled / Questioned
0
No negative treatment found
Loading the citing and cited decisions…
This judgment in the centre: on the left the decisions it cites, on the right the decisions citing it. Colour is the treatment; choose a decision to open it.
1. Feeling aggrieved and dissatisfied with impugned order dated09.04.2019 passed by the Division Bench of the High Court of PunjabDand Haryana at Chandigarh in Commercial Appeal Case No. FAO-COM/4/2019 (O&M), by which in the proceedings under section 37 of theArbitration and Conciliation Act, 1996 (hereinafter referred to as theAct, 1996) which was filed under section 19 of the Micro, Small andMedium Enterprise Development Act, 2006 (hereinafter referred to asEthe ‘MSMED Act, 2006’), the Division Bench of the High Court hasdirected the first appellate court to proceed under section 34 of theArbitration Act, 1996 without insistence for making pre-deposit of 75%of the awarded amount, the judgment creditor has preferred the presentappeal.F2. The parties are governed by the provisions of the MSMEDAct, 2006. The appellant herein preferred a claim petition before theMicro and Small Enterprises Facilitation Council constituted under theMSMED Act, 2006 for recovery of Rs.1,40,13,053/- and interestamounting to Rs. 1,32,20,100/- which comes to a total amounting toRs.2,72,33,153/-. On the failure of conciliation, the dispute was referredGto the Arbitrator. The Arbitrator, appointed through the MSME FacilitationCouncil at Chandigarh, passed an award in favour of the appellant videaward dated 16.07.2018. Thereafter, the appellant herein filed theexecution petition before the District and Sessions Judge, Faridabad.Respondent No.1 herein filed an application under section 34 of theHArbitration Act, 1996 for setting aside the arbitral award before the Special Commercial Court, Gurugram. That the appellant herein submitted anapplication under section 19 of the MSMED Act, 2006 directingrespondent No. 1 herein – judgment debtor to deposit 75% of the arbitralaward. The learned Additional District Judge cum Special CommercialCourt, Gurugram allowed the said application moved by the appellantherein granting six weeks’ time to the Respondent No.1 herein to deposit75% of the arbitral award before the application filed under section 34of the Arbitration Act, 1996 could be entertained by the Court. Feelingaggrieved with the order passed by the Special Commercial Court,Gurugram directing the judgment debtor – respondent No. 1 herein todeposit 75% of the arbitral award and on that condition the petition undersection 34 of the Arbitration Act, 1996 was to be entertained, whichorder was passed on considering section 19 of the Arbitration Act, 1996,respondent No. 1 filed the commercial appeal being FAO-COM/4/2019before the High Court. By the impugned order, considering the decisionof the Division Bench of the High Court rendered in CWP No.23368 of2015 (M/s Mahesh Kumar Singla and another Vs. Union of Indiaand others), by which, the Division Bench,while up holding the vires ofsection 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 isdirectory and not mandatory, has permitted the proceedings under section34 of the Arbitration Act, 1996 to continue without insistence on makinga pre-deposit of 75% of the awarded amount. Feeling aggrieved anddissatisfied with the impugned order passed by the Division Bench ofthe High Court permitting the proceedings under section 34 of theArbitration Act, 1996, to go on without insistence for making pre-depositof 75% of the awarded amount, the appellant herein – original judgmentcreditor has preferred the present appeal.
3. We have heard learned counsel appearing on behalf of therespective parties at length.
4. The question which is posed for consideration of this Court is,whether, the pre-deposit of 75% of the awarded amount as per section19 of the MSMED Act, 2006, while challenge to the award under section34 of the Arbitration Act, 1996, is made mandatory or not, is now nolonger res integra in view of the decision of this Court in the case ofGujarat State Disaster Management Authority Vs. AskaEquipments Limited; (2022) 1 SCC 61. While interpreting section19 of the MSMED Act, 2006 and after taking into consideration the A
B
C
D
E
F
G
H
Aearlier decision of this Court in the case of Goodyear (India) Ltd. Vs.Norton Intech Rubbers (P) Ltd.; (2012) 6 SCC 345, it is observedand held that the requirement of deposit of 75% of the amount in termsof the award as a pre-deposit as per section 19 of the MSMED Act, ismandatory. It is also observed that however, at the same time, consideringthe hardship which may be projected before the appellate court and ifBthe appellate court is satisfied that there shall be undue hardship causedto the appellant/applicant to deposit 75% of the awarded amount as apre-deposit at a time, the court may allow the pre-deposit to be made ininstalments. Therefore, it is specifically observed and held that pre-depositof 75% of the awarded amount under section 19 of the MSMED Act,C2006 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 theapplication for setting aside the award made under Section 34 ofDthe Arbitration and Conciliation Act, the appellant-applicant hasto deposit 75% of the amount in terms of the award as a pre-deposit. The requirement of deposit of 75% of the amount in termsof the award as a pre-deposit is mandatory. However, at the sametime, considering the hardship which may be projected before theappellate court and if the appellate court is satisfied that thereEshall be undue hardship caused to the appellant-applicant to deposit75% of the awarded amount as a pre-deposit at a time, the courtmay allow the pre-deposit to be made in instalments.”
5. In view of the aforesaid decision of this Court, the impugnedorder passed by the High Court permitting the proceedings under sectionF34 of the Arbitration Act, 1996 without insistence for making pre-depositof 75% of the awarded amount is unsustainable and the same deservesto be quashed and set aside. As observed hereinabove, while passingthe impugned order, the Division Bench of the High Court has reliedupon an earlier decision of the Division Bench in the case of M/s MaheshGKumar Singla (supra) which has taken a contrary view. Therefore, thedecision of the Division Bench in the case of M/s Mahesh KumarSingla (supra), which has been relied upon by the Division Bench of theHigh Court while passing the impugned order, is held to be not good lawand is specifically overruled to the extent that it holds that pre-deposit of75% of the awarded amount under section 19 of the MSMED Act,H2006, is directory and not a mandatory requirement.
M/S TIRUPATI STEELS v. M/S SHUBH INDUSTRIALCOMPONENT & ANR. [M. R. SHAH, J.]
6. In view of the above discussion and for the reasons statedabove, the present appeal is allowed. The impugned order passed by theHigh Court is hereby quashed and set aside. Respondent No. 1 is directedto deposit 75% of the awarded amount before its application under section34 of the Arbitration Act, 1996 challenging the award is entertained andconsidered on merits.
It is observed and held that unless and until respondent No. 1deposits the 75% of the awarded amount, its application under section34 of the Arbitration Act, 1996, challenging the award shall not beentertained and decided on merits and, in that case, the executionproceedings may continue. The present appeal is accordingly allowed.There shall be no order as to costs.
Bibhuti Bhushan Bose
Appeal allowed.
A
B
C
D
E
F
G
H