M/s Tirupati Steels vs M/s Shubh Industrial Component & Anr.

M/s Tirupati Steels vs M/s Shubh Industrial Component & Anr.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2941 OF 2022

M/s Tirupati Steels           ..Appellant (S)

Versus

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

J U D G M E N T 

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,

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

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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 predeposit   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

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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

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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 predeposit 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

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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 pre5

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   appellantapplicant 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 predeposit   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

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(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 predeposit 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

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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.

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