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,
Signature Not Verified

Digitally signed by
DEEPAK SINGH
Date: 2022.04.19
17:39:57 IST
Reason:

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   pre­

deposit   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   pre­

deposit 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   pre­

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 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   appellant­
applicant 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 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 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 pre­

deposit 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.