Court Has Discretion To Allow Pre-Deposit In Installments Also U/S 19 MSME Act: Allahabad HC

The Allahabad High Court noted that under Section 19 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSME Act), the court has discretion to allow pre-deposit in installments as well.

The Lucknow Bench was dealing with an appeal filed against the order of the Commercial Court by which the petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) was dismissed for failure to pre-deposit the amount to the extent of 75% under Section 19 of MSME Act.

A Division Bench comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh remarked, “While passing the said order, the Commercial Court had deprived itself to exercise powers under Section 19 of the MSME Act, 2006, which empowers the Court to impose such conditions as it deems necessary and the said part of the provision has been interpreted by Hon'ble Supreme Court in the case of Good Year India Ltd. (Supra) wherein it has been observed that the expression in the manner directed by such court would in its opinion indicate the discretion given to the Court to allow the pre-deposit to be made, if felt necessary, in installments also. Which view has been followed in the case of Gujarat State Disaster Management Authority (Supra).”

Advocate Sudeep Kumar represented the appellant while Advocate Suryansh Narula represented the respondent.

Brief Facts -

The appellant being aggrieved of the award passed by the MSME Council, filed petition under Section 34 of the A&C Act before the Commercial Court, Lucknow. Along with the petition, an application seeking waiver of pre-deposit as required under Section 19 of the MSME Act was filed. The application seeking waiver was dismissed inter-alia relying on the judgment of the Supreme Court in the case of Tirupati Steels v. Shubh Industrial Component and Another (2022) 7 SCC 429.

The Court while dismissing the application, directed the appellant to deposit the 75% of the awarded amount within three weeks and ordered that failing which the Miscellaneous Case shall stand dismissed by itself. On the same day, another order was passed based on the determination already made indicating deposit of the 75% of the awarded amount within a period of three weeks and failure thereof would result in dismissal of the pending proceedings. Thereafter, an application was filed by the appellant seeking further time to deposit the amount, however, the same was not even received/entertained by the Commercial Court.

The High Court in view of the above facts observed, “There is no dispute on the legal preposition regarding the mandatory nature of provisions of Section 19 of the MSME Act of 2006 wherein the appellant was required to deposit 75 % of the awarded amount by way of pre-deposit for the Court to entertain the petition under Section 34 of the Act of 1996. However, the application seeking waiver was filed and therefore the same was rightly rejected by the Commercial Court on 19.02.2024, however, while passing the order dismissing the application seeking waiver, while granting time to deposit the amount, the further directions that on failure to deposit the said amount within the period indicated the proceedings shall stand dismissed by itself, in our firm opinion was wholly unwarranted.”

The Court said that as now the appellant is prepared to deposit the 75% of the awarded amount within a period of one week, the impugned order and the consequential dismissal of the petition cannot be sustained.

Accordingly, the High Court allowed the appeal and directed the appellant to deposit the said amount.

Cause Title- M/S Docket Care Systems Thru Partner Pankaj Kumar Agarwal v. M/S Hariwill Electronics India Pvt. Ltd. Thru. M.D. (Neutral Citation: 2024:AHC-LKO:30672-DB)

Appearance:

Appellant: Advocates Sudeep Kumar, Madhusudan Srivastava, and Radhika Varma.

Respondent: Advocates Suryansh Narula and Amit Yadav.

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