Section 19 of MSMED Act - Pre-Deposit Of 75% Of Arbitral Award Mandatory Requirement - Supreme Court

An appeal was preferred by the judgment creditor assailing the judgment of the Punjab and Haryana High Court by which in the proceedings under Section 37 of the Arbitration and Conciliation Act filed under Section 19 of MSMED Act, the Division Bench of the High Court directed the First Appellate Court to proceed under Section 34 of Arbitration Act without insistence for making pre-deposit of 75% of the awarded amount.

The issue which was dealt with by the Court was –

• Whether, the pre-­deposit of 75% of the awarded amount as per section 19 of the MSMED Act, 2006, while a challenge to the award under section 34 of the Arbitration Act, 1996, is made mandatory or not.

The Bench placed reliance on Gujarat State Disaster Management Authority v. Aska Equipments Limited and Goodyear (India) Ltd. v. Norton Intech Rubbers (P) Ltd 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.

Further, the Bench in this context observed –

"It is also observed that however, at the same time, considering the hardship which may be projected before the appellate court and if the 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."

The Court held that the impugned order passed by the High Court permitting the proceedings under section 34 of the Arbitration Act, 1996 without insistence for making a pre­deposit of 75% of the awarded amount is unsustainable and the same deserves to be quashed and set aside.

The Court directed Respondent No. 1 to deposit 75% of the awarded amount before its application under Section 34 of the Arbitration Act challenging the award to be entertained and considered on merits.

Accordingly, the Court allowed the appeal and set aside and quashed the impugned order of the High Court.