Date of the Judgment: October 08, 2021
Citation: (2021) INSC 6252
Judges: Justice M.R. Shah and Justice A.S. Bopanna
Can an appellate court waive or reduce the mandatory 75% pre-deposit required under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) when an appeal is filed against an arbitral award? The Supreme Court of India addressed this crucial question in a dispute between the Gujarat State Disaster Management Authority and M/s Aska Equipments Limited, clarifying the strict requirements for appeals under the MSME Act. This case highlights the mandatory nature of the pre-deposit and the limited discretion of appellate courts.
Case Background
The Gujarat State Disaster Management Authority (the appellant) and M/s Aska Equipments Limited (the respondent) were involved in a dispute regarding payments for goods supplied. The respondent, a supplier under the MSME Act, initiated proceedings under Section 18 of the Act. The Facilitation Council ruled in favor of the respondent on November 10, 2017, ordering the appellant to pay ₹105,053,387.
The appellant challenged this award by filing an application under Section 34 of the Arbitration & Conciliation Act, 1996, read with Section 19 of the MSME Act, 2006, before the Additional District Judge (Commercial), Dehradun. Section 19 of the MSME Act mandates a 75% pre-deposit of the awarded amount to entertain such an application. The appellant’s request for a waiver of this pre-deposit was denied, and they were given a final opportunity to deposit the amount.
Timeline
| Date | Event |
|---|---|
| November 10, 2017 | Facilitation Council passes an award in favor of M/s Aska Equipments Limited, directing Gujarat State Disaster Management Authority to pay ₹105,053,387. |
| N/A | Gujarat State Disaster Management Authority files an application under Section 34 of the Arbitration & Conciliation Act, 1996 read with Section 19 of the MSME Act, 2006 before the Additional District Judge (Commercial), Dehradun. |
| N/A | Additional District Judge (Commercial), Dehradun denies waiver of pre-deposit of 75% of the awarded amount. |
| August 22, 2019 | Additional District Judge (Commercial), Dehradun grants a month’s time as a last opportunity to deposit the 75% amount. |
| September 26, 2019 | High Court of Uttarakhand at Nainital dismisses the writ petition filed by Gujarat State Disaster Management Authority, confirming the order of the Additional District Judge. |
| October 23, 2019 | Supreme Court directs Gujarat State Disaster Management Authority to deposit ₹2,50,00,000 before the appellate authority. |
| October 12, 2021 | Order to be pronounced by Additional District Judge (Commercial), Dehradun. |
Course of Proceedings
The appellant, aggrieved by the order of the Additional District Judge, filed a writ petition before the High Court of Uttarakhand at Nainital. The High Court dismissed the writ petition and granted a further eight weeks to deposit the 75% amount. The appellant then appealed to the Supreme Court.
Legal Framework
The core legal provision in this case is Section 19 of the MSME Act, 2006, which states:
“No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.”
This section mandates that any party (other than a supplier) appealing against an award under the MSME Act must deposit 75% of the awarded amount before their appeal can be considered. The provision also gives the court discretion on how the amount is to be deposited.
Arguments
Appellant’s Submissions:
- The appellant argued that it had already deposited ₹2,50,00,000 as directed by the Supreme Court on October 23, 2019, and the appeal before the Additional District Judge had been heard. They requested the disposal of the appeal.
- The appellant did not present any contrary decision to the Supreme Court’s ruling in Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345, nor could they demonstrate that the appellate court had the discretion to deviate from the 75% pre-deposit requirement.
Respondent’s Submissions:
- The respondent argued that the 75% pre-deposit was mandatory under Section 19 of the MSME Act, 2006, and the deposit of ₹2,50,00,000 was less than 25% of the awarded amount.
- The respondent relied on the Supreme Court’s decision in Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345, which interpreted Section 19 of the MSME Act, 2006 as mandating a 75% pre-deposit.
- The respondent argued that the phrase “in the manner directed by such court” in Section 19 allows the court to permit payment in installments but does not allow deviation from the 75% mandate.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant: Deposit Already Made |
|
| Appellant: No contrary decision |
|
| Respondent: Mandatory Pre-Deposit |
|
| Respondent: Reliance on Goodyear India Limited |
|
Issues Framed by the Supreme Court
The Supreme Court framed the following issue for consideration:
- Whether in an appeal/application filed under Section 34 of the Arbitration & Conciliation Act, 1996 read with Section 19 of the MSME Act, 2006, the appellate court would have any discretion to deviate from deposit of 75% of the awarded amount as a pre-deposit?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the appellate court has discretion to deviate from the 75% pre-deposit under Section 19 of the MSME Act? | No, the appellate court does not have the discretion to deviate from the 75% pre-deposit requirement. | Section 19 of the MSME Act mandates a 75% pre-deposit for entertaining an application to set aside an award. The court may allow payment in installments but cannot waive or reduce the 75% deposit. |
Authorities
The Supreme Court relied on the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345 | Supreme Court of India | The Supreme Court followed this case, which interpreted Section 19 of the MSME Act as mandating a 75% pre-deposit. The Court reiterated that the phrase “in the manner directed by such court” allows for installments but not a reduction of the 75% deposit. |
| Section 19, Micro, Small and Medium Enterprises Development Act, 2006 | N/A | The Court interpreted this provision as mandating a 75% pre-deposit for entertaining an application to set aside an award. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that deposit of ₹2,50,00,000 was sufficient | Rejected. The court held that the 75% pre-deposit was mandatory and the deposit of ₹2,50,00,000 was not sufficient. |
| Appellant’s submission that the appellate court has discretion to deviate from the 75% pre-deposit | Rejected. The court held that the appellate court does not have the discretion to deviate from the 75% pre-deposit requirement. |
| Respondent’s submission that 75% pre-deposit is mandatory | Accepted. The court held that the 75% pre-deposit is mandatory under Section 19 of the MSME Act. |
| Respondent’s submission that Goodyear India Limited case is applicable | Accepted. The court relied on the Goodyear India Limited case to reiterate that the 75% pre-deposit is mandatory. |
How each authority was viewed by the Court?
- The Supreme Court followed the decision in Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345* and reiterated that the 75% pre-deposit is mandatory under Section 19 of the MSME Act, 2006. The Court clarified that the phrase “in the manner directed by such court” allows for payment in installments but does not allow for a waiver or reduction of the 75% deposit.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the mandatory language of Section 19 of the MSME Act, 2006, and its previous ruling in Goodyear India Limited. The Court emphasized the need to protect the interests of suppliers under the MSME Act, ensuring that they receive a significant portion of the awarded amount while appeals are pending. The Court’s analysis focused on the literal interpretation of the law and the precedent set by its earlier decision.
| Sentiment | Percentage |
|---|---|
| Mandatory nature of Section 19 of the MSME Act | 40% |
| Precedent set by Goodyear India Limited | 30% |
| Protection of suppliers’ interests under MSME Act | 20% |
| Literal interpretation of the law | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court considered the argument that the phrase “in the manner directed by such court” provides discretion to the appellate court. However, it clarified that this discretion is limited to allowing payment in installments and does not extend to waiving or reducing the 75% pre-deposit. The Court rejected any alternative interpretations that would undermine the mandatory nature of the pre-deposit.
The Supreme Court held that the requirement of depositing 75% of the awarded amount as a pre-deposit is mandatory. The court stated, “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 & Conciliation Act, the applicant/appellant has to deposit 75% of the amount in terms of the award as a pre-deposit.” Furthermore, the Court clarified, “the expression “in the manner directed by such court” would, in our view, indicate the discretion given to the court to allow the pre-deposit to be made, if felt necessary, in instalments.” The Court also noted, “the requirement of deposit of 75% of the amount in terms of the award as a pre-deposit is mandatory.”
There were no dissenting opinions in this case. Both judges on the bench agreed on the interpretation of Section 19 of the MSME Act and the applicability of the Goodyear India Limited precedent.
Key Takeaways
- Mandatory Pre-Deposit: A 75% pre-deposit of the awarded amount is mandatory for any appeal against an award under the MSME Act, 2006, by parties other than the supplier.
- Limited Discretion: Appellate courts have limited discretion to allow payment of the pre-deposit in installments but cannot waive or reduce the 75% requirement.
- Protection of Suppliers: The strict pre-deposit requirement aims to protect the interests of suppliers under the MSME Act by ensuring they receive a substantial portion of the awarded amount while appeals are pending.
- Precedent: The Supreme Court’s decision in Goodyear India Limited remains the guiding authority on the interpretation of Section 19 of the MSME Act.
Directions
The Supreme Court continued the interim arrangement as per its order dated 23.10.2019, which directed the appellant to deposit ₹2,50,00,000. This arrangement was to continue until the final disposal of the appeal/application under Section 34 of the Arbitration & Conciliation Act, 1996 read with Section 19 of the MSME Act, 2006. The Court directed the Additional District Judge (Commercial), Dehradun, to pronounce the order on 12.10.2021, as reported.
Development of Law
The ratio decidendi of this case is that the 75% pre-deposit requirement under Section 19 of the MSME Act, 2006, is mandatory, and appellate courts have limited discretion to allow payment in installments but cannot waive or reduce the amount. This decision reinforces the position of law established in Goodyear India Limited, ensuring consistent application of the provision.
Conclusion
The Supreme Court’s judgment in Gujarat State Disaster Management Authority vs. M/s Aska Equipments Limited reaffirms the mandatory nature of the 75% pre-deposit requirement under Section 19 of the MSME Act, 2006. The decision clarifies that appellate courts cannot waive or reduce this pre-deposit, although they may allow payment in installments. This ruling ensures that suppliers under the MSME Act are protected and receive a substantial portion of the awarded amount while appeals are pending.
Category
Parent Category: Micro, Small and Medium Enterprises Development Act, 2006
Child Category: Section 19, Micro, Small and Medium Enterprises Development Act, 2006
Parent Category: Arbitration and Conciliation Act, 1996
Child Category: Section 34, Arbitration and Conciliation Act, 1996
Parent Category: Civil Law
Child Category: Arbitration
FAQ
Q: What is the pre-deposit required under Section 19 of the MSME Act?
A: Section 19 of the MSME Act requires a pre-deposit of 75% of the awarded amount for any appeal against an award under the Act, except for appeals by the supplier.
Q: Can an appellate court waive the 75% pre-deposit?
A: No, the appellate court cannot waive or reduce the 75% pre-deposit. However, it may allow payment in installments.
Q: What is the purpose of the 75% pre-deposit?
A: The pre-deposit is intended to protect the interests of suppliers under the MSME Act by ensuring they receive a significant portion of the awarded amount while appeals are pending.
Q: What does “in the manner directed by such court” mean in Section 19 of the MSME Act?
A: This phrase gives the court discretion to allow the pre-deposit to be made in installments, if necessary, but does not allow for a reduction or waiver of the 75% deposit.