M/S TIRUPATI STEELSversusM/S SHUBH INDUSTRIAL COMPONENT & ANR.

356                       [2022]
               SUPREME COURT     3 S.C.R. 356
                              REPORTS                        [2022] 3 S.C.R.


A                           M/S TIRUPATI STEELS
                                         v.
             M/S SHUBH INDUSTRIAL COMPONENT & ANR.
                         (Civil Appeal No. 2941 Of 2022)
B                                APRIL 19, 2022
               [M. R. SHAH AND B. V. NAGARATHNA, JJ.]
             Micro, Small and Medium Enterprise Development Act, 2006
      (MSMED Act) – s.19 – Parties governed by provisions of MSMED
      Act – Appellant preferred claim petition before Micro and Small
C
      Enterprises Facilitation Council constituted under the MSMED Act
      – On failure of conciliation, dispute referred to Arbitrator –
      Arbitrator, appointed through MSME Facilitation Council, passed
      award in favour of appellant – Appellant filed execution petition –
      Respondent No.1 filed application u/s.34 of the Arbitration Act for
D     setting aside the arbitral award – Appellant submitted application
      u/s.19 of the MSMED Act for direction to respondent no.1-judgment
      debtor to deposit 75% of the arbitral award – Special Commercial
      Court allowed the application moved by appellant granting six
      weeks’ time to Respondent No.1 to deposit 75% of the arbitral award
      before its’ application u/s.34 of the Arbitration Act, could be
E
      entertained by the Court – Respondent No.1 filed appeal before
      High Court which permitted proceedings u/s.34 of the Arbitration
      Act to go on, without insisting for pre-deposit of 75% of the awarded
      amount – Whether pre-deposit of 75% of the awarded amount as
      per s.19 of the MSMED Act, while challenge to the award u/s.34 of
F     the Arbitration Act is made mandatory or not – Held: Requirement
      of deposit of 75% of the amount in terms of the award as a pre-
      deposit as per s.19 of the MSMED Act, is mandatory – However,
      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
G
      75% of the awarded amount as a pre-deposit at a time, the court
      may allow the pre-deposit to be made in installments – Unless and
      until respondent No.1 deposits 75% of the awarded amount, its
      application u/s.34 of the Arbitration Act, challenging the award
      not to be entertained and decided on merits and, in that case, the
H
                                        356
      M/S TIRUPATI STEELS v. M/S SHUBH INDUSTRIAL                        357
                   COMPONENT & ANR.

execution proceedings to continue – Arbitration and Conciliation         A
Act, 1996 – s.34.
      Allowing the appeal, the Court
       HELD:1.1. The requirement of deposit of 75% of the
amount in terms of the award as a pre-deposit as per section 19
of the Micro, Small and Medium Enterprise Development Act,               B
2006, 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 appellant /applicant to deposit 75% of the awarded
amount as a pre-deposit at a time, the court may allow the pre-          C
deposit to be made in installments. Therefore, pre-deposit of 75%
of the awarded amount under section 19 of the MSMED Act,
2006 is a mandatory requirement. [Para 4][360-A-C]
     1.2. The impugned order passed by the High Court
permitting the proceedings under section 34 of the Arbitration           D
and Conciliation Act, 1996 without insistence for making
pre-deposit of 75% of the awarded amount is unsustainable.
[Para 5][360-F]
      Gujarat State Disaster Management Authority v. Aska
      Equipments Limited, (2022) 1 SCC 61 and Goodyear                   E
      (India) Ltd. v. Norton Intech Rubbers (P) Ltd., (2012)
       6 SCC 345 – relied on.
      M/s Mahesh Kumar Singla and another v. Union of India
      and others [Decision of High Court in CWP No. 23368 of
      2015] – partly overruled.                                          F
      2. Respondent No.1 is directed to deposit 75% of the
awarded amount before its application under section 34 of the
Arbitration and Conciliation Act, 1996 challenging the award is
entertained and considered on merits. Unless and until
respondent No.1 deposits 75% of the awarded amount, its
                                                                         G
application under section 34 of the Arbitration and Conciliation
Act, 1996, challenging the award shall not be entertained and
decided on merits and, in that case, the execution proceedings
may continue. [Para 6][361-A-C]

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358             SUPREME COURT REPORTS                            [2022] 3 S.C.R.


A                              Case Law Reference
      (2022) 1 SCC 61                    relied on                  Para 4
      (2012) 6 SCC 345                   relied on                  Para 4
            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2941
B     of 2022.
            From the Judgment and Order dated 09.04.2019 of the High Court
      of Punjab and Haryana at Chandigarh in FAO-Com No.4 of 2019.
            Pankaj Bhagat, Adv. for the Appellant.
            Dr. Vinod Kumar Tewari, Adv. for the Respondents.
C
            The Judgment of the Court was delivered by
            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
D     and Haryana at Chandigarh in Commercial Appeal Case No. FAO-COM/
      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
E     the ‘MSMED Act, 2006’), 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.
F             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
G     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
H     Arbitration Act, 1996 for setting aside the arbitral award before the Special
     M/S TIRUPATI STEELS v. M/S SHUBH INDUSTRIAL                             359
           COMPONENT & ANR. [M. R. SHAH, J.]

Commercial Court, Gurugram. That the appellant herein submitted an           A
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
                                                                             B
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         C
order was passed on considering section 19 of the Arbitration Act, 1996,
respondent No. 1 filed the commercial appeal being FAO-COM/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 Singla and another Vs. Union of India
                                                                             D
and others), by which, the Division Bench,while up holding 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 pre-deposit of 75% of the awarded amount. Feeling aggrieved and            E
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 pre-deposit
of 75% of the awarded amount, the appellant herein – original judgment
creditor has preferred the present appeal.
                                                                             F
      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 pre-deposit of 75% of the awarded amount as per section
19 of the MSMED Act, 2006, while challenge to the award under section        G
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
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360             SUPREME COURT REPORTS                            [2022] 3 S.C.R.


A     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 pre-deposit 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
B
      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
      pre-deposit at a time, the court may allow the pre-deposit to be made in
      instalments. Therefore, it is specifically observed and held that pre-deposit
      of 75% of the awarded amount under section 19 of the MSMED Act,
C     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
D           the Arbitration and Conciliation Act, the appellant-applicant has
            to deposit 75% of the amount in terms of the award as a pre-
            deposit. 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
E           shall be undue hardship caused to the appellant-applicant to deposit
            75% of the awarded amount as a pre-deposit at a time, the court
            may allow the pre-deposit 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
F     34 of the Arbitration Act, 1996 without insistence for making pre-deposit
      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
G     Kumar Singla (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,
H     2006, is directory and not a mandatory requirement.
       M/S TIRUPATI STEELS v. M/S SHUBH INDUSTRIAL                           361
             COMPONENT & ANR. [M. R. SHAH, J.]

       6. In view of the above discussion and for the reasons stated         A
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.
                                                                             B
      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 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.                                         C


Bibhuti Bhushan Bose                                       Appeal allowed.



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