/2022 INSC 0295/
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,
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.
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