MSMED Act | No Bar In 'filing' Petition Under Section 34 A&C Without Pre-deposit of 75% Award Amount, but Will Not Be 'Entertained' Without Pre-Deposit: Delhi High Court

Brief Facts:

The Respondent under Section 34(3) of the Arbitration and Conciliation Act, 1996 (“Act 1996”) filed an application, seeking the dismissal of the petition, on grounds of exceeding the limitation prescribed under Section 34 of the Arbitration Act. The Respondent, contended that the Petitioner failed to adhere to the mandatory provision of pre-deposit as per Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), rendering the petition under Section 34 of the Arbitration Act untenable.

It argued that under Section 19 of the MSMED Act, the Petitioner was obligated to deposit 75% of the awarded amount at the time of filing the petition. Failure to comply rendered the filing non est in the eyes of the law, precluding the court from granting time to fulfill the pre-deposit requirement under Section 34 of the Arbitration Act.

In contrast, the Petitioner, argued that, according to their records, 75% of the awarded amount was deposited. Should the court find any shortfall, the Petitioner was prepared to promptly deposit the remaining amount before the court entertain the petition.

Observations by the High Court:

The High Court referred to the case of Supreme Court in Snehadeep Structure Private Limited which was referred by the Respondent and noted that in that case the matter pertained to an appeal under the Interest on Delayed Payments to Small Scale and Ancillary Undertakings Act, 1993 (“Interest Act”), with incidental observations regarding Section 34 of the Arbitration Act. The Supreme Court did not directly address the consequence of a lack of pre-deposit on a Section 34 petition. The argument put forth by the Respondent, citing the need for pre-deposit as per Section 19 of the MSMED Act to validate a petition under Section 34, was held by the High Court which lacked precedent from the case.

Examining Section 19 of the MSMED Act, which mandates the pre-deposit, the term "entertain" within the provision requires clarification. The High Court held that filing and entertaining a petition represent distinct stages. It held that filing a petition under Section 34 of the Arbitration Act is permissible without the pre-deposit, but the court will not entertain it until the requisite deposit is made.

Consequently, the Respondent's application was dismissed. The Petitioner was granted four weeks to deposit Rs. 8,14,701.95. Additionally, 25% of the remaining balance was to be deposited with the Registrar General of the High Court Court within six weeks, subject to execution proceedings.

Case Title: Central University Of Jharkhand Vs M/S. King Furnishing And Safe Co

Citation: 2024 LiveLaw (Del) 346

Case Number: O.M.P. (COMM) 11/2023 and connected matters.

Advocate for the Petitioner: Mr. Rajshekhar Rao, Sr. Adv., Mr. Vinayak Mehrotra, Ms. Mansi Sood, Mr. Saurav R., Mr. Harshil Wason, Advs.

Advocate for the Respondent: Mr. Manish Kaushik, Mr. Mishal Johari. and Mr. Ajit Singh Joher, Advs.

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