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Sec.19 Of MSMED Act Applies To All Kinds Of Challenges : Gujarat High Court

Ausaf Ayyub
15 Nov 2022 10:00 AM GMT
Sec.19 Of MSMED Act Applies To All Kinds Of Challenges : Gujarat High Court
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The High Court of Gujarat has held that Section 19 of MSMED Act, which provides for 75% deposit of the awarded amount as a pre-condition to challenging any order, award or decree passed in favour of the supplier, applies to all challenge applications regardless of whether the decree, award, order was passed by MSME Council, independent arbitration or the Court.

The bench of Justice Umesh A. Trivedi has held if Section 19 of the Act is made applicable only to the award passed by the Council, then the use of the word 'decree' under Section 19 would be rendered nugatory as the Council cannot pass a decree, further, it would also frustrate the object of the Section that is to secure the interest of the small-scale industries i.e., supplier.

This encompasses any decree, award or order passed in favour of the MSME in any proceeding before the MSME Council, independent arbitration or any proceedings before the Court of law.

Facts

Pursuant to a dispute, the parties were referred to arbitration. The arbitrator passed an award in favour of the petitioner. Accordingly, the respondent challenged the award under Section 34 of the A&C Act in the year 2002. After a lapse of more than 10 years, the petitioner filed an application in the challenge proceedings, claiming to be an MSME, for non-compliance with the mandatory requirement of depositing 75% of awarded amount in view of Section 19 of the A&C Act and for dismissing the petition on that ground.

The lower court dismissed the application filed by the petitioner. Aggrieved thereby, the petitioner challenged the order by way of Special Civil Application under A.226 of the Indian Constitution.

Contention of the Parties

The petitioner challenged the impugned order on the following grounds:

  • The petitioner is a registered MSME and is supposed to have all the benefits of the MSMED Act including the benefit of Section 19, therefore, the award in its favour cannot be challenged without complying with the stipulated requirement.
  • The Court should on its own direct the applicant to make such deposit and no just when the MSME makes an application to that effect.
  • A similar provision was contained in Section 7 of the Interest Act, 1993 which was prevalent at the time of award and the consequent challenge, however, the same was repealed by Section 32(1) of MSMED Act and Section 32(2) provides for transferring of right from the Interest Act, 1993 to this act.
  • Section 19 applies to all the applications and not just to an award or order passed by the MSME Council pursuant to a reference under Section 18 of the Act, therefore, it squarely applies to the present award passed by the independent arbitrator.

The respondent raised the following objections:

  • The petitioner neither during the arbitral proceedings nor after for a long period of 10 years had disclosed the fact of it being registered as small-scale industry under the Interest Act, 1993 or MSMED Act, 2006, therefore, it has waived its right to claim any such privilege after a long delay.
  • The petitioner cannot also rely on Section 19 of the A&C Act as the award and the challenge petition was filed much before the Act came into force.
  • To claim the benefit of the Act it is important to show that an entity is registered as a 'supplier' under the Act, however, the petitioner has not satisfied whether the registration certificate given by it is in accordance with Section 8(1) of the Act.
  • The Court cannot sou moto require the applicant to deposit the 75% amount unless the fact of registration and related provision is brought to the attention of the Court.
  • Section 19 only applies to an award passed by the MSME Council, however, the present award is passed by an independent arbitral tribunal, therefore, it would not have any application.

Analysis by the Court

The Court observed that the challenge petition was filed in the year 2002 at that the Interest Act, 1993 was prevalent and Section 7 of that act contained an analogous provision. Section 32(1) of the MSMED Act repealed the interest act and Sub-clause (2) saved the existing claims as they were claims under the MSMED Act, therefore, the right of the petitioner now lies under Section 19 of 2006 Act.

The Court held that the petitioner has filed before the Court the certificate of its registration as an MSME under the 2006 Act. It held that it is mandatory that the applicant must deposit the required amount before the application is entertained.

Next, the Court considered the objection regarding the award not being passed by the MSME Council and for that reason being outside the scope of the Section. The Court held if Section 19 of the Act is made applicable only to the award passed by the Council, then the use of the word 'decree' under Section 19 would be rendered nugatory as the Council cannot pass a decree, further, it would also frustrate the object of the Section that is to secure the interest of the small-scale industries i.e., supplier.

Accordingly, the Court quashed and set aside the order of the lower court and directed the respondent to deposit the required amount within 6 weeks.

Case Title: Spunpipe & Construction Company v. State of Gujarat, R/Special Civil Application No. 8109 of 2013

Date: 20.10.2022

Counsel for the Petitioner: B.S. Patel, Senior Advocate, Chirag B Patel and Umang Oza, Advocates.

Counsel for the Respondent: Akash Chhaya, AGP.

Click Here To Read/Download Order

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