MSME award challenges cannot be restored without the mandatory 75% deposit, Calcutta High Court rules

The appeals concerned arbitral awards made by the Micro and Small Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”).

In the Mohindra Tubes appeals, PHE challenged an award in favour of MTL under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), but the challenge was dismissed for default.

PHE later obtained an order condoning delay and restoring its Section 34 petition, although it had not made the deposit required by Section 19 of the MSMED Act.

In the Jaggi Brothers appeal, the Facilitation Council made an award in JB’s favour against BESCO.

The City Civil Court set aside the award under Section 34 without a Section 19 deposit, relying on grounds including insufficient stamping, JB’s alleged lack of supplier status, and procedural unfairness in the arbitration.

1. Whether an appeal under Section 37(1)(c) of the Arbitration Act lies against an order restoring a Section 34 challenge to a Facilitation Council award where Section 19 of the MSMED Act has not been complied with.

2. Whether a Section 34 petition dismissed for default before compliance with Section 19 may be restored without the required deposit.

3. Whether the 75% pre-deposit under Section 19 of the MSMED Act is mandatory.

4. Whether the amended Section 36 of the Arbitration Act, including its fraud-or-corruption proviso, affects the requirement under Section 19 of the MSMED Act.

5. Whether registration under Section 8 of the MSMED Act is mandatory to invoke the jurisdiction of the Facilitation Council.

Section 18(4) of the MSMED Act applies the Arbitration Act to arbitration by a Facilitation Council, while Section 19 bars a court from entertaining an application to set aside the resulting award unless the applicant—other than a supplier—deposits 75% of the award amount; Sections 19 and 24 give this requirement overriding effect.

The Supreme Court decisions in Tirupati Steels v. Shubh Industrial Component, Gujarat State Disaster Management Authority v. Aska Equipments Ltd., and Goodyear India Pvt. Ltd. v. Norton Intech Rubbers (P) Ltd. establish that the deposit is mandatory, although the court may permit payment by instalments.

Under Chintels India Ltd. v. Bhayana Builders Pvt. Ltd., an order’s effect may make it appealable under Section 37(1)(c) if it effectively determines whether an award challenge can proceed.

The amended Section 36 governs stay of enforcement of an award but does not displace Section 19’s threshold deposit requirement.

The Court treated the Section 19 deposit as a jurisdictional precondition to entertaining a Section 34 challenge to a Facilitation Council award, distinct from the time limit for filing the challenge.

It held that a court deciding restoration must also consider compliance with Section 19: restoring a petition that remains not entertainable would defeat the statutory protection for the award-holder.

PHE had not invoked Section 19 or deposited the required amount; its later supplementary affidavit seeking time to secure the award did not cure that omission.

In the JB appeal, the City Civil Court had entertained and decided BESCO’s Section 34 challenge without the required deposit, so its judgment setting aside the award could not stand.

Because the appeals were resolved on entertainability, the Court did not decide whether JB qualified as a supplier under Section 8.

A petition dismissed for default cannot be restored without simultaneous compliance with Section 19, subject also to adequate grounds for restoration.

The Court allowed both Mohindra Tubes appeals, set aside the restoration and delay-condonation orders, and dismissed PHE’s Section 34 petition as not entertainable.

It also allowed JB’s appeal, set aside the City Civil Court judgment, and dismissed BESCO’s Section 34 petition as not entertainable for failure to comply with Section 19.