Section 19 MSMED Act requires 75% pre-deposit of the award amount, including interest accrued until deposit.

Bharat Heavy Electricals Limited (BHEL) awarded electrical package works for the Bina Refinery Project to M/s Control Systems under a Letter of Award dated 29 February 2008 and an agreement dated 8 September 2008.

Disputes arose concerning final bills and extra items. Although the respondent initially invoked arbitration and obtained appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, it subsequently approached the Madhya Pradesh Micro and Small Enterprises Facilitation Council.

The Council passed an award dated 15 December 2022 directing BHEL to pay principal of approximately Rs.1,46,79,568, interest of Rs.3,62,00,405 up to 28 February 2016, and further interest from 1 March 2016 until payment under the MSMED Act.

BHEL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. It deposited Rs.3,81,59,979, claiming that this represented 75% of the quantified award amount of Rs.5,08,79,972, in compliance with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006.

The Commercial Court, Bhopal, allowed the respondent’s application and directed BHEL to deposit the requisite 75% amount. BHEL challenged that order under Article 227 of the Constitution.

Whether, for purposes of Section 19 of the MSMED Act, the required 75% pre-deposit had to include interest accruing beyond the amount quantified in the award up to the relevant date of deposit or filing of the proceedings under Section 34.

Whether BHEL’s deposit of Rs.3,81,59,979, calculated as 75% of the principal and interest quantified up to 28 February 2016, constituted sufficient compliance with Section 19 of the MSMED Act.

Whether the Commercial Court’s direction requiring a further deposit suffered from jurisdictional or legal error warranting interference under Article 227 of the Constitution.

Section 19 of the MSMED Act requires an appellant challenging an award or decree arising from a reference under the Act to deposit 75% of the amount in terms of the award before the appeal is entertained.

Section 16 makes the buyer liable for compound interest with monthly rests on the outstanding principal where payment is not made in accordance with Section 15, while Section 17 creates the buyer’s liability to pay the amount due together with such interest.

The Court treated the further interest directed by the Facilitation Council from 1 March 2016 until payment as part of the award liability for determining the statutory pre-deposit.

The Section 34 proceedings were therefore subject to the mandatory Section 19 condition.

The Court also exercised limited supervisory jurisdiction under Article 227 and declined interference in the absence of an error in the Commercial Court’s order.

BHEL relied on Associate Builders v. Delhi Development Authority, 2015 (3) SCC 49, in support of its challenge to the award, but the petition was decided primarily on the statutory pre-deposit requirement.

The Court held that the award did not end the interest liability on 28 February 2016 because it expressly directed payment of further interest from 1 March 2016 until payment.

Since Sections 16 and 17 of the MSMED Act impose continuing interest liability, the amount relevant under Section 19 could not be confined to the principal and interest quantified only up to 28 February 2016.

BHEL’s deposit, although representing 75% of the amount calculated by it, was made several years after the award and after commencement of the Section 34 proceedings; consequently, the accrued interest had to be taken into account in determining the requisite deposit.

The Court therefore found no jurisdictional or legal error in the Commercial Court’s direction for a further deposit.

The petitioner’s objections concerning the vagueness of the award, the rate of future interest, the merits of the claims, and the Council’s jurisdiction were not accepted as grounds for dispensing with the mandatory pre-deposit.

It held that BHEL was required to deposit 75% of the award amount after accounting for the continuing interest liability under the MSMED Act, and that the earlier deposit of Rs.3,81,59,979 was insufficient for maintaining the challenge under Section 34.

No order as to costs was made.