Himachal Pradesh High Court Has Emphasized That Pre-deposit Requirement Must Align With Section 19 Of The MSME Act And Is Mandatory When Challenging Arbitral Awards.(M/s Pratap Industries Products Vs Hindustan Construction Company Limited)

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In a recent case, M/s. Pratap Industries Products challenged an order passed by the District Judge regarding an application made under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (the Act). The High Court of Himachal Pradesh, presided over by Hon’ble Ms. Justice Jyotsna Rewal Dua, ordered a fresh decision on the application.

The dispute arose from an arbitral award issued on October 30, 2021, in reference No. 3/5. The respondent, M/s. Hindustan Construction Company Ltd., filed objections against the award under Section 34 of the Arbitration and Conciliation Act, 1996. Along with the objections, the respondent filed an application under Section 19 of the Act, seeking a stay on the implementation/execution of the award. The respondent claimed to have deposited 75% of the awarded amount as required by Section 19, while the petitioner, M/s Pratap Industries Products, argued that the deposit fell short of the statutory requirement.

The District Judge allowed the respondent’s application, staying the implementation and execution of the award, based on the belief that the respondent had indeed deposited 75% of the awarded amount, as per the record.

Dissatisfied with the District Judge’s order, the petitioner approached the High Court. The petitioner’s counsel contended that the District Judge had prematurely assumed that the deposit met the requirements of Section 19 without a thorough examination. The contention of the present petitioner (respondent before the learned District Judge) was that the amount deposited by the present respondent is Rs.3618716/- whereas it was required to deposit an amount of Rs.47,94,688/- (75% of the awarded amount) was short of 75% of the awarded amount and the deposit was not in terms of the requirement of Section 19 of the Act.

Justice Jyotsna Rewal Dua analyzed the dispute and referred to a relevant Supreme Court decision in the case of M/s Tirupati Steels Vs. M/s Shubh Industrial Component & others (Civil Appeal No. 2941 of 2022). The Supreme Court held that the pre-deposit of 75% of the awarded amount under Section 19 of the Act is mandatory. However, the Court acknowledged that under exceptional circumstances and if undue hardship is demonstrated, the court may allow the pre-deposit to be made in instalments.

Considering the factual dispute regarding the amount deposited by the respondent, Justice Jyotsna Rewal Dua set aside the District Judge’s order. The High Court directed the District Judge, Shimla, to re-examine the respondent’s application under Section 19 and make a fresh decision in accordance with the law. Furthermore, the Court ordered that until the application is decided afresh, the respondent shall not execute the impugned award.

The case emphasizes the importance of complying with the statutory requirements under Section 19 of the Act. The High Court’s decision ensures a thorough examination of the deposit made by the respondent and reaffirms the mandatory nature of the pre-deposit requirement. It underscores the significance of adhering to legal provisions while seeking remedies under the Act and upholds the principle of fair dispute resolution.