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Arbitration & Commercial LawSupreme Court of India

M/s Tirupati Steels vs. M/s Shubh Industrial Component & Anr.

Civil AppealDecided 19 Apr 2022
Civil Appeal No. 2941 of 2022
M.R. Shah · B.V. Nagarathna

Background

Tirupati Steels won an arbitration award of over Rs. 2.72 crore against Shubh Industrial Components under the MSME Facilitation Council process. When Shubh Industrial tried to challenge that award in court under Section 34 of the Arbitration Act, the trial court ordered it to first deposit 75% of the awarded amount, as required under Section 19 of the MSMED Act. The Punjab and Haryana High Court, relying on an earlier ruling of its own, said this 75% deposit requirement was only a suggestion (directory), not compulsory, and let the challenge proceed without any deposit. Tirupati Steels appealed to the Supreme Court to enforce the deposit requirement.

Decision Breakdown

The Supreme Court held that the question was already settled by its own recent ruling in Gujarat State Disaster Management Authority vs. Aska Equipments Limited, which clearly established that the 75% pre-deposit under Section 19 of the MSMED Act is mandatory, not optional. The Court explained that while the deposit is compulsory, an appellate court can allow it to be paid in installments if the paying party shows genuine hardship in paying it all at once. Since the High Court's order let the challenge proceed with no deposit at all, that order was set aside. The Court also expressly overruled the High Court's earlier decision (Mahesh Kumar Singla case) on this point, declaring it "not good law."

Lesson Learnt

A small business (MSME) that wins an arbitration award has real protection in law. Anyone challenging that award in court must first deposit 75% of the awarded sum, which cannot be waived, only potentially paid in installments in cases of genuine hardship.

M/s Tirupati Steels vs. M/s Shubh Industrial Component & Anr. – Legal Case Shots | LegalAware