Allahabad High Court Affirms Court Discretion To Allow Predeposit In Installments Under Section 19 Of MSME Act

Allahabad High Court Affirms Court Discretion To Allow Predeposit In Installments Under Section 19 Of MSME Act

The division bench of the Allahabad High Court, comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh, determined that the phrase "in the manner directed by such court" in Section 19 of the Micro, Small, and Medium Enterprises Development Act, 2006, grants the court discretion to permit the predeposit to be made in installments if deemed necessary.

The case involved an order from the Commercial Court in Lucknow, which dismissed the petition filed by the Appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), due to failure to pre-deposit 75% of the awarded amount as mandated by Section 19 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSME Act). The appellant, dissatisfied with the arbitral award, filed a petition before the Commercial Court and simultaneously submitted an application seeking waiver of the pre-deposit, which was rejected.

In response, the appellant requested additional time to deposit the amount, citing ongoing loan and overdraft processes with a bank. However, the Commercial Court declined to entertain this application and subsequently issued an order dismissing the Section 34 petition due to the failure to deposit the required amount. Feeling aggrieved, the appellant approached the Allahabad High Court to challenge the Commercial Court's decision.

The appellant argued that the orders were erroneous and asserted that the Commercial Court exceeded its jurisdiction by requiring dismissal of the proceedings for non-deposit. It contended that dismissing the appeal without considering the appellant's subsequent readiness to deposit the amount within a week amounted to a miscarriage of justice.

The High Court upheld the dismissal of the application for waiver by the Commercial Court. However, it found the supplementary directive issued by the Commercial Court, which stipulated automatic dismissal of the proceedings in case of failure to deposit the specified amount within the prescribed timeframe, unjustifiable.

In its ruling, the High Court emphasized that the Commercial Court failed to utilize its authority under Section 19 of the MSME Act, which empowers the court to impose appropriate conditions. Citing the Supreme Court's decision in Goodyear India Ltd. v. Norton Intech Rubbers Pvt. Ltd. and Another, the High Court interpreted the phrase "in the manner directed by such court" in Section 19 as granting discretion to the court to permit predeposit, including the option for installment payments, if deemed necessary.

Considering the appellant's intention to deposit the required 75% of the awarded amount within one week, the High Court concluded that the mandatory nature of the orders issued by the Commercial Court, leading to the dismissal of the petition, could not be justified.

Consequently, the appeal was allowed, and the orders of February 19, 2024, and March 12, 2024, were set aside. The appellant was directed to deposit 75% of the awarded amount by April 29, 2024.