Vipul Ganda is an Independent Litigation Counsel with over 14 years of experience and a proven track record in Litigation and Dispute Resolution.

Indian Oil Corporation Limited Versus FEPL Engineering (P) Limited & Anr.


Court / Forum : High Court of Delhi
Citation : OMP (COMM) 144/2019
Coram : Justice V. Kameswar Rao
Subject : Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) | Section 19 of MSME Act
Date of Decision : 2020-07-30

Brief Facts

  • An arbitral award (“Award”) was passed by the Micro and Small Enterprises Facilitation Council, Konkan Region, Thane, Maharashtra (“Council”) under the provisions of the MSME Act.
  • Aggrieved by Award, the Petitioner/Non-Applicant challenged the Award in the main petition filed under Section 34 of the 1996 Act. Subsequently, the Court directed the Petitioner to deposit 75% of the awarded amount as pre-deposit in terms of Section 19 of the MSME Act, for entertaining the main petition filed under Section 34 of the Act.
  • However, the Petitioner/Non-Applicant deposited only 75 % of the principal amount in terms of the Award without the interest component.
  • TAggrieved by the non-deposit of the 75% interest amount, the present Application has been filed by the Applicant/Respondent seeking release of the entire pre-deposit made by the Petitioner/Non-applicant along with directions against the Petitioner to deposit the remainder 75% of the interest amount as awarded to the Applicant/Respondents by the Council in terms of the Award.

Issues

  1. Whether the 75 % of decretal/awarded amount mandated for pre-deposit under Section 19 of the MSME Act includes within its scope the component of interest payable?
  2. What manner can the Court exercise its discretion for release of pre-deposit under proviso to Section 19 of the MSME Act?

Decision

  • MSME Act is a beneficial legislation and Chapter V is unambiguous with regard to the meaning of the term ‘amount`. Section 15 of the MSME Act mandates payment to be made to the supplier for products or services within 45 days from the date agreed/appointed date and Section 16 imposes a stringent rate of interest in case of default made under Section 15. Section 17 entitles the supplier to recover the amount due under Section 15 with interest as computed in terms of Section 16. It is therefore reasonable to presume that the what has been contemplated as ‘amount` in Section 18 is both inclusive of principal and interest as Section 17.
  • The Court also relied upon the case of GE T&D Ltd v Reliable Engineering Projects & Marketing, 2017 SCCOnLine Del 6978 wherein the Court while dealing with an application seeking waiver for deposit under Section 19 of the MSME Act held that as per the said Section, no discretion lies with the Court to reduce the amount of pre-deposit.
  • The Court concluded that not only does the term ‘amount` in terms of Section of MSME Act include the components of both principal and interest but also no discretion lies with the Court to reduce the amount or quantum of the pre-deposit of 75 % awarded/decreed/ordered amount as mandated under Section 19 of the MSME Act.
  • The Court held that when encumbrances on the property were brought to the notice of the Tribunal, the Tribunal didn`t consider the security sufficient and therefore, in order to preserve and protect the subject matter of dispute, the Tribunal modified the earlier order. It is purely within the domain of arbitral tribunal to exercise its discretion in deciding the nature and extent of security to preserve the subject matter involved in arbitration proceedings.
  • With respect to the second issue that the proviso to Section 19 of the MSME Act, which contemplates that pending disposal of the application to set aside the decree, award or order, the Court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose, as mandatory.
  • Therefore, the legislature in its collective wisdom has formulated such a proviso to keep the supplier financially viable pending the litigation against an award in its favour being guided by the object of the legislation, which is promotion, development as well as enhancing the competitiveness of MSMEs. However, the said proviso gives discretion to the Court for imposing such reasonable conditions as it deems necessary under the circumstances of the case. Therefore, a purposeful interpretation of the proviso means, if no viable security is provided by the supplier then the discretion can be exercised not to release the amount pre-deposited.

Vipul Ganda is a Delhi based Advocate practicing largely at the Delhi High Court. His practice focus is Dispute Resolution and Litigation and his practice areas include Arbitration, Commercial, Civil, Constitutional, Corporate and Criminal Litigation.