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Allahabad HC directs state govt to pay up 75% of due amount to stationery firm

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The Allahabad High Court has held that inasmuch as the language of Section 19 of the MSME Act is mandatory, as it provides that no application to set aside a statutory award shall be entertained unless the appellant pre-deposits 75% of the disputed awarded amount, the provisions of Order XXVII Rule 8-A C.P.C would remain inconsistent to the mandatory requirement contained in Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).

A single-judge bench of Justice Saumitra Dayal Singh passed this order while hearing a petition filed by M/S Tirupati Stationery Pvt Ltd.

The petition is directed against the order dated 20.7.2013 passed by the District Judge Kanpur Nagar in Arbitration Case.

By that order, the District Judge rejected the objection-paper filed by the petitioner seeking deposit of 75% of the awarded amount under the statutory arbitration award dated 27.4.2011. The court below has rejected the objections raised by the petitioner relying on the provisions of Order XXVII Rule 8- A of the Civil Procedure Code.

The writ petition was entertained on 04.9.2013 and the below quoted interim order was passed:

“In view of the aforesaid circumstances, until further orders of the court, the effect and operation of the impugned order dated 20.07.2013 passed by the District Judge, Kanpur Nagar in Arbitration Case no. Nil of 2011 (Director, Printing and Stationary, Allahabad U.P. and another Vs M/s Tirupati Stationery Private Limited) shall remain.”

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Counsel for the petitioner states, in view of interim order granted by the Court, the entire proceeding in the aforesaid Arbitration Case have remained pending.

The Court held,

“Having heard counsel for parties and having perused the record, the proceedings before the District Judge were instituted under Section 34 of the Arbitration Act, 1996, read with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006.

While there can be no dispute to the proposition that an application /objection filed under Section 34 of the Arbitration Act does not mandate pre-deposit of any part of the awarded amount and the deposit of the awarded amount may be enforced on the judgment debtor only by way of execution proceedings only, yet by virtue of the interaction of the Arbitration Act with the MSME Act, in respect of applications/objections to set aside the statutory award made under Section 18 of the MSME Act, Section 19 imposes a pre-condition of deposit of 75% of the awarded amount.”

“As to the mandatory or directory nature of the pre-deposit required to be made and as to whether the MSME Act would prevail over other enactments, the legislative intent is clear. Section 24 of the MSME Act gives a clear and sweeping overriding effect to any law that may be inconsistent thereto.

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“Section 19 of the MSME Act being one which has been given overriding effect over any other law, clearly the requirement of pre-deposit prescribed under Section 19 would prevail over the provisions of Order XXVII Rule 8-A C.P.C and any other law that may allow the Court’s discretions while dealing with the requirement to pre-deposit the disputed amount of award in an application filed under Section 34 of the Arbitration Act.

In perusal of the order passed by the District Judge reveals that the effect caused by Section 24 of the MSME Act has not been taken into account. In view of the above, the order is wholly erroneous and unsustainable. It is accordingly set aside, the Court observed.

“In view of the order passed today, the respondent-State is granted a month’s time to pre-deposit the amount of 75% of the disputed award to maintain its application filed under Section 34 of the Arbitration Act. Failing that deposit, the application shall stand dismissed”

-the Court ordered.

Accordingly, the Court allowed the writ petition.

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