75% Deposit Required To Challenge MSMED Arbitral Awards: Allahabad HC

Allahabad, Feb 7 (KNN) The Allahabad High Court ruled on the correct procedure for challenging arbitral awards issued under the Micro, Small, and Medium Enterprises Development (MSMED) Act.

The court determined that such awards must be contested in accordance with Section 19 of the MSMED Act, in conjunction with Section 34 of the Arbitration and Conciliation Act.

Section 19 of the MSMED Act specifies that challenges to decrees, awards, or orders made by the Council or any institution providing alternate dispute resolution (ADR) services must adhere to certain conditions. Notably, the appellant (not the supplier) is required to deposit 75 per cent of the decretal amount.

Additionally, Section 34 of the Arbitration and Conciliation Act provides for setting aside an arbitral award on limited grounds such as incapacity of a party, procedural irregularities, or contravention with public policy.

The court clarified that this specific procedure must be followed for challenges related to arbitral awards under the MSMED Act. Failure to comply with these provisions can result in the dismissal of challenges and enforcement of the award.

The case involved a contractual dispute between two companies, both registered under the MSMED Act. After failing to resolve their disagreements through conciliation, the matter was referred to arbitration as per Section 18 of the MSMED Act.

The petitioner, one of the companies involved, participated in the arbitration proceedings and raised objections to the claims made by the respondent. However, due to circumstances related to the COVID-19 pandemic, the petitioner was unable to continue participating, and an award was subsequently issued in favour of the respondent.

Upon learning of the award, the petitioner filed a writ petition challenging its validity. However, the respondents argued that the petition was not maintainable as the proper procedure for challenging an arbitral award under the MSMED Act was not followed. They contended that challenges should be brought under Section 34 of the Arbitration and Conciliation Act.

The Allahabad High Court upheld the respondents' argument, emphasising the importance of following the prescribed procedure for challenging arbitral awards under the MSMED Act.

The court dismissed the petition, stating that writ petitions are not maintainable for disputes between private parties and that the proper recourse for challenging such awards is through the specified legal framework.

(KNN Bureau)