Reasons Must Be Given for Releasing Deposited Amounts in MSME Disputes: Telangana High Court

Telangana, Jun 24 (KNN) In a significant ruling, the Telangana High Court has held that courts must provide clear reasoning when releasing deposited amounts in disputes under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

Chief Justice Alok Aradhe and Justice Anil Kumar Jukanti emphasised that Section 19 of the MSMED Act requires courts to assign reasons when releasing any percentage of deposited amounts pending the decision on applications to set aside awards.

The High Court noted that the Commercial Court failed to provide a rationale for releasing the full amount, especially when a petition for staying the award was pending.

As a result, the High Court has directed the Commercial Court to reconsider both the application under Section 19 of the MSMED Act and the petition under Section 36 of the Arbitration Act together.

The dispute originated from a contract between NSIC, a government enterprise supporting MSMEs, and Brahma Teja Paper Products. Following the arbitration in favour of Brahma Teja, NSIC contested the award under the Arbitration and Conciliation Act, 1996.

The Commercial Court had previously ordered NSIC to deposit over 50 lakh rupees and later permitted Brahma Teja to withdraw the entire amount.

NSIC challenged this decision, arguing that it jeopardised potential recovery if the arbitration award was overturned, especially given Brahma Teja's reported non-performing asset status.

In its ruling, the High Court criticised the Commercial Court for failing to provide reasons for releasing the full deposited amount to Brahma Teja. The bench also noted that the lower court should have considered NSIC's petition for a stay on the arbitration award alongside the application for fund release.

This decision underscores the need for thorough judicial consideration in cases involving financial disputes and MSME regulations.

(KNN Bureau)