The Calcutta High Court in a recent decision observed that an application under Section 34 of the Arbitration Act remains ‘Stillborn’ for the purpose of stay without pre-deposit under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 ().
An application was filed by the petitioner, The Board of Major Port Authority for the Shyama Prasad Mookerjee Port, Kolkata, before the Calcutta High Court for stay of an arbitral award passed by the West Bengal State Micro Small Enterprises Facilitation Council on 28th April, 2022. The impugned award was passed by the Council under section 18(3) of The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The stay has been sought under section 36(2) of The Arbitration and Conciliation Act, 1996.
The petitioner sought unconditional stay of the impugned award under the second proviso to section 36(3) of the 1996 Act and the ground taken is that the Council became de jure unable to perform its functions and consequently the award is without jurisdiction and void.
The issues for adjudication are as follows: A. Whether compliance of section 19 of the MSMED Act is mandatory for seeking stay of an award; and B. Whether filing of an application under section 34 of the 1996 Act, without the pre-deposit under section 19 of the MSMED Act, makes the application for seeking stay of the award under section 36(2) of the 1996 Act, imperfect in the eye of law.
The Counsel who appeared for the respondent/award-holder (claimant-supplier in the arbitration) took a preliminary objection to the maintainability of the application. According to the counsel, the petitioner must first comply with the requirement of section 19 of the MSMED Act in the matter of depositing 75% of the awarded amount before applying for setting aside of the award. The counsel further submitted that this requirement would have overriding effect over all existing laws under section 24 of the MSMED Act.
In relation to the first issue the Court held that a buyer must first deposit 75% of the awarded amount, as a one-time deposit or in instalments, before inviting a Court to entertain an application for setting aside of the award made by the Facilitation Council.
For the second issue the Court of Justice Moushumi Bhattacharya observed that “Since the petitioner has admittedly not made the pre-deposit under section 19 of the MSMED Act, the section 34 application filed by the petitioner remains eclipsed in the eye of law as the foundation for a prayer for stay of the arbitral award under section 36(2) of the 1996 Act. Therefore, the present application for stay of the impugned award filed under section 36(2) of the 1996 Act cannot be entertained as the said application is foisted on a stillborn section 34 application.”
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