MSME Pre-Deposit Non-Compliance Not Automatic Bar To Restoring Section 34 Petition: Calcutta High Court

The Calcutta High Court on 13 May held that non-compliance with the mandatory pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 does not, by itself, bar restoration of a petition under Section 34 of the Arbitration and Conciliation Act, 1996.

A Bench comprising Justice Gaurang Kanth allowed a restoration application filed by the Public Health Engineering Department, Gorkhaland Territorial Administration and restored its Section 34 petition challenging an MSME Facilitation Council award in favour of Mohindra Tubes Ltd. He held:

“The proposition that non-compliance with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 ipso facto bars the entertainment or allowing of a Restoration Application is neither supported by the plain text of the statute, nor by any binding or persuasive judicial authority placed before this Court. This Court accordingly declines to accept the said proposition.”

The dispute arose after the Public Health Engineering Department issued a work order to Mohindra Tubes for supplying G.I. pipes for a drinking water project in Darjeeling. Mohindra Tubes later claimed unpaid dues of about Rs. 42.36 lakh along with interest and initiated proceedings before the West Bengal MSME Facilitation Council, which passed an ex parte award on 13 June 2023.

The Department filed a Section 34 petition challenging the award, but the Court dismissed it for non-prosecution on 16 April 2024, leading to the present restoration application.

Relying on Central University of Jharkhand v. King Furnishing & Safe Co., the Court held that mere non-compliance with Section 19 does not justify outright dismissal of a Section 34 petition at the threshold. It held that courts must first consider the issue of pre-deposit and then issue appropriate directions in exercise of judicial discretion. The Bench observed:

“This Court is fortified in its view by the decision of the Delhi High Court in Central University of Jharkhand v. King Furnishing & Safe Co. (supra), relied upon by the Petitioner, which authoritatively lays down that mere non-compliance with the pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 does not, ipso facto, warrant the outright dismissal of a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996. The correct procedure, as held therein, is for the Court to list the matter, consider the question of pre-deposit in the exercise of its judicial discretion, and issue appropriate directions for compliance, the petition being heard only upon such compliance.”

The Bench rejected the contention that non-compliance with Section 19 of the MSMED Act automatically prevents restoration or continuation of proceedings under Section 34 of the Arbitration and Conciliation Act. It held that neither the statutory text nor binding precedent supports such a blanket bar.

It further held that a restoration application is confined to examining whether sufficient cause exists for restoration and does not permit adjudication on the merits of the underlying Section 34 petition. It ruled that merits-based objections cannot be entertained at this stage, as doing so would defeat the purpose of restoration and deny a meaningful hearing. It observed:

“A Restoration Application is concerned solely with whether sufficient cause has been shown for restoration of the dismissed matter, it neither permits nor warrants any merits based examination of the underlying petition. To permit the Respondent to raise and have adjudicated, at the stage of a Restoration Application, the very contentions that go to the merits of the main petition, would be to allow the tail to wag the dog. It would render the eventual hearing of the Section 34 Petition wholly otiose and deprive the Petitioner of any meaningful opportunity of being heard on the substantive challenge to the impugned award, an outcome that would be plainly contrary to the principles of natural justice.”

Accordingly, the High Court allowed the restoration application and restored the Section 34 petition to its original number for adjudication on merits.

For Petitioner: Senior Advocate Swarnendu Ghosh with Advocates Debdut Mukherjee, Abhismita Goswami, Sourav Sharma, Souranjan Bhattacharya

For Respondent: Advocates Srijib Chakraborty, Akanksha Mukherjee, Sayantee Datta, Samaita Das Chowdhury