Money Decrees Ordinarily Not Stayed: Allahabad High Court Upholds Release of 75% MSME Arbitral Award Deposit

The Allahabad High Court's Lucknow Bench has upheld an order of the Commercial Court permitting release of 75% of the amount deposited under Section 19 of the MSME Act in favour of Genebio Healthcare Pvt. Ltd.

Justice Jaspreet Singh noted that the amount was released to avoid grave hardship to the MSME while the challenge to the arbitral award remains pending.

The court also upheld the direction requiring the challenger to furnish security for the remaining 25% of the award amount. It reiterated that a money decree is ordinarily not stayed. It held that a stay may be granted only in exceptional circumstances, such as where egregious fraud is apparent on the face of the record.

The Court observed that it has jurisdiction to secure the decretal amount and may release such part of it as it deems just and proper in the facts of the case. “However, as a general rule money decree is not stayed,” the Court observed.

The dispute arose after Paradigm Enterprises, acting as an authorised distributor of Genebio Healthcare, secured a government order through the GeM portal to supply 20 lakh Covid-19 sample collection kits.

The kits were supplied directly to the Uttar Pradesh Medical Supplies Corporation. Paradigm received the entire payment. The amount was not paid to Genebio.

Genebio approached the MSME Facilitation Council. The Council passed an award in its favour on September 27, 2023.

Paradigm challenged this award under Arbitration and Concilliation Act before the Commercial Court. During the challenge, Genebio argued that the petition is not maintainable without it depositing 75% of the award as per the MSME Act.

Pursuant to subsequent directions, Paradigm thereafter deposited 75% of the awarded amount before the Commercial Court. After the deposit Genebio filed an application seeking release of the amount, citing hardship. 

The Commercial Court thereafter allowed the release of the deposited amount in favour of Genebio. The release was made subject to an indemnity. Genebio was directed to refund the amount with 6% interest per annum in the event the challenge succeeds. The Commercial Court also directed Paradigm to furnish security for the remaining 25% of the award. Recovery proceedings were stayed subject to compliance.

Declining to interfere under Article 227 of the Constitution, the High Court held that the Commercial Court's exercise of jurisdiction suffered from no error of law or jurisdiction and was not vitiated by any illegality or material irregularity. The petition was dismissed.

The petition under Section 34 of the Arbitration and Conciliation Act remains pending before the Commercial Court.