Award Debtor Cannot Sidestep Mandatory 75% Deposit To Challenge MSME Award Through Execution Objections: Telengana HC

A Division Bench of Justice Moushumi Bhattacharya and Justice Renuka Yara allowed a civil revision petition filed by Atlantis and directed the award debtor, Kendriya Bhandar, to file a fresh affidavit disclosing the specific amounts receivable by it from ongoing and completed projects across India within three weeks.

The Court held that proceedings under Section 47 CPC, through which a judgment debtor seeks to resist execution, are comparable to a challenge to the award for the purposes of Section 19 of the MSMED Act. They cannot, therefore, be treated as independent proceedings exempt from the statutory pre-deposit requirement.

The bench observed, “Section 47 of the CPC which allows the Judgment-Debtor to raise questions in relation to the decree can be equated to a challenge to the decree or Award as contemplated under section 19 of the MSMED Act. This is by reason of the fact that the Judgment-Debtor seeks to resist the execution of the decree under a section 47 application which is similar to an application for setting aside a decree/award made by the Facilitation Council. Therefore, proceedings under section 47 cannot said to be independent of the mandate in section 19 of the MSMED Act. Section 47 of the CPC also does not pre-suppose that the Judgment-Debtor would automatically be exempted from making the 75% deposit of the decretal amount.”

Background

Atlantis Agritech, an MSME engaged in manufacturing agricultural machinery and equipment, supplied goods to Kendriya Bhandar under several supply orders issued between August 2019 and June 2020.

Following non-payment of its outstanding dues, Atlantis approached the Micro and Small Enterprise Facilitation Council under Section 18 of the MSMED Act. On June 10, 2024, the Council passed an award directing Kendriya Bhandar to pay ₹41.86 crore as principal, apart from interest and additional interest. The amount due under the award stood at ₹74.62 crore as on December 9, 2024.

Atlantis initiated execution proceedings before the Commercial Court at Hyderabad. The Commercial Court directed Kendriya Bhandar to disclose its movable and immovable assets across India in Form No. 16A of Appendix E to the CPC.

Atlantis subsequently sought a fresh affidavit and supporting documents, contending that the disclosure filed by Kendriya Bhandar was vague and incomplete. The Commercial Court partly allowed the application but declined to direct the production of documents relating to the amounts receivable from Kendriya Bhandar's ongoing and completed projects.

Atlantis' Submissions

Senior Advocate A. Venkatesh, representing Advocate Mohammed Omer Farooq, argued that Kendriya Bhandar's disclosure of its contract-wise margins did not satisfy Form No. 16A.

It was further submitted that the subsequent Section 47 application had no bearing on Atlantis' application for disclosure and that Kendriya Bhandar had failed to deposit 75% of the award as mandated by Section 19 of the MSMED Act.

Kendriya Bhandar's Submissions

Advocate M. Pranav contended that the disclosure proceedings should be kept in abeyance until its Section 47 application was decided. He argued that the question whether Atlantis was a medium enterprise went to the root of the matter.

Kendriya Bhandar also submitted that it had disclosed assets exceeding the awarded amount and that no further information was required. It described itself as a no-profit, no-loss entity dependent on commissions earned from transactions with third parties.

Section 47 Application Cannot Stall Execution

The Court noted that Kendriya Bhandar filed its Section 47 application only after Atlantis' disclosure application had been decided. It had failed to establish any statutory basis for delaying the disclosure of assets pending adjudication of its objections.

The Bench said that the Executing Court could decide the Section 47 application on its merits, but its mere filing could not halt other proceedings in aid of execution, including an application for disclosure under Order XXI Rule 41(2) CPC.

Referring to the Supreme Court's decision in M/s Tirupati Steels v. M/s Shubh Industrial Components, the Court reiterated that the mandatory deposit under Section 19 cannot be bypassed. A court's discretion is limited to permitting payment in instalments where financial hardship is established.

It distinguished Electrosteel Steel Limited v. Ispat Carrier Private Limited, observing that the Supreme Court had not considered whether a Section 47 application exempted an award debtor from complying with Section 19 of the MSMED Act.

Disclosure Of Percentages Was Insufficient

The Court found Kendriya Bhandar's affidavit vague because it disclosed its margins only as percentages without specifying the corresponding receivable amounts.

The omission was significant since Kendriya Bhandar had instituted separate writ proceedings claiming ₹6.33 crore from the Telangana Tribal Welfare Department and ₹3.30 crore from the Telangana State Medical Services and Infrastructure Development Corporation.

The Bench held that the Commercial Court had failed to appreciate that the affidavit contained no particulars of the amounts receivable from the entities identified in it. A bare indication of percentages did not satisfy Form No. 16A.

Accordingly, the Court set aside the Commercial Court's refusal to grant the relevant prayer and directed Kendriya Bhandar to file a fresh affidavit disclosing all receivables, including the specific amounts due from ongoing and completed projects across India.

For Petitioner: Senior Advocate A. Venkatesh, representing Advocate Mohammed Omer Farooq, ;

For Respondent: Advocate M. Pranav for Respondent No. 1.