Supreme Court Cases related to MSEFC

1. Extracts from the Affidavit filed on 28.01.2016by Ministry of MSME

in the matter of

MIs Annapurna Electronics (Petitioner) Vs. MIs Crompton Greaves Ltd. & Others
(Respondents)

Special Leave Petition (C) No. 21680 of 20 15

Ministry of MSME - Respondent No 6

1. The Micro, Small & Medium Enterprises Development Act, 2006 (hereinafter referred as
"MSMED" was enacted with the object to facilitate the promotion and development to enhance the
competitiveness of Micro, Small & Medium Enterprises Development and for matters connected
therewith or incidental thereto. The Section 19 of the MSMED Act, ensures finality of awards passed
under section 36, in time bound manner.

2. The buyers with the malafide intention to delay the execution of the awards are resorting to
different kinds of litigations by filing Sec. 34 applications and writ petition without depositing 75% as
mandated at Section 19 of MSMED Act, though not maintainable, against the orders/awards made
by the respective Facilitation Councils set up under the Act in different States. The buyers by
resorting to the aforesaid illegal and unlawful tactics are not only delaying the release of payment but
are also defeating the very purpose behind the enacting of MSMED Act of timely payment and
penalty awards. The MSMED Act has been enacted with the purpose and intention to promote the
small scale industries and protection of their legal rights by assuring timely execution of awards in
case if failure of payment within stipulated statutory period of time. The present matter and other
similarly situated cases, pending before Supreme Court, are the glaring examples, as to how the
buyers escape away from the mandatory provisions of Section 19 of the MSMED Act and able to
avoid the timely payment to the suppliers.

3. The objective of MSMED Act 2006 are as follows:

i) Statutorily bind the buyer to pay the SME supplier within the statutory due date.
ii) Provide for penal interest statutorily in case buyer defaults in making payment.
iii) Provide for efficient statutory mechanism for expeditious resolution of supply and
payment related disputes.
iv) Statutorily ensure to recover at least 75% of the due amount along with interest for
disbursal of finance to the SME supplier to keep it viable in case buyer appeals in
court

4. The objective of the remedy at Section 19 incorporating mandatory deposit of 75% amount
in terms of the award to entertain the appeal/ contest by the buyer under Section 34 of Arbitration
Act by the buyer in the court is in order to ensure timely flow of finance to SME supplier so as to
remain viable in the event of delay, default or dispute regarding payment by the buyer. The object of
effective and expeditions remedy incorporated at Section 18(5) and section 19 of MSMED Act 2006
is to be appreciated by reading together with Section 34(3) and Sec. 36 of Arbitration Act. The
remedy and relief can be fairly deducted to securing at least 75% amount and disbursing that
amount through Court to SME supplier within Six months with the intent to retain its viability and
financial health and to reduce incipience of sickness.
5. Whenever the MSEFC has passed an Award, no application shall be entertained by the
Hon'ble Courts unless the purchaser deposits 75% of the amount in terms of the decree/award passed
against him. In the given case on hand, it is evident from the records that Mis. Crompton Greaves-
Respondent No. 1 herein has not deposited such amount while filing Arbitration Suit in 44/2008 in
the City Civil Court as against the award dated 14.7.2008 passed by the MSEFC.

6. Question of law raised by the petitioner herein as to whether the writ petition is
maintainable against an order passed dismissing the petition under Section 34 of the Act 1996 for
failure to comply with the requirements of Section 19 of the MSMED Act 2006 is to be considered
in the back drop of requirement of Section 19. of MSMED Act 2006 and also the scope of appeal
provided under section 37 of Arbitration Act 1996. The provision of MSMED Act 2006 and the
provision of Arbitration and Conciliation Act 1996 are required to be considered in a harmonious
manner in order to understand the intention of the legislature.

7. It is most humbly submitted herein that in para 28 of the impugned order the Division Bench
ofHon'ble High Court of Karnataka, it is observed as follows:

The application for setting aside the award is in time. Because the requirement of Section
19(1) of the MSMED Act is not complied, the application is not entertained. Once the requirement
is complied with it dates back to the date of application. If the application had been entertained after
complying with the requirement of Section 19(1) of the MSMED Act if for disposal of such
application considerable time has been spent, the petitioners were not expected to pay 75% of the
interest accrued from time to time to make the said application maintainable and therefore, the
contention that the amount already deposited would not fulfil the requirement of Section 19(1) of the
MSMED Act cannot be accepted.

8. It is most respectfully submitted herein that when Section 34 of the Arbitration and
Conciliation is in application, provision of Section 34(3) of the Arbitration and Conciliation Act
automatically gets applied. This settled principle of law laid down by the Apex Court is required to
be considered. Provision of Section 34(3) getting automatically applied under Section 34, is
provided in the legislature in order to provide time bound relief to SSI/SME suppliers.

The provision of Section 19 makes it very clear that the award passed by the MSMED cannot
be set aside or even considered for setting aside unless the buyer deposits 75% of the Award
amount. In case on hand it would be seen from the chronological dates and events provided at
Volume-I that SME supplier is not provided relief in spite of securing an award in its favour on
14.07.2008 due to series of litigation by the buyer time and again refusing to make mandatory
deposit under Section 19 of the Act. The buyer thus succeeded in staying the execution of the
award in Ex. 2586 of 20 13 subsequent to dismissal of its Section 34 suit on 20.09.2013 defeating the
finality under Section 19 of the MSMED Act.

Proviso to Section 19 indicates that even during the pendency of proceedings against the
Award or order passed by the Council, the deposited amount by the buyer shall be paid to the
supplier to keep the small supplier viable during litigation. Thus this vital objective behind the
MSMED Act 2006 gets defeated if time is extended without there being any statutory provision under
law. It is in the back ground of the above mentioned facts, the Ministry of MSME most humbly
prays that Hon'ble Court be pleased to kindly provide the interpretation in consonance with the
intent of the act while disposing the above Special Petition to Appeal so that large number of SMEs
who are suppliers across India will know the intention of the legislature in uniformity and without
confusion, in the interest of justice.

2
 ITEM NO.47 COURT NO.5 SECTION IVA

SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C) No(s). 21680/2015

(Arising out of ~pugned final judgment and order dated 02/06/2015

in WP No. 49557/2013 passed by the High Court Of Karnataka At
Bangalore)

M/S. ANNAPURNA ELECTRONICS ETC Petitioner(s)

VERSUS

M/S. CROMPTON GREAVES LTD. AND ORS ETC Respondent(s)

(with appln. (s) for permission to place addl. documents on record

and inter~ relief and office report)
(For Final Disposal)

Date: 09/03/2016 This petition was called on for hearing today.

CORAM :
HON'BLE MR. JUSTICE J. CHELAMESWAR
HON 'BLE MR. JUSTICE ABHAY MANOHAR SAPRE

For Petitioner(s) Mr. Gurukrishna Kumar, Sr. Adv.

Mr. Devashish Bharuka,Adv.
Mr. Ravi Bharuka, Adv.

For Respondent(s) Mr. Shyam Divan, Sr. Adv.

Mr. Ramesh Singh, Adv.
Mr. Pankaj Jain, Adv.
Mr. Bijoy Kumar Jain,Adv.

Ms. Madhvi Dewan, Adv.

Mr. Neeraj Kumar. Sharma, Adv.
Mr. Abhinav Mukherji, Adv.
Mr. Subas C. Acharya, Adv.
Mr. Vikas Bansal, Adv.
Mr. Kaushal Yadav,Adv.

Mr. Praveen Agrawal,Adv.

Mr. Sanjay Hegde, Sr. Adv.

Ms. Anitha Shenoy,Adv.
Ms. Vishruti Vijay, Adv.
Si9M. re i alid
gtE~DY KHANI
Date
16:3 T
R"
 -2-

UPON hearing the counsel the Court made the following

o R D E R

Leave granted.

The matter arises on interest on the delayed payments

to Small Scale and Ancillary Industrial Undertakings Act,
1993. It appears that there is an award passed under the
above-mentioned Act in favour of the appellant herein on
14th July, 2008, the relevant portion of this reads as
follows:-

"The IFC hereby directs the respondent to

pay the total dues of Rs. 5,19,37,281.00 (Rupees
Five Crores Nineteen Lakhs Thirty Seven
Thousand Two Hundred and Eighty One only) which
include Rs. 4,25,84,796.00 towards balance dues
as indicated as per TDS certificates and
Rs. 78,51,471.00 towards short bookings and
unaccounted sales for which the petitioner has
bills along with simple interest @ 14% for
outstanding dues bill wise since the date of
the bills as due under the MSMED Act 2006, and
Rs. 15,01,015.00 paid by the petitioner to~ards
EMDs along with a s:imple interest @ 6% wi thin
ninety days from the date of issue of this
order i.e., before 14th day of October 2008
failing which the interest shall be compounded
with monthly rests until the date when the dues
identified under these proceedings is paid in
full, to the petitioner as per the MSMED Act
2006."

The instant appeal arises out of the said award.

Without going into the further details, we may state that,
as on today, respondent no. 1 deposited an amount of
Rs. 6.93 crores and gave a bank guarantee for an amount of
Rs. 4.07 crores pursuant to interim orders of the High
Court dated 16th April, 2010 and 25th April, 2014.
 -3-

In the circumstances, we deem it appropriate to

per.mitthe appe11ant(s) to withdraw the cash, either in its
entirety or part of it, deposited by respondent no. 1
amounting to Rs. 6.93 crores after providing an appropriate
immovab1e property security to the satisfaction of the
Registrar of the Karnataka High Court.

List the matter on s= August, 2016.

(DEEPAK MANSUKHANI) (INDU BALA KAPUR)

COURT MASTER COURT MASTER
 Case Details

STATUS PENDING

Petitioner

~VES LTD. AND ORS ETC

KA

Subject Matter ARBITRATioN MAnER

Listing Details
 IN THE SUPREME COURT OF INDIA
(Civil Appellate Jurisdiction)
Special Leave Petition (C) No.21680 of 2015

IN THE MATTER OF: "

Mis Annapurna Electronics' ,,,Petitioner

Versus

Crompton Greaves, Karnataka '

Industries Facilitation Council Ors. s ,,' Respondents

AFFIDAVIT ON BEHALF OF RESPONDENT

NO. 6 (MSMED)
"."_

I, Anshuman Mohanty S/o Manmath Kumar Mohanty

,aged about 41 years, posted as, Director, Office of DC(MSME);

Ministry of MSME, Govt. of India, Oelh'i, do hereby solemnly affirm,

'and declare as under:

t.That I have read the SLP and List of dates and understood the
, , '~';'~::~;:.,
.

>/,,::,':::;,: i . :_\., \\same well and am filing [this counter affidavit in my above said
to( :,'" .",. \. ~J""~\
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:;:' -, ", t.: \':c'apacity, limited to the leQal position under the MSMEO, Act 2006,
"r' ,
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, .
/ 'in v'iew of the order dated l>7.-nt
;- !.~ :.
.'& this Hon'ble Court,
~'~,':3::)~ That the Micro, Smail & Medium Enterprises Development Act
I

2006 (hereinafter referred as "MSMEO") was enacted With the

object to facilitate the promotion and development to enhance the

competitiveness of Micro, Small &' Medium Enterprises

~ Development and for matters connected therewith or incidental

-, (
.............'"

" ".
 )'~
~

thereto. The Section 19 of the MSMEO Act, ensures finality of

awards passed under section 36, in time bound manner.

3. That as per the scheme of the MSMED Act, payments for

procurement of goods and services has to be paid in a timely

manner to the Micro Small & Medium Enterprises. The Chapt~r V

of the MSMED Act deals with the Micro Small & Medium:

Enterprises and provides that in case of delay in payment of more,

than 45 days, Micro Small & Medium suppliers may approach the

Micro & Small Enterprises Facilitation Council (hereinafter referred

to as "the MSEFC"). It is relevantto point out here that the MSMEQ

Act further provides that no application for setting aside the decree

or award made by MSEFC, (except made by the supplier) shall be

. :,:.

entertained except for the deposit of 75% of the award or decree',

amount within 90 days and in the grace period of 30 days fro'm the " "

date of receipt of the award which is in supplier's favour and not "..... ,"

" t~ereafter, so as to allow execution of the decree.

4/ That the buyers with the malafide intention to delay the r-, :
\ ,

, .~.

, ':i" execution of the awards are resorting to different kinds of litigations '
'" ',:/ by filing Sec 34 applications and writ petitions without dllpositing" \.

75% as mandated at Section 19 of MSMED Act, though hot I

maintainable, against the orders/awards
, made by the respective:;-' \ ~(

buyers by resorting to the aforesaid illegal and unlawful tactics are ,

not only delaying the release of payment but are .also defeatinq the'
 :t'~
Y
very purpose behind the enacting of MSMED Act of timely payment,

and. finality of awards. The MSMED Act has been enacted with the,

purpose and intention to promote the small scale industries and

protection of their legal rights by ensuring timely ex~cution of ,

awards in case of failure of payment within the stipulated statutory /

',",

period of time. ','

5. That the present matter and other similarly situated cases,

pending before this Hon'ble court, are the glaring examples, as to

how the buyers escape away from the mandatory provisions of the

Section 19 of the MSMED Act and able to avoid the timely paymeet ".'"

to the suppliers.l In the present case buyer has been litigating for"

the past nearly 8 years defeating the intent of the.

6.lt is most respectfully submitted herein thatte o.bjectlve of

MSMED Act 2006 are as follows:

'1 ) Statutorily bind the buyer to pay the SME supplier

within the statutory due date.
,.
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,"f ;.'. 2) Provide for penal interest statutorily in case buyer
defaults in making payment.
.' . J

3) Provide for efficient statutory mechanism for

expeditious resolution of supply and payment
related disputes.

4) Statutorily ensure to recover at least 75% of the

due amount along with interest after adjudication .:
_ .. :J..I_:._rt. ._LI_- _L_I:_ .. 1.. '.-
 2'A
~

for disbursal of finance to the SME supplier to

keep it viable in case buyer appeals in court.

The objective of the remedy at Section 19 incorporating

mandatory deposit of 75% amount in terms of the award to

entertain the appeal/contest by the buyer under SectionSd of

Arbitration Act by the buyer in the court is in order to ensure timely

flow of finance to SME supplier 'so'as to. remain viable in the event
,

of delay, default or dispute regarding payment by the buyer. The

object of effective and expeditions remedy incorporated at Section.

18(5) and Section.19 of the MSMED Act 2006 is to be appreciated

" .

by reading together with Section 34(3) and Sec.36 of Arbitration

Act. The remedy and relief can be: fairly deduced to securing at

least 75% amount and disbursing that amount through court to

SME supplier within Six months with the intent to retain its viability

and financial health and to reduce incipience of sickness .

.. \~: It is respectfully submitted herein thatrenever the MSEFC

has passed an Award, no application shall be entertained by the

.Hon'ble Courts unless the purchaser deposits 75% of the amount

,J '
in terms of the decree/award passed against him. In the given
", .~,.,.. ~
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.

case on hand, it is evident from the records that Mis. Crompton.

~ ~ Greaves - Respondent No.1 herein has not deposited such". -.

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/ amount while filing Arbitration Suit in 4412008 in thE$City Civil

Court as against the award dated 14.7.2008 passed by the

MSEFC.
 8, Question of law raised by the petitioner herein as to whether ....

the writ petition is maintainable .aqainst an order passed dismissing .

the petition under Section 34 of the Act 1996 for failure to comply

with the requirements of Section 19 of the MSMED Act 2006 is to

be considered in the back drop of requirement of Section 19 of ; @

MSMED Act 2006 and also the scope of appeal provided under

Section 37 of Arbitration Act 1996. The provision of MSMED Act

2006 and the provision of Arbitration and Conciliation Act 1996 are:

required to be considered in a harmonious manner In order to

understand the intention of the legislC3ture.

It

9. It is most humbly submitted herein that in para 28 of the

impugned order the Division' Bench of Hon'ble High Court of

Karnataka, it is observed as follows:

The application for setting aside the award is in

time. Because the requirement of Section 19 (1) of the ... '

r,
... :
....... '.~ MSMED Act is not complied. the application is not
entertained. Once the requirement is complied with it
dates back to the date of application, If the application
I
i '
had been entertained after complying with the
:',ji '.
, ." , . ;
,'..' requirement of Section 19 (1) of the MSED Act if for
disposal of such application considerable time ~9S
been spent, the petitioners were not expected to pay
75% of the interest accrued from time to time to make
the said application maintainable and therefore, the
contention that the amount already 'deposited would not
fulfil the requirement of Section 19 (1) of the MSMED
Act cannot be accepted.
 ...

,.6':
"'

, ~

If this inference is accepted it would totally defeat

the requirement of deposit under Section 19 of the
MSMED Act 2006, which mandates deposit of 75% in
terms of the award has to be made at the time of filing
Arbitration suit under Section 34 of the Arbitration Act
to entertain such application.

10. It is most respectfully submitted herein that this would virtually

amount to application of Doctrine of relation back which is virtually

a fictional positional in the given case on hand. If this Doctrine is

applied or made applicable in case as that of the case of

respondent No.1 herein it would defeat the relevant provisions ~f

MSMED Act 2006 pertaining to delayed payment. Delayed deposit

also has consequence. Application under Section 34 is to be

considered as .a valid application as and when it is filed in

accordance with law which includes pre-deposit of 75% of the

amount. If such deposit is made belatedly, the application would

become valid excepting for th'e effect of provision of limitation Act.

In order to overcome the effect of limitation Act, there is no other

statutory provision provided. It is under these circumstances, a

comprehensive look at the provision of MSMED Act 20Q6

Arbitration and Conciliation Act 1996, Limitation Act requires to be '

considered. If Section 5 of the Limitation Act is applied then

Section 34 (3) of the Arbitration and C.o.nciliationAct will become

, virtually redundant and if Section 5 of the Limitation Act is applied,

 then the purpose of significance of the requirement of pre-deposit

under Section 19 of the MSMED Act will be defeated.

11. It is most respectfully submitted herein that when Section 34

of the Arbitration and Conciliation is in application, provision of

Section 34 (3) of the Arbitratio'n and Conciliation Act automatically

gets applied. This settled principle of law laid down by the 'Apex

Court is required to be considered. . Provision of Section 34

. (3)
"':,

getting automatically applied under :Section 34, is provided inthe

legislature in order to provide time bound relief to SSI/SME

suppliers.

12. The 'provision of Section 19 makes it very. clear that the

award passed by. the MSMED cannot be set aside or even .

. .' . .

considered for setting aside unless the buyer deposits 75% of the

- - .~.,. award amount.

-,
.;.\,'\ ...
.' .,\\Inthe case on hand it would be seen from the chronological dates
l,

~n'd events provided at Volume-I that SME supplier is not provided '.

.' ':.' , . 'relief in spite of securing an award in its favour on 14-'07-2008 due

.... to series of litigation by the buyer time and again refusing to make

mandatory deposit under Section 19 of the Act.The buyer thus ..'

. I
succeeded in staying the execution of the award in Ex.2586 of .. . /
.J/
2013 subsequent to dismissal of its. Section 34 suit on 20.09.2013

defeating the finality under Section 19 of the MSMED Act.

13. Section 19 of the MSMED Act 2006 reads as follows:

. .. ~~ .....

\~

19. Application for setting aside decree,

award. or order:-, No application tor setting aside any
decree, award ~r otner order mede either by the
Council itself or by any institution or centre providing
.
alternate.
.....
dispute. resolution
.
services to which a
reference is made by the Council, shall be entertained
by any Court unless, the appellant (not being a
supplier) has deposited with it seventy-five percent of
the amount in terms of the decree, award or, as the
case may be, the other order in the manner directed by
such court:
'1 :

Provided that pending disposal of the appli~ation

to set aside the decree, award or other, the Court shall
order that such percentage of the amount dep01ited
shall . be paid to the. supplier, as it considers
reasonable, under the circumstances of the case,
subject to such conditions as it deems necessary to
.._'.'

Impose.

14. Proviso to Section 19 indicates that even during the T

pendency of proceedings against the Award or order passed by

the Council, the deposited amount by the buyer shall be paid to the

supplier to keep the small supplier viable during litigation. Thus this

.':yitalobjective behind the MSMED Act 2006 gets defeated if time is

,e~<tendedwithout there being any statutory provision under law. It

..is in the back ground of the above mentioned facts, this

. .
'" ".,..
'. /;Respondent most humbly prays that this Hon'ble Court be pleased
", '.

to kindly provide the interpretation in consonance with the intent of

the act while disposing the above Special Petition to Appeal so that
\ \
\_<:_ ;,
/.__:). / large number of SMEs who are suppliers across India will know the
/

intention of the .legislature in uniformity and without confusion, In

the interest of justice.

 ..
.. #

That no facts which are not -pleaded before the courts below are
::: .

pleaded in the present affidavit.

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IANSHUMAN.MO~ANT

I~""." 3mI'ffi (\1.0 Flo ~ 1'!0 '\3'1l""I) lin

I DireClor
I.Govl. of India
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O'llice aline pev. Commr. IM.SME)

'11"1, c:rq ~ 1'!iJ1l! '\3'1l""I 'I!;m;{lI
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Minlltry plMI(ro. Small & Medium Enlerpnses
\{lA, ~ ~-l~o,oa :Nlrman B!".awa'l New Oe1h,.\10108
Deponent

Verified on this 28.01,2016 at New Delhi that the contents of para 1

1 to 14 of my affidavit are true and correct to .the best of my

knowledge and nothing material has been concealed therefrom,

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