Petition Is Deemed Filed Only On Date Of Mandatory 75% MSME Pre-Deposit; Mere Filing Does Not Stop Limitation Clock: Madras High Court

“Failure To Deposit 75% Of Award Within Section 34 Limitation Makes Petition Not Maintainable”, On 17 November 2025, the Madras High Court holding that a Section 34 petition challenging an MSME Facilitation Council award is not maintainable unless the mandatory 75% pre-deposit is made within the limitation period prescribed under Section 34(3) of the Arbitration and Conciliation Act, 1996.

The Court firmly rejected the argument that mere filing of the petition is sufficient to arrest the limitation clock. Instead, it held that “the petition shall be deemed to have been filed only on the date when the 75% deposit is made”, thus aligning the requirement under Section 19 of the MSMED Act with the limitation bar under Section 34(3) of the Arbitration Act.

MSME Award Challenged Without Timely Pre-Deposit

The case arose from an award dated 09.10.2024 passed by the Micro and Small Enterprises Facilitation Council, Chennai, in favour of M/s. Solar Design Pvt. Ltd., against Numaligarh Refinery Ltd. The award was received by the petitioner on 13.01.2025, thereby triggering the three-month limitation under Section 34(3), expiring on 13.04.2025, with an additional condonable 30-day window ending 13.05.2025.

However, the 75% deposit mandated under Section 19 of the MSMED Act was not made until 18.06.2025, i.e., over a month beyond the maximum permissible time. Though the petition itself had been filed on 11.04.2025, the High Court ruled that such filing without deposit did not render the petition valid or maintainable.

Interpretation of “Shall Be Entertained” and Harmonisation of MSMED and Arbitration Acts

The central issue before the Court was whether non-deposit of 75% of the award within the limitation period rendered the Section 34 petition unmaintainable.

The petitioner argued:

• Section 19 does not itself prescribe a limitation;

• The deposit is a pre-condition for "entertainment", not for “filing”;

• Hence, limitation under Section 34(3) gets arrested on mere filing, and deposit can follow;

• Courts can exercise discretion under Section 19 regarding the timing and mode of deposit.

The respondent submitted that:

• Deposit must be made within 120 days, or the petition is time-barred;

• The phrase “shall be entertained” is a statutory bar that restricts the court's jurisdiction;

• The date of deposit, not the date of filing, is the relevant date for limitation purposes.

Court's Observations: Petition Deemed Filed Only On Date Of Deposit

The Court undertook a detailed examination of the statutory framework and judicial precedents. It clarified that:

“Section 19 of the MSMED Act makes it mandatory to deposit 75% of the award amount as a condition precedent to entertain any application filed to set aside the award.”

While Section 34(3) prescribes the outer time limit, Section 19 creates a statutory barrier to entertainment, which must be complied with within the time prescribed under Section 34. Harmonising both statutes, the Court held:

“A harmonious reading... will result in the only conclusion that the mandate namely the pre-deposit of 75% of the award amount must be necessarily fulfilled within the period of limitation provided under Sub-Section (3) of Section 34 of the Act.”

It reiterated that judicial discretion under Section 19 is only to be exercised in permitting the manner of deposit (e.g., instalments or bank guarantee), not to waive or extend the time.

“There is no question of waiver of the pre-deposit of 75%... and such discretion can be exercised only on the facts of a particular case by permitting the deposit to be made in instalments or... by bank guarantee.”

Disagreement With Bombay and Delhi High Courts On Timing Of Deposit

The Court explicitly disagreed with the contrary views taken by the Bombay High Court (Ravindranath GE Medicate) and Delhi High Court (Central University of Jharkhand), both of which had accepted delayed deposits post-filing.

“With all due respect, this Court is not in agreement with the above view... The Bombay High Court has mixed up the issue of the deposit of amount and entertaining the petition...”

Instead, the Madras High Court aligned itself with the Supreme Court’s interpretation in Lakshmiratan Engineering Works Ltd. v. Asst. Commissioner and its own Full Bench judgment in State of Tamil Nadu v. E.P. Nawab Marakkadai, which laid down that:

“The appeal is deemed to have been properly filed only on the date on which the amount of admitted tax (or award) is deposited.”

Court Declines Discretion: Public Sector Party Failed To Deposit Even ₹1 On Filing

The Court was particularly scathing in rejecting the plea for judicial discretion:

“This is not a case where the petitioner had deposited some amount initially and there was some balance amount... The petitioner did not deposit any amount at the time of filing... the entire pre-deposit... was made only on 18.6.2025.”

It emphasised that Numaligarh Refinery Ltd., being a public sector undertaking, was not facing financial hardship:

“It is not as if the petitioner is an individual... The petitioner is a public enterprise... which obviously had the financial wherewithal to make the pre-deposit.”

Thus, the petition under Section 34 was dismissed as non-maintainable.

Deposit Treated As Payment Under Section 9 Petition; Execution Permitted For Balance

The Court then turned to the connected Section 9 petition, Arb.Appln. (Com.Div.) No.369 of 2025, filed by the award holder. It held:

“The deposit of 75% of the award amount... shall be treated as a deposit made in Arbitration A.No.(Com.Div.) 369 of 2025 and the same shall be paid to the respondent in the main original petition.”

Further liberty was granted to initiate execution proceedings for the balance amount, reinforcing the enforceability of MSME awards in absence of valid challenge.

Strict Compliance With Section 19 Mandatory; MSME Award Becomes Enforceable If 75% Pre-Deposit Not Made Within Limitation

This decision reiterates the mandatory and jurisdictional nature of the 75% deposit under Section 19 of the MSMED Act. By holding that the petition is deemed to be filed only on the date of deposit, the Madras High Court has aligned with the legislative intent of protecting MSME suppliers from delayed payments and protracted litigation.

The ruling sets a binding precedent within the Madras High Court's jurisdiction and may influence future interpretations across the country unless overruled or clarified by the Supreme Court.

Date of Decision: 17 November 2025