The Calcutta High Court’s Commercial Appellate Division clarified that compliance with the mandatory pre-deposit requirement under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 is an indispensable jurisdictional prerequisite for entertaining any petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an award passed by a Facilitation Council. The Court emphasized that non-compliance with Section 19 renders such petitions not entertainable ab initio, and applications for restoration of dismissed petitions cannot be entertained without simultaneous compliance with Section 19, irrespective of the grounds for restoration.
Background & Facts
The Dispute: MTL-PHE Awards and Execution
Mohindra Tubes Limited (MTL) supplied goods to the Public Health Engineering Department, Gorkha Territorial Administration, Darjeeling (PHE). MTL approached the West Bengal Micro, Small and Medium Enterprises Development Facilitation Council (Facilitation Council) for non-payment of its bills. The Facilitation Council passed an award dated January 17, 2023 in favour of MTL against PHE. PHE challenged this award by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996 (AP No. 763 of 2023) on September 26, 2023.
The Dispute: JB-BL Award and Challenge
Jaggi Brothers Overseas Private Limited (JB) supplied metal scrap to BESCO Limited (BL). JB approached the Facilitation Council claiming various amounts against BL. The Facilitation Council passed an award dated July 13, 2023 in favour of JB against BL. BL challenged this award before the City Civil Court, Calcutta, which set aside the award by judgment and order dated February 10, 2025. JB preferred an appeal against this judgment (FMAT (ARB AWARD) No. 19 of 2025).
Key Facts
- The Facilitation Council awarded MTL Rs. [amount not specified in judgment] against PHE on January 17, 2023
- PHE filed Section 34 challenge (AP No. 763/2023) on September 26, 2023
- PHE filed Section 36(2) stay application (AP No. 776/2023) on October 17, 2023
- By order dated December 18, 2023, the Single Judge directed PHE to deposit 75% of the awarded amount within five weeks, failing which MTL could enforce the award
- PHE failed to deposit the amount or appear; the Section 34 petition was dismissed for default on April 16, 2024
- PHE applied for restoration on May 24, 2024 after condoning delay in filing
- In execution proceedings, the Executing Court noted non-compliance with Section 19 pre-deposit on July 22, 2025
- Despite directions, PHE failed to appear before the Executing Court on November 28, 2025
- PHE filed a supplementary affidavit on February 27, 2026 inviting the Court to extend time to comply with the December 18, 2023 order
- The Single Judge condoned the delay in filing restoration by order dated March 31, 2026 (AO-COM 20/2026)
- The Single Judge recalled the dismissal order and restored the petition by order dated May 13, 2026 (AO-COM 13/2026)
- For the JB-BL dispute: JB was registered as a supplier under the MSME Act only on January 20, 2019
- The work order for JB-BL was issued on June 1, 2018 and bills raised between June-July 2018, prior to JB’s registration
- The Facilitation Council initially ruled on April 15, 2024 that JB was a supplier based on registration from January 13, 1981
Procedural History
MTL-PHE Dispute (AO-COM 13/2026 & AO-COM 20/2026):
- 26.09.2023: PHE filed AP No. 763/2023 under Section 34 of 1996 Act challenging January 17, 2023 award
- 17.10.2023: PHE filed AP No. 776/2023 under Section 36(2) of 1996 Act for stay of award
- 18.12.2023: Single Judge directed PHE to deposit 75% of awarded amount within five weeks
- 16.04.2024: Petition dismissed for default (PHE failed to appear)
- 24.05.2024: PHE applied for restoration of petition
- 22.07.2025: Executing Court recorded dismissal due to non-deposit under Section 19 of 2006 Act
- 02.08.2025: Order extending attachment of bank account till November 30, 2025
- 26.11.2025: Executing Court noted awarded amount had escalated
- 28.11.2025: Executing Court recorded strong dissatisfaction with PHE’s conduct for non-appearance
- 09.01.2026: Executing Court noted compliance with earlier orders
- 22.01.2026: Executing Court extended interim order
- 01.04.2026: Executing Court refused to extend interim order
- 27.02.2026: PHE filed supplementary affidavit inviting Court to extend time to comply with December 18, 2023 order
- 31.03.2026: Single Judge condoned delay in filing restoration application (AO-COM 20/2026)
- 13.05.2026: Single Judge recalled dismissal order and restored petition (AO-COM 13/2026)
JB-BL Dispute (FMAT 19/2025):
- 13.07.2023: Facilitation Council passed award in favour of JB against BL
- 10.02.2025: City Civil Court set aside the award
- Appeal filed thereafter as FMAT (ARB AWARD) No. 19/2025
Relief Sought
MTL sought to have the orders dated March 31, 2026 and May 13, 2026 set aside and AP No. 763/2023 declared not entertainable. JB sought to have the City Civil Court’s order dated February 10, 2025 set aside and the Facilitation Council’s award reinstated.
The Legal Issue
The core questions were: (i) Whether an appeal against an order restoring a Section 34 petition (dismissed for default) challenging a Facilitation Council award is maintainable under Section 37 of the Arbitration and Conciliation Act, 1996 when the petition cannot be entertained under Section 19 of the MSME Act, 2006; (ii) Whether a Section 34 petition dismissed for default can be restored without simultaneous compliance with Section 19 of the MSME Act, 2006; (iii) Whether pre-deposit of 75% of the awarded amount under Section 19 of the MSME Act, 2006 is mandatory for entertaining a Section 34 petition; (iv) Whether the amended provisions of Section 36 of the Arbitration and Conciliation Act, 1996 affect the mandatory nature of Section 19 of the MSME Act, 2006; and (v) Whether registration under Section 8 of the MSME Act, 2006 is mandatory to invoke the jurisdiction of the Facilitation Council.
Arguments Presented
For the Appellant/Petitioner (MTL and JB)
MTL and JB contended that Section 19 of the MSME Act, 2006 mandates a pre-deposit of 75% of the awarded amount as a condition precedent for entertaining any Section 34 petition challenging a Facilitation Council award. They relied on Tirupati Steels vs. Shubh Industrial Component & Anr. (2022) 7 SCC 429, Gujarat State Disaster Management Authority vs. Aska Equipments Ltd. (2022) 1 SCC 61, and Goodyear India Private Limited vs. Norton Intech Rubbers Pvt. Ltd. (2012) 6 SCC 345 to assert that Section 19 creates a jurisdictional fact without which the Court lacks power to entertain the petition. They argued that PHE never complied with Section 19 despite the December 18, 2023 order, rendering the April 16, 2024 dismissal order and subsequent restoration application ineffective. They further contended that the Single Judge erred in condoning delay and restoring the petition without requiring Section 19 compliance, as restoration cannot cure the fundamental lack of jurisdiction. For the JB-BL dispute, JB argued that BL never filed an application under Section 19 prior to the City Civil Court’s order, and that the Facilitation Council lacked jurisdiction as JB was not a registered supplier at the time of supply (work order June 1, 2018; registration January 20, 2019).
For the Respondent/State (PHE and BL)
PHE contended that the April 16, 2024 dismissal was solely for non-appearance, not non-compliance with Section 19, and that the restoration application should be entertained on its merits. PHE argued that time for deposit under Section 19 can be extended, citing Goodyear India (supra) and Tirupati Steels (supra), and that the Single Judge’s December 18, 2023 order under Section 36(2) was valid even without Section 19 compliance. PHE maintained that its supplementary affidavit of February 27, 2026 constituted an application under Section 19. BL contended that JB was not a supplier under the MSME Act, 2006 at the time of supply, as registration occurred post-work order, and that the Facilitation Council therefore lacked jurisdiction to pass the award. BL argued that Section 19 does not contain exceptions like Section 36 of the 1996 Act, and that the two statutes operate in separate fields, citing Silpi Industries vs. Kerala State Road Transport Corporation (2021) 18 SCC 790 and Gujarat State Civil Supplies Corporation Ltd. vs. Mahakali Foods Private Ltd. (2023) 6 SCC 401 to assert that the MSME Act overrides the Arbitration Act.
The Court's Analysis
The Court held that Section 19 of the MSME Act, 2006 imposes a mandatory jurisdictional prerequisite for entertaining Section 34 petitions. It emphasized that Section 19 creates a substantive right in favour of the award holder, and non-compliance renders the petition not entertainable ab initio, citing Tirupati Steels (supra), Gujarat State Disaster Management Authority (supra), and Goodyear India (supra). The Court clarified that Section 19 compliance is required in addition to the time limit under Section 34, stating: "Compliance with Section 19 of the Act of 2006 is a jurisdictional fact which must mandatorily exist for the Court to entertain a petition under Section 34 of the Act of 1996." It rejected PHE’s argument that the December 18, 2023 order under Section 36(2) could be invoked without Section 19 compliance, noting that Section 36(4) power arises only when a Section 34 petition is entertainable, which requires prior Section 19 compliance.
On restoration, the Court held that an application for restoration of a Section 34 petition dismissed for default cannot be entertained without simultaneous compliance with Section 19, as restoration does not cure the jurisdictional defect. It stated: "Compliance with Section 19 of the Act of 2006 is a mandatory requirement for considering the application for restoration, assuming good grounds for restoration have been made out." The Court found that PHE never filed a Section 19 application, and its supplementary affidavit merely sought time extension under the December 18, 2023 order, not Section 19 compliance.
Regarding the interplay with amended Section 36, the Court held that the amendments (effective October 23, 2015) do not affect Section 19’s mandatory nature, as Section 36 operates only when a Section 34 petition is entertainable - which requires Section 19 compliance first. It noted: "Section 36 of the Act of 1996 comes into operation only when there is a valid petition under Section 34 of the Act of 1996 pending which can be entertained."
On issue (v), the Court deemed it irrelevant given its findings on Sections 19 and 34, observing that the Facilitation Council’s jurisdiction depends on the supplier status at the time of reference, not registration timing alone, but did not decide the issue as it was not necessary for the disposition.
The Verdict
The appellants MTL and JB succeeded. The Court set aside the impugned orders dated March 31, 2026 (AO-COM 20/2026) and May 13, 2026 (AO-COM 13/2026). It held that AP No. 763/2023 is dismissed as not entertainable under Section 19 of the MSME Act, 2006. In the JB-BL dispute, the Court set aside the impugned judgment and order dated February 10, 2025 (FMAT 19/2025) and held that the petition under Section 34 of the Arbitration and Conciliation Act, 1996 leading thereto is dismissed as not entertainable for non-compliance with Section 19 of the MSME Act, 2006. No quantified monetary relief was awarded, as the core relief was jurisdictional - setting aside erroneous orders and declaring petitions not entertainable.
What This Means For Similar Cases
Section 19 Compliance Is Non-Negotiable Jurisdictional Threshold
Practitioners must verify Section 19 pre-deposit compliance before filing any Section 34 petition challenging a Facilitation Council award. Mere filing of a Section 34 petition without the 75% deposit is futile, as the Court lacks jurisdiction to entertain it. This applies equally to original petitions and restoration applications - restoration cannot proceed without simultaneous Section 19 compliance, regardless of the grounds for delay or merit of the underlying claim.
Section 36 Powers Are Contingent on Section 19 Compliance
The Court clarified that powers under Section 36 of the Arbitration and Conciliation Act, 1996 (e.g., granting stay under Section 36(2) or invoking Section 36(4)) arise only after Section 19 compliance renders a Section 34 petition entertainable. Lawyers cannot rely on Section 36 to bypass Section 19 requirements; Section 36 is procedural and subsidiary to the jurisdictional prerequisite of Section 19.
Facilitation Council Jurisdiction Depends on Supplier Status at Time of Reference
For MSME Act disputes, the Facilitation Council’s jurisdiction to arbitrate hinges on whether the party claiming supplier status was registered under Section 8 at the time the reference was made under Section 18. Post-hoc registration does not cure jurisdictional defects, as seen in the JB-BL dispute where supply occurred pre-registration.
