2017 (5) TMI 771 - HC - Indian Laws

Maintainability of petition - Vires of Section 19 of the MSME Development Act, 2006 - requirement of deposit of seventy-five per cent of the amount of award as a pre-condition for entertaining an application - case of petitioner is that the requirement of pre-deposit of seventy-five percent of the amount awarded as a pre- condition for entertaining the appeal is onerous and oppressive. It renders the remedy of appeal wholly illusory - Ld. Counsel for the respondents, on the other hand, argued that the 2006 Act was the culmination of efforts spanning over two decades to introduce a mechanism to ensure timely realization and to protect the payments receivable by the Small Scale Industries. Held that - the right to appeal is a creature of the statute, it can be conditional or qualified. The requirement about the deposit of the amount claimed as a condition precedent to entertainment of an appeal does not nullify the right of appeal and cannot be considered to be unconstitutional - even in the absence of an express provision to that effect, the Appellate Authority or Tribunal would have power to grant stay as incidental or ancillary to its appellate jurisdiction subject to there being a strong prima facie case established to the satisfaction of the Appellate Authority that the very purpose of the appeal would be frustrated or rendered nugatory if such stay was not granted. Section 19 of the 2006 Act applies to an application for setting aside any decree, award or order, made either by the Council or any institution or centre providing dispute resolution services to which reference has been made by the Council. Thus, before the application under Section 19 is made, the matter in dispute between the parties as to the amount due, has already been adjudicated by an impartial forum envisaged in the 2006 Act by following the procedure prescribed in the 1996 Act. The application made under Section 19 of the 2006 Act, thus not being a stage of initial adjudication of the dispute consequent on a unilateral determination by one of the parties, unlike in the case of the Section 17(2) under the 2002 Act. The condition incorporated in Section 19 of the 2006 Act that no application for setting aside any decree, award or other order shall be entertained by any Court unless the appellant (not being a supplier) has deposited seventy- five percent of the amount in terms of the decree, award etc. is arbitrary, illegal and unconstitutional. Whether the requirement of predeposit for entertaining the appeal, is a mandatory requirement or it should be read as directory, with an inherent power in the appellate authority to waive or reduce the amount where considered necessary? - Held that - provisions of Section 62(5) of the VAT Act were directory in nature and that the first appellate authority was empowered to partially or completely waive the condition of pre-deposit by necessary implication and intendment and in the interest of justice. This power was not to be exercised in routine but only on a strong prima facie case being made out and the first appellate authority being satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the condition of pre-deposit to continue as a condition precedent to the hearing of the appeal before it. While upholding the validity of Section 19 of the 2006 Act, it has to be held that the requirement of pre-deposit thereunder is not mandatory and the Court would be empowered to waive, either partially or completely, the requirement of pre-deposit in the same circumstances and conditions. The matter is remitted to the Court to decide the application for interim injunction/protection before the appeal/ petition is taken up for hearing - petition allowed in part and part matter on remand.

Summary

Issues Involved:
1. Constitutionality of Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006.
2. Requirement of pre-deposit of seventy-five percent of the decretal amount as a pre-condition for entertaining an appeal.
3. Whether the requirement of pre-deposit is mandatory or directory.
4. Power of the Court to waive or reduce the pre-deposit condition.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006:
The petitioners challenged Section 19 of the 2006 Act, arguing it was onerous, oppressive, and arbitrary. They contended that the requirement of depositing seventy-five percent of the decretal amount as a pre-condition for entertaining an appeal was unconstitutional. The respondents argued that the Act aimed to ensure timely realization and protection of payments to Small Scale Industries, as reflected in the Statement of Objects and Reasons of the Bill. The Court upheld the constitutionality of Section 19, emphasizing that the right to appeal is a statutory right, which can be conditional or qualified. The Court referred to various precedents where similar pre-deposit conditions in other statutes were upheld as constitutional.

2. Requirement of pre-deposit of seventy-five percent of the decretal amount as a pre-condition for entertaining an appeal:
The petitioners argued that the pre-deposit requirement rendered the remedy of appeal illusory. They relied on the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India, where a similar pre-deposit condition was declared unconstitutional. The respondents countered that the pre-deposit condition was essential for ensuring timely dispute resolution and flow of money to micro, small, and medium enterprises. The Court distinguished the present case from Mardia Chemicals, noting that the remedy under Section 19 was not the initial stage of adjudication but followed an impartial adjudication by the Council or an alternate dispute resolution institution.

3. Whether the requirement of pre-deposit is mandatory or directory:
The Court examined whether the pre-deposit requirement was mandatory or directory. It referred to the decision in Punjab State Power Corporation Limited v. The State of Punjab, where it was held that the pre-deposit condition in the VAT Act was directory. The Court concluded that the pre-deposit requirement under Section 19 of the 2006 Act was not mandatory. The Court held that the appellate authority had the inherent power to waive or reduce the pre-deposit condition in deserving cases where a strong prima facie case was made out.

4. Power of the Court to waive or reduce the pre-deposit condition:
The Court emphasized that the power to waive or reduce the pre-deposit condition should not be exercised routinely but only in deserving cases where the entire purpose of the appeal would be frustrated without such waiver. The Court highlighted the need to ensure timely and smooth flow of credit to small and medium enterprises, which was a prime objective of the legislation. The Court quashed the order dated 21.12.2016 and remitted the matter to the lower court to decide the application for interim injunction/protection in light of the principles set out in the judgment.

Conclusion:
The Court upheld the validity of Section 19 of the 2006 Act but held that the pre-deposit requirement was directory. The Court empowered the appellate authority to waive or reduce the pre-deposit condition in appropriate cases, ensuring the objectives of the legislation were met while protecting the rights of the appellants. The matter was remitted to the lower court for reconsideration of the interim injunction application.