If you’re an MSME that’s secured an award through the MSME Facilitation Council, the real fight often begins after the victory. Many buyers try to delay enforcement by rushing to High Courts under Article 227 or 226 of the Constitution. But a game-changing provision in the MSMED Act, 2006—Section 19—requires a buyer to deposit 75% of the awarded amount before the award can be challenged. Recent judgments by the Supreme Court and High Courts, including the 2025 J&K High Court ruling, have made one thing crystal clear: Mandatory 75% Payment Rule Empowers MSMEs in Award Disputes Against Buyers.
What Does Section 19 of the MSMED Act Say?
Section 19 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 imposes a strict precondition: any party challenging an arbitral award passed under Section 18 of the Act—whether by the Facilitation Council or a referred arbitral institution—must first deposit 75% of the awarded amount in court. This requirement applies before any court can entertain a challenge under Section 34 of the Arbitration and Conciliation Act, 1996. This is not a procedural formality; it’s a legislative filter meant to deter baseless appeals and to ensure that the MSME, which already faces payment delays, is not further harassed through litigation without some financial commitment from the defaulter.
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The Purpose Behind the 75% Pre-Deposit Rule
Section 19 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 imposes a strict precondition: any party challenging an arbitral award passed under Section 18 of the Act—whether by the Facilitation Council or a referred arbitral institution—must first deposit 75% of the awarded amount in court. This requirement applies before any court can entertain a challenge under Section 34 of the Arbitration and Conciliation Act, 1996. This is not a procedural formality; it’s a legislative filter meant to deter baseless appeals and to ensure that the MSME, which already faces payment delays, is not further harassed through litigation without some financial commitment from the defaulter.
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Buyers’ Common Tactic: Article 227 Writ Petitions
Despite the clarity of Section 19, many buyers try to circumvent it by filing writ petitions under Article 227 of the Constitution, challenging the award on procedural or jurisdictional grounds. This tactic is aimed at avoiding the mandatory 75% deposit and dragging the matter into constitutional courts, where they hope to delay or derail enforcement. These writ petitions often repackage factual disputes as jurisdictional errors or due process violations to create the illusion of constitutional impropriety. However, this maneuver undermines the legislative scheme of the MSMED Act and—until recently—was a common loophole used to delay justice.
India Glycols Case: Supreme Court Closes the Door
In India Glycols Ltd. v. MSEFC, Medchal–Malkajgiri (2024 AIR SC 285), a three-judge bench of the Supreme Court delivered a decisive blow to this practice. The Court held that writ petitions cannot be used to bypass the 75% deposit rule, and that constitutional remedies must not be allowed to dilute a special statutory mechanism designed specifically for MSMEs. The judgment reinforced that Section 19 must be strictly complied with and that any challenge to an award should proceed only under Section 34 of the Arbitration Act, subject to deposit. This case closed the door on backdoor litigation and reaffirmed the integrity of the MSMED dispute resolution process.
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J&K High Court 2025: Enforcement over Excuses
Building on India Glycols, the Jammu & Kashmir High Court in 2025 (UT of J&K v. Gulati Metals) dismissed a writ petition filed by a government department attempting to challenge an MSME award without complying with Section 19. The Court refused to entertain any arguments on merits, holding that such petitions amounted to “a time-frozen mindset” and a deliberate attempt to avoid statutory compliance. The Court emphasized that Facilitation Council awards must be respected, and constitutional courts are not venues for escaping financial liability. This decision signals a judicial consensus: no deposit, no challenge.
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Strategic Advice for MSMEs Facing Resistance
For MSMEs, the message is clear: do not concede to buyers who file writ petitions without depositing the mandated 75%. Insist on strict enforcement of Section 19. If a buyer challenges the award, request proof of deposit before engaging further. If they fail to comply, proceed with execution under Section 36 of the Arbitration Act. Simultaneously, consider alternative enforcement routes like initiating IBC proceedings if the unpaid amount meets the threshold. Be proactive: notify the Samadhaan portal, involve credit agencies, and use the award as leverage. Always treat procedural evasion as a red flag—not a negotiation point.
What This Means for Future MSME Contracting
Going forward, MSMEs should ensure that their contracts reflect and reinforce statutory protections under the MSMED Act. Include clauses that cite the MSME status and acknowledge the right to interest under Sections 15–17. Explicitly mention that disputes will be governed by the MSMED Act, not just arbitration clauses that can later be used to delay or redirect proceedings. Keep documentation clean—purchase orders, delivery notes, and email confirmations can all be critical. Contracts should integrate legal foresight, so that if a dispute arises, enforcement doesn’t become a battle of attrition, but a continuation of a well-prepared legal path.
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FAQs
Q1. Is the 75% deposit mandatory in all MSME award challenges?
Yes. Under Section 19 of the MSMED Act, no court can hear an appeal without this deposit.
Q2. Can a buyer use a writ petition to bypass the deposit?
No. The Supreme Court has barred this in India Glycols v. MSEFC.
Q3. What if the buyer still files a writ petition?
Courts now routinely reject these petitions unless statutory remedies are exhausted.
Q4. Can I enforce the award without waiting for deposit?
Yes, you can file an execution petition unless a valid stay is granted post-deposit.
Q5. Can this be avoided with a contract clause?
No. MSMED Act protections override any conflicting contract terms.
