HC upholds MSME Act provision; Facilitation Award to be contested on payment of 75% pre-deposit

New Delhi, Sept 7 (KNN)  The recent judgement of the Madras High Court upholding award of the Facilitation Council in favour of Nortan Intec Rubber on a petition filed by Goodyear India Ltd, has come as a big relief to the entire MSME sector.

This is because the High Court did not find the merit in the contention of Goodyear India to set aside the award of the Facilitation Council since the petitioner had failed to deposit 75 per cent of the admitted amount, i.e. Rs 80.11 lakh.

The Judgement has wider implications as anyone challenging the award of the Facilitation Council will have to mandatorily pre-deposit 75 per cent of the admitted amount within 120 days of receipt of the award.

Under the MSME Act of 2006 where a buyer delays payment beyond 45 days from the date of supply, the SME supplier can approach the Micro Small Enterprises Facilitation Council (MSEFC) and seek an award or a decree.

While the awards of the Council can be appealed against in Higher Courts with mandatory pre-deposit of 75 per cent of the award amount, the buyers under one or the other pretext prolong litigation locking the SMEs into legal knots.

Goodyear India Ltd and Nortan Intec Rubber (P) Ltd had entered into an agreement for supply of raw materials and consequent supply of finished products.

As dispute arose, Nortan invoked the relevant provisions of MSMED Act, 2006 and the matter reached the Facilitation Council.

The Council passed the Award directing Goodyear India to pay Rs 80.11 lakh as principal amount along with interests.

The Court held that even assuming that argument of the petition, Goodyear India is acceptable, it failed to comply with the statutory requirement as on the date of filing the petition.

The petition was admitted on March 29, 2010 without any pre-deposit of 75 per cent of the admitted amount. The amount was deposited much after the expiry of the limitation period- April 14, 2010.

The judgement has wider implications for the entire procurement policy for the MSME sector and the problems faced in implementation of the same.