Imagine that your business has received an award from the Micro and Small Enterprises Facilitation Council (MSEFC) directing you to pay ₹1 crore to a supplier, along with interest.
You believe the award is wrong. There may be a genuine dispute regarding the goods supplied, the amount claimed, the supplier's eligibility, the jurisdiction of the Council or the manner in which the proceedings were conducted.
But there is an immediate financial concern:
For a ₹1 crore award, that means arranging ₹75 lakh.
So, is the 75% pre-deposit unavoidable in every case?
The answer requires a closer examination of the award, the manner in which the proceedings were initiated and conducted, and the nature of the proposed challenge.
Is the 75% pre-deposit mandatory?
Yes, ordinarily.
In Gujarat State Disaster Management Authority v. Aska Equipments Ltd., (2022) 1 SCC 61, the Supreme Court held that the requirement under Section 19 to deposit 75% of the awarded amount before the challenge can be entertained is mandatory. This position was subsequently reaffirmed by the Supreme Court.
In M/s Tirupati Steels v. M/s Shubh Industrial Component, (2022) 7 SCC 429, the Supreme Court expressly held that a Section 34 challenge cannot be entertained on merits unless the statutory pre-deposit is made.
Therefore, a buyer cannot ordinarily approach the Section 34 court and simply ask it to waive the 75% requirement because the buyer believes that the award is incorrect.
Can the 75% amount be deposited in instalments?
There is some flexibility regarding how the mandatory deposit is made.
In M/s Tirupati Steels, the Supreme Court held that where the applicant demonstrates undue hardship, the court may permit the 75% pre-deposit to be made in instalments.
This does not mean that the court can ordinarily dispense with the 75% requirement altogether.
For a business facing a very large award, however, the financial circumstances of the business may therefore become relevant when seeking permission to make the deposit in instalments.
Does Section 19 apply to every arbitration involving an MSME?
Not necessarily.
This is an important issue that should be examined before assuming that the 75% requirement applies.
In AVR Enterprises v. Union of India, 2020 SCC OnLine Del 624, the Delhi High Court considered an arbitration in which the arbitrator had been privately appointed by the parties. There had been no reference to the MSEFC under Section 18 of the MSMED Act, and the arbitration was not conducted through the statutory mechanism under Section 18.
The Court held that Section 19 applies to awards made by the MSEFC or by an institution or centre to which a reference has been made by the Council under Section 18. Since the arbitration in that case was independently conducted under the Arbitration and Conciliation Act, 1996, the Court held that the Section 19 pre-deposit requirement did not apply.
This distinction is important:
The mere fact that one party is an MSME does not mean that every arbitral award involving that party automatically attracts the 75% pre-deposit under Section 19.
The source of the arbitration and whether the statutory mechanism under Section 18 was invoked must first be examined.
What if the MSEFC award itself is a nullity?
This is a particularly important issue following the Delhi High Court's recent decision in WAPCOS Limited v. Virgo Aqua, 2026 SCC OnLine Del 5066.
In that case, the buyer challenged an MSEFC award on the ground that the mandatory statutory procedure under Sections 18(2) and 18(3) had not been followed and that the award had been passed without proper notice of the transition from conciliation to arbitration. The award was therefore alleged to be a nullity.
The Division Bench made an important observation: where a party is able to establish a credible and ex-facie case that the award itself is a nullity, the court is not necessarily deprived of jurisdiction to examine that issue merely because the 75% pre-deposit has not been made. The Court reasoned that Section 19 presupposes the existence of a legally valid award.
The Court ultimately found, on the record before it, that the MSEFC had failed to comply with the statutory sequence under Sections 18(2) and 18(3) and that the award was a nullity.
Can a buyer simply approach the High Court instead of making the deposit?
Ordinarily, no.
In India Glycols Ltd. v. Micro and Small Enterprises Facilitation Council, (2025) 5 SCC 780, the Supreme Court dealt with an attempt to invoke writ jurisdiction instead of pursuing the statutory remedy and held that the availability of Article 226/227 jurisdiction could not ordinarily be used simply to circumvent the statutory framework, including the Section 19 pre-deposit requirement.
What if the matter is still pending before the MSEFC?
If your business has only received an MSEFC notice and an award has not yet been passed, do not wait.
The buyer should immediately examine:
- whether the supplier is eligible to invoke the MSMED Act;
- the underlying contract, purchase orders and invoices;
- the amount actually payable;
- payments already made;
- disputes regarding quality, quantity or performance;
- limitation;
- calculation of statutory interest;
- the procedure followed by the MSEFC;
- whether proper notice and opportunity to present a defence have been provided.
This is particularly important because once an adverse award is passed, the business may face the additional financial hurdle created by Section 19.
What should a buyer do after receiving an MSEFC award?
The award and the complete proceedings should be examined promptly.
Among other things, the buyer should determine:
- Whether the award arose from a statutory Section 18 reference.
- Whether there are grounds for a Section 34 challenge.
- Whether the limitation period is running.
- Whether the 75% deposit can be arranged or instalments should be sought.
- Whether there is a genuine jurisdictional or procedural defect.
- Whether execution proceedings have commenced.
A Section 34 challenge is not simply an appeal on facts. The available statutory grounds must be examined against the award and the underlying record.
The practical takeaway
The 75% pre-deposit under Section 19 is a serious statutory requirement, and the Supreme Court has made clear that it is ordinarily mandatory.
But before concluding that:
“I have to arrange 75% no matter what,”
a buyer should first ask:
- Was this actually an award under the Section 18 MSMED mechanism?
- Is there a credible challenge to the very existence or validity of the award?
- Are there serious procedural or natural-justice defects?
- Can undue hardship justify payment by instalments?
- Is there an exceptional constitutional issue requiring consideration?
- Is the matter still at the MSEFC stage, where the defence can be addressed before an award is made?
These are questions that require examination of the actual MSEFC proceedings, award and underlying transaction documents.
Conclusion
The 75% pre-deposit requirement under Section 19 can create a substantial financial hurdle for a business seeking to challenge an MSEFC award. The Supreme Court has nevertheless recognised that, in cases of undue hardship, the court may permit the mandatory deposit to be made in instalments.
At the same time, cases such as AVR Enterprises show that it is first necessary to determine whether Section 19 applies to the award at all, while the recent WAPCOS decision illustrates that a credible, ex-facie case of an award being a nullity may require separate consideration.
Facing an MSEFC proceeding or award?
If your business has received a notice from an MSEFC or an adverse award has already been passed, the underlying transaction documents, procedural record and available remedies should be examined promptly. Early legal assessment can be particularly important where a substantial pre-deposit may be required to challenge the award.