Best Challenge an MSME Council Award (75% Deposit Rule) Lawyer

If a Micro and Small Enterprises Facilitation Council has passed an award against you, you can challenge it in court under Section 34 of the Arbitration Act, on the same limited grounds as any other arbitral award. But there is a condition that makes this challenge different: under Section 19 of the MSMED Act, the court will not entertain the application unless the applicant, if it is not the supplier, has deposited 75% of the amount in terms of the award, in the manner the court directs.

This page is for buyers who have received an MSEFC award, and for suppliers facing a challenge. In short: you have three months from receiving the award to file, plus up to 30 days for sufficient cause. The deposit must be made before the court will hear the challenge. The court may order part of the deposit to be paid to the supplier while the challenge is pending. A challenge succeeds only on the grounds Section 34 recognises, not because the buyer disagrees with the council's view of the facts.

For many buyers, the deposit requirement turns the question from "can we challenge?" into "is a challenge worth tying up 75% of the money for years?"

Is this your situation?

The 75% rule in plain words

How courts apply the deposit rule

The Supreme Court has repeatedly held that the 75% deposit under Section 19 is mandatory. In Goodyear (India) v Norton Intech Rubbers (2012), it held that a court has no power to waive the pre-deposit. In Gujarat State Disaster Management Authority v Aska Equipments (2021), it confirmed that the deposit is a condition precedent to entertaining a Section 34 application against an MSEFC award. Courts have, however, allowed reasonable time for the deposit, and some have allowed it in instalments within a short period, depending on the facts.

The deposit applies to the amount "in terms of the award", which includes interest calculated up to the date of the award. It does not usually include future interest accruing after the award.

The rule exists because the MSMED Act aims to protect small suppliers from delays. A buyer that files a challenge without making the deposit, or seeks waiver, is unlikely to succeed. Plan for the deposit at the same time as you plan the challenge, and arrange the money before the deadline.

How a challenge to an MSME award runs

Time and typical cost range

Our fees are agreed in writing at the start, stage by stage, and are not linked to the outcome.

Documents needed

Which court hears the challenge

Grounds that actually work

Jurisdiction. The supplier was not a micro or small enterprise, or was not registered when the relevant supplies were made. The law on registration timing is unsettled after NBCC v State of West Bengal (2025), which referred the issue to a larger bench, so this ground depends on the facts and the date of registration. Claims arising from works contracts are another jurisdiction point on which High Courts have differed.

Limitation. Since Sonali Power Equipments v MSEB (2025), it is clear that the Limitation Act applies to the arbitration stage before the council. An award including claims more than three years old from the due date, without acknowledgement or part payment, may be challengeable for those claims.

No fair hearing. The council proceeded without proper notice, refused to consider the buyer's defence or documents, or passed the award without hearing arguments.

Interest errors. Interest calculated at the wrong rate, from the wrong date, or on amounts that were not delayed. After Gayatri Balasamy (2025), the court can correct computational errors and adjust parts of an award in limited ways.

Counter-claims ignored. A properly filed counter-claim was not considered.

Grounds that rarely work are those that ask the court to re-weigh evidence: that the council should have believed the buyer's quality complaints, or should have read a purchase order differently.

Writ petitions against council orders

Buyers sometimes file writ petitions in the High Court against council orders or awards, arguing that the council acted without jurisdiction. Courts have generally discouraged this, holding that the Section 34 challenge with the 75% deposit is the proper remedy. The Supreme Court has noted that writ jurisdiction should not be used to bypass Section 19.

In exceptional cases, such as where the council has acted wholly without jurisdiction or in breach of natural justice in a way that makes the Section 34 remedy inadequate, High Courts have entertained writs. The question of when writs lie against MSEFC orders has itself been the subject of Supreme Court consideration. Do not rely on a writ to avoid the deposit unless the facts are truly exceptional.

Laws that apply

How we work

We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:

• Honest view of the grounds: before you tie up 75% of the money.
• Deposit planning: timing, manner and release applications.
• Supplier-side defence: opposing challenges and seeking release.
• Settlement where sensible: the deposit often makes settlement attractive.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Mistakes in MSME award challenges

For suppliers: protecting your award

If the buyer has challenged your award, check first whether it made the 75% deposit within the time the court directed. If it did not, ask the court to dismiss the challenge, or to decline to entertain it. Courts have consistently treated the deposit as a condition that cannot be avoided.

If the deposit has been made, apply for release of part of it. Section 19 expressly allows the court to order that such percentage of the deposit as it considers reasonable be paid to the supplier, pending disposal of the application, on conditions it thinks necessary. Courts often release a substantial part, against an undertaking or a bank guarantee to refund if the challenge succeeds. For a small enterprise, this can mean receiving most of its money years before the challenge is decided.

Meanwhile, keep the award alive in other ways. If no stay has been granted beyond the deposit, consider whether execution can proceed for the balance. And keep an eye on the buyer's financial health; if it is deteriorating, ask the court for additional security.

After the Section 34 decision

Either side can appeal the Section 34 decision under Section 37 of the Arbitration Act, within 60 days for commercial disputes under Section 13 of the Commercial Courts Act. The appellate court's powers are no wider than the Section 34 court's, as the Supreme Court repeated in Jan De Nul Dredging (January 2026). The deposit usually stays in court during the appeal, unless the court directs otherwise.

Further appeals to the Supreme Court are by special leave, which is granted only in cases raising substantial questions. Many MSME disputes end at the High Court stage.

If the buyer succeeds and the award is set aside, the supplier can begin a fresh reference or claim, and Section 43(4) of the Arbitration Act allows the time spent in the earlier proceedings to be excluded for limitation in suitable cases.

Settling once the deposit is made

The deposit changes the economics for both sides. The buyer has 75% of the money locked up; the supplier knows most of it is secure. Settlement at this stage often takes the form of the supplier accepting the deposited amount, or the deposit plus a part of the balance, in full and final settlement, with the challenge withdrawn and the deposit released. Courts can record such a settlement and pass orders for release immediately.

For buyers, this is often the most cost-effective outcome: the interest stops, legal costs end, and the dispute closes. For suppliers, it means receiving money now rather than years later, with certainty.

Calculating the 75% correctly

Section 19 requires deposit of 75% of "the amount in terms of the decree, award or, as the case may be, the other order". Courts have generally read this as 75% of the total sum awarded, including the principal and interest calculated up to the date of the award, and costs if awarded. Future interest accruing after the award is not usually included in the calculation.

Where the award directs interest to continue until payment but does not state a total, calculate the principal plus interest to the award date and take 75% of that figure. If in doubt, ask the court for directions on the amount and manner of deposit when filing the petition. Depositing less than required can lead to the petition not being entertained.

Partial challenges and the deposit

Sometimes a buyer accepts most of an award but challenges a part, such as interest on pre-registration supplies, or the amount for a disputed consignment. The Section 19 deposit still applies to the amount in terms of the award, not just the challenged part, according to the plain words of the section, though some buyers have argued for a proportionate deposit. The safer course is to pay the undisputed part to the supplier and deposit 75% of the whole, or seek the court's directions.

After Gayatri Balasamy (2025), the court hearing the challenge can sever and set aside a part of the award, or correct computational errors, leaving the rest. So a targeted challenge to a clearly separable part has a better chance than a challenge to the whole.

Time and money: a buyer's decision matrix

Before challenging an MSME award, a buyer should weigh four things. The strength of the grounds: real jurisdiction or procedure defects, or only a disagreement with the council's view of the evidence. The deposit: 75% tied up for one to three years, part of which may be released to the supplier. Interest: Section 16 interest continues on the unpaid amount while the challenge runs. And cost: legal fees for the challenge and any appeal.

If the grounds are weak, a challenge usually costs more than it saves. If they are strong and the amount is large, a challenge may be justified. A middle course is to pay the undisputed part and challenge only a clearly severable part.