MSME Act Section 19 | Application for Setting Aside Decree or Award Explained

When a small business supplies goods or services to a buyer, timely payment is essential for maintaining its cash flow. Unfortunately, some buyers delay payments even after receiving the goods or services. Such disputes may eventually reach the Micro and Small Enterprises Facilitation Council (MSEFC), which can initiate conciliation and arbitration proceedings under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

But what happens when the buyer is unhappy with the decision and wants to challenge the award before a court? Can the buyer file an application without depositing any money?

This is where MSMED Act, 2006 Section 19 becomes important. It establishes a mandatory pre-deposit requirement for an appellant who is not a supplier and seeks to set aside a decree, award or other covered order.

Under the existing provision, the appellant must deposit 75% of the amount specified in the relevant decree, award or order. The provision also allows the court to direct payment of a reasonable portion of that deposit to the supplier while the proceedings are pending.

For small businesses waiting for overdue payments, this requirement offers an important financial safeguard. For buyers, it sets out a condition that must be considered before challenging an MSME award.

What Is Section 19 of the MSMED Act, 2006?

Section 19 of the MSMED Act deals with an application for setting aside a decree, award or order passed by the MSEFC or an alternative dispute resolution institution or centre to which the Council has referred the dispute.

In simple terms, setting aside an award means asking a court to examine whether the award should be annulled under the applicable legal provisions.

The provision is particularly relevant when a buyer disputes an arbitral award passed in favour of a micro or small enterprise supplier.

Its primary objectives are to:

• Protect micro and small enterprises from prolonged payment disputes.
• Discourage buyers from challenging awards without meeting the statutory deposit requirement.
• Ensure that suppliers have a possibility of receiving part of the deposited amount during court proceedings.
• Maintain a balance between the buyer’s right to challenge an award and the supplier’s right to recover outstanding payments.

Section 19 works alongside Section 18 of the MSMED Act, which establishes the dispute resolution mechanism through the MSEFC.

The existing provision does not prevent a buyer from challenging an award. Instead, it makes the prescribed pre-deposit a condition for the court to entertain the application.

What Is the 75% Pre-Deposit Requirement Under Section 19?

The most significant feature of MSMED Act Section 19 is its 75% pre-deposit requirement.

Under the existing provision, a buyer or another appellant who is not a supplier must deposit 75% of the amount specified in the decree, award or other covered order before the court can entertain an application to set it aside.

This is a mandatory statutory requirement. It is not an ordinary court fee or an optional security deposit.

How is the 75% deposit calculated?

Who Needs to Deposit 75% of the Award Amount?

Section 19 does not require every party involved in an MSME dispute to deposit 75% of the award amount.

The requirement specifically applies to an appellant who is not a supplier.

Buyers and other non-supplier appellants

A buyer who receives an adverse MSEFC award and wants to challenge it must comply with the pre-deposit requirement.

This applies even when the buyer believes that the award contains legal or factual errors. The buyer’s disagreement with the decision does not automatically remove the statutory deposit obligation.

Before filing a challenge, buyers should:

• Review the MSEFC award and supporting documents.
• Examine the grounds available under the Arbitration and Conciliation Act, 1996, where applicable.
• Calculate the required 75% deposit.
• Assess whether the court may consider an instalment arrangement because of financial hardship.
• Obtain appropriate legal advice before initiating proceedings.

Are suppliers exempt from the 75% deposit?

Yes. The existing Section 19 expressly excludes a supplier from the pre-deposit requirement.

This distinction is significant because micro and small enterprises are often the parties waiting for payment. Requiring them to deposit a substantial amount merely to challenge an adverse decision would undermine the protection intended by the provision.

The exemption does not mean that suppliers automatically succeed in every dispute. They must still establish their case through the applicable legal process.

Businesses should also understand their eligibility under the MSME framework and maintain valid registration and transaction records. Readers unfamiliar with the process can refer to our guide to Udyam Registration.

Can the Supplier Receive Money During the Court Proceedings?

Yes. The proviso to the existing Section 19 provides an additional safeguard for suppliers.

When a buyer deposits 75% of the award amount and files an application to set aside the award, the court must order that a reasonable portion of the deposited amount be paid to the supplier.

The court decides how much should be released, considering the circumstances of the case. It may also impose suitable conditions.

For example, suppose:

• The MSEFC award is ₹10 lakh.
• The buyer deposits ₹7.5 lakh.
• The supplier has been waiting for payment for several months.

The court may direct that a reasonable part of the ₹7.5 lakh be released to the supplier while the setting-aside proceedings continue.

This provision can provide financial relief to a small business that has already supplied goods or services but is still waiting to recover its dues.

However, the entire deposited amount is not automatically released to the supplier. The court determines the appropriate amount and conditions.

How Is Section 19 Connected With Section 18 of the MSMED Act?

To understand Section 19 properly, it helps to understand how an MSME delayed-payment dispute reaches the court in the first place.

Section 18 establishes the dispute resolution mechanism through the Micro and Small Enterprises Facilitation Council. Section 19 deals with the pre-deposit requirement when a party seeks to set aside a covered decree, award or order. The process generally works as follows}

1. Delayed payment under Section 15: A buyer fails to pay a micro or small enterprise supplier within the applicable payment period.
2. Interest under Section 16 and recovery under Section 17: The buyer becomes liable for statutory interest, and the supplier can seek recovery of the amount due.
3. Reference under Section 18: The dispute is referred to the MSEFC for resolution.
4. Conciliation proceedings: The Council attempts to resolve the dispute through conciliation, either directly or with the assistance of an alternative dispute resolution institution.
5. Arbitration: If conciliation fails, the Council takes up the dispute for arbitration or refers it to an appropriate institution or centre.
6. Award and possible court challenge: Once an award is passed, a non-supplier appellant seeking to set it aside must comply with Section 19.

Understanding the delayed-payment provisions

Sections 15, 16 and 17 form the foundation of the delayed-payment recovery mechanism.

• Section 15: A buyer must pay within the agreed period. The written payment period cannot exceed 45 days from acceptance or deemed acceptance of goods or services.
• Section 16: If payment is delayed, the buyer becomes liable for compound interest with monthly rests at three times the RBI-notified bank rate.
• Section 17: The buyer is liable to pay the amount due along with interest calculated under Section 16.

Suppliers looking to understand the complaint process can read our guide to the MSME Samadhaan portal.

The MSME ODR Portal is also relevant for understanding online dispute resolution and the available mechanisms for handling MSME payment disputes.

What Happens If a Buyer Does Not Deposit 75%?

Failure to comply with the existing Section 19 requirement can prevent the court from entertaining the application to set aside the award.

This means the buyer cannot ordinarily proceed with the challenge on its merits without satisfying the mandatory pre-deposit condition.

Some important points for buyers include:

• The deposit is mandatory: A buyer cannot simply request a complete waiver because the award is financially difficult to meet.
• Instalments may be considered: The court can allow the deposit in instalments where the circumstances justify such relief.
• The challenge remains subject to legal grounds: Depositing 75% does not establish that the award is incorrect or guarantee that the challenge will succeed.
• The award is not automatically cancelled: Failure to deposit does not itself create a new criminal offence under Section 19 or automatically trigger attachment of assets.

Buyers should carefully examine the award, applicable limitation periods and available legal remedies before initiating proceedings.

Important Legal Considerations and Recent Developments

Section 19 must be read alongside the Arbitration and Conciliation Act, 1996, and other relevant provisions of the MSMED Act.

Relationship with the Arbitration and Conciliation Act, 1996

Section 18(3) provides that where conciliation fails, the Council may take up the dispute for arbitration itself or refer it to an institution or centre providing alternative dispute resolution services.

The Arbitration and Conciliation Act, 1996 then applies to the arbitration as if it were pursuant to an arbitration agreement under Section 7(1) of that Act.

A buyer generally challenges an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. However, when the award falls within the MSMED Act, 2006 framework, the additional requirement under Section 19 must also be satisfied.

What have the Supreme Court judgments established?

Two Supreme Court decisions are particularly relevant.

1. Gujarat State Disaster Management Authority v. M/s Aska Equipments Limited (2021)

In this case, the Supreme Court of India examined whether the 75% pre-deposit under Section 19 was mandatory.

The Court upheld the mandatory nature of the deposit. It also explained that the words concerning the manner of deposit give the court discretion to permit payment in instalments where justified by hardship.

2. M/s Tirupati Steels v. M/s Shubh Industrial Component & Anr. (2022)

In its judgment dated 19 April 2022, the Supreme Court reaffirmed that the 75% pre-deposit is mandatory before an application under Section 34 of the Arbitration and Conciliation Act, 1996 can be entertained.

The Court also overruled the contrary view in M/s Mahesh Kumar Singla, which had treated the requirement as directory rather than mandatory.

These decisions establish that financial hardship may justify instalments, but it does not make the statutory requirement optional.

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Section 24 and its overriding effect

Section 24 of the MSMED Act provides that Sections 15 to 23 have overriding effect over inconsistent provisions in other laws.

This is relevant because the MSMED Act contains specific protections for micro and small enterprise suppliers. Consequently, Section 19 must be considered along with the applicable provisions of the Arbitration and Conciliation Act rather than treated as an ordinary arbitration challenge in isolation.

MSMED (Amendment) Act, 2026: Has Section 19 Changed?

The MSMED (Amendment) Act, 2026 received Presidential assent on 13 August 2026. However, the Act provides for commencement through separate Central Government notifications, allowing different provisions to come into force on different dates.

The commencement notification dated 12 October 2026, S.O. 5575(E), brought Sections 2–7, 11 and 13–17 of the Amendment Act into force from 15 October 2026. It also appointed 15 December 2026 for Section 12.

Section 10 of the Amendment Act, which substitutes Section 19 of the principal Act, was not included in this commencement notification. Therefore, as at 5 November 2026, the substituted Section 19 is not operative. The existing Section 19, including its 75% pre-deposit requirement and supplier-payment proviso, continues to apply.

The proposed substituted provision contains some notable changes:

• It expressly covers mediated settlement agreements made under Section 18.
• It retains the 75% mandatory pre-deposit for applicants who are not suppliers.
• It requires the court to direct payment of at least 50% of the awarded amount to the supplier from the deposit if the setting-aside application has remained pending for more than six months.
• It specifies that the application must be filed before the court within whose jurisdiction the supplier’s official address is located.

These are proposed changes under the enacted but not-yet-commenced substitution. Businesses should not apply these provisions as though they were already part of the operative Section 19.

How Can Udyamita Helpline Help MSMEs With Delayed Payment Disputes?

Understanding the legal provisions is only one part of resolving an MSME payment dispute. Businesses also need to maintain proper documentation, understand the available remedies and follow the appropriate dispute resolution procedure.

Udyamita Helpline is a business support platform that helps entrepreneurs and MSME owners understand important business regulations and available support mechanisms.

Businesses can explore guidance on:

• Delayed-payment provisions: Understanding Sections 15, 16, 17, 18 and 19 of the MSMED Act.
• Documentation: Organising purchase orders, invoices, delivery challans, payment records and correspondence with buyers.
• MSME Samadhaan: Understanding the process for raising delayed-payment complaints.
• MSME ODR: Learning about online dispute resolution and the available mechanisms for resolving disputes.
• Legal rights and responsibilities: Understanding the obligations of buyers and the protections available to eligible suppliers.

Whether you are a supplier trying to recover outstanding payments or a buyer responding to an MSEFC award, understanding the applicable legal requirements can help you make informed decisions.

Explore the resources available on Udyamita Helpline to learn more about MSME compliance and business support.

Conclusion

MSME Act Section 19 plays an important role in protecting micro and small enterprises against prolonged payment disputes. By requiring a 75% pre-deposit from appellants who are not suppliers, the provision discourages challenges that could otherwise delay the recovery of legitimate business dues.

At the same time, it preserves the buyer’s right to challenge an award through the appropriate legal process. The possibility of payment in instalments also gives courts some flexibility when a buyer demonstrates genuine financial hardship.

Businesses should remember that Section 19 must be read alongside Sections 15 to 18 and the Arbitration and Conciliation Act, 1996. They should also remain aware of the commencement status of the MSMED (Amendment) Act, 2026 before relying on its proposed changes.

For MSME suppliers, maintaining proper invoices, delivery records and payment correspondence can make a significant difference when pursuing delayed-payment recovery.

For further guidance on MSME delayed payments, dispute resolution and business compliance, explore the resources available on Udyamita Helpline.

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