SUPREME COURT JUDGMENT | MSME ARBITRATION UPDATE

The Supreme Court in a recent judgment, regarding the Micro, Small and Medium Enterprise Development Act, 2006 ("MSME Act") held that the requirement of making a pre-deposit of 75% of the award, in order to challenge any order / decree, as per Section 19 of the MSME Act is mandatory.

Brief Facts

Tirupati Steels (Appellant) filed a claim petition before the Micro and Small Enterprises Facilitation Council (Council) , for the recovery of around INR 27.2 million against Shubh Industrial Component (Respondent) . After the conciliation process failed, the matter was referred to arbitration. The arbitral award was in favour of the Appellant. Post the order, the Appellant filed an execution petition before the district and sessions judge in Faridabad. The Respondent, then made a request to set aside the arbitration award in accordance with Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") before the Special Commercial Court in Gurugram.

Issue for Consideration

Whether, the pre-deposit of 75% of the awarded amount as per section 19 of the MSMED Act, 2006, under section 34 of the Arbitration Act should be made mandatory?

High Court View

Before considering an application made under Section 34 of the Arbitration Act, the Special Commercial Court in Gurugram gave the respondent six weeks to deposit 75% of the amount due under the arbitral judgement. The respondent filed the commercial appeal before the High Court after feeling wronged by the Special Commercial Court's ruling. While upholding the validity of Section 19 of the MSME Act, the division bench of the Punjab and Haryana High Court (High Court) held that the pre-deposit of 75% of the arbitral award is, in fact, directory and not mandatory. The High Court did not insist on a pre-deposit of 75% of the awarded amount and instead allowed the arbitration proceedings pursuant to Section 34 of the Arbitration Act to commence.

Supreme Court View

The Appellant filed an appeal with the Supreme Court. The Supreme Court set aside the ruling made by the Division Bench of the High Court, which allowed the arbitration proceedings under Section 34 of the Arbitration Act to continue without requiring a pre-deposit of 75% of the awarded amount.

The Supreme Court while interpreting Section 19 of the MSME Act, observed that the requirement of depositing 75% of the amount in terms of the award as a pre-deposit is mandatory. However, the Supreme Court also noted that the court may let the pre-deposit be made in instalments if the court is convinced that the appellant will suffer an undue hardship if required to deposit 75% of the awarded amount as a lumpsum amount.

MHCO Comment : With regard to contesting an arbitral award under Section 34 of the Arbitration Act, the Supreme Court's decision provides much-needed clarification on the scope of the pre-deposit obligation outlined in Section 19 of the MSME Act. The Apex Court has struck a delicate balance in the current case, by underlining the required nature of the pre-deposit requirement under the MSME Act of 75% of the awarded sum and upholding the right of the aggrieved party to be heard in an appeal.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

CONSUMER PROTECTION UPDATE | GUIDELINES ON SERVICE CHARGES

Central Consumer Protection Authority (CCPA) recently issued guidelines dated 4 July 2022 (Guidelines) which now prohibits hotels and restaurants to levy any service charges to the customers.

BACKGROUND

Following amendments made in the Consumer Protection Act 2019, the Central Government vide notification dated 30 July 2020 established the Central Consumer Protection Authority to regulate the matters that are related to the violation of consumer rights, unfair trade practices and false and misleading advertisements which are prejudicial to the interest of the consumers and to promote, protect and enforce the rights of consumers with effect from 29 July 2020. The Department of Consumer Affairs vide notification 21 April 2017 had previously established guidelines on an almost equivalent effect barring it being limited. Thus, the new Guidelines are a more comprehensive set of guidelines that shall be in addition to the previous guidelines.

GUIDELINES

The Service Charge Guidelines are ascribed to the CCPA to curb unfair trade practices and protect the rights of the consumer, they are as given below:

• No hotel or restaurant shall add service charge automatically or by default in the bill;

• Service charge shall not be collected from consumers by any other name;

• No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer's discretion;

• No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers;

• Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.

  The recourse available to the consumers on non-compliance of the Guidelines by the restaurants or hotels are:

• Make a request to the concerned hotel or restaurant to remove service charge from the bill amount;

• Lodge a complaint on the National Consumer Helpline (NCH), which works as an alternate dispute redressal mechanism at the pre-litigation level by calling 1915 or through the NCH mobile app;

• File a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through e- daakhil portal www.edaakhil.nic.in for its speedy and effective redressal;

• Submit a complaint to the District Collector of the concerned district for investigation and subsequent proceeding by the CCPA. The complaint may also be sent to the CCPA by e-mail at com-ccpa@nic.in;

  On satisfaction of the CCPA that there was a violation, the CCPA may pass an order after giving the other person an opportunity to be heard under Section 20 of the Consumer Protection Act, 2019 as follows:

• To recall the goods or withdraw the services which are dangerous, hazardous or unsafe;

• To reimburse the prices of goods or services that are so recalled to the purchasers of such goods or services; and

• To discontinue the practices which are unfair and prejudicial to consumers' interest.

MHCO Comment : The Guidelines by the CCPA are a great addition to the previous set of guidelines released by the Department of Consumer Affairs. The Guidelines even provides for a mechanism to deal with the non-compliance and facilitate a wider redressal system for the consumer which was a limitation in the previous set of guidelines. While a great addition for the consumer, the pushback by the hospitality industry would make the implementation of the Guidelines noteworthy.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.