The Supreme Court of India has directed Purvanchal Vidyut Vitran Nigam Ltd. (PVVNL), a state-run power distribution company in Uttar Pradesh, to deposit 75% of the arbitral award amount within two months.

The order aligns with Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 19 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.

The Court further cautioned that failure to comply with the directive could lead to insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016.

Under the relevant legal provisions, any party challenging an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, must comply with Section 19 of the MSMED Act, 2006, which mandates depositing at least 75% of the awarded amount before the challenge is considered.

The present dispute arose when PVVNL allegedly failed to make payments to SRV Tecno Engineering Pvt. Ltd., leading to arbitration proceedings. The arbitral tribunal ruled in favor of SRV Tecno Engineering Pvt. Ltd., prompting PVVNL to challenge the award before a civil court under Section 34 of the Arbitration Act.

In response, SRV Tecno Engineering Pvt. Ltd., as the operational creditor, approached the National Company Law Tribunal (NCLT), Allahabad bench, under Section 9 of the IBC, 2016, seeking insolvency proceedings against PVVNL due to non-payment of dues. However, the NCLT dismissed the petition on the grounds of a pre-existing dispute.

Subsequently, SRV Tecno Engineering Pvt. Ltd. appealed to the National Company Law Appellate Tribunal (NCLAT), which overturned the NCLT’s decision. The appellate tribunal acknowledged a valid work contract and debt arising from the arbitral award under the MSMED Act, 2006, ruling in favor of the operational creditor. PVVNL then challenged the NCLAT ruling before the Supreme Court.

A bench comprising Chief Justice Sanjiv Khanna, Justice PV Sanjay Kumar, and Justice KV Vishwanathan issued the following directives:

1. PVVNL must deposit 75% of the principal amount along with accrued interest, as per the arbitral award, within two months before the court where the Section 34 challenge is pending.

2. SRV Tecno Engineering Pvt. Ltd. can file an application for the release of the deposited amount, which will be considered by the concerned court within three months of the application’s submission.

3. If the deposit is made within two months, the appeal filed by SRV Tecno Engineering Pvt. Ltd. before the NCLAT shall be restored for fresh adjudication.

4. If PVVNL fails to deposit the required amount within the stipulated time, the appeal will be considered dismissed.

5. Any aggrieved party may pursue legal remedies as available under the law.

With these observations, the Supreme Court set aside the NCLAT’s order, partly allowing and disposing of the appeal.

Case Details:

Case Title: Purvanchal Vidyut Vitran Nigam Ltd. vs. SRV Tecno Engineering Pvt. Ltd.

Legal Representation:

• For PVVNL: Ms. Garima Prasad (Sr. A.A.G.), Mr. Pradeep Misra (AOR), Mr. Daleep Dhyani (Adv.), Mr. Suraj Singh (Adv.)

• For SRV Tecno Engineering Pvt. Ltd.: Mr. Krishnendu Datta (Sr. Adv.), Mr. Gaurav H. Sethi (Adv.), Mr. Aditya Giri (AOR), Mr. Rohit Arora (Adv.)

This ruling reinforces the legal obligation to deposit 75% of an arbitral award when contesting it under Section 34, further emphasizing the consequences of non-compliance, including potential insolvency proceedings.