75% Deposit Rule in MSME Award Challenges Under the 2026 Amendment Act: Cash-Flow and Litigation Planning
By Ravi Sisodia · Reviewed by CA Divyanshu Sengar · Updated 5 October 2026
The amended section 19 keeps a mandatory 75% deposit for a non-supplier seeking to set aside an MSEFC award or mediated settlement. The deposit is a litigation-liquidity event, not merely a legal formality.
Finin2min 2-Minute Summary
- Challenge-deposit status note: the substituted section 19 is enacted, but the revised wording should be treated as future operative law until its commencement is officially notified.
- The amended section 19 requires a non-supplier applicant to deposit 75% of the award or mediated-settlement amount before a set-aside application is entertained.
- The court can release a reasonable portion of the deposit to the supplier while the challenge is pending.
- Cash-flow planning should start before the award if the buyer expects to challenge.
- Interest, security and other litigation consequences should be modelled separately.
Build the litigation liquidity model
Calculate award amount, 75% deposit, legal cost, possible interim release and residual working-capital need. Treasury should know whether the deposit requires borrowing or covenant approval.
Do not assume that filing a challenge automatically postpones every payment consequence.
Supplier-side planning
The supplier should track the deposit and seek appropriate release under the applicable court process. Any amount received should be accounted for consistently with the pending challenge.
Keep award, deposit order and receipts together.
Buyer governance
Board/management should compare settlement, challenge and compliance options using probability, cost and timing. A technically arguable challenge can still be economically unattractive if the deposit locks substantial cash.
Legal strategy should not ignore finance impact.
Liquidity example: ₹1 crore award
For a ₹1 crore award, the 75% deposit requirement means ₹75 lakh of liquidity may need to be placed with the court before a non-supplier challenge is entertained under the amended section. That can be more important to treasury than the legal filing fee or counsel cost.
A buyer should model bank limits, covenant headroom and accounting classification before deciding to challenge. The supplier should separately track whether the court releases part of the deposit and how that affects outstanding recovery.
- Quantify deposit in rupees before litigation approval.
- Model funding and covenant impact.
- Keep court-release receipts in the award ledger.
Accounting and treasury treatment of the deposit
Before making the statutory deposit, finance should document where the amount will be presented in the accounts, who owns bank/court confirmation, and how later release to the supplier or refund to the buyer will be reconciled. The deposit should not disappear into a generic legal-expense ledger because it remains linked to a specific award challenge.
Treasury should also model the opportunity cost of blocked cash when comparing settlement with litigation.
- Use a case-specific deposit ledger.
- Model cash-blocking cost in the litigation decision.
75% deposit checklist
- Award/settlement amount.
- Deposit amount calculated.
- Treasury source identified.
- Court jurisdiction checked.
- Interim release scenario.
- Accounting/legal treatment.
- Commencement status verified.
Questions readers commonly ask
Does the amended Act keep the 75% rule?
Yes.
Who must make the deposit?
The applicant challenging the award/settlement, where that applicant is not the supplier.
Can some deposit be released to the supplier?
The amended provision allows the court to release a reasonable portion.
Is the amended wording already operative?
Commencement must be separately notified.
Official / primary sources
- Ministry of MSME - Amendment Act listing - Official ministry listing of MSMED Amendment Act 2026
- PIB - Parliament passage of MSMED Amendment Bill 2026 - Official background and enactment history
- PIB - MSMED Amendment 2026 backgrounder - Official summary of changes
- eGazette recent uploads - Act No. 16 of 2026 Gazette publication
Disclaimer
Important: General educational and professional-reference material. Verify the current operative law, commencement notification, portal version and exact facts before acting. Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.