M/s Mahakali Foods Pvt. Ltd. (Unit-2) v. Gujarat State Civil Supplies Corporation Ltd. & Ors.
The MSMED Act confers on the Facilitation Council the power to conciliate and arbitrate but not to enforce its own award or decide post-award payment disputes, so it is functus officio after the award; the Act of 2006, being a special law, overrides general law of execution in CPC; interest at three times the bank rate under section 16 runs till the failure to pay stops, so the 75 per cent deposited with interest in the District Court under section 19 stopped the interest clock on that part, while the balance 25 per cent deposited only as principal continues to bear interest under the award.
By CA Nikhil Gupta · Reviewed against the retained judgment 2026-10-13
Mahakali Foods (Unit-2) won a MSME award of 11 September 2014 for Rs. 5,21,47,402/- against Gujarat State Civil Supplies Corporation, which deposited under section 19 and later under the Supreme Court's order, and then the award-holder claimed Rs. 34.89 crore with compound interest through the Bhopal Council. The Division Bench fixed how the interest should be computed.
What happened
The award of 11 September 2014 under the MSMED Act directed payment of Rs. 2,22,61,940/- and Rs. 2,98,85,462/- with interest. The Corporation deposited Rs. 4,34,67,597/- with interest as on 10 December 2014 in the District Court, Gandhinagar, as 75 per cent for its section 19 application, and by order of 21 October 2015 the award-holder was allowed to withdraw Rs. 2,02,95,940/-. The District Court dismissed the application on 20 August 2018, the High Court dismissed the section 37 appeal, and the Supreme Court in SLP (C) No. 12884 of 2020 directed the balance 25 per cent to be deposited, which the Corporation did on 27 November 2020 as principal alone, Rs. 1,44,89,199/-; the Supreme Court dismissed the appeal on 31 October 2022 (Gujarat State Civil Supplies Corporation v. Mahakali Foods, (2023) 6 SCC 401). On 13 March 2023 the award-holder asked the MSME Council, Bhopal, to recover interest computed by its chartered accountant, and by letter of 13 April 2023 the Industries Commissioner asked the Collector to recover Rs. 34,89,19,321/-, with the Mamlatdar's recovery notices of 29 May and 28 June 2023. The Single Judge quashed these for want of adjudication and hearing and directed the Council to decide afresh. The award-holder argued that deposits not available to it did not stop interest, relying on P.S.L. Ramanathan Chettiar and Delhi Development Authority v. Bhai Sardar Singh; the Corporation relied on Gurpreet Singh v. Union of India and Himachal Pradesh Housing and Urban Development Authority v. Ranjit Singh Rana.
Questions before the court
- Can the MSME Council decide the post-award interest claim, and does interest on the award stop on the section 19 deposit?
Why the court ruled this way
Chapter V of the MSMED Act gives the Council the powers to conciliate and arbitrate on a reference under section 18 only, and nothing in the Act, or in the Arbitration Act where the mandate terminates with the final award, lets it enforce its award or decide whether payment has satisfied it, so it is functus officio and the Single Judge's direction cannot stand (paragraphs 25 to 51). As the Supreme Court held in Gujarat State Civil Supplies Corporation v. Mahakali Foods, the MSMED Act is a special law that overrides the Arbitration Act (paragraphs 36 to 42). Compound interest under section 16 is imposed only in case of failure to pay, and when the buyer deposited 75 per cent with up-to-date interest in the District Court under section 19, there was no failure to pay and the interest clock stopped on that part, since the Supreme Court in Ranjit Singh Rana and M.P. Trading and Investment held that a deposit in court under section 34 is payment under section 31(7)(b) of the Arbitration Act (paragraphs 79 to 86). The decisions on execution of money decrees under Order XXI of the Code of Civil Procedure, relied on by the award-holder, do not apply to the special interest provisions (paragraph 87). The 25 per cent deposited in 2020 as principal alone leaves interest running on it (paragraph 88). The Collector must compute it after giving both parties an opportunity (paragraphs 89 and 90).
Controlling point
The Council had no post-award adjudicatory power and the interest on the 75 per cent deposited ceased on deposit, while interest continues on the 25 per cent principal alone.
Order and next steps
The impugned letter and recovery notices were quashed, the writ petition allowed to that extent, and the Collector's office is to conduct recovery afresh by computing the interest on the 25 per cent balance after hearing both parties and issuing a recovery certificate only on final determination; the appeal and the stay application were disposed of.
Practical implications
A buyer who deposits 75 per cent with interest to appeal against an MSME award can rely on this decision that interest on that part stops running, and a supplier should seek enforcement through the Collector or the civil court and not through the Facilitation Council.
Limits of this ruling
- The decision turned on the awarded interest under section 16 and the deposits made, and the Court did not decide the arithmetic of the Collector's computation; it treated the Delhi High Court decisions cited as turning on different statutes, and noted that the amounts deposited in the District Court had already been withdrawn by the award-holder.
Law and judgment source
- Micro, Small and Medium Enterprises Development Act, 2006, sections 2(b), 2(d), 2(n), 15 to 19 and 24
- Arbitration and Conciliation Act, 1996, sections 31(7)(b), 33, 34, 36 and 37
- Code of Civil Procedure, 1908, Order XXI Rule 1
- Gujarat Land Revenue Code, 1879
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Source checked: 2026-10-13 · Judgment paragraphs: paragraphs 1-94 · Later case history: not verified. Verify appeals, stays and subsequent orders before reliance.
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