which formats of link is better for using on web page

1. http://www.mayafan.in/cooling tower fan.html


2. http://www.mayafan.in/cooling%20tower%20fan.html

because while checking on the broken link checker at "http://www.iwebtool.com/broken_link_checker"

i am getting error with option "1" though the link with option 2 are also working well.

so should i correct all the link from option "1" to option "2" ??? and also what is better from SEO point of view ??