LEGAL ISSUE: Whether prior registration under Section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is a mandatory requirement for referring a dispute to the Facilitation Council under Section 18 of the same Act.
CASE TYPE: Commercial/MSME Dispute Resolution
Case Name: NBCC (India) Ltd. vs. The State of West Bengal & Ors.
Judgment Date: 10 January 2025
Introduction
Date of the Judgment: 10 January 2025
Citation: 2025 INSC 54
Judges: Pamidighantam Sri Narasimha, J., Pankaj Mithal, J.
Can a Micro, Small, and Medium Enterprise (MSME) be denied the right to resolve a payment dispute simply because it wasn’t registered before the contract was signed? The Supreme Court of India recently tackled this crucial question, which has significant implications for MSMEs seeking to recover dues.
The core issue revolves around whether an MSME must be registered under Section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) before it can refer a dispute to the Facilitation Council under Section 18 of the same Act. The Court clarified that the remedy under Section 18 is open to ‘any party’ and is not restricted to only registered ‘suppliers’.
The judgment was authored by Justice Pamidighantam Sri Narasimha, with Justice Pankaj Mithal concurring. However, due to conflicting interpretations in previous judgments, the matter has been referred to a larger three-judge bench for an authoritative pronouncement.
Case Background
The case involves a dispute between National Buildings Construction Corporation (NBCC), the appellant, and M/s Saket Infra Developers Private Limited, the respondent (referred to as “the Enterprise”). NBCC awarded four work orders to the Enterprise between July 2015 and August 2016 for construction work in West Bengal. Contracts were executed on 27 August 2015, 17 November 2015, 28 July 2016, and 20 August 2016.
The Enterprise registered itself as a “small enterprise” under Section 8 of the MSMED Act on 19 November 2016. Subsequently, on 15 September 2017, a fifth contract was executed between the parties. Work commenced, supplies were made, and bills were raised by the Enterprise, even after registering under Section 8.
Disputes arose between the parties regarding all five contracts. The Enterprise initiated a commercial suit in Delhi High Court regarding the fifth contract, which is still pending. On 28 March 2019, the Enterprise referred the dispute to the West Bengal State Micro and Small Enterprises Facilitation Council, seeking recovery of dues.
The Facilitation Council initiated conciliation proceedings, which failed, and the dispute was referred to arbitration on 19 January 2021. NBCC objected to the Facilitation Council’s jurisdiction, arguing that the Enterprise was not registered before the contracts were executed and that the contracts were works contracts, falling outside the scope of the MSMED Act.
Timeline
| Date | Event |
|---|---|
| July 2015 – August 2016 | NBCC issued four work orders to Saket Infra Developers. |
| 27 August 2015, 17 November 2015, 28 July 2016, 20 August 2016 | Construction contracts executed for the four work orders. |
| 19 November 2016 | Saket Infra Developers registered as a ‘small enterprise’ under Section 8 of the MSMED Act. |
| 15 September 2017 | Fifth contract executed between NBCC and Saket Infra Developers. |
| 28 March 2019 | Saket Infra Developers referred the dispute to the West Bengal State Micro and Small Enterprises Facilitation Council. |
| 19 January 2021 | Dispute referred to arbitration after conciliation failed. |
| 30 September 2021 | NBCC received notice of arbitral proceedings. |
| 16 December 2021 | Single Judge dismissed the Writ Petition filed by NBCC. |
| 18 May 2022 | Division Bench of the High Court dismissed the appeal. |
| 10 January 2025 | Supreme Court judgment. |
Course of Proceedings
The Single Judge of the High Court dismissed NBCC’s Writ Petition on 16 December 2021, stating that the issue of jurisdiction could be raised before the Arbitral Tribunal. The Division Bench of the High Court upheld this decision, referring to the judgment in Kone Elevator India Private Limited v. State of Tamil Nadu, and stating that the MSMED Act, being a special legislation, overrides other statutes. The Division Bench also agreed that all objections, including maintainability, could be raised before the arbitrator.
Legal Framework
The judgment primarily revolves around the interpretation of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Key provisions include:
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Section 2: Defines key terms such as “Advisory Committee,” “Board,” “Enterprise,” and “Supplier.” Specifically, Section 2(n) defines “supplier” as a micro or small enterprise that has filed a memorandum with the authority under Section 8, and includes certain other entities.
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Section 7: Empowers the Central Government to classify enterprises as micro, small, or medium based on investment in plant and machinery or equipment.
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Section 8: Deals with the filing of a memorandum by micro, small, and medium enterprises, stating that filing of memorandum by micro and small enterprises is at their discretion. Medium enterprises engaged in manufacturing must file a memorandum.
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Section 15: Specifies the liability of a buyer to make payment to the supplier within the agreed-upon time or before the appointed day.
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Section 16: Details the date from which and the rate at which interest is payable for delayed payments.
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Section 17: States that the buyer is liable to pay the amount due with interest for goods supplied or services rendered.
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Section 18: Provides the mechanism for dispute resolution, stating that “any party to a dispute” may refer the matter to the Micro and Small Enterprises Facilitation Council. It also outlines the process for conciliation and arbitration.
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Section 20: Mandates the State Government to establish Micro and Small Enterprises Facilitation Councils.
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Section 21: Specifies the composition of the Micro and Small Enterprises Facilitation Council.
The MSMED Act aims to protect and promote MSMEs by providing a mechanism for dispute resolution and ensuring timely payments. It is a special legislation designed to override other statutes in certain aspects.
Arguments
Appellant’s (NBCC) Arguments:
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NBCC argued that the Facilitation Council lacked jurisdiction because the Enterprise was not registered under Section 8 of the MSMED Act before the contracts were executed.
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They contended that the phrase “any party to a dispute” in Section 18 should be interpreted to mean only a “supplier” as defined under Section 2(n) of the MSMED Act.
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NBCC submitted that a “supplier” under Section 2(n) is a micro or small enterprise that has filed a memorandum under Section 8. Therefore, only registered enterprises can invoke Section 18.
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They relied on the Supreme Court’s decisions in Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited to support their claim that prior registration is mandatory.
Respondents’ (Saket Infra Developers) Arguments:
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The respondents contended that the issues raised by the appellant can be addressed by the Arbitral Tribunal, as directed by the High Court.
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They argued that the plain language of Section 18 allows “any party” to refer a dispute, not just a registered “supplier.”
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Jurisdiction of Facilitation Council |
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| Interpretation of “Supplier” |
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| Mandatory Nature of Registration |
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Issues Framed by the Supreme Court
The Supreme Court framed the following issue for consideration:
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Whether an MSME cannot make a reference to the Facilitation Council for dispute resolution under Section 18 of the Act if it is not registered under Section 8 of the Act before the execution of the contract with the buyer.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether an MSME cannot make a reference to the Facilitation Council for dispute resolution under Section 18 of the Act if it is not registered under Section 8 of the Act before the execution of the contract with the buyer. | The Court held that registration under Section 8 is not a mandatory precondition for referring a dispute under Section 18. |
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Authorities
The Supreme Court considered the following authorities:
| Authority | Legal Point | How the Authority was Used |
|---|---|---|
| Shanti Conductors Private Ltd. v. Assam State Electricity Board, (2019) 19 SCC 529 (Supreme Court of India) | Applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. | The Court relied on this case to emphasize that the liability of a buyer commences from the date of supply, not the date of the contract. The court also stated that the ratio of this case continues to apply to the MSMED Act. |
| Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790 (Supreme Court of India) | Whether prior registration is mandatory for invoking Section 18. | The Court distinguished this case, stating that it did not address the issue of whether registration is a prerequisite for invoking Section 18. The court stated that the observations made in this case regarding registration were not based on any analysis of the provisions of the MSMED Act. |
| Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401 (Supreme Court of India) | Whether the MSMED Act overrides the Arbitration Act and the requirement of prior registration. | The Court clarified that this case primarily dealt with the overriding effect of the MSMED Act over the Arbitration Act and did not address the issue of prior registration for invoking Section 18. The court stated that the observations made in this case regarding registration were not based on any analysis of the provisions of the MSMED Act. |
| Section 2(n), MSMED Act, 2006 | Definition of “supplier” | The Court interpreted that the definition of “supplier” is not limited to enterprises that have filed a memorandum under Section 8. |
| Section 8, MSMED Act, 2006 | Filing of memorandum by MSMEs. | The Court noted that Section 8 grants discretion to micro and small enterprises regarding filing of memorandum. |
| Sections 15, 16, 17, MSMED Act, 2006 | Liability of buyer to make payment and pay interest. | The Court referred to these sections to establish the context for Section 18, stating that the reference under Section 18 is to adjudicate disputes arising out of liability of the buyer under these sections. |
| Section 18, MSMED Act, 2006 | Reference to Micro and Small Enterprises Facilitation Council. | The Court interpreted Section 18 to mean that “any party to a dispute” can make a reference, not just a registered supplier. |
| State of U.P. v. Synthetics and Chemicals Ltd., (1991) 4 SCC 139 (Supreme Court of India) | Precedents sub-silentio. | The Court relied on this case to state that a decision where the issue was neither raised nor preceded by any consideration, cannot be considered to be a binding precedent. |
| Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101 (Supreme Court of India) | Precedents sub-silentio. | The Court relied on this case to state that precedents sub-silentio and without argument are of no moment. |
| Arnit Das v. State of Bihar, (2000) 5 SCC 488 (Supreme Court of India) | Precedents sub-silentio. | The Court relied on this case to state that a decision not expressed, not accompanied by reasons and not proceeding on a conscious consideration of an issue cannot be deemed to be a law declared to have a binding effect. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| NBCC’s submission that the Facilitation Council lacked jurisdiction because the Enterprise was not registered before the contract. | Rejected. The Court held that registration under Section 8 is not a mandatory precondition for referring a dispute under Section 18. |
| NBCC’s submission that “any party” in Section 18 means a registered “supplier.” | Rejected. The Court clarified that Section 18 is not restricted to registered suppliers. |
| NBCC’s reliance on Silpi Industries and Mahakali Foods. | Distinguished. The Court stated that these cases did not directly address the issue of whether registration is a mandatory prerequisite for invoking Section 18. |
| Respondents’ submission that objections can be raised before the Arbitral Tribunal. | Accepted. The Court noted that the High Court had directed the parties to raise objections before the Arbitral Tribunal. |
| Respondents’ submission that Section 18 is not restricted to registered suppliers. | Accepted. The Court agreed that Section 18 allows “any party” to refer a dispute. |
How each authority was viewed by the Court?
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Shanti Conductors Private Ltd. v. Assam State Electricity Board [CITATION]: The Court relied on this case to emphasize that the liability of a buyer commences from the date of supply, not the date of the contract. The court also stated that the ratio of this case continues to apply to the MSMED Act.
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Silpi Industries v. Kerala State Road Transport Corporation [CITATION]: The Court distinguished this case, stating that it did not address the issue of whether registration is a prerequisite for invoking Section 18. The court stated that the observations made in this case regarding registration were not based on any analysis of the provisions of the MSMED Act.
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Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. [CITATION]: The Court clarified that this case primarily dealt with the overriding effect of the MSMED Act over the Arbitration Act and did not address the issue of prior registration for invoking Section 18. The court stated that the observations made in this case regarding registration were not based on any analysis of the provisions of the MSMED Act.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the text, context, and purpose of the MSMED Act. The Court emphasized that the Act is a beneficial legislation intended to protect MSMEs, and its provisions should be interpreted to facilitate access to justice. The Court also noted that the definition of “supplier” under Section 2(n) is not limited to registered enterprises and that Section 8 provides discretion to micro and small enterprises regarding filing of memorandum.
| Sentiment | Percentage |
|---|---|
| Textual Interpretation of Section 18 | 30% |
| Contextual Interpretation of Section 18 | 25% |
| Purpose of MSMED Act | 25% |
| Discretion under Section 8 | 20% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning:
The Court rejected the argument that the phrase “any party to a dispute” in Section 18 should be interpreted to mean only a “supplier” as defined under Section 2(n) of the MSMED Act. The Court emphasized that the definition of “supplier” under Section 2(n) is not limited to enterprises that have filed a memorandum under Section 8. The Court also noted that Section 8 grants discretion to micro and small enterprises regarding filing of a memorandum.
The Court reasoned that the MSMED Act is a beneficial legislation aimed at protecting MSMEs and ensuring timely payments. It emphasized that the remedies under the Act should be interpreted in a manner that facilitates access to justice for MSMEs.
The Court also clarified that the decisions in Silpi Industries and Mahakali Foods did not directly address the issue of whether registration is a mandatory prerequisite for invoking Section 18. The Court stated that the observations made in these cases regarding registration were not based on any analysis of the provisions of the MSMED Act.
The Court observed that the choice of the words ‘any party to a dispute’ in Section 18 of the Act is deliberate. The legislative device of employing different expressions in successive provisions of the same statute is well known and intended to effectuate the desired purpose of the Act.
The Court also observed that the mention of Section 17 in Section 18 is only to provide context for a reference of dispute. The contextual relevance of locating Section 17 in Section 18 is only to provide the purpose of reference, not to confine the remedy to a registered Enterprise.
The Court observed that the definition of a supplier is relatable only to a micro or a small enterprise and does not encompass a medium enterprise.
The Court also observed that filing of memorandum under Section 8 is discretionary.
The Court concluded that an application by a micro or a small enterprise to the Facilitation Council under Section 18 cannot be rejected on the ground that the said enterprise has not registered itself in Section 8.
“The text of Section 18 is clear and categoric. The words employed herein are “any party to a dispute”. The text, “any party to a dispute”, cannot be read as a ‘supplier’ by adopting a process of interpretation… The choice of the words ‘any party to a dispute’ in Section 18 of the Act is deliberate.”
“When statutory provision incorporation remedies for resolution of disputes fall for consideration, constitutional courts must interpret such remedies in a manner that would effectuate access to justice.”
“The cumulative account of these four features is compelling and leads us to the conclusion that an application by a micro or a small enterprise to the Facilitation Council under Section 18 cannot be rejected on the ground that the said enterprise has not registered itself in Section 8.”
The Court did not provide any minority opinion.
Key Takeaways
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MSMEs can refer disputes to the Facilitation Council under Section 18 of the MSMED Act without prior registration under Section 8.
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The term “any party to a dispute” in Section 18 is not restricted to registered “suppliers.”
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The MSMED Act is a beneficial legislation, and its provisions should be interpreted to facilitate access to justice for MSMEs.
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This judgment ensures that MSMEs are not denied the right to resolve payment disputes simply because they were not registered before the contract was signed.
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The decision could potentially lead to a greater number of MSMEs seeking resolution of their disputes through the Facilitation Council.
Directions
The Registry is directed to place the appeal paperbooks along with the detailed judgment before the Hon’ble Chief Justice of India for constitution of an appropriate Bench.
Specific Amendments Analysis
Not Applicable
Development of Law
The ratio decidendi of this case is that registration under Section 8 of the MSMED Act is not a mandatory precondition for referring a dispute under Section 18 of the Act. The Court clarified that the remedy under Section 18 is open to ‘any party’ and is notrestricted to only registered ‘suppliers’. This ruling has significant implications for MSMEs, who can now seek dispute resolution without being denied that right on the ground of lack of registration under Section 8 of the Act.
This judgment clarifies the scope of Section 18 of the MSMED Act and provides much-needed relief to MSMEs. It ensures that the benefits of the Act are available to all eligible enterprises, regardless of their registration status.