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Abandoned Arbitration Claims Cannot Be Revived by MSME Registration:
The has firmly ruled that a supplier cannot breathe life into arbitration claims it previously abandoned simply by obtaining registration under the . Justice Tushar Rao Gedela, while dismissing an appeal by , upheld the arbitral tribunal’s order that it had no jurisdiction to entertain the claims. The decision reinforces the principle that MSME registration operates prospectively and cannot be used as a tool for .
A Tale of Two Arbitrations
, a sole proprietorship of Sanjeev Gupta, supplied aggregates, sand, and TMT bars to , a Taiwanese company with a project office in India, under a dated . The supplies for TMT bars were completed by , and sand/aggregate supplies concluded by . Disputes over unpaid dues arose, and the supplier invoked arbitration on . Justice Devendra Gupta, former Chief Justice of the , was appointed sole arbitrator.
However, the supplier failed to file its , leading to termination of the arbitration proceedings with costs. Instead of challenging that termination, obtained MSME registration in February 2019 and approached the in Delhi. Conciliation failed, and the dispute was referred to the , which appointed a former judge as sole arbitrator.
Continental Engineering promptly challenged the tribunal’s jurisdiction under , arguing that the claims related to supplies made before the supplier’s MSME registration and that the same claims had already been abandoned in the earlier arbitration. The tribunal accepted these objections on , holding it had no jurisdiction. appealed under .
The Core Question: Does MSME Registration Have Retrospective Effect?
The single question before the High Court was whether claims pertaining to the period 2016–2018 could be maintained when the appellant was registered as a supplier only on . The appellant argued that it had an earlier MSME registration for its manufacturing unit in Sikar, Rajasthan, with an application date of . It contended that the mere fact of registration—regardless of place or date—should suffice, and that the issue of registration could only be decided after a full trial, not summarily under Section 16.
The court rejected this contention, applying the ’s authoritative ruling in Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790. Justice Gedela observed that the observations in Silpi were not but a clear statement of law: to claim the benefits of the MSME Act, the seller must have been registered under as on the date of entering into the contract. Registration obtained subsequently operates prospectively and cannot confer statutory benefits for supplies made before registration.
“It is settled law, which brooks no ambiguity, that only such claims which may arise post the registration of any entity as a Micro or Small industry under the MSME Act, 2006, would be maintainable,” the court declared.
The Rajasthan Certificate: A Red Herring
The appellant’s reliance on its Rajasthan MSME certificate was meticulously examined. The court noted that the certificate pertained to a manufacturing activity, whereas the appellant’s Delhi registration was for services. Moreover, the certificate showed the application was filed on , but the registration itself was granted only on —after the supplies were completed. The tribunal had already considered this document and found it unhelpful because the entity that signed the MoU and supplied the material was the Delhi-based , not the Rajasthan entity.
The High Court declined to interfere with this factual finding, holding it was plausible and not perverse. The court further highlighted that the appellant’s own and rejoinder were predicated entirely on the Delhi registration of February 2019. The attempt to pivot to the Rajasthan certificate was seen as an afterthought.
Abandoned Arbitration Cannot Be Revived by Later Registration
Perhaps the most significant aspect of the judgment is the court’s treatment of the earlier arbitration. The appellant did not dispute that the claims in both proceedings were identical. The earlier arbitration was terminated because the appellant failed to file its . Instead of pursuing legal remedies against that termination, the appellant simply registered under the MSME Act and started afresh.
The court firmly rejected this approach. “Ordinarily, when the arbitration proceedings itself are terminated for whatever reason, the party aggrieved has appropriate remedies under the law for setting aside such termination,” Justice Gedela observed. “Having not availed the same, in the opinion of this Court, a party cannot be permitted to re-open such abandoned claims by mere registration under the MSME Act, 2006, subsequently.”
The court also clarified the framework under . It held that a supplier registered with a particular MSEF Council can only seek reference before that Council; overlapping jurisdiction between States is not contemplated. Since the appellant invoked the Delhi MSEF Council based on its Delhi registration, but the claims predated that registration, the reference itself was invalid.
Decision and Implications
The High Court dismissed the appeal, upholding the arbitral tribunal’s order of , which held that the arbitration was not maintainable. The ruling sends a clear message: MSME registration is a . Suppliers cannot bypass the consequences of abandoned litigation by obtaining registration later. The judgment also reinforces the binding nature of Silpi Industries and restricts the ability of parties to engage in by seeking registration in a different jurisdiction after disputes arise.
For legal practitioners, the case underscores the importance of timely registration under the MSME Act and the finality of abandoned arbitration proceedings. The has made it plain that the benefits of the MSME Act are available only to those who are registered before they enter into contracts or supply goods, and that a party that walks away from one arbitration cannot simply don a new statutory hat to start another.
