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IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
D.V.S.S. Somayajulu, J.
Rashtriya Ispat Nigam Limited – Petitioner
Versus
The Union of India Rep by Secretary, The Ministry of Micro Small and Medium Enterprises, Udyog Bhawan and ors. – Respondents
W.P.Nos. 27673, 27670, 27691, 27693, 27826, 27829, 28010, 28034 of 2021 and 4721, 6249 and 7616 of 2022
Decided On : 26-04-2022
Micro Small and Medium Enterprises Development Act - Applicability to Civil Construction Contracts - Section 2(e), 2(n), 2(d) - The court held that the Act does not apply to works contracts with an element of supply and not mere supply and service contracts. The contractors did not file the memorandum under section 8 of the Act, and therefore, the writ petitions were allowed.
Fact of the Case:
The court considered the applicability of the Micro Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006) to civil construction contracts. The petitioners argued that the Act only applies to contracts of supply of goods and services, not civil construction contracts. They also raised objections regarding the jurisdiction of the Facilitation Council under Section 18 of the Act.
Finding of the Court:
The court found that the Act does not apply to works contracts with an element of supply and not mere supply and service contracts. It also held that the contractors did not file the memorandum under section 8 of the Act, as required to claim the benefit of the Act. Therefore, the writ petitions were allowed.
Issues: (1) Applicability of the Act to the contractors' grievances (2) Whether the contracts can be called 'service' contracts under the Act
Ratio Decidendi: The Act does not apply to works contracts with an element of supply and not mere supply and service contracts. The contractors did not file the memorandum under section 8 of the Act, as required to claim the benefit of the Act.
Final Decision: The writ petitions were allowed, and the court held that the Act does not apply to the works contracts in question. It also ruled that the Facilitation Council did not have jurisdiction to entertain the dispute.
ORDER :
1. With the consent of the learned counsel appearing for the respective parties, the writ petitions were taken up for hearing and disposal.
2. For the petitioners, learned senior counsel Sri V.Ravinder Rao advanced his arguments and for the main contesting respondent (the contractor), Sri C.V.Mohan Reddy, learned senior counsel has advanced his arguments followed by Sri Ramachandra Rao Gurram.
3. The question in these cases is about the applicability of the Micro Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006) (for short ‘the Act’) to the contracts entered into by the contractors with the petitioners’-Steel plant and the consequences there of.
For Petitioner:
4. For the Steel Plant, learned senior counsel argues that Act 27 of 2006 applies only to contracts of supply of goods and the rendering of services thereunder, but will not apply to the civil construction contracts. Learned senior counsel has filed a list of the works in each of the cases which are being dealt with and the same is reproduced here under:
| Writ petition number | Description of work contract |
| 28010 of 2021 | Relocation of new steel yard-civil and associated works in Visakhapatnam steel Plant-civil and structural works as per BOQ part-A of Section I & II |
| 27670 of 2021 | Miscellaneous structural steel work-RMHP (zone-1) wherein the scope of work is mainly supply, fabrication and erection of mild steel-tubular handrails, supply of high tension bolts; fabrication and erection of structure after collecting raw steel from respondent; collection of fabricated/semi fabricated structures from respondent and directing the same after taking up necessary modifications; and application of painting on all structural steel works in RMHP (zone-1) |
| 27673 of 2021 | Design, Indianisation of Soviet materials, preparation of manufacturing drawings for purchase/consultant approval, fabrication/manufacture, supply erection, painting, testing after erection at site and commissioning of tanks in condensation pump-house for COB-4 |
| 27691 of 2021 | Structural steel works of coal handling plant, phase-II facilities for COB-4 |
| 27693 of 2021 | Structural work, sheeting supply work and sheeting erection work for cable gallery in ASUV area under VSP-V project |
| 27829 of 2021 | Indianization of Soviet materials, procurement of new materials, preparation of manufacturing drawings for purchase/consultant approval, fabrication manufacture, testing at works, painting, packing, forwarding, supply FOR-VSP stores/site, transportation of materials from store to election site of fluidised bed dryer and storage, testing before erection at site, grouting, erection, testing after direction at site painting, commissioning and trial run, guarantee for workmanship and performance of fluidised bed dryer for ammonia sulphate plant of COB-4. |
| 27826 of 2021 | Structural steel works for power plant phase-II facilities for COB-4 |
| 28034 of 2021 | Design, engineering, supply, erection, testing commissioning and performance guarantee tests of the plant including supervision of all site services and insurance and training of VSP personnel for indoor LBDS, HVLC and interplant cabling |
| 4721 of 2022 | Design, engineering and supply of equipment, erection, testing and commissioning including commissioning spares and insurance, space for indoor LBDS for structural mill |
| 6249 of 2022 | Structural steel and cladding works for raw material handling system (zone-1, area-3) conveyor system for feeding raw material to new BF, SP, SMS and CRMP. |
| 7616 of 2022 | Structural steel work for Madharam Mines (Specification No.VSP-6.3-11-STF-001) |
5. The contention of the learned senior counsel in essence is that all though there is an element of supply in certain aspects of the contract, the essential work that is being executed by the
The Act does not apply to works contracts with an element of supply and not mere supply and service contracts. The contractors must file the memorandum under section 8 of the Act to claim the benefit....
The MSEFC lacks jurisdiction to adjudicate disputes arising from works contracts, which necessitate arbitration under traditional frameworks, not the MSMED Act.
Works contracts cannot invoke the jurisdiction of MSEFC under the MSMED Act, necessitating arbitration under the Arbitration and Conciliation Act, thereby rendering MSEFC proceedings void.
The jurisdiction of the Micro Small and Medium Enterprises Facilitation Council is determined by the supplier's registered office location, overriding any contractual jurisdiction clauses.
The award passed by the Facilitation Council is without jurisdiction and, therefore, a nullity.
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