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2019 Supreme(Del) 2075
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
Chief General Manager, (Contracts), M/s. Neyveli Lignite Corporation Limited — Appellant
Versus
Driplex Water Engineering Ltd And Another — Respondent
Writ Petition (Civil) No. 9670 of 2016; Civil Miscellaneous Application No. 38709 of 2016
Decided on : 02-09-2019
Advocate Appeared:
Anil Nag, Adv., Vikram Nandrajog, Adv., Sheetesh Khanna, Adv., Tara Narula, Adv.
The main legal point established in the judgment is that the classification of a small enterprise under the MSMED Act is based on investment in equipment, and turnover is irrelevant for this classification.
Headnote:
MSMED Act - Jurisdiction - Section 18(3) - Summary of Acts and Sections: The court discussed the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) and specifically focused on Section 18(3) which deals with the termination of conciliation proceedings and referral of disputes for arbitration. The court also referred to Section 7(1)(b)(ii) of the MSMED Act which defines the criteria for classifying a small enterprise based on investment in equipment. The court's decision was influenced by the interpretation of these provisions and their application to the dispute between the parties.
Fact of the Case:
The petitioner, Neyveli, challenged an order terminating conciliation proceedings and referring the matter for arbitration under Section 18(3) of the MSMED Act. The dispute arose from a contract with Driplex for a water treatment plant, and Neyveli contended that Driplex was not a small enterprise as defined by the MSMED Act.
Finding of the Court:
The court found that Driplex, despite filing its Memorandum under Section 8 of the MSMED Act after entering into the contract, could still seek recourse to the beneficial provisions of the Act. The court also rejected Neyveli's contention that Driplex did not qualify as a small enterprise based on turnover and investment in equipment.
Issues: The issues included the jurisdiction of MSEF Council to entertain the reference, classification of Driplex as a small enterprise, and the applicability of the MSMED Act to the contract entered into before the enactment of the Act.
Ratio Decidendi: The court held that Driplex could still claim benefits under the MSMED Act despite filing its Memorandum after entering into the contract. The court also emphasized that turnover was irrelevant for the classification of an enterprise as a small enterprise under the Act.
Final Decision: The court dismissed the petition and the pending application, affirming the jurisdiction of MSEF Council to entertain the reference and rejecting Neyveli's contentions regarding Driplex's classification as a small enterprise.
JUDGMENT :
Vibhu Bakhru, J.
The petitioner, M/s Neyveli Lignite Corporation Limited (hereafter 'Neyveli') has filed the present petition impugning an order dated 16.06.2016 passed by The Micro and Small Enterprises Facilitation Council (hereafter 'MSEF Council'). MSEF Council concluded that the parties (Neyveli and respondent no.1) were not interested in amicably resolving their disputes and consequently, by the said order, MSEF Council terminated the conciliation proceedings and referred the matter under Section 18(3) of The Micro, Small and Medium Enterprises Development Act, 2006 (hereafter 'MSMED Act') for arbitration under the aegis of Delhi International Arbitration Centre.
2. Neyveli contends that the impugned order is without any jurisdiction as respondent no.1 (hereafter 'Driplex') is not a small enterprise and therefore, MSEF Council lacked the jurisdiction to make a reference under Section 18 of the MSMED Act. Neyveli also assails the impugned order on the ground that MSEF Council had failed to consider the preliminary objections raised by it.
3. The relevant facts necessary to address the aforesaid controversy are set out below:-
3.1 Neyveli invited tenders for the work pertaining to Water Treatment Plant and Effluent Treatment Plant in connection with the setting up of 2X250 MW Thermal Power Stations. One of the eligibility conditions specified in the said notice inviting tenders was that the bidder must have a turnover of over Rs.11 Crores. Neyveli states that at the time of submitting its bid, Driplex claimed that it had a turnover of Rs.20.09 Crores in the year 2001-2002; Rs.20.36 Crores in the year 2002-2003; and Rs.23.51 Crores in the year 2003-2004.
3.2 Neyveli entered into a contract with Driplex on 25.09.2006 (hereafter 'the Contract') for the work pertaining to water treatment and effluent treatment plant at the said thermal power stations. In terms of the Contract, an amount of about Rs.63 Crores was payable to Driplex.
3.3 Neyveli states that Driplex was unable to complete the work within the stipulated period of time. Consequently, Neyveli withheld the performance bank guarantees amounting to Rs.6.30 Crores against the total contractual value.
3.4 Aggrieved by the same, Driplex filed an application dated 29.10.2013 with MSEF Council, claiming an amount of Rs.34.80 Crores, including interest of an amount of Rs.20.15 Crores.
3.5 Neyveli filed its reply to the aforementioned application on 28.12.2015. It, inter alia, contended that the MSEF Council lacked the jurisdiction to entertain the reference as Driplex had registered with the Commissioner of Industries on 09.12.2011, which was after the parties had entered into the Contract. Neyveli claimed that Driplex was not a small enterprise because the value of the Contract was Rs.63 Crores and in order to qualify as a 'small enterprise' under the MSMED Act, its investment in equipment was required to be more than Rs.10 Lakhs but less than Rs.2 Crores. According to Neyveli, Driplex could not be classified as a 'small enterprise' as it did not satisfy the criteria as set out in Section 7(1)(b)(ii) of the MSMED Act. Consequently, its reference under Section 18 of the MSMED Act was required to be rejected.
3.6 In its rejoinder dated 19.02.2016, Driplex claimed that it was registered as a 'Small Scale Industrial Unit' with the Department of Industries, Haryana vide a certificate dated 08.05.1981. It also pointed out that although it was registered as a Small Enterprise on 09.12.2011, the Registration Certificate clearly indicated that Driplex was in existence since 27.08.1974. Neyveli countered the said contention by submitting that Driplex had not disclosed that it was registered as a Small Scale Unit with the Department of Industries Haryana on the date of entering into the Contract.
3.7 On 29.02.2016, Neyveli also filed an additional affidavit enclosing therewith the Schedule of Assets of the petitioner for the financial years ending 31.03.2010 and 31.03.2011. Neyveli cl
