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IN THE HIGH COURT OF DELHI AT NEW DELHI
Prathiba M. Singh, J.
Sterlite Power Transmission Limited – Appellant
Versus
M/s Epc Solutions Llp & Anr. – Respondents
W.P.(C) 13758 of 2021 and CM APPL. 43444 of 2021
Decided On : 05-07-2023
MSMED Act, 2006 - Micro & Small Enterprises Facilitation Council - Sections 15 to 18 - The court analyzed the applicability of the MSMED Act, 2006 to a dispute involving a Medium Enterprise and upheld the impugned reference order. The court highlighted the definitions of enterprise and supplier under the Act, the scheme of Chapter V, and relevant case law to determine the validity of the reference order.
Fact of the Case:
The Petitioner sought to quash an order referring a dispute to arbitration under the MSMED Act, 2006. The Respondent, initially a Micro Enterprise, filed a reference application before the MSEFC, which was later forwarded to arbitration by the MSEFC. The Petitioner challenged the jurisdiction of the MSEFC, arguing that the Act only applies to Micro and Small Enterprises.
Finding of the Court:
The court found that the MSMED Act, 2006 applies to Micro and Small Enterprises, and the relevant date for determining its applicability is the date of the agreement and the date of supply of goods/services. The court upheld the impugned reference order, citing the beneficial nature of the Act and a notification allowing reclassified enterprises to continue availing benefits for a period of 3 years.
Issues: The main issue was the validity of the reference order under the MSMED Act, 2006, involving a dispute with a Medium Enterprise. The court also considered the reclassification of the Respondent as a Medium Enterprise and its impact on the applicability of the Act.
Ratio Decidendi: The court held that the MSMED Act, 2006 applies to Micro and Small Enterprises, and the relevant date for determining its applicability is the date of the agreement and the date of supply of goods/services. The court also considered a notification allowing reclassified enterprises to continue availing benefits for a period of 3 years.
Final Decision: The impugned reference order was upheld, and the court appointed a Sole Arbitrator to resolve the dispute outside the MSMED Act, 2006, considering the agreement and the amount of claim involved.
JUDGMENT
Prathiba M. Singh, J. This hearing has been done through hybrid mode.
2. This petition raises an important issue arising out of the Micro Small and Medium Enterprises Development Act, 2006 (hereinafter `MSMED Act, 2006').
3. The question that is to be determined is-
Whether the Micro & Small Enterprises Facilitation Council (MSEFC) can entertain references to arbitration from Medium Enterprises, in addition to those made by Micro or Small Enterprises under the MSMED Act, 2006?
Brief Facts
4. The Petitioner - Sterlite Power Transmission Limited seeks quashing/setting aside of the impugned reference order dated 27th October, 2021 passed by Respondent No.2 - Sub-Divisional Magistrate (East), Government of NCT of Delhi, acting as Micro and Small Enterprises Facilitation Council under the MSMED Act, 2006 (hereinafter, `MSEFC'). By the impugned reference order the reference filed by the Respondent No. 1 - M/s EPC Solutions LLP under Section 18 of MSMED Act, 2006 has been forwarded to the Delhi International Arbitration Centre (DIAC).
5. An agreement dated 15th September, 2017 was entered into by the Petitioner with Respondent No. 1 for providing vacuum pumps and engineers for PMC of 400kv Transmission Line on a rental basis on the project site in the State of Jammu & Kashmir. The effective date of the agreement was 5th September, 2017. As per the work order, the deployment of the engineer for PMC of GIS substation was for 90 days, deployment of the engineer for PMC of 400kV line was for 60 days and the supply for the vacuum pumps was for a period of 90 days from the effective date. Thus, as per the Petitioner the said agreement came to an end in November, 2017. It is stated by the Petitioner that the original value of the vacuum pumps is Rs.9,41,084/-.
6. The case of the Petitioner is that Respondent No.1 failed to lift the vacuum pumps from the project site due to which disputes arose between the parties in respect of return of the said vacuum pumps. In view of the same, Respondent No.1 filed reference application before the MSEFC raising a claim of Rs.20,27,31,392/-. Respondent No.1 also filed its Udhyam Registration certificate along with the reference application. The same has been placed on record and shows the Respondent No.1's registration under the MSMED Act, 2006 as a medium enterprise. The date of filing as provided in the said certificate is 12th June, 2019. The same contains a reference to a previous registration bearing No. DL07D0000528.
7. The claim filed by the Respondent No.1 was communicated to the Petitioner by the MSEFC. In response to the claim, the Petitioner took an objection that the provisions of the MSMED Act, 2006 would be applicable only to a micro or small enterprise and not to a medium enterprise. Accordingly, the jurisdiction of MSEFC was challenged by the Petitioner vide application dated 19th October, 2021 filed before the MSEFC. Thereafter, hearings were conducted in the conciliation proceedings before the MSEFC however, the same did not fructify into a settlement. Resultantly, the MSEFC referred the matter for arbitration to DIAC vide the impugned order dated 27th October, 2021. The same is challenged in the present petition.
8. In the present petition, vide order dated 6th December, 2021 notice was issued to the Respondents and counter affidavit/short note was called from the Respondent No.1 explaining as to how it was entitled to refer the complaint to the DIAC. Vide the same interim order, DIAC was also directed not to commence arbitration proceedings.
9. In the counter affidavit/short note filed by the Respondent No.1 it is submitted that Respondent no. 1 was a Micro enterprise prior to and during the period of dispute, the Udhyam Registration certificate of Respondent No.1 as a Micro enterprise is also relied upon.
10. It is submitted in the counter affidavit/short note that in anticipation of a joint venture in the year 2018, the Respondent no. 1 got itself upgraded to the statu
The registration under the MSMED Act, 2006 applies prospectively and not retrospectively, and the benefits of the Act do not apply if the registration is obtained subsequently to the agreement and th....
The applicability of the MSME Act, 2006 is contingent on the registration of the entity as an MSME being prior to the completion of the works.
The MSMED Act, 2006 applies only to delayed payments to Micro and Small Enterprises, and it does not contemplate an independent claim by the Buyer against the Supplier.
The benefits under the MSME Act do not apply if the registration under the Act was obtained subsequently.
The central legal point established in the judgment is that the benefits under the MSMED Act, 2006 would not apply if the registration under the Act was obtained subsequently, as clarified by the Sup....
The court clarified that registration under Section 8 of the MSMED Act is not a prerequisite for making a reference to the Facilitation Council under Section 18, emphasizing broad access to justice.
The court ruled that a party to a dispute cannot waive the mandatory conciliation requirement under Section 18(2) of the MSMED Act, validating subsequent arbitration proceedings.
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