A party cannot seek protection under the MSMED Act for disputes arising from a contract entered into before the party's registration under the Act.

ORDER :

1. Petitioner is seeking for appointment of a sole arbitrator by invoking section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ for short).

2. Petitioner and respondent entered into a Master Services Agreement on 25.08.2018 for developing “Computer Based Testing Software” (‘CBT’ for short). Petitioner paid a sum of Rs. 22,17,500/- to respondent on 26.03.2019. As agreed to under the agreement, respondent was supposed to have completed the development of software by April, 2019 and the one which was provided subsequently was said to be with defects and errors. Petitioner claims to have demanded the respondent to remove the defects and it was not attended to by the respondent. Hence, petitioner is said to have made attempts to arrive at a settlement with the respondent which was not successful after having made all reasonable attempts, petitioner got issued a legal notice invoking arbitration clause 11.3 of the agreement and suggesting the name of the Arbitrator for resolving the disputes that has arisen between parties.

3. Petitioner claims that negotiations were held during December, 2019 and in one such negotiation held on 11.12.2019, respondent agreed for a new timeline to complete the contract which was not met with and immediately thereafter petitioner paid a sum of Rs. 33,40,000/- to the respondent on 19.12.2019. In order to settle the issue with the respondent, petitioner is said to have engaged a third party expert at its costs for code review and technical walk-through and despite having several meetings between the respondent and the technical expert, there was no satisfactory reply received from the respondent.

4. Respondent is said to have got issued a legal notice on 07.09.2020 making certain demands resulting in a meeting being arranged on 16.09.2020, whereunder parties agreed for a fresh payment schedule on the condition that respondent would remove all the technical glitches and errors to the satisfaction of the petitioner in finalizing the CBT. Notwithstanding the same, petitioner got issued a reply notice on 17.10.2020 to the respondent to the legal notice dated 07.09.2020 by denying the contentions raised therein. Petitioner is said to have received an intimation/ communication from Micro and Small Enterprises Facilitation Council, Haryana, whereunder petitioner was called upon to make payment of Rs. 1,25,69,950/- said to be the amount due from petitioner to the respondent. Petitioner is said to have responded to the said notice on 22.01.2021 and placed all the relevant facts before Facilitation Council and denied the claim of the respondent. Petitioner is also said to have highlighted the payment schedule agreed to at the meeting held on 16.09.2020 which was conditional upon respondent removing the errors to the satisfaction of the petitioner and denying its liability, petitioner contended before the Council that it was not obliged to release any amount as per schedule on account of respondent having not met the terms agreed to under the meeting held on 16.09.2020.

5. Petitioner is said to have addressed a communication namely mail to Micro and Small Enterprises Facilitation Council, Haryana stating thereunder that invoice dated 21.01.2020 was never forwarded to the petitioner and it was not in receipt of the said invoice. It was further contended that respondent had suppressed vital and material facts before the Facilitation Council, Haryana that respondent had accepted that it was unable to abide by the agreed timeline under the agreement. Hence, petitioner is said to have sought for rejection of the application moved by the respondent.

6. On 05.03.2021, one Shri Amit Kumar Pandey is said to have visited petitioner’s office and had also called the technical team engaged by the petitioner for a joint meeting and in the course of said meeting, it was confirmed that respondent had not used the technology (such as angular, react) in developing the CBT application as