Court’s Decision:
The Supreme Court held that the remedies provided under Section 18 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, can be invoked by any party to a dispute, including MSMEs that have not registered by filing a memorandum under Section 8 of the Act before executing contracts. This interpretation ensures that the statute remains inclusive and facilitates access to justice for MSMEs. However, for authoritative clarity, the matter was referred to a larger bench.
Facts:
- The appellant, a public sector enterprise, granted five construction contracts between 2015 and 2017 to a private entity that later registered as an MSME under Section 8 of the MSMED Act in November 2016.
- The enterprise delivered services and raised bills for payment, including bills for work completed after registration.
- Disputes arose concerning unpaid dues, and the MSME referred the matter to the West Bengal Micro and Small Enterprises Facilitation Council (Facilitation Council) under Section 18 of the MSMED Act for resolution.
- The appellant objected to the Facilitation Council’s jurisdiction, arguing that the enterprise’s registration as an MSME occurred after the execution of contracts and therefore the entity was ineligible to invoke Section 18 remedies.
Issues:
- Does Section 18 of the MSMED Act permit dispute resolution for unregistered enterprises?
- Is filing a memorandum under Section 8 of the MSMED Act a precondition for invoking remedies under Section 18?
Petitioner’s Arguments:
- The appellant argued that Section 18 remedies are restricted to “suppliers,” as defined under Section 2(n) of the Act.
- Section 2(n) defines a supplier as a micro or small enterprise that has filed a memorandum under Section 8.
- It contended that only MSMEs registered at the time of entering into the contract can invoke Section 18, and the Facilitation Council lacked jurisdiction to entertain disputes from unregistered entities.
- Relying on the Supreme Court judgments in Silpi Industries and Mahakali Foods, the appellant asserted that benefits under the MSMED Act apply prospectively from the date of registration.
Respondent’s Arguments:
- The respondent MSME argued that Section 18 allows “any party to a dispute” to seek remedies, and the language of the provision is broad and inclusive.
- Filing a memorandum under Section 8 is discretionary for micro and small enterprises, as reflected in the statutory scheme and legislative reports.
- Registration status should not restrict access to the Facilitation Council, especially when the enterprise performed work and raised bills after registration.
Analysis of the Law:
1. Textual Interpretation:
- Section 18 states that “any party to a dispute” may refer a dispute to the Facilitation Council. The term “any party” is deliberately broad and is not limited to “suppliers” defined under Section 2(n).
- The Court emphasized the principle of statutory interpretation, which requires giving words their natural and ordinary meaning. The legislature deliberately used “any party” instead of “supplier” to ensure wider access to dispute resolution mechanisms.
2. Context and Purpose:
- Section 18 provides statutory remedies for dispute resolution, emphasizing accessibility and efficiency. Linking this remedy to registration under Section 8 would narrow its scope and defeat the Act’s purpose of supporting MSMEs.
- The Act recognizes the informal nature of MSMEs, many of which operate without formal registration.
3. Discretionary Nature of Section 8:
- Section 8 provides that micro and small enterprises “may, at their discretion,” file a memorandum for registration. This indicates that registration is optional, not mandatory, for availing the rights under the Act.
- Expert committee reports also highlight the informal nature of many MSMEs and note that registration is primarily for administrative purposes rather than eligibility for remedies.
Precedent Analysis:
1. Silpi Industries v. Kerala State Road Transport Corporation (2021):
- The case primarily dealt with whether the Limitation Act applies to MSME arbitrations and whether counterclaims are maintainable.
- While the Court mentioned that benefits under the MSMED Act require registration, the issue of unregistered enterprises invoking Section 18 was not analyzed in detail.
2. Mahakali Foods v. Gujarat State Civil Supplies Corporation (2023):
- The case focused on whether the MSMED Act overrides the Arbitration and Conciliation Act, 1996.
- The Court reiterated the requirement of registration for MSMEs seeking benefits but did not analyze the broader implications of Section 18.
3. Shanti Conductors v. Assam State Electricity Board (2019):
- This judgment clarified that liability under the repealed 1993 Act arose upon supply of goods or services, regardless of the date of the contract. The Court applied a similar reasoning to the MSMED Act, emphasizing that rights under the Act should not depend on formalities like registration.
Court’s Reasoning:
- Broad Scope of Section 18:
- The text, context, and purpose of Section 18 indicate that the remedies are open to all parties in a dispute, not just registered suppliers.
- Importance of MSME Support:
- The Act is a beneficial legislation aimed at fostering the growth and protection of MSMEs. Restricting access to its remedies would undermine this objective.
- Consistency with Statutory Scheme:
- Registration under Section 8 is discretionary, and the lack of registration does not negate an MSME’s substantive rights under the Act.
Conclusion:
The Supreme Court held that unregistered MSMEs could invoke Section 18 remedies, as the statutory scheme does not make registration mandatory for dispute resolution. However, due to conflicting interpretations in previous judgments, the matter was referred to a larger bench for a definitive ruling.
Implications:
- Wider Access to Remedies:
- The decision affirms that MSMEs, even those operating informally, can access statutory remedies, enhancing their ability to resolve disputes efficiently.
- Clarity for Future Cases:
- The larger bench’s ruling will provide authoritative guidance on the interplay between registration and the rights conferred under the MSMED Act.
This detailed explanation captures the essence of the Supreme Court’s ruling while addressing all aspects of the judgment in depth. Let me know if you need further elaboration on any section!
