2025 (1) TMI 622 - SC - Indian Laws

Jurisdiction of the Facilitation Council in entertaining the reference under Section 18 of the MSMED Act, 2006 - challenge to jurisdiction for the simple reason that it registered itself after the contracts were executed and not before - whether an MSME (Micro, Small, and Medium Enterprise) can make a reference to the Facilitation Council for dispute resolution under Section 18 of the MSMED Act, 2006, if it is not registered under Section 8 of the Act before the execution of the contract with the buyer? HELD THAT - Having considered the definition of the expression supplier , and also having considered the classification of enterprises into micro, small and medium with respect to each of which there is a separate legal regime to be suggested by the Advisory Committee and notified by the Central and State Governments, and in view of the discretion specifically vested with the micro and small enterprises for filing a memorandum under Section 8 of the Act, the submission that the Facilitation Council cannot entertain a reference under Section 18 if the enterprise is not registered under Section 8 must be rejected. Re Silpi Industries v. Kerala State Road Transport Corporation 2021 (6) TMI 1119 - SUPREME COURT - This is the lead judgment which has given the impression that this Court has laid down the law that Section 18 cannot be invoked by an Enterprise if it has not filed a memorandum under Section 8 of the Act before entering into a contract. However, the issues that arose for consideration in Silpi Industries are in complete contrast with the present case. In that case, there were two appeals, and they involved different facts and circumstances. The short facts in the first appeal was that the appellants referred the matter to the Facilitation Council which made an award in favour of the appellant under the Arbitration and Conciliation Act. The award was challenged under Section 34 and the same was dismissed. During the pendency of the appeal under Section 37, the High Court decided a preliminary issue as to whether the Limitation Act would apply to arbitral proceedings under the MSME. In the first place, whether an Enterprise is disabled from seeking a reference before filing a memorandum under Section 8 for registration never arose for consideration in Silpi. More importantly, the Court did not examine any provisions of the Act and their implication on the right to seek a reference under Section 18 of the Act. This was natural because the Court did not frame an issue of registration. Even in Mahakali Foods 2022 (11) TMI 91 - SUPREME COURT , the issue which has arisen for our consideration never arose. There was neither an issue, discussion, nor analysis on the applicability of Section 18 for enterprises that have not filed a memorandum. The decision in Mahakali Foods is certainly an authority on the issues that were formulated in paragraph 11 of the said judgment, which have already been extracted hereinabove. Even the concluding paragraph in Mahakali Foods clearly establishes the fact that the Court was only considering the issue of whether the MSMED Act, being a special legislation, overrides the Arbitration Act or not. On the interpretation of the provisions of the Act we have arrived at a clear opinion and have expressed the same. Though it is possible for us to follow the precedents referred to in para 27 to arrive at the conclusion that the judgments in the case of Silpi Industries and Mahakali Foods coupled with the subsequent orders in Vaishno Enterprises 2022 (4) TMI 58 - SUPREME COURT cannot be considered to be binding precedents on the issue that has arisen for consideration, taking into account the compelling need to ensure clarity and certainty about the applicable precedents on the subject, it is deemed appropriate to refer this appeal to a three Judge Bench. Conclusion - i) An MSME can refer a dispute to the Facilitation Council under Section 18 without being registered under Section 8 before the execution of the contract. ii) The Court referred the matter to a larger bench for a definitive ruling to ensure clarity on the issue. The Registry is directed to place the appeal paperbooks along with our detailed judgment before the Hon ble Chief Justice of India for constitution of an appropriate Bench.

Summary

1. Issues Presented and Considered

The core legal issue considered in this judgment is whether an MSME (Micro, Small, and Medium Enterprise) can make a reference to the Facilitation Council for dispute resolution under Section 18 of the MSMED Act, 2006, if it is not registered under Section 8 of the Act before the execution of the contract with the buyer.

2. Issue-Wise Detailed Analysis

2.1 Relevant Legal Framework and Precedents

The MSMED Act, 2006, provides a framework for the promotion and development of MSMEs, including a mechanism for dispute resolution. Section 18 of the Act allows "any party to a dispute" to refer the matter to the Facilitation Council. The definition of "supplier" under Section 2(n) includes only those enterprises that have filed a memorandum under Section 8. Previous judgments such as Silpi Industries v. Kerala State Road Transport Corporation and Mahakali Foods Pvt. Ltd. v. Gujarat State Civil Supplies Corporation Ltd. were considered relevant to this issue.

2.2 Court's Interpretation and Reasoning

The Court interpreted that the phrase "any party to a dispute" in Section 18 is not limited to registered suppliers. The Court emphasized that the statutory language should be given its natural meaning, and the legislative intent was to provide an open-ended remedy for dispute resolution. The Court also noted that the filing of a memorandum under Section 8 is discretionary for micro and small enterprises.

2.3 Key Evidence and Findings

The Court found that the statutory scheme of the MSMED Act does not mandate registration under Section 8 as a precondition for invoking Section 18. The Court also noted that the definition of "supplier" is broader and includes entities engaged in selling goods or rendering services, irrespective of registration.

2.4 Application of Law to Facts

In applying the law, the Court concluded that the Enterprise in this case could refer the dispute to the Facilitation Council despite not being registered under Section 8 before the execution of the contract. The Court emphasized that the purpose of the Act is to facilitate dispute resolution and support MSMEs.

2.5 Treatment of Competing Arguments

The Court addressed the appellant's argument that registration is necessary by highlighting that the statutory text and context do not support such a restriction. The Court also distinguished the present case from Silpi Industries and Mahakali Foods, noting that those cases did not address the specific issue of registration as a precondition.

2.6 Conclusions

The Court concluded that registration under Section 8 is not a necessary precondition for referring a dispute under Section 18 of the MSMED Act. The Court directed the appeal to be placed before a larger bench for an authoritative pronouncement to ensure clarity and legal certainty.

3. Significant Holdings

3.1 Verbatim Quotes of Crucial Legal Reasoning

"The text, 'any party to a dispute,' cannot be read as a 'supplier' by adopting a process of interpretation... This meaning-making process to metamorphosize the clear text 'any party' to 'a supplier' is not the legal method to understand the true meaning of words employed by the legislature."

3.2 Core Principles Established

The judgment establishes that the statutory remedies under the MSMED Act should be interpreted to facilitate access to justice and dispute resolution for MSMEs. It emphasizes that statutory language should be given its natural meaning, and the legislative intent should guide interpretation.

3.3 Final Determinations on Each Issue

The Court determined that an MSME can refer a dispute to the Facilitation Council under Section 18 without being registered under Section 8 before the execution of the contract. The Court referred the matter to a larger bench for a definitive ruling to ensure clarity on the issue.