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TMI Blog2025 (1) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................................................................ 4 3. Decisions of the Single Judge and the Division Bench ..................................... 6 4. Submissions .................................................................................................... 7 5. Issue for our consideration .............................................................................. 8 6. The repealed Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and the judgment in Shanti Conductors v. Assam State Electricity Board . ..................................................................... 8 7. The Micro, Small and Medium Industry in our Country ................................. 12 8. Interpretation of Statutory Remedies by Constitutional Courts ..................... 15 9. Statutory Scheme of the MSMED Act, 2006 ................................................... 17 10. Whether registration is a necessary precondition to referring a dispute under Section 18 of the Act .................................................................................... 20 11. Re: Silpi Industries v. Kerala State Road Transport Corporation .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision that Section 18 is not restrictive and is a remedy for the resolution of disputes, and as such, it is kept open-ended to enable any party to refer the dispute to seek redressal. For the reasons to follow, we rejected the submission that any party to a dispute is confined to a supplier who has filed a memorandum under Section 8 of the Act. We have also explained that the issue(s) that have arisen in the decisions of this Court in Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790, hereinafter referred to, in short as Silpi Industries and Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (2023) 6 SCC 401, hereinafter referred to, in short as Mahakali Foods were very different from the issue that has arisen for our consideration. However, for clarity and legal certainty, we have directed the appeal be placed before the Hon ble Chief Justice of India for referring the matter to a bench of three Judges for an authoritative pronouncement. 1.3 We will first state the necessary facts before considering the submissions, followed by our reasons and conclusions. 2. Facts: The appellant, National Buildings Construction Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te was referred to arbitration under Section 18(3) on 19.01.2021. A further notice of the arbitral proceedings was also issued, and it was received by the appellant on 30.09.2021. 2.4 The appellant objected to the Facilitation Council entertaining the reference, firstly on the ground that the Enterprise was not registered before the execution of the contracts and, as such, the Facilitation Council does not have jurisdiction under Section 18. Secondly, it was also argued that the subject matter of the contract relates to the execution of the works contracts, which falls outside the scope and ambit of the Act. Carrying these objections further, the appellant filed a Writ Petition under Article 226 of the Constitution of India before the High Court of Calcutta, raising the jurisdictional question of the Facilitation Council entertaining the reference. 3. Decisions of the Single Judge and the Division Bench: The learned Single Judge dismissed the Writ Petition on 16.12.2021 by simply holding that the question of jurisdiction can be raised before the Arbitral Tribunal, which shall decide the same before entering into other questions. The decision of the Single Judge was challenged unsuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Silpi Industries (supra) and for interpreting the provisions of the Act. 7. The repealed Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 Hereinafter referred to as the repealed statute and the judgment in Shanti Conductors v. Assam State Electricity Board: The decision of this Court in Shanti Conductors (supra), a three-Judge Bench Judgment, was necessitated because of the difference of opinion between two Judges. The relevant facts of Shanti Conductors (supra) are that the Small-Scale Industry therein entered into a contract for supply of goods and services to the buyer before the said 1993 repealed statute came into force. However, the supplies under the contract were rendered after the said statute came into force. Of the seven questions of law that were formulated by the three-judge bench, the first two questions, relevant to our purpose, are extracted for ready reference. It is necessary to mention here that filing of a memorandum by any MSME was never an issue there, as, in fact, there was no such requirement under the repealed statute. The issues in Shanti Conductors (supra) are as follows: 34.1.(1) Whether the 1993 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed supplies from supplier A escape from his statutory liability to make payment of interest under Section 3 read with Section 4? The answer has to be No. Two suppliers who supply goods after the enforcement of the Act, become entitled to receive payment after the enforcement of the Act one supplier cannot be denied the benefit of the statutory protection on the pretext that the agreement in his case was entered prior to enforcement of the Act. When the date of agreement is not referred as material or incidence for fastening the liability, by no judicial interpretation the said date can be treated as a date for fastening of the liability. The 1993 Act being beneficial legislation enacted to protect small scale industries and statutorily ensure by mandatory provision for payment of interest on the outstanding money, accepting the interpretation as put by the learned counsel for the Board that the day of agreement has to be subsequent to the enforcement of the Act, the entire beneficial protection of the Act shall be defeated. The existence of statutory liability depends on the statutory factors as enumerated in Section 3 and Section 4 of the 1993 Act. Factor for liability to make pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of the beneficial legislation intended to protect smallscale and ancillary industrial undertakings. 8. The Micro, Small and Medium Industry in our Country: After the repeal of the 1993 Act, the present Act came into force with effect from 02.10.2006. The Act is a comprehensive legislation that recognises and seeks to rejuvenate the importance of MSMEs, whose importance and contribution is accepted in contemporary economies across the globe, and accredited by the United Nations 13 2024 Theme: MSMEs and the SDGs (United Nations) (2024) . United Nations, commenting on the significance of MSMEs observes that: MSMEs help reduce levels of poverty through job creation and economic growth; they are key drivers of employment, decent jobs and entrepreneurship for women, youth and groups in vulnerable situations. They are the majority of the world s food producers and play critical roles in closing the gender gap as they ensure women s full and effective participation in the economy and in society . 8.1 In the statement of object and reasons of the Act, it is mentioned that many Expert Groups and Committees appointed by the Government from time to time as well as small scale industry se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national governments, hold them back from growing to their potential and being job creators of substance Further, many MSMEs struggle to secure the necessary funds to start, operate, or expand their business due to a variety of reasons including lack of collateral or credit history, high interest rates, complex documentation requirements, and long processing times, etc. (emphasis supplied). 9. It is in the above-referenced context that we need to comprehend, interpret and construct the remedies contemplated under the Act. 10. Interpretation of Statutory Remedies by Constitutional Courts: When a statutory remedy falls for consideration, it is the duty of the Constitutional Court to adopt an interpretation which would not only reduce the hiatus between a right and a remedy, but also to ensure that the remedy is effective. If rights are recognition of a claim, remedies are their actualization. While the rights regime receives broad recognition under our constitutional framework, it is imperative that remedies must keep pace and be strengthened. One of the core functions of the higher judiciary is to bridge the gap between rights and remedies, and this would immediately give rise to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below for ready reference. 2. Definitions- In this Act, unless the context otherwise requires, - (a) Advisory Committee means the committee constituted by the Central Government under sub-section (2) of section 7. (b) (c) Board means the National Board for Micro, Small and Medium Enterprises established under Section 3; (e) Enterprise means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951) or engaged in providing or rendering of any service or services; 7. Classification of enterprises-(1) Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve Bank. 17. Recovery of amount due.- For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16. 18. Reference to Micro and Small Enterprises Facilitation Council- (1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council. (2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act. (3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o answer is whether the reference to the Facilitation Council under Section 18 of the Act is impermissible if the Enterprise is not registered by filing a memorandum under Section 8 of the Act before the contract is executed. This issue was not formulated, discussed and decided in any other judgment of this Court, including the two substantive judgments under the Act, i.e. Silpi Industries (supra) or Mahakali Foods (supra). In these two judgements, it is worth mentioning, such an issue was neither formulated, nor discussed. We will explain this in detail while discussing the facts and the ratios of these judgements. Apart from the submission of the appellant that the issue arising for our consideration is covered by the decision in Silpi Industries (supra), as approved in Mahakali Foods (supra), on our specific enquiry as to under which provision of the Act an Enterprise, which has not filed a memorandum under Section 8 would be barred from invoking remedies under Section 18 of the Act, Mr. Gopal Sankaranarayanan made the following submission. 13. According to him, though Section 18 provides that any party to a dispute may make a reference to the Facilitation Council, the said disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only to a supplier , or even a buyer, which expression is also defined, it would as well have used that or those very expressions. The Court cannot substitute the expression any party with supplier and change the text and, consequently, the scope and ambit of Section 18 altogether. 14.2 The context: Mention of Section 17 in Section 18 is only to provide context for a reference of dispute. The contextual relevance of locating Section 17 in Section 18 is only to provide the purpose of reference, not to confine the remedy to a registered Enterprise. This is to clarify that the reference shall be to adjudicate the dispute arising out of a liability of the buyer which is declared under Sections 15 and 16. 14.3 The purpose and object of Section 18: Apart from the text and context in which Section 18 of the Act employs the expression any party to the dispute , it is also to be seen that the section is provisioning a remedy for resolution of disputes. This remedy is provided by the statute, not by an agreement between the parties. It is therefore, necessary to keep it unrestricted and open-ended, enabling any party to a dispute to access the remedy. When statutory provision incorporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee, whose opinion we will refer to in the next Section. 14.5 Filing of memorandum under Section 8 is discretionary: We will now examine Section 8 of the Act relied on by the appellants to contend that filing of a memorandum by micro, small and medium enterprises is mandatory. Section 8 is extracted herein for ready reference: 8. Memorandum of micro, small and medium enterprises. (1) Any person who intends to establish, (a) a micro or small enterprise, may, at his discretion, or (b) a medium enterprise engaged in providing or rendering of services may, at his discretion; or (c) a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3): Provided that any person who, before the commencement of this Act, established (a) a small scale industry and obtained a registration certificate, may, at his discretion; and (b) an industry en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that medium enterprises engaged in manufacture or production of goods, shall file a memorandum with such authority as may be specified, and this is reflected in the proviso (b) to Section 8(1). At this stage, it is relevant to note that the definition of supplier under Section 2(n) is confined only to micro or small enterprise and does not encompass a medium enterprise. 14.6 There is a reason for this. The report of the Expert Committee on Micro, Small and Medium Enterprises clarifies the position that filing of memorandum by these enterprises is never mandatory. The relevant portion is as under Report of the Expert Committee on Micro, Small and Medium Enterprises (June, 2019) : 4.5 Formalization of MSMEs As per 73rd round of National Sample Survey (NSS), there are 63.39 million MSMEs in the country. However, a large number of MSEs exist in the informal sector and are not registered with any statutory authority. Reasons for lack of registration are many and varied. For nano/household type of enterprises, in their view, not obtaining registration is an escape from official machinery, paperwork, costs and rent seeking. For them, it is perhaps the art of not being governed . Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.5.1 also recognises the policy of lack of formalisation and it is expected that over a period of time filing of memorandum could be an intrinsic part of development of MSME itself. The above referred committee report as well as other documents very clearly establish that at no point of time filing of registration of MSME was ever considered to be precondition for availing the dispute resolution remedy under Section 18. 14.8 We have noted three clear features in the statutory regime. To start with, Section 18 does not use the expression supplier, instead employs the phrase, any party to a dispute, may . We have also noted that the definition of the expression supplier is not confined to a micro or a small enterprise which has filed a memorandum under Section 8(1) but also includes companies or other entities engaged in selling goods or rendering services by an enterprise. Thirdly, Section 8 grants a discretion to a micro or a small enterprise in filing a memorandum with the authority. 14.9 Further, it is noteworthy that a micro [section 2(h)], small [section 2(m)] or medium enterprises [section 2(g)], formation and existence is simply on the basis of their investment as provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal before this Court in Silpi Industries (supra). Before considering the appeals, the following two issues were framed. (i) Whether the provisions of the Limitation Act, 1963 is applicable to arbitration proceedings initiated under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006? (ii) Whether, counterclaim is maintainable in such arbitration proceedings? 17.1 On the first issue, this Court held that the Limitation Act applies. The relevant portion of the order is as under; 27 Thus, we are of the view that no further elaboration is necessary on this issue and we hold that the provisions of the Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. We make it clear that as the judgment of the High Court is an order of remand, we need not enter into the controversy whether the claims/counterclaims are within time or not. We keep it open to the primary authority to go into such issues and record its own findings on merits. 17.2 On the second issue also, this Court held that the counterclaim is maintainable. The relevant portion is as under: 40. For the aforesaid reasons and on a harmonious construction of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under the MSMED Act. 43. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in Shanti Conductors Shanti Conductors (supra) has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of the appellant as the unit under the MSMED Act, 2006. By taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under the MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which the appellant entered into contract with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Micro and Small Enterprises Facilitation Council under sub-section (1) of Section 18 of the said Act, if an independent arbitration agreement existed between the parties as contemplated in Section 7 of the Arbitration Act, 1996? (iii) Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the Council itself had conducted the conciliation proceedings under sub-section (2) of Section 18 of the MSMED Act, 2006 in view of the bar contained in Section 80 of the Arbitration Act, 1996? 20. It is evident from the above that the substantial question for consideration that arose for consideration in Mahakali Foods (supra) was whether the MSME Act overrides the Arbitration and Conciliation Act, 1996, and such other incidental questions. There was no issue whatsoever, as has arisen in our case, that is, about the right or rather a disability to seek a reference under Section 18, if the enterprise has not filed a memorandum. Answering the issues that have arisen for consideration, the Court returned the findings in paragraph 52.1 to 52.5 which are as follows: 52. The upshot of the above is that: 52.1. Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, very pertinent observations made by this Court in Silpi Industries case 42. In our view, to seek the benefit of provisions under the MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act. 43. While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in Shanti Conductors (P) Ltd. v. Assam SEB [Shanti Conductors (P) Ltd. v. Assam SEB, (2019) 19 SCC 529 : (2020) 4 SCC (Civ) 409] has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said ratio also, the appellant is not entitled to seek the benefit of the Act. By taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot. The relevant portion of the judgement is as under: - 77. The issues raised and the submissions made by the learned counsel appearing for the appellant with regard to the overriding effect of the MSMED Act, 2006 over the Arbitration Act, 1996, jurisdiction of Facilitation Council, the parties autonomy to enter into an agreement qua the statutory provisions, the issue of casus omissus, etc. have been discussed and decided hereinabove which need not be reiterated or repeated. Accordingly, it is held that the reference made to the Facilitation Council would be maintainable in spite of an independent arbitration agreement existing between the parties to whom the MSMED Act, 2006 is applicable, and such Council would be entitled to proceed under sub-section (2) of Section 18 of the MSMED Act, 2006 as also to act as an arbitrator or to refer the disputes to the institution or centre as contemplated under Section 18(3) of the MSMED Act, 2006. As held earlier, such Facilitation Council/Institute/Centre acting as an Arbitral Tribunal would have the jurisdiction to rule over on its own jurisdiction as per Section 16 of the Arbitration Act, 1996. In that view of the matter, the present appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the ratio decidendi. This is the rule of subsilentio, in the technical sense when a particular point of law was not consciously determined . 28. In this context, it is also important to note that, as an institution, our Supreme Court performs the twin functions of decision-making and precedent-making. A substantial portion of our jurisdiction under Article 136 is reflective of regular appellate disposition of decision making. Every judgment or order made by this Court in disposing of these appeals is not intended to be a binding precedent under Article 141. Though the arrival of a dispute for this Court s consideration, either for decision-making or precedent-making is at the same tarmac, every judgment or order which departs from this Court lands at the doorstep of the High Courts and the subordinate courts as a binding precedent. We are aware of the difficulties that High Courts and the subordinate courts face in determining whether the judgment is in the process of decision-making or precedent-making, particularly when we have also declared that even an obiter of this Court must be treated as a binding precedent for the High Courts and the courts below. In the process of de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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