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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 ..... ium 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 .................. 31 12. Re: Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. .......... 35 13. Conclusion and reference to larger Bench ..................................................... 42 1. Introduction: The old value of 'Small is beautiful' E.F. Schumacher, 'Small Is Beautiful: A Study of Economics as if People Mattered' (1973) "We need the freedom of lots and lots of small, autonomous units, and, at the same time, the orderliness of large-scale, possibly global, unity and co-ordination. When it comes to action, we obviously need small units, because action is a highly personal affair, and one cannot be in touch with more than a ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Corporation, granted four work orders between July 2015 to August 2016 to M/s Saket Infra Developers Private Limited, respondent No. 4 Hereinafter referred to as the 'Enterprise' for undertaking construction work at different places in West Bengal. Pursuant to the work orders, contracts were executed on 27.08.2015, 17.11.2015, 28.07.2016 and 20.08.2016. The Enterprise filed a memorandum under Section 8 of the Act on 19.11.2016 as a 'small enterprise'. Thereafter, on 15.09.2017, the appellant also executed a fifth contract in favour of the Enterprise. 2.1 Work is said to have commenced on various dates, supplies continued, and bills were rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls 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 unsuccessfully before the Division Bench of the High Court by the order impugned before us. The Division Bench also referred the decision of this Court in Kone Elevator India Private Limited v. State of Tamil Nadu ( 2014 ) 7 SCC 1 to hold that a works contract is an indivisible contract and also that the Act, being a special legislation, overrides other statutes. The Division Bench agreed with the finding of the Single Judge that all objections, including those relating to maintainability, can be raised and contested before the arbitrator. Thus, the appellant is in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered 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 is not applicable when the contract for supply was entered into between the parties prior to the enforcement of the Act i.e., 23-9-1992? 34.2. (2) Whether in the event it is found that the Act is applicable also with regard to contract entered prior to the 1993 Act in pursuance of which contract, supplies were made after the enforcement of the 1993 Act, the 1993 Act can be said to have retrospective operation?" 7.1 The repealed statute comprised of 11 provisions, of which Section 3 related to the liability of the buyer to make payment, Section 4 relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 payment under Section 3 being the supplier supplies any goods or renders services to the buyer, the liability of buyer cannot be denied on the ground that the agreement entered into between the parties for supply was prior to the 1993 Act. To hold that liability of buyer for payment shall arise only when agreement for supply was entered into subsequent to enforcement of the Act, it shall be adding words to Section 3 which is not permissible under the principles of statutory construction. 62. We, thus, are of the view that the judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGs' (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 sector itself has emphasised the need for a comprehensive central enactment to provide an appropriate framework for the sector to facilitate its growth and development, emergence of a large service sector assisting the small scale industry in the last two decades also warrants a composite view of the sector encompassing both industrial units and related service entities. The world over, the emphasis has now been shifted from industries to Enterprises." 8.2 The rights, incentives and remedies provisioned unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the legislative, executive and judicial obligations for their provision, implementation, and declaration, respectively. 10.1 The right to an effective judicial remedy is an integral part of access to justice. See, generally, Anita Kushwaha v. Pushap Sudan, (2016) 8 SCC 509 "...Four main facets that, in our opinion, constitute the essence of access to justice are: (i) the State must provide an effective adjudicatory mechanism; (ii) the mechanism so provided must be reasonably accessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged 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 called,-- (a) in the case of the enterprises 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), as-- (i) a micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees; (ii) a small enterprise, where the investment in plant and machinery is more than twenty-five l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act. (4) Notwithstanding anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 'dispute' must be "with regard to any amount due under Section 17". This requirement, he would submit, takes us to Section 17, which provides that, "for any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon under Section 16". Section 16 is the liability of the buyer to pay interest to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 incorporation remedies for resolution of disputes fall for consideration, constitutional courts must interpret such remedies in a manner that would effectuate access to justice. 14.4 The definition clause: We will now examine the sheet anchor of Mr. Gopal Sankaranarayanan's arguments that a supplier is defined under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted 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 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), having investment in plant and machinery of more than one crore rupees but not exceeding ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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". Registration offers them little by way of tangible benefits. There are other MSEs who, upon reaching a minimum size seek legitimacy and acknowledgement of their existence to seek benefits or credit for instance, but they too struggle. While U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in Section 7 relating to classification of an Enterprise. They subsist without any formal "recognition", "consent" or "registration". The Act uses the expression filing of a "memorandum". That is all. That too, at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 Section 18(3) of the 2006 Act and Section 7(1) and Section 23(2-A) of the 1996 Act, we are of the view that counterclaim is maintainable before the statutory authorities under the MSMED Act." 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the respondent. 44. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of the MSMED Act, 2006, by submitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween 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. Chapter V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996. 52.2 No party to a dispute with regard to any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, one cannot assume the legal status of being classified under the MSMED Act, 2006, as an enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised 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 appeal also deserves to be dismissed and is, accordingly, dismissed." 25. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision making, this Court takes care to indicate the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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