Citation Codes: 2024:DHC:894 ; 2023 SCC OnLine Del 809
Date of Judgement: 06 February 2024
Court: Delhi High Court
Judge: Justice Prateek Jalan
Facts of the case
The appellant initiated arbitral proceedings under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act), based on contracts dated 19 November 2013 and 3 March 2014 wherein several services were to be provided by the appellant to the respondent. The case of the appellant was that the respondent failed to release the performance bank guarantee and retention money as required under the contracts, even after the defect liability period.
The respondent by filing an application under Section 16 of Arbitration and Conciliation Act (A&C Act) challenged the proceedings under the MSME Act, contending that the appellant was registered under Section 8 of the MSME Act only on 3 February 2017, after the conclusion of the contracts. The arbitrator accepted the argument of respondent and dismissed the claims of the appellant.
Against the order of the arbitrator, appellant filled this present appeal under Section 37 of the A&C Act.
Issues involved in the case
Whether the benefits of the MSME Act can be extended to a registered MSME even if the registration was obtained after the supply of goods/services?
Whether the appellant, registered under the MSME Act after the conclusion of the contracts, was entitled to invoke arbitration under Section 18 of the MSME Act?
Arguments Advanced
The appellant contended that the MSME Act, being a beneficial legislation, should extend its benefits to registered MSMEs, even if the registration was obtained after the supply of goods/services. The appellant relied on various judicial precedents, including decisions of the Supreme Court and High Courts, supporting its interpretation of the MSME Act.
On the other hand, the respondent argued that the appellant was not entitled to invoke arbitration under the MSME Act as it was registered after the conclusion of the contracts. The respondent relied on judgments of the Supreme Court and High Courts which held that registration under the MSME Act must precede the entering into contracts to avail its benefits. The respondent argued that permitting retroactive benefits under the Act would not only go against its intended goals but also lead to confusion and the possibility of exploitation.
Judgment and Reasoning
The Court dismissed the appeal, upholding the decision of the learned arbitrator. The Court found no error in the arbitrator’s ruling that the appellant, having registered under the MSME Act only after the conclusion of the contracts, was not entitled to invoke arbitration under Section 18 of the said Act.
The Court relied on the judgments of the Supreme Court and High Courts, particularly the decision in Silpi Industries and Vaishno Enterprises. These judgments held that the benefits of the MSME Act cannot be claimed retrospectively by entities not registered under the Act at the time of entering into contracts. The Court rejected the appellant’s contention that the observations made in Vaishno Enterprises diluted the principles laid down in Silpi Industries, noting that both cases reaffirmed the same principle regarding the timing of registration under the MSME Act.
Regarding the High Court judgments cited by the appellant, the Court noted that most of them pre-dated Silpi Industries and Vaishno Enterprises. The Court also dismissed the relevance of the Supreme Court’s rejection of a Special Leave Petition against the judgment of the Madras High Court, stating that the order of dismissal did not provide substantive guidance on the interpretation of the MSME Act.
Author(s)
Vivek Yadav
Student at Dr. D.Y. Patil College of Law