The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) succeeded the repealed ‘The Interest on Delayed Payments To Small Scale And Ancillary Industrial Undertakings Act, 1993’. One of the objects of the legislation is also to provide a single legal framework concerning the entire small and medium enterprises sector and to address their concerns. Section 18 of Chapter V of the Act provides mechanism of resolution of dispute between parties. The Section provides that any party to the dispute may make a reference to Micro and Small Enterprises Facilitation Council. The Section mandates a twofold process for resolution of dispute:
i. Conciliation before Micro and Small Enterprises Facilitation Council and if conciliation is not successful and stands terminated without any settlement between the parties,the Council shall either itself take up the dispute for arbitration or;
ii. refer it to any institution or centre providing alternate dispute resolution services for arbitration and the provisions of the Arbitration and Conciliation Act, 1996.
The term used in Section 18 is “any party”, however the Section needs to be read with Section 15, 16 and 17 wherein the terms used are buyer and supplier. Section 15 imposes liability on the buyer to make payment to the supplier within a stipulated time period. Section 16 of the Act states that if the buyer fails to pay the amount due as specified under Section 15 of the Act, the buyer would be liable to pay compound interest with monthly rests to the supplier at the rate equivalent to three times the bank rate as notified by the Reserve Bank of India. Section 17 further imposes liability on buyer to pay amount with interest as provided under Section 16. Supplier is defined under Section 2(n) as:
“supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8 and includes (i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 ((iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises.
The definition of supplier under the Act is an exhaustive definition and Delhi High Court held that filing of memorandum of entrepreneurship is mandatory only for micro or small enterprise and National Small Industries Corporation and a company, co-operative society, trust or a body engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises can be termed as supplier even if they have not filed memorandum under Section 8 of the Act.
The courts were confronted with another ambiguity when dispute arose as to whether the enterprise needs to be registered as supplier on the day of entering into contract or registration as a supplier on the date of making reference under Section 18 would be sufficient to make the enterprise eligible to avail benefits of Chapter V of the Act. Various small or medium enterprises filed the memorandum of entrepreneurship after they entered into contract but the date of commencement of business mentioned in the memorandum is a date previous to the date of enterprise entering into the contract. Whether such small/medium enterprises will be eligible to invoke provisions of chapter V of the Act?
In a 2019 Judgment of Bombay High Court in Scigen Biopharma Pvt. Ltd. versus Jagtap Horticulture Pvt. Ltd the Bombay High Court relying on M/s Faridabad Metal Udyog Pvt. Ltd. and Others versus Anurag Deepak and M/s Frick India Ltd. versus Madhya Pradesh Micro And Small Micro And Small Enterprises Facilitation Council & Ors held that to invoke the provisions of chapter V of the MSMED Act the enterprise must have filed Entrepreneur memorandum on the day of entering into contract, subsequent filing of memorandum under Section 8 does not confer the status of small enterprise to the enterprises. It becomes necessary to learn here that the abovementioned judgment of Single bench of Madhya Pradesh High Court in M/s Frick India Ltd. versus Madhya Pradesh Micro And Small Micro And Small Enterprises Facilitation Council & ors was set aside in 2016 by the division bench of same High Court in M/s Air Perfection, Jabalpur versus M.P. Micro and Small Enterprize Facilitation Council, Bhopal & Ors.
In recent judgment of Godwin Construction Pvt. Ltd. and Ors versus Tulip Contractors and Ors., 2020, the Delhi High Court relying on GE T & D India Limited versus Reliable Engineering Projects and Marketing, The Chief General Manager (Contracts), M/s. Nevyeli Lignite Corporation Ltd. versus Driplex Water Engineering Ltd. & Anr. and Ramky Infrastructure Pvt. Ltd. versus Micro and Small Enterprises Facilitation Council and Ors. held that the provisions of Chapter V of MSMED Act is applicable to those enterprises who are registered as supplier on the date of making reference to the Arbitral Tribunal. This means that if an enterprise has filed the memorandum after the day of entering into contract but before the day of entering into reference under Section 18, such enterprises shall be eligible to invoke Chapter V of the Act.
Similarly the Andhra Pradesh High Court in Indur District Cooperative Marketing Society Ltd. versus Microplex (India), Hyderabad, 2015 held that since Section 8 of the Act itself gives discretion to the micro/small enterprises to file the memorandum, such registration is not mandatory. In view of the object of the Act, it held that the requirement of filing memorandum is only qualifying in nature and does not limit the scope of the term ‘supplier’. Therefore, the registration under Section 8(1) is not a pre-requisite to fall under the definition of ‘supplier’.
One aspect that can be inferred from the decisions above is that to become eligible to invoke provisions of Chapter V of the Act the enterprise needs to be registered as small/medium enterprise on the day of entering into contract and such enterprises even if they submit entrepreneur memorandum after the date of entering into contract and before entering into reference under Section 18, becomes eligible to reap out benefits of Chapter V of the Act. However the judgments are silent on any explicit observation in this regard. A judgment from Supreme Court can settle the disputed position of law as being interpreted differently by different High Courts. This difference of opinion probably makes the said position, a classic case of interference by the Supreme Court to decide that when there is a difference of opinion amongst different High Courts on a central law the ultimate authority to render a clear and final decision vests with Hon’ble Apex Court of India.
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