A ‘Medium’ Enterprise Can Approach MSEF Council If It Was A ‘Micro Or Small’ Enterprise At The Relevant Time: Delhi High Court

The Delhi High Court has Court held that the relevant date under the MSMED Act is the date of agreement and additionally the date on which the goods and services were supplied, therefore, a ‘medium’ enterprise can maintain a claim before MSEFC if it was a either a micro or a small enterprise at the relevant time. The bench of Justice Prathiba M. Singh held that any subsequent upgradation of enterprise from ‘micro or small’ to ‘medium’ would not be a bar to the maintenance of its claim before the MSEFC, if it fulfilled the criteria at the relevant time. The Court reiterated that MSMED Act, 2006 is a beneficial legislation for Micro, Small and Medium Enterprises and ought to be construed in a manner that is beneficial to such enterprises. Facts The parties entered into an agreement dated 15.09.2017 by way of which the Respondent agreed to provide vacuum pumps and engineers for PMC of 400kv Transmission Line on a rental basis on the project site in the State of Jammu & Kashmir. At the time of the contract and also at the time when the services were rendered, the Respondent was registered a ‘micro’ enterprise. However, the status of the Respondent changed with effect from 12.06.2019 when it became a Medium Enterprises. A dispute arose between the parties. Accordingly, the Respondent filed a reference before the MSFE Council under Section 18 of the MSMED Act. The Council issued a notice to the Petitioner and the parties were referred to conciliation. However, the upon the failure of the conciliation proceedings, the Council vide an order dated 27.10,2021 referred the parties to arbitration before Delhi International Arbitration Centre (DIAC). Aggrieved by the order, the Petitioner challenged it under Article 226 of the Constitution. Contention of the Parties The petitioner challenged the impugned order on the following grounds: MSEFC’s power to make a reference is not a mechanical process. The MSEFC has to verify as to whether the reference qua the entity is competent under the MSMED Act, 2006 or not;The Supreme Court in its decision in Gujarat State Civil Supplies Corporation has categorically held that provisions of MSMED Act do not apply to a ‘Medium’ enterprise. The respondent is presently a medium enterprise, therefore, it in not entitled to invoke the provisions of MSMED Act. The respondent made the following submissions in favour of the impugned order: The respondent was registered as a micro enterprise as on 11.04.2017. On the date of agreement being entered into and even while the services were rendered, the respondent was a micro enterprise, thus, the provisions of the MSMED Act, 2006 would apply. That the MSEFC is a conciliatory body, which is established for the purposes of resolving the disputes in a quick and conciliatory environment. Its jurisdiction ought to be construed in a broad manner rather than a narrow manner.That in the judgement of Silpi Industries, the Hon’ble Supreme Court relying on the judgement of Shanti Conductors held that the date of supply of the services of goods is relevant date for the purpose of considering as to whether the MSMED Act, 2006 would apply or not. Analysis by the Court The Court that the respondent registered as a micro enterprise as on 11.04.2017 and on the date of agreement being entered into and even while the services were rendered, the respondent was a micro enterprise. The Court examined the issue of relevant date for the purpose of considering as to whether the MSMED Act, 2006 would apply or not. The Court held that in terms of the decision in Silpi Industries) passed by the Hon’ble Supreme Court, in order to avail of the benefits under the MSMED Act, 2006 the supplier should be registered under the provisions of the Act as on the date of entering of the agreement. Further, the Supreme Court in Gujarat Civil Supplies held that the date of supply of goods or rendering of service would also be relevant for the purpose of determining the application of the Act. Accordingly, the Court held that the respondent presently a ‘medium’ enterprise can maintain a claim before MSEFC as it was a micro enterprise at the time of agreement and also at the time of supply of services. It held that the subsequent change/upgradation in the status of the respondent would not deprive it of the benefit given under the act as it was a micro enterprise at the relevant time. Further, the Court referred to notification dated 18th October, 2022 issued by the Ministry of MSME wherein the Ministry has notified that if there is reclassification of any enterprise, the enterprise would continue to avail of the benefits of the category in which it existed before reclassification for a period of 3 years. The Court reiterated that MSMED Act, 2006 is a beneficial legislation for Micro, Small and Medium Enterprises and ought to be construed in a...

A ‘Medium’ Enterprise Can Approach MSEF Council If It Was A ‘Micro Or Small’ Enterprise At The Relevant Time: Delhi High Court

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