10 July 2023 4:00 AM GMT
The High Court of Delhi has held that the MSEF Council cannot entertain independent claims/reference filed at the instance of the buyer under the MSMED Act. The bench of Justice Prathiba M. Singh held that MSMED Act does not contemplate a scheme for the buyer approaching the facilitation council under Section 18 of the Act for recovering any monies from the seller. It is only...
The High Court of Delhi has held that the MSEF Council cannot entertain independent claims/reference filed at the instance of the buyer under the MSMED Act.
The bench of Justice Prathiba M. Singh held that MSMED Act does not contemplate a scheme for the buyer approaching the facilitation council under Section 18 of the Act for recovering any monies from the seller. It is only the seller who can independently approach the facilitation council for adjudication upon its claims, but the buyer would have the right to make counter-claims, however, it cannot approach the facilitation council on its own.
The parties entered into an agreement dated 17.10.2019. Under the contract, the petitioner was to supply goods and services including labor, material tools etc., as also engineers and supervisors for monitoring services to the respondent.
A dispute arose between the parties regarding the payments under the agreements, accordingly, the respondent issued a legal notice to the petitioner. Thereafter, the respondent enchased the bank guarantee issued by the petitioner. The respondent also terminated the agreement citing non-performance by the petitioner.
Thereafter, the respondent preferred a claim before the MSFE Council under Section 18 of the MSMED Act, 2006. Consequently, the Council vide its order dated 14.09.2021 advised the petitioner to pay to the respondent a sum of Rs. 9,59,66,352/-. Aggrieved by the order of the tribunal, the petitioner approached the High Court in a writ petition challenging the order as well as the jurisdiction of the tribunal.
Contention of the Parties
The petitioner challenged the order of the Council on the following grounds:
The respondent countered the above submission on the following grounds:
Analysis by the Court
The Court referred to the Statement of Object and Reasons (SOAR) of the MSMED Act, 2006 and observed that it brought into effect to support small-scale industries, engaged in the manufacturing and extending the said support in a comprehensive manner to the Services sector. It further observed that chapter V of Act is based on the provisions of the Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 which was meant to create a statutory liability upon the buyers to make payments to the supplier.
The Court held that the under Section 18 any party to a dispute can make a reference to the MSEFC in respect of any amount due under Section 17. Section 17 in turn refers to Section 16 and Section 16 in turn refers to Section 15. Thus, Sections 15 to 18 of the MSMED Act, 2006 are inter-linked with each other and are also linked to the title of the chapter i.e., Chapter V: Delayed Payments to Micro and Small Enterprises. Thus, the entire Chapter V applies only in respect of delayed payments to Micro and Small Enterprises. Chapter V excludes Medium Enterprises under Section 2(g) of the Act.
The Court held that Section 17 of the Act sufficiently addresses the situation and a plain reading of the statute would reveal that the Act does not deal with a situation where a Buyer raises claims against the Supplier and makes it categorically applicable only in respect of claims recoverable by Suppliers, who are registered under the Act as Micro or Small Enterprises, therefore, a buyer cannot maintain an independent claim against the supplier under the MSMED Act.
The Court held that the amount due under Section 17 can only be an amount liable to be paid by the Buyer to the Supplier and not the other way round. Thus, it is clarified that the language in Section 18 i.e., “any party to a dispute” cannot be extended to a claim by a Buyer against the supplier as the same is qualified as being only in respect of the amount due under Section 17.
Accordingly, the Court set aside the order of the tribunal.
Case Title: Uniseven Engineering and Infrastructure Pvt. Ltd v. MSEF Council District (South) and Anr.
Citation: 2023 LiveLaw (Del) 569
Counsel for the Petitioner: Mr. Anirudh Bakhru, Mr. Ayush Puri, Mr. Umang Tyagi, Mr. Kanav Madnani, Mr. Vijay Laxmi Rathi & Mr. Pragya Choudhary, Advocates.
Counsel for the Respondent: Ms. Arushi Gupta on behalf of Mr. Jawahar Raja, ASC, GNCTD for R-1.) Dr Amit George & Mr Sahil Garg, Advocate for R-2
Click Here To Read/Download Order