MSMED Act | Conciliation Mechanism Under Section 18 Shall Be Followed To Resolve Payment Dispute: Gauhati High Court Dismisses Writ Petition

Brief Facts:

The Petitioner filed writ petition in the Gauhati High Court and challenged intimation order issued by Respondent No. 1, the Micro and Small Enterprises Facilitation Council, instructing the Petitioner to settle outstanding payments to Respondent No. 2 within 15 days, failing which legal action would ensue. The Petitioner's contention rested on the assertion that Respondent No. 1's actions lacked procedural fairness, as no conciliation proceedings were conducted prior to issuing the impugned order. The genesis of the dispute lied in the purchase of non-woven geo-textile materials worth Rs.29,12,144 by the Petitioner from Respondent No. 2 in 2015, delivered to the Petitioner's provided address. The Petitioner argued that the demand for balance payment, as communicated through the intimation order, was unjustified without proper conciliation.

On the opposing front, the Respondent No. 2, contended that the writ petition was premature. It argued that out of the total due amount, the Petitioner only paid Rs.50,000, leaving a balance of Rs.28,62,144 unpaid. Consequently, Respondent No. 2 resorted to legal recourse by filing an application under Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006. It argued that Respondent No. 1, upon receiving the application and scrutinizing the documents, issued the impugned intimation order as a means to prompt the Petitioner to settle the outstanding dues.

Observations by the High Court:

The High Court noted that Section 15 places an obligation upon the buyer to make payment for goods supplied either on the agreed date or, in the absence of such agreement, before the appointed day. Additionally, Section 16 stipulates that failure to make payment as per Section 15 subjects the buyer to liability for compound interest to the supplier. Furthermore, Section 17 imposes the responsibility on the buyer to pay the due amount along with interest for goods supplied or services rendered by the supplier. Section 18 outlines the mechanism for referring disputes regarding the recovery of amounts due under Section 17 to the Micro and Small Enterprises Facilitation Council.

It held that upon referral of a dispute to the Council regarding the amount due under Section 17, the Council initiates conciliation proceedings itself or seeks assistance from an alternate dispute resolution institution or center. If conciliation proves unsuccessful, the Council either takes up the dispute for arbitration or refers it to an institution in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

In the present case, the Petitioner purchased non-woven geo-textile products from respondent No. 2, with a balance of Rs.28,62,144 remaining unpaid. Respondent No. 2 subsequently filed an application under Section 18(1) of the Act of 2006 with respondent No. 1 to recover the outstanding amount.

The High Court held that the Council, considering the Petitioner as the buyer and Respondent No. 2 as the supplier under the MSME Act, issued an intimation order to the petitioner on 29.07.2021, threatening registration of a case if the payment due was not settled within 15 days.

Subsequently, the Petitioner approached the High Court through the writ petition and obtained an interim order. However, the High Court held that the law mandates a specific mechanism under Section 18 for resolving disputes regarding payments. Instead of availing this statutory remedy, the Petitioner chose to approach the Court, bypassing the established legal procedure.

Considering the provisions of Section 18 and the Petitioner's failure to adhere to the prescribed mechanism for dispute resolution, this High Court found no justification for the continuance of the writ petition. Consequently, the writ petition was disposed of, with the directive that the Petitioner may avail the remedy provided under Section 18 or respond to the intimation notice dated 29.07.2021 within one month. Failure to do so empower the authorities to proceed in accordance with the law.

Case Title: M/S Trideep Changmai Vs Micro and Small Enterprises Facilitation Council And Anr

Case Number: Case No. : WP(C)/5029/2021

Case Citation: 2024 LiveLaw (Gau) 19

Advocate for the Petitioner: B Pathak

Advocate for the Respondent: G N Sahewalla (R-2)

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