MSMED Act | Facilitation Council Does Not Have Jurisdiction Over Any Dispute Regarding Unregistered Services Under Act: Allahabad High Court

The Allahabad High Court has held that the Facilitation Council under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) does not have jurisdiction over any dispute regarding unregistered services under the Act.

The bench comprising of Justice Mahesh Chandra Tripathi and Justice Prashant Kumar held

“Once the services provided by the petitioner is not registered under the MSMED Act, Facilitation Council established under the Act, will be divested of jurisdiction to entertain any such dispute arising out of any service not registered under MSMED Act. In such a situation, the MSMED Act will not be applicable as per Section 18 of the Act.”

Factual Background

Petitioner runs a cold storage at Shivrajpur where the farmers of the region store their potatoes for a charge/rent. Petitioner also provides financial assistance to farmers, who store their crops in its storage facility, for fresh sowing.

Respondent-farmers stored their corps at the storage facility and took a loan of Rs.4,09,022/- from the petitioner. Since the respondent-farmers failed to pay their loans, petitioner filed a claim petition before the U.P. Micro, Small and Medium Enterprises Facilitation Council, Kanpur Nagar under the MSMED Act, 2006 for recovery of the loan amount along with the interest.

Respondent-farmers did not appear in the conciliation proceedings, and the reference could not be decided. The matter was referred to arbitration. Respondent-farmers were given 15 days to file reply. While deciding the claim of the petitioner, two issues were framed by the Council for adjudication. The first issue was whether the petitioner was entitled to the principal amount, and the second was regarding the entitlement to the interest.

The Council held that according to its Udyog Aadhar Registration Certificate, claimant-petitioner was only runny warehousing and storage facilities. There was no document to prove the loan provided by the petitioner to the respondent-farmers. It was further held that under the MSMED Act, the Council does not have any power to deal with the recovery of loan/financial services. Accordingly, the Council directed the petitioner to avail alternate remedy.

Consequently, the issue of interest was also decided against the petitioner as no principal amount was shown to be due.

Counsel for petitioner argued that Section 22 of the U.P. Regulation of Cold Storage Act, 1976 gives the petitioner-company right to offer service of finance to individuals, who are doing business/ work (agricultural produce). It was argued that the cold storage of the petitioner comes under the MSMED Act and the recovery of petitioner's services of finance is permissible in view of Section 24 (overriding effect) of the MSMED Act. Further, it was argued that since the petitioner was registered under the MSMED Act, the Council had the jurisdiction to deal with the case.

Counsel for the respondent contended that under the Udyog Aadhar Registration Certificate, the petitioner is only registered for warehousing and storage services and not for providing any financial services. Accordingly, the Council had no power to adjudicate on such matters under the MSMED Act.

High Court Verdict

The Court observed that Section 8 of the MSMED Act stipulates that any person establishing a of micro, small and medium enterprises as provided in the Section needs to file a memorandum with such authority as may be specified by the State Government or the Central government as the case may be.

Relying on the codification system established by the National Industrial Classification Data 2008, the Court held that neither Code 5210 given to warehousing and storage nor Code 52101 provided to warehousing of refrigerated (cold storage) include any financial activities. The Court held that financial services are covered by a separate code “64” under Section 'K'.

Further, the Court held that

“On the basis of Udyog Aadhaar Memorandum Certificate, an enterprise becomes amenable to frame work of MSMED Act. If the registration of an enterprise does not fall in a particular category, the provisions of the MSMED Act will not be applicable for that category.”

Since the petitioner was only registered for warehousing and cold storage and not for financial services, the Court held that the petitioner was not entitled to any relief under the MSMED Act.

Lastly, the Court relied on Silpi Industries Etc. v. Kerala State Road Transport Corporation & Anr., wherein the Apex Court had held that “any services provided prior to registration of MSMED Act will not get the benefit of MSMED Act.”

Accordingly, the Court held that the petitioner having applied for modification in registration after advancing the alleged loan would not be amenable to the jurisdiction of the Council under the MSMED Act.

While dismissing the writ petition, the Court held

“Once the alleged financial services rendered by the petitioner was not registered at the time of disbursement of the loan under the MSMED Act, then certainly the Facilitation Council, which is established under the MSMED Act, will not be having jurisdiction to entertain any such dispute arising out of any service not registered under the MSMED Act.”

Case Title: M/S Neeraj Potato Presarvation And Food Products Pvt.Ltd. v. U.P. Micro Small And Medium Enterprises Faciliation Council And 2 Others 2024 LiveLaw (AB) 120 [WRIT - C No. - 35190 of 2023]

Citation: 2024 LiveLaw (AB) 120

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