MSMED Act | Service Supplier Registered During Ongoing Contract Can Avail Benefits For Services Provided After Registration: Delhi High Court

Brief Facts:

A Notice Inviting Tender (NIT) was released by the Petitioner for the construction of a 200 bedded hospital in Ambedkar Nagar, New Delhi. Subsequently, a Letter of Award was issued to Pratibha Industries Limited, with whom an agreement was made for the hospital's construction. Pratibha Industries subcontracted all Electrical works to Respondent No.2, approved by the Petitioner. The Respondent No.2 filed a complaint against the Petitioner and Pratibha Industries alleging non-payment of dues and notice was issued by the MSME Facilitation Council. Upon termination of the conciliation proceedings, the matter was referred to the Delhi International Arbitration Centre. Feeling aggrieved, the Petitioner approached the Delhi High Court (“High Court”) and filed a writ petition.

The Petitioner argued that Respondent No.2 registered as an MSME under the MSMED Act after the subcontract date, hence, not entitled to MSMED Act benefits. It claimed no privity of contract with Respondent No. Furthermore, it argued that since Respondent No.2 registered post the subcontract award, the dispute couldn't be entertained by the MSMED Council.

The Respondent No.2, asserted that Respondent No.2 was registered under the Udyog Aadhaar Scheme in 2016. It pointed to a Ministry of Micro, Small and Medium Enterprises Notification dated 26.06.2020, requiring re-registration on the Udyam Registration Portal, which Respondent No.2 complied with. It argued that Respondent No.2 was an MSME since 2016, emphasizing the validity of their registration.

Observations by the High Court:

The question before the High Court was whether it should intervene under Article 226 of the Constitution of India or allow the Arbitrator to proceed with determining whether the petitioner is entitled to benefits under the MSMED Act.

The High Court referred to the Supreme Court in Gujarat State Civil Supplies Corporation v. Mahakali Foods Limited 2023 (6) SCC 401, and held that a supplier of services who has got himself registered during the pendency of the ongoing contract would be entitled to take the benefit of the MSMED Act for the services supplied post the date of registration. It held that it is always open to the arbitrator to decide this issue even as a preliminary issue.

Consequently, in light of the lack of clarity regarding the contract's nature and the registration date of the Respondent as an MSME, the High Court refrained from making a definitive ruling under Article 226. Instead, it directed the DIAC to proceed with appointing an Arbitrator.

Case Title: Nbcc India Ltd Vs Micro Small And Medium Enterprises Facilitation Council & Anr.

Citation: 2024 LiveLaw (Del) 379

Case Number: W.P.(C) 15874/2023 & CM APPL. 63853/2023

Advocate for the Petitioner: Mr. Rajnish Kumar Jha, Advocate

Advocate for the Respondent: Mr. Avishkar Singhvi, ASC with Mr. Naved Ahmed, Mr. Deokinandan Sharma and Mr. Vivek Kumar Singh, Advocates for R-1. Mr. Samrat Nigam and Mr. Mayank Banniyal, Advocates for R-2.

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