Can Unregistered MSMEs Avail Dispute Settlement Under S.18 MSMED Act? Supreme Court Refers To Larger Bench

The Supreme Court today (Jan. 10) observed that for invoking the payment dispute resolution mechanism under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), it is not mandatory for the MSMEs to have prior registration under Section 8 of MSMED Act i.e., filing of an Entrepreneur's Memorandum.

Rejecting the argument that only registered enterprises at the time of contract formation are eligible to invoke payment dispute resolution mechanism, the Court observed that even unregistered enterprises at the time of contract execution can avail of the statutory remedies under Section 18.

The bench comprising Justices PS Narasimha and Pankaj Mithal was dealing with the issue of whether an MSME can invoke the dispute resolution mechanism under Section 18 of the MSMED Act without prior registration under Section 8 before entering into the contract.

Section 8 of the MSMED Act requires registration of the MSMEs for availing statutory benefits and protection under the statute. Section 18 provides a forum for the MSME by making reference to the Micro and Small Enterprises Facilitation Council (MSEFC) for conciliation and arbitration to resolve their payment-related dispute with the buyer.

The Court observed that the language of Section 18, "any party to a dispute," was deliberately broad and did not restrict access to registered suppliers only. It means, that Section 18 does not limit dispute resolution access solely to registered entities.

In essence, the Court said that in the absence of Section 8 registration doesn't bar the MSMEs to avail statutory benefits under Section 18.

“Apart from the text and context in which Section 18 of the Act employs the expression “any party to the dispute”, it is also to be seen that the section is provisioning a remedy for resolution of disputes. This remedy is provided by the statute, not by an agreement between the parties. It is therefore, necessary to keep it unrestricted and open-ended, enabling any party to a dispute to access the remedy. When statutory provision incorporation remedies for resolution of disputes fall for consideration, constitutional courts must interpret such remedies in a manner that would effectuate access to justice.”, the Court observed.

The Court distinguished the present case from earlier cases of Silpi Industries v. Kerala State Road Transport Corporation (2021) and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023), noting that both the decisions dealt with related but distinct legal questions.

In both the case of Silpi Industries and Mahakali Foods, the Court held that registration must precede the contract's execution or supply of goods to avail statutory remedies. Both the precedents leaned on registration as a mandatory procedural requirement for MSMEs to gain statutory benefits.

The Court noted that although both Silpi Industries and Mahakali Foods didn't address the issue at hand, to have an authoritative pronouncement on the issue, it referred the matter to the larger bench.

“We have examined the text, context, and purpose of the Act to arrive at the decision that Section 18 is not restrictive and is a remedy for the resolution of disputes, and as such, it is kept open-ended to enable 'any party' to refer the dispute to seek redressal... we rejected the submission that 'any party to a dispute' is confined to a 'supplier' who has filed a memorandum under Section 8 of the Act. We have also explained that the issue(s) that have arisen in the decisions of this Court in Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited were very different from the issue that has arisen for our consideration. However, for clarity and legal certainty, we have directed the appeal be placed before the Hon'ble Chief Justice of India for referring the matter to a bench of three Judges for an authoritative pronouncement.”, the Court observed.

“The Registry is directed to place the appeal paperbooks along with our detailed judgment before the Hon'ble Chief Justice of India for constitution of an appropriate Bench.”, the court added.

Appearance:

For Appellant(s) Mr. Gopal Sankaranarayanan, Sr. Adv. Mr. Nagarkatti Kartik Uday, AOR Ms. Shivani Vij, Adv.

For Respondent(s) Ms. Madhumita Bhattacharjee, AOR Ms. Debarati Sadhu, Adv. Ms. Srija Choudhury, Adv. Mr. Anant, Adv. Mr. Sudarshan Rajan, Adv. Mr. Satyam Dwivedi, Adv. Mr. Mahesh Kumar, Adv. Mr. Roshan Santhalia, AOR

Case Title: NBCC (INDIA) LTD. VERSUS THE STATE OF WEST BENGAL & ORS.

Citation : 2025 LiveLaw (SC) 46

Click here to read/download the judgment