Party Who Was Not 'Supplier' On The Date Of Entering Into Contract Cannot Seek Any Benefit As Supplier Under MSMED Act : Supreme Court

The Supreme Court observed that a party who was not 'supplier' on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006

If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration, the bench of CJI UU Lalit and Justice Bela M. Trivedi observed.

The bench was considering a batch of appeals which raised issues regarding interplay between the MSMED Act and Arbitration and Conciliation Act? The report about the said aspect can be read here.

As per Section 2(n) of the MSMED Act, "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in subsection (1) of section 8, and includes, — (i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956); (ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956); (iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprise.

One of the contentions raised in this case was if the party Supplier was not the "supplier" within the meaning of Section 2(n) of the MSMED Act, 2006 on the date of the contract entered into between the parties, it could not have made reference of dispute to Micro and Small Enterprises Facilitation Council under Section 18(1) of the MSMED Act, 2006. In such cases, it was contended that the Council would not have the jurisdiction to decide the disputes as an arbitraton.

The bench, while addressing this contention, referred to Silpi Industries etc. vs. Kerala State Road Transport Corporation and Anr 2021 SCC Online SC 439 and observed:

"It is held that a party who was not the "supplier" as per Section 2 (n) of the MSMED Act, 2006 on the date of entering into the contract, could not seek any benefit as a supplier under the MSMED Act, 2006. A party cannot become a micro or small enterprise or a supplier to claim the benefit under the MSMED Act, 2006 by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods or rendering services. If any registration, is obtained subsequently, the same would have the effect prospectively and would apply for the supply of goods and rendering services subsequent to the registration. The same cannot operate retrospectively."

The bench clarified that, since this is a jurisdictional issue, it could also be decided by the Facilitation Council/Institute/Centre acting as an arbitral tribunal under the MSMED Act, 2006 if raised by a party.

Case details

Gujarat State Civil Supplies Corporation vs Mahakali Foods Pvt. Ltd. | 2022 LiveLaw (SC) 893 | SLP (C) No. 12884/2020 | 31 October 2022 | CJI UU Lalit and Justice Bela M Trivedi

Headnotes

Micro, Small and Medium Enterprises Development Act, 2006 ; Section 17, 18 - Arbitration and Conciliation Act, 1996 ; Section 80 - No party to a dispute with regard to any amount due under Section 17 of the MSMED Act, 2006 would be precluded from making a reference to the Micro and Small Enterprises Facilitation Council, though an independent arbitration agreement exists between the parties - Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996 - The Facilitation Council, which had initiated the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006 would be entitled to act as an arbitrator despite the bar contained in Section 80 of the Arbitration Act -  Such proceedings would be governed by the Arbitration Act, 1996 -The Facilitation Council/institute/centre acting as an arbitral tribunal would be competent to rule on its own jurisdiction as also the other issues. (Para 34)

Micro, Small and Medium Enterprises Development Act, 2006 ; Section 2(n) - A party who was not the 'supplier' as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into contract cannot seek any benefit as the 'supplier' under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services subsequent to the registration. (Para 34)

Legal Maxims - "Leges posteriores priores contrarias abrogant" (the later laws shall abrogate earlier contrary laws) - "generalia specialibus non derogant" (General laws do not prevail over Special laws). When there is apparent conflict between two statutes, the provisions of a general statute must yield to those of a special one. (Para 17,18)

Interpretation of Statutes - Meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just and expedient - While interpretating a statute, if two interpretations are possible, the one which enhances the object of the Act should be preferred than the one which would frustrate the object of the Act. (Para 27)

Interpretation of Statutes - Legal Fiction - Legal fiction presupposes the existence of the State of facts which may not exist and then works out the consequences which flow from that state of facts. (Para 26)

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