MSME Act: Registration Not Mandatory for Dispute Resolution

Court: Supreme Court of India.

Case Name: NBCC (India) Ltd. v. State of West Bengal & Ors.

Citation: 2025 INSC 54. [PDF]

Introduction

The Supreme Court of India has delivered a significant judgment concerning the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act). The ruling clarifies a critical aspect of the Act, specifically regarding the necessity of registration for MSMEs to access dispute resolution mechanisms. This judgment emphasizes the crucial role of MSMEs in the Indian economy, recognizing their contribution to employment, GDP, and exports.

The court addressed the question of whether an MSME must be registered under Section 8 of the MSMED Act to invoke the dispute resolution process under Section 18. The core issue was whether the phrase “any party to a dispute” in Section 18 is restricted only to a “supplier” registered under Section 8. The court’s interpretation aimed to ensure that statutory remedies are effective and readily accessible, particularly for MSMEs.

The judgment also critically examines previous Supreme Court rulings in Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. The court clarified that those cases did not directly address the issue of mandatory registration for invoking Section 18. The matter has been referred to a larger three-judge bench for an authoritative pronouncement, highlighting the importance of legal certainty on this issue.

Case Summary

  1. Background: National Buildings Construction Corporation (NBCC) issued four work orders to M/s Saket Infra Developers Private Limited (the Enterprise) between July 2015 and August 2016. Contracts were executed accordingly. The Enterprise registered as a "small enterprise" under Section 8 of the MSMED Act on 19.11.2016. A fifth contract was executed on 11.10.2017.
  2. Dispute: Disputes arose between NBCC and the Enterprise concerning all five contracts. The Enterprise sought resolution by referring the matter to the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act on 28.03.2019. The Enterprise also filed a commercial suit in the Delhi High Court regarding the fifth contract, which remains pending.
  3. High Court Decision: A Single Judge of the Calcutta High Court dismissed NBCC's writ petition, stating that jurisdictional issues could be raised before the Arbitral Tribunal. This decision was upheld by the Division Bench of the High Court.
  4. Supreme Court Appeal: NBCC appealed to the Supreme Court, challenging the Facilitation Council's jurisdiction. NBCC argued that the Enterprise, having registered after the contracts were executed, could not seek remedy under Section 18.
  5. Supreme Court Ruling: The Supreme Court held that registration under Section 8 is not a mandatory precondition for an MSME to access the dispute resolution mechanism under Section 18. The court emphasized the literal interpretation of the phrase "any party to a dispute" in Section 18. It rejected the argument that only registered "suppliers" could invoke Section 18. The court referred the matter to a larger bench for an authoritative ruling.

Study Guide

  1. Purpose of the MSMED Act: The MSMED Act, 2006, aims to promote the development of MSMEs by providing a legal framework that supports their growth and includes a mechanism for dispute resolution. It creates rights and duties, establishing various boards and councils to support MSMEs.
  2. Significance of MSMEs: MSMEs are the backbone of the Indian economy, contributing significantly to employment (62%), GDP (30%), and exports (45%). They play a crucial role in rural development, women's employment, and inclusive growth.
  3. Core Legal Question: The central legal question is whether an MSME needs to be registered under Section 8 of the MSMED Act before it can refer a dispute to the Facilitation Council under Section 18. The court clarified that registration under Section 8 is not a mandatory prerequisite.
  4. Shanti Conductors Case: This case, concerning the repealed 1993 Act, established that liability arises from the date of supply of goods or services, not the date of contract. The court reinforced that the focus should be on the supply of goods or rendering of services, as the incident of liability, and not the date of the agreement. The judgment emphasizes the principle that liability under the repealed 1993 act arises based on the supply of goods or services, not the date of contract.
  5. Section 18 of the MSMED Act: Section 18 allows "any party to a dispute" to refer a matter to the Micro and Small Enterprises Facilitation Council. The court stressed that the legislature deliberately used the phrase "any party" to ensure that the dispute resolution mechanism is widely accessible.
  6. Interpretation of "Any Party": The court emphasized the literal and natural meaning of "any party to a dispute" in Section 18, stating that it was deliberately chosen by the legislature. It rejected the argument that it should be interpreted as only a "supplier" registered under Section 8.
  7. Definition of "Supplier": The definition of "supplier" in Section 2(n) includes micro and small enterprises that have filed a memorandum under Section 8, as well as other entities engaged in selling goods or services produced by MSMEs. This definition is broad and includes both registered and unregistered enterprises.
  8. Section 8 Registration: Section 8 allows micro and small enterprises the discretion to register by filing a memorandum with the designated authority. It is not mandatory for these enterprises. The court highlighted that enterprises subsist based on investment and without any formal recognition.
  9. Critique of Silpi Industries and Mahakali Foods: The court clarified that the judgments in Silpi Industries and Mahakali Foods did not directly address the issue of mandatory registration under Section 8 for accessing Section 18 remedies. The court determined that these prior decisions were based on specific factual situations and did not formulate the issue of registration or the interpretation of Section 18.
  10. Effective Remedies: The court emphasized the need for effective statutory remedies and highlighted that access to justice is a core facet of the Constitution. The court stated that remedies should be interpreted to promote access to justice, ensuring a forum for the redressal of grievances.

Rationale

  1. Literal Interpretation: The court stressed that the phrase "any party to a dispute" in Section 18 must be understood in its natural, ordinary sense. The court applied the "Golden Rule of Interpretation", stating that words in a statute should be understood in their natural, ordinary, and popular sense.
  2. Context of Section 17: The mention of Section 17 in Section 18 is to provide context for a dispute, not to limit the remedy to registered enterprises. It clarifies that the dispute must relate to the buyer’s liability under Sections 15 and 16, not to restrict remedies.
  3. Purpose of Section 18: Section 18 aims to provide an unrestricted remedy for dispute resolution, making it accessible to any party. The court emphasized that statutory remedies must be interpreted to promote access to justice.
  4. Definition of "Supplier": The definition of "supplier" under Section 2(n) is broad enough to include entities beyond just those who have filed a memorandum under Section 8. This is to include entities involved in selling goods produced by MSMEs.
  5. Discretionary Registration: Section 8 explicitly states that micro and small enterprises "may, at their discretion" file a memorandum, indicating that registration is not mandatory. This is in contrast to medium enterprises engaged in manufacturing which "shall file a memorandum".
  6. Prior Judgments: The court clarified that prior judgments in Silpi Industries and Mahakali Foods did not directly address the core issue of whether registration is a precondition for invoking Section 18. The court highlighted that the comments on registration in Silpi and Mahakali were not central to the issues being adjudicated in those cases.
  7. Access to Justice: The court highlighted the constitutional duty to ensure effective remedies for small enterprises, preventing any interpretation that would make access to justice more difficult. The court stated that constitutional courts must interpret remedies in a manner that promotes access to justice.
  8. Precedent Setting: The court explained that not every judgment is a binding precedent and that decisions without conscious consideration of an issue cannot be deemed binding. The court distinguished between its role in decision-making and precedent-making.

FAQ

Q.1. What is the main purpose of the MSMED Act, 2006?

Answer: The MSMED Act, 2006 aims to facilitate the promotion and development of micro, small, and medium enterprises (MSMEs) in India by creating a supportive legal and institutional framework for their growth. This includes establishing rights, duties, and a dispute resolution mechanism. The Act is intended to protect MSMEs and ensure timely payments for their supplies.

Q.2. What role does the Micro and Small Enterprises Facilitation Council (MSEFC) play under the MSMED Act?

Answer: The MSEFC plays a crucial role in dispute resolution, providing a platform for MSMEs to resolve payment disputes with buyers. Under Section 18, any party to a dispute can refer the matter to the MSEFC for arbitration. The Council can act as an arbitrator or refer the matter to other institutions for dispute resolution. It is intended as a quick and efficient way to ensure that MSMEs receive their dues.

Q.3. Can a dispute be referred to the MSEFC under Section 18 if the MSME was not registered under Section 8 before the contract was signed?

Answer: Yes. The Supreme Court clarified that Section 18 is not restrictive and allows "any party to a dispute" to approach the MSEFC for resolution. It explicitly rejected the argument that only a "supplier" who has registered under Section 8 before contract execution can seek this remedy. The ability to access a remedy should not be tied to the prior registration of the MSME.

Q.4. What is the significance of 'supply' in determining liability under the MSMED Act?

Answer: The liability of a buyer to pay under the MSMED Act is triggered by the 'supply of goods or rendering of services'. This means that even if a contract was signed before the enactment of the MSMED Act or before registration under Section 8, the buyer's liability arises if the supplies were made after the Act came into force or after the unit was registered. The focus is on the date of supply, not the date of the contract.

Q.5. Is registration under Section 8 of the MSMED Act mandatory?

Answer: Registration under Section 8 through the filing of a memorandum is not mandatory for micro and small enterprises. These enterprises “ may, at their discretion ,” file a memorandum, while medium enterprises engaged in the production or manufacture of goods, “ shall file a memorandum ”. This discretion clarifies that there is no mandatory pre-condition of registration for dispute resolution under Section 18.

Q.6. Who is considered a 'supplier' under the MSMED Act?

Answer: The definition of "supplier" under Section 2(n) is not limited to micro or small enterprises that have filed a memorandum under Section 8. It includes the National Small Industries Corporation, the Small Industries Development Corporation, and companies, co-operative societies, trusts, or bodies engaged in selling goods produced by MSMEs, or rendering services provided by such enterprises. The main idea is to ensure those delivering MSME products or services are given the protections in the act.

Q.7. How did the Supreme Court distinguish its previous rulings in Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd.?

Answer: The Supreme Court clarified that the rulings in Silpi Industries and Mahakali Foods did not specifically address the issue of whether prior registration under Section 8 is required to invoke Section 18. Those cases primarily dealt with the applicability of the Limitation Act, whether counterclaims were maintainable, and whether the MSME act trumps the Arbitration Act. The comments about registration were obiter dicta and did not result in any detailed analysis of the provisions.

Q.8. What is the Supreme Court's approach to interpreting statutory remedies under Section 18 of the Act?

Answer: The Court emphasized that it is the duty of Constitutional Courts to interpret statutory remedies to reduce the gap between rights and remedies and make the remedies effective. This involves ensuring that the dispute resolution mechanism is accessible and not fragmented, allowing the litigant to access a single forum and quick resolution. The courts must adopt interpretations that further access to justice.

Conclusion

The Supreme Court's judgment in NBCC (India) Ltd. v. State of West Bengal & Ors. provides a significant interpretation of the MSMED Act, 2006. The ruling establishes that registration under Section 8 is not a mandatory requirement for MSMEs to access the dispute resolution mechanism under Section 18. This clarification ensures that the Act’s benefits are available to a wider range of MSMEs, supporting their growth and promoting ease of doing business. The referral to a larger bench underscores the significance of this issue for legal certainty and the consistent application of the law.

Popular posts from this blog

SARFAESI Act and Civil Court Jurisdiction: A Landmark Judgment

Court: Supreme Court of India Case Name: Central Bank Of India vs. Smt. Prabha Jain Citation: 2025 INSC 95  (Reportable) Background of the Case The Supreme Court of India addressed a series of civil appeals concerning the interplay between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the jurisdiction of civil courts. The central issue was whether civil courts can adjudicate on the validity of sale deeds and mortgage deeds when the properties are under SARFAESI Act proceedings. This was particularly in the context where a third party, not the borrower, claimed an independent ownership right over the secured asset. The lead case involved Smt. Prabha Jain, who sought to reclaim her share of family land, arguing that her brother-in-law illegally sold the land which was later mortgaged to the Central Bank of India. The bank argued that the civil court's jurisdiction was barred by Section 34 of the SARFAE...
Read more

Navigating Partnership Disputes in Arbitration: Bombay High Court Upholds Minimal Judicial Intervention, Tasking Arbitral Tribunal to Determine Privity Amidst Partner Succession and a Substitute Presiding Arbitrator Appointment

The High Court of Judicature at Bombay recently addressed a contentious arbitration petition,  2025:BHC-AS:11467 , arising from a dispute concerning the exit of the Petitioner, Darshan Mahendra Nibjya, from a partnership firm where Respondent No. 2, Jayantilal Tarachand Oswal & Ors., subsequently became a partner.  The core legal question revolved around the maintainability of the arbitration against Respondent No. 2, who contended that no arbitration agreement existed between him and the Petitioner. This issue came before the Court in the context of an application for the appointment of a substitute presiding arbitrator, necessitated by the resignation of the previously appointed arbitrator following allegations from Respondent No. 2. The genesis of the matter lies in the inability of the arbitrators nominated by the Petitioner and Respondent No. 1 to agree on a presiding arbitrator, leading to the initial appointment by a Learned Single Judge, an order upheld by the Sup...
Read more

Upholding Governmental Prerogative to Rectify Flawed Recruitment: Supreme Court Settles Assam Forest Constable Appointment Saga

Court: Supreme Court of India. Case Name: STATE OF ASSAM vs. ARABINDA RABHA. Citation: 2025 INSC 334 (Reportable) Background of the Disputed Recruitment The Principal Chief Conservator of Forest & Head of Forest Force, Assam, initiated recruitment for 104 Constable posts in 2014. The selection process involved a physical endurance test followed by interviews, notably without a written examination. A select list was prepared and submitted for government approval. Intervention and Cancellation by the Successor Government A new political regime assumed power in Assam in May 2016. The incumbent PCCF subsequently submitted a note highlighting serious anomalies in the selection process, including disproportionate district-wise representation and reservation policy violations. Based on this note, the Government cancelled the select list in July 2016 without any further inquiry. A fresh advertisement for 132 constable posts was issued in April 2017. High Court's Scrutiny a...
Read more