C/SCA/6647/2021 ORDER DATED: 16/02/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6647 of 2021
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GUJARAT GREEN REVOLUTION COMPANY LIMITED THROUGH ITS
AUTHORISED SIGNATORY AMITKUMAR MEHTA
Versus
THE MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL & 1
other(s)
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Appearance:
MS. MANVI DAMLE for M/S. NANAVATI & CO.(7105) for the Petitioner(s) No.
1
MR JAY TRIVEDI, AGP (N) for the Respondent(s) No. 1
ROHAN A SHAH(7497) for the Respondent(s) No. 2
RUSHABH H SHAH(7594) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
Date : 16/02/2023
ORAL ORDER
1. Rule returnable forthwith. Mr. Jay Trivedi, learned Assistant Government Pleader waives service of notice of Rule for and on behalf of the respondent No.1 -
MSME Council while Mr. Rushabh H. Shah, learned advocate waives service of notice of Rule for and on behalf of the respondent No.2 - M/s. Sarang Builders.
2. With consent of the learned advocates for the respective Page 1 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 parties, the matter is taken up for final hearing today.
3. By way of this petition, under Article 226 of the Constitution of India, the petitioner has prayed for a writ of prohibition or any other appropriate writ, order or direction restraining the Micro & Small Enterprises Facilitation Council in proceeding with hearing of reference, being Application No.GJ24E0024248 / S / 00001 made by respondent No.2 under section 18 of the Micro, Small & Medium Enterprises Development Act, 2006 (for short, hereinafter referred to as `the MSMED, Act').
4. Facts in brief would indicate that, the petitioner Company was awarded a contract on 14.03.2015.
Pursuant to the work order so awarded, the work was to be completed on or before 13.3.2016, however as a Page 2 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 result of delay on the part of contractor in completing the work, it was completed on 29.6.2016. Some disputes arose between the petitioner and respondent No.2 as a result of which, the respondent No.2 invoked Section 18 of the MSMED Act and approached the Facilitation Council. A notice was issued to the petitioner Company which it received in the year 2019.
5. Ms. Manvi Damle, learned counsel for the petitioner would submit that in light of the decisions of this Court on which facts have been recorded while issuing notice on 9.6.2021, the proceedings before the MSME Council are without jurisdiction. She would submit that this is so because the registration by respondent No.2 as a supplier was in the year 2018, post the awarding and completion of the contract. She would rely on a decision rendered by the Division Bench of this Court in LPA No.619 of 2019 Page 3 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 and the recent decision of the Hon'ble Supreme Court in the case of Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Pvt. Ltd., reported in 2022 SCC Online SC, 1492 especially paras 31 to 34 thereof.
6. Having heard learned advocates for the respective parties, the facts are not in dispute particularly the date of registration of the respondent No.2 which is of the year 2018 much after the contract was executed. The Hon'ble Supreme Court in the case of Gujarat State Civil Supplies Corporation Limited (Supra) in paras 31 to 34, held as under:
"31. One of the submissions made by the Ld. Counsels for the Buyers was that 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 and Page 4 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 in such cases, the Council would not have the jurisdiction to decide the disputes as an arbitrator.
32. At this juncture, a very pertinent observations made by this Court in Silpi Industries case (supra) on this issue are required to be reproduced: -
"26. ...... In our view, to seek the benefit of provisions under MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act.
While interpreting the provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, this Court, in the judgment in the case of Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board has held that date of supply of goods/services can be taken as the relevant date, as opposed to date on which contract for supply was entered, for applicability of the aforesaid Act. Even applying the said Page 5 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 ratio also, the appellant is not entitled to seek the benefit of the Act.....
....by taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract with the respondent. The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. Any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation."
33. Following the above-stated ratio, 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 Page 6 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 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. However, such issue being jurisdictional issue, if raised could also be decided by the Facilitation Council/Institute/ Centre acting as an arbitral tribunal under the MSMED Act, 2006.
34. The upshot of the above is that:
(i) Chapter-V of the MSMED Act, 2006 would override the provisions of the Arbitration Act, 1996.
(ii) 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.Page 7 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023
C/SCA/6647/2021 ORDER DATED: 16/02/2023
(iii) 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.
(iv) The proceedings before the Facilitation Council/institute/centre acting as an arbitrator/arbitration tribunal under Section 18(3) of MSMED Act, 2006 would be governed by the Arbitration Act, 1996.
(v) The Facilitation Council/institute/centre acting as an arbitral tribunal by virtue of Section 18(3) of the MSMED Act, 2006 would be competent to rule on its own jurisdiction as also the other issues in view of Section 16 of the Arbitration Act, 1996.
(vi) 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 Page 8 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 services subsequent to the registration."
(Emphasis supplied)
7. Special note needs to be taken care of paragraph No.34(vi) of the judgment of the Hon'ble Supreme Court which indicates that 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.
8. For the aforesaid reasons, the petition is allowed. The application before the Council is held to be one without jurisdiction. The reference before the Council is without jurisdiction and the proceedings initiated under section 18 of the Act are without jurisdiction. The parties to this petition are at liberty to invoke the remedies that are Page 9 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023 C/SCA/6647/2021 ORDER DATED: 16/02/2023 available under the law.
9. Rule is made absolute to the aforesaid extent. Direct Service is permitted. No order as to costs.
(BIREN VAISHNAV, J) VATSAL Page 10 of 10 Downloaded on : Fri Feb 17 21:02:52 IST 2023