Gujarat High Court

Gujarat Green Revolution Company ... vs The Micro And Small Enterprises ... on 16 February, 2023

Bench: Biren Vaishnav

       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

================================================================
     GUJARAT GREEN REVOLUTION COMPANY LIMITED THROUGH ITS
             AUTHORISED SIGNATORY AMITKUMAR MEHTA
                             Versus
     THE MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL & 1
                             other(s)
================================================================
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
================================================================

     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

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

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

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

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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

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

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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.

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

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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