M/S.Mcnally Bharath Engineering ... vs The State Of Tamil Nadu Rep. By
2021 Latest Caselaw 17733 Mad

                                                                            W.P.No.1836 of 2020


                                   IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                               DATED : 31.08.2021

                                                    CORAM

                              THE HONOURABLE MR. JUSTICE N. ANAND VENKATESH

                                              W.P.No.1836 of 2020
                                           and W.M.P.No.2140 of 2020

                    M/s.McNally Bharath Engineering Company Ltd,
                    Ecospace Campus 2B,
                    11F /12 (Old Plot No.AAII/BLK3)
                    New Town Rajarhat North,
                    24 Parganas, Kolkata 700 160.
                    Rep. by its R.Ashwin Gopal                                  ... Petitioner

                                                      Vs.

                    1.The State of Tamil Nadu Rep. by
                      The Regional Joint Director of Industries and Commerce,
                      Thiru. Vi.Ka. Industrial Estate,
                      Guindy, Chennai 600 032.

                    2.Micro and Small Enterprises Facilitation Council,
                      Chennai Region,
                      Thiru. Vi.Ka. Industrial Estate,
                      Guindy, Chennai 600 032.
                      Rep. by the Chairman (Industries Commissioner &
                      Director of Industries and Commerce)

                    3.M/s.Sri Shanmuga Casting,
                      Represented by L.Ramesh,
                      61/1, T/Pudaiyur Road,
                      T.Pudaiyur Village, Virdhachalam,
                      Cuddalore District.                                  ... Respondents



                    1/18



https://www.mhc.tn.gov.in/judis/
                                                                                   W.P.No.1836 of 2020




                    Prayer : Writ Petition filed under Article 226 of the Constitution of India

                    for issuance of a Writ of Certiorarified Mandamus, calling for the records

                    of the 2nd respondent culminating the order dated 20/08/2019 in Case

                    No.MSEFC / CR /261 /2018 and to quash the same.

                                           For Petitioner   : Mr.Menon

                                           For Respondent   : Mr.A.Selvendiran
                                                              Government Counsel
                                                              for R1 & R2

                                                             Mr.R.Kannan for R3


                                                        ORDER

This writ petition has been filed challenging the impugned order

passed by the 2nd respondent dated 20.08.2019 wherein, the Micro and

Small Enterprises Facilitation Council (herein after called as the

“Council”) had allowed the claim made by the 3rd respondent and

directed the petitioner to pay the principal amount along with interest.

2.The brief facts of the case is that the petitioner had placed

certain purchase orders with the 3rd respondent for supply of Bucket

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Wheel Teeth of specified quality standard. The grievance of the 3rd

respondent is that the petitioner failed to make the payments in spite of

the supplies being effected and thereby the petitioner was due and

payable a sum of Rs.33,36,066/- along with interest. To substantiate

this claim, the 3rd respondent had placed reliance upon nearly 37

invoices which pertains to the period from 19.07.2016 to 16.06.2017.

The Council on considering the claim made by the 3rd respondent

allowed the same by an order dated 20.08.2019 and aggrieved by the

same, the present writ petition has been filed before this Court.

3.When the matter was taken up for hearing on 17.08.2021, this

Court passed the following order:

Heard the learned counsel for the petitioner in extenso.

2. The learned counsel for the petitioner apart from raising several other issues while questioning the impugned order passed by the 2nd respondent, has raised a preliminary objection with regard to the very maintainability of the application filed by the 3rd respondent before the Council on the ground that the 3rd respondent was not

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registered under Part II. To substantiate this submission, the learned counsel for the petitioner brought to the notice of this Court the Gazette Notification issued by the Ministry of Small Scale Industries dated 30.09.2006, wherein it has been specifically provided under Clause 9 of Schedule II that in case of non filing of part II of the entrepreneurs Memorandum within two years of the filing of Part I, the Memorandum (Part I) filed by the entrepreneur will become invalid.

3. The learned counsel for the petitioner further developed his arguments by submitting that the 3rd respondent was not validly registered either on the date of the contract or till the date of the last supply made and the registration itself took place only on 05.02.2018. To substantiate this submission, the learned counsel for the petitioner brought to the notice of this Court the registration certificate issued by MSME in the name of the 3rd respondent, pursuant to the application made by the 3rd respondent on 05.02.2018. Placing reliance upon the same, the learned counsel submitted that the registration that took place subsequent to the last supply made by the petitioner, does not entitle the 3rd respondent to agitate their grievance under the provisions of the Micro Small, Medium Enterprises Development, Act 2006. The learned counsel also referred to Section 2(n) of the Act to buttress

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his arguments to the effect that the 3rd respondent cannot fall within the definition of a validly registered supplier either on the date of entering into contract or till the last supply was made.

4. In reply to this submission, the learned counsel appearing on behalf of the 3rd respondent brought to the notice of this Court paragraph 5 of the counter affidavit filed by the 3rd respondent. An averment has been made at Paragraph 5 of the counter affidavit to the effect that the 3rd respondent after commencement of production, had initiated the process for registration under Part II. The learned counsel by placing relying upon this averment made at Paragraph 5 submitted that the delay on the part of the department in not acting upon the application and registering under Part II cannot be put against the 3rd respondent and it should be construed to be a deemed registration. The learned counsel also placed reliance upon G.O MS.No.53 dated 27.12.12 and particularly,brought to the notice of this Court Clause 6 (VI) in the said Government Order.

5. Except for the ipse dixit of the 3rd respondent, there is absolutely no material to show that the 3rd respondent had initiated action for registration under Part II after the commencement of Production.

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6. The issue under consideration deals with the very entitlement of the 3rd respondent to invoke the provision of the Act against the petitioner. Therefore, unless the 3rd respondent satisfies this Court with regard to the entitlement, there will be no necessity for this Court to go into the other issues raised by the learned counsel for the petitioner.

7. The learned counsel appearing on behalf of the 3rd respondent sought for time to produce materials before this Court in order to substantiate the averments made in Paragraph No.5 of the counter affidavit.

8. Post this case for further hearing on 24.08.2021 @ 2.15 p.m.

4.When the matter was taken up for hearing today, the learned

counsel for the 3rd respondent brought to the notice of this Court, the

Supplementary Affidavit filed by the 3rd respondent and the relevant

portion in the Supplementary Affidavit is extracted hereunder:

2.I humbly state that pursuant the issued raised by petitioner I have filed this affidavit in support the averment made in para 5 of counter affidavit filed in the above writ

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petition that in fact the 3rd respondent after commencement of production I attempted to submit the application for registration EM-Part II through on line which was denied since the unit comes under the category of the foundry, Iron Melting etc industries which could submit the application through physical form. Therefore the application EM Part-II was sent by post on 16.11.2012 and the same was received and taken on file D.R.No.6829/2012, dated 19.11.2012. Subsequently 3d respondent concern did not receive any communications from the Department of DIC, Cuddalore. At this juncture, I approached the District Industries Centre to find out the fate of application Part-II on 18.08.2021, now they informed by letter dated 18.08.2021 as if the application was returned by the office on 19.11.2012 advising to apply through on line. Since the application EM-Part-II was not accepted through on line, it was sent by post on 16.11.2012 with the covering letter. Therefore it was the mistake of the officer who dealt with it and it could not be a valid reason when office has issued circular excluding the industries of 3d respondent filing the application EM Part-II through on line. Therefore my submission is that the application was kept pending in the office of DIC, Cuddalore.

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5.The learned counsel for the 3rd respondent also brought to the

notice of this Court the additional typed set of papers which contains

three documents. The first document pertains to the covering letter

issued by the 3rd respondent while submitting the application for MSME

Part II Registration. The 2nd document pertains to the list of industries

which are excluded from e-filing of Entrepreneur Memorandum Part II

Application and the learned counsel submitted that the industry run by

the 3rd respondent also falls under this category. By pointing out to this

document, the learned counsel for the 3rd respondent submitted that

insofar as these industries are concerned, the application for

Entrepreneur Memorandum Part II should be submitted manually after

getting the prior clearance from the Pollution Control Board. The 3 rd

document pertains to a letter issued by the Department of Industries

and Commerce, dated 18.08.2021, wherein it was informed to the 3rd

respondent that the application that was submitted for Part II

Registration was returned on 19.11.2012 by duly advising the 3rd

respondent to apply through on-line. The learned counsel submitted

that after the application was returned, it was manually submitted and

the same was not processed and it was kept pending and therefore, the

same cannot be put against the 3rd respondent.

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6.The learned counsel for the petitioner submitted that even as

per the Supplementary Affidavit filed by the 3 rd respondent and the

documents relied upon by the 3rd respondent, it is clear that the 3 rd

respondent has not completed the Part II Registration. In order to

substantiate this submission, the learned counsel for the petitioner also

relied upon the Registration Certificate that was issued to the 3rd

respondent on 05.02.2018 and pointed out that the particulars

regarding previous registration details, if any, is found blank and

therefore, it is clear that the 3rd respondent has fulfilled the requirement

of registration only on 05.02.2018 which is clearly after the date of the

last supply made by the petitioner on 16.06.2017.

7.The learned counsel for the petitioner also placed reliance upon

the latest judgment of the Hon'ble Supreme Court in Silpi Industries

Etc. Versus Kerala State Road Transport Corporation and

Another reported in 2021 SCC Online SC 439. The relevant portions

in the judgment are extracted hereunder:

25. In C.A. Nos. 1620-1622 of 2021, the High Court,

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while negating the plea of the appellant, on the maintainability of counter-claim, has allowed the application filed by the respondent under Section 11(6) of the 1996 Act and appointed the second arbitrator. Though, we are of the view that counter-claim and set-off is maintainable before the statutory authorities under MSMED Act, appellant in this set of appeals is not entitled for the relief, for the reason that on the date of supply of goods and services the appellant did not have the registration by submitting the memorandum as per Section 8 of the Act. The bids were invited on 23.02.2010, appellant submitted its bid on 17.05.2010, respondent awarded contract to the appellant on 24.09.2010 and the parties signed the contract documents for supply of material, installation/commissioning of the power plant on 29.07.2011. Thereafter, supplies were made and the appellant has raised first invoice on 02.11.2011 for supply contract and also raised the first invoice pursuant to contract for installation on 07.07.2012 and the appellant has raised the last invoice in furtherance of contract for supply of material, on 29.03.2014. The appellant also claims to have raised last invoice on 29.03.2015 in furtherance of contract for installation. It is to be noticed that appellant approached the District Industrial Centre for grant of entrepreneur memorandum only on 25.03.2015.

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26. Though the appellant claims the benefit of provisions under MSMED Act, on the ground that the appellant was also supplying as on the date of making the claim, as provided under Section 8 of the MSMED Act, but same is not based on any acceptable material. The appellant, in support of its case placed reliance on a judgment of the Delhi High Court in the case of GE T&D

India Ltd. v. Reliable Engineering Projects and Marketing5, but the said case is clearly distinguishable on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. In the present case, undisputed position is that the supplies were concluded prior to registration of supplier. The said judgment of Delhi High Court relied on by the appellant also would not render any assistance in support of the case of the appellant. 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 Board6 has

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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 ratio also, the appellant is not entitled to seek the benefit of the Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of appellant as the unit under MSMED Act, 2006. 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.

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8.The learned counsel by relying upon the above judgment

submitted that the present case is squarely covered by this judgment

and the registration in the present case had taken place only after the

last supply made by the petitioner and therefore, the 3 rd respondent is

not entitled to invoke the provisions of the Micro, Small and Medium

Enterprises Development Act, 2006 (herein after called as “Act”) for

redressing their grievances.

9.This Court finds a lot of force with the ground that has been

raised by the learned counsel for the petitioner. The judgment of the

Hon'ble Supreme Court extracted supra makes it very clear that a

person who is seeking the benefit of the provisions of the MSMED Act

should have registered under the provisions of the Act, as on the date of

entering into the contract and in any event at least before the last

supply was made by the claimant. The Hon'ble Supreme Court has

categorically held that there cannot be any assumption of the legal

status under the Act, 2006 to claim for a benefit, unless, it is

established that the concerned person or entity had satisfied the

requirement under the Act.

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10.In the present case, admittedly the Part I Registration had

taken place on 17.03.2010 and the 3rd respondent had commenced the

process of getting registered under Part II and had also submitted an

application to that effect. However, as per the official communication

dated 18.08.2021, it is seen that the application submitted by the 3rd

respondent was returned on 19.11.2012. Even though, it is claimed that

thereafter, the 3rd respondent had manually submitted the application,

there was no follow up and therefore, it is clear from the notification

issued by the Ministry of Small Scale Industries, dated 30.09.2006 that

the registration under Part I itself becomes invalid, once the Part II

Registration does not take place within two years of the filing of Part I.

11.As rightly contended by the learned counsel for the petitioner,

even assuming that the 3rd respondent is deemed to have been

registered under Part II, such deemed registration would have formed

part of the Registration Certificate that was issued on 05.02.2018. A

careful look at the Registration Certificate that was issued on

05.02.2018 shows that there was no previous registration of the 3 rd

respondent in the manner contemplated under the Act, 2006. It is clear

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from this Registration Certificate that the actual registration of the 3 rd

respondent had taken place only on 05.02.2018 when the Registration

Certificate was issued.

12.In view of the above discussion, this Court has to sustain the

preliminary objection raised by the learned counsel for the petitioner

with regard to the very maintainability of the claim made by the 3 rd

respondent before the Council by invoking the provisions of the Act,

2006. The Hon'ble Supreme Court has categorically held in the above

decision that such a claim can never be maintained where the

registration had not taken place even before the last supply was made.

In the present case, the last supply had taken place on 16.06.2017.

13.Even though, various other grounds were raised by the learned

counsel for the petitioner and it was replied by the learned counsel

appearing on behalf of the 3rd respondent, there is no requirement for

this Court to deal with all those issues, since, this Court has held in

favour of the petitioner on the very maintainability of the claim made by

the 3rd respondent before the Council.

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14.The upshot of the above discussion leads to the conclusion that

the impugned order passed by the 2nd respondent dated 20.08.2019 is

liable to be quashed. It is made clear that the 3 rd respondent will be at

liberty to make their claim against the petitioner in accordance with law

and the period that was spent by prosecuting the case before the

Council and before this Court shall be taken into consideration while

calculating the limitation.

15.In the result, this writ petition stands allowed with the above

liberty granted to the 3rd respondent. No Costs. Consequently,

connected miscellaneous petition is closed.

                                                                                            31.08.2021

                    Internet   : Yes
                    Index      : Yes
                    Speaking Order / Non Speaking Order
                    ssr

                    To

1.The Regional Joint Director of Industries and Commerce, State of Tamil Nadu.

Thiru. Vi.Ka. Industrial Estate, Guindy, Chennai 600 032.

https://www.mhc.tn.gov.in/judis/ W.P.No.1836 of 2020

2.Micro and Small Enterprises Facilitation Council, Chennai Region, Thiru. Vi.Ka. Industrial Estate, Guindy, Chennai 600 032.

Rep. by the Chairman (Industries Commissioner & Director of Industries and Commerce)

https://www.mhc.tn.gov.in/judis/ W.P.No.1836 of 2020

N. ANAND VENKATESH, J.

ssr

W.P.No.1836 of 2020 and W.M.P.No.2140 of 2020

31.08.2021

https://www.mhc.tn.gov.in/judis/