DATE OF JUDGEMENT:
29.01.2020
CORAM:
- HON'BLE MS. JUSTICE HIMA KOHLI
- HON'BLE MS. JUSTICE ASHA MENON
PARTIES:
- Petitioner: The Chief General Manager (Contracts) M/S Neyveli Lignite Corporation Ltd.
- Respondent: Driplex Water Engineering Ltd. & Anr
SUBJECT
The petitioner within the instant matter had challenged a judgment of Single Judge of the High Court of Delhi, dismissing a Writ Petition filed by it, impugning an order passed by the Micro and Small Enterprises Facilitation (MSEF) Council. The MSEF Council's Order acceded to the request of the primary respondent who had instituted arbitral proceedings at the Delhi International Arbitration Centre under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006.
OVERVIEW
- The appellant company, that engaged in production of power using lignite, had invited tenders for various work related to thermal power plants. One of the essential factors that the bidder had to demonstrate was its turnover to be more than Rs.11 crores.
- The first respondent maintained that its turnover was over Rs.20 Crores annually, during the 2001-2004 period. The parties entered into an agreement where the first respondent was to be paid over Rs.63 Crores. The first respondent failed to deliver on time, and the performance bank guarantee that was offered by the first respondent was withheld by the petitioner.
- Disputes arose and the respondent approached the MSEF Council to recover certain sums.
RELEVANT PROVISIONS
- Section 18(3) in the Micro, Small and Medium Enterprises Development Act (MSMEDA), 2006- Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration.
- Section 7(i) of MSMEDA- It specifies classification of MSMEDA as any industry specified in the First Schedule as—
(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;
(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees.
ISSUE
- Can a supplier without registration under MSMEDA be entitled to benefits contained under it?
JUDGEMENT ANALYSIS
- The petitioner argued that the MSEF Council did not have the authority to entertain the matter since the respondent doesn't meet the requirements to be considered as a small enterprise under Section 7(i) of MSMEDA.
- The first respondent contended that it was a small-scale industrial unit registered with the Haryana Department of Industries.The MSEF Council referred the matter to arbitration pursuant to Section 18(3) of the MSMEDA.
- The Court observed that Section 18 containsa non-obstante clause which clearly states that the Council has the authority to act as a mediator or an arbitrator in a dispute between two parties.
- It was also noted that Article 16 of the contract agreement between the parties that provides that a Civil Court may have the exclusive jurisdiction to deal with any issue arising out of the contract is insignificant in accordance with Section 18 of the MSME Act.
CONCLUSION
The High Court of Delhi upheld the view taken in the case of GE T&D India Limited v. Reliable Engineering Projects and Marketing, thereby holding that MSMEDA being a beneficial legislation, a supplier that was already in existence at the time of the commencement of the MSMED Act and which had not obtained registration within the period prescribed but had done so after entering into a contract with the buyer, was entitled to seek recourse to the beneficial provision of statutory arbitration as contained in the MSMED Act. The appeal was dismissed by the court.
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