26 July 2021
Matter: Silpi Industries v. Kerala State Road Transport Corporation.
Order dated: 29 June 2021.
Summary:
he MSMED Act is a welfare legislation which aims to promote and develop micro, small and medium enterprises which are small businesses. In order to ensure speedy recovery of their dues, the MSMED Act provides that micro and small enterprises can refer the dispute to the Micro and Small Enterprises Facilitation Council (“Council”), which will try to resolve the dispute first by conciliation, and if that fails then through arbitration.
In the present case, there were two issues for consideration before the SC, namely:
(a) Whether the provisions of Indian Limitation Act, 1963, is applicable to arbitration proceedings initiated under the MSMED Act; and
(b) Whether counter claim by the opposite party against the micro and small enterprises is maintainable in such arbitration proceedings.
The SC noted that as per the provisions of the MSMED Act, in case conciliation fails, the Council will take up the dispute for arbitration or it may refer to the matter to an institution or centre which provides for arbitration, and the provisions of Arbitration and Conciliation Act, 1996 (“Indian Arbitration Act”) will be made applicable as if there was an agreement between the parties under the Indian Arbitration Act. On this reasoning, the SC held that as the Indian Limitation Act, 1963, applies to the Indian Arbitration Act, it will also apply to arbitration proceedings initiated under the MSMED Act.
The SC further took note of the beneficial provisions of the MSMED Act and reasoned that if the counter claims by the opposite parties are not allowed, then it will lead to multiplicity of proceedings as the buyer availing goods or services from micro and small enterprises will either initiate separate arbitration proceedings or will approach the court to initiate suits for recovery of their dues, and the micro and small enterprises will be constrained to fight multiple proceedings. This would defeat the beneficial intent of the MSMED Act. The SC, therefore, held that the various benefits available to micro and small enterprises under the MSMED Act cannot be denied, and counter claims by the opposite party are maintainable before the Council.
The SC then noted that in order to avail benefits of the provisions of the MSMED Act, the micro and small enterprises should have registration under the MSMED Act as on the date of entering into the contract. No benefit can be sought by an entity if registration is not obtained or where supply of goods or rendering of services pursuant to the contract was done prior to the registration of the entity under provisions of the MSMED Act. Accordingly, the court held that appellant parties, who had provided goods and services prior to obtaining registration, cannot seek reference to arbitration under the MSMED Act.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
