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  • Writer's pictureRajesh Audithyan

PRIOR MSME REGISTRATION IS MANDATORY BEFORE ENTERING INTO CONTRACTS OTHERWISE MSME BENEFITS CAN'T BE CLAIMED

Whether a MSME though had not been registered at the time when the contract was entered into between the parties but is registered during the subsistence of the contract and in such circumstances, whether such party which enter into the contract would be entitled to the benefits under the MSME Act?


 Held- No. Hon’ble Delhi High Court inter alia observed that the purpose of Section 17 and 18 of the MSME Act is to grant a cost-effective dispute resolution mechanism for recovery of unpaid dues of the supplier, which is a micro, small and medium level enterprise. The said Section gives the right to a micro, small and medium enterprise to have its disputes adjudicated by approaching the Facilitation Councils and it cannot be obliterated on account of any other contract to the contrary. Hon’ble Court reliance placed on Apex Court judgement in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (Unit 2) & Anr., 2023 (6) SCC 401, reads as under:- " 51. 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 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. xxx 52.6. 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 services subsequent to the registration." The same view has been taken by a Coordinate Bench of Delhi Court in Malani Construction Company v. Delhi International Arbitration Centre & Ors., 2023 SCC OnLine Del 1665, wherein this Court has observed as under:- "14. 


The ratio of these two judgments is clear to the effect that if the registration under the MSMED Act, 2006 was obtained subsequently, the benefits under the said Act would not apply. Even in a situation where some portion of the goods/services are supplied prior to registration and some are supplied post registration, the Act would apply, depending on the facts, only qua the goods and services which are supplied subsequent to the registration."


Order Date : January 30, 2024 Mahanagar Telephone Nigam Ltd (Petitioner) Vs. Delhi International Arbitration Centre, Through Its Co Ordinator & Ors(Respondents) High Court of Delhi W.P.(C) 14515/2023 & CM APPL. 57558/2023

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