Safiya Malik

The Supreme Court has referred a legal question regarding the requirement of registration under Section 8 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) to a larger bench. The question concerns whether a Micro or Small Enterprise must be registered under Section 8 of the Act at the time of entering into a contract to invoke the dispute resolution mechanism under Section 18. The Court directed the matter to be placed before the  Chief Justice of India for constituting a three-judge bench to resolve the issue.

The case arose from disputes between NBCC (India) Ltd., the appellant, and M/s Saket Infra Developers Pvt. Ltd., the respondent, relating to five contracts executed between July 2015 and September 2017 for construction projects in West Bengal. The respondent was registered as a Small Enterprise under Section 8 of the MSMED Act in November 2016, after four contracts had already been executed.

Subsequent disputes regarding payment obligations led the respondent to approach the West Bengal Micro and Small Enterprises Facilitation Council (Facilitation Council) under Section 18 of the MSMED Act for dispute resolution. The appellant raised objections to the Facilitation Council's jurisdiction, arguing that the respondent’s registration under Section 8 occurred after most contracts were executed, disqualifying it from invoking the statutory mechanism under Section 18.

The appellant filed a writ petition before the Calcutta High Court challenging the Facilitation Council’s jurisdiction. A Single Judge dismissed the petition, stating that the issue could be raised before the arbitral tribunal. The Division Bench upheld this view, prompting the appellant to appeal to the Supreme Court.

The respondent argued that Section 18 of the MSMED Act does not condition access to the dispute resolution mechanism on prior registration under Section 8. It contended that the Facilitation Council’s jurisdiction was valid, and the appellant’s objections were not supported by the statute.

The judgment authored by Justice Pamidighantam Sri Narasimha, examined the provisions of the MSMED Act, particularly Sections 8 and 18, and their legislative intent. The Court noted that Section 18 provides the dispute resolution mechanism for “any party to a dispute” without expressly limiting it to registered enterprises. It stated, “The words employed in Section 18 do not confine the remedy to a registered supplier. The legislative intent was to ensure an accessible dispute resolution mechanism, irrespective of registration status.”

The Court addressed the appellant’s reliance on earlier judgments, including Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation v. Mahakali Foods Pvt. Ltd., observing that those decisions did not deal with the specific issue of whether registration under Section 8 is a precondition to invoking Section 18. The Court stated, “The precedents relied upon do not examine the relationship between Sections 8 and 18 with respect to preconditions for invoking the statutory remedies.”

The judgment further examined Section 8, which allows Micro and Small Enterprises to file a memorandum for registration. The Court observed, “Section 8 does not impose a mandatory requirement of registration but leaves it to the discretion of the enterprise. The provision is meant to facilitate and not restrict access to the benefits of the Act.”

While acknowledging the appellant’s contention that contracts executed before registration should not fall within the scope of the Act, the Court observed that the legislative scheme of the MSMED Act is focused on providing an effective remedy for dispute resolution. It stated, “The statutory framework seeks to ensure that enterprises receive timely payments and access to dispute resolution, recognizing their critical role in the economy.”

Given the complexity of the issue and its implications for future cases, the Supreme Court referred the matter to a larger bench. It stated, “For clarity and legal certainty, we direct the appeal to be placed before the  Chief Justice of India for referring the matter to a bench of three Judges for an authoritative pronouncement.” The appeal was disposed of with this direction.

Case Title: NBCC (India) Ltd. v. The State of West Bengal & Ors
Case Number: Civil Appeal No. 3705 of 2024
Bench: Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal

[Read/Download order]