Registration Under MSMED Act Not Mandatory For Dispute Resolution U/S 18: Supreme Court Refers To Larger Bench

Summary:

[1]The Hon’ble Supreme Court of India, clarified that micro, small, and medium enterprises (MSMEs) do not need prior registration under Section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), to invoke remedies under Section 18. The Hon’ble Court emphasized on expression “any party to a dispute” in Section 18 must be interpreted broadly to include both registered and unregistered MSMEs. Taking into account the compelling need to ensure clarity and certainty about the applicable precedents on the subject, the Hon’ble Court referred this appeal to a three Judge Bench.

The court rejected NBCC’s argument that the lack of registration under Section 8 prior to the execution of the contract precluded the respondent from availing the dispute resolution mechanisms available under Section 18. Instead, it highlighted the discretionary nature of registration and upheld the Facilitation Council’s jurisdiction.

Facts:

• NBCC (India) Ltd. awarded five work orders to M/s Saket Infra Developers Pvt. Ltd. (hereinafter referred to as “the Enterprise”) between 2015 and 2017 for construction projects across West Bengal.
• The Enterprise registered as a “small enterprise” under Section 8 of the MSMED Act on November 19, 2016, after executing four contracts and commencing work.
• Disputes over payments led the Enterprise to refer the matter to the West Bengal Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act.
• NBCC challenged the Council’s jurisdiction, arguing that the Enterprise has registered itself under Section 8 after the execution of contracts which does not qualify it to seek remedies under Section 18.
• Both the Single Judge and Division Bench of the Calcutta High Court rejected NBCC’s contentions, hence the present appeal.

Issue:

1. Whether prior registration under Section 8 of the MSMED Act mandatory for an MSME to invoke dispute resolution under Section 18 of the Act?

Judgment:

• Interpretation of Section 18

The court held that Section 18 does not impose a registration prerequisite. It noted that the phrase “any party to a dispute” in Section 18 is broad and inclusive, allowing MSMEs—registered or unregistered—to access remedies available under Section 18.

• Purpose and Object of the MSMED Act

The court reiterated the MSMED Act’s primary objective: to support and promote MSMEs, often referred to as the backbone of the Indian economy. It emphasized that creating barriers to accessing remedies, such as making registration mandatory, would undermine the Act’s legislative intent.

• Analysis of Precedents

The court examined prior judgments, including Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790, and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023) 6 SCC 401. It clarified that these judgments do not establish mandatory registration as a prerequisite for invoking Section 18 but dealt with specific facts, including post-registration benefits. The court distinguished these cases from the present one, where the key issue was access to dispute resolution mechanisms regardless of registration.

• Practical and Policy Considerations

Recognizing the informal nature of the MSME sector, the court noted that many MSMEs operate without formal registration due to systemic barriers. It highlighted the importance of the purposive interpretation of the Act, which ensures access to justice for all MSMEs, particularly those at the grassroots level.

• Directions

The court dismissed NBCC’s appeal, affirming the Facilitation Council’s jurisdiction to entertain the dispute. It clarified that remedies under Section 18 are available irrespective of an MSME’s registration status.

Analysis:

The Hon’ble Supreme Court’s judgment reinforces the MSMED Act’s role as a cornerstone of MSME empowerment. By interpreting Section 18 broadly, the court has ensured that MSMEs—both registered and unregistered—can seek remedies for delayed payments and disputes. This judgment removes ambiguities and addresses systemic barriers that hinder MSMEs’ access to justice. The court recognized that requiring mandatory registration could exclude a significant portion of the sector from availing of statutory protections, contrary to the Act’s objectives. Furthermore, the court emphasized the Facilitation Council’s role as a neutral arbiter and custodian of MSME interests. By aligning its interpretation with the principles of justice, accessibility, and economic inclusivity, the Supreme Court has provided much-needed clarity to stakeholders in the MSME ecosystem. The judgment is a significant step forward in ensuring equitable dispute resolution for the sector, contributing to its sustained growth and contribution to the national economy.

[1]https://api.sci.gov.in/supremecourt/2022/24558/24558_2022_12_1501_58501_Judgement_10-Jan-2025.pdf

BEFORE THE HON’BLE SUPREME COURT OF INDIA
NBCC (India) Ltd. v. State of West Bengal & Ors.

CIVIL APPEAL NO. 3705 OF 2024

Judgment Dated: 10th January 2025