Delhi High Court: A petition was filed by the petitioner raising issues arising out of the Micro Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’) seeking to quash or set aside the impugned order dated 14-09-2021 passed by Micro and Small Enterprises Facilitation Council (‘MSEFC’) (respondent 1) under the MSMED Act, 2006 advising the petitioner to pay a sum of Rs. 9,59,66,352 to Harji Engineering Works Pvt. Ltd. (respondent 2) as per the agreement dated 17-10-2019. Prathiba M Singh, J., held that MSEFC can only entertain claims from the Suppliers against the Buyers and counterclaims by the Buyers against Suppliers and cannot entertain the independent claim by the Buyer against the Supplier under the MSMED Act, 2006.
The agreement dated 17-10-2019 was issued to the petitioner by respondent 2 for providing Combined Station Works (CSW) including Civil, Mechanical, Electrical and Instrumentation works at Paradip and Balasore Stations in Odisha. A second agreement dated 18-10-2019 was also placed to supply goods and services including labor, material tools etc., as also engineers and supervisors for monitoring services. Thus, the petitioner was the ‘Supplier’ and Respondent 2 was the ‘Buyer’. Certain disputes arose between the petitioner and respondent 2 regarding the payments under the agreements.
A legal notice was issued by Respondent 2, the bank guarantee issued by the Petitioner under the agreement was encashed by Respondent 2. Respondent 2 filed a reference petition application under Section 18 of the MSMED Act, 2006 for delayed payment. Thereafter, vide the impugned order dated 14-09-2021 passed by MSEFC, the petitioner was advised to pay the sum of Rs. 9,59,66,352/- to Respondent 2.
The Court noted that the MSMED Act, 2006 has been enacted for the purpose of facilitating the promotion and development of Micro, Small, and Medium Enterprises and enhancing its competitiveness.
The issue under consideration Under the MSMED Act, 2006, whether an independent claim can be entertained by the MSEFC at the instance of the BUYER?
The Court observed that under Section 18 of MSMED Act any party to a dispute can make a reference to the MSEFC in respect of any amount due under Section 17. Sections 15 to 18 of the MSMED Act, 2006 are inter-linked with each other and are also linked to the title of the chapter i.e., Chapter V: Delayed Payments to Micro and Small Enterprises. Thus, the entire Chapter V applies only in respect of delayed payments to Micro and Small Enterprises.
The Court further observed that Chapter V excludes Medium Enterprises under Section 2(g) of the MSMED Act, 2006. Sections 15 to 17 also make it clear that the obligation is on the Buyer to make the payment promptly in terms of Section 15, failing which an increased rate of interest would be liable to be paid by the Buyer to the Supplier. These provisions do not deal with a situation where a Buyer raises claims against the Supplier, under the MSMED Act, 2006.
The Court concluded that on a plain reading of the statute makes it categorically applicable only in respect of claims recoverable by Suppliers, who are registered under the Act as Micro or Small Enterprises. Since the MSMED Act, 2006 itself has been enacted for the purpose of extending benefits to Suppliers, who are registered under the Act as Micro or Small Enterprises, it does not contemplate the reverse obligation i.e. claims relating to the amount recoverable from the Suppliers under the MSMED Act, 2006. Thus, a literal reading of the various provisions shows that a Buyer cannot maintain an independent claim against the Supplier under the MSMED Act, 2006.
Thus, the Court sets aside the impugned order as MSEFC failed to consider the provisions of the MSMED Act, 2006 which provide that the MSEFC can only entertain claims from the Suppliers against the Buyers and counter claim by the Buyers against Suppliers and that it cannot entertain the independent claim by the Buyer against the Supplier under the MSMED Act, 2006.
[Uniseven Engineering and Infrastructure Pvt. Ltd v. Micro and Small Enterprises Facilitation Council District (South), 2023 SCC OnLine Del 3889, decided on 5-07-2023]
Advocates who appeared in this case :
Mr. Anirudh Bakhru, Mr. Ayush Puri, Mr. Umang Tyagi, Mr. Kanav Madnani, Mr. Vijay Laxmi Rathi & Mr. Pragya Choudhary, Advocates for the Petitioner;
Ms. Arushi Gupta on behalf of Mr. Jawahar Raja, ASC, GNCTD for R-1. (M: 9811462308) Dr Amit George & Mr Sahil Garg, Advocate for the R-2.
