Allahabad High Court: In a writ petition filed by Neeraj Potato Preservation and Food Products Pvt. Ltd. (‘the petitioner company’) against the order passed by the ‘U.P. Micro, Small and Medium Enterprises Facilitation Council (‘the Council’), wherein the Council observed that the claimant is not entitled to receive any interest from the respondent as there is no principal amount of delayed payment due on the respondents, the division bench of Mahesh Chandra Tripathi* and Prashant Kumar, JJ. while upholding the impugned order, held that cold storage service and credit facilities by pledging the produce stored in the cold storage are two different services, which are not directly linked with each other. Therefore, the grant of loan will not be covered under cold storage service. Further, it said that once the alleged financial services rendered by the petitioner were not registered at the time of disbursement of the loan under the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’) , then the Facilitation Council, which is established under the MSMED Act will not be having jurisdiction to entertain any such dispute arising out of any service not registered under the Act.
Background:
The petitioner company is in the business of running cold storage at Shivrajpur. The farmers of that area grow crops and use the petitioner’s facility for storage of their potatoes and other crops and for this purpose the company charges rent for keeping the crop in cold storage facility. When the farmers come to take back their crop, they pay the charges according to the period of storage and area occupied in petitioner’s cold storage. The respondents are farmers who had used the services of the petitioner’s cold storage. The respondent farmers needed financial assistance to sow their next crop, so they took a loan from the petitioner company. However, they did not pay back the loan to the petitioner. The petitioner, claiming itself to be Micro, Small and Medium Enterprises (MSME) registered under the MSMED Act, had filed a claim petition before the Council for the recovery of the principal amount along with interest at the rate of 18% per annum, as provided under the MSMED Act.
The Council opined that as per the provisions of MSMED Act, it has no jurisdiction to decide the matter for recovery of loan / financial services and other recovery matters and in such circumstances the Council cannot act beyond its jurisdiction
Issues and Analysis:
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Whether the loan/ financial services will be covered under the Cold Storage Services?
The Court took note of the term ‘cold storage’ under Section 2(c) of the U.P. Regulation of Cold Storage Act, 1976. Further, it noted that to provide cold storage services, a license is to be issued as cold storage services are regulated within the State of U.P.
The Court noted that in present case, the loan advanced to the hirer/ farmer by the licensee was not in terms of Section 22 of the Act, 1976 as nowhere it has been stated in the writ petition that the loan so advanced was lower than one half of one percent per annum simple interest over the current rate of interest charged by the State Bank of India. Infact the loan was advanced @ 18% per annum, which is much higher than the rate of interest charged by SBI.
The Court further noted that Section 22 of the Act, 1976 does not come into play, as the loan advanced was not against the goods pledged in favour of the petitioner company but with a bond that if the payment is not done, the farmer undertakes to deposit his goods in the next agricultural year in the cold storage of the petitioner.
The Court said that for the purposes of MSMED Act and to provide financial services under Section 22 of the Act, 1976 the petitioner company ought to have the registration under the MSMED Act, 2006 for ‘financial activity’, which could not be explained by the petitioner. The petitioner company having not been registered under the MSMED Act for financial activity and there being a private agreement between the petitioner company and the contesting respondents, the petitioner company could not have sought a recovery for an alleged loan purportedly granted under Section 22 of the Act, 1976 by taking aid of the provisions contained under MSMED Act.
The Court said that the term ‘condition and the specification of the cold storage’ together with the definition clauses constitute the cold storage services and, therefore, cold storage services have been properly structured under the U.P. Enactment read with modified subordinate legislation of Uttar Pradesh. After perusing the definition clauses, the licence, terms and conditions and specification of cold storage it noted that the grant of loan is not incidental to a cold storage service.Therefore, it held that cold storage service and credit facilities by pledging the produce stored in the cold storage are two different services, which are not directly linked with each other. Therefore, the grant of loan will not be covered under cold storage service.
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Whether the petitioner has been registered for any financial services under the MSMED Act?
Perusing the objects and reasons and the relevant provisions of MSMED Act, the Court said it is an Act to facilitate the promotion, development and enhancing the activities of Micro, Small and Medium Enterprises.
The Court said that once the services provided by the petitioner are not registered under the MSMED Act, the Facilitation Council established under the Act will be divested of jurisdiction to entertain any such dispute arising out of any service not registered under MSMED Act. Thus, the MSMED Act will not be applicable as per Section 18 of the Act.
The Court said that based on Udyog Aadhaar Memorandum Certificate, an enterprise becomes amenable to framework of MSMED Act. If the registration of an enterprise does not fall in a particular category, the provisions of the MSMED Act will not be applicable for that category. Further, it noted that as per the Udyog Aadhar Memorandum Certificate of the petitioner, the petitioner has been registered for the following services:
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Warehousing and support activities for transportation.
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Warehousing and storage
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Warehousing of refrigerated (cold storage).
Hence, the Court said that on the date of the loan given by the petitioner, it was not having the registration under required Code as per National Industrial Classification Data 2008.
The Court noted that at the time of loan disbursement in 2018, the petitioner was not registered in the financial services category under the MSMED Act. Thus, the petitioner is not entitled to any reprieve under the MSMED Act.
[Neeraj Potato Preservation and Food Products Pvt.Ltd v. U.P. Micro Small and Medium Enterprises Facilitation Council, 2024 SCC OnLine All 427, decided on 21-02-2024]
*Judgment Authored by: Justice Mahesh Chandra Tripathi
Advocates who appeared in this case :
Counsel for Petitioner: Advocate Mushir Khan
Counsel for Respondent: Chief Standing Counsel
