Summary
The Supreme Court expressed the clear opinion that a micro or small enterprise is not barred from making a reference to the Facilitation Council under Section 18 of the MSMED Act, 2006 merely because it filed its memorandum under Section 8 after the contract was executed. Section 18 allows 'any party to a dispute' to refer, and filing the memorandum is discretionary for such enterprises. Finding that Silpi Industries and Mahakali Foods did not consciously decide the point, the Court nonetheless referred the appeal to a three-Judge Bench for legal certainty.
Issues
- Whether a micro or small enterprise that had not filed a memorandum under Section 8 of the MSMED Act before executing the contract is barred from making a reference to the Facilitation Council under Section 18.
- Whether 'any party to a dispute' in Section 18 is confined to a 'supplier' as defined in Section 2(n).
- Whether Silpi Industries v. KSRTC and Gujarat State Civil Supplies Corporation v. Mahakali Foods are binding precedents on that question.
Provisions considered
- Section 18, Micro, Small and Medium Enterprises Development Act, 2006Read by text, context and purpose: the deliberate words 'any party to a dispute' cannot be narrowed to a registered supplier by travelling through Sections 17, 15, 16, 2(n) and 8; the reference to Section 17 only identifies the subject of the dispute; and as a statutory dispute-resolution remedy it must be kept open-ended to further access to justice. (¶¶ 1.1, 1.2, 11, 13, 14.1, 14.2, 14.3, 15)
- Section 8, Micro, Small and Medium Enterprises Development Act, 2006Quoted to show that micro and small enterprises, and service-sector medium enterprises, 'may, at his discretion' file a memorandum, while only manufacturing medium enterprises 'shall' file it; registration is therefore not mandatory for micro and small enterprises and cannot be a precondition to the Section 18 remedy. (¶¶ 14.5, 14.6, 14.7, 14.8, 14.9)
- Section 2(n), Micro, Small and Medium Enterprises Development Act, 2006The definition of 'supplier' covers micro or small enterprises that have filed a memorandum but also includes NSIC, State SIDCs and entities selling goods or services of micro or small enterprises regardless of any memorandum, so it is not confined to registered enterprises. (¶¶ 13, 14.4, 14.8)
- Sections 15, 16 and 17, Micro, Small and Medium Enterprises Development Act, 2006The buyer's liability to pay and to pay interest arises on the supply of goods or rendering of services; continuing the scheme of the repealed 1993 Act, the Shanti Conductors principle that liability runs from the date of supply rather than the date of contract continues to apply. (¶¶ 11, 11.1, 14.2)
- Section 7, Micro, Small and Medium Enterprises Development Act, 2006Micro, small and medium enterprises exist by virtue of their investment as classified under this provision, without any formal recognition or registration, supporting the conclusion that the Section 18 remedy is not tied to filing a memorandum. (¶¶ 14.9, 15)
- Sections 3 to 6, Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (repealed)Through Shanti Conductors, the Court noted that the buyer's liability under the repealed statute arose on supply even where the contract preceded the Act, since the date of contract was not made the incident of liability. (¶¶ 7, 7.1, 7.2, 7.3, 7.4)
- Article 141, Constitution of IndiaA decision not founded on reasons and not proceeding on conscious consideration of an issue is not law declared under Article 141 (the sub silentio rule); the Court also stressed the need to indicate whether a judgment is decision-making for the parties or precedent-making. (¶¶ 27, 28)
Held
- When construing a statutory remedy, constitutional courts must adopt an interpretation that narrows the gap between right and remedy and makes the remedy effective; an effective judicial remedy must be accessible, affordable, expeditious and cohesive, the last meaning a single forum rather than fragmented remedies. (¶¶ 10, 10.1)
- The words 'any party to a dispute' in Section 18 must be given their natural meaning and cannot be substituted by 'supplier'; had Parliament intended to confine the remedy to a supplier or buyer, both defined terms, it would have said so. (¶¶ 14.1, 14.2, 14.3)
- Filing a memorandum under Section 8 is discretionary for micro and small enterprises; the definition of supplier in Section 2(n) is not confined to registered enterprises; and enterprises exist by virtue of their investment classification under Section 7. A reference by a micro or small enterprise under Section 18 therefore cannot be rejected on the ground that it had not filed a memorandum under Section 8. (¶¶ 14.4, 14.5, 14.8, 14.9, 15)
- Silpi Industries decided only whether the Limitation Act applies to Section 18(3) arbitrations and whether counterclaims are maintainable; its observations on registration were made without framing an issue or examining the statutory provisions, so it is not authority that a reference is barred where supplies were made or contracts executed before the memorandum was filed. (¶¶ 17, 17.3, 17.4, 18)
- Mahakali Foods decided whether Chapter V of the Act overrides the Arbitration and Conciliation Act, 1996 and related questions; its statement on prior registration, following Silpi Industries, was made without an issue or analysis on the point. The short orders in Vaishno Enterprises and Nitesh Estates merely followed Silpi Industries and do not lay down the law. (¶¶ 19, 20, 21, 22, 23, 24, 25, 26, 26.1)
- A decision not expressed, not supported by reasons and not proceeding on conscious consideration of an issue is not binding law under Article 141. Although the Court could on that basis treat the earlier decisions as non-binding on this question, it referred the appeal to a three-Judge Bench to ensure clarity and certainty in precedent. (¶¶ 27, 28, 29)
Result
Appeal referred to a Bench of three Judges; the Registry directed to place the papers and the judgment before the Chief Justice of India for constitution of an appropriate Bench.