Registration as “Supplier” not required to approach Facilitation Council under MSME Act 

The Micro, Small and Medium Enterprises Development Act, 2006 (“Act”) was enacted with the objective of facilitating and developing micro, small, and medium Enterprises (“MSMEs”). In furtherance of the said objective, the Act provides for a distinct dispute resolution mechanism in the event of delayed payments to micro and small enterprises. Section 18 of the Act provides for the establishment of the Micro and Small Enterprises Facilitation Council (“Facilitation Council”) for recovery of dues under section 17 of the Act, to which the parties to the dispute can make a reference. An important question of law arose regarding whether a party is required to be a ‘supplier’ in order to approach the Facilitation Council as section 17 of the Act provides the liability of the buyer in relation to the goods supplied or services rendered by the ‘supplier’. This question was addressed on 10 January 2025 by a single judge bench of the Supreme Court of India (“Supreme Court”) in the judgment NBCC (India) v. State of West Bengal. In this update, we discuss the judgment in brief, and our thoughts.  

Brief Facts of the case 

National Building Construction Corporation (“Appellant”) granted four work orders to M/s Saket Infra Developers Private Limited (“Enterprise”) for construction to be undertaken in various parts of West Bengal, which were executed during the period of 2015 to 2016. During the pendency of the work, the Enterprise filed a memorandum to register itself as a ‘small enterprise’. Subsequent to the filing of the memorandum, a fifth contract was executed. Work arising out of these contracts commenced on different dates and bills regarding the same were raised by the Enterprise to the Appellant. Dispute regarding the payment of dues arose concerning all five contracts. Consequently, the Enterprise approached the Facilitation Council under section 18 of the Act for recovery of its dues. Conciliation was first attempted to resolve the said dispute, however, the same was referred to arbitration after an unsuccessful attempt at conciliation.  

The Appellant objected to the jurisdiction of the Facilitation Council on two grounds, first that the Enterprise was not registered prior to the execution of the contracts, and second that the determination of execution of contracts is beyond the scope of the Act. The High Court of Calcutta (“High Court”) was approached by the Appellants under Article 226 i.e., the writ jurisdiction. A single judge bench as well as a division bench of the High Court held that the Arbitrator had jurisdiction to decide on the matter, including the issue of maintainability of filing a writ application. Aggrieved by the decision of the High Court, the Appellant preferred a special leave petition before the Supreme Court. 

The Supreme Court considered the issue of whether an MSME can make a reference to the Facilitation Council for dispute resolution under section 18 of the Act even if it is not registered under section 8 of the Act before the execution of the contract with the buyer. 

Ruling of the Supreme Court 

The Supreme Court considered its judgment in Shanti Conductors v. Assam State Electricity Board, and stated that the rights of the micro and small enterprise and the incidence of liability for payment by the buyer arise upon the supply of goods or the rendering of services. The Supreme Court emphasized that since the liability of the buyer is not reliant upon the execution of the contract as per the Act, the timing of the registration of the Enterprise would not be of any relevance.  

The Supreme Court relied upon the golden rule of purposive interpretation to examine the requirement of a memorandum to seek remedy under Section 18 of the Act. Taking note of the issues raised before it, the bench was of the view that the insertion of the words ‘any party to a dispute’ in Section 18 of the Act was a deliberate decision of the legislature to not place any emphasis on the requirement of the other party being a ‘supplier’.   

Basing its decision on the purpose and object of Section 18 of the Act, the Supreme Court opined that the remedy for the resolution of disputes under the Act must be unrestricted and open-ended. Further, the Supreme Court also reaffirmed the discretionary nature of registration of an enterprise as an ‘MSME’ under the Act on the basis of the expansive definition of the term ‘supplier’ under section 2(n) of the Act and the usage of word ‘may’ under Section 8 of the Act.  

The Supreme Court also considered its judgment in the case of Silpi Industries v. Kerala State Road Transport Corporation and in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd, which were relied upon by the Appellant. The Supreme Court noted that both these cases did not deal with the issue raised in the present case. Pursuant to the same, the said issue has been further referred to a three-judge bench of the Supreme Court for clarifying this matter.  

Our Thoughts 

Referring to the statistics provided by the Samadhaan Portal established by the Ministry of Micro, Small and Medium Enterprises under the Government of India, there are a total of 91,462 cases filed before the Facilitation Councils of various states.¹ This data is reflective of the large number of disputes regarding payment of dues before the Facilitation Councils. Facilitation Councils act as a more cost efficient and accessible platform for MSMEs to resolve disputes regarding payment of dues. The present judgement by the Supreme Court gains importance as limiting the right to approach the Facilitation Council could negatively impact the accessibility of an effective judicial remedy to MSMEs.  

Further, as highlighted by the Economic Survey of 2023-24, the existence of issues of excessive regulation and compliance requirements are one of the causes hindering the growth of MSMEs.² Supreme Court has adopted a purposive interpretation to the issues raised in this case to enable growth of MSMEs. By holding that the registration as a ‘supplier’ is not necessary to approach the Facilitation Council, the Supreme Court has ensured the accessibility to dispute resolution, thereby forwarding the objective underlying the Act.  

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.