M/s. Silpi Industries Vs. Kerala State Road Transport Corporation

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CITATION	2018 SCC ONLINE 3694
DATE OF JUDGEMENT	29^th JUNE 2021
COURT	SUPREME COURT OF INDIA
APPELLANT	M/s. SILPI INDUSTRIES
RESPONDENT	KERELA STATE ROAD TRANSPORT CORP.
BENCH	JUSTICE ASHOK BHUSAN, JUSTICE R. SUBHASH REDDY

INTRODUCTION

The document under discussion relates to the case filed by the competition tribunal against the Micro and Small Enterprises Promotion Council (MSME Council). It has been decided in Silpi Industries & Ors. V. Kerala State Road Transport Corporation & Anr., against the case regarding admission of transfer dispute under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).[1] The dispute was referred to the Delhi International Arbitration Centre (DIAC). Defendant No. 3, a small business registered under the Micro, Small and Medium Enterprises Act, submitted a bid for construction. Later, a letter of intent and a gift were given to the defendant. Although an invoice was issued to the defendant for the work done, no payment was made, which led to a dispute.

FACTS OF THE CASE

Kerala State Road Transport Corporation (KSRTC) invited tenders for supply of rubber yarn for tyre manufacturing. Silpi Industries agreed to purchase as it had to pay 90% of the total purchase price at the time of delivery.[2]
The remaining 10% is paid on fulfillment of the conditions of running the rubber yarn supplied by Silpi Industries for a certain number of kilometres.
When the balance of 10% was not paid, Silpi Industries approached the Board of Trade under the MSMED Act.
However, the negotiated solution failed and the matter was referred for adjudication under the Arbitration and Conciliation Act, 1996 (Act 1996).
The decision was approved by Silpi Industries and KSRTC appealed to the Kerala High Court under Section 37 of the 1996 Act.
While delivering the verdict, the High Court said that the Act was applicable to proceedings under the 1996 Act arising out of the MSMED Act and the impugned case would be brought under control in the meantime.[3]
It also stated that the application filed by KSRTC under Section 11(6) of the 1996 Act was allowed as there was already a mutual agreement between the parties. Not satisfied with the High Court verdict, Silpi Industries appealed to the High Court.

ISSUES RAISED

Whether the provisions of The Limitation Act not applicable to judicial proceedings initiated under Section 18(3) of the MSMED Act?
Whether counter claim is maintainable in arbitration proceedings initiated under Micro, Small and Medium Enterprises Development Act?[4]

CONTENTIONS OF THE PETITIONER

The petitioner has sought relief under the MSMED Act but the basis is under Section 8 of the MSMED Act; the petitioner has also issued 38 C.A.Nos.1570-1578 and others of 2021 on the date of filing but again it is not a practical product. In support of his case, the petitioner has relied on the decision of the Delhi High Court in GE T&D India Ltd. V. Reliable engineering and operation but the fact of the matter is obvious as stated above.[5]
The equipment continues to be used even after the establishment is registered under Section 8 of the Act. In the present case, the undisputed position is that the goods were manufactured before the registration of the seller. The decision of the Delhi High Court relied upon by the applicant also does not provide any relief to the applicant’s case.
We find that in order to claim benefit under the MSMED Act, the seller must be registered under the provisions of the Act on the date of execution of the contract. . Section 8 of the Act provides that legally, once a contract is executed and goods and services are supplied, a person cannot have statutory distribution rights under the MSMED Act, 2006 to claim relief retrospectively from the date of execution of the contract between the petitioner and the respondent.[6]
The applicant cannot be a small business or small business entity by filing Memorandum 6 (2019) 19 SCC 529 40 C.A.Nos.1570-1578 of 2021 etc. to subsequently obtain the contract and supply goods and services.
The subscription if accepted is prospective and the application for supply of goods and services can be made after registration but cannot be withdrawn. Any other interpretation of the clause will not be correct and will give unfair advantage to a party outside the law.

CONTENTIONS OF THE RESPONDENT

The Supreme Court, while considering the contentions of the parties, answered the question of limitation by referring to various provisions of the Civil and Partnership Act, 1996 and the Limitation Act, 1963 and the Limitation Act, 1963.[7]
The Act is applicable to the proceedings under the Act, 1996 arising out of the MSMED Act. Answering the third question as to whether the suit is maintainable or not, the Supreme Court in 4 CA Nos. 1570-1578 and others of 2021 said that the “case for prosecution” under Section 23 (2A) of the Act, 1996 and – Set-off – is manageable.[8]
While holding that the suit is upheld, the Supreme Court concurred with the view taken by the Learned Single Judge of the Allahabad High Court in the case of M/s. BHP Engineers Pvt. Ltd. V. Director of Industries, U.P. (Promotion Centre), Kanpur & Ors.1 and the decision of the Bombay High Court at Nagpur in the case of M/s. Steel Authority of India Limited and Anr. V. Committee to Promote Micro and Small Enterprises2.
The petitioners made many applications, generally agreeing with the findings recorded by the Supreme Court regarding the validity of the 1963 Constitution and the sustainability of the case.

JUDGEMENT

The Supreme Court observed concurrently between the provisions of the MSMED Act and the Arbitration Act. The Court upheld Section 23 of the Arbitration and Decision Act which deals with the right of the accused to file a prosecution or defence.[9] Since the Penal Code and the Criminal Code clearly define the right of prosecution applicable to the award under the MSMED Act, the Supreme Court refused to restrict the right of an individual to reply and to grant leave to file a suit, proceeding or quash the proceedings before the Council. The awards and judicial proceedings under the MSMED Act have statutory authority. Therefore, the court said that even if there is an agreement between the two parties, the agreement must be disregarded and there is no legal obligation.[10] For this purpose, the court relied on the ratio of Edukanti Kistamma (deceased) to S. Venkatareddy (deceased) to LR and held that a special law like the MSMED Act would take precedence over the Right to Arbitration and Cooperation Act, which would preserve useful details like advance payment where the buyer can avoid payment.

The Court also held that refusal to entertain the case of the consignee would be contrary to the purpose of the Act and would lead to further litigation as both the parties could file an equivalent case in a civil court. Thus, the Supreme Court reconciled Section 18(3) of the MSMED Act with Sections 7(1) and 23(2A) of the Judiciary and Arbitration Act and upheld the jurisdiction under the MSMED Code of Conduct in the case. The Court held that the supply of goods and services by the appellant to the petitioner was completed before the registration of the petitioner under Section 8 of the MSMED Act.[11] Therefore, the petitioner is not entitled to avail the benefits of the Act by proceeding with the registration after the delivery. Therefore, in accordance with the agreement of the parties, the Supreme Court supported the view of the Madras High Court and allowed the appointment of the second Judge.

ANALYSIS OF THE CASE

This decision leaves aside the significant issues that created complications regarding the interaction between the MSMED Act and the repealed Act, 1996, which will go a long way in restoring confidence in contract administration, ensuring ease of doing business in India and curbing misuse of the law of due process. Small and medium enterprises constitute a significant part of the business economy and many of them will eventually get their grievances off their books.[12] Secondly, by accepting the requirement of dispute resolution in the MSMED Act, buyers will be protected from circumventing the jurisdiction of the civil courts. finally, the Supreme Court has fulfilled the objectives of the MSMED Act and Rules, 1996 by allowing the buyer to raise his claims/defenses on the right to arbitration, as this prevents a lot of litigation, protects the rights of the seller and ensures speedy resolution. However, the decision will affect the rights of unregistered organisations as it provides for mandatory registration under MSMED.[13]

CONCLUSION

In summary, the court rejected the plaintiff’s objection and said that all disputes relating to the nature and interests of MSMEs should be resolved through arbitration. The decision is based on the interpretation of the law and ensuring fair resolution under the Micro, Small and Medium Enterprises Act.[14] This document emphasizes the importance of legal certainty and compliance with the law, especially in the informal economy, which includes micro, small and medium enterprises. It underlines the role of the judiciary in resolving such disputes and emphasizes the importance of timely access to counsel in complex legal proceedings.

REFERENCES

This Article is written by Rupali Sharma, student of The Law School, University of Jammu; an Intern at Legal Vidhiya.

[1] https://indiankanoon.org

[2] https://main.sci.gov.in

[3] www.indiacorplaw.in

[4] https://wwwmondaq.com

[5] https://livelaw.in

[6] https://supremetoday.ai

[7] https://lawfyi.in

[8] https://lexology.in

[9] https://indiankanoon.org

[10] https://www.barandbench.com

[11] https://supremetoday.ai

[12] https://lawfyi.io

[13] https://www.lexology.in

[14] https://www.pslchambers.com

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