In a bid to foster a conducive environment for the growth and sustenance of Micro, Small and Medium Enterprises (MSMEs), the Indian judiciary plays a pivotal role in ensuring that disputes involving these enterprises are resolved judiciously. A recent testament to this is the judgment delivered by the Delhi High Court in the case of The Chief General Manager, (CONTRACTS), M/S Neyveli Lignite Corporation Ltd. vs Driplex Water Engineering Ltd. & ANR. [W.P. (C) 9670/2016] on 2nd September 2019.
Backdrop:
The case revolves around a contractual dispute between Neyveli Lignite Corporation Ltd. (Neyveli) and Driplex Water Engineering Ltd. (Driplex) concerning a water treatment plant project. The bone of contention arose when Driplex, aggrieved by Neyveli’s withholding of performance bank guarantees, initiated proceedings with the Micro and Small Enterprises Facilitation Council (MSEF Council). The Council, concluding that an amicable resolution was unattainable, referred the matter to arbitration as stipulated under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
Contentions:
Neyveli contested the jurisdiction of MSEF Council to make such a reference under the MSMED Act, arguing that Driplex did not qualify as a small enterprise, thus rendering the reference unjustified. Additionally, Neyveli assailed the impugned order for disregarding the preliminary objections raised by them.
On the other hand, Driplex contended that despite being registered as a Small Scale Industrial Unit post the contract, it was eligible to seek recourse under the MSMED Act. Furthermore, Driplex argued that the MSMED Act didn’t create a fresh liability regarding payment of interest, and the Council’s decision to refer the disputes to arbitration was valid.
Verdict:
The Delhi High Court, after examining the contentions, upheld the MSEF Council’s decision to refer the disputes to arbitration under the MSMED Act. The Court observed that the classification of an enterprise under the MSMED Act is based on its investment in equipment, dismissing Neyveli’s argument regarding Driplex’s turnover. Moreover, it held that the non-obstante provision in Section 24 of the MSMED Act ensured that Driplex could seek recourse under the Act, irrespective of the terms of the contract.
Conclusion:
This judgment underscores the crucial role of judicial mechanisms in safeguarding the interests of MSMEs and upholding the statutory provisions aimed at facilitating the resolution of disputes involving such enterprises. By reaffirming the jurisdiction of the MSEF Council under the MSMED Act, the Delhi High Court has sent a clear message about the prevailing legal recourse available to MSMEs in contractual disputes.
This case demonstrates the delicate balancing act that courts must perform in adjudicating disputes involving MSMEs, ensuring that the legal framework intended to support these enterprises is adhered to, while also addressing the legitimate concerns of the other contracting parties.