The case of M/S. Ramky Infrastructure Private Limited (RIL) vs. Micro and Small Enterprises Facilitation Council & Anr. adjudicated by the Delhi High Court on July 4, 2018, addresses crucial aspects of the definition and scope of the term "supplier" under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The dispute arose when the Micro and Small Enterprises Facilitation Council (MSEFC) referred conflicts between RIL and its supplier, GCIL, to arbitration under Section 18 of the Act. RIL challenged both the jurisdiction of the Council and the procedural fairness of the reference, leading to a comprehensive legal examination of the Act's provisions.

The Delhi High Court dismissed RIL's petition, upholding the Council's authority to refer the dispute to arbitration under Section 18 of the MSMED Act. The court concluded that GCIL qualified as a "supplier" despite not having registered under Section 8 of the Act at the time of the disputed transactions. Furthermore, the Council had adhered to the principles of natural justice by providing RIL ample opportunities to present its case, thereby invalidating RIL's claims of arbitrary reference.

Precedents Cited

The judgment extensively referenced several pivotal cases to substantiate its interpretation of the term "supplier" and the jurisdiction of the Council:

• GE T & D India Limited v. Reliable Engineering Projects and Marketing (2017) 238 DLT 79: This Supreme Court decision emphasized the broad interpretation of statutory definitions, underscoring the inclusion of entities beyond the literal wording.
• M/s Hameed Leather Finishers v. M/s Associated Chemical Industries Kanpur Pvt. Ltd. & Another (2013) SCC OnLine All 9058: This case reinforced the significance of understanding legislative intent over mere textualism.
• The Indur District Cooperative Marketing Society Ltd. v. Microplex (India), Hyderabad and Ors. MANU/AP/0785/2015: Highlighted the non-exhaustive nature of definitions using terms like "includes", allowing for incorporation of additional relevant entities.
• Thalappalam Service Cooperative Bank Limited and Others v. State of Kerala and Others (2013) 16 SCC 82: This Supreme Court ruling provided a framework for interpreting definitions involving multiple categories connected by "means" and "includes".

Legal Reasoning

The core of the court's legal reasoning rested on a meticulous interpretation of Section 2(n) of the MSMED Act, which defines "supplier". RIL contended that GCIL did not qualify as a supplier during the period in question because it hadn't filed a memorandum under Section 8(1) of the Act. However, the court dissected the definition, noting that "supplier" encompasses not only registered micro or small enterprises but also entities such as companies, cooperative societies, trusts, or bodies engaged in selling goods or rendering services by such enterprises.

The court further clarified that the definition was exhaustive and not merely indicative, meaning all specified categories are included without omission. This interpretation was supported by the Supreme Court's stance in Thalappalam Service Cooperative Bank Limited, ensuring that entities falling under the second limb of Section 2(n)(iii) are equally recognized as suppliers, irrespective of their registration status at the time of the transaction.

Regarding procedural fairness, the court analyzed the sequence of hearings and notices issued by the Council, finding that RIL had multiple opportunities to present its case. The absence of RIL’s participation in certain meetings did not equate to a denial of natural justice, as sufficient avenues were provided and utilized by RIL in other instances.

Impact

This judgment has significant implications for the interpretation of the MSMED Act, particularly in delineating the boundaries of who qualifies as a "supplier". By adopting a broader interpretation, the court has effectively widened the scope of entities that can be involved in arbitration under Section 18, ensuring that even those not formally registered at the time of transaction can be recognized if they fall under the specified categories.

For future cases, this precedent ensures that companies engaged with micro and small enterprises are aware of their potential obligations under the MSMED Act, regardless of the registration status of their suppliers during contractual engagements. It also reinforces the authority of the Council to refer disputes to arbitration, provided that the parties fall within the defined purview of the Act.

Definition of "Supplier" Under Section 2(n)

Under Section 2(n) of the MSMED Act, a "supplier" is broadly defined to include various categories:

• Micro or small enterprises that have filed a memorandum under Section 8(1) of the Act.
• National Small Industries Corporation, registered under the Companies Act.
• Small Industries Development Corporations of states or union territories.
• Entities such as companies, cooperative societies, trusts, or bodies engaged in selling goods or rendering services provided by micro or small enterprises.

This comprehensive definition ensures that a wide range of entities can be recognized as suppliers, not limited to those with specific registrations, thereby facilitating broader dispute resolution mechanisms under the Act.

Section 18 of the MSMED Act

Section 18 empowers any party to a dispute regarding amounts due under Section 17 to refer the matter to the Micro and Small Enterprises Facilitation Council. This section outlines the process for conciliation and, if unsuccessful, arbitration, thereby providing a structured framework for resolving financial disputes between buyers and suppliers within the MSME sector.

The Delhi High Court's judgment in the RIL vs. MSEFC case serves as a pivotal interpretation of the MSMED Act's provisions concerning the definition of "supplier" and the jurisdiction of the Micro and Small Enterprises Facilitation Council. By affirming a broader understanding of "supplier," the court ensures that the Act's protective measures extend to a wider array of entities, thereby reinforcing the framework for fair financial dealings within the MSME sector.

Moreover, the affirmation of procedural fairness in the Council's proceedings underscores the importance of adhering to due process in dispute resolution. This judgment not only resolves the immediate conflict between RIL and GCIL but also sets a clear precedent for future cases, promoting a more inclusive and equitable business environment for micro and small enterprises across India.