MSME Registration Not a Prerequisite for Section 18 Dispute Resolution: A Commentary on NBCC (India) Ltd. v. The State of West Bengal (2025 INSC 54)

1. Introduction

The Supreme Court of India’s judgment in NBCC (India) Ltd. v. The State of West Bengal & Ors. (2025 INSC 54) addresses a significant legal question under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act or the Act), particularly whether an enterprise must be registered under Section 8 of the Act prior to entering into a contract to avail itself of the dispute resolution mechanism before the MSME Facilitation Council under Section 18.

The case arose when M/s Saket Infra Developers Private Limited (the Enterprise), a small enterprise, sought reference of its payment-related disputes to the West Bengal MSME Facilitation Council. Subsequently, NBCC (India) Ltd. (the Appellant) questioned the Facilitation Council’s jurisdiction, primarily arguing that the Enterprise was unregistered at the time the relevant work contracts were executed. This led the Court to examine whether prior registration under Section 8 is a necessary prerequisite to invoke Section 18 of the MSMED Act.

In a decision with far-reaching implications, the Supreme Court held that Section 18 employs the phrase “any party to a dispute,” which is broader than the definition of “supplier” in Section 2(n). The Court concluded that MSMEs can seek dispute resolution under Section 18, even if they are not registered under Section 8 at the time of executing a contract. However, to ensure clarity and certainty in the light of certain earlier judgments, the Court has referred this crucial question to a larger Bench.

2. Background of the Case

Parties Involved:

• NBCC (India) Ltd. (Appellant) – a government undertaking engaged in construction and project management services.
• The State of West Bengal & Ors. (Respondents) – representing public authorities, and more specifically, the West Bengal State Micro and Small Enterprises Facilitation Council, as well as the private contracting party, M/s Saket Infra Developers Pvt. Ltd. (the MSME “Enterprise”).

Key Issue: The central question was whether the Enterprise, which registered as a small undertaking under Section 8 of the MSMED Act only after it executed four out of five contracts with NBCC, could validly refer disputes arising from those contracts to the MSME Facilitation Council under Section 18 of the Act.

Factual Timeline:

• Between July 2015 and August 2016, NBCC granted four work orders to the Enterprise for construction projects in West Bengal.
• The Enterprise filed its memorandum under Section 8 of the MSMED Act on 19 November 2016. It entered into a fifth contract with NBCC in September 2017.
• During the subsistence of the contracts, various disputes arose regarding pending payments. The Enterprise invoked Section 18 of the MSMED Act before the West Bengal MSME Facilitation Council on 28 March 2019.
• The Facilitation Council proceeded to arbitrate the dispute after failed conciliation. NBCC objected, contending that the Enterprise was not registered as an MSME at the time the first four contracts were executed.
• Both the Single Judge and Division Bench of the High Court of Calcutta dismissed NBCC’s challenge, holding that any jurisdictional objection should be placed before the Arbitral Tribunal itself.
• NBCC appealed before the Supreme Court, leading to the current judgment.

3. Summary of the Judgment

Delivering its judgment, the Supreme Court tackled the preliminary issue: “Does the MSME Act bar an enterprise from invoking Section 18 if it has not filed a memorandum under Section 8 before executing the contract?” The Court’s key findings include:

1. The phrase “any party to a dispute” in Section 18 is intentionally broad; it does not limit the remedy to only those suppliers who were registered at the time of entering into the contract.
2. Section 18 is a statutory mechanism for dispute resolution, emphasizing access to justice for all MSMEs (or their counterparties). The Court observed that reading a mandatory precondition of prior registration into the provision would be contrary to the text and to the legislative scheme of the Act.
3. Section 8 of the MSMED Act clearly states that filing a memorandum by a micro or small enterprise is “at his discretion.” Thus, it is not mandatory, and an MSME cannot be denied statutory remedies simply because it was not registered when a particular contract was executed.
4. Although earlier Supreme Court cases (Silpi Industries v. Kerala State Road Transport Corporation and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd.) made observations about registration and entitlement to benefits, the question of whether Section 18 is unavailable without prior Section 8 registration was never specifically raised, analyzed, or decided in those cases.
5. In light of potential confusion arising from the interpretations of these previous decisions, the Court referred the matter to a larger three-Judge Bench for an authoritative pronouncement on whether Section 18 is restricted to registered suppliers only.

4. Analysis

4.1 Precedents Cited

The Court took note of several precedents and statutes:

• Shanti Conductors v. Assam State Electricity Board (2019) 19 SCC 529: A three-Judge Bench decision that examined the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. The Supreme Court held that the buyer’s statutory liability arose from the supply of goods or services, irrespective of the date of the underlying contract. This principle was carried forward into the MSMED Act.
• Silpi Industries v. Kerala State Road Transport Corporation (2021) 18 SCC 790: This case primarily addressed (i) whether the Limitation Act applies to arbitrations under the MSMED Act, and (ii) whether counterclaims are maintainable under such arbitration proceedings. In passing, the Court also observed that the appellant in that litigation could not claim MSME benefits if it was unregistered at the time of supply. However, the specific question of Section 18’s scope regarding unregistered MSMEs was not the subject of focused analysis.
• Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (2023) 6 SCC 401: Concerned the MSMED Act’s overriding effect over the Arbitration and Conciliation Act, 1996, and whether Section 18 arbitration could proceed if there was an independent arbitration agreement between the parties. Similarly, the potential restriction on unregistered MSMEs was merely stated, but never thoroughly canvassed or decided.
• Vaishno Enterprises v. Hamilton Medical Ag (2022 SCC OnLine SC 355) and M/s Nitesh Estates Ltd. v. Micro and Small Enterprises Facilitation Council of Haryana & Ors.: Both short orders turned on specific facts and relied on the statements made in Silpi Industries, again not squarely addressing whether an MSME must register under Section 8 before contract execution to invoke Section 18.

4.2 The Court’s Legal Reasoning

The Court’s reasoning rested on four critical elements:

1. Text of Section 18: The provision allows “any party to a dispute” with regard to “any amount due under Section 17” to make a reference to the Facilitation Council. Interpreting “any party” to mean only an MSME supplier registered before contract would import requirements not found in the statutory text.
2. Scheme of the MSMED Act: Chapter V of the Act extensively protects the rights of micro and small enterprises by designating a legislative remedy for delayed payments. Section 8 is clearly discretionary (“may, at his discretion”). Therefore, nothing in the Act provides that unregistered enterprises automatically lose all right to statutory dispute resolution.
3. Legislative Object and Access to Justice: The MSMED Act recognizes the critical importance of MSMEs in India’s economy and aims to give them a swift and effective dispute resolution mechanism. The Court emphasized that key aspects of effective judicial remedies include accessibility, affordability, promptness, and cohesiveness. Imposing a prerequisite of prior registration could undermine these principles.
4. Nature of Prior Judgments (Silpi Industries & Mahakali Foods): While these judgments do mention the need for prior registration to claim certain benefits (especially interest from the date of supply), neither squarely decided whether unregistered MSMEs are barred from approaching the Facilitation Council for dispute resolution. Observations in Silpi and Mahakali Foods were labeled “sub-silentio” on the specific legal question raised here.

4.3 Impact on Future Cases

The Court’s findings in the present case—particularly regarding the broad scope of Section 18—could substantially reshape how micro and small enterprises view dispute resolution under the MSMED Act. Potential impacts include:

• Broader Access for MSMEs: Micro and small enterprises are not barred from approaching the Facilitation Council only because they were not registered on the contract date. Future claims may witness an increase in references to the Facilitation Council.
• Greater Certainty After Larger Bench Reference: The Court’s reference to a three-Judge Bench signals an upcoming authoritative ruling that will clear any perceived conflict between this decision and the earlier pronouncements in Silpi Industries, Mahakali Foods, and subsequent orders.
• Reinforced Policy Goals: The outcome helps reinforce the legislative goal of promoting and shielding MSMEs from payment delays, encouraging them to continue or expand business activities without fear of being shut out from statutory remedies.

5. Complex Concepts Simplified

Micro, Small, and Medium Enterprises (MSMEs): These are classified under the Act based on their investment in plant/machinery or in equipment used to provide services. Registration under Section 8 is not synonymous with their existence as “MSMEs.” Rather, filing a memorandum under Section 8 is optional for micro and small enterprises and made mandatory only for a certain category of medium enterprises (those engaged in manufacturing or production of goods).

Section 18 Facilitation Council Proceedings: Where an MSME faces disputes regarding payment for goods or services, it may refer the dispute to a state-level MSME Facilitation Council. The Council first attempts conciliation; if it fails, it proceeds to arbitrate or refers the matter for arbitration under the Arbitration and Conciliation Act, 1996. This forum is designed to be expedited and specialized for MSME-related issues.

Statutory/Beneficial Legislation: The MSMED Act is considered beneficial legislation, designed to safeguard smaller economic players. Courts generally construe beneficial statutes in favor of the protected class (in this case, MSMEs), avoiding technical or narrow interpretations that would defeat legislative purpose.

“Sub-silentio” Decisions: A prior case is deemed decided “sub-silentio” on an issue when that issue was neither raised, argued, nor analyzed, yet there may be language touching on it. Such statements are not binding as precedents on that particular point of law.

Larger Bench Reference: If the Supreme Court perceives a conflict or lack of clarity in its own rulings, it can refer the question to a larger bench (3-Judge or 5-Judge) to secure an unambiguous and binding ruling under Article 141 of the Constitution.

6. Conclusion

The Supreme Court’s decision in NBCC (India) Ltd. v. The State of West Bengal & Ors. (2025 INSC 54) clarifies that, under the MSMED Act, an enterprise is not barred from invoking Section 18 solely because it had not filed a memorandum under Section 8 prior to executing the contract. By pointing out that Section 8 registration is discretionary for micro and small enterprises, the Court reinforces that the Act’s dispute resolution mechanism is meant to be widely accessible.

In doing so, this judgment preserves and advances the policy objective underlying the Act: to provide an efficient and cost-effective forum for speedy resolution of payment disputes for MSMEs. However, to ensure certainty among diverging statements in earlier decisions, the Court has referred the matter to a three-Judge Bench. The forthcoming determination will settle any lingering ambiguities about whether, and to what extent, MSMEs may be required to register under Section 8 before claiming statutory dues and interest.

Overall, every MSME—whether registered at the inception of a contract or not—should closely follow the larger Bench’s ruling, as it will definitively shape the trajectory of MSME dispute resolution and payment recovery in India.