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M/S. Silpi Industries etc. v. Kerala State Road Transport Corporation & Anr. etc.

Civil Appeal · 2021 INSC 314Decided 29 Jun 2021
Civil Appeal Nos. 1570-1578 of 2021
Justice Ashok Bhushan · Justice R. Subhash Reddy

Background

Two sets of small-business suppliers, Silpi Industries, which supplied thread rubber to the Kerala State Road Transport Corporation, and Khyaati Engineering, which contracted with a hydro power company, sought to invoke the special payment and arbitration protections available to small enterprises under the MSMED Act, 2006, including its Section 18 arbitration mechanism and interest on delayed payments. In both cases, the suppliers had registered themselves as "micro" or "small" enterprises under Section 8 of the Act only after they had already entered into the relevant contracts and supplied the goods.

Decision Breakdown

The Supreme Court held that to claim the benefits of the MSMED Act, a supplier must already be registered as a micro or small enterprise on the date it enters into the contract: registration obtained afterward, even if before the dispute arose, cannot be applied retrospectively to cover an earlier transaction. Since both sets of appellants had registered only after concluding their contracts and supplies, they could not invoke the Act's special arbitration and interest provisions for those transactions, and their appeals were dismissed, upholding the High Courts' orders that had allowed the matters to proceed to ordinary arbitration instead.

Lesson Learnt

A small business must register under the MSMED Act before entering into a contract (not merely before a dispute arises) in order to claim that Act's fast-track payment and arbitration protections for that particular transaction.

Official source (sci.gov.in)View Judgment (PDF)

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