Filing Section 8(1) Memorandum Not a Prerequisite for Invoking MSMED Act Section 18 Arbitration Mechanism.

In brief

The question

1. Whether a Micro or Small Enterprise must be registered under Section 8(1) of the MSMED Act at the time of the contract or rendering of services to invoke the statutory arbitration mechanism under Section 18.

The court held

The Court answered the issue in the negative, holding that an objection regarding the date of registration cannot be treated as a ground to interdict the Section 18 statutory mechanism at the threshold.

It also directed

The Writ Petition was dismissed, and the Court declined to interfere with the Council's referral to DIAC.

The Petitioner’s rights to contest the matter on merits before the arbitral tribunal remain reserved.

01Facts

The Petitioner (NBCC) challenged orders dated 08.04.2021 and 27.05.2022 passed by Respondent No. 1 (the Council) under Section 18 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

¶ 1

The Council had referred a dispute raised by Respondent No. 2 to the Delhi International Arbitration Centre (DIAC).

¶ 1

The Petitioner contended that Respondent No. 2 was ineligible to invoke Section 18 because it was not registered under the MSMED Act at the time the contract was executed, when services were rendered, or when the invoices were raised.

¶ 2

02Issues

i.1. Whether a Micro or Small Enterprise must be registered under Section 8(1) of the MSMED Act at the time of the contract or rendering of services to invoke the statutory arbitration mechanism under Section 18.

¶ 2-3

03Law Applied

The Court applied Section 18 and Section 8(1) of the MSMED Act, 2006, alongside the precedent established by the Supreme Court in NBCC (India) Ltd. vs. The State of West Bengal & Ors. (2025 INSC 54).

¶ 3

The core principle is that Section 18 uses the broad term "any party to a dispute" rather than just "supplier," and the definition of "supplier" under the Act is not restricted to entities that filed a memorandum under Section 8(1).

¶ 3

Furthermore, under Sections 2(h) and 2(m), an enterprise's status is determined by investment, and filing a memorandum under Section 8(1) is a discretionary act, not a mandatory prerequisite for "recognition" or "existence".

¶ 3, quoting SC para. 39

Provisions in the judgment · 4 · Linked ones open on LawLens

Micro, Small and Medium Enterprises Development Act, 2006 Section 2 Section 7 Section 8 Section 18

04Reasoning

The Court reasoned that the statutory mechanism of the MSMED Act is accessible even to unregistered entities provided they qualify as micro or small enterprises based on investment criteria.

¶ 3

Reaffirming the Supreme Court’s reasoning, the Court noted that since registration (filing of memorandum) is discretionary under Section 8, the Council cannot reject a reference under Section 18 solely on the grounds of non-registration at the threshold.

¶ 3-4

The Court observed that it has consistently followed this interpretation in multiple previous rulings, such as Municipal Corporation of Delhi v. M/S Vijay Bansal, despite the issue being currently pending before a larger bench of the Supreme Court.

¶ 4-5

Since the impugned orders merely referred the matter to arbitration without deciding the merits of the claim, there was no jurisdictional error.

¶ 6-7