Later MSME registration does not bar a business from referring payment disputes to arbitration, Delhi High Court rules

Respondent No. 2 was engaged by the petitioner as a subcontractor under a Letter of Intent dated 27 November 2017 and a Work Order dated 19 January 2018.

Respondent No. 2 obtained MSME registration in 2020 and, in 2022, referred a payment claim of approximately ₹3.60 crore to the Facilitation Council under Section 18 of the MSME Act.

After conciliation failed, the Council terminated the proceedings and referred the dispute to DIAC for arbitration under Section 18(3).

Whether an enterprise’s registration under the MSME Act after execution of the contract precludes it from invoking Section 18 of the Act

Whether the Council’s referral of the dispute to arbitration, without first deciding the petitioner’s jurisdictional objections, warranted interference in writ proceedings

Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 provides that “any party to a dispute” concerning an amount due under Section 17 may make a reference to the Facilitation Council; Section 18(2) provides for conciliation, and Section 18(3) permits arbitration when conciliation fails.

Section 8(1) permits a micro or small enterprise to file a memorandum at its discretion.

Relying on NBCC (India) Ltd. v. State of West Bengal, 2025 INSC 54, the Court applied the interpretation that Section 18’s use of “any party to a dispute” is not confined to enterprises registered under Section 8 before contracting, and that registration is not a mandatory precondition to a Section 18 reference.

Respondent No. 2’s MSME registration was obtained in 2020, after the 2017–2018 contract, but the claim arose from that work order and the final bill was raised in 2021, after registration.

Applying NBCC, the Court held that subsequent registration did not, by itself, prevent Respondent No. 2 from seeking relief under Section 18.

It also noted that the Council had only terminated conciliation and referred the dispute for arbitration; it had not adjudicated the parties’ claims or contentions. The petitioner therefore had not shown prejudice from the referral, and the parties remained free to raise their respective contentions in arbitration.

It decided only the objection based on the timing of Respondent No. 2’s registration; it made no determination on the merits of the underlying claims, which the parties were at liberty to pursue before the arbitral tribunal.