A party who was not the ‘supplier’… cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006

The supreme court of India dismissed Seven appeals factually different but involved the same question of the law the apex Court held that A party who was not the ‘supplier’ as per the definition contained in Section 2(n) of the MSMED Act, 2006 on the date of entering into a contract cannot seek any benefit as the ‘supplier’ under the MSMED Act, 2006. If any registration is obtained subsequently the same would have an effect prospectively and would apply to the supply of goods and rendering services after the registration 

Despite the existence of an independent arbitration agreement between the parties to whom the Micro, Small, and Medium Enterprises Development Act, 2006 is applicable, the Supreme Court noted that the reference to the Facilitation Council is maintainable.

The court made this observation while deciding a group of appeals in which the following questions were raised: 

1. Do the provisions of Chapter V of the MSMED Act, 2006 have the power to supersede the provisions of the Arbitration Act, 1996? 
2.  If there was an independent arbitration agreement between the parties as envisioned in Section 7 of the Arbitration Act, 1996, would any party to a dispute regarding any amount due under Section 17 of the MSMED Act, 2006 be prohibited from making a referral to the Micro and Small Enterprises Facilitation Council under sub-section (1) of the said Act?
3. Whether the Micro and Small Enterprises Facilitation Council, itself could take up the dispute for arbitration and act as an arbitrator, when the council itself had conducted the conciliation proceedings under sub-section (2) of Section 18 of the MSMED Act, 2006 given the bar conciliation proceedings under sub-section (2) of Section 18 of the MSMED Act, 2006 given the bar contained in Section 80 of the Arbitration. 

The Buyers argued before the Apex Court that the remedy of referral to the facilitation council would only be available in the absence of a contract provision requiring the settlement of disputes through arbitration by the Arbitration Act, 1996. The argument made on behalf of the Suppliers was that Section 18 of the MSMED Act, 2006 gives the party a statutory right to contact the council and that this right cannot be eliminated because the parties have agreed to arbitrate their disputes.

Despite the prohibition in Section 80 of the Arbitration Act, the Facilitation Council, which had started the Conciliation proceedings under Section 18(2) of the MSMED Act, 2006, would be permitted to serve as an arbitrator. The proceedings before the Facilitation Council, institute, or center acting as an arbitrator or arbitration tribunal under Section 18(3) of the MSMED Act, 2006 would be governed by the Arbitration Act, 1996.