M/S. Dalapathi Constructions vs. The State Of Andhra Pradesh

Held

The Court held that the Micro and Small Enterprises Facilitation Council (MSEFC) has the jurisdiction to adjudicate claims for recovery of money due on account of the sale of goods or supply of services, irrespective of whether the transaction is characterized as trading, manufacturing, or servicing, as long as the petitioner is a registered MSME. The Court found the MSEFC's view that the sale of plant and machinery is a trading activity and therefore beyond its scope to be incorrect. The Court respectfully agreed with the principle laid down by the Bombay High Court in *Shah & Parikh, Engineers & Contractors vs. Urmi Trenchless Technology Pvt. Ltd.*, which stated that once an enterprise is registered under the MSMED Act, all its provisions apply with full force, and registration for a particular activity does not preclude the enterprise from being considered for other activities. The Court also held that the presence of an arbitration agreement in the underlying contract does not bar reference of the dispute to the MSEFC, citing Section 18(4) of the MSMED Act, 2006, which contains a non-obstante clause. The writ petition was allowed, directing the 2nd respondent (MSEFC) to consider the petitioner's claim in accordance with law, after providing proper notice and adequate opportunity to both parties. The Court explicitly stated it was not going into the merits of the claims.

Facts

The petitioner, M/s. Dalapathi Constructions, a registered Micro, Small and Medium Enterprise (MSME), entered into a contract with the 3rd respondent, M/s. Undavalli Constructions, for construction work. Due to the contract's non-execution, a Memorandum of Understanding (MOU) was signed on May 20, 2020, wherein the 3rd respondent agreed to pay Rs. 253 lakhs plus GST for plant and machinery handed over. When the 3rd respondent failed to make the payment, the petitioner approached the Micro and Small Enterprises Facilitation Council (MSEFC), the 2nd respondent, for recovery. The MSEFC rejected the application on June 22, 2021, stating that the sale of plant and machinery was a trading activity, not manufacturing or servicing, and thus beyond the Council's scope under the MSMED Act, 2006. The petitioner filed a writ petition challenging this rejection.

Key Issues

1. Whether the Micro and Small Enterprises Facilitation Council (MSEFC) has the jurisdiction to adjudicate a claim for recovery of consideration for the sale of plant and machinery, even if the petitioner is registered under the MSMED Act, 2006, and the transaction is considered a trading activity by the Council, as per Section 18 of the MSMED Act, 2006? Petitioner's arguments: The petitioner contended that once registered as an MSME, it is entitled to the benefits of the Act, and the MSEFC must consider claims for recovery of money due on account of the sale of goods or supply of services. They argued that the sale of plant and machinery is a sale of goods and not solely a trading activity that falls outside the Act's purview. They relied on the Bombay High Court judgment in *Shah & Parikh, Engineers & Contractors vs. Urmi Trenchless Technology Pvt. Ltd.* Respondents' arguments: The 3rd respondent argued that there is an effective alternative remedy available through arbitration as per Clause 38 of the agreement dated June 14, 2018. They also contended that the MSEFC's view that the sale of plant and machinery is not a manufacturing or service activity and thus outside the Act's scope is correct. The 1st and 2nd respondents did not record specific arguments.