Delhi High Court Rules MSMEs Can Claim Benefits Mid-Contract Under MSMED Act

New Delhi, Sep 20 (KNN) The Delhi High Court has issued a significant ruling that could have far-reaching implications for micro, small and medium enterprises (MSMEs) engaged in long-term contracts.

In a judgment delivered on January 30, 2024, the court affirmed that MSMEs may claim benefits under the MSMED Act, 2006, even if they obtain registration during the course of an ongoing contract.

The case arose from a dispute between Mahanagar Telephone Nigam Limited (MTNL) and an architectural consultant.

MTNL challenged an arbitration referral made by the Micro and Small Enterprises Facilitation Council, arguing that the consultant was not an MSME when their contract was signed in 2006.

Justice Subramonium Prasad, delivering the verdict, emphasised, "Any MSME is entitled to claim benefit under the MSMED Act even if it is registered during the subsistence of contract and not before the commencement of dispute."

This interpretation aligns with recent Supreme Court clarifications on the prospective applicability of MSME benefits.

The court declined to intervene directly, instead allowing the arbitral tribunal to determine the specific applicability of MSME protections in this case.

Justice Prasad noted that such determinations involve ‘mixed questions of law and facts’ best addressed within the arbitration process.

This ruling is particularly significant for businesses that transition to MSME status during long-term projects.

It suggests that MSME benefits, including preferential payment terms and dispute resolution mechanisms, may apply to portions of work completed after registration, even within pre-existing contracts.

The case centred on a claim of over Rs. 1.59 crore for unpaid architectural consultancy fees related to an MTNL telephone exchange project. The consultant obtained MSME registration in 2018, well into the contract's execution.

Legal experts suggest this judgment could encourage more businesses to seek MSME registration, knowing that benefits may apply to ongoing contractual relationships.

It also underscores the importance of larger corporations remaining aware of their suppliers' evolving MSME status.

The Delhi High Court's decision reinforces recent trends in Indian jurisprudence that aim to strengthen protections for smaller enterprises while balancing the rights of all parties in commercial disputes.

(KNN Bureau)