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Delhi High Court Holds MSME Registration Operates Prospectively and Cannot Revive Abandoned Arbitration Claims

Writer: Kaustav Chowdhury
Kaustav Chowdhury
12 minutes ago
6 min read

Background and Facts

The Delhi High Court has held that MSME registration obtained after a supply has been made confers no right to refer the resulting dispute to a Micro and Small Enterprises Facilitation Council, and that a supplier who abandons an arbitration cannot revive the same claims by registering later and starting again. The judgment in Shri Krishan Grit Co. v. Continental Engineering Corporation [ARB. A. (COMM) 30/2024 and I.A. 29603/2024] was reserved on August 17, 2026 and delivered on September 8, 2026.

The appellant, a sole proprietorship, supplied aggregates, sand and TMT steel bars to the respondent under a memorandum of understanding dated February 9, 2016. The supplies ran through 2016 and 2017. When payment disputes arose, the appellant issued a legal notice invoking arbitration on November 3, 2018, and an arbitrator was appointed. The appellant then failed to file its Statement of Claim, and those proceedings were terminated.

On February 26, 2019, the appellant registered as a micro or small enterprise in Delhi, the registration being for services. It then approached the Micro and Small Enterprises Facilitation Council in respect of the same unpaid dues. The Council referred the dispute to the Delhi International Arbitration Centre under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006, and a sole arbitrator was appointed. The respondent challenged jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996. The arbitrator upheld that challenge and held that the tribunal had no jurisdiction. The appellant appealed.

Key Legal Issue

The appeal lay under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996, which permits an appeal from an order of an arbitral tribunal accepting a plea referred to in Section 16(2) or Section 16(3). The substantive question was whether a registration under the MSMED Act obtained in 2019 could support a reference in respect of supplies made in 2016 and 2017, and whether claims abandoned in an earlier arbitration could be pursued afresh through the statutory route.

The Delhi High Court's Ruling

Justice Tushar Rao Gedela dismissed the appeal as unmerited, holding that the arbitrator had correctly declined jurisdiction.

The Benefit Attaches From Registration, Not From Supply

The Court held that the machinery in Chapter V of the MSMED Act is available only for claims arising after registration. Applying the Supreme Court's decision in Silpi Industries, the Court recorded that

"only such claims which may arise post the registration of any entity as a Micro or Small industry under the MSME Act, 2006, would be maintainable".

Since the supplies were made in 2016 and 2017 and the registration relied upon dated from February 26, 2019, the claims fell outside the statutory scheme. This is a point of some practical consequence, because the incentive to use the Council route is substantial. Section 15 requires a buyer to pay within the agreed period and in any event within forty-five days of acceptance or deemed acceptance, Section 16 attaches compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, and Section 19 requires a buyer seeking to set aside an award to deposit seventy-five per cent of the amount awarded. A supplier who registers late forfeits all of that in respect of earlier supplies.

Two Registrations, Two Different Entities

The appellant sought to rely on an earlier registration of a manufacturing unit in Rajasthan dated October 20, 2016. The Court did not accept that this assisted the claim. The Rajasthan certificate was for manufacturing activity, while the Delhi certificate obtained in 2019 was for services, and the entity that had signed the memorandum of understanding was the Delhi-based concern, which had no registration until 2019.

The territorial point follows from the statute. Section 18(4) confers jurisdiction on the Council located where the supplier is situated, in a dispute between that supplier and a buyer located anywhere in India. A registration held by a different unit in a different State, for a different activity, does not supply the jurisdictional foundation for a reference to the Delhi Council.

Abandonment Has Consequences

The second limb of the reasoning is independent of the registration question. The appellant had invoked arbitration in 2018, secured the appointment of an arbitrator, and then abandoned the reference without filing a Statement of Claim. It did not challenge the termination of those proceedings. The Court treated the subsequent resort to the Council, in respect of identical claims, as impermissible forum hunting rather than as a fresh and legitimate invocation of a statutory remedy.

The distinction matters. Section 18(1) permits a party to a dispute to refer any amount due under Section 17 to the Council. It does not create a second opportunity to litigate a claim that the same party allowed to lapse in a forum of its own choosing.

Precedent Relied Upon

The Court relied on Silpi Industries v. Kerala State Road Transport Corporation, (2021) 18 SCC 790, for the proposition that the benefits of the MSMED Act apply only to claims arising after registration, and referred to Shanti Conductors (P) Ltd. v. Assam State Electricity Board, (2019) 19 SCC 529, on the relevance of the date of supply, and noted that Ramky Infrastructure Private Limited v. Micro and Small Enterprises Facilitation Council, 2018 SCC OnLine Del 9671, no longer holds the field after Silpi Industries. On the limits of appellate interference with an arbitrator's findings of fact, the Court referred to C & C Constructions Ltd. v. IRCON International Ltd., 2025 SCC OnLine SC 218.

Practice Notes

In practice, the judgment sharpens two questions that should be asked at the outset of any MSME payment dispute:

  • For suppliers: Establish the registration date before framing the claim, and map it against the dates of each supply. Where a course of dealing straddles the registration date, the claims must be split, because only the post-registration portion can travel to the Council.

  • For suppliers with multiple units: A registration held by one unit does not travel to another. Confirm that the registered entity is the entity that contracted, that the activity matches the registration, and that the location supports jurisdiction under Section 18(4) before making the reference.

  • For buyers: The jurisdictional objection should be raised under Section 16 of the Arbitration and Conciliation Act, and raised no later than the submission of the statement of defence as Section 16(2) requires. A buyer that allows the point to pass faces the Section 19 pre-deposit of seventy-five per cent if it later wishes to challenge an award.

  • For parties considering abandoning a reference: Allowing an arbitration to be terminated for non-filing carries a cost beyond that reference. A party that does not challenge the termination may find the same claims treated as abandoned when it seeks another forum.

  • On the appellate route: An order accepting a jurisdictional plea is appealable under Section 37(2)(a). An order rejecting such a plea is not, and under Section 16(5) the tribunal continues and makes an award, which is then challenged under Section 34.

Key Provisions Discussed

  • Section 15 of the MSMED Act, 2006: Liability of a buyer to pay within the agreed period, and in any event within forty-five days of acceptance or deemed acceptance.

  • Section 16 of the MSMED Act, 2006: Compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India on delayed payment.

  • Section 17 of the MSMED Act, 2006: Recovery of the amount due from the buyer.

  • Section 18 of the MSMED Act, 2006: Reference to the Micro and Small Enterprises Facilitation Council, conciliation under sub-section (2), arbitration under sub-section (3), jurisdiction based on the supplier's location under sub-section (4), and the ninety-day timeline in sub-section (5).

  • Section 19 of the MSMED Act, 2006: Requirement that a buyer deposit seventy-five per cent of the awarded amount before an application to set aside a decree, award or order is entertained.

  • Section 16 of the Arbitration and Conciliation Act, 1996: Competence of an arbitral tribunal to rule on its own jurisdiction, and the timing of pleas under sub-sections (2) and (3).

  • Section 34 of the Arbitration and Conciliation Act, 1996: Application for setting aside an arbitral award, to be made within three months of receipt of the award, extendable by a further thirty days for sufficient cause.

  • Section 37(2)(a) of the Arbitration and Conciliation Act, 1996: Appeal from an order of an arbitral tribunal accepting a plea referred to in sub-section (2) or sub-section (3) of Section 16.

Case Details

  • Case: Shri Krishan Grit Co. v. Continental Engineering Corporation

  • Case No: ARB. A. (COMM) 30/2024 and I.A. 29603/2024

  • Court: High Court of Delhi at New Delhi

  • Date Reserved: August 17, 2026

  • Date of Judgment: September 8, 2026

  • Bench: Justice Tushar Rao Gedela

  • Outcome: Appeal dismissed. The arbitral tribunal constituted on a reference by the Facilitation Council had no jurisdiction over claims arising from supplies made before the supplier's registration.

Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.

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