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

In a landmark decision with significant implications for Micro, Small, and Medium Enterprises (MSMEs), the Delhi High Court ruled that MSMEs can claim benefits under the MSMED Act, 2006, even if they obtain registration during the course of an ongoing contract.

On January 30, 2024, the court issued a ruling in a dispute between Mahanagar Telephone Nigam Limited (MTNL) and an architectural consultant. MTNL had contested an arbitration referral initiated by the Micro and Small Enterprises Facilitation Council, arguing that the consultant was not registered as an MSME when their contract began in 2006.

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

This ruling aligns with Supreme Court clarifications regarding the prospective applicability of MSME benefits. The court allowed the arbitral tribunal to determine the applicability of MSME protections in this specific case, as it involved “mixed questions of law and facts.”

The judgment is particularly noteworthy for businesses transitioning to MSME status mid-contract. It suggests that MSME benefits, including preferential payment terms and dispute resolution mechanisms, may apply to portions of work completed post-registration, even within pre-existing contracts.

The case involved a claim for ₹1.59 crore in unpaid consultancy fees related to an MTNL project. The consultant obtained MSME registration in 2018, well into the contract’s execution.

Legal experts believe this ruling may encourage more businesses to register as MSMEs, recognizing that benefits may extend to ongoing contractual relationships. It also serves as a reminder to larger corporations to monitor the evolving MSME status of their suppliers.

The Delhi High Court’s decision reinforces India’s ongoing efforts to strengthen MSME protections, providing a legal framework that balances the rights of smaller enterprises and larger corporations in commercial disputes.

Disclaimer: The information provided in this article is based on updates and reports gathered from various internet sources. Every effort has been made to ensure accuracy and reliability. We encourage readers to verify the details independently.