Court Rules That MSME Registration Obtained After Contract Execution Does Not Bar Reference Under Section 18 of MSME Act; Parties Free to Challenge Jurisdiction During Arbitration
In a significant judgment dated October 13, 2026, the Delhi High Court, presided over by Mr. Justice Amit Mahajan, dismissed a petition challenging the orders of the Micro and Small Enterprises Facilitation Council (MSEFC), West Delhi, which had terminated conciliation proceedings and referred a delayed payment dispute to the Delhi International Arbitration Centre (DIAC) for arbitration under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).
The dispute arose between M/s. TPL-KIPL Joint Ventures (Petitioner) and M/s. KRA Infrastructure Developers Pvt. Ltd. (Respondent No. 2). The Respondent had been engaged as a subcontractor through a Letter of Intent dated November 27, 2017, and a Work Order dated January 19, 2018, relating to the construction and operation of a sewage system in Karnal Town. The Respondent obtained MSME registration only on November 7, 2020, after the execution of the contract.
The Petitioner contended that since the Respondent was not registered as an MSME at the time of contract formation, it could not avail the benefits of the MSME Act, and thus the Facilitation Council lacked jurisdiction to entertain the dispute under Section 18. The Petitioner argued that the Facilitation Council erred in referring the matter to arbitration without deciding this preliminary objection.
However, the Court relied heavily on the Supreme Court's recent landmark judgment in NBCC (India) Ltd. v. State of West Bengal (2025 INSC 54), which clarified that the phrase "any party to a dispute" under Section 18 of the MSME Act is of wide amplitude and is not restricted solely to enterprises registered before the contract. The Supreme Court emphasized that registration under Section 8 is discretionary for micro and small enterprises and that the statute aims to facilitate access to justice and dispute resolution for MSMEs without undue procedural constraints.
Justice Mahajan observed that the Facilitation Council's referral of the dispute to arbitration after failed conciliation proceedings was proper and that the question of jurisdiction or eligibility could be raised by the Petitioner before the Arbitral Tribunal. The Court found no prejudice caused by the referral and declined to interfere in writ jurisdiction.
The judgment reinforces the liberal and pragmatic approach towards MSME dispute resolution, affirming that delayed registration does not preclude an enterprise from seeking remedy under the MSME Act. It also underscores that the Facilitation Council's role is to facilitate conciliation and, failing which, to refer disputes to arbitration, without adjudicating jurisdictional objections at the conciliation stage.
The parties remain free to raise all permissible contentions, including objections to jurisdiction and merits of claims, before the arbitration forum.
Bottom Line:
MSMED Act, 2006 - Reference under Section 18 cannot be faulted merely because MSME registration was obtained after execution of contract - After failure of conciliation, Facilitation Council can refer dispute to arbitration - Parties remain free to raise their objections before Arbitral Tribunal.
Statutory provision(s):
Micro, Small and Medium Enterprises Development Act, 2006 Sections 2(n), 7, 8, 15, 16, 17, 18(1), 18(2), 18(3), 20, 21; Arbitration and Conciliation Act, 1996 Sections 7(1), 16
