The Delhi High Court dismissed an appeal under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996, upholding an arbitral tribunal's jurisdictional ruling that claims arising before MSME registration are not maintainable. The court affirmed the Supreme Court's principle in Silpi Industries v. Kerala SRTC that MSME registration operates prospectively only, and held that a supplier must be registered with the relevant MSEF Council at the time claims arise. The judgment also bars forum hunting where a party abandons arbitration and later revives claims through belated MSME registration.
Background & Facts
The Dispute
The appellant, Shri Krishan Grit Co., a sole proprietorship of Mr. Sanjeev Gupta, claimed to be engaged in supplying aggregates and TMT steel bars for construction and infrastructure projects. The respondent, Continental Engineering Corporation, is a foreign company incorporated in Taiwan with a registered Project Office in India. The parties entered into a Memorandum of Understanding (MoU) dated 09.02.2016 (also referenced as 02.02.2016) for supply of materials. Disputes arose over unpaid dues, leading the appellant to invoke arbitration under purchase orders issued pursuant to the MoU.
Key Facts
- 09.02.2016: MoU executed between the parties for supply of aggregates and TMT bars
- 2016-2017: Supplies completed under various purchase orders:
- TMT bars for NC-01 completed 13.12.2016
- TMT bars for NC-02 completed 27.12.2016
- TMT bars for NC-03 completed 22.12.2016
- TMT bars for PWD completed 31.05.2016
- Sand/Aggregate for NC-01 and NC-02 completed 25.05.2017
- Sand/Aggregate for NC-03 completed 11.06.2017
- Sand/Aggregate for PWD completed 30.03.2016
- 20.10.2016: Application filed for MSME registration of manufacturing unit at Khasra No.460/03, 748, 749, Village Bhageshwar, Tehsil Neem Ka Thana, Sikar, Rajasthan (manufacturing activity)
- 16.02.2019: Rajasthan MSME registration certificate granted (manufacturing activity)
- 26.02.2019: Delhi MSME registration certificate granted for Shri Krishan Grit Co. at Z-115, Loha Mandi, Narayana, New Delhi (services category)
- All supplies concluded before any MSME registration was granted
Procedural History
- Initial arbitration: Appellant invoked arbitration clause via legal notice dated 03.11.2018; Mr. Justice Devendra Gupta (Former CJ, Andhra Pradesh HC) appointed as Sole Arbitrator; proceedings terminated for appellant's failure to file Statement of Claim
- MSEF Council reference: Appellant approached Micro and Small Enterprises Facilitation Council (MSEF Council), Delhi; conciliation failed; Council referred disputes to Delhi International Arbitration Centre (DIAC) under Section 18(3) of MSME Act, 2006
- DIAC arbitration: DIAC appointed a former Judge of Delhi HC as Sole Arbitrator; parties filed claims and counter-claims; respondent challenged jurisdiction under Section 16 of Arbitration Act
- 13.09.2021: Arbitral Tribunal allowed respondent's Section 16 application, holding it lacked jurisdiction and appellant's claims were not maintainable
- Present appeal: Filed under Section 37(2)(a) of Arbitration Act challenging the 13.09.2021 order
- 17.08.2026: Judgment reserved
- 08.09.2026: Judgment delivered
The Parties' Positions
Appellant: Contended that registration in Rajasthan (application filed 20.10.2016) conferred right to maintain claims for 2016-2018 period; place of registration irrelevant; issue of registration and its effect requires evidence, not summary determination; relied on Ramky Infrastructure Pvt. Ltd. v. MSEF Council (2018 SCC OnLine Del 9671) for proposition that registration not sine qua non for pre-registration claims.
Respondent: Argued that under Silpi Industries v. Kerala SRTC (2021) 18 SCC 790, only post-registration claims maintainable; supplier must be registered at time of contract/supply; MSEF Council jurisdiction territorial - only Council where supplier registered can act; appellant's SoC relied solely on Delhi registration (26.02.2019); Rajasthan registration for different entity (manufacturing vs services); appellant abandoned prior arbitration and engaged in forum hunting.
Relief Sought
Appellant sought setting aside of arbitral tribunal's order dated 13.09.2021, restoration of arbitration proceedings, and adjudication of claims for unpaid dues with interest under MSME Act for supplies made 2016-2018.
The Legal Issue
The central questions were: (1) Whether claims for supplies made in 2016-2018 are maintainable under the MSME Act when the appellant obtained MSME registration only in February 2019; (2) Whether the Rajasthan MSME registration (application 20.10.2016, granted 16.02.2019) for manufacturing activity assists the Delhi entity registered for services which signed the MoU and effected supplies; (3) Whether the MSEF Council at Delhi had territorial jurisdiction to refer disputes to arbitration for a supplier registered in Rajasthan.
Arguments Presented
For the Appellant
Learned counsel contended that the Rajasthan registration application filed on 20.10.2016 ought to be considered, as mere registration under the MSME Act is sine qua non for maintainability. It was urged that the place of registration is irrelevant, and the issue of registration and its effect is a question of evidence that cannot be decided summarily without affording opportunity. Reliance was placed on Ramky Infrastructure Pvt. Ltd. v. MSEF Council (2018 SCC OnLine Del 9671) where a Single Judge held registration not mandatory for pre-registration claims. Counsel also argued that the observations in Silpi Industries are obiter dicta.
For the Respondent
Learned counsel submitted that Silpi Industries is binding authority holding MSME registration operates prospectively only. A "supplier" under Section 2(n) must have filed memorandum under Section 8 at the relevant time. Section 18(5) non-obstante clause confines MSEF Council jurisdiction to suppliers located within its territory. The appellant's SoC and rejoinder relied exclusively on Delhi registration (26.02.2019). The Rajasthan certificate pertains to a different entity (manufacturing at Sikar) and was granted only on 16.02.2019. The appellant abandoned prior arbitration and cannot revive claims through forum hunting.
The Court's Analysis
The Court examined the Supreme Court's decision in Silpi Industries v. Kerala SRTC (2021) 18 SCC 790, reproducing paragraphs 42-44 which hold that to seek benefits under the MSMED Act, the seller must be registered as on the date of entering into the contract, and registration obtained subsequent to contract and supply cannot operate retrospectively. The Court rejected the appellant's contention that these observations are obiter, holding they manifestly express a clear principle of law.
"The appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of the MSMED Act, 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. If any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively."
The Court then analyzed Sections 2(n), 8, and 18 of the MSME Act. Section 2(n) defines "supplier" as a micro or small enterprise which has filed a memorandum under Section 8(1). Section 18(4) and (5) establish that only the MSEF Council where the supplier is located has jurisdiction to arbitrate or refer disputes. The non-obstante clause in Section 18(5) overrides contrary provisions. This creates a territorial jurisdiction regime: a supplier registered with a particular MSEF Council can only seek reference before that Council.
Applying this to the facts, the Court found the appellant's SoC and rejoinder predicated claims solely on Delhi registration (26.02.2019). The Rajasthan certificate (manufacturing activity, granted 16.02.2019) pertained to a different enterprise at Sikar, while the MoU was signed and supplies effected by Shri Krishan Grit Co. (Delhi, services). The arbitral tribunal's finding that the Rajasthan certificate was of no help was a factual conclusion not amenable to interference under Section 37.
The Court also upheld the tribunal's finding on forum hunting. The appellant had invoked arbitration in 2018, participated, then abandoned proceedings by not filing SoC. Having not challenged the termination, the appellant could not re-open abandoned claims by obtaining subsequent MSME registration. The Court cited Harshbir Singh Pannu v. Jaswinder Singh (2025 SCC OnLine SC 2742) for the principle that aggrieved parties must pursue statutory remedies against termination.
The Verdict
The appeal was dismissed. The Court upheld the arbitral tribunal's order dated 13.09.2021 holding it lacked jurisdiction and the appellant's claims were not maintainable. The Court affirmed that: (1) MSME registration operates prospectively only; claims must arise post-registration; (2) Territorial jurisdiction of MSEF Councils is strict - only the Council where supplier is registered can act; (3) Registration certificate must match the contracting entity; (4) Forum hunting through belated registration after abandoning prior arbitration is impermissible. No costs were awarded.
What This Means For Similar Cases
MSME Registration Operates Prospectively Only
- Practitioners must verify that MSME registration was granted before the cause of action arose (contract date or supply date, whichever is later per Shanti Conductors ratio applied in Silpi Industries)
- Registration applications filed but not granted before the supply period do not confer standing
- The benefit of Sections 17-18 MSME Act cannot be claimed retrospectively for pre-registration transactions
Territorial Jurisdiction of MSEF Councils Is Strict
- Section 18(5) non-obstante clause confines jurisdiction to the MSEF Council where the supplier is registered
- A supplier registered in one state cannot invoke the MSEF Council of another state, even if the buyer is located there
- The registration certificate must correspond to the entity that entered into the contract and effected supplies
Forum Hunting Through Belated Registration Barred
- A party that invokes arbitration, participates, then abandons proceedings cannot later revive the same claims by obtaining MSME registration and approaching MSEF Council
- The proper remedy against arbitral termination is challenge under Section 34 or appeal under Section 37, not initiation of fresh proceedings
- Courts will examine pleadings (SoC, rejoinder, replies) to determine the true basis of claims and reject afterthought reliance on alternate registrations
