Allahabad High Court
WRIT - C No. - 35190 of 2023
Petitioner :- M/S Neeraj Potato Preservation And Food Products Pvt.Ltd. Respondent :- U.P. Micro Small And Medium Enterprises Facilitation Council And 2 Others
In a recent case before the Allahabad High Court, the court held that Facilitation Council established under the MSMED Act, will not have jurisdiction to entertain any dispute arising out of any service not registered under the MSMED Act and the Facilitation Council under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) does not have jurisdiction over any dispute regarding unregistered services under the Act.
Brief Facts of the Case:
The petitioner was in the business of running cold storage which the farmers used for storage of their potatoes and other crops. The petitioner charged rent from the farmers which was calculated on the basis of the period of storage and area occupied in the cold storage.
The Respondent No.1 is the U.P. Micro Small And Medium Enterprises Faciliation Council and the respondent nos.2 and 3 are the farmers, who had used the services of the petitioner’s cold storage and also taken a loan from the petitioner, on which they defaulted.
The petitioner, claiming itself to be Micro, Small and Medium Enterprises (MSME) registered under the Micro, Small and Medium Enterprises Development Act, 2006 (in short “MSMED Act”) filed a claim petition before the ‘U.P. Micro, Small and Medium Enterprises Facilitation Council (in short “the Council”) for the recovery of the principal amount, along with interest at the rate of 18% per annum, as provided under the MSMED Act.
The Council issued notices to the respondents for settlement and conciliation when the Respondent nos. 2 and 3 did not appear before the Council, and the matter came to be referred for arbitration.
Meanwhile the petitioner filed a writ petition before the Allahabad High Court, who directed the Council to decide on the Application of the claim of the petitioner within three months. As the aforesaid direction was not complied with, the petitioner preferred a Contempt Application, when time was extended by 3 months.
At the time of hearing, the Council framed following issues for adjudication of the claim:-
(1) Whether the Claimant/ Supplier is entitled for the claim of Rs.4,09,022/- as Principal Amount from the Buyer?
(2) Whether the Claimant/ Supplier is entitled for the claim of Rs.2,26,851/- as interest from the Buyer?
As regards the first issue, the Council answered in negative.
The Respondent No.1 relied upon the Udyog Aadhar Registration Certificate issued to the Petitioner, wherein the activities of the petitioner were related to warehousing and support activities, warehousing and storage, warehousing of refrigerated (cold storage).
The Council held that the jurisdiction of the Council would will only extend to the matter for delayed payments in lieu of cooling & preservation services provided to customers.
As the petitioner failed to produce any document regarding the loan or arrear of rent/ services of Cold Storage, the claim of the petitioner failed as regards the first issue.
As regards the second issue also, the Council answered in negative.
The Council observed that the petitioner was not entitled to receive any interest from the respondent as there was no principal amount of delayed payment due from the respondents.
The Council observed that the Petitioner had alternate legal remedies for recovery of its loan/ financial services from the Respondent Nos. 2 and 3.
The Council dismissed the claims Application of the Petitioners.
Aggrieved by the said order, the petitioner preferred the present writ petition.-
The Petitioner argued:
Section 22 of the U.P. Regulation of Cold Storage Act, 1976 (in short “the Act, 1976”) allows the petitioner to offer financial services to individuals, who are doing business/ work (agricultural produce),
The cold storage service is included under the MSMED Act and recovery of petitioner’s services of finance shall be permissible in view of Section 24 (overriding effect) of the MSMED Act
The bank as well as the Act, 1976, both permit the petitioner to provide short terms finance to farmers as the petitioner charges rent against the potato stored by farmers as well as interest on advance loan provided to the farmers. At times, the unpaid balance of the farmers is carried forward and is adjusted in the following financial year.
The petitioner is not doing prime lending but is offering amicable service to the farmers for which a separate agreement is also executed as per the Contract Act, 1972.
The farmer is liable to pay the loan amount and interest as prescribed to the petitioner company. Since the petitioner is registered MSME, as per the provisions of MSMED Act, the Council had the jurisdiction to adjudicate the dispute.
If the impugned order is not set aside, it will set up a very wrong precedent.
The impugned order cannot be challenged under Section 34 of the Arbitration and Conciliation Act, 1996 as no Award was passed.
The impugned order has been passed without following the rule of jurisdiction.
The Council has ignored all particulars submitted to it and impugned order is not justified.
The Act provides for the right to retain lien upon the goods so long as the charges fixed by the Government are not paid
The Respondent No. 1 argued:
As per the Udyog Aadhar Memorandum Certificate of the petitioner, the petitioner has been registered for the following services:-
Warehousing and support activities for transportation.
Warehousing and storage
Warehousing of refrigerated (cold storage)
The petitioner has not been registered for any financial services under the MSMED Act, therefore, the Council did not possess the jurisdiction to enter into reference in terms of Section 18 of the Act, leaving it open for the petitioner to pursue the other legal remedies available to it
There was no infirmity in the impugned order passed by the Council that no recovery can be made by any instrumentality under MSMED Act unless and until the petitioner registers itself for financial services under the MSMED Act by submitting a memorandum to that effect and that too prospectively.
The impugned order has rightly been passed and no interference is required in the matter.
Analysis of the High Court:
After hearing all the parties and perusing the documents, the court framed 3 issues for adjudication:
(i) whether the loan/ financial services will be covered under the Cold Storage Services;
(ii) whether the petitioner has been registered for any financial services under the MSMED Act and
(iii) Whether the present writ petition is maintainable or not.
With respect to the first issue, the Court observed that as per Section 22 of the Act, 1976, the rate of interest charged by the cold storage, in case they provide financial assistance to the farmers should be as follows:
Section 22 of the Act, 1976 reads:-
“22. If any money is lent by the licensee to a hirer against the goods stored by some hirer in the cold storage, the rate of interest, in no case, shall be higher than one-half of one percent annum simple 9 interest over the current rate of interest charged by the State Bank of India, at the time of the loan, for like purposes in respect of advances made by it against goods pledged in its favour.”
The writ petition has not specified that the loan so advanced was lower than one half of one percent per annum simple interest over the current rate of interest charged by the State Bank of India so as to bring it under the ambit of Section 22.
In fact, the disputed claim had arisen from a loan which was advanced @ 18% per annum, which is much higher than the rate of interest charged by the State Bank of India. Moreover, the loan advanced was not against the goods pledged in favour of the petitioner company but with a bond that if the payment is not done, the farmer undertakes to deposit his goods in the next agricultural year also in the cold storage of the petitioner.
Hence, Section 22 of the Act, 1976 does not come into play and loan/ financial services of the petitioner are not covered under the Cold Storage Services;
With respect to the second issue, at the time of disbursement of loan the petitioner was not registered in the category of financial services under the MSMED Act and as such the petitioner was not entitled for any reprieve under the MSMED Act. The Court held that the Facilitation Council is divested of jurisdiction to entertain any dispute arising out of any service not registered under MSMED Act and as such the MSMED Act will not be applicable as per Section 18 of the Act.
With respect to the third issue the order impugned, as the Facilitation Council had refused to entertain the matter under MSMED Act, as the same was not an award, therefore, the same is amenable under Art.226 of the Constitution of India and thus, the writ petition is maintainable against the impugned order.
Conclusion
To avail of facilities and concessions under the MSME Act, one has to be registered for that activity under the MSME Act and one cannot be entitled to any provisions if they are not so registered under the relevant category. The Facilitation Council under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) has jurisdiction over any disputes that arise out of the services that the parties are registered under it and has no jurisdiction regarding unregistered services under the Act.
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