The rulings that decide MSME payment claims

What happened

A construction contractor got four NBCC work orders in 2015 and 2016, filed its MSME memorandum on 19 November 2016, and kept billing afterwards. It referred its dues to the West Bengal Council in 2019. NBCC objected that the contractor was not registered when the contracts were signed.

What the Court held

"Any party to a dispute" in Section 18(1) is deliberately broad and open-ended. The Court rejected the argument that it covers only a supplier that filed a memorandum under Section 8 before the contract, and said Silpi Industries and Mahakali Foods decided different issues. For clarity and certainty it referred the appeal to a three-judge bench.

What the Court held

• The Limitation Act does not apply to conciliation under Section 18(2). A time-barred claim can be referred to conciliation, because the expiry of limitation does not extinguish the right to recover, including through a settlement.
• The Limitation Act does apply to arbitration under Section 18(3), confirming Silpi Industries.
• Whether the buyer's Section 22 disclosure of unpaid MSE dues in its financial statements extends limitation, as an acknowledgment of debt, must be examined case by case.

Questions referred

• Does India Glycols completely bar writ petitions against any order or award of a Council?
• If the bar is not absolute, when does the adequate-alternative-remedy rule not apply?
• Can Council members who conducted conciliation act as arbitrators when it fails, given Section 80 of the Arbitration Act?

The bench observed that the 75% pre-deposit restricts the right to challenge with conditions an ordinary appeal does not carry, and asked whether writs are barred even in exceptional and rare cases where fairness, equity and justice may call for them.

What happened

The Council awarded ₹40,29,862 with Section 16 interest at three times the bank rate prevailing on the date of the award. The buyer went to the High Court in a writ petition instead of filing under Section 34.

What the Court held

A Council award is challengeable under Section 34 of the Arbitration Act, subject to the Section 19 deposit, which Parliament introduced "as a measure of security" for these enterprises. Entertaining a writ to avoid the deposit would defeat the object of the special law. The writ was not maintainable.

What the Court held

• Chapter V of the MSMED Act overrides the Arbitration Act.
• A party can refer a dispute about amounts due under Section 17 to the Council even if the contract has its own arbitration agreement.
• A Council that conciliated may act as arbitrator despite Section 80 of the Arbitration Act.
• The Council, as arbitral tribunal, can rule on its own jurisdiction under Section 16 of the Arbitration Act.
• A party that was not a "supplier" on the date of the contract cannot claim benefits by registering later. A later registration operates prospectively, for supplies after it.

What the Court held

The 75% pre-deposit under Section 19 is mandatory. The Punjab and Haryana High Court's view that it was merely directory was overruled. Until the buyer deposits 75%, its Section 34 application cannot be entertained, and execution of the award may continue.

What the Court held

Depositing 75% of the awarded amount is a mandatory pre-condition to a challenge. The words "in the manner directed by such court" give the court one discretion only: where paying 75% at once would cause undue hardship, it may allow the deposit in instalments.

What happened

The Rajasthan Council ordered the buyer to pay the principal and interest claimed, within 30 days, only because the buyer did not appear after summons. It neither conciliated nor arbitrated.

What the Court held

Section 18 requires conciliation first and, if it fails, arbitration under the Arbitration Act. The two cannot be clubbed into one step. The order was a nullity and was quashed, leaving the parties free to arbitrate.

What the Court held

• The Limitation Act applies to arbitration under Section 18(3).
• A buyer's counter-claim and set-off are maintainable before the Council. Barring them would only push the buyer into parallel proceedings.
• In Khyaati Engineering, where every supply was made before the memorandum was filed, the Court held the seller should have been registered on the date of the contract, and that no benefit can be claimed for supplies under a contract made before registration.

What the Court held

In Vaishno, the contract was signed on 24 August 2020 and the registration came on 28 August 2020, so the Act was held not to apply to that contract. Nitesh Estates followed Silpi on filing a memorandum before proceedings.

In NBCC (2025) the Court described both as short orders that follow Silpi without laying down law.

What the Court held

The first Supreme Court ruling on Section 19, as later relied on in Aska Equipments: the 75% deposit is mandatory, and "in the manner directed by such court" lets the court allow it in instalments.

What the Court held

Under the predecessor 1993 Act, the incidence of liability is the supply. Liability to pay, and to pay interest, arises for supplies made after the Act came into force, even if the contract was signed before it. Making the contract date decisive would add words to the statute.

The split

• Not covered: P.L. Adke v. Wardha Municipal Corporation, 2021 SCC OnLine Bom 13986; National Textile Corporation v. Elixir Engineering (Bombay HC, 2023), which set aside a Council award; Indian Oil Corporation Ltd. v. Adarsh Nobel Corporation Ltd. (Orissa HC, 10 October 2025), on a composite turnkey tank contract.
• Covered: Hindustan Petroleum Corporation Ltd. v. West Bengal MSEFC, 2023 SCC OnLine Cal 1700. The Act draws no line between works contracts and other contracts, since both involve supplying goods or rendering services.