Petition challenging the validity of Section 18 of Micro, Small and Medium Enterprises Development Act, 2006, dismissed

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Madras High Court: While deciding upon the issues involving the constitutionality of Section 18 of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 vis-à-vis Article 14 of the Constitution and whether the Parliament can legislate in respect of Micro, Small and Medium Scale industries as the subject falls within the scope of Entry 24 of List II of the 7th Schedule of the Constitution, the Division Bench of S.K. Kaul, C.J., and R. Mahadevan, J., dismissing the petition, held that Section 18 of the MSMED Act does not violate Article 14 with respect to the right to approach the courts for dispute settlement. The Court further held that the present case falls within the purview of Entry 52 of List I of the 7th Schedule of the Constitution by way of which the Parliament can legislate in respect of the industries in the manufacturing or production sector, as well as the industries engaged in the service sector.

The petitioner’s company placed with the respondent for the supply of Galvanized Steel Structures/Solar Module Mounting Structures. However disputes arose between them due to the respondent making further demands, without making any correlative supplies. According to the petitioner the respondent filed a claim petition under Section 18 of the MSMED Act, 2006, before the Micro Small Medium Enterprises Facilitation Council and the facilitation council, despite the objections from the petitioner, referred the matter to arbitration. While the arbitration is still pending, the petitioner has filed the present petition questioning the validity of Section 18. The petitioner contended that Section 18 is ultravires Article 14 of the Constitution as it takes away the right to approach the Courts for dispute resolution. It was further contended that ‘industry’ is a subject of the State List upon which the Parliament cannot legislate.

Perusing the contentions, the Court examined the provisions of the MSMED Act. Accordingly the Court observed that the definition of ‘enterprise’ as provided in Section 2(e) of the Act includes industrial undertaking or a business concern or any other establishment, engaged in the manufacture or production of goods or engaged in providing or rendering of any service or services. Therefore the definition is wide enough for it to be interpreted as a subject matter of Entry 52 of List I of the 7th Schedule, upon which the Parliament has the right to legislate. The Court further observed that the petitioner’s contention of the impugned Section violating Article 14 of the Constitution is factually erroneous as Section 19 of the 2006 Act provides for the remedy to the person aggrieved by the award or decree to approach the Court. [Refex Energy Ltd. v. Union of India, 2016 SCC OnLine Mad 4912, decided on 02.06.2016]

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