A Council That Changed Its Mind After 7 Years — And Why the Supreme Court Stopped It

A supplier lost its claim in 2009. Seven years later, the same council reversed itself and awarded ₹7.2 lakh. The Supreme Court just shut that down.

This is the story of a council that changed its mind — not through any new evidence or legal development, but through government correspondence that pressured it to reverse its own earlier decision. In January 2016, a Facilitation Council under the MSMED Act (a law meant to help small businesses recover dues quickly without going to regular courts) issued a fresh award. It ordered Bajaj Auto to pay ₹7,21,512 with 22% future interest to Ajanta Press and Mechanical Works. The catch? The same Council had rejected that very claim seven years earlier, in February 2009. What changed? Government pressure applied by the supplier in between. The Supreme Court of India, in Bajaj Auto Limited v. Ajanta Press and Mechanical Works & Ors., just ruled that this cannot stand.

The courtroom fell silent as the bench — Justice V. Ramasubramanian and Justice Indira Banerjee — read out the operative order. The file before them was thin but heavy with procedural missteps. The smell of old paper mingled with the quiet tension of a case that had taken thirteen years to reach its final destination.

The settlement that wasn't

January 1989. Bajaj Auto placed two purchase orders on Ajanta Press for the supply of washers. A dispute arose over ₹35,000 — the differential value of brass scrap. After years of correspondence — letters exchanged, demands made, deadlines missed — Bajaj Auto paid the ₹35,000 by cheque in December 2003. Both parties recorded a formal settlement in April 2004. The matter, it seemed, was closed. The cheque dated December 2003 had been deposited and cleared. The settlement letter dated April 2004 had been signed by both sides. The file could have been shut.

Then came the MSMED Act in 2006. The Micro, Small and Medium Enterprises Development Act created a special mechanism — Facilitation Councils — to help small suppliers recover dues without going to regular courts. In 2009, despite the settlement and the fact that the entire transaction predated the Act by nearly two decades, Ajanta Press filed a claim before the Facilitation Council.

The Council rejected the claim in February 2009. That should have been the end.

The government letter that flipped the decision

But Ajanta Press did not challenge the rejection in court. Instead, it pressured the Council through government correspondence. The exact nature of that pressure is not detailed in the judgment, but the result is clear: in January 2016, the same Facilitation Council reversed its own earlier decision and awarded ₹7,21,512 with 22% future interest. The government letter that prompted this reversal sat in the file — a silent witness to a procedural violation.

Now both parties were unhappy. Bajaj Auto challenged the 2016 award. Ajanta Press, meanwhile, had filed its own writ petition (a petition to a High Court seeking review of a lower decision) in 2013 — challenging the original 2009 rejection — a petition it had allowed to languish for years. The Bombay High Court, Aurangabad Bench, set aside both decisions — the 2009 rejection and the 2016 award — and sent the matter back to the Facilitation Council for a fresh inquiry. Neither side got what it wanted.

Bajaj Auto appealed to the Supreme Court.

Two questions, one answer: no

The Supreme Court bench — Justice V. Ramasubramanian and Justice Indira Banerjee — identified two fundamental problems. The courtroom was still as the judges laid out the legal framework.

First: Can a Facilitation Council review its own decisions? The Council had rejected the claim in 2009. Seven years later, it awarded the same claim. The court held: no. Under Sections 18 and 19 of the MSMED Act, every decision of the Council constitutes an award (a binding decision on the dispute). Once a claim is rejected, the aggrieved party must challenge that award in court or through arbitration — not ask the same Council to reconsider. Allowing a Council to reverse itself would create endless uncertainty for both sides. The bench's voice was firm as it explained that the Council possesses no power to review its own decisions — a combined reading of Sections 18 and 19 makes this clear.

Second: Can the MSMED Act apply to transactions that happened before the Act was passed? The purchase orders were placed in 1989. The settlement was recorded in 2004. The Act came into force in 2006. The Supreme Court, following its earlier decision in Silipi Industries v. Kerala State Road Transport Corporation and Another, held that the MSMED Act has no retrospective application (it cannot govern events that occurred before it became law). Filing a memorandum under Section 8(1) of the Act — a declaration of status as a small enterprise — does not magically make a pre-Act transaction subject to the Act. The court was blunt: the Act was not intended to provide a gateway for "hopelessly time-barred claims." Those words hung in the air — a direct quote from the judgment that captured the essence of the court's reasoning.

The High Court's mistake

The Bombay High Court had set aside both decisions and remanded the matter (sent it back to the Council for fresh consideration). The Supreme Court held this was an error. When a court finds that the decision-making body lacked jurisdiction (the legal authority to decide the matter at all), it should not send the case back for a fresh hearing. It should end the case. The bench's silence during the High Court's reasoning was telling — the judges had clearly identified the jurisdictional infirmities (legal defects that strip a body of its authority to act) that the High Court had missed.

The High Court should have examined two jurisdictional infirmities: first, whether the Council had the power to review its own decision, and second, whether the claim was time-barred (filed beyond the legal deadline for bringing such claims). Having found that the Council had no such power and that the claim was indeed time-barred, the High Court should have dismissed Ajanta Press's petition and set aside the 2016 award — which is exactly what the Supreme Court did.

Deeper dive: the Silipi Industries precedent

The Supreme Court's reliance on Silipi Industries v. Kerala State Road Transport Corporation and Another is instructive. In that case, the court had examined whether the MSMED Act could apply to transactions that predated its enactment. The answer was a clear negative. The Act creates a special regime for small enterprises, but it does not operate retrospectively. A supplier cannot file a memorandum under Section 8(1) — a declaration of status — and thereby bring a pre-Act transaction within the Act's ambit. The legal status conferred by the Act is prospective; it cannot be used to revive dead claims. This principle, the court held, applies squarely to the facts of the Bajaj Auto case. The purchase orders of 1989, the settlement of 2004 — all predated the Act. The claim was not merely stale; it was legally non-existent under the MSMED framework.

The court also emphasized the procedural impropriety of the Council's reversal. Under Sections 18 and 19 of the MSMED Act, the Council's decision constitutes an award. An award, once made, is final. The only recourse for an aggrieved party is to challenge it under the Arbitration and Conciliation Act or through a writ petition. There is no provision for the Council to review its own award. By reversing itself in 2016, the Council had acted without jurisdiction. The High Court, the Supreme Court held, should have recognized this and ended the matter — not sent it back for a fresh inquiry.

What this means

For suppliers: The MSMED Act is a powerful tool, but it is not a time machine. If your transaction predates the Act, you cannot use the Facilitation Council to revive it. And if the Council rejects your claim, you must challenge that decision in court — not lobby the Council to change its mind. The limitation period (the legal deadline for filing an appeal) begins running from the date of the Council's decision. Letting it lapse means losing the right to challenge.

For buyers: A settlement recorded before the Act came into force remains a settlement. A rejection by the Council is final unless challenged in the proper forum. You are not at the mercy of a Council that changes its mind under pressure. The Supreme Court's decision reaffirms that procedural finality matters — a body that lacks the power to review cannot simply reverse itself because of external pressure.

THE PLAY: If a Facilitation Council rejects your claim, challenge it in court within the limitation period (the legal deadline for filing an appeal) — do not ask the same Council to review its own decision, because it has no power to do so.

The Supreme Court allowed Bajaj Auto's appeal, set aside the High Court's order, dismissed Ajanta Press's 2013 writ petition, and set aside the Council's 2016 award. The supplier that lost in 2009, won in 2016, and lost again in 2022 — this time, finally. The file, at last, could be closed.