15-Day Deadline Under MSMED Act Is Not Illusory—Objections Beyond This Are Legally Futile: Bombay High Court Dismisses Mahindra’s Challenge to Arbitral Award

“Objections must not only be timely—they must deny the very effectiveness of delivery. Anything less is deemed acceptance under the MSMED Act” — Delivering a sharply reasoned judgment on 30th September 2025, the Bombay High Court reaffirmed that objections to goods supplied by a micro or small enterprise under the MSMED Act must be made in writing within 15 days, or else, delivery will be deemed accepted with binding financial consequences. Dismissing Mahindra Defence Systems Ltd.’s appeal under Section 37 of the Arbitration and Conciliation Act, 1996, the Court upheld the arbitral award and District Court’s concurrent judgment which had directed Mahindra to pay ₹16,16,950 along with interest under Sections 15 and 16 of the MSMED Act to the micro-supplier Ranjana Industries.

Justice Somasekhar Sundaresan held that Mahindra’s conduct—raising vague "observations" instead of statutory "objections"—could not override the legislative mandate designed to protect vulnerable suppliers. The Court emphatically stated:

“What was raised were observations—not objections. The objections must be of a nature that denies the very effectiveness of delivery… Acceptance of goods with conditions for further work is not a denial of delivery, but confirmation of it.”

“Section 2(e) of MSMED Act Is Not a Procedural Shell—It Anchors Rights and Triggers Statutory Interest”

The dispute arose from three purchase orders issued by Mahindra to Ranjana Industries in January 2017 for supply of goods. While partial payments were made, Mahindra refused to pay the balance, claiming defects in the supplies. However, it failed to raise any written objections within 15 days of delivery, as mandated by Section 2(e) of the MSMED Act.

The Court held that Section 2(e)—which defines the “appointed day” after which interest becomes payable—is not a passive definition, but a substantive legal trigger, impacting obligations under Sections 15, 16 and 22 of the Act. Justice Sundaresan observed:

“The appointed day is the linchpin for the MSMED regime—miss it, and the statute imposes interest, penalties, and disclosure obligations. It cannot be dismissed as merely directory.”

Mahindra had argued that its Quality Assurance department had raised issues via an email dated February 10, 2017, but the Tribunal found—and the High Court confirmed—that the email merely repeated the same set of technical observations twice, and did not amount to rejection or objection in legal terms.

“Appellate Courts Cannot Rehear Arbitrations—Plausible Findings by Tribunal Are Final”

Mahindra’s primary argument under Section 37 was to reassess factual findings and evidence, including internal correspondence, meeting minutes, and GST returns. But the Court was unequivocal in rejecting this approach, clarifying the limited jurisdiction under Sections 34 and 37 of the Arbitration Act:

“The Tribunal is the master of evidence. It applied the correct standard—preponderance of probability. This Court will not interfere merely because Mahindra wants a second bite at the cherry.”

The Court observed that the Arbitral Tribunal had rightly rejected Mahindra’s counter-claim for ₹61 lakh, finding that it was unsupported by any proof of actual return of goods, payment of damages, or alternate vendor supply. It noted that Mahindra’s own documents to the Sales Tax authorities indicated rejection only in December 2017, nearly 11 months after delivery, and yet no debit note or return challan was produced.

“Litigation Cannot Be a Business Model—Large Corporates Must Not Weaponize Legal Process Against Micro Suppliers”

Justice Sundaresan made a powerful policy observation on the asymmetry in litigation behaviour between large corporations and small suppliers, stating:

“Mahindra’s conduct exemplifies how the power imbalance between big corporates and micro-enterprises is exploited through litigation. For Mahindra, the cost of delay is just a line item under ‘miscellaneous expense’. For Ranjana, it meant exposure to tax liability, coercive recovery and cash-flow crisis.”

He added that the statutory interest under Section 16 and the mandatory 75% deposit requirement under Section 19 are not ceremonial tools, but intended deterrents. When corporates persist with unmeritorious litigation after two concurrent findings, they must face consequences, he warned.

The Court accordingly directed Mahindra to:

• Pay ₹1.5 lakh in costs to Ranjana Industries within four weeks

• Release the statutory deposit made under Section 19 of the MSMED Act

• Pay the principal amount of ₹16.16 lakh along with accrued interest as per the arbitral award

“Rejection of Goods Cannot Be an Afterthought—Silence Beyond 15 Days Is Legally Fatal”

In analysing Mahindra’s claim that the second set of goods (Tube No. 2) were also defective, the Court referred to the February 15, 2017 meeting minutes, where the parties had discussed observations about Tube No. 1, but made no markings or follow-up actions on Tube No. 2. The Court found:

“The silence regarding Tube No. 2, even in the face of quality remarks and emails, signals acceptance. You cannot claim rejection eleven months later and expect the law to validate that conduct.”

The Court held that even if the observations were about both tubes, the quality concerns were part of an ongoing process, not formal objections capable of stalling payment timelines under the MSMED Act.

Bombay High Court Reasserts MSMED Act’s Teeth—Statutory Timelines Matter, And So Do Power Dynamics

This judgment cements the legal position that large buyers cannot withhold payment to small suppliers by raising post-facto technical excuses, especially when they fail to comply with MSMED Act’s statutory framework. The judgment is also a cautionary tale against misuse of arbitration appeals to delay execution of awards, especially when arbitral and judicial forums have both upheld the supplier’s claim.

Justice Sundaresan left the corporate sector with a pointed message: “Just as private industry expects the government to litigate responsibly, so too must private giants introspect on which battles they pick. Doing business at scale carries with it a responsibility to not choke out those at the bottom of the chain.”

Date of Decision: 30 September 2025