Does Limitation Act Apply To Conciliation & Arbitration Proceedings Initiated U/S. 18 MSMED Act? Supreme Court Answers
The Supreme Court observed that Section 43 of the A&C Act applies to arbitrations under Section 18 of the MSMED Act, thereby attracting the provisions of the Limitation Act to claims made under the MSMED Act.
Justice Pamidighantam Sri Narasimha, Justice Joymalya Bagchi, Supreme Court
The Supreme Court has explained whether the Limitation Act, 1963 applies to conciliation and arbitration proceedings initiated under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
The Court was hearing Civil Appeals filed against the Judgment of the Full Bench of the Bombay High Court which held that the Facilitation Council cannot entertain time-barred claims for conciliation, and that the provisions of the Limitation Act are applicable to arbitration proceedings under the MSMED.
The two-Judge Bench of Justice P.S. Narasimha and Justice Joymalya Bagchi held, “The Limitation Act does not apply to conciliation proceedings under Section 18(2) of the MSMED Act. A time-barred claim can be referred to conciliation as the expiry of limitation period does not extinguish the right to recover the amount, including through a settlement agreement that can be arrived at through the conciliatory process. … The Limitation Act applies to arbitration proceedings under Section 18(3) of the MSMED Act.”
The Bench observed that Section 43 of the Arbitration and Conciliation Act (A&C Act/ACA) applies to arbitrations under Section 18 of the MSMED Act, thereby attracting the provisions of the Limitation Act to claims made under the MSMED Act.
Senior Advocates Abhishek Manu Singhvi and Jayant Bhushan appeared for the Appellants while Senior Advocate Shikhil Suri appeared for the Respondents.
Facts of the Case
The Appellants were small-scale industries registered with the District Industries Centre, Nagpur. They supplied transformers to the Respondent under various purchase orders between 1993 to 2004. Due to delay in payments, the Appellants filed references in 2005-06 before the Industry Facilitation Council established under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. The 1993 was repealed by the MSMED Act, 2006 and the proceedings initiated by the Appellants were taken up by the Micro and Small Enterprises Facilitation Council (MSEFC) under the MSMED Act.
The MSEFC allowed the Appellants’ claims and awarded interest on the delayed payments. This award was challenged under Section 34 of the A&C Act and the Commercial Court set aside the same on the ground that the claims were barred by limitation, against which the Appellants filed Appeals under Section 37 of A&C Act before the High Court. The Division Bench of the High Court referred the issue of applicability of Limitation Act to proceedings under MSMED Act, to a larger bench. The Full Bench held that Sections 15 to 23 of the MSMED Act will override Section 2(4) of the A&C Act. Being aggrieved, the Appellants were before the Apex Court.
Issues for Consideration
The following two issues arose for consideration before the Court –
i. Whether the Limitation Act applies to conciliation proceedings under Section 18 of the MSMED Act, and even if not, whether time-barred debts can be referred to conciliation?
ii. Whether the Limitation Act applies to arbitration proceedings under Section 18 of the MSMED Act, and whether time-barred debts can be referred to arbitration? Further, what is the effect of disclosure of the unpaid amount in the buyer’s financial statements as mandated under Section 22 on extending the limitation period?
Reasoning
The Supreme Court after hearing the contentions of the counsel, noted, “… neither the Limitation Act applies to conciliation proceedings under Section 18(2) nor are time-barred claims excluded from such conciliation. The supplier’s right to recover the principal amount and interest thereon subsists even after the expiry of the limitation period, and he may recover the same through a settlement agreement arrived at through conciliation by the Facilitation Council under Section 18(2). In case such settlement is not reached between the parties and the conciliation proceedings are terminated for this reason, the matter must be referred to arbitration as per Section 18(3), which we will deal with presently.”
The Court was of the opinion that Section 18(3) of the MSMED Act will prevail over Section 2(4) of the A&C Act and there is a clear legislative intent that the provisions of the MSMED Act will have an overriding effect in case of inconsistency, which is evidenced from the non-obstante clause in Section 18 and the express language in Section 24.
“The language of Section 2(4) itself also supports this overriding effect of the special law. The same has also been recognised and affirmed by this Court in Mahakali Foods (supra), wherein the Court considered the purpose and object, statutory scheme, and sequence of enactment of the ACA and the MSMED Act to arrive at the conclusion that the MSMED Act is a special law that will prevail over the provisions of the ACA, which is a general law”, it added.
The Court further said that the applicability of the A&C Act to arbitrations under the MSMED Act is not determined by Section 2(4) of A&C Act, and is rather determined as per Section 18(3) of the MSMED Act.
“Pursuant to the deeming fiction ingrained in the language of Section 18(3), the arbitration conducted thereunder would attract the provisions that are otherwise applicable when there is an arbitration agreement. This includes Section 43, thereby making the Limitation Act applicable to arbitral proceedings under the MSMED Act”, it enunciated.
Conclusion
The Court remarked that while the law mandates the preparation of the balance sheet, and in the case, the disclosure of the unpaid amount and interest thereon, the entry made therein must be examined on a case-to-case basis to determine whether it amounts to an acknowledgement of debt as per the requirements of Section 18 of the Limitation Act.
“The applicability of the provisions of ACA to such arbitrations is determined as per Section 18(3) and other provisions of the MSMED Act, as these are special laws, rather than by Section 2(4) of the ACA, which is under a general law. This is in addition to the reasoning provided in Silpi Industries (supra). Further, the extension of the limitation period on the basis of disclosure under Section 22 of the MSMED Act must be examined on a case-to-case basis”, it concluded.
Accordingly, the Apex Court partly allowed the Appeals, set aside the impugned Judgment to the extent of applicability of the Limitation Act to conciliation proceedings under the MSMED Act, and upheld the same on the applicability of the Limitation Act to arbitration proceedings under the MSMED Act.
Cause Title- M/s Sonali Power Equipments Pvt. Ltd. v. Chairman, Maharashtra State Electricity Board, Mumbai & Ors. (Neutral Citation: 2025 INSC 864)
Appearance:
Appellants: Senior Advocates Abhishek Manu Singhvi, Jayant Bhushan, AOR Surjendu Sankar Das, Advocates Prashant Pakkhidey, Manav Gill, and Annie Mittal.
Respondents: Senior Advocate Shikhil Suri, Advocates Udit Gupta, Amarendra Kumar, Vyom Chaturvedi, Pragya Gupta, Sneha Singh, Nishtha Goel, Deepshikha Kumar, and Prachi Gupta.
