1. Recovery of delayed payments under MSMED Act — Reference to Facilitation Council — Challenge to award on grounds of limitation. (Para 3 )
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2025 Supreme(SC) 1082
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, JOYMALYA BAGCHI, JJ.
M/s Sonali Power Equipments Pvt. Ltd. - Appellant
Versus
Chairman, Maharashtra State Electricity Board, Mumbai and Others - Respondents
Civil Appeal Nos. 9524-9532 of 2025 [Arising Out of SLP (C) Nos. 6912-6920 of 2024]
Decided On : 17-07-2025
Important Points
The Limitation Act, 1963 is not applicable to conciliation proceedings under the MSMED Act but applies to arbitration under its provisions; time-barred claims can be settled through conciliation.
Subject
Civil Law - Dispute Resolution
Act Referred
ARBITRATION AND CONCILIATION ACT: S.2, S.21, S.34, S.37, S.43, S.65, S.67, S.73, S.81
CIVIL PROCEDURE CODE: S.89
CONTRACT ACT: S.25(3)
ELECTRICITY ACT: S.174, S.175
LIMITATION ACT: S.29(2), S.3
MICRO SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT: S.15, S.16, S.17, S.18, S.19, S.2, S.20, S.21, S.22, S.23, S.32
CIVIL PROCEDURE CODE: S.89
CONTRACT ACT: S.25(3)
ELECTRICITY ACT: S.174, S.175
LIMITATION ACT: S.29(2), S.3
MICRO SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT: S.15, S.16, S.17, S.18, S.19, S.2, S.20, S.21, S.22, S.23, S.32
Headnote
(A) Micro, Small and Medium Enterprises Development Act, 2006 - Section 18(2) and (3) - Limitation Act, 1963 - Applicability of Limitation Act to conciliation and arbitration proceedings under MSMED Act - Court holds Limitation Act not applicable to conciliation but applicable to arbitration proceedings under MSMED Act - A time-barred claim can be referred to conciliation as expiry of limitation does not extinguish recovery rights. (Paras 51 and 52)
(B) The interpretation of 'amount due' in the context of MSMED Act does not include time-barred claims for conciliation but acknowledges the right to settle them in that framework. (Paras 28 and 30)
(C) The Limitation Act must be assessed case by case in references under section 22 of MSMED Act regarding unpaid amounts. (Paras 50)
(D) Judicial and statutory principles governing arbitration and conciliation emphasized the need for clarity in resolving rights and mechanism for addressing disputes under MSMED Act.
(B) The interpretation of 'amount due' in the context of MSMED Act does not include time-barred claims for conciliation but acknowledges the right to settle them in that framework. (Paras 28 and 30)
(C) The Limitation Act must be assessed case by case in references under section 22 of MSMED Act regarding unpaid amounts. (Paras 50)
(D) Judicial and statutory principles governing arbitration and conciliation emphasized the need for clarity in resolving rights and mechanism for addressing disputes under MSMED Act.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Jayant Bhushan, Sr. Adv. Mr. Prashant Pakkhidey, Adv. Mr. Surjendu Sankar Das, AOR Mr. Manav Gill, Adv. Ms. Annie Mittal, Adv.
For the Respondent(s): Mr. Shikhil Suri, Sr. Adv. Mr. Udit Gupta, Adv. Mr. Amarendra Kumar, Adv. Mr. Vyom Chaturvedi, Adv. Ms. Pragya Gupta, Adv. Ms. Sneha Singh, Adv. Ms. Nishtha Goel, Adv. Ms. Deepshikha Kumar, Adv. Ms. Prachi Gupta, Adv. M/S. Udit Kishan And Associates, AOR
For the Petitioner(s): Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Jayant Bhushan, Sr. Adv. Mr. Prashant Pakkhidey, Adv. Mr. Surjendu Sankar Das, AOR Mr. Manav Gill, Adv. Ms. Annie Mittal, Adv.
For the Respondent(s): Mr. Shikhil Suri, Sr. Adv. Mr. Udit Gupta, Adv. Mr. Amarendra Kumar, Adv. Mr. Vyom Chaturvedi, Adv. Ms. Pragya Gupta, Adv. Ms. Sneha Singh, Adv. Ms. Nishtha Goel, Adv. Ms. Deepshikha Kumar, Adv. Ms. Prachi Gupta, Adv. M/S. Udit Kishan And Associates, AOR
Table of Contents
2. Conciliation is non-adjudicatory and non-coercive — Arbitration under Section 18(3) MSMED Act incorporates Section 43 ACA — Section 18(3) overrides Section 2(4) ACA. (Para 25 , 26 , 29 , 30 , 31 , 32 , 40 , 41 , 42 , 47 , 48 )
3. Limitation Act is inapplicable to conciliation under MSMED Act but applicable to arbitration via Section 43 ACA. (Para 51 )
4. Appeals partly allowed — High Court order set aside regarding conciliation and upheld regarding arbitration. (Para 52 )
5. Does the Limitation Act apply to conciliation proceedings under Section 18(2) of the MSMED Act?
No. Conciliation is a non-adjudicatory, non-coercive process based on negotiation and settlement. The Limitation Act applies to suits, appeals, and applications before courts, not to out-of-court conciliation. (Para 26 , 29 )
6. Can time-barred debts be referred to conciliation under the MSMED Act?
Yes. Limitation bars the remedy, not the underlying right. Parties can settle time-barred debts through a written agreement, which is recognized under Section 25(3) of the Indian Contract Act. (Para 31 , 32 , 33 )
7. Does the Limitation Act apply to arbitration proceedings under Section 18(3) of the MSMED Act?
Yes. Section 18(3) creates a deeming fiction that the arbitration is pursuant to an agreement, making Section 43 of the ACA applicable, which extends the Limitation Act to such proceedings. (Para 41 , 42 , 48 )
8. How does Section 18(3) of the MSMED Act interact with Section 2(4) of the Arbitration and Conciliation Act?
Section 18(3) and Section 24 of the MSMED Act (special law) override Section 2(4) of the ACA (general law), ensuring that Section 43 ACA remains applicable to MSMED arbitrations. (Para 40 , 41 )
9. Does disclosure of unpaid amounts in a buyer's financial statements under Section 22 of the MSMED Act extend the limitation period?
Such entries may constitute an acknowledgment of liability under Section 18 of the Limitation Act, but this must be determined on a case-to-case basis, considering accompanying notes or auditor reports. (Para 49 , 50 )
JUDGMENT :
PAMIDIGHANTAM SRI NARASIMHA, J.
| Table of Contents | |
| (I) | Introduction |
| (II) | Brief Facts |
| (III) | High Court order dated 24.08.2018 |
| (IV) | Impugned order |
| (V) | Submissions |
| (VI) | Issues |
| (VII) | Relevant statutory provisions |
| (VIII) | Whether time-barred claims can be referred to conciliation under Section 18(2) of the MSMED Act |
| (IX) | Whether time-barred claims can be referred to arbitration under Section 18(3) of the MSMED Act |
| (X) | Conclusion |
1. Leave granted.
(I) Introduction:
2. The issue arising in the present appeals are whether the provisions of the LIMITATION ACT , 19631 [Hereinafter “ LIMITATION ACT ”] are applicable to conciliation and arbitration proceedings initiated under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006.2 [Hereinafter “MSMED Act”] Further, even if the LIMITATION ACT is not applicable, whether a supplier can recover a time-barred debt by taking recourse to the remedies provisioned under Section 18 of the MSMED Act. In the order impugned before us in the present appeals, a full bench of the High Court has 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. On considering the statutory scheme and provisions of the MSMED Act, the Arbitration and Conciliation Act, 19963 [Hereinafter “ACA”] and the LIMITATION ACT , along with the precedents of this Court as well the submissions of the parties, we have partly allowed the present appeals as follows. We have upheld the decision of the High Court to the extent of the LIMITATION ACT being applicable to arbitration proceedings under the MSMED Act and have provided our reasons for the same. With respect to conciliation proceedings on the other hand, we are of the opinion that they do not attract the applicability of the LIMITATION ACT . Further, there is no legal bar in the LIMITATION ACT , the MSMED Act, the ACA, or the legal precedents laid down by this Court that proscribes conciliation with respect to time-barred debts.
(II) Brief Facts:
3. The appellants are small-scale industries registered with the District Industries Centre, Nagpur. The appellants supplied transformers to respondent no. 1 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, 1993.4 [Hereinafter “1993 Act”] The 1993 Act came to be repealed by the MSMED Act, 20065 [ Section 3 2 of the MSMED Act, which reads: “32. Repeal of Act 32 of 1993: (1) The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 is hereby repealed. (2) Notwithstanding such repeal, anything done or any action taken under the Act so repealed under sub-section (1) shall be deemed to have been done or taken under the corresponding provisions of this Act.”] and the proceedings initiated by the appellants were taken up by the Micro and Small Enterprises Facilitation Council6 [Hereinafter “Facilitation Council”] under the MSMED Act.
3.1 By its award dated 28.01.2010, the Facilitation Council allowed the appellants’ claims and awarded interest on the delayed payments.
3.2 Respondent Nos. 1 and 2 challenged the award under Section 3 4 of the ACA, and deposited the requisite amount under Section 19 of the MSMED Act. This was allowed by the Commercial Court by order dated 26.10.2017 and it set aside the award on the ground that the claims were barred by limitation, against which order the appellants filed appeals under Section 3 7 of the ACA before the High Court.
(III) High Court order dated 24.08.2018:
4. On taking up these appeals under Section 37 , the division bench referred the issue of applicability of LIMIT
