Limitation Act Does Not Apply to Conciliation Proceedings Under MSMED Act: Himachal Pradesh High Court

In a significant ruling clarifying the scope of statutory dispute resolution, the High Court of Himachal Pradesh has held that the Micro and Small Enterprises Facilitation Council (MSEFC) cannot reject a reference for conciliation simply because it is time-barred. Justice Ajay Mohan Goel emphasized that the council, while acting as a conciliator, is not a Civil Court and must not apply rigid limitation periods meant for formal litigation.

The Background of the Dispute

The petitioner, M/s RK Products , approached the court after its reference under Section 18(1) of the MSMED Act, 2006, was dismissed by the Facilitation Council. The Council had ruled that claims before it were akin to a suit in a Civil Court, and consequently, applied the three-year limitation period prescribed under the Limitation Act, 1963. Since the petitioner had approached the council eight years after the cause of action, the Council declared the claim “hopelessly barred by limitation.”

The Legal Crossroads

The core question before the High Court was whether the Council possesses the authority to unilaterally dismiss a referral on the grounds of limitation at the threshold of the conciliation phase.

The petitioner contended that the Council misapplied the law by equating its role to that of a Civil Court. Counsel argued that conciliation is a non-adjudicatory process aimed at consensus-building, and therefore, should not be stifled by procedural hurdles such as the law of limitation. In contrast, the respondents maintained that the Council was correct in applying the precedent set by the Supreme Court in Silpi Industries v. Kerala State Road Transport Corporation .

Court’s Analysis: Conciliation vs. Arbitration

Justice Ajay Mohan Goel differentiated the Council’s functions under Section 18(2) and Section 18(3) of the Act. Relying on the recent Supreme Court judgment in M/s Sonali Power Equipment Pvt. Ltd. v. Chairman Maharashtra State Electricity Board (2025 INSC 864) , the Court held that the strict applicability of the Limitation Act is confined only to the arbitral proceedings mentioned in Section 18(3).

The Court clarified that the conciliation process aims to resolve disputes through negotiation rather than binding adjudication. If a party is unsatisfied with the outcome of the conciliation, only then does the process shift to arbitration, where the defense of limitation becomes a valid legal argument.

Key Observations

The judgment offers clear guidance on the limitations councils must operate within:

• On the nature of the Council: “By no stretch of imagination, the Council constituted under the 2006 Act is comparable to a Civil Court at all. It is just a statutory Council which has to perform the duties which have been encompassed upon it.”
• On the conciliation process: “The principle of limitation is not attracted as far as Section 18(1) or 18(2) of the 2006 Act are concerned, though this law is attracted when it comes to sub-Section (3) of Section 18 thereof.”
• On the non-adjudicatory nature: “The supplier’s right to recover the principal amount and interest subsists even after the expiry of the limitation period and he may recover the same through a settlement agreement arrived at through conciliation.”

Final Verdict and Implications

Allowing the petition, the High Court quashed the December 2024 order of the Council. The Council has been directed to accept the petitioner’s reference and proceed with conciliation in accordance with the law.

This ruling serves as a vital safeguard for the MSME sector, ensuring that small business owners are not shut out of the Facilitation Council's dispute resolution mechanism by rigid interpretations of the Limitation Act before they even have the chance to negotiate an amicable settlement. By distinguishing between mandatory conciliation and adversarial arbitration, the Himachal Pradesh High Court has reinforced the spirit of the 2006 Act: to facilitate, not truncate, justice for local businesses.