Limitation – Conciliation / Arbitration -Section 18 of the MSMED Act, 2006.
The appellants – small scale industries – supplied transformers to the respondent no.1 from 1993 to 2004. The appellants filed references in 2005 under 1993 Act, due to delay in payments. The said act was repealed by MSMED Act, 2006
On 28.1.2010, the Facilitation Council allowed the claim and awarded interest on delayed payments.
However, the Commercial Court allowed section 34 petition and set-aside the award on the ground of limitation.
On 20.10.2023, the Full Bench of the High Court held that the Limitation is applicable to the conciliation proceedings under sub-sections (1) & (2) and the arbitration under sub-section (3) of Section 18 of the MSMED Act.
HELD that the Limitation Act applies only to the suits, appeals and applications before the Courts. Conciliation being an out of court and non-adjudicatory process of dispute resolution, the Limitation Act cannot be extended to it.
Merely because the conciliation is mandatory does not mean that the time barred claims cannot be referred to the Council.
Limitation only bars the remedy but does not extinguish the right to recover unpaid amount and interest. The right to recover subsists even after the expiry of the limitation period.
Although certain remedies are no longer available in law to the creditor after expiry of limitation, the creditor can adopt other methods including contractual agreements, to recover time barred debts. It is not correct to exclude time-barred claims from being settled through conciliation under Section 18(2) of the MSMED Act.
Neither the Limitation Act applies to the conciliation proceedings under sub-section (2) of Section 18 of the MSMED Act nor time barred are excluded from such exclusion. The supplier’s right to recover the principal amount and interest thereon subsists even after expiry of limitation and he may recover the same through a settlement agreement arrived at conciliation by the Council.
Applicability of the Arbitration Act to the arbitrations under the MSMED Act is not determined by section 2(4) of the ACA 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 the arbitral proceedings under the MSMED Act.
Even if the Limitation Act applies to arbitral proceedings, the limitation period stands extended due to the disclosure of unpaid amount in the buyer’s financial statements as per Section 22 of the MSMED Act. This is based on the application of section 18 of the Limitation Act, which provides that a fresh period of limitation commences when a written acknowledgement of the liability is signed by the party against whom such a right is claimed.
Extension of limitatioin period on the basis of disclosure under Section 22 of the MSMED Act must be examined on a case-to-case basis.
Judgment dated 17.7.2025 of the Supreme Court of India in Civil Appeal Nos.9524-9532 of 2025 of M/s Sonali Power Equipments Pvt Ltd
