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Supreme Court of India
M/S Sonali Power Equipments Pvt. Ltd vs Chairman, Maharashtra State … on 17 July, 2025
Author: Pamidighantam Sri Narasimha
Bench: Pamidighantam Sri Narasimha
2025 INSC 864 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 9524-9532 OF 2025
ARISING OUT OF SLP (C) NOS. 6912-6920 OF 2024
M/S SONALI POWER EQUIPMENTS PVT. LTD. ...APPELLANT(S)
VERSUS
CHAIRMAN, MAHARASHTRA STATE ELECTRICITY
BOARD, MUMBAI & ORS. …RESPONDENT(S)
JUDGMENT
PAMIDIGHANTAM SRI NARASIMHA, J.
Table of Contents
I. Introduction……………………………………………………………….2
II. Brief Facts …………………………………………………………………3
III. High Court order dated 24.08.2018: ……………………………………4
IV. Impugned order: …………………………………………………………..6
V. Submissions: ……………………………………………………………. 11
VI. Issues ……………………………………………………………………. 15
VII. Relevant statutory provisions: ………………………………………… 17
VIII. Whether time-barred claims can be referred to conciliation under
Section 18(2) of the MSMED Act: ……………………………………………… 26
IX.
Signature Not Verified
Whether time-barred claims can be referred to arbitration under
Digitally signed by
KAPIL TANDON
Date: 2025.07.17
Section 18(3) of the MSMED Act: ……………………………………………… 35
15:50:44 IST
Reason:
X. Conclusion ………………………………………………………………. 49
1
1. Leave granted.
I. Introduction:
2. The issue arising in the present appeals are whether the
provisions of the Limitation Act, 19631 are applicable to
conciliation and arbitration proceedings initiated under Section 18
of the Micro, Small and Medium Enterprises Development Act,
20062. 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, 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
1 Hereinafter “Limitation Act”.
2 Hereinafter “MSMED Act”.
3 Hereinafter “ACA”.
2
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, 19934. The 1993 Act
came to be repealed by the MSMED Act, 20065, and the
proceedings initiated by the appellants were taken up by the Micro
4 Hereinafter “1993 Act”.
5 Section 32 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.”
3
and Small Enterprises Facilitation Council6 under the MSMEDAct.
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
34 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 37 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 Limitation Act to
proceedings under the MSMED Act to a larger bench. It took note
of a coordinate bench’s decision in M/s. Delton Electricals v.
MSEDCL7 wherein the High Court found that the law of limitation
applies to claims filed before the Facilitation Council. The High
6 Hereinafter “Facilitation Council”.
7 Commercial Appeal No. 38/2017, judgment dated 31.08.2017.
4
Court took a different view and referred the issue to a larger bench
for the following reasons:
4.1 In Delton’s case, the Court held that by virtue of Section 2(4)
of the ACA, which excludes the applicability of Section 43 of the
ACA to statutory arbitrations, the Limitation Act was inapplicable
to arbitrations under the MSMED Act. However, analysing the
issue from a different perspective and interpreting the term
“amount due” in the scheme of the MSMED Act, the High Court
relied on this Court’s decision in State of Kerala v. V.R.
Kalliyanikutty8 and held that “amount due” does not include a
time-barred debt. On this basis, the High Court therein set aside
the award of the Facilitation Council that allowed time-barred
claims as being violative of public policy.
4.2 In the order dated 24.08.2018, the division bench doubted
the correctness of the interpretation of “amount due” in Delton’s
(supra) case as various aspects were not considered by the Court
therein, and it framed 9 issues for consideration by a larger bench.
The relevant portion with the issues framed is extracted
hereinbelow:
“46. We find that in Deltons case, this Court was not required to look
into cardinal issues which may have made some difference on the
outcome. Those issues are –
8 (1999) 3 SCC 657.
5
A. Whether in view of a more comprehensive scheme in MSMED Act
and improvement made by it over Act no. 32 of 1993, the jurisdiction
of Civil Court is taken away by 2006 Act?
B. Whether an incongruous situation perceived in paragraph 71 of its
judgment by the Division Bench in Delton case (supra) can emerge
due to reading of Section 6 of Act no. 32 of 1993, (not in force) and
Section 18 of the MSMED Act?
C. Whether the period of limitation runs from the appointed date only
to find out limitation for cause of action to approach Council under
Section 18 of 2006 Act?
D. Whether Section 21 of 1996 Act has any relevance in the scheme
of Section 18 of the MSMED Act?
E. Whether the peculiar provisions like “thrice the bank rate of
interest”, interest compounded monthly, direction to mention
principal, interest and amount unpaid in balance sheet by buyer, step
by step approach adopted in Section 18 and overriding effect in
Section 24 of the 2006 Act, all are sufficient to exclude the
applicability of the Limitation Act, 1963?
F. Whether the mention of “unpaid amount” in balance sheet of the
buyer must include “time barred” claims?
G. What is the legislative intent in mandating the mention of “unpaid
amount” or even time-barred recoveries separately?
H. Whether such disclosure of “unpaid principal amount” or the
“compound interest quantum” separately gives rise to the fresh or
repeated annual causes of action for recovery of the principal and/or
interest amount?
I. Whether the present controversy need to be viewed independent of
the Act No. 32 of 1993?”
IV. Impugned order:
5. By judgment dated 20.10.2023, a full bench of the High Court
framed the following issues for its consideration:
“(1) Whether the provisions of Indian Limitation Act, 1963 are
applicable to conciliation proceedings initiated and conducted under
Section 18 (1) & (2) of MSMED Act, 2006?
(2) Whether the provisions of Indian Limitation Act, 1963 are
applicable to arbitration proceedings under Section 18(3) of MSMED
Act, 2006?”5.1 Taking up the second question on the applicability of the
Limitation Act to arbitration proceedings under Section 18(3) of the
MSMED Act, the High Court proceeded as follows. Relying on this
6
Court’s decision in Silpi Industries9 and Mahakali Foods10 and theoverriding effect of the MSMED Act as provided under Section 24
therein, the High Court held that Sections 15 to 23 of the MSMED
Act will override Section 2(4) of the ACA. The language of Section
18, which commences with a non-obstante clause, fortifies this
position. Therefore, the conduct of arbitration under the MSMED
Act will be guided by Section 18(3), which makes the entirety of the
ACA, including Section 43, applicable to arbitrations under the
MSMED Act. Further, the Court noted that taking an alternative
view would permit time-barred and stale claims to be raised in
arbitration under the MSMED Act, which is contrary to the
purpose and object of the statute to provide speedy remedy to the
supplier to recover his claims. The Court also analysed the scheme
of the MSMED Act and observed that the statute prescribes time-
limits for payment under Section 15, provides for a penal rate of
interest in case of default under Section 16, and also provides a
time-limit for the Facilitation Council to decide the reference under
Section 18(5). The prescription of such timelines shows that the
legislature did not intend for time-barred claims to be raised in
arbitration under Section 18(3). Finally, the High Court rejected
9 Silpi Industries v. Kerala SRTC, (2021) 18 SCC 790.
10 Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401.
7
the appellants’ contention that the decisions in Silpi Industries
(supra) and Mahakali Foods (supra) are per incuriam and held that
the same are binding on it.
5.2 With respect to conciliation under Sections 18(1) and 18(2)
of the MSMED Act, the Court noted that there is no provision that
extends the Limitation Act to conciliation proceedings. It also noted
that conciliation is mandated under the MSMED Act when a
reference is made before the Facilitation Council, and Section 18
has done away with the requirement of consent for conciliation
that is required under the ACA. In case conciliation fails, the
Facilitation Council can take up the dispute for arbitration or refer
it to an institution or centre. Further, taking into account the
purpose and object of the MSMED Act to provide a more robust
mechanism for recovery of “amount due” to the supplier, the Court
held that the MSMED Act does not create any “special right” in
favour of the supplier and the right of recovery of the amount is
the same as available under common law. In this light, it relied on
this Court’s decisions in V.R. Kalliyanikutty (supra) and A.P. Power
Coordination Committee v. Lanco Kondapalli Power Ltd.11 to hold
11 (2016) 3 SCC 468, hereinafter “Lanco”. These were subsequently followed in B.K.
Educational Services Pvt. Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633, which is
also referred and cited by the High Court.
8
that “amount due” does not include a time-barred, stale and dead
claim. It also noted that if this were the legislative intent, there
must be a specific provision enacted to this effect. Further
considering the compulsory nature of statutory conciliation, the
buyer must be allowed to take the defence of limitation. Hence,
although the Limitation Act does not apply to conciliation
proceedings, the Facilitation Council cannot entertain a dead or
stale claim.
5.3 In this light, the High Court answered each of the issues
raised in paragraph 46 of the division bench’s order (extracted
hereinabove) as follows:
Issue A: The MSMED Act does not debar the jurisdiction of
the civil court and only provides an alternative, speedy
mechanism under Section 18 for recovery of money with a
higher rate of interest.
Issue B: An incongruous situation as contemplated in Delton
(supra) arises. If the limitation provisions are not applied to
conciliation and arbitration under Section 18 of the MSMED
Act, it would lead to an incongruous situation where a suit
before the civil court for recovery of money would be rejected
9
on the ground of limitation but the same can be claimedunder Section 18 a number of years after the supply.
Issue C: Limitation commences from the date provided under
Section 15 of the MSMED Act.
Issue D: Section 21 of the ACA does not have relevance as
conciliation and arbitration are statutorily provided under
Section 18 when a supplier makes a reference before the
Facilitation Council.
Issue E: Section 22 of the MSMED Act mandates the buyer
to make entries in its books of account to ensure that the
remedy under Section 18 is a speedy remedy, and therefore
supports the plea that the Limitation Act applies.
Issues F and G: Section 22 does not have the effect of
permitting dead and stale claims, and the concept of a
continuing cause of action cannot be stretched to “an absurd
point of time, where its enforcement would make it an engine
of oppression and not of providing justice to one”.
Issue H: The purpose and object of Section 16 read with
Sections 22 and 23 is to dissuade the buyer from delaying
payments but not to be used as a tool for oppression by the
10
supplier by letting time lapse and inflating the claim by
charging interest for that period before the Facilitation
Council. The charging of interest under Section 16 does not
amount to a fresh cause of action at the end of every month,
for then there would be no time limit within which the
supplier is required to raise his claim.
Issue I: Considering the scheme of the 1993 Act and the
MSMED Act, 2006, the latter provides a more robust recovery
mechanism by reducing timelines for payments, providing for
higher interest, and a timeline for conciliation and
arbitration. However, the basic provisions remain the same
and hence, what has been considered and held in respect of
provisions under the 1993 Act will hold good in respect of the
MSMED Act, unless a contrary intention appears from the
language of the MSMED Act.
V. Submissions:
6. We have heard Dr. Abhishek Manu Singhvi and Mr. Jayant
Bhushan, learned senior counsels for the appellants and Mr.
Shikhil Suri, learned senior counsel for the respondents, as well
as perused the written submissions of the parties. The
submissions advanced on behalf of the appellants are as follows:
11
6.1 The decision of this Court in Silpi Industries (supra) that has
held that the Limitation Act is applicable to arbitration proceedings
under Section 18 of the MSMED Act is per incuriam for two
reasons: first, Section 2(4) of the ACA that excludes the
applicability of Section 43 of the ACA to statutory arbitrations was
not brought to the notice of the Court, and second, the Court relies
on another decision in Lanco (supra), which is itself per incuriam
as it is directly contrary to an earlier coordinate bench decision in
T.N. Generation & Distribution Corpn. Ltd. v. PPN Power Generating
Co. (P) Ltd.12
6.2 Relying on Section 2(4) of the ACA, it is submitted that
Section 43, which provides for the applicability of limitation
provisions in arbitral proceedings, does not apply to statutory
arbitrations. Further, the Limitation Act only applies to courts, and
not to quasi-judicial bodies or tribunals. Hence, in view of Section
2(4), Limitation Act cannot be extended to arbitrations under the
MSMED Act. Further, there is no provision under the MSMED Act
providing for the applicability of the Limitation Act to proceedings
under it.
12 (2014) 11 SCC 53, hereinafter “TANGEDCO”.
12
6.3 Section 22 of the MSMED Act mandates the buyer to disclose
in its books of accounts the principal amount and interest due
thereon that remains unpaid to any supplier. It is submitted that
such an entry in the balance sheet or financial statement of the
buyer reflecting the unpaid sum is an acknowledgement of debt
and extends the period of limitation as per Section 18 of the
Limitation Act. Contravention of this requirement is punishable
under Section 27 of the MSMED Act.
6.4 The MSMED Act has been enacted with the object of
protecting suppliers, and the onus is on the buyers to make
payments. Suppliers often do not raise complaints or claims in the
fear that it would jeopardise future business with the buyer. No
injustice would be caused to the buyer if Limitation Act is not
applicable.
6.5 Finally, with respect to conciliation proceedings, it is
submitted that the same is to provide an opportunity to parties to
explore an amicable settlement. If time-barred claims cannot be
referred to conciliation, it would render Section 25(3) of the Indian
Contract Act, 187213 otiose, which enables parties to agree to pay
time-barred debts. Further, the MSMED Act creates substantive
13 Hereinafter “Contract Act”.
13
rights beyond establishing a mechanism for speedy recovery.
Hence, the decisions in V.R. Kalliyanikutty (supra) and Lanco
(supra) do not apply.
7. On behalf of the respondents, it is submitted that:
7.1 The language Section 18(3) of the MSMED Act provides for
the applicability of the ACA to arbitrations under it as if the
arbitration was in pursuance of an arbitration agreement under
Section 7(1) of the ACA. Hence, the statutory fiction places
arbitration under the MSMED Act on the same footing as those
under the ACA and incorporates the entirety of the ACA, including
Section 43.
7.2 Section 2(4) of the ACA addresses situations where statutes
mandating arbitration prescribe their own limitation periods, and
then the applicability of Section 43 of the ACA is excluded.
However, when such statutes do not prescribe any such limitation
period, Section 2(4) cannot preclude the applicability of limitation
law to such arbitrations.
7.3 This Court’s decision in Lanco (supra) is not per incuriam as
it took note of the decision in TANGEDCO (supra) and held that the
issue of limitation was not examined in detail therein.
14
7.4 Further, it is clear from the statutory framework and intent
of the MSMED Act that the intent was not to exclude the
applicability of the Limitation Act. Rather, the applicability of
limitation laws complements the scheme of the MSMED Act for
speedy dispute resolution. Further, a contrary interpretation
would create an anomalous position where claims barred by law
can be revived by approaching a different forum.
7.5 Finally, Section 22 of the MSMED Act that requires disclosure
of the unpaid amount in the buyer’s balance sheet is to promote
transparency and accountability in financial reporting, rather than
alter or extend statutory limitation periods.
VI. Issues:
8. Upon perusing the impugned order, we find that the full
bench set out two issues, namely the applicability of limitation law
to arbitration proceedings and conciliation proceedings
respectively under the MSMED Act. However, in its conclusion, the
High Court proceeded to answer several other issues that were
referred to it by the division bench’s order dated 24.08.2018
(paragraph 46). There are several questions of law arising therein,
such as whether the jurisdiction of civil courts is ousted by the
MSMED Act, commencement of the limitation period, extension of
15
the limitation period, and applicability of decisions rendered in the
context of the 1993 Act. These issues do not directly arise for our
consideration in the present appeals and the parties’ submissions
have been confined to the two legal issues framed by the full bench,
as well as brief submissions on the effect of Section 22 of the
MSMED Act. In this light, we will confine our examination to the
two issues that have been formulated and answered by the High
Court and while doing so, we will also briefly deal with Section 22
of the MSMED Act. We may reformulate the issues arising in the
present appeals as follows:
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?
16
VII. Relevant statutory provisions:
9. Before we analyse each issue, it would be relevant to
understand the statutory scheme and interplay of the Limitation
Act, ACA, and the MSMED Act.
10. Section 3 of the Limitation Act provides that when a suit,
appeal, or application is filed after the prescribed period of
limitation as per the Schedule, the same shall be dismissed even
if limitation is not set up as a defence. The calculation of the
limitation period is subject to Sections 4 to 24 of the Limitation
Act.14 Further, Section 29(2) of the Limitation Act makes its
provisions applicable to special or local laws when they prescribe
a different period of limitation than what is provided in the
Schedule. In such a situation, Section 3 will apply as if such period
were prescribed in the Schedule, and Sections 4 to 24 will apply to
the extent that they are not impliedly or expressly excluded by the
local or special law.15
14 The relevant portion of Section 3 of the Limitation Act is:
“3. Bar of limitation.— (1) Subject to the provisions contained in sections 4 to 24
(inclusive), every suit instituted, appeal preferred, and application made after the
prescribed period shall be dismissed, although limitation has not been set up as a
defence.”
15 Section 29(2) of the Limitation Act reads:
“29. Savings.—
***
(2) Where any special or local law prescribes for any suit, appeal or application a
period of limitation different from the period prescribed by the Schedule, the
provisions of section 3 shall apply as if such period were the period prescribed by
the Schedule and for the purpose of determining any period of limitation prescribed
for any suit, appeal or application by any special or local law, the provisions
17
11. Coming to the ACA, Section 2(4) deals with the applicability
of Part I of the ACA to statutory arbitrations. It provides that all
the provisions of Part I, except Sections 40(1), 41 and 43, shall
apply to arbitrations under other enactments as if such arbitration
were pursuant to an arbitration agreement and as if such other
enactment were an arbitration agreement, except insofar as the
provisions of Part I are inconsistent with the other enactment or
rules made thereunder. Section 2(4) is extracted for ready
reference:
“2. Definitions.—
***
(4) This Part except sub-section (1) of section 40, sections 41 and 43
shall apply to every arbitration under any other enactment for the
time being in force, as if the arbitration were pursuant to an
arbitration agreement and as if that other enactment were an
arbitration agreement, except in so far as the provisions of this Part
are inconsistent with that other enactment or with any rules made
thereunder.”
12. Arbitration agreement is defined in Section 7 of the ACA as
an agreement to submit disputes which have arisen or which may
arise between parties in respect of a defined legal relationship,
whether contractual or not, to arbitration.16
contained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the
extent to which, they are not expressly excluded by such special or local law.”
Although the expression used in the provision is “expressly excluded”, this Court has
consistently interpreted the same to include implied exclusions. See Hukumdev Narain Yadav
v. Lalit Narain Mishra, (1974) 2 SCC 133, para 17; Union of India v. Popular Construction,
(2001) 8 SCC 470, paras 8-11; Commissioner of Customs and Central Excise v. Hongo India
Pvt Ltd, (2009) 5 SCC 791, para 35.
16 Section 7 defines an arbitration agreement and sets out the mandatory requirements of an
arbitration agreement. The relevant portion is:
18
13. Further, Section 43(1) provides for the applicability of the
Limitation Act to arbitral proceedings. It reads:
“43. Limitations.—(1) The Limitation Act, 1963 (36 of 1963), shall
apply to arbitrations as it applies to proceedings in court.”
14. Part III of the ACA deals with conciliation of disputes. Section
67 therein provides for the role of the conciliator, and is extracted
for ready reference:
“67. Role of conciliator.— (1) The conciliator shall assist the parties
in an independent and impartial manner in their attempt to reach an
amicable settlement of their dispute.
(2) The conciliator shall be guided by principles of objectivity, fairness
and justice, giving consideration to, among other things, the rights
and obligations of the parties, the usages of the trade concerned and
the circumstances surrounding the dispute, including any previous
business practices between the parties.
(3) The conciliator may conduct the conciliation proceedings in such a
manner as he considers appropriate, taking into account the
circumstances of the case, the wishes the parties may express,
including any request by a party that the conciliator hear oral
statements, and the need for a speedy settlement of the dispute.
(4) The conciliator may, at any stage of the conciliation proceedings,
make proposals for a settlement of the dispute. Such proposals need
not be in writing and need not be accompanied by a statement of the
reasons therefor.”
15. Sections 68 to 72 deal with the procedural aspects of
conciliation, such as administrative assistance, communication,
disclosure of information, cooperation of parties, and submission
of suggestions. Section 73 provides for a signed and written
“7. Arbitration agreement.— (1) In this Part, “arbitration agreement” means an
agreement by the parties to submit to arbitration all or certain disputes which have
arisen or which may arise between them in respect of a defined legal relationship,
whether contractual or not.”
19
settlement agreement, which shall be final and binding on theparties. It reads:
“73. Settlement agreement.— (1) When it appears to the conciliator
that there exist elements of a settlement which may be acceptable to
the parties, he shall formulate the terms of a possible settlement and
submit them to the parties for their observations. After receiving the
observations of the parties, the conciliator may reformulate the terms
of a possible settlement in the light of such observations.
(2) If the parties reach agreement on a settlement of the dispute, they
may draw up and sign a written settlement agreement. If requested
by the parties, the conciliator may draw up, or assist the parties in
drawing up, the settlement agreement.
(3) When the parties sign the settlement agreement, it shall be final
and binding on the parties and persons claiming under them
respectively.
(4) The conciliator shall authenticate the settlement agreement and
furnish a copy thereof to each of the parties.”
(emphasis supplied)
16. Section 74 provides that such settlement agreement shall
have the same status and effect as an arbitral award on agreed
terms on the substance of the dispute rendered by an arbitral
tribunal under Section 30 of the ACA.
17. Finally, Section 76 provides for termination of the conciliation
proceedings in various circumstances: (i) signing of the settlement
agreement by the parties, (ii) written declaration by the conciliator
that efforts at conciliation are no longer justified, (iii) written
declaration of the parties to the conciliator that conciliation
proceedings are terminated, or (iv) written declaration of a party to
the other party and conciliator that conciliation proceedings are
20
terminated. Hence, conciliation is terminated when the partiesarrive at and sign the settlement agreement. It can also be
terminated at the behest of the conciliator or one or both parties,
when there is no settlement, by way of a written declaration.
Section 76 of the ACA reads:
“76. Termination of conciliation proceedings.— The conciliation
proceedings shall be terminated—
(a) by the signing of the settlement agreement by the parties, on the
date of the agreement; or
(b) by a written declaration of the conciliator, after consultation with
the parties, to the effect that further efforts at conciliation are no
longer justified, on the date of the declaration; or
(c) by a written declaration of the parties addressed to the conciliator
to the effect that the conciliation proceedings are terminated, on the
date of the declaration; or
(d) by a written declaration of a party to the other party and the
conciliator, if appointed, to the effect that the conciliation proceedings
are terminated, on the date of the declaration.”
18. Finally, Chapter V of the MSMED Act that deals with delayed
payments to Micro and Small Enterprises is relevant for our
purpose. Section 15 imposes obligations on the buyer17 in respect
of timelines for payment to the supplier18 as follows- on or before
17 Buyer is defined under Section 2(d) of the MSMED Act as:
“2. Definitions.— In this Act, unless the context otherwise requires,—
***
(d) “buyer” means whoever buys any goods or receives any services from a supplier
for consideration;”
18 Supplier is defined under Section 2(n) of the MSMED Act as:
“2. Definitions.— In this Act, unless the context otherwise requires,—
***
(n) “supplier” means a micro or small enterprise, which has filed a memorandum
with the authority referred to in sub-section (1) of section 8, and includes,—
(i) the National Small Industries Corporation, being a company, registered under the
Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by
whatever name called, being a company registered under the Companies Act, 1956
(1 of 1956);
21
the date agreed upon between the parties in writing, provided that
the same does not exceed 45 days from the day of acceptance or
the day of deemed acceptance19, or where there is no agreement in
this behalf, before the “appointed day”20. Section 15 of the MSMED
Act reads:
“15. Liability of buyer to make payment.— Where any supplier,
supplies any goods or renders any services to any buyer, the buyer
shall make payment therefor on or before the date agreed upon
between him and the supplier in writing or, where there is no
agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the
supplier and the buyer in writing shall exceed forty-five days from the
day of acceptance or the day of deemed acceptance.”
19. Section 16 of the MSMED Act provides that when the buyer
fails to make the payment as required under Section 15, he shall
be liable to pay compound interest with monthly rests for the period
stipulated therein, at 3 times the bank rate notified by the Reserve
(iii) any company, co-operative society, trust or a body, by whatever name called,
registered or constituted under any law for the time being in force and engaged in
selling goods produced by micro or small enterprises and rendering services which
are provided by such enterprises;”
19 See Section 2(b) of the MSMED Act.
20 Appointed day is defined under Section 2(b) of the MSMED Act as:
“2. Definitions.— In this Act, unless the context otherwise requires,—
***
(b) “appointed day” means the day following immediately after the expiry of the
period of fifteen days from the day of acceptance or the day of deemed acceptance
of any goods or any services by a buyer from a supplier.
Explanation.—For the purposes of this clause,—
(i) “the day of acceptance” means,—
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any objection is made in writing by the buyer regarding
acceptance of goods or services within fifteen days from the day of the delivery of
goods or the rendering of services, the day on which such objection is removed by
the supplier;
(ii) “the day of deemed acceptance” means, where no objection is made in writing
by the buyer regarding acceptance of goods or services within fifteen days from the
day of the delivery of goods or the rendering of services, the day of the actual
delivery of goods or the rendering of services;”
22
Bank. The rate of interest prescribed under Section 16 shalloverride any agreement with the supplier in this behalf and any
other law in force for the time being. Section 16 of the MSMED Act
reads:
“16. Date from which and rate at which interest is payable.—
Where any buyer fails to make payment of the amount to the supplier,
as required under section 15, the buyer shall, notwithstanding
anything contained in any agreement between the buyer and the
supplier or in any law for the time being in force, be liable to pay
compound interest with monthly rests to the supplier on that amount
from the appointed day or, as the case may be, from the date
immediately following the date agreed upon, at three times of the
bank rate notified by the Reserve Bank.”
20. Section 17 provides for recovery of “amount due”, which
includes the interest provided thereon under Section 16. It reads:
“17. Recovery of amount due.— For any goods supplied or services
rendered by the supplier, the buyer shall be liable to pay the amount
with interest thereon as provided under section 16.”
21. Section 18, which falls for our interpretation, provides the
remedies for recovery of the “amount due” calculated under
Section 17. While we will deal with the interpretation of its sub-
sections in more detail at a later stage, it is relevant to note the
following about the remedial mechanism: first, any party to a
dispute with regard to the amount due can make a reference before
the Facilitation Council; second, the Facilitation Council shall, on
receipt of such reference, conduct conciliation or refer the dispute
for conciliation to an institution or centre; third, such conciliation
23
shall be conducted as per Sections 65 to 81 of the ACA as if the
conciliation is initiated under Part III of the ACA; fourth, in case of
failure and termination of conciliation without any settlement, the
Facilitation Council shall either take up the dispute for arbitration
or refer it to any institution or centre for arbitration; fifth, the
provisions of the ACA shall apply to the dispute as if the arbitration
was pursuant to an arbitration agreement; sixth, notwithstanding
any other law, the Facilitation Council can act as a conciliator and
arbitrator in the dispute when the supplier is located in its
jurisdiction; and seventh, the reference shall be decided within 90
days of it being made. Section 18 is extracted below for ready
reference:
“18. Reference to Micro and Small Enterprises Facilitation
Council.— (1) Notwithstanding anything contained in any other law
for the time being in force, any party to a dispute may, with regard to
any amount due under section 17, make a reference to the Micro and
Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall
either itself conduct conciliation in the matter or seek the assistance
of any institution or centre providing alternate dispute resolution
services by making a reference to such an institution or centre, for
conducting conciliation and the provisions of sections 65 to 81 of the
Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such
a dispute as if the conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not
successful and stands terminated without any settlement between
the parties, the Council shall either itself take up the dispute for
arbitration or refer to it any institution or centre providing alternate
dispute resolution services for such arbitration and the provisions of
the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then
apply to the dispute as if the arbitration was in pursuance of an
arbitration agreement referred to in sub-section(1) of section 7 of that
Act.
24
(4) Notwithstanding anything contained in any other law for the time
being in force, the Micro and Small Enterprises Facilitation Council or
the centre providing alternate dispute resolution services shall have
jurisdiction to act as an Arbitrator or Conciliator under this section in
a dispute between the supplier located within its jurisdiction and a
buyer located anywhere in India.
(5) Every reference made under this section shall be decided within a
period of ninety days from the date of making such a reference.”
22. Section 19 stipulates a pre-deposit requirement for filing an
application under Section 34 of the ACA to set aside the award.
Section 20 provides for establishment of the Facilitation Council
and Section 21 provides for its composition.
23. Section 22 mandates the buyer to disclose the unpaid
amount along with interest in its annual statement of accounts.21
Section 23 provides for the treatment of the interest amount under
taxation laws. Section 24 provides for the overriding effect of
Sections 15 to 23 as follows:
21 Section 22 of the MSMED Act reads:
“22. Requirement to specify unpaid amount with interest in the annual
statement of accounts.— Where any buyer is required to get his annual accounts
audited under any law for the time being in force, such buyer shall furnish the
following additional information in his annual statement of accounts, namely:—
(i)the principal amount and the interest due thereon (to be shown separately)
remaining unpaid to any supplier as at the end of each accounting year;
(ii) the amount of interest paid by the buyer in terms of section 16, along with the
amount of the payment made to the supplier beyond the appointed day during each
accounting year;
(iii) the amount of interest due and payable for the period of delay in making
payment (which have been paid but beyond the appointed day during the year) but
without adding the interest specified under this Act;
(iv) the amount of interest accrued and remaining unpaid at the end of each
accounting year; and
(v) the amount of further interest remaining due and payable even in the succeeding
years, until such date when the interest dues as above are actually paid to the
small enterprise, for the purpose of disallowance as a deductible expenditure under
section 23.”
25
“24. Overriding effect.— The provisions of sections 15 to 23 shall
have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.”VIII. Whether time-barred claims can be referred to conciliation
under Section 18(2) of the MSMED Act:
24. In light of the above statutory provisions, we will decide the
first issue of whether the Limitation Act applies to conciliation
proceedings under Section 18(2) of the MSMED Act, and even if
not, whether time-barred claims can be referred to conciliation.
25. Conciliation has not been defined per se under the ACA or
the MSMED Act. Hence, it would be relevant to refer to decisions
where the term has fallen for consideration and has been
interpreted by this Court. In State of Punjab v. Jalour Singh,22 a 3-
judge bench determined the meaning and scope of conciliation in
the context of the powers of the Lok Adalats under the Legal
Services Authorities Act, 1987. Similarly, in United India Insurance
Co. Ltd. v. Ajay Sinha23, this Court relied on the role of the
conciliator under Sections 67 and 73 of the ACA to explain
conciliation as a dispute resolution mechanism. Finally, in Afcons
Infrastructure Ltd. & Anr. v. Cherian Varkey Construction Co. (P) Ltd.
22 (2008) 2 SCC 660.
23 (2008) 7 SCC 454.
26
& Ors.24, this Court explained conciliation as an ADR remedy
under Section 89 of the CPC. The following features of conciliation
can be culled out from these decisions as well as the statutory
provisions:
i. Conciliation is not an adjudicatory or judicial process
where the conciliator hears the parties and decides a
dispute.25
ii. The parties to the conciliation resolve their disputes
through settlement, whose terms may be arrived at with
the assistance of the conciliator. The role of the conciliator
is to guide and assist the parties in arriving at a
compromise or settlement26, make proposals for
settlement27, formulate the terms of settlement or assist
the parties in doing so,28 and reformulate the terms of
settlement based on the observations of the parties.29
iii. The conciliator must be guided by the principles of
independence, impartiality, objectivity, justice, equity, fair
play, fairness, and confidentiality, and must also consider
24 (2010) 8 SCC 24.
25 Jarlour Singh (supra), para 8; Afcons Infrastructure Ltd. (supra), para 35.
26 Section 67(1) of the ACA; Jarlour Singh (supra), para 8.
27 Section 67(4) of the ACA.
28 Section 73(1) of the ACA; Jarlour Singh (supra), para 8; United India Insurance Co. Ltd.
(supra), paras 22-23.
29 ibid.
27
the rights and obligations of the parties, trade usages, and
business practices between the parties. He must also take
into account the wishes of the parties and the need for
speedy settlement of dispute.30 The parties must also
cooperate with the conciliator in good faith and endeavour
to comply with the conciliator’s requests.31
iv. Finally, the terms of the settlement that are recorded in a
settlement agreement must be signed by the parties and it
shall be final and binding on them.32 The same is
enforceable as an arbitral award.33
26. Section 18(2) of the MSMED Act provides that conciliation
must be conducted as per Sections 65 to 81 of the ACA. On
perusing these provisions of the ACA, as well as the provisions of
the MSMED Act, it is clear that there is no provision that extends
the applicability of the Limitation Act to conciliation proceedings.
Further, neither Section 29(2) nor any other provision of the
Limitation Act has the effect of extending its application to
conciliation proceedings. On the other hand, it is a settled position
30 ibid; Sections 67(2) and (3), Section 75 of the ACA.
31 Section 71 of the ACA.
32 Section 73(2) and Section 74 of the ACA; Jarlour Singh (supra), para 12; Afcons Infrastucture
Ltd. (supra), para 38.
33 See Section 74 of the ACA read with Section 30 of the ACA.
28
that the Limitation Act only applies suits, appeals, and
applications filed before courts.34 Conciliation being an out-of-
court and non-adjudicatory process of dispute resolution, the
Limitation Act cannot be extended to it.
27. This position of law has been recognised by the High Court in
its impugned order as well, in that it has held that the Limitation
Act does not directly apply to conciliation proceedings. However,
the High Court adopted a different approach and interpreted the
term “amount due” referred in Sections 17 and 18 of the MSMED
Act to hold that time-barred claims are not included, and hence
cannot be referred to conciliation under Section 18(2). In doing so,
the High Court primarily relied on this Court’s decision in V.R.
Kalliyanikutty (supra), and its reliance in Lanco (supra). We will
now examine the legality and correctness of the High Court’s
reasoning and decision by contrasting the present case with the
reasoning in V.R. Kalliyanikutty (supra).
28. In V.R. Kalliyanikutty (supra), a 3-judge bench of this Court
examined whether time-barred claims of the State Financial
Corporation and banks can be recovered through recourse to the
mechanism under the Kerala Revenue Recovery Act, 1968. For this
34 M.P. Steel Corpn. v. CCE, (2015) 7 SCC 58, paras 11-32.
29
purpose, the Court interpreted the term “amount due” appearing
in Section 71 of that Act, and whether it would include time-barred
claims.35 The Court held that “amount due” refers to an amount
which the creditor has a right to recover, and does not include a
time-barred debt.36 The Court considered that the Act only
provides a special procedure for speedy recovery of these amounts
that the creditor can use instead of filing a civil suit. It also noted
that the Act did not enlarge the existing right of recovery, but only
provisioned a different process for recovery.37 This process of
recovery is also a judicial process and is coercive in nature.38
Hence, the Court held that the same would attract the law of
limitation.39 It also observed that the application of limitation law
would advance the public interest of the Act, i.e., speedy recovery
of amounts.40
29. The question before us is whether the decision in V.R.
Kalliyanikutty (supra) would apply while interpreting “amount
35 ibid, para 8.
36 ibid, para 8.
37 ibid, para 16.
38 ibid, paras 16 and 17.
39 ibid, para 17.
40 Ibid, para 14. It is relevant to note that V.R. Kalliyanikutty (supra) has been doubted by a
division bench of this Court in K.P. Khemka v. Haryana SIIDC, (2024) 8 SCC 391 on the point
of whether the Kerala Revenue Recovery Act created a distinct right of recovery. While the
legal principle and law laid down in V.R. Kalliyanikutty (supra) has not been doubted, its
application to the statutory provisions has been referred to a three-judge bench. See K.P.
Khemka (supra), para 35 onward.
30
due” in the context of conciliation proceedings under Section 18(2)
of the MSMED Act. Considering the non-adjudicatory and non-
coercive nature of conciliation that we have explained above, we
are of the opinion that this decision does not apply in the present
context for the following reasons:
29.1 One of the considerations of this Court in V.R. Kalliyanikutty
(supra) was that the recovery process under the Kerala Revenue
Recovery Act was a judicial process, and it would hence attract the
law of limitation. However, as we have explained above,
conciliation is not an adjudicatory or judicial process.
29.2 While Section 18(2) of the MSMED Act does away with the
requirement of consent for conciliation as provided in Section 61
of the ACA and statutorily mandates the Facilitation Council and
parties to explore conciliation for dispute resolution, the ultimate
outcome of conciliation remains entirely dependent on the parties.
Sections 65 to 81 of the ACA apply to conciliation proceedings
under the MSMED Act as per Section 18(2). The parties must be
agreeable to the terms of settlement. The conciliator cannot, and
must not, coerce the parties to agree to certain terms or settle the
dispute. Ultimately, if the parties are not willing to amicably settle
the dispute, either or both of them can terminate the conciliation
31
proceedings as per Section 76 of the ACA. Hence, conciliation
cannot be termed as a “coercive” process, which was another
consideration of the Court in V.R. Kalliyanikutty (supra).
30. For these reasons, the recovery process considered in V.R.
Kalliyanikutty (supra) can be said to stand on a different footing
than conciliation under Section 18(2) of the MSMED Act read with
Sections 65 to 81 of the ACA. Hence, the decision is inapplicable
to the present context. The High Court did not consider these
aspects of the matter, and rather relied on the compulsory nature
of conciliation under Section 18(2) as well as the object of speedy
recovery under the MSMED Act to hold that time-barred claims
cannot be referred to conciliation. As we have already explained,
merely because conciliation is mandatory does not mean that the
parties are required to settle the dispute. They may choose to
terminate conciliation and avail the remedy of arbitration provided
in Section 18(3), wherein they can raise all defences available to
them in law. Considering that conciliation is non-adjudicatory by
nature and is rather based on negotiation, compromise, and
settlement by the parties, it is not necessary that the defence of
limitation be available to the parties in this process.
32
31. There is yet another reason why time-barred claims must not
be excluded from conciliation under the MSMED Act. It is a settled
position of law that the statute of limitation only bars the remedy,
but does not extinguish the underlying right, which in this case is
the right to recover the unpaid amount and interest thereon. The
right to recover of the creditor/supplier and the corresponding
liability of the debtor/buyer to repay the amount subsists even
after the expiry of the limitation period. The creditor can recover a
time-barred debt, other than through remedies through a court of
law, such as by adjusting payments from the debtor made without
direction on how it must be appropriated,41 recovering the amount
from a surety/ guarantee, or enforcing lien or security.42 Further,
the parties may also enter into a contract for repayment of a time-
barred debt, which is recognised under Section 25(3) of the
Contract Act.43
41 See Section 60 of the Contract Act, which allows the debtor to apply such payment, at his
discretion, to any lawful debt actually due and payable to him from the debtor, whether or
not its recovery is time-barred under limitation law.
42 Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay, AIR 1958 SC 328, para 12; Punjab
National Bank v. Surendra Prasad Sinha, 1993 Supp (1) SCC 499. para 5; Prem Cottex v. Uttar
Haryana Bijli Vitran Nigam Ltd., (2021) 20 SCC 200, para 13.
43 Section 25(3) of the Contract Act reads:
“25. Agreement without consideration, void, unless it is in writing and
registered, or is a promise to compensate for something done or is a
promise to pay a debt barred by limitation law.—An agreement made without
consideration is void, unless—
***
(3) it is a promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that behalf, to pay
wholly or in part a debt of which the creditor might have enforced payment but for
33
32. A settlement agreement for a time-barred claim arrived at
between the buyer and supplier through conciliation under Section
18(2) is precisely in the nature of a contract recognised and
declared valid under Section 25(3) of the Contract Act. It is clear
that although certain remedies are no longer available in law to the
creditor once the limitation period expires, the creditor can adopt
other methods, including contractual agreements, to recover time-
barred debts. Conciliation as a dispute-resolution process only
facilitates the parties in arriving at such a contract or settlement
agreement. Hence, it is not correct to exclude time-barred claims
from being settled through conciliation under Section 18(2) of the
MSMED Act. The High Court did not fully appreciate this aspect
and rather relied on the object of speedy recovery to arrive at its
conclusion. In doing so, it lost sight of the forest for the trees and
entirely foreclosed a beneficial mechanism made available to the
supplier under the MSMED Act, and more generally recognised in
law, to recover the amounts due to him even if they are time-
barred.
33. For the foregoing reasons, we conclude that neither the
Limitation Act applies to conciliation proceedings under Section
the law for the limitation of suits. In any of these cases, such an agreement is a
contract.”
34
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.
IX. Whether time-barred claims can be referred to arbitration under
Section 18(3) of the MSMED Act:
34. The next issue falling for our consideration is whether the
Limitation Act applies to arbitration by the Facilitation Council
under Section 18(3), and whether time-barred claims can be
referred to arbitration. At this very stage, it is necessary to take
note of this Court’s decision in Silpi Industries (supra), which the
High Court relied on to hold that time-barred claims cannot be
referred to arbitration.
35. In Silpi Industries (supra), the Court was faced with a similar
fact-situation wherein the suppliers initially approached the
Industrial Facilitation Council under the 1993 Act for recovery of
35
time-barred claims. As conciliation failed, the claims were decided
by the Facilitation Council under the MSMED Act and it made
arbitral awards in favour of the suppliers. The buyer/respondent
therein challenged the award under Sections 34 and 37 of the ACA,
wherein the High Court held that the Limitation Act is applicable
to arbitration claims under the MSMED Act. In the suppliers’
appeals, this Court considered the issue of whether the provisions
of the Limitation Act apply to arbitration proceedings initiated
under Section 18(3) of the MSMED Act,44 which is the very issue
arising for our consideration.
35.1 The Court took note of the statement and objects of the
MSMED Act and the scheme for recovery of delayed payments
under Chapter V, specifically Sections 15 to 18.45 It then relied on
Section 43 of the ACA, which extends the applicability of the
Limitation Act to arbitration proceedings. Since Section 18(3) of
the MSMED Act mandates arbitration upon failure of conciliation,
and makes the provisions of the ACA applicable as if there were an
arbitration agreement between the parties, this Court held that
Section 43 of the ACA is also applicable.46
44 Silpi Industries (supra), para 17.1.
45 ibid, paras 24-25.
46 ibid, paras 26-27.
36
35.2 This Court also affirmed the High Court’s reliance on the
decision in Lanco (supra) to hold that the Limitation Act is
applicable to arbitration proceedings under Section 18(3).47 The
relevant portions of the decision are extracted below:
“25. With regard to the first issue, namely, applicability of Limitation
Act, 1963 to the arbitration proceedings initiated under the provisions
of Micro, Small and Medium Enterprises Development Act, 2006, we
need to notice certain relevant sections of the Act. As per Section 15
of the said Act, where supplier supplies any goods or renders any
services to any buyer, the buyer shall make payment on or before the
agreed date between the parties in writing or where there is no
agreement, before the appointed day. Section 16 deals with date from
which and rate of interest payable in the event of not making the
payment. The recovery mechanism for the amount due is covered by
Sections 17 and 18 of the said Act. If any party has a dispute with
regard to amount due under Section 17, a reference is required to be
made to the Micro and Small Enterprises Facilitation Council. On such
reference, the Council is empowered to conduct conciliation in the
matter or seek assistance of any institution or centre providing
alternate dispute resolution services by making a reference to such
institution for conducting conciliation. If the conciliation is not
successful, as contemplated under Section 18(2) of the said Act, same
stands terminated under Section 18(3) of the said Act. Thereafter, the
Council shall either itself take up the dispute for arbitration or refer it
to any institution or centre providing alternate dispute resolution
services for such arbitration and the provisions of the Arbitration and
Conciliation Act, 1996 are made applicable as if the arbitration was
in pursuance of arbitration agreement between the parties, under
sub-section (1) of Section 7 of the 1996 Act.
26. Applicability of the Limitation Act, 1963 to the arbitrations is
covered by Section 43 of the 1996 Act. The High Court, while referring
to abovesaid provisions and the judgment of this Court in A.P. Power
Coordination Committee v. Lanco Kondapalli Power Ltd. has held that
the Limitation Act, 1963 is applicable to the arbitrations covered by
Section 18(3) of the 2006 Act. A reading of Section 43 itself makes it
clear that the Limitation Act, 1963 shall apply to the arbitrations, as
it applies to proceedings in court. When the settlement with regard to
a dispute between the parties is not arrived at under Section 18 of
the 2006 Act, necessarily, the Micro and Small Enterprises
Facilitation Council shall take up the dispute for arbitration under
Section 18(3) of the 2006 Act or it may refer to institution or centre to47 ibid, paras 26-27.
37
provide alternate dispute resolution services and provisions of the
Arbitration and Conciliation Act, 1996 are made applicable as if there
was an agreement between the parties under sub-section (1) of
Section 7 of the 1996 Act.”
36. The learned senior counsels on behalf of the appellants have
made two submissions regarding the correctness of Silpi Industries
(supra), which otherwise lays down the law on this exact issue. The
first is that the Court therein did not consider the effect of Section
2(4) of the ACA, which explicitly excludes the applicability of
Section 43 to statutory arbitrations, while arriving at its decision.
The second is that the decision in Lanco (supra), relied on by the
Court, is per incuriam as it is contrary to an earlier, coordinate
bench decision in TANGEDCO (supra). We will now consider each
of these submissions in some detail, and while doing so, will also
provide our reasoning for why the Limitation Act must be held
applicable to arbitration proceedings under Section 18(3) of the
MSMED Act.
37. We will first deal with the argument regarding applicability of
Section 43 of the ACA to arbitrations under Section 18(3) of the
MSMED Act. The significance of Section 43 of the ACA has been
explained by this Court in Consolidated Engineering Enterprises v.
38
Principal Secretary Irrigation Department48 as making the
provisions of the Limitation Act, which are otherwise only
applicable to proceedings before courts, applicable to
arbitrations.49 Without the enactment of Section 43, the Limitation
Act would not extend to claims filed before arbitral tribunals.50
38. It is in this light that we must consider the interplay of
Section 2(4) of the ACA with the provisions of the MSMED Act. If
the applicability of the provisions of Part I of the ACA is determined
as per Section 2(4), it is an inevitable conclusion that Section 43
will not apply to such arbitrations, and consequently, the
Limitation Act will also not apply.
39. Section 18 of the MSMED Act provides for arbitration by the
Facilitation Council in the following terms. Sub-section (1)
commences with a non-obstante clause and provides for reference
of a dispute regarding the amount due under Section 17 to the
Facilitation Council. While Section 18(2) mandates conciliation,
Section 18(3) deals with the eventuality of failure of settlement. It
provides that when the conciliation stands terminated without a
settlement, the matter must be referred to arbitration and the
48 (2008) 7 SCC 169.
49 ibid, paras 23, 45; My Preferred Transformation & Hospitality Pvt. Ltd. v. M/s Faridabad
Implements Pvt. Ltd. 2025 INSC 56, paras 10-11.
50 ibid.
39
provisions of the ACA shall apply as if the arbitration is in pursuance
of an arbitration agreement under Section 7(1) of the ACA. It is clear
that there is a statutory deeming fiction that the arbitration under
the statute is to be considered as being pursuant to an arbitration
agreement.51 It is also relevant to note that Section 24 of the
MSMED Act provides for the overriding effect of Sections 15 to 23
notwithstanding anything inconsistent in any other law for the
time being in force.
40. Section 2(4) of the ACA also employs a similar device of
deeming statutory arbitrations as being pursuant to an arbitration
agreement, as if the other enactment is an arbitration agreement.
By doing so, it extends the applicability of Part I of the ACA to such
arbitrations, except certain provisions including Section 43 and
except insofar as the provisions of the ACA are inconsistent with
the other enactment or rules thereunder. Two things are relevant
to note here: first, by default, Section 2(4) extends Part I of the
ACA, except Sections 40(1), 41, and 43, to statutory arbitrations;
and second, Section 2(4) itself provides for the overriding effect of
the special law in case of inconsistency with its provisions.
51 See Mahakali Foods (supra), para 43.
40
41. There is a clear and apparent conflict in the manner in which
the provisions of the ACA are made applicable – while Section 2(4)
provides for the exclusion of Section 43 to statutory arbitrations,
Section 18(3) provides for the applicability of all the provisions of
the ACA as would apply if there were an arbitration agreement,
which includes Section 43. We are of the opinion that Section 18(3)
of the MSMED Act will prevail over Section 2(4) of the ACA. 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.52
42. For these reasons, we are of the opinion that the applicability
of the ACA to arbitrations under the MSMED Act is not determined
52 ibid, paras 33-42.
41
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
arbitral proceedings under the MSMED Act.
43. In this light, although the Court in Silpi Industries (supra) did
not consider Section 2(4) while arriving at its decision, we have
provided our reasons for why it will not be applicable. The
submission by the appellants that Silpi Industries (supra) is per
incuriam on this ground is therefore rejected and the applicability
of the Limitation Act to arbitrations under Section 18(3), by virtue
of Section 43, is affirmed.
44. We will now briefly consider the second contention regarding
Lanco (supra) being per incuriam and contrary to TANGEDCO
(supra), thereby rendering its reliance in Silpi Industries (supra) as
incorrect. It is relevant to note that Lanco (supra) and TANGEDCO
(supra) arise in the context of the Electricity Act, 2003 and the
applicability of the Limitation Act to arbitrations conducted
thereunder.
42
45. In TANGEDCO (supra), a dispute regarding payments under
a Power Purchase Agreement (PPA) was raised before the State
Electricity Regulatory Commission, which allowed the same and
held that the Limitation Act does not apply to claims under the
Electricity Act. It is also relevant to note that the PPA contained an
arbitration clause, which is governed by English law and provided
that the arbitration shall be conducted in England. While
considering various submissions, this Court held that the issue of
delay and laches did not arise in the facts of the case.53 It also
rejected the contention of the appellant therein that the Limitation
Act would have applied had the matter been referred to arbitration,
by holding that this situation also does not arise as the State
Commission decided the dispute itself.54 It then proceeded to
observe that even if the matter were referred to arbitration, Section
43 of the ACA would not apply and consequently, the Limitation
Act would not apply, due to Section 2(4) of the ACA.55 However, the
Court finally noted that in any case, the arbitration clause is
governed by English Law and hence the applicability of Section 43,
which is under Part I, does not arise.56
53 TANGEDCO (supra), para 64.
54 ibid, para 65.
55 ibid, paras 65-66.
56 ibid, para 69.
43
46. It is therefore clear that the issue of limitation as well as the
interpretation of Section 2(4) and the applicability of Section 43 of
the ACA to statutory arbitrations under the Electricity Act did not
directly arise for consideration in TANGEDCO (supra). This has
also been noted by this Court in Lanco (supra)57, wherein the issue
directly falling for the Court’s consideration was whether the
Limitation Act applies to actions instituted before the State
Commission under the Electricity Act.58 The Court noted that the
Limitation Act does not ordinarily apply to proceedings before
quasi-judicial bodies or tribunals59. However, applying the
principle in V.R. Kalliyanikutty (supra), the Court held that
Electricity Act does not create a new right to claim amounts that
are barred by limitation. An amount that is not ordinarily
recoverable by filing a regular suit, on account of being barred by
limitation, cannot be entertained in exercise of judicial powers by
the State Commission. The Court also considered that there is no
conflict between the provisions of the Limitation Act and the
Electricity Act, in which context it examined the effect of Sections
174 and 175 of the Electricity Act. Ultimately, the Court concluded
57 Lanco (supra), paras 16, 28.
58 ibid, para 9.1.
59 ibid, para 28. The Court relied on M.P. Steel Corpn. (supra).
44
that the Limitation Act is applicable to proceedings before the State
Commission under the Electricity Act. The relevant portion of
Lanco (supra) is extracted below:
“30. In such a situation it falls for consideration whether the principle
of law enunciated in State of Kerala v. V.R. Kalliyanikutty and in
New Delhi Municipal Committee v. Kalu Ram is attracted so as to bar
entertainment of claims which are legally not recoverable in a suit or
other legal proceeding on account of bar created by the Limitation Act.
On behalf of the respondents those judgments were explained by
pointing out that in the first case the peculiar words in the statute—
“amount due” and in the second case “arrears of rent payable” fell
for interpretation in the context of powers of the tribunal concerned
and on account of the aforesaid particular words of the statute this
Court held that the duty cast upon the authority to determine what is
recoverable or payable implies a duty to determine such claims in
accordance with law. In our considered view a statutory authority like
the Commission is also required to determine or decide a claim or
dispute either by itself or by referring it to arbitration only in
accordance with law and thus Sections 174 and 175 of the Electricity
Act assume relevance. Since no separate limitation has been
prescribed for exercise of power under Section 86(1)(f) nor this
adjudicatory power of the Commission has been enlarged to entertain
even the time-barred claims, there is no conflict between the
provisions of the Electricity Act and the Limitation Act to attract the
provisions of Section 174 of the Electricity Act. In such a situation, on
account of the provisions in Section 175 of the Electricity Act or even
otherwise, the power of adjudication and determination or even the
power of deciding whether a case requires reference to arbitration
must be exercised in a fair manner and in accordance with law. In
the absence of any provision in the Electricity Act creating a new right
upon a claimant to claim even monies barred by law of limitation, or
taking away a right of the other side to take a lawful defence of
limitation, we are persuaded to hold that in the light of nature of
judicial power conferred on the Commission, claims coming for
adjudication before it cannot be entertained or allowed if it is found
legally not recoverable in a regular suit or any other regular
proceeding such as arbitration, on account of law of limitation. We
have taken this view not only because it appears to be more just but
also because unlike labour laws and the Industrial Disputes Act, the
Electricity Act has no peculiar philosophy or inherent underlying
reasons requiring adherence to a contrary view.
31. We have taken the aforesaid view to avoid injustice as well as the
possibility of discrimination. We have already extracted a part of para
11 of the judgment in State of Kerala v. V.R. Kalliyanikutty wherein45
the Court considered the matter also in the light of Article 14 of the
Constitution. In that case the possibility of Article 14 being attracted
against the statute was highlighted to justify a particular
interpretation as already noted. It was also observed that it would be
ironic if in the name of speedy recovery contemplated by the statute,
a creditor is enabled to recover claims beyond the period of limitation.
In this context, it would be fair to infer that the special adjudicatory
role envisaged under Section 86(1)(f) also appears to be for speedy
resolution so that a vital developmental factor — electricity and its
supply is not adversely affected by delay in adjudication of even
ordinary civil disputes by the civil court. Evidently, in the absence of
any reason or justification the legislature did not contemplate to
enable a creditor who has allowed the period of limitation to set in, to
recover such delayed claims through the Commission. Hence we hold
that a claim coming before the Commission cannot be entertained or
allowed if it is barred by limitation prescribed for an ordinary suit
before the civil court. But in an appropriate case, a specified period
may be excluded on account of the principle underlying the salutary
provisions like Section 5 or Section 14 of the Limitation Act. We must
hasten to add here that such limitation upon the Commission on
account of this decision would be only in respect of its judicial power
under clause (f) of sub-section (1) of Section 86 of the Electricity Act,
2003 and not in respect of its other powers or functions which may
be administrative or regulatory.”
47. In view of the above reading of TANGEDCO (supra) and Lanco
(supra), the following can be concluded: first, the issue of
applicability of the Limitation Act to statutory arbitrations is not
an issue determining the rights and liabilities of the parties in
TANGEDCO (supra); second, the issue of applicability of the
Limitation Act to statutory arbitrations does not arise in Lanco
(supra), and the Court was in fact dealing with whether time-
barred claims can be entertained in proceedings before the State
Commission; and third, after taking note of the decision in
TANGEDCO (supra), the Court in Lanco (supra) provided an
alternative reasoning based on the principle of V.R. Kalliyanikutty
46
(supra) to hold that the Limitation Act applies to proceedings under
the Electricity Act. Hence, we are of the opinion that the decision
in Lanco (supra) is not per incuriam, and there is no conflict
between these judgments. We therefore reject the submission by
the appellant on this ground as well.
48. In light of the above reasoning, this Court’s decision in Silpi
Industries (supra) cannot be said to be per incuriam, as has been
contended before us. The Court in Silpi Industries (supra)
considered the issue and conclusively decided that the provisions
of the Limitation Act are applicable to arbitration under Section
18(3) of the MSMED Act. We have supplemented the reasoning
provided in Silpi Industries (supra) by analysing with the interplay
of Section 2(4) of the ACA and Section 18 and Section 24 of the
MSMED Act. Considering the overriding effect of the provisions of
the MSMED Act and the clear language of Section 18(3), we have
arrived at the same conclusion as in Silpi Industries (supra) that
Section 43 of the 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. We answer the second
issue accordingly.
47
49. Before concluding, we will briefly deal with the contention
raised by the appellant that even if the Limitation Act applies to
arbitration 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 right is claimed.60
50. To briefly state the law on the issue, we will refer to this
Court’s decision in Asset Reconstruction Co. (India) Ltd. v. Bishal
Jaiswal61. Here, the issue was the applicability of Section 18 of the
Limitation Act when there is acknowledgment of liability in
financial statements. Citing various precedents on the issue, this
Court reaffirmed the position that an entry in the balance sheet of
the debtor would amount to an acknowledgement of liability as per
Section 18 of the Limitation Act.62 However, it also observed that
60 Section 18 of the Limitation Act reads:
“18. Effect of acknowledgment in writing.—(1) Where, before the expiration of
the prescribed period for a suit or application in respect of any property or right, an
acknowledgment of liability in respect of such property or right has been made in
writing signed by the party against whom such property or right is claimed, or by
any person through whom he derives his title or liability, a fresh period of limitation
shall be computed from the time when the acknowledgment was so signed…”
61 (2021) 6 SCC 366.
62 ibid, paras 16-17.
48
it is not uncommon for such entry to have notes annexed, or the
auditor’s report that must be read along with the balance sheet,
that indicate that such entry does not amount to an
acknowledgement of debt for reasons stated therein.63 While the
law mandates the preparation of the balance sheet, and in our
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.64 It is
sufficient to restate this position of law for our purpose.
X. Conclusion:
51. On considering the statutory provisions of the MSMED Act,
the ACA, and the Limitation Act, the precedents of this Court, and
on the basis of the above reasoning, we have answered the issues
arising in the present appeals as follows:
i. 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
63 ibid, para 21.
64 ibid, para 35.
49
agreement that can be arrived at through the conciliatory
process.
ii. The Limitation Act applies to arbitration proceedings
under Section 18(3) of the MSMED 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.
52. We therefore partly allow the present appeals arising out of
SLP (C) Nos. 6912-6920/2024 and set aside the impugned order
dated 20.10.2023 arising in Commercial Appeal Nos. 1-9/2018
before the High Court of Bombay Bench at Nagpur to the extent of
applicability of the Limitation Act to conciliation proceedings under
the MSMED Act. We have upheld the High Court’s decision on the
applicability of the Limitation Act to arbitration proceedings under
the MSMED Act for the reasons provided hereinabove.
53. Pending applications, if any, stand disposed of.
50
54. No order as to costs.
………………………………….J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………….J.
[JOYMALYA BAGCHI]
NEW DELHI;
JULY 17, 2025
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