# M/s Sonali Power Equipments Pvt. Ltd v. Chairman, Maharashtra State Electricity Board, Mumbai & Ors

- **Citation:** 2025 INSC 864
- **Court:** Supreme Court of India
- **Decided:** 2025-07-17
- **Bench:** Pamidighantam Sri Narasimha, Joymalya Bagchi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-sonali-power-equipments-pvt-ltd-v-chairman-maharashtra-state-electricity-38452
- **Pages:** 39

## Headnote

(i) Whether the Limitation Act applies to conciliation proceedings
u/s.18 of the Micro, Small and Medium Enterprises Development
Act, 2006 (MSMED Act), and even if not, whether time-barred
debts can be referred to conciliation; (ii) Whether the Limitation
Act applies to arbitration proceedings u/s.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 u/s.22 on extending
the limitation period.
Headnotes†
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18 - Limitation Act, 1963 - Arbitration and Conciliation Act,
1996 - Whether the Limitation Act applies to conciliation
proceedings u/s.18 of the Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act), and even if not, whether
time-barred debts can be referred to conciliation:
Held: The Limitation Act does not apply to conciliation proceedings
u/s.18(2) of the MSMED Act - s.18(2) of the MSMED Act provides that
conciliation must be conducted as per ss.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 s.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 that the Limitation Act only applies
suits, appeals, and applications filed before courts - Conciliation being
an out-of-court and non-adjudicatory process of dispute resolution,
the Limitation Act cannot be extended to it - As far as the reference
* Author
[2025] 7 S.C.R.
1145
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
of time-barred claim to conciliation is concerned, a time-barred claim
can be referred to conciliation as the expiry of limitation period does
not extinguish the right to recover the amount, including through a
settlement agreement that can be arrived at through the conciliatory
process. [Paras 26, 51(i)]
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18 - Limitation Act, 1963 - Arbitration and Conciliation Act,
1996 - s.2(4) - Whether the Limitation Act applies to arbitration
proceedings u/s.18 of the MSMED Act, and whether timebarred 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 u/s.22 on extending the
limitation period:
Held: The Limitation Act applies to arbitration proceedings u/s.18(3)
of the MSMED Act - The applicability of the provisions of ACA to
such arbitrations is determined as per s.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 - Further,
the extension of the limitation period on the basis of disclosure
u/s.22 of the MSMED Act must be examined on a case-to-case
basis. [Para 51(ii)]
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18(3) - Limitation Act, 1963 - Arbitration and Conciliation
Act, 1996 - s.2(4) - Conflict between s.18(3) of MSMED Act
and s.2(4) of ACA:
Held: There is a clear and apparent conflict in the manner in which
the provisions of the ACA are made applicable-while s.2(4) provides
for the exclusion of s.43 to statutory arbitrations, s.18(3) provides
for the applicability of all the provisions of the ACA as would apply
if there were an arbitration agreement, which includes s.43 - This
Court is of the opinion that s.18(3) of the MSMED Act will prevail
over s.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 s.18 and the

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[2025] 7 S.C.R. 1144 : 2025 INSC 864
M/s Sonali Power Equipments Pvt. Ltd.
v.
Chairman, Maharashtra State Electricity Board,
Mumbai & Ors.
(Civil Appeal No(s). 9524-9532 of 2025)
17 July 2025
[Pamidighantam Sri Narasimha* and Joymalya Bagchi, JJ.]
Issue for Consideration
(i) Whether the Limitation Act applies to conciliation proceedings
u/s.18 of the Micro, Small and Medium Enterprises Development
Act, 2006 (MSMED Act), and even if not, whether time-barred
debts can be referred to conciliation; (ii) Whether the Limitation
Act applies to arbitration proceedings u/s.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 u/s.22 on extending
the limitation period.
Headnotes†
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18 - Limitation Act, 1963 - Arbitration and Conciliation Act,
1996 - Whether the Limitation Act applies to conciliation
proceedings u/s.18 of the Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act), and even if not, whether
time-barred debts can be referred to conciliation:
Held: The Limitation Act does not apply to conciliation proceedings
u/s.18(2) of the MSMED Act - s.18(2) of the MSMED Act provides that
conciliation must be conducted as per ss.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 s.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 that the Limitation Act only applies
suits, appeals, and applications filed before courts - Conciliation being
an out-of-court and non-adjudicatory process of dispute resolution,
the Limitation Act cannot be extended to it - As far as the reference
* Author
[2025] 7 S.C.R.
1145
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
of time-barred claim to conciliation is concerned, a time-barred claim
can be referred to conciliation as the expiry of limitation period does
not extinguish the right to recover the amount, including through a
settlement agreement that can be arrived at through the conciliatory
process. [Paras 26, 51(i)]
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18 - Limitation Act, 1963 - Arbitration and Conciliation Act,
1996 - s.2(4) - Whether the Limitation Act applies to arbitration
proceedings u/s.18 of the MSMED Act, and whether timebarred 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 u/s.22 on extending the
limitation period:
Held: The Limitation Act applies to arbitration proceedings u/s.18(3)
of the MSMED Act - The applicability of the provisions of ACA to
such arbitrations is determined as per s.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 - Further,
the extension of the limitation period on the basis of disclosure
u/s.22 of the MSMED Act must be examined on a case-to-case
basis. [Para 51(ii)]
Micro, Small and Medium Enterprises Development Act, 2006 -
s.18(3) - Limitation Act, 1963 - Arbitration and Conciliation
Act, 1996 - s.2(4) - Conflict between s.18(3) of MSMED Act
and s.2(4) of ACA:
Held: There is a clear and apparent conflict in the manner in which
the provisions of the ACA are made applicable-while s.2(4) provides
for the exclusion of s.43 to statutory arbitrations, s.18(3) provides
for the applicability of all the provisions of the ACA as would apply
if there were an arbitration agreement, which includes s.43 - This
Court is of the opinion that s.18(3) of the MSMED Act will prevail
over s.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 s.18 and the express language in s.24 - The language of s.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, wherein the Court considered the purpose and
1146
[2025] 7 S.C.R.
Supreme Court Reports
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. [Para 41]
Alternate Dispute Resolution - Conciliation - Features of:
Held: i) Conciliation is not an adjudicatory or judicial process where
the conciliator hears the parties and decides a dispute; 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 settlement, make proposals for settlement,
formulate the terms of settlement or assist the parties in doing so,
and reformulate the terms of settlement based on the observations
of the parties; iii) The conciliator must be guided by the principles
of independence, impartiality, objectivity, justice, equity, fair play,
fairness, and confidentiality, and must also consider 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 - The
parties must also cooperate with the conciliator in good faith and
endeavour to comply with the conciliator's requests; 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 - The same is enforceable as an arbitral award. [Para 25]
Micro, Small and Medium Enterprises Development Act,
2006 - s.18(2) - Limitation Act, 1963 - Arbitration and
Conciliation Act, 1996 - ss.2(4), 43 - 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 - Correctness:
Held: The decision of the High Court to the extent of the Limitation
Act being applicable to arbitration proceedings under the MSMED
Act is correct - With respect to conciliation proceedings on the
other hand, this Court is 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. [Para 2]
[2025] 7 S.C.R.
1147
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
Case Law Cited
State of Kerala v. V.R. Kalliyanikutty [1999] 2 SCR 372 : (1999)
3 SCC 657 - held inapplicable.
A.P. Power Coordination Committee v. Lanco Kondapalli Power
Ltd. [2015] 12 SCR 447; Silpi Industries v. Kerala SRTC [2021] 3
SCR 1044 : (2021)18 SCC 790 - held not per incuriam.
T.N. Generation & Distribution Corpn. Ltd. v. PPN Power Generating
Co. (P) Ltd. [2014] 4 SCR 667 : (2014)11 SCC 53; Gujarat State
Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd. [2022] 19
SCR 1094 : (2023) 6 SCC 401; My Preferred Transformation
& Hospitality Pvt. Ltd. v. M/s Faridabad Implements Pvt. Ltd.,
2025 INSC 56 : [2025] 1 SCR 729; Consolidated Engineering
Enterprises v. Principal Secretary Irrigation Department [2008] 5
SCR 1108 : (2008) 7 SCC 169; Hukumdev Narain Yadav v. Lalit
Narain Mishra [1974] 3 SCR 31 : (1974) 2 SCC 133; Union of
India v. Popular Construction [2001] Supp. 3 SCR 619 : (2001) 8
SCC 47; Commissioner of Customs and Central Excise v. Hongo
India Pvt Ltd. [2009] 4 SCR 1997 : (2009) 5 SCC 791; State of
Punjab v. Jalour Singh [2008] 1 SCR 922 : (2008) 2 SCC 660; M.P.
Steel Corpn. v. CCE [2015] 7 SCR 291 : (2015) 7 SCC 58; Asset
Reconstruction Co. (India) Ltd. v. Bishal Jaiswal [2021] 3 SCR 524 :
(2021) 6 SCC 366; United India Insurance Co. Ltd. v. Ajay Sinha
[2008] 8 SCR 509 : (2008) 7 SCC 454; Afcons Infrastructure Ltd.
& Anr. v. Cherian Varkey Construction Co. (P) Ltd. & Ors. [2010]
8 SCR 1053 : (2010) 8 SCC 24; B.K. Educational Services Pvt.
Ltd. v. Parag Gupta and Associates [2018] 12 SCR 794 : (2019)
11 SCC 633; Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay
[1958] 1 SCR 1122 : AIR 1958 SC 328 - referred to.
List of Acts
Micro, Small and Medium Enterprises Development Act, 2006;
Limitation Act, 1963; Arbitration and Conciliation Act, 1996; Delayed
Payments to Small Scale and Ancillary Industrial Undertakings Act,
1993; Contract Act, 1872; Code of Civil Procedure, 1908.
List of Keywords
Arbitration; Conciliation; Alternate Dispute Resolution; Time
barred claims; Conciliation proceedings under Section 18(2) of
the MSMED Act; Section 18 of the Micro, Small and Medium
Enterprises Development Act, 2006; Special laws; Conciliatory
process; Acknowledgement of liability; Entry in the balance sheet;
1148
[2025] 7 S.C.R.
Supreme Court Reports
Section 18 of the Limitation Act; Limitation Act applicablity to arbitral
proceedings under the MSMED Act; Conflict between s.18(3) of
Micro, Small and Medium Enterprises Development Act, 2006 and
s.2(4) of Arbitration and Conciliation Act, 1996.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 9524-9532
of 2025
From the Judgment and Order dated 20.10.2023 of the High Court
of Judicature at Bombay at Nagpur in CA No(s). 1, 2, 3, 4, 5, 6,
7, 8 and 9 of 2018
Appearances for Parties
Advs. for the Appellant:
Dr. Abhishek Manu Singhvi, Jayant Bhushan, Sr. Advs., Prashant
Pakhiddey, Surjendu Sankar Das, Manav Gill, Ms. Annie
Mittal.
Advs. for the Respondents:
Shikhil Suri, Sr. Adv., Udit Gupta, Anup Jain, Ms. Prachi Gupta,
Ms. Nishtha Goel, Amarendra Kumar, M/S. Udit Kishan and
Associates.
Judgment / Order of the Supreme Court
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
* Ed. Note: Pagination as per the original Judgment.
[2025] 7 S.C.R.
1149
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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.
Whether time-barred claims can be referred to arbitration
under Section 18(3) of the MSMED Act ...........................
35
X.
Conclusion ........................................................................
49
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 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
1
Hereinafter "Limitation Act".
2
Hereinafter "MSMED Act".
3
Hereinafter "ACA".
1150
[2025] 7 S.C.R.
Supreme Court Reports
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 and Small Enterprises Facilitation Council6
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
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
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."
6
Hereinafter "Facilitation Council".
[2025] 7 S.C.R.
1151
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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 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 -
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
7
Commercial Appeal No. 38/2017, judgment dated 31.08.2017.
8
(1999) 3 SCC 657.
1152
[2025] 7 S.C.R.
Supreme Court Reports
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?
[2025] 7 S.C.R.
1153
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
(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 Court's decision in Silpi Industries9 and Mahakali Foods10
and the overriding 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
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
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.
1154
[2025] 7 S.C.R.
Supreme Court Reports
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 that "amount due" does not include a timebarred, 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 on the ground of limitation but the same
can be claimed under Section 18 a number of years after
the supply.
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.
[2025] 7 S.C.R.
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M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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 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,
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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:
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.
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.
12
(2014) 11 SCC 53, hereinafter "TANGEDCO".
[2025] 7 S.C.R.
1157
M/s Sonali Power Equipments Pvt. Ltd. v.
Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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 timebarred debts. Further, the MSMED Act creates substantive
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.
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
13
Hereinafter "Contract Act".
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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 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?
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
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Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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
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
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
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.
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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
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
16
Section 7 defines an arbitration agreement and sets out the mandatory requirements of an arbitration
agreement. The relevant portion is:
"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."
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Chairman, Maharashtra State Electricity Board, Mumbai & Ors.
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 settlement agreement,
which shall be final and binding on the parties. 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
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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 terminated. Hence,
conciliation is terminated when the parties arrive 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.