M/S SONALI POWER EQUIPMENTS PVT. LTD. versus CHAIRMAN, MAHARASHTRA STATE ELECTRICITY BOARD, MUMBAI & ORS. (17/07/2025) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

The Supreme Court held that the Limitation Act, 1963 does not apply to conciliation under Section 18(2) of the MSMED Act, 2006 and that time-barred claims may be referred to conciliation because limitation bars only the remedy and not the right, a settlement of such a claim being a contract valid under Section 25(3) of the Contract Act; but the Limitation Act does apply to arbitration under Section 18(3), since the applicability of the Arbitration and Conciliation Act to MSMED arbitrations is governed by Section 18(3) read with Section 24 of the MSMED Act (which prevail over Section 2(4) of the ACA) and thereby attracts Section 43 of the ACA, affirming Silpi Industries.

Issues

Whether the Limitation Act, 1963 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.
Whether the Limitation Act applies to arbitration proceedings under Section 18(3) of the MSMED Act notwithstanding Section 2(4) of the Arbitration and Conciliation Act, 1996, which excludes Section 43 from statutory arbitrations, and whether Silpi Industries is per incuriam on that ground or because it relied on Lanco, said to conflict with TANGEDCO.
What effect the mandatory disclosure of unpaid amounts in the buyer's annual accounts under Section 22 of the MSMED Act has on extension of limitation under Section 18 of the Limitation Act.

Provisions considered

Section 18(1), (2) and (3), Micro, Small and Medium Enterprises Development Act, 2006Section 18(2) mandates conciliation under Sections 65 to 81 of the ACA; nothing in those provisions or the Limitation Act extends limitation to conciliation, which is a non-adjudicatory, non-coercive process. Section 18(3) deems the arbitration to be pursuant to an arbitration agreement under Section 7(1) of the ACA, thereby attracting all provisions applicable to agreed arbitrations including Section 43, and prevails over Section 2(4) of the ACA. (¶¶ 21, 26, 29, 30, 33, 39, 41, 42, 48)
Section 24, Micro, Small and Medium Enterprises Development Act, 2006The overriding effect given to Sections 15 to 23, together with the non-obstante clause in Section 18, shows a legislative intent that the MSMED Act, a special law, prevails over the ACA, a general law, in case of inconsistency; hence Section 2(4) of the ACA does not govern MSMED arbitrations. (¶¶ 23, 39, 41, 42)
Sections 15, 16, 17 and 22, Micro, Small and Medium Enterprises Development Act, 2006Sections 15 to 17 fix the buyer's payment timeline, the compound interest at three times the bank rate, and the 'amount due' recoverable through Section 18. Section 22 requires disclosure of unpaid principal and interest in the buyer's annual accounts; whether such an entry extends limitation as an acknowledgment under Section 18 of the Limitation Act must be examined case by case. (¶¶ 18, 19, 20, 23, 49, 50, 51)
Section 2(4), Arbitration and Conciliation Act, 1996Extends Part I, except Sections 40(1), 41 and 43, to statutory arbitrations, subject to inconsistency with the other enactment. The Court found a clear conflict between Section 2(4) and Section 18(3) of the MSMED Act and held that the latter prevails, so Section 2(4) does not determine the applicability of the ACA to MSMED arbitrations. (¶¶ 11, 38, 40, 41, 42, 43)
Section 43(1), Arbitration and Conciliation Act, 1996Makes the Limitation Act applicable to arbitrations as it applies to court proceedings; without it the Limitation Act would not reach arbitral tribunals. By virtue of the deeming fiction in Section 18(3) of the MSMED Act, Section 43 applies to MSMED arbitrations, as held in Silpi Industries. (¶¶ 13, 37, 42, 43, 48)
Sections 67, 73, 74 and 76, Arbitration and Conciliation Act, 1996Used to describe conciliation: the conciliator assists the parties to reach an amicable settlement, a signed settlement agreement is final and binding with the status of an arbitral award on agreed terms, and either party may terminate conciliation; the outcome thus rests wholly on the parties, making conciliation non-adjudicatory and non-coercive. (¶¶ 14, 15, 16, 17, 25, 29.2)
Sections 3, 18 and 29(2), Limitation Act, 1963Section 3 bars suits, appeals and applications filed out of time and Section 29(2) extends the Act to special laws prescribing different periods; neither reaches conciliation, the Act applying only to proceedings before courts unless extended. Section 18 (acknowledgment in writing) was noted for the effect of balance-sheet entries, following Asset Reconstruction Co. v. Bishal Jaiswal. (¶¶ 10, 26, 49, 50)
Sections 25(3) and 60, Indian Contract Act, 1872A promise in writing to pay a time-barred debt is a valid contract under Section 25(3), and a creditor may appropriate unallocated payments to a time-barred debt under Section 60; a settlement agreement on a time-barred claim reached through conciliation is precisely such a contract, so time-barred claims cannot be excluded from conciliation. (¶¶ 31, 32)

Held

Conciliation is a non-adjudicatory process in which the conciliator assists the parties to reach a settlement that becomes binding only when signed by them. The Limitation Act applies only to suits, appeals and applications before courts and no provision of the ACA, the MSMED Act or the Limitation Act extends it to conciliation; hence it does not apply to conciliation under Section 18(2) of the MSMED Act. (¶¶ 25, 26, 33)
The reasoning in V.R. Kalliyanikutty that 'amount due' excludes time-barred debts rested on the recovery process there being a judicial and coercive one; it does not apply to conciliation under Section 18(2), which, though mandatory to attempt, cannot compel the parties to settle and may be terminated by either of them, after which all defences including limitation remain available in arbitration. (¶¶ 27, 28, 29, 29.1, 29.2, 30)
Limitation bars the remedy but does not extinguish the right; a supplier's right to recover the principal and interest subsists after expiry of limitation and may be realised through means other than court proceedings, including a settlement agreement, which is a contract recognised by Section 25(3) of the Contract Act. Time-barred claims are therefore not excluded from conciliation under Section 18(2), and the High Court erred in holding otherwise. (¶¶ 31, 32, 33)
The applicability of the ACA to arbitrations under the MSMED Act is determined by Section 18(3) of the MSMED Act, a special law with overriding effect under Section 24 and a non-obstante clause, and not by Section 2(4) of the ACA; the deeming fiction in Section 18(3) attracts all provisions applicable to an agreed arbitration, including Section 43, so the Limitation Act applies to MSMED arbitrations. Silpi Industries is not per incuriam for omitting to consider Section 2(4). (¶¶ 38, 39, 40, 41, 42, 43, 48)
Lanco is not per incuriam and does not conflict with TANGEDCO: the applicability of the Limitation Act to statutory arbitrations was not a determinative issue in TANGEDCO, and Lanco, after noticing TANGEDCO, independently held on the Kalliyanikutty principle that time-barred claims cannot be entertained by the State Commission under the Electricity Act. (¶¶ 44, 45, 46, 47)
An entry in the buyer's balance sheet disclosing unpaid amounts under Section 22 of the MSMED Act may amount to an acknowledgment of liability under Section 18 of the Limitation Act, but notes or the auditor's report may negate that effect; whether limitation is extended must be examined case by case. (¶¶ 49, 50, 51)

Result

Appeals partly allowed. The Full Bench judgment of the Bombay High Court (Nagpur Bench) dated 20.10.2023 set aside to the extent it held that time-barred claims cannot be referred to conciliation under the MSMED Act; its decision that the Limitation Act applies to arbitration under Section 18(3) of the MSMED Act upheld. Pending applications disposed of; no order as to costs.