Limitation Act applicable to arbitration under MSMED Act, but not conciliation proceedings: Supreme Court

The Supreme Court has said the Limitation Act only gets applied to suits, appeals, and applications filed before courts and this statute cannot be extended to conciliation for it is an out-of- court and non-adjudicatory process of dispute resolution.

A bench of Justices PS Narasimha and Joymalya Bagchi thus said the Limitation Act does not apply to conciliation proceedings under Section 18(2) of the Micro, Small and Medium Enterprises Development Act, 2006. "But Limitation Act applies to arbitration proceedings under Section 18(3) of the MSMED Act," the court further clarified.

The court pointed out, 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.

Dealing with an appeal filed by M/s Sonali Power Equipments Pvt Ltd, the court examined whether the Limitation Act, 1963, applies to conciliation and arbitration proceedings initiated under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006.

The dispute emanated from delayed payments by the Maharashtra State Electricity Board to the appellant company for supplied transformers between 1993 and 2004. The appellants' claims before the Facilitation Council, initially under the 1993 Act and later under the MSMED Act, were challenged and set aside by the Commercial Court on grounds of limitation.

The Supreme court has partly allowed the appeals, upholding the applicability of the Limitation Act to arbitration but not to conciliation proceedings under the MSMED Act. It has set aside the impugned High Court order of October 20, 2023, to the extent it held the Limitation Act applicable to conciliation proceedings under the MSMED Act.

In its judgment, the court noted conciliation is not an adjudicatory or judicial process where the conciliator hears the parties and decides a dispute. It noted that 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, it added.

The court also pointed out the conciliator must be guided by the principles of independence, impartiality, objectivity, justice, equity, fair play, fairness, and confidentiality, and must also consider he rights and obligations of the parties, trade usages, and business practices between the parties.

Case Title: M/s Sonali Power Equipments Pvt Ltd vs. Chairman, Maharashtra State Electricity Board, Mumbai & Ors

Judgment Date: July 17, 2025

Bench: Justices PS Narasimha and Joymalya Bagchi