SCI (2025.07.17) in M/s Sonali Power Equipments Pvt. Ltd vs Chairman, Maharashtra State Electricity Board Mumbai & Ors. [2025 INSC 864, Civil Appeal Nos.9524-9532 Of 2025 Arising out of SLP (C) NOS. 6912-6920 OF 2024] held that;
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 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.
Excerpts of the Order;
# 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 that the Limitation Act only applies suits, appeals, and applications filed before courts.[M.P. Steel Corpn. v. CCE, (2015) 7 SCC 58, paras 11-32.] Conciliation being an out-of- court and non-adjudicatory process of dispute resolution, the Limitation Act cannot be extended to it.
# 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 timebarred debt, which is recognised under Section 25(3) of the Contract Act.[43]
# 33. For the foregoing reasons, we conclude that neither the Limitation Act applies to conciliation proceedings under Section 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.
# 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 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.
Footnotes;
[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—
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(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 the law for the limitation of suits. In any of these cases, such an agreement is a contract.”
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