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 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 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]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.