Limitation Act Provisions Will Apply To Arbitration Proceedings Initiated Under Section 18(3) MSMED Act: Supreme Court

The Supreme Court held that the provisions of Limitation Act will apply to to arbitration proceedings initiated under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006.

The bench comprising Justices Ashok Bhushan and R. Subhash Reddy observed that counter-claim is maintainable before the statutory authorities under MSMED Act.

The bench held thus while dismissing an appeal filed against the Kerala High Court judgment which held that Limitation Act, 1963 is applicable to the proceedings under the 1996 Act arising out of MSMED Act. The High Court had also held that 'counter claim' is entertainable in the arbitration proceedings held pursuant to the provisions of the IDPASC and MSMED Acts? The following issues were considered by the bench in the appeal: (i) Whether the provisions of Indian Limitation Act, 1963 is applicable to arbitration proceedings initiated under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006 ?; and (ii) Whether, counter claim is maintainable in such arbitration proceedings ?

To answer the first issue, the court referred to various provisions of the MSMED Act and Arbitration and Conciliation Act and observed thus:

"18. With regard to first issue, namely, applicability of Limitation Act, 1963 to the arbitration proceedings initiated under provisions of Micro, Small and Medium Enterprises Development Act, 2006, we need to notice certain relevant sections of the Act. As per Section 15 of the said Act, where supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the agreed date between the parties in writing or where there is no agreement, before the appointed day. Section 16 deals with date from which and rate of interest payable in the event of not making the payment. The recovery mechanism for the amount due is covered by Sections 17 and 18 of the said Act. If any party has a dispute with regard to amount due under Section 17, a reference is required to be made to the Micro and Small Enterprises C.A.Nos.1570-1578 of 2021 etc. 24 Facilitation Council. On such reference, the Council is empowered to conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services by making a reference to such institution for conducting conciliation. If the conciliation is not successful, as contemplated under Section 18(2) of the said Act, same stands terminated under Section 18(3) of the said Act. Thereafter, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of Arbitration and Conciliation Act, 1996 are made applicable as if the arbitration was in pursuance of arbitration agreement between the parties, under sub-section (1) of Section 7 of the 1996 Act. Applicability of Limitation Act, 1963 to the arbitrations is covered by Section 43 of the 1996 Act. The High Court, while referring to abovesaid provisions and the judgment of this Court in the case of Andhra Pradesh Power Coordination Committee & Ors. v. Lanco Kondapalli Power Ltd. & Ors.3 has held that the Limitation Act, 1963 is applicable 3 (2016) 3 SCC 468 C.A.Nos.1570-1578 of 2021 etc. 25 to the arbitrations covered by Section 18(3) of the 2006 Act. A reading of Section 43 itself makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court. When the settlement with regard to a dispute between the parties is not arrived at under Section 18 of the 2006 Act, necessarily, the Micro and Small Enterprises Facilitation Council shall take up the dispute for arbitration under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services and provisions of Arbitration and Conciliation Act 1996 are made applicable as if there was an agreement between the parties under sub-section (1) of Section 7 of the 1996 Act. In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, we are of the view that the High Court has rightly relied on the judgment in the case of Andhra Pradesh Power Coordination Committee and held that Limitation Act, 1963 is applicable to the arbitration proceedings under Section 18(3) of the 2006 Act. Thus, we are of the view that no further elaboration is necessary on this issue and we hold that the provisions of Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act. We make it clear that as the judgment of the High Court is an order of remand, we need not enter into the controversy whether the claims/counter claims are within time or not. We keep it open to the primary authority to go into such issues and record its own findings on merits"

Regarding the issue of maintainability of counter claim, the court observed thus:

When the provisions of Sections 15 to 23 are given overriding effect under Section 24 of the Act and further the 2006 Act is a beneficial legislation, we are of the view that even the buyer, if any claim is there, can very well subject to the jurisdiction before the Council and make its claim/ counter claim as otherwise it will defeat the very objects of the Act which is a beneficial legislation to micro, small and medium enterprises. Even in cases where there is no agreement for resolution of disputes by way of arbitration, if the seller is a party covered by Micro, Small and Medium Enterprises Development Act, 2006, if such party approaches the Council for resolution of dispute, other party may approach the civil court or any other forum making claims on the same issue. If two parallel proceedings are allowed, it may result in conflicting findings. At this stage, it is relevant to notice the judgment of this Court in the case of Edukanti Kistamma (Dead) through LRs. v. S. Venkatareddy (Dead) through LRs. & Ors.4 where this Court has held that a special Statute would be preferred over general one where it is beneficial one. It was explained that the purport and object of the Act must be given its full effect by applying the principles of purposive construction. Thus, it is clear that out of the two legislations, the provisions of MSMED Act will prevail, especially when it has overriding provision under Section 24 thereof. Thus, we hold that MSMED Act, being a special Statute, will have an overriding effect vis-à-vis Arbitration and Conciliation Act, 1996, which is a general Act. Even if there is an agreement between the parties for resolution of disputes by arbitration, if a seller is covered by Micro, Small and Medium Enterprises Development Act, 2006, the seller can certainly approach the competent authority to make its claim. If any agreement between the parties is there, same is to be ignored in view of the statutory obligations and mechanism provided under the 2006 Act. Further, apart from the provision under Section 23(2A) of the 1996 Act, it is to be noticed that if counter-claim is not permitted, buyer can get over the legal obligation of compound interest at 3 times of the bank rate and the ―75% predeposit contemplated under Sections 16 and 19 of the MSMED Act.

Case: M/s. Silpi Industries vs. Kerala State Road Transport Corporation [CA 1570-1578 OF 2021]

Coram: Justices Ashok Bhushan and R. Subhash Reddy

Counsel: Sr. Adv Sri V. Giri, ASG  Aishwarya Bhati, Adv P.B. Suresh, Sr. Adv Basava Prabhu Patil

Citation: LL 2021 SC 276

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