Sonali Power Equipments Pvt. Ltd vs Chairman, Maharashtra State Electricity Board, Mumbai 2025 INSC 864- Conciliation & Arbitration Under MSMED Act - Applicability Of Limitation Act
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Limitation Act 1961 - Micro, Small and Medium Enterprises Development Act 2006 [MSMED Act] - Section 18(2) and 18(3) - 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 - But Limitation Act applies to arbitration proceedings under Section 18(3) of the MSMED Act. (Para 51)
MSMED Act - Section 18(3),22 ; Arbitration and Conciliation Act - Section 18(3) - The applicability of the provisions of ACA to arbitrations un 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 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. (Para 51)
Limitation Act 1961 - Section 18 - An entry in the balance sheet of the debtor would amount to an acknowledgement of liability as per Section 18 of the Limitation Act- it is not uncommon for such entry to have notes annexed, or the auditor’s report that must be read along with the balance sheet, that indicate that such entry does not amount to an acknowledgement of debt for reasons stated therein- While the law mandates the preparation of the balance sheet, the entry made therein must be examined on a case-to-case basis to determine whether it amounts to an acknowledgement of debt as per the requirements of Section 18 of the Limitation Act. (Para 50)
Conciliation - 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 he 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)
Limitation Act 1961 - 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. (Para 26)
Does Limitation Act apply to Arbitration and Conciliation under MSMED Act?
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Conciliation Under Section 18(2): ❌
Arbitration Under Section 18(3): ✅ https://t.co/A7jmyhiVHl pic.twitter.com/bXJn5SXUaZ
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