The case between M/s. Sonali Power Equipments Pvt. Ltd. Vs. Chairman, Maharashtra State Electricity Board, Mumbai & Ors. is regarding the applicability of the Limitation Act 1963, to Conciliation and Arbitration proceedings initiated under Section 18 of the Micro, Small and Medium enterprises Development Act, 2006 (MSMED Act).
The facts of the case are that the company Sonali Power Equipments is a small scaled power supply company to the state of Maharashtra and due to their delayed payments, they filed a suit under the MSMED Act. which was challenged by MSEB under Section 34 of the Arbitration and Conciliation Act,1996.
The Hon’ble Supreme Court of India in its judgement delivered by looking upon various previous judgments and precedents held that the Limitation Act does apply to the arbitration proceedings under Section 18(3) of the MSMED Act but it doesn’t apply to the conciliation proceedings under Section 18(2) by reviewing the specific meaning and need of the of the conciliation proceedings for MSMEs. The Court also allows suppliers to negotiate settlements on old claims while protecting buyers from coercive adjudication. It also clarifies that entries in buyers’ financial statements under Section 22 of the MSMED Act could acknowledge debt.
The decision reconciles the need for quick dispute resolution under the MSMED Act with limitation principles, allowing arbitration to follow time limits while conciliation remains more flexible, even for potentially time-barred claims providing a better claim for small scale companies.