The Micro, Small and Medium Enterprises Development Act, 2006 gives suppliers a powerful collection mechanism: a reference to the Micro and Small Enterprises Facilitation Council under Section 18, compound interest under Section 16, and an award enforceable with a 75% pre-deposit shield against challenge. What the Act does not contain is a limitation provision of its own — and buyers resisting stale claims invariably raise time-bar as their first defence. This explainer maps how limitation operates across the two stages of a Section 18 reference, and what suppliers with ageing invoices should do about it.
Two stages, one discipline
A Section 18 reference proceeds in sequence: conciliation first (Section 18(2)), arbitration on failure (Section 18(3)). The limitation analysis differs in form between the stages but converges in substance:
Computing the period, invoice by invoice
Because Sections 15 and 16 fix the due date by statute, computation is unusually mechanical for a limitation question:
| Situation | Appointed day | Three years run from |
|---|---|---|
| Written credit period agreed (45 days or less) | Expiry of the agreed period from acceptance/deemed acceptance | The day after payment fell due |
| Agreed period exceeding 45 days | Capped at 45 days by Section 15 | Day 46 onwards |
| No agreement | 15 days from acceptance/deemed acceptance | Day 16 onwards |
“Deemed acceptance” matters: where the buyer raises no written objection within 15 days of delivery of goods or services, acceptance is deemed. Buyers resisting old claims often attempt to manufacture rejection disputes; the contemporaneous correspondence usually settles it.
Extension and revival
A signed, written acknowledgment of the liability made before expiry restarts the clock. Audit balance confirmations and reconciliation statements are the workhorses here.
Payment on account of the debt before expiry gives a fresh start from the payment. The MSMED appropriation rule — payments credited first to interest — interacts with this and should be pleaded consciously.
Time spent bona fide prosecuting the claim in a forum without jurisdiction can be excluded — relevant where a supplier first sued or pursued insolvency before discovering the Council route.
Bare demand letters, portal reminders and oral promises extend nothing. Nor does the running of statutory interest keep the principal claim alive: interest accrues on a live claim, it does not immortalise a dead one.
Section 24 MSMED gives Sections 15 to 23 overriding effect over inconsistent laws — but an overriding payment obligation is not a repeal of limitation, which governs remedies. Suppliers should not read Section 24 as permission to sleep on claims; Councils and the courts reviewing their awards under Section 34 (with the Section 19 deposit) treat the three-year discipline seriously.
Practice points
File early, file complete: the Samadhaan reference should schedule every invoice with its own due date and limitation computation. A composite, undifferentiated claim invites a composite rejection.
Harvest acknowledgments annually: make balance confirmation a standing part of the supplier\'s year-end process; it is the cheapest limitation insurance available.
Mind the interaction with insolvency and suits: parallel remedies have their own clocks, and election among them should account for what each forum does to the others\' limitation.
Frequently Asked Questions
When does the limitation clock start for a delayed-payment claim?
The substantive right under Sections 15 and 16 crystallises when payment is not made by the appointed day — the agreed credit period (capped at 45 days from acceptance or deemed acceptance) or, absent agreement, 15 days. The claim for principal and statutory interest is a money claim, and the ordinary three-year period for such claims is computed from when the amount fell due under this scheme, invoice by invoice.
Does the Limitation Act apply to the arbitration stage before the Council?
Yes. Section 18(3) MSMED Act provides that where conciliation fails, the Council takes up the dispute for arbitration as if under an arbitration agreement, and the Arbitration and Conciliation Act, 1996 then applies — which, through Section 43 of that Act, applies the Limitation Act, 1963 to the arbitration. A claim that would be time-barred in a suit is equally barred in the Section 18 arbitration.
Is the conciliation stage also governed by limitation?
Conciliation is a settlement process, not an adjudication, and views have differed on whether a time-barred claim can even be entertained for conciliation. The practical position is that limitation is tested when the dispute is adjudicated — at the arbitral stage — so a supplier gains nothing by reaching conciliation with a dead claim. The safe course is to treat the three-year discipline as governing the reference as a whole.
How can a supplier save limitation on old dues?
Through the ordinary tools of the Limitation Act: a written acknowledgment of liability signed before expiry (Section 18 of the Limitation Act) starts a fresh period, as does part-payment credited in the account (Section 19). Ledger confirmations, balance confirmations for audit, emails admitting the outstanding, and TDS or GST trail can all matter. Filing the reference itself stops the clock as the institution of the proceeding for the claims it covers.