The MSME Samadhaan mechanism is a powerful recovery route: a reference under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, statutory compound interest under Section 16, and a 75% pre-deposit shield against challenges. But it is not a time machine. In M/s Silpi Industries v. Kerala State Road Transport Corporation, Civil Appeal Nos. 1570-1578 of 2021, decided on 29 June 2021, the Supreme Court held that the Limitation Act, 1963 applies to arbitration proceedings under Section 18(3) of the MSMED Act. Suppliers sitting on old invoices cannot treat the Facilitation Council as a forum where limitation does not run.
The statutory chain
The bench of Justices Ashok Bhushan and R. Subhash Reddy put the point directly: the Limitation Act applies to the arbitrations covered by Section 18(3), through Section 43 of the 1996 Act. The beneficial purpose of the MSMED Act — protecting small suppliers against the market power of large buyers — does not extend to abolishing limitation.
Working out the limitation period
The claim before the Council is, in substance, a claim for the price of goods sold or services rendered together with statutory interest. The practical reckoning runs from the date payment became due under Section 15: the agreed date (which the statute caps at forty-five days from the day of acceptance or deemed acceptance) or, absent agreement, the appointed day. From that date, the ordinary three-year period for money claims applies, invoice by invoice. The general law's extensions remain available where their conditions are met: a written acknowledgment of liability within limitation restarts the clock, as does part-payment against a particular debt; genuinely running, mutual and open accounts attract their own computation.
| Event | Limitation consequence |
|---|---|
| Invoice due date passes (S. 15 MSMED) | Three-year clock starts for that invoice |
| Buyer acknowledges the debt in writing | Fresh period from the acknowledgment |
| Buyer makes part-payment towards the debt | Fresh period, subject to the general law's conditions |
| Reference filed before the Council | Claims alive that day proceed; claims already barred stay barred |
What suppliers should do differently
- File early. The Samadhaan reference should be treated with the same limitation discipline as a suit; the Council route is a forum choice, not a limitation holiday.
- Collect acknowledgments. Balance confirmations, emails admitting the outstanding, ledgers signed at reconciliation — each can restart limitation and should be preserved and pleaded.
- Plead the dates. A reference that sets out, invoice-wise, the due date and the acknowledgment trail forecloses the buyer's limitation objection at the threshold.
- Do not rely on the Council to overlook the bar. A limitation objection survives into a Section 34 challenge; an award on barred claims is vulnerable, and the 75% pre-deposit is cold comfort if the award is ultimately set aside.
The buyer's side of the same coin
For buyers resisting stale claims, Silpi Industries supplies a threshold defence to be raised in the conciliation reply and preserved through the arbitral stage. But the objection must be worked out honestly against the acknowledgment trail: audited balance sheets showing the creditor, reconciliation statements and part-payments frequently defeat it. A limitation defence pleaded in the abstract, without engaging the account history, tends to fail before Councils and courts alike.
Note: A companion article on this site examines the other holdings of Silpi Industries — the registration-timing requirement and the maintainability of counterclaims before the Facilitation Council. This article is general information, not legal advice.
Frequently Asked Questions
Why does the Limitation Act apply to Facilitation Council arbitration?
Section 18(3) MSMED Act provides that where conciliation fails, the Council takes up the dispute for arbitration and the Arbitration and Conciliation Act, 1996 applies as if the arbitration were in pursuance of an arbitration agreement. Section 43 of the 1996 Act in turn makes the Limitation Act applicable to arbitrations as it applies to proceedings in court. The Supreme Court in Silpi Industries joined those links expressly.
From when does limitation run for a delayed-payment claim?
Broadly from when the payment fell due under Section 15 MSMED Act — the appointed day or the agreed date, with the statute capping credit at forty-five days. Each invoice ordinarily carries its own limitation clock, subject to acknowledgments of liability in writing, part-payments and running-account considerations, which can extend or restart limitation under the general law.
Does filing the reference before the Council stop time from running?
Yes for what follows: the reference initiates the statutory process, and the period consumed in the Council's conciliation and arbitration is part of the proceeding itself. What the reference cannot do is revive claims already time-barred on the date it is filed — those remain barred notwithstanding the MSMED Act's beneficial character.
Can a time-barred debt still carry Section 16 interest?
No meaningful recovery follows. If the principal claim is barred when the reference is made, the claim fails as a whole before the arbitral stage; statutory interest under Sections 16 and 17 is computed on amounts lawfully awardable, and cannot stand independently of a recoverable principal.