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M/s Sonali Power Equipments Pvt. Ltd. v. Chairman, Maharashtra State Electricity Board, Mumbai

Civil Appeal · 2025 INSC 864Decided 17 Jul 2025
Civil Appeal Nos. 9524-9532 of 2025 (arising out of SLP(C) Nos. 6912-6920 of 2024)
Justice Pamidighantam Sri Narasimha · Justice Joymalya Bagchi

Background

Sonali Power Equipments, a small-scale industrial supplier, had supplied transformers to the Maharashtra State Electricity Board between 1993 and 2004 and, after payment delays, filed claims before the statutory Facilitation Council in 2005-06. The Council awarded them interest on the delayed payments in 2010, but the Electricity Board challenged this in arbitration proceedings, and a Commercial Court set aside the award as time-barred. On appeal, a full bench of the Bombay High Court held that the Facilitation Council could not entertain time-barred claims at all, neither for conciliation nor arbitration, prompting this further appeal.

Decision Breakdown

The Supreme Court drew a distinction the High Court had missed: conciliation under Section 18(2) of the MSMED Act and arbitration under Section 18(3) are different processes with different legal consequences. It held that the Limitation Act does not apply to conciliation, since the expiry of a limitation period only bars the remedy (a court action) but does not extinguish the underlying right to be paid: parties remain free to settle even a "time-barred" debt through conciliation. However, the Limitation Act does apply once a dispute proceeds to formal arbitration under Section 18(3), because arbitration functions as an adjudicatory process akin to a civil suit and the MSMED Act's own scheme (not the general Arbitration and Conciliation Act) governs this outcome. The Court therefore partly allowed the appeal, setting aside the High Court's ruling only insofar as it barred conciliation of old claims, while upholding the High Court on the point that arbitration claims remain subject to limitation.

Lesson Learnt

A small business owed old dues by a large buyer is not shut out of every remedy just because the limitation period for a lawsuit has passed: conciliation before the statutory MSME Facilitation Council remains open even for stale claims, though pursuing formal arbitration (and eventually enforcing an award through the courts) still requires acting within the limitation period.

Official source (sci.gov.in)View Judgment (PDF)

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