Summary and Analysis of M/S Sonali Power Equipments Pvt. Ltd. vs. Chairman, Maharashtra State Electricity Board & Ors. (Civil Appeal Nos. 9524-9532 of 2025)

1. Heading of the Judgment

M/S Sonali Power Equipments Pvt. Ltd. vs. Chairman, Maharashtra State Electricity Board & Ors.
*(Civil Appeal Nos. 9524-9532 of 2025 | Decided on July 17, 2025)*
Bench: Pamidighantam Sri Narasimha and Joymalya Bagchi, JJ.
Status: Reportable

2. Relevant Laws and Legal Provisions

The judgment interprets and applies:

• Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act):
  Section 15: Buyer’s liability to pay suppliers within 45 days.
  Section 16: Compound interest @3x bank rate for delayed payments.
  Section 18: Dispute resolution mechanism (conciliation → arbitration).
  Section 22: Mandates disclosure of unpaid amounts in buyer’s financial statements.
  Section 24: Overriding effect over other laws.

• Limitation Act, 1963:
  Section 3: Bars time-barred suits/applications.
  Section 18: Fresh limitation period on acknowledgment of debt.
  Section 29(2): Applicability to special laws.

• Arbitration and Conciliation Act, 1996 (ACA):
  Section 2(4): Excludes statutory arbitrations from limitation provisions.
  Section 43: Extends Limitation Act to arbitrations.

• Indian Contract Act, 1872:
  Section 25(3): Validity of agreements to pay time-barred debts.

3. Basic Case Details

AspectDetailsPartiesAppellants: MSME suppliers of transformers (1993–2004). Respondents: MSEB (buyer).DisputeDelayed payments; claims filed before Micro and Small Enterprises Facilitation Council.Lower CourtsFacilitation Council (2010): Allowed claims. Commercial Court (2017): Set aside award (claims time-barred). High Court (2023): Upheld Commercial Court.Core Issues1. Whether Limitation Act applies to conciliation under MSMED Act.
2. Whether it applies to arbitration under MSMED Act.Supreme CourtPartly allowed appeals: Limitation Act applies to arbitration but not to conciliation.

4. Explanation of the Judgment

I. Conciliation Proceedings (Section 18(2), MSMED Act)

• Issue: Can time-barred claims be referred to conciliation?

• Court’s Ruling:
  Limitation Act does NOT apply: Conciliation is a non-adjudicatory, negotiation-based process (Sections 65–81, ACA).
  Time-barred claims CAN be referred:
  Limitation bars judicial remedies but does not extinguish the debt.
  Parties can settle time-barred debts via contractual agreements [Section 25(3), Contract Act].
  Settlement through conciliation is valid even for stale claims.
  High Court’s error: Wrongly excluded time-barred claims by misapplying State of Kerala v. V.R. Kalliyanikutty (recovery under revenue law ≠ conciliation).

II. Arbitration Proceedings (Section 18(3), MSMED Act)

• Issue: Does Limitation Act apply to arbitration?

• Court’s Ruling:
  Limitation Act APPLIES:
  Section 18(3), MSMED Act: Deems arbitration as "pursuant to an arbitration agreement" under ACA.
  Section 43, ACA: Extends Limitation Act to arbitrations.
  MSMED Act overrides ACA: Section 24 gives overriding effect; Section 18(3) prevails over Section 2(4) of ACA.
  Precedent upheld: Silpi Industries v. Kerala SRTC (2021) correctly applied limitation law.
  Time-barred claims CANNOT be arbitrated: Arbitration is a quasi-judicial process; claims must be filed within limitation period.

III. Effect of Section 22 (Disclosure in Financial Statements)

• Issue: Does disclosure of unpaid amounts extend limitation?

• Court’s Ruling:
  May extend limitation: Disclosure in buyer’s balance sheet can be an "acknowledgment of debt" under Section 18, Limitation Act.
  Case-specific determination:
  Entries must be examined with auditor notes/context to confirm acknowledgment.
  Mere compliance with Section 22 does not automatically revive time-barred claims.

Key Conclusions

ProceedingsApplicability of Limitation ActTime-Barred ClaimsConciliation (S. 18(2))Not applicableCan be referredArbitration (S. 18(3))ApplicableCannot be referred

Final Outcome

1. Conciliation: Suppliers can refer time-barred claims for settlement.

2. Arbitration: Claims must be filed within statutory limitation period.

3. Section 22 disclosures: May extend limitation if they constitute valid acknowledgment of debt.