MSEs often face challenges in recovering debts, and the issue becomes more complex when debts become time-barred. The question arises: Can disputes over time-barred debts be referred to arbitration or conciliation under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act)?
The Problem:
Time-barred debts can lead to significant financial losses for MSEs. While arbitration and conciliation are popular dispute resolution mechanisms, their applicability to time-barred debts is a contentious issue. The Limitation Act, 1963, prescribes time limits for initiating legal proceedings, but its applicability to arbitration and conciliation proceedings is distinct.
The Supreme Court’s Ruling:
The Hon’ble Supreme Court of India in the case Sonali Power vs Chairman, Maharashtra State Electricity Board, Mumbai & Ors has clarified that disputes over time-barred debts cannot be referred to arbitration under the MSMED Act, as the Limitation Act, 1963, applies to arbitration proceedings. However, conciliation proceedings are not bound by the same limitations. The Court held that there is no legal bar to conciliation with respect to time-barred debts, providing MSEs with an alternative dispute resolution mechanism.
– Disputes over time-barred debts of MSEs can be referred to conciliation under the MSMED Act.
– Arbitration is not a viable option for time-barred debts, as the Limitation Act, 1963, applies to arbitration proceedings.
– MSEs can explore conciliation as a means to resolve disputes over time-barred debts.
This ruling provides clarity on the options available for MSEs to resolve disputes related to time-barred debts, highlighting the importance of understanding the nuances of arbitration and conciliation.
