BACKGROUND

The very purpose of the Limitation Act is to put an end to a never-ending litigation between the parties or else the parties will bring out the issues after several years which will lead to chaos and docket explosion in courts.1 The Supreme Court has clubbed M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation & Anr. etc. 2 and M/s. Khyaati Engineering v. Prodigy Hydro Power Pvt. Ltd. 3 to render a landmark judgment on 29.06.2020, which has been written on the point whether the Limitation Act is applicable to arbitration proceedings started under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the MSMED Act) and whether the counter claim is maintainable in such arbitration proceedings. Through this judgement of M/s. Silpi Industries. v. Kerala State Road Transport Corporation & Anr. etc the Limitation Act is being made applicable to the MSMED Act by virtue of Section 43 of the Arbitration & Conciliation Act 1996.

REASONING OF THE APEX COURT

1. Issue of Limitation

The Supreme Court has settled the issue of applicability of the Indian Limitation Act, 1963 to arbitration proceedings under MSMED Act in affirmative. The court referred Section 18 of MSMED Act which states that in case the parties in dispute have not reached a settlement by conciliation then the Facilitation Council under MSMED Act can either take the arbitration by themselves under Section 18(3) of the MSMED Act or they can refer the dispute to a centre or institution which can provide alternative dispute resolution services. The provisions of the 1996 Act will be made applicable to arbitration taken by centre or institution as if there was an agreement between the parties as per Section 7(1) of the 1996 Act. Furthermore, Section 43 of the 1996 Act states that the Limitations Act is applicable to arbitration proceedings just as it applies to proceedings in court. Also, in the case of Andhra Pradesh Power Coordination Committee & Ors. v. Lanco Kondapalli Power Ltd. & Ors. 4, it was held that the Limitation Act, 1963, is applicable to the arbitrations covered by Section 18(3) of the 2006 Act. In the light of the above it is concluded that the provisions of the Indian Limitation Act, 1963, is applicable to arbitration proceedings initiated under Section 18(3) of MSMED Act.

2. Maintainability of Counter Claim in Arbitration Proceedings

The Supreme Court has held in this regard that the counter claim is maintainable in arbitration proceedings as the MSMED Act is a beneficial legislation and therefore, even if the buyer has some claim or counter claim, the council under the MSMED Act has the jurisdiction to try such claim or counter claim. Further, if the seller is covered under the MSMED Act, they can approach the council for resolution of disputes whereas the buyer will not have such option and therefore, would go to civil court for any dispute which would in turn lead to parallel proceedings. In the present case MSMED is a general statute and the Arbitration and Conciliation Act is a special statute. Generally, special statues are preferred over general statute especially when it is a beneficial legislation and therefore the purport and object of the Act must be given full effect by applying the principle of purposive construction which should be made as stated in the case of Edukanti Kistamma (Dead) through LRs v. S Venkatareddy (Dead) through LRs & Ors5. In the instant case, the Supreme Court applied the harmonious construction principle in relation to counter claim being maintainable in the proceedings initiated under the MSMED Act by virtue of Section 23 of the Arbitration and Conciliation Act which allows counter claims and set off. In the light of the above, it is concluded that counter claims are maintainable in arbitration proceedings.

SIGNIFICANCE OF THE JUDGEMENT

The present judgement is a landmark judgment as it deals with two very important issues mentioned above in detail. Before this judgement, an issue arose that if a seller is covered under the MSMED Act and there is also a separate clause of arbitration in their agreement, then which should be the appropriate arbitration forum for them. The Supreme Court has answered this conundrum in this case and held that the arbitration under the MSMED Act is to be conducted in pursuant to the Arbitration and Conciliation Act. Moreover, the issue of multiple proceedings before various forums is also settled by way of this judgement. Another issue which got settled in this case was maintainability of counter claim in arbitration proceeding initiated under the MSMED Act. The apex court held that the counter claims under MSMED Act are maintainable in arbitration proceedings by way of Section 23 of the Arbitration and Conciliation Act which would be purposeful in reducing the chances of multiple proceedings before various forums which would in turn prevent the likelihood of different opinions.

POSITION OF LAW PRIOR TO THIS

The different High Courts have taken different stands in relation to the present issue. The first case in relation to the present issue is M/s Steel Authority of India and Anr. v. MSEFC6 in which the Bombay High Court said that the independent arbitration agreement between the parties will not cease to have effect just because there is non-obstante clause in Section 18 of MSMED Act. The issue continued in the case of Bharat Heavy Electricals Limited v State of UP7, however, the Allahabad High Court differed from the case of Steel Authority of India by holding in respect to MSMED Act that "...The proceedings had been entertained by the Council in pursuance of the provisions of the Act. Though there may be an arbitration agreement between the parties, the provisions of Section 18(4) specifically contain a non-obstante clause empowering the Facilitation Council to act as an Arbitrator. Moreover, Section 24 of the Act states that Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force..." The provisions of MSMED Act i.e. Section 15 to 23 will prevail over any other act by virtue of Section 24 of the MSMED Act.

Also, in Mangalore Refinery & Petrochemicals Ltd v Micro and Small Enterprises Facilitation Council8, the Delhi High Court placed reliance on Bharat Heavy Electricals Limited v. The Micro and Small Enterprises Facilitation Centre9and held that "..Regarding the jurisdiction of the Council to refer the disputes to arbitration that are not covered under the arbitration agreement - the same is no longer res integra. This court has, in a number of decisions now, held that the reference under Section 18 of the MSME Act is a statutory reference and is dehors any arbitration agreement between the parties.."

In yet another case of Microvision Technologies Private Limited v. Union of India, inter alia, the court held that if the parties had an arbitration agreement at the prior stage, then it shall be considered valid irrespective of the powers of Facilitation Council under Section 18(3) of the MSMED Act. Therefore, this conundrum continued and the issue was not resolved till the Supreme Court gave the verdict in the instant case.

JUDGMENT DISTINGUISHED

The case of GE T&D India Ltd. v. Reliable Engineering Projects and Marketing10 of the Delhi High Court on which the appellant relied was distinguished on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. But in the M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation & Anr. case, undisputed position is that the supplies were concluded prior to registration of supplier. The said judgment of Delhi High Court relied on by the appellant did not render any assistance in support of the case of the appellant.

RAMIFICATIONS OF THE JUDGEMENT

Firstly, the court has said that the Limitation Act will apply to the arbitration proceedings initiated under the MSMED Act as per Section 43 of the 1996 Act but now another question comes into equation that whether all the provisions of the 1996 Act will be applicable to these proceedings or only those provisions which are not in contravention of the MSMED Act. Because Section 18(5) of MSMED Act provides a period of 90 days to decide the reference made under these provisions whereas under the 1996 Act, the time period to complete the pleadings under Section 23(4) is twelve months.

Secondly, in regards to the registration of the supplier under MSMED Act, the court said that the benefit under the Act will only be given to those suppliers who have registered under the Act as on the date of entering into the contract. In India, less than 20% of the MSME are registered11 and therefore, this judgement will have far reaching effects as the unregistered sellers will not be able to take the benefits of the 2006 Act and buyers will use this judgement to wriggle out of the proceeding which are initiated under the MSMED Act. Further, the court has relied on the case of Edukanti Kistamma (Dead) through LRs v. S Venkatareddy (Dead) through LRs & Ors12, and "applied the harmonious construction principle in relation to counter claim being maintainable in the proceedings initiated under the MSMED Act". Since, the MSMED Act is a beneficial legislation, the court therefore should have used the same principle in extending the benefits to the unregistered MSME.

Footnotes

1 B Muthu Kumar, Docket Control in the Apex Court Exercising Constitutional Review, Christ University Law Journal 2018, Vol. 7, No. 1, 59-82.

2 M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation & Anr. etc. CIVIL APPEAL NOS.1570-1578 OF 2021.

3 M/s. Khyaati Engineering v. Prodigy Hydro Power Pvt. Ltd. CIVIL APPEAL NOS.1620-1622 OF 2021.

4 Andhra Pradesh Power Coordination Committee & Ors. v. Lanco Kondapalli Power Ltd. & Ors (2016) 3 SCC 468.

5 Edukanti Kistamma v. S. Venkatareddy, (2010) 1 SCC 756. 6 M/s Steel Authority of India and Anr. v. MSEFC AIR 2012 Bom 178.

7 Bharat Heavy Electricals Limited v State of UP (2014 (4) ALJ 52.

8 Mangalore Refinery & Petrochemicals Ltd v Micro and Small Enterprises Facilitation Council 2019 SCC Online DEL 6860.

9 Bharat Heavy Electricals Limited v. The Micro and Small Enterprises Facilitation Centre 2017 SCC Online Del 10604.

10 GE T&D India Ltd. v. Reliable Engineering Projects and Marketing, 2017 SCC Online Del 6978.

11 https://www.ibef.org/industry/msme.aspx. (last visited on 20th July, 2021).

12 Edukanti Kistamma v. S. Venkatareddy, (2010) 1 SCC 756.

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