Whether Limitation Act applies to claims under MSME Act?

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Author- admin
Date:June 1, 2022

Whether Limitation Act applies to claims under MSME Act?

Sections 17 and 18 of the Micro, Small and Medium Enterprises Development Act, 2006 provide for the recovery of the amount due for any goods or services rendered by the supplier.

This is applicable to the supplier which comes under the definition of Micro, Small or Medium Enterprises.

The Act does not specifically state whether the law of limitation is applied to the claims filed under this Act.

General law of Limitation on money claims/money suits

When it comes to money claims, the law of limitation provides that the money suit must be filed within a period of 3 years from the date on which the right to sue arise.

However, this period is subject to exceptions provided under Limitation Act.

Applicability of law limitation on MSME recovery – earlier position

In respect of the claim under the MSME Act, there has been confusion as to whether Limitation Act applies to claims under MSME Act

MSME Office has clarified that its FAQ that the Limitation Act is not applicable as the arbitration proceeding arising out of this is statutory arbitration.

Silpi Industries vs. Kerala State Road Transport Corporation & Anr

In the recent Judgment of M/s Silpi Industries vs. Kerala State Road Transport Corporation & Anr (CIVIL APPEAL NOS.1570-1578 OF 2021), the Hon’ble Supreme Court held that the Limitation Act, 1963 is applicable in the Arbitration under the MSMED act, 2006.

Hon’ble Supreme Court noted :

• In view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation, 1996, we are of the view that the High Court has rightly relied on the judgment in the case of Andhra Pradesh Power Coordination Committee3 and held that Limitation Act, 1963 is applicable to the arbitration proceedings under Section 18(3) of the 2006 Act.
• Thus, we are of the view that no further elaboration is necessary on this issue and we hold that the provisions of Limitation Act, 1963 will apply to the arbitrations covered by Section 18(3) of the 2006 Act.”

How Section 22 of Act or MSME Return in Form -1 will help

Section 22 of the Act mandates buyers to disclose the amount due to the suppliers in their audited financial statement.

Indian Companies Act also mandates buyer filing of Form -1 bi-annually pertaining to the amounts due to the suppliers.

The natural consequence is the admission of the claim by the buyer and thus help from section 18 of the Limitation Act, 1963.

Conclusion

How long can the seller/supplier delay the filing of such a claim before the MSEFC? This was a major loophole in the MSMED Act, 2006 which was resolved now by the Hon’ble Supreme Court of India.

Thus, the Limitation Act applies to MSMED Act, and a claim before MSEFC must be filed within 3 years from the date right to sue arise.

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If you have any other queries or questions related to MSME claims you can contact us with the following details :

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Email: mail@nbassociates.net.