29 June 2021 | M/s Silpi Industries etc. v. Kerala State Road Transport Corporation & another | M/s. Khyaati Engineering v. Prodigy Hydro Power Pvt. Ltd. | R Subhash Reddy & Ashok Bhushan JJ | 2021 SCC OnLine SC 439

The Supreme Court has ruled that the Limitation Act, 1963 applies to arbitration proceedings under Section 18 (3) of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”).

It took note that if conciliation under the MSMED Act fails, the Facilitation Council (constituted under that enactment) (“FC”) “shall either itself take up the dispute for arbitration or refer it to any institution or centre … for …arbitration and the provisions of [ACA] shall then apply to the dispute ….” Hence, the court said that since Section 43 ACA expressly applies the Limitation Act to arbitrations, the matter needed no further elaboration.

In another batch of connected petitions, the court also ruled that counterclaim is maintainable in an arbitration under the MSMED Act. The respondent Prodigy had applied to the Facilitation Council for an arbitration. Still, the petitioner Khyaati applied to the court to appoint an arbitrator asserting that the FC had been constituted to deal with disputes raised only by the supplier and does not envisage a counterclaim by the other party. Rejecting the submission, the court concluded that:

1. In an arbitration before the FC, the ACA applies. Section 23 (2A) ACA gives a right to the respondent to make a counterclaim or plead set-off.
2. If a counterclaim cannot be filed, the buyer may approach another forum, and there may be conflicting decisions.
3. Section 24 MSMED Act gives an overriding effect to Sections 15 to 23 of the MSMED Act. The MSMED Act is a special enactment that contains several beneficial provisions for micro, small and medium enterprises. There are fundamental differences in the settlement mechanism between the MSMED Act and arbitration under the ACA: mandatory conciliation mechanism; pre-deposit of 75% of the awarded amount if the award is challenged; compound interest at three times of the bank rate. Simply because the buyer pleads that a counterclaim is not maintainable, these benefits could not be denied.

Access the judgment here.