The MSME sector in India makes a contribution of around 30% to the nation's GDP. Moreover, it contributes about 40% to the total exports of India and provides more than 110 million job opportunities in the country. Thus, the importance of MSME in the growth and development of India is vital.

However, the MSME sector faces the issue of default in payment and to address the same and to facilitate the promotion and development of the micro, small and medium industries and the matters connected therewith, the legislature passed the MSME Act, 2006.

The MSME Act, 2006 by virtue of Section 15 and 16 states that the buyer shall be liable to pay compound interest after the expiry of 45 days (or the appointed day) from the deemed acceptance of any goods and services from the supplier.

In case of any dispute regarding any amount due for any goods supplied or services rendered, a reference can be made to the Micro and Small Enterprises Facilitation Council. The Council has been authorised for the resolution of dispute by Conciliation, and on the failure of the same to refer the matter to Arbitration.

This note deals with the question of limitation for filing of suit or making reference in accordance with the decision of the Hon'ble Supreme Court in Shanti conductors v. Assam State Electricity Board (2019 judgement) and the Review Petition filed therein.

The 2019 judgement of Shanti Conductors dealt with the issue of recovery of mere interest under the Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred as the 1993 Act), and the question of limitation primarily the applicability of section 19 Limitation Act.

That there being nothing contrary in MSME Act, 2006 with the above judgements, the decision made therein shall apply to the MSME Act, 2006.

This note deals with the inconsistency in decision in the Review Petition therein on the question of applicability of Section 19 Limitation Act while filing suits for default in payment under the 1993 Act, and in essence the MSME Act, 2006.

In 2019 Judgement of Shanti Conductors (supra), the three judge Bench on when does the limitation period for filing of suit shall begin under the 1993 Act taken the view that:
Under Section 3 of the 1993 Act, a statutory liability has been created on the buyer to make the payment before the expiry of 30 days (or the appointed date) from the deemed acceptance of the goods or any services. Section 4 of the 1993 Act provides that in case the buyer fails to make payment as per Section 3 of the same Act, the buyer shall be liable to pay compound interest on the same. That the court has taken the view that by virtue of Section 3 and 4 of the 1993 Act, the right to sue shall accrue on the expiry of 30 days (or the appointed day) and the limitation period shall start running from the aforesaid date. Reference can be made to para 81 and 82 of the judgement.

Application of Section 19 Limitation Act, 1963 to save the Limitation for the filing of suit under the 1993 Act

As per 2019 judgement in Shanti Conductors (supra),
In the facts of the above case, the supply was made as on 4-10-1993. The last payment for the above supply was on 5-3-1994 and the suit was filed on 10-1-1997.
As per Article 113 Limitation Act, 1963, the limitation period for filing suit is 3 years from the date the right to sue accrues. In the above case, the right to sue shall accrue on the expiry of 30 days from 4-10-1993 (date of supply).

It was the case of the petitioner that the 1993 Act being a special legislation, Limitation Act, 1963 is not applicable on the same. Further it was contended that the last payment being made on 5-3-1994, refusal to pay needs to be calculated from this date itself and hence the limitation period shall start afresh from the date of last payment and since the suit was filed on 10-1-1997, the filing was within limitation.

The Hon'ble Court in the present judgement while observing there being nothing contrary to the Limitation Act, 1963, it shall apply to the 1993 Act, held that the limitation period in the present case needs to be calculated as per Article 113 of the Limitation Act, 1963 (from the date when the right to sue accrues) and the fact that the last payment was made on 05.03.1994 shall not further renew the limitation period for the same. The present suit was thus held to be barred by limitation.

The decision of this Hon'ble Court to hold that the suit to be time barred went into review in the following judgement of Shanti Conductors Private Limited v. Assam State Electricity Board (hereinafter referred as the Review Petition).

This Review Petition (supra) has pondered on the question of applicability of Section 19 Limitation Act, 1963 in a suit filed for recovering of interest on delayed payment under the 1993 Act.

It was submitted that Section 19 Limitation Act, 1963 which provides for a fresh period of limitation from the date of last payment has escaped the notice of this Hon'ble Court in the 2019 judgement of Shanti conductors (supra) while deciding the question of limitation. A further reliance was made on the judgement in Shanti Conductors Private Limited v. Assam State Electricity Board and Others, wherein while hearing a special leave petition in the same suit, Gowda, J. in para 53 has held the issue of limitation in favour of appellants by relying on Section 19 Limitation Act, 1963.

On a bare reading of the Review Petition (supra) it is clear that although the 2019 judgement of Shanti Conductors (supra) has been upheld in the Review Petition (supra) based on the below reasoning, in essence it has been held that the benefit of Section 19 Limitation Act, 1963 shall be extended in such suits and the payment on account of any debt or interest or legacy shall further renew the limitation period.

The reasoning taken by this Hon'ble Court to hold the present case as time barred is thus:

1. That under Order 7 Rule 6 Civil Procedure Code as reproduced below:
   Grounds of exemption from limitation law:
   Where the suit is instituted after the expiration of the period prescribed by the law of limitation, the plaint shall show the ground upon which exemption from such law is claimed:
   
   Provided that the Court may permit the plaintiff to claim exemption from the law of limitation on any ground not set out in the plaint, if such ground is not inconsistent with the grounds set out in the plaint.]
   
   The Hon'ble Court has held that since the petitioner in his plaint failed to take the ground of Section 19 for exemption from law of limitation, the petitioner cannot be extended the benefit of the same. (Para 23)
    
2. Secondly, this Hon'ble Court has taken the view that the benefit of proviso under Order 7 Rule 6 CPC which provides that the Court may permit the plaintiff to claim exemption from the law of limitation on any ground not set out in the plaint, if such ground is not inconsistent with the grounds set out in the plaint cannot be extended to the petitioner for the reason that the petitioner had in the first instance pleaded for the non- applicability of the Limitation Act, 1963 on the 1993 Act.

Effect of the Review Petition
In essence, the Review Petition (supra), even though upheld the present judgement of 2019 in Shanti Conductors to hold the suit as time barred has held, that such recovery suits as filed under the 1993 Act (now MSME Act, 2006) shall be subject to Section 19 Limitation and the period of limitation in the same shall start afresh every time a payment is made before the expiry of such period.

End Notes:

1. (2019) 19 SCC 529
2. (2020) 2 SCC 677
3. (2020) 2 SCC 677
4. (2016) 15 SCC 13