The Himachal Pradesh High Court has stepped in to correct what it called a clear legal error by the Micro and Small Enterprises Facilitation Council (MSEFC). In a significant ruling, the court held that the Council cannot dismiss an MSME reference at the threshold merely on the ground of limitation. The decision restores a stalled claim worth over ₹2.55 crore and reinforces the protective intent of MSME law.
Background of the Case
The case arose from a petition filed by M/s RK Products, a micro enterprise, challenging an order passed by the Himachal Pradesh Micro and Small Enterprises Facilitation Council on 16 December 2024. The Council had rejected the firm’s reference under Section 18(1) of the MSME Development Act, 2006, holding it to be time-barred.
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According to the petitioner, goods were supplied to the respondent entity between February 2012 and June 2016. Payments, it was claimed, were delayed beyond the period permitted under law. The unpaid amount, along with interest for delayed payment, was pegged at ₹2,55,96,949.
When the matter reached the Council, the respondent opposed the claim, arguing that it was filed nearly eight years after the cause of action and therefore barred by limitation. Accepting this objection, the Council likened the reference to a civil suit and dismissed it outright.
In its order, the Council reasoned that proceedings before it were similar to civil court litigation. Since the MSME Act does not prescribe a specific limitation period, it applied Article 137 of the Limitation Act, which provides a three-year period. Relying on Supreme Court precedent, the Council concluded that entertaining such an old claim would be against public policy.
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High Court’s Observations
Hearing the challenge, Justice Ajay Mohan Goel sharply disagreed with the Council’s approach. The court clarified that it was examining a narrow but crucial question: can a reference under Section 18(1) be rejected at the outset on limitation grounds?
The bench observed that the Council had “completely misdirected itself” by assuming powers akin to a civil court.
“By no stretch of imagination can the Facilitation Council be equated with a civil court,” the judge remarked, underlining that the Council is a statutory body with limited, defined functions.
The court drew a clear distinction between conciliation and arbitration under the MSME framework. It noted that while limitation law applies once the dispute enters arbitration under Section 18(3), it does not bar the initiation of conciliation under Sections 18(1) and 18(2).
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Referring to recent Supreme Court rulings, the bench pointed out that conciliation is a non-adjudicatory process. “Even a time-barred claim can be taken up for conciliation, because settlement depends entirely on the consent of parties,” the court said, adding that limitation is not a defence at this stage.
Key Legal Clarification
The High Court emphasised that the supplier’s right to recover dues does not vanish merely because time has passed. If parties are willing, a settlement can still be reached through conciliation. Only if conciliation fails does the matter move to arbitration, where limitation can be raised as a defence.
In strong words, the judge said the Council had no authority to “throw out” a reference at the entry point by invoking limitation. Doing so, the court held, defeats the very purpose of the MSME Act, which is meant to provide a speedy and effective forum for small businesses.
Decision
Allowing the petition, the High Court quashed the Council’s order dated 16 December 2024. It directed the Facilitation Council to take the reference back on record and make earnest efforts to resolve the dispute through conciliation, in accordance with law. Pending applications were also disposed of.
Case Title:- M/s RK Products through its Proprietor Smt. Kusum Mahajan vs The Chairman, Himachal Pradesh Micro & Small Enterprises Facilitation Council, Shimla & Others
Case Number:- CWP No. 8072 of 2025
