A] Lets under the Limitation Act, 1963, in brief:
The Limitation Act plays a very vital role in ensuring that the non-vigilant aggrieved party does not enjoy the rights of legal remedy. The major purpose of the Limitation Act, 1963 is not to destroy or infringe the rights of an aggrieved person but to serve the public in a better way and to save time. In India to recover the money from any business transaction or else is capped at three years limitation from the last date of cause of action or acknowledgement of debt. The term ‘Acknowledgement’ means acceptance or admission of something that exists. Section 18 of the Limitation Act, 1963 uses the term ‘acknowledgement’ to mean an admission of an existing liability in lieu of which the period of limitation is extended. A perusal through section 18 of the Limitation Act indicates certain conditions to be fulfilled in order to emphasize acknowledgement. They are:
a) That the acknowledgement of liability must be in writing.
b) That the acknowledgement of liability must be made before the expiry of the limitation period for filing the suit. If limitation has already expired, it would not revive under section 18 of the Limitation Act.
c) That the acknowledgement of liability must be unqualified3 and must be in unambiguous, clear terms.
d) That the acknowledgement must be signed by the person or his authorised agent admitting liability.
What are the Documents that constitute “Acknowledgement of Debt” under Limitation Act?
a) E-mails acknowledging the debt constitute a valid and legal acknowledgement of debt though not signed.
b) Debentures are documents which either create the debt or acknowledge.
c) Balance sheets are an admission of indebtedness and sufficient acknowledgement.
d) A cheque given by a debtor to pay his dues is an acknowledgement, even though the Cheque is dishonoured.
e) An acknowledgement of a payment made in the written statement in an earlier suit operates as an acknowledgement.
f) In a suit for redemption of a mortgage, acknowledgement of liability must be made by the mortgagee whereas in a suit for foreclosure of mortgage, acknowledgement muse b made by the mortgagor
g) An insufficiently stamped document which contains an admission of liability can be relied upon only for the purpose of extending limitation period.
There are documents which do not constitute an acknowledgement of liability under the Limitation Act.
B] What is MSME?
MSME stands for Micro, Small, and Medium Enterprises.
Prior to COVID 19 reforms announced in the month of May 2019, the enterprises under Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006 were classified into two divisions. Manufacturing enterprises (engaged in the manufacturing or production of goods in any industry) and Service Sector. However, now this has been removed. Below you will find the earlier and revised definition of MSME:
C] Delay Payment Provisions:
Chapter V of the MSMED Act contained the provisions with regard to the Recovery of the Outstanding from the Buyer in case of any service(s) availed or good brought by him
D] Limitation Period < Statutory Arbitration
In Law, to recover the money, the Limitation Act prescribes the period of three (3) years from the last date of cause of action or any action or acknowledgement of debt to claim the money and if not, then the party loses the right to claim, subject to acceptance of Delay Condonation. The Laws and precedents are very much clear in this regard and further, in this competitive market there is no reason to wait for your dues for more than one year in any case and in fact, there are systems placed in the organisation to ensure no missing of any time period in recovery matters. Issuing notice and reply of notice do not in any manner extend the limitation period unless there is any acceptance of the dues from the clients part.
It is important to note that under the Arbitration and Conciliation Act, issuing notice under Section 21 is mandatory and once the notice is issued, Law of Limitation stops under Section 43 and the claim can be made. This law is for Contractual Arbitration.
In regard to MSME Recovery Forum which is also called as Statutory Arbitration, there has been confusion at MSME office also and MSME members as to whether there is any Limitation law being applicable. There are various statutes providing for dispute resolution by way of arbitration, even though parties did not have an express arbitration clause between them i.e., Section 7-B of Telegraph Act,1885, Section 52 of Electricity Act, Section 76(2) of Electricity (Supply) Act, Section 18 of The Micro Small Medium Enterprises Development Act,2006 etc., provide for statutory arbitrations. The Supreme Court dealt with the issue of applicability of Limitation Act to the proceedings before the tribunals or quasi-judicial authorities in Tamil Nadu Generation and Distribution Corporation Limited Vs PPN Power Generating Company Private Limited (2014)11SCC 53. In the said case, the Supreme Court of India held that the Limitation Act is not applicable to quasi-judicial authorities. Most of the statutory arbitrations are references made by the statutory authorities and hence Limitation Act does not apply. However, there are certain judgments passed by the Bombay High Court [(Delton Electricals v. Maharashtra State Electricity Board (2017) and Sonali Power Equipment v. Chairman, Maharashtra State Electricity Board (2018)] wherein the decision was made that Limitation Act is applicable to MSME.
However, the MSME Office has clarified in their FAQ’s that Limitation Act is not applicable as these arbitration proceedings being a statutory arbitration.
In my view, Limitation Act shall be made applicable for the reasons that if not then the matter can be filed before MSME at any point of time and there will no end of such claims and the whole purpose of Limitation Act get negates.
However, with latest mandatory changes being made and now compliance law the Central Government on 22.01.2019 has issued a notification under the MSMED Act, 2006 to ensure timely and smooth flow of credit to MSMEs and minimize sickness among them. As Per the Notification Number S.O. 5622(E), every specified company shall file an Initial Return in MSME Form I stating details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification. Please note that the Registrar of Companies (ROC) is asking the detail of the default and delay in payments to MSME (means Micro, Small and Medium Business entities whether they are individual, firm, LLP or companies) along with the complete list of the name, the amount outstanding, a period of delay with reason and total outstanding to MSME exceeding 45 days through filing the ‘MSME FORM I’ with ROC. The companies are also required to file the half-yearly report on the delay of payment to MSME as well as a one-time report. A half-yearly return MSME-1 specifying the payments outstanding to micro and small enterprises suppliers which are outstanding for more than 45 days from the date of acceptance or the date of deemed acceptance of goods or services stating the following: a)The amount of payment due, and b) the reasons of delay. The Penal provisions are serious for non-compliance. If the said details are not submitted to Registrar of Companies on MCA on or before 22.02.2019 or the information submitted is incorrect or incomplete, then the fine on the company is up to Rs. 25,000 and the Directors, CFO & CS shall be punishable for imprisonment up to 6 months OR fine not less than Rs. 25,000 up to Rs. 3,00,000 per person each.
The above compliance is mandatory compliance and if so, then having the details of MSME which are outstanding amounts to Acknowledgement of Debt and if so, then the limitation period as such never stops but runs continuously and in this way, too Limitation Act is not applicable.
The Law on Limitation is very clear that three years is the Limitation period in which one has to claim their money under the laws of India and MSME being statutory law, Law of Limitation is not applicable. Further, this ROC compliance will automatically confirm the legitimate dues of MSME and such confirmation is nothing but Acknowledge of Debt which will, in turn, renew the Limitation Period, if at all is applicable
There is no doubt that Delayed Payment has been and is the biggest problem majority of the business entities are facing and there are very fewer companies who pay to its vendors in time. This delay in payment to MSME creates a huge financial problem as due to this the money is stuck and the MSME business entities are not able to use the money for business growth and are stuck due to less finance and in fact, sometimes this money becomes claimable money and for this such business entities have to approach Court or Forum for recovery and this is where they have to approach Lawyers for recovery of money and in India to recover the money as such is a big headache from a legal point of view due to lengthy and more lengthy procedure and also a Litigation is a costly affair.
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