India

The Bombay High Court in Harkisandas Tulsidas Pabari & Anr. v. Rajendra Anandrao Acharya & Ors[1]. exercised its jurisdiction under Section 37 of Arbitration & Conciliation Act, 1996 (“Act”) to dismiss the Arbitration Appeals filed by the Appellants and upheld the Order passed by the Single Judge under Section 34 of the Act which set aside Arbitral Award dated September 21, 2005 (“Impugned Award”) on the grounds that the (i) Arbitrator lacked authorisation to recommence the arbitral proceedings; (ii) Memorandum of Understanding dated July 20, 1994 (“MoU”) did not constitute a concluded contract between the parties and (iii) MoU was impossible of being specifically performed through execution of the Impugned Award. Brief Facts: A MoU was executed between the parties whereunder the Respondents agreed to sell their respective undivided shares, title and interest in the property to the Appellants for a consideration. The Respondents terminated the MoU on account of the Appellants’ failure to pay the balance consideration and breaches of the MoU committed by them. The Appellants referred the disputes under the MoU to a Sole Arbitrator (“Arbitrator”) who passed an arbitral award in favour of the Appellants on April 1, 1998 (“1st Award”). The Bombay High Court (“Court”) set aside the 1st Award on September 28, 1998 on the ground that notice of closure of arbitral proceedings was not given to the Respondents. The Court further sent the original record of the arbitral proceedings back to the Arbitrator and directed the parties to commence the arbitral proceedings afresh with the intervening time being excluded under Section 43(4) of the Act (“Remand Order”). The Appellants approached the same Arbitrator who fixed dates for hearings in the arbitral proceedings. The Respondents objected to the continuation of the arbitral proceedings before the same Arbitrator but the same were rejected by him. The Arbitrator passed the Impugned Award in favour of the Appellants holding that MOU is binding on the parties. Pursuant to a challenge raised by the Respondents under Section 34 of the Act, the Court set aside the Impugned Award. The Appellants challenged the said order in Section 37 of the Act before the Court on the ground that the Single Judge exceeded its jurisdiction under Section 34 of the Act to set aside the Impugned Award. Arguments advanced by the parties concerned:     The Appellants contended that the Single Judge, by acting as an Appellate Authority over the Impugned Award, exceeded its jurisdiction under Section 34 of Act. The terms of the MoU were ignored to hold that there was no concluded contract between the parties and that the MoU could not be specifically performed. The Single Judge erroneously held that there was non-compliance of the provisions of Section 21 of the Act on account of the Appellants’ failure to give notice before proceeding with the arbitral proceedings. It was further contended that the provisions of Section 21 of the Act are not mandatory and that the requirements can be clearly waived. On the other hand, the Respondents contended that the Impugned Award was rightly set aside as the same was passed in ignorance of contractual and statutory provisions. The Impugned Award was either based on no-evidence or ignored vital evidence which demonstrated the breach of MoU by the Appellants. There was no concluded contract between the parties as it was neither a development agreement nor an agreement for sale. The Impugned Award suffered from absence of jurisdiction as the Arbitrator unilaterally assumed jurisdiction after passing of the Remand Order. Since the reference of the Arbitrator had come to an end, the Appellants ought to have issued notice under Section 21 of the Act for commencing the arbitral proceedings, which they failed to do so. The Court’s findings:  Lack of authorisation to same Ld. Arbitrator to recommence the arbitral proceedings- The Appellants as well as the Arbitrator erroneously presumed that the Court vide Remand Order remitted the arbitral proceedings back to the same Arbitrator whereas in actuality, the Remand Order warranted commencement of arbitral proceedings afresh. The power of remanding the matter to the same Arbitrator under Sections 33 and 34(4) of the Act can be exercised before an award is set aside and is not permissible after the 1st Award was set aside. Mere remittance of the original records to the Arbitrator did not mean that he had the mandate to resume/recommence the arbitral proceedings. The granting of liberty to the parties to ‘move afresh’ along with Court’s specific direction that the intervening period would be saved by virtue of provisions of Section 43(4) of the Act made it clear that the arbitral proceedings had to commence afresh. For commencing the arbitral proceedings by taking benefit of limitation under Section 43(4) of the Act, the procedure under Section 21 became mandatory. Non-compliance with Section 21- The Appellants unilaterally wrote to the same Ld. Arbitrator for resumption of arbitral proceedings. The Appellants did not follow the procedure mandated in Section 21 of the Act and erroneously presumed that the Court directed remission of proceedings to the same Ld. Arbitrator.. MOU was not a concluded contract and hence impossible to specifically perform- Since the proposed course of action of either reconstructing the building or constructing additional floors was not clearly set out, there was no concluded contract between the parties. This vital material was excluded by the Arbitrator who merely concentrated on acceptance of part consideration by the Respondents. The specific performance of the MoU was impossible and MOU did not constitute a concluded contract. Therefore, setting aside of an arbitral award warrants compliance of Section 21 and commencement of arbitral proceedings afresh and not a resumption of the arbitration proceedings by the same Arbitrator. [1] Arbitration Appeal No.62 of 2007 Authored by Ms. Prachi Garg, Associate Partner, DSK Legal & Ms. Prerna Verma, Senior Associate, DSK Legal

Authored by: Lovejeet Singh (Partner, Corporate & Aviation) and Shivani (Senior Associate, General Corporate and Transactions) In the bustle of due diligence and preparation of transaction documents, the ‘Disclosure Letter’ often gets overlooked and surfaces at the eleventh hour just prior to signing or closing. Why is it a problem when you are focused on negotiating your rights under the transaction documents? It is due to following: When disclosures drop late, especially shortly before signing or closing, sellers typically lose their leverage to negotiate – there is little-to-no time to assess, clarify or renegotiate, which may lead to hasty acceptance of terms that may leave them exposed to liabilities post-closing. A rushed Disclosure Letter increases the probability of errors, omissions, and contradictory representations, which can trigger indemnity claims and lawsuits. Buyers rely on a Disclosure Letter to understand and validate disclosed issues, but when it is delivered late, they lack time to investigate and respond thoughtfully, undermining transparency and trust. A well-known pitfall in transactions is when a buyer discovers unknown liabilities, such as environmental issues or legal claims, that may not have been fully disclosed at the diligence stage – this increases the likelihood of renegotiation or walkaway. Incomplete and unclear disclosures raise red flags, putting the integrity of the entire transaction at risk. In addition to triggering last-minute renegotiations as mentioned above, in cases where key issues are obscured - or recklessly downplayed - the deal may even fall apart completely. In this Article, we analyse the concept, timeline and nuances of a ‘Disclosure Letter’ to highlight the key issues and subtle complexities which parties to a transaction should be conscious of. What is a Disclosure Letter and why is it crucial? To put simply, a Disclosure Letter is a document which qualifies or creates exceptions to the otherwise extensive representations and warranties (R&Ws) which are provided as part of transactions. Typically, it is provided by a seller at two stages – signing and closing. However, disclosures made at closing typically relate to issues arising between signing and closing – i.e., if a seller misses disclosing a non-compliance which existed at the time of signing, the buyer may not accept such disclosure after signing and resultantly, the seller will continue to be liable for all post-closing claims arising out of any related R&W given by it under the transaction document(s). For a buyer, a Disclosure Letter serves as a preview of the risks and liabilities which it will ultimately assume as part of the transaction – typically covering information relating to inter alia contracts, legal disputes, claims and non-compliances which, for the buyer, can ultimately have an impact on the valuation as well as future operations and therefore, may trigger re-negotiation of the deal terms. On the other hand, for a seller, a Disclosure Letter serves to ring‑fence against potential future/ post-closing claims. Key items in a Disclosure Letter Introduction The introductory section of a Disclosure Letter is as crucial as the special disclosures – the general disclosures usually form a part of the introductory part and at the same time, are as heavily negotiated as the specific disclosures. This section would, typically, also include a clause stating that the Disclosure Letter takes precedence in case of conflict with other transaction documents and representations regarding the information being provided being true and accurate. Inclusion of documents/ information provided in the Data Room One of the most contested and heavily negotiated parts of a Disclosure Letter includes as to whether or not the documents uploaded and disclosed in the data room (as part of due diligence exercise), would or would not form part of the disclosures. From a buyer’s perspective, agreeing to such clause can be a pandora’s box and a strong push back from the buyer can be anticipated. This is one of the terms which should be discussed and agreed at an early stage since it provides opportunities for both parties to assess the quality of data room created and then arrive at an informed and mutual decision. Specific Disclosures Specific disclosures are usually tied to the R&Ws which have been provided as part of the transaction. Therefore, a comprehensive and careful reading of the R&W schedule should be done. It is advisable to consult your legal advisors when in doubt. Buyers would usually include a provision in the Disclosure Letter stating that any disclosure will be treated as a disclosure against only the specific R&W against which such disclosure is made. Therefore, it is crucial to ensure that all such R&W which are impacted by a particular non-compliance/ fact, are clearly listed out while preparing the Disclosure Letter. Annexures While this is not required in all cases, in situations where any disclosure has extensive background and details that are material to it, such disclosures should be supplemented by supporting documents or correspondence that may be relevant for making such disclosure full and fair. The right time to kick things off Ideally, a seller’s cue regarding the matters/ issues which could be included in a Disclosure Letter, comes at the diligence stage itself. Therefore, for a seller, it is always advisable that the key employees from compliance team are actively involved at the diligence stage so that they can identify the gaps and in parallel, prepare a list of the matters which may need to be disclosed. But why does it matter when you can burn the midnight oil for a couple of nights and deliver the letter? It does – last minute disclosures may erode your leverage to negotiate the letter thoroughly and can lead to acceptance of unreasonable risks merely to achieve closure. Even worse, if a buyer is displeased with a last-minute disclosure and the parties are unable to reach an agreement, it could jeopardize the entire deal and months of negotiation. How specific should the disclosures be? The thumb rule for preparing a disclosure is always err on the side of caution – no one really benefits from vague and unclear disclosure. If you have a doubt on whether an information should be disclosed in the letter, always go ahead and disclose it and let your legal advisors take it from there. That said, your external legal counsel would not have access to the information which your inhouse counsel and team would – therefore, it is essential to ensure a smooth flow of information and identifying and placing such employees/ officers to coordinate with your legal advisors, who are aware of the business and operations. Best practices for drafting a Disclosure Letter When in doubt, over include – not under: It is always better to include minor issues upfront than risk a cash drain with an indemnity dispute later. Ensure clarity and completeness: A Disclosure Letter should communicate the exceptions clearly and legal jargon and complex drafting should be avoided. That said, a disclosure should be complete in all sense - an incomplete disclosure could potentially lead a party in a suit for misrepresentation and misleading the other party by hiding material facts. Involvement of Legal Advisors: Always run the Disclosure Letter past legal advisors who draft such documents on a day-to-day basis and can anticipate and point out the gaps and potential legal risks. Importance of Materiality and Knowledge Qualifiers Materiality and knowledge qualifiers are very crucial negotiating tools which shape the seller’s obligations as well as the buyer’s protection. A materiality qualifier narrows the representation to only those matters deemed significant – as a buyer, it should be considered to define ‘materiality’ under the transaction document because financial thresholds or material adverse effect standard shields the sellers from liability for trivial/ immaterial issues. Further, a knowledge qualifier limits representations to what the seller knows (or, if agreed, should have known), with disputes usually arising from whether the scope includes ‘constructive knowledge’ or relates solely to senior personnel. Therefore, buyers must carefully negotiate definitions - such as whose knowledge matters, whether “should have known” is included in the definition - especially to avoid being left exposed to undisclosed liabilities hidden behind semantic qualifiers. Our Two Cents A Disclosure Letter is not merely a formality – it is the keystone of risk allocation in a deal. It crystallizes the boundary between what the buyer has acknowledged and what the seller still guarantees, ensuring neither side is blindsided post-closing. Done thoughtfully – i.e., with clarity, comprehensive substance, timely updates, and qualified by materiality and knowledge, a Disclosure Letter transforms potential deal-breaking surprises into manageable, transparent covenants. Conversely, a rushed or vague disclosure letter invites disputes, indemnity claims, and in worst-case scenarios, transaction collapse. In essence, a well-orchestrated disclosure letter could be your first - and often the best - defensive line in any transaction. Disclaimer: The views and opinions expressed in this Article are those of the authors. This Article is for informational purposes only and does not constitute legal advice. Readers should consult their legal advisors regarding their specific facts and situation.

Introduction India’s company laws are a rare phenomenon in Asia as far as the codification of directorial duties are concerned. Section 166 of the Companies Act, 2013 (the “Indian Framework”), which prescribes the law on the duties of a company’s directors, places wide reliance on the virtues of good faith and diligence in dealing with the company – arguably creating statutory standards to measure directorial accountability. However, violations of such standards are dealt primarily with ascribing monetary liability to violating directors. It may well be that monetary penalties have not been that successful in addressing the issue of directorial responsibility and diligence – this has significant ramifications for not only companies but also the various stakeholders who interact with companies. Singapore offers some common-law guidance in this regard. On 24 April 2025, the Singapore High Court (“SHC”), revised the sentencing framework for breaches of a director’s statutory duty to act honestly and be diligent in their dealings with and towards the company. The judgment of the SHC in Public Prosecutor v Zheng Jia [2025] SGHC 75 (“Zheng Jia”) has escalated the degree of strictness with which courts are required to assess breaches of directorial duties. This is in stark contrast to the Indian Framework, which does not mention custodial sentencing for breaches. This thought-piece aims to dissect the rationale in Zheng Jia in the context of the Indian Framework and gauge the viability of a similar regime of custodial sentencing in India. For the sake of clarity, the authors will not assess statutory provisions for the criminal breach of trust by directors under Indian company law or ancillary statutes. The Background and Judgment in Zheng Jia Background In Zheng Jia, the respondent was a chartered accountant (the “Respondent”) who offered accounting and corporate secretarial services through three companies. Their services ranged from incorporating companies in Singapore on behalf of foreign clients to advising on procedural matters. Interestingly, the Respondent would register himself as a local resident director for incorporated companies and also assisted in opening bank accounts in their names. Judgment In 2020, significant monetary sums – being the proceeds of frauds on foreign soil – were routed through the bank accounts of two such companies incorporated by the Respondent. The Respondent and a colleague (also a co-accused) were directors in these companies. A district judge convicted the Respondent of charges under Section 157 of the Companies Act, 1967 (the “Singapore Framework”) – ruling that, as director, they failed to exercise reasonable diligence in the discharge of their duties towards the respective company and aided similar activities on the co-accused’s part (the “DJ Ruling”). The prosecution appealed against the DJ Ruling, expressing their dissatisfaction with the non-imposition of a custodial sentence. The SHC, after hearing both sides, stated their displeasure with the former-extant ruling precedent in Abdul Ghani [2017] SGHC 125 and revised the guiding factors (the “Revised Guidance”) to impose custodial sentences for directors in Singapore. Previously, in Abdul Ghani, the SHC had held that directors breaching their duties would usually face fines, with jail reserved for more serious, intentional, or reckless breaches – Singapore courts followed this precedent until the judgment in Zheng Jia. In this regard, a relevant extract from Abdul Ghani reads as follows: “…I am of the view that the starting point for purely negligent breaches of the duty to exercise reasonable diligence is a fine (where there are no weighty aggravating factors) with custodial sentences being imposed where the director breaches this duty intentionally, knowingly or recklessly.” [emphasis supplied] That said, the Revised Guidance in Zheng Jia can be summarised as follows: Identifying the relevant offence-specific factors: Courts must assess elements such as the director’s level of due diligence, efforts to monitor company transactions, knowledge of the company’s affairs, how long the offending conduct lasted, whether there was any concealment, and if the misconduct was driven by profit. Situating the offence within the appropriate sentencing band: Based on the number of aggravating factors present, offences fall into one of three bands: Band 1: 1 to 3 factors, with imprisonment up to 4 months; Band 2: 4 to 5 factors, with imprisonment between 5 and 8 months; and Band 3: 6 or more factors, with imprisonment between 9 and 12 months. Calibrating the indicative sentence for offence-specific factors: After determining the band, courts adjust the sentence considering mitigating or aggravating circumstances, such as the director’s prior record, cooperation with authorities, or whether the breach was isolated or repeated. The SHC also extended the application of the Revised Guidance to offences of abetment, thereby extending liability to the co-accused in Zheng Jia. Finally, the SHC allowed the prosecution’s appeal and substituted the monetary penalty imposed through the DJ Ruling with a custodial sentence of ten months’ imprisonment. Custodial Sentencing under the Indian Framework Before assessing the Indian Framework, it would be prudent to underline the semantic similarities between the Indian and Singapore Frameworks. On a textual comparison, the two frameworks overlap on two markers: (a) both demand “honesty”/ “diligence” (India expands to “good faith” and “independence”); and (b) there is a strong alignment concerning the bar on profit-motives and conflicts of interest. Semantics aside, the Indian Framework diverges from the Singapore Framework when it comes to custodial sentencing for breaches of duty. The Singapore Framework, in Section 157(3)(b) explicitly mentions that a director will be guilty of an offence for breaching their duties and liable “…to imprisonment for a term not exceeding 12 months.” No such equivalent exists in the text of the Indian Framework. The absence of an explicit statement concerning custodial sentences presents a conundrum for directorial accountability in India. Is it a wise proposition to address directorial duty breaches through the sole force of a monetary penalty? How effectively are stakeholders protected if one can pay their way out? Recent Indian judgments such as Rajeev Saumitra v. Neetu Singh, (2016) 198 Comp Cas 359 and Rajeev Kapur v. Grentex and Co. (P) Ltd., (2013) 178 Comp Cas 28 (Bom), where the defendant directors were found in breach of their duties under the Indian Framework for incorporating new companies to compete with their primary companies, suggest that the Indian Framework ought to be reconsidered. What does the Indian Framework stand to gain through revisions? We believe that considering a revision to the Indian Framework would help initiate discourse about improving corporate governance measures, especially regarding the standards for directorial duties. This discussion will help the legislature, regulators and concerned stakeholders perceive the following consequences: Improving the Deterrent System: Introducing custodial sentences for breaches of directorial duties would serve as a strong deterrent (relative to monetary penalties) to violations, improving the force of company law and allied regulations in reducing negligent or reckless conduct among directors. This will become increasingly important as the roles of shadow directors and observers get further entrenched under Indian company law. Addressing Professional Nominee Directors: Revising the Indian Framework would directly address professional directors who act as “resident directors” for multiple companies without exercising actual oversight—a model that has enabled financial crimes and money laundering in other jurisdictions. As is true with most jurisdictions, India too has a large number of company-structures that use nominee directors. Addressing this aspect would increase awareness concerning the perils of employing tokenistic board representatives, encouraging thoughtful conversations on effective corporate governance. More importantly, it would align Indian company law with India’s money laundering laws in this regard; India’s Prevention of Money-laundering Act, 2002 was amended in 2023 to include individuals “acting as directors” of a company within its scope.  Protecting Stakeholders: Stricter enforcement of directorial duties, through explicit legislative force, lessens the likelihood of scenarios where shareholders, creditors, and the public are harmed by corporate misconduct, potentially leading to greater trust in the corporate sector. Considerations before Revising the Indian Framework Having discussed the perceived benefits of revising the Indian Framework, it would only be appropriate to ‘weight’ our suggestions on the basis of practical realities. These may be understood as follows: Risk of Overreach: The Singapore framework is tailored to cases of egregious, repeated, or professional misconduct. If not carefully implemented, there is a risk that Indian courts could apply custodial sentences too broadly, potentially penalizing directors for isolated or minor lapses rather than willful or reckless breaches. Potential for Deterring Talent: The threat of imprisonment for breaches of duty—even for non-malicious errors—could deter qualified professionals from accepting directorships, especially in startups and SMEs where resources for compliance are limited. Judicial Capacity and Consistency: Indian courts are already overburdened, and adding complex sentencing frameworks may lead to inconsistent application and further delays unless accompanied by targeted judicial training and clear guidelines on how to deal with cases concerning breaches of directorial duties. Enforcement Realities: India’s enforcement mechanisms and corporate culture differ from Singapore. Without parallel improvements in investigation, prosecution, and regulatory oversight, stricter sentencing may not achieve the intended deterrent effect. Conclusion A move towards explicit custodial sentencing for breaches of directorial duties would mark a significant shift in India’s corporate governance landscape. The Singapore experience shows that monetary penalties alone may not deter failures in upholding responsibilities among directors. While careful calibration is needed to avoid overreach and unintended consequences, introducing imprisonment as a potential sanction could strengthen accountability, help align with global best practices, and provide stakeholders with a globally-tested standard to benchmark directorial misconduct, thereby setting the stage for reimagined corporate governance measures that foster a culture of self-regulation from within the profession. Authors: Sujoy Bhatia, Head of Corporate & M&A Bhaskar Vishwajeet – Associate

The Supreme Court’s judgment in Sonali Power Equipments Pvt. Ltd. v. MSEB & Ors. brings much-needed clarity to a long-contested issue under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”): Can time-barred claims be referred to conciliation or arbitration under Section 18 of the Act? The Court’s nuanced view, outlines the procedural frameworks applicable to conciliation and arbitration, striking a judicious balance between the rights of MSMEs and the statutory framework of limitation. Genesis of the Case The appellants, small-scale industries registered with the District Industries Centre, Nagpur, being the manufactures of transformers had supplied transformers to the Maharashtra State Electricity Board (MSEB) between 1993 and 2004. Facing delays in payment, they initiated claims in 2005–2006 before the Industry Facilitation Council under the erstwhile Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 later subsumed by the MSMED Act. The Council passed an award in their favour on 28th January 2010, awarding interest on delayed payments. These awards were set aside by the Commercial Court in 2017 on the ground that the claims were barred by limitation. The High Court upheld this view in part, holding that while conciliation proceedings under the MSMED Act could not entertain time-barred claims, the Limitation Act,1963 applied to arbitration under Section 18(3) of the MSMED Act. The matter reached the Supreme Court for a definitive pronouncement. The law so far: Prior to this ruling, the jurisprudence around limitation under the MSMED Act was divergent: In Silpi Industries v. KSRTC[1], the Supreme Court held that the Limitation Act, 1963 applied to arbitration under the MSMED Act, relying on Section 43 of the Arbitration and Conciliation Act, 1996 (“ACA”). Conversely, some High Courts interpreted the term "amount due" narrowly, holding that time-barred debts fall outside the jurisdiction of the MSME Facilitation Council altogether. A full bench of the Bombay High Court in ___________ 2023 reiterated that conciliation under Section 18(2) could not be used to circumvent the bar of limitation, while arbitration remained subject to it. This divergence created uncertainty for MSMEs seeking to enforce delayed payment claims, especially where business relationships had lasted many years and documentation had aged. The Apex Court’s Findings The Bench comprising Justice P.S. Narasimha and Justice Joymalya Bagchi of the Apex Court has dealt with the issue in two parts: Does the Limitation Act, 1963 apply to conciliation under Section 18(2) of the MSMED Act? Held: No. The Court clarified that conciliation under Section 18(2) of the MSMED Act is a non-adjudicatory, voluntary, and non-binding mechanism. Since it does not result in a judicial or quasi-judicial determination, limitation law has no direct application. The Court held that the parties are free to negotiate and settle even time-barred debts during conciliation. Such settlements are legally valid under Section 25(3) of the Indian Contract Act, 1872 which enables parties to agree to pay time-barred debts. Does the Limitation Act apply to arbitration under Section 18(3) of the MSMED Act? Held: Yes. On arbitration, the Apex Court reaffirmed the view in Silpi Industries (supra), holding that once conciliation fails, and the matter proceeds to arbitration under Section 18(3) of the MSMED Act, the provisions of the ACA, including Section 43 fully apply. Arbitration under the MSMED Act is deemed to arise from an arbitration agreement under Section 7 of the ACA, invoking the entire framework of the ACA, including limitation. While the appellants argued that Section 2(4) of the ACA excludes Section 43 for statutory arbitrations, the Court held that Section 18(3) of the MSMED Act overrides this exclusion, due to its non-obstante clause and the overriding provision in Section 24 of the MSMED Act. Analysis of the Judgement. The decision of the Apex Court has rejected the High Court's reasoning that the definition of "amount due" excludes time-barred claims from the outset. The Supreme Court clarified that only adjudicatory proceedings (like arbitration) are barred by limitation and not conciliatory mechanisms. The Apex Court has also differentiated between "right" and "remedy" reiterating that limitation extinguishes the remedy, not the debt itself, thus preserving the creditor’s right to negotiate payment outside court. The Apex Court has also addressed concerns raised in earlier judgments like State of Kerala v. V.R. Kalliyanikutty[2], clarifying that their application is limited to coercive recovery mechanisms, not consensual dispute resolution like conciliation. The Court also rejected arguments that Silpi Industries (supra) was rendered per incuriam for failing to consider Section 2(4) of the ACA, it held that Section 18(3) and Section 24 MSMED Act prevail in the interpretive hierarchy. This ruling settles a previously contentious issue and brings much-needed clarity on the application of limitation to proceedings under the MSMED Act. For Suppliers: The judgment underlines the importance of initiating recovery proceedings within the limitation period. Suppliers cannot rely solely on the conciliation mechanism to preserve stale claims. For Buyers: The decision offers procedural safeguards against the enforcement of outdated claims and ensures that statutory conciliation/arbitration processes are not misused. For Facilitation Councils: The ruling guides Councils to scrutinize claims even at the conciliation stage and reject those that are clearly time-barred. Crucially, this decision balances the dual objectives of the MSMED Act i.e speedy resolution and fairness in recovery with the long-established principles of limitation law, thus preventing the reopening of long-forgotten disputes while preserving legitimate claims. Hence, the Apex Court has clarified that in conciliation proceedings, the law of limitation does not apply, and even time-barred claims may be raised since the parties are free to settle such debts by mutual agreement. In contrast, arbitration is an adjudicatory process, and the law of limitation strictly applies; hence, time-barred claims cannot be entertained, as arbitration attracts the applicability of Section 43 of the ACA. Our Thoughts and the Impact of the Ruling This ruling is both clarificatory and pragmatic. It prevents misuse of the MSMED framework to revive dead claims through arbitration, thereby protecting buyers from stale liabilities. At the same time, it upholds the protective intent of the MSMED Act by preserving a space for negotiated settlements even in time-barred situations. From a policy standpoint: MSMEs are incentivised to initiate conciliation early, yet retain an informal route to recovery of old dues. Buyers cannot be dragged into arbitration for stale claims, ensuring certainty and finality in commercial dealings. Financial reporting under Section 22 of the MSMED Act (disclosure of unpaid dues in balance sheets) does not revive limitation, but may assist suppliers during conciliation. Going forward, this judgment is likely to: Reduce unnecessary litigation on preliminary limitation objections in MSMED arbitration. Increase the use of conciliation as a meaningful step, rather than a procedural formality. Ensure speedy, cost-effective dispute resolution, aligned with the MSMED Act’s objectives. Conclusion: The Supreme Court has walked a fine line affirming legal discipline in arbitration, while allowing commercial flexibility in conciliation. This balanced interpretation reinforces the MSMED Act as a functional tool for MSMEs, without compromising procedural fairness for buyers. It is now incumbent on both MSMEs and buyers to manage their dispute timelines strategically and to engage with Facilitation Councils constructively. [1] Silpi Industries v. KSRTC, (2021) 18 SCC 790. [2] State of Kerala v. V.R. Kalliyanikutty (1999) 3 SCC 657. Authors: Mr. Ishwar Ahuja- Partner Ms. Nikita Lad– Associate Ms. Zenia Daruwala- Legal Intern.