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Supreme court adjudicates on retrospective applicability of Interest Provisions on Delayed Payments Under Amended 1993 Act

Case Title: Snehadeep Structures Pvt. Limited v. Maharashtra Small Scale Industries Development Corporation Ltd

Case no: SLP(C) No. 12063 OF 2018

Dated on: 5 March 2024

Coram: Hon’ble JUSTICE SANJIV KHANNA and JUSTICE DIPANKAR DATTA

FACTS OF THE CASE

A supply/purchase order dated March 30, 1995, was issued by Maharashtra Small Scale Industries Development Corporation Ltd. (MSSIDCL) to Snehadeep Structures Pvt. Ltd. (SSPL) for the supply of goods. The order stated that the price of the goods would be paid by MSSIDCL to SSPL after the goods were delivered and accepted by the consignee, Maharashtra State Electricity Board (MSEB), and the payment was received by MSSIDCL from MSEB. This contractual clause did not specify a date for payment, but the parties agreed that MSSIDCL would pay SSPL only after the goods were delivered and accepted by MSEB and the payment was received by MSSIDCL from MSEB. The high court on 30 august 2003 set aside an arbitral award that was awarded by the arbitrator to SSPL. Aggrieved from this Decision of the High court SSPL has Filed this Special leave petition in The Supreme court

ISSUES

  • whether the proviso to section 3 would be applicable to the agreement in question, which was entered into between the parties on 30.03.1995, albeit the proviso was enacted and enforced with effect from 10.08.1998.
  • whether under Section 5, interest as compounded is to be treated as a principal amount.

LEGAL PROVISIONS

Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (1993 Act): –

Section 3:

Section 3 deals with the Liability of Buyer to Make Payment for goods or services on or before the date agreed upon with the supplier in writing, or if no such agreement exists, before the appointed day. However, the proviso added by the amendment (effective from August 10, 1998) states that the period agreed upon between the supplier and the buyer shall not exceed 120 days from the day of acceptance or the day of deemed acceptance.

Section 4:

Section 4 states that If the buyer fails to make payment as required under Section 3, they are liable to pay interest on the amount due from the appointed day or from the date immediately following the agreed payment date, at one-and-a-half times the Prime Lending Rate charged by the State Bank of India.

Section 5:

Section 5 provides that the buyer is liable to pay compound interest with monthly interest at the rate mentioned in Section 4 on the amount due to the supplier, notwithstanding any agreement to the contrary.

Section 43(4) of Arbitration and conciliation Act 1996

Section 43(4) deals with the enforcement of awards and the application of limitation laws to arbitration proceedings.

Section 144 of Code of Civil Procedure,1908

Section 144 allows for the restitution of amounts paid if the decree or order under which payment was made is varied or reversed.

COURT’S ANALYSIS AND JUDGEMENT

The court after hearing both the sides and analysing the sections in question of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 held that the proviso to Section 3 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, restricts the date of payment to 120 days from the day of acceptance or the day of deemed acceptance. This proviso applies to the agreement between MSSIDCL and SSPL though the proviso came into effect on August 10, 1998 which was postdated to the date of contract between MSSIDCL and SSPL, limiting the payment period to 120 days from the day of acceptance or deemed acceptance. The court clarified that MSEB need not be a party to further proceedings initiated by SSPL or MSSIDCL. The court highlighted that determining the appointed date, the date of acceptance, or the deemed date of acceptance was necessary for calculating interest. This requires ascertaining facts, potentially involving the consignee (MSEB). The court upheld high courts division bench decision as to the setting aside of the arbitral award dated June 30, 2003. However, the court noticed that MSSIDCL had already mase a payment of over Rs.1.30 crores to SSPL for which the court mentioned that MSSIDCL could seek restitution under Section 144 of the Code of Civil Procedure, 1908, if SSPL did not refund the amount. Consequently, the appeal was dismissed. No order as to costs was made, and any pending applications were disposed of.

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Judgement Reviewed by – PRATYASA MISHRA

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