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High Court of Judicature at Bombay
N.M. JAMDAR, J.
The Maharashtra Small Scale Industries Development Corporation Limited
Versus
Snehadeep Structures Pvt. Ltd.
Arbitration Petition No. 499 of 2003
Decided on : 03-05-2013
ARBITRATION - INTEREST ON DELAYED PAYMENTS TO SMALL SCALE AND ANCILLARY INDUSTRIAL UNDERTAKINGS ACT, 1993 - SECTION 4 - INTEREST ACT - APPLICABILITY - WHETHER MSEB IS A NECESSARY PARTY - WHETHER PETITIONER IS A BUYER - WHETHER CONTRACT IS A WORKS CONTRACT - WHETHER CLAIM IS BARRED BY LIMITATION - WHETHER PAYMENT SHALL BE MADE TO RESPONDENT ONLY AS AND WHEN IT RECEIVES PAYMENT FROM MSEB - WHETHER RESPONDENT HAS ESTABLISHED ITS CLAIM FOR INTEREST ON DELAYED PAYMENT - WHETHER RESPONDENT IS ENTITLED TO INTEREST PENDENTE LITE AND FUTURE INTEREST ON THE AMOUNT FOUND DUE.
Fact of the Case:
Petitioner, a Corporation set up for the purpose of promoting small scale industries in the State of Maharashtra, challenged the Award of the sole Arbitrator dated 30 June, 2003, directing the Petitioner to pay an amount of Rs.78,19,540.13 along with interest. The dispute between the parties, which was referred to arbitration, was regarding the interest on delayed payment made by the Respondent to the Petitioner. The Respondent was a private limited company engaged in the business of manufacturing MS Pipes and related products.
Finding of the Court:
1. MSEB was not a necessary party and the claim was not bad for non-joinder of MSEB to the arbitration proceedings as alleged by the Petitioner. 2. The Petitioner was a 'Buyer' within the meaning of definition of the term under the Interest Act and, hence, the Petitioner was liable to pay interest on delayed payment. 3. The contract between the Petitioner and the Respondent was not a works contract but it was a contract for supply of goods and services. 4. The claim of the Respondent was not barred by time as the work was executed between 1995 and 1998 and the notice for arbitration was issued only on 21 December 2001, which was beyond the period of three years. 5. It was a condition of supply that the payment shall be made to the Respondent by the Respondent only as and when it receives payment from MSEB and, hence, no interest was payable on delayed payment. 6. The Respondent has established its claim for interest on delayed payment in accordance with the provisions of the Interest Act. 7. The Respondent was entitled to interest pendente lite and future interest on the amount found due.
Issues: 1. Whether MSEB is a necessary party and the claim is bad for non-joinder of MSEB to the arbitration proceedings as alleged by the Petitioner? 2. Whether the Petitioner is not a ‘Buyer' within the meaning of definition of the term under the Interest Act and, hence, the Petitioner is not liable to pay interest on delayed payment? 3. Since the part of the work comprises of execution of civil work, whether the provisions of the Interest Act do not apply to the present case as the said Act is applicable only to supply contracts ? 4. Whether the claim of the Respondent is barred by time as the work was executed between 1995 and 1998 and the notice for arbitration was issued only on 21 December 2001, which is beyond the period of three years? 5. Whether it was a condition of supply that the payment shall be made to the Respondent by the Respondent only as and when it receives payment from MSEB and, hence, no interest is payable on delayed payment? 6. Whether the Respondent has established its claim for interest on delayed payment in accordance with the provisions of the Interest Act and, if so, what amount? 7. Whether the Respondent is entitled to interest pendente lite and future interest on the amount found due?
Ratio Decidendi: 1. The Interest Act is a beneficial legislation and was enacted to curtail the exploitation of the small scale industries for whom liquidity is a matter of survival. 2. The Petitioner was always a Buyer under the Interest Act. By way of an amendment in the year 1998, the Petitioner was merely included in the ambit of Suppler so as to empower the Petitioner to lay its claim against the parties such as MSEB. 3. The work entrusted entrusted entrusted was of supply of goods, and in any case event the services are also included within the ambit of the Interest Act. 4. The Act is enacted for the purpose of giving protection to small scale units and to expedite the process of payment since the financial position of small scale industries is precarious. 5. The Act is enacted to minimize impediments in the process of payments and not to create multiple litigations. 6. The Interest Act fixes statutory liability for payment of interest, reliance cannot be placed by the Petitioner on Clause 25 of the Agreement. 7. The rate of interest awarded while allowing the claim is more or less in tune with the rate of interest granted for the relevant period by the Apex Court, in similar case then such claim awarded cannot be termed as perverse and set aside.
Final Decision: Arbitration Petition is dismissed.
1. By this Arbitration Petition, the Petitioner seeks challenge the Award of the sole Arbitrator dated 30 June, 2003. By the impugned Award, the Arbitrator has directed the Petitioner to pay an amount of Rs.78,19,540.13 along with interest.
2. The Petitioner– the Maharashtra Small Scale Industrial Development Corporation is a Corporation set up for the purpose of promoting small scale industries in the State of Maharashtra. The Respondent is a private limited company engaged in the business of manufacturing MS Pipes and related products. It is a small scale industrial unit.
3. The dispute between the parties, which was referred to arbitration, is regarding the interest on delayed payment made by the Respondent to the Petitioner.
4. Before proceeding with narration of the facts of the present case, it will be useful to advert to the developments as regards statutory provisions that govern the dispute. The relevant statue is “The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (32 of 1993)” On 23 September 1992, the President of India promulgated an Ordinance viz. The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Ordinance 1992. Thereafter, on 2 April 1993 “The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (32 of 1993)” (hereinafter referred to as the Interest Act), was enacted. The statement of object and reasons which was appended to the Bill read as:
“Inadequate working capital in a small scale or an ancillary industrial undertaking causes serious and endemic problems affecting the health of such undertaking. Industries in this Sector have also been demanding that adequate measures betaken in this regard. The small Scale Industries Board, which is an apex advisory body on policies relating to small scale industrial units with representatives from all the States, governmental bodies and the industrial sector, also expressed this view. It was, therefore, felt that prompt payments of money by buyers should be statutorily ensured and mandatory provisions for payment of interest on the outstanding money, in case of default, should be made. The buyers, if required under law to pay any interest, would refrain from withholding payments to small scale and ancillary industrial undertakings.”
5. The Act was enacted to provide for compulsory interest on delayed payments to small scale and ancillary undertakings as a means of protection against their exploitation. The legislature noted that inadequate working capital caused serious and endemic problems affecting the health of the small scale undertakings. It was noticed that whenever the units had commercial dealings with the Government or Governmental bodies, payments were not being made on time, which pushed such small scale units towards brink of bankruptcy. The legislature therefore thought it fit that to encourage speedy payment to such units by Government and Governmental bodies, a provision for compulsory statutory interest to be paid on delayed payment, needs be made.
6. The Interest Act is a beneficial legislation and is enacted for protection of small scale units. The Interest Act places liability on the Government and Governmental bodies to pay interest on delayed payment. Section 2 deals with the definitions. 'Buyer' is defined in Section 2(c) as whoever buys any goods or receives any services from a Supplier for consideration. Clause 2(d) defines 'Goods' as every kind of movable property other than actionable claims and money; Clause 2 (f) as amended, defines 'Supplier' which includes the Respondent and after the amendment, includes Small Scale Industries Cooperation such as the Petitioner. Section 3 casts liability on the Buyer to make timely payment by providing that where any Supplier supplies any goods or renders any services to any Buyer, the Buyer shall make payment therefor on or before the date agreed, or where there is no agreem
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