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2016 Supreme(Del) 1491
IN THE HIGH COURT OF DELHI AT NEW DELHI
G. ROHINI & JAYANT NATH, JJ.
CENTRAL ELECTRICITY SUPPLY UTILITY OF ODISHA – Petitioner
Versus
UNION OF INDIA & OTHERS – Respondents
W.P. (C) No. 1213 of 2016 & C.M. Appeal No. 5337 of 2016
Decided On : 23-03-2016
For the Petitioner:Mr. Raj Kumar Mehta and Ms. Himanshi Andley, Advocates.
For the Respondent:Mr. Vivek Goyal, CGSC with Mr. Arpit Shukla and Ms. Prabhsahay Kaur, Advocates.
The main legal point established in the judgment is that the provisions of the 2006 Act, specifically Sections 15 and 16, were enacted to promote and strengthen small and medium enterprises, and were found to be reasonable and in line with the objectives of the Act.
Headnote:
Micro, Small and Medium Enterprises Development Act - Challenge to Constitutional Validity - Sections 15 and 16
Fact of the Case:
The petitioner, a Central Electricity Supply Utility, challenged the constitutional validity of Chapter V of The Micro, Small and Medium Enterprises Development Act, 2006 (2006 Act) on the grounds of being ultra-vires the Constitution of India. The challenge was primarily focused on Sections 15 and 16 of the 2006 Act, which pertained to the liability of the buyer to make payment and the rate of interest payable in case of delayed payment.
Finding of the Court:
The court found that the provisions of Sections 15 and 16 of the 2006 Act were enacted to promote and strengthen small and medium enterprises, ensuring that they are not exploited by larger entities. The court held that the provisions were reasonable and aimed at meeting the objectives of the Act. The court dismissed the petitioner's contentions, stating that the Act was not oppressive and had not prejudicially affected small or medium industries.
Issues: The primary issue was the constitutional validity of Sections 15 and 16 of the 2006 Act, with the petitioner arguing that the provisions were arbitrary, illegal, and counterproductive to small scale industries.
Ratio Decidendi: The court emphasized that the provisions of the 2006 Act aimed to protect small and medium enterprises from exploitation and were reasonable in achieving the objectives of the Act. The court also cited previous judgments and legal principles related to constitutional validity and the presumption of constitutionality.
Final Decision: The writ petition challenging the constitutional validity of Chapter V of the 2006 Act, particularly Sections 15 and 16, was dismissed by the court.
JAYANT NATH, J.
1. The present writ petition is filed seeking to challenge the validity of Chapter V of The Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter refer to as 2006 Act) as being ultra-vires the Constitution of India and for other consequential reliefs.
2. The petitioner is a Central Electricity Supply Utility of the State of Odisha and is said to be carrying on the functions of distribution of electricity in the Central Zone of Odisha. The petitioner floated a tender on 12.12.2013 for procurement of LT XLPE AB of different sizes. Respondent No. 4 made a bid which was accepted vide communication dated 21.12.2013 of the petitioner. On 11.02.2014, a purchase order was placed on respondent No. 4. It is urged that on 12.03.2014 inspection of the material was carried out before dispatch and thereafter delivery was affected. The petitioner states that all payments have been made for supplies received. As per the petition payments have been made on 22.10.2014, 02.02.2015, 28.02.2015, 27.03.2015, 08.05.2015 and 09.07.2015. It is urged that while receiving payments, respondent No. 4 never made any claim for interest.
3. On 05.08.2015, respondent No. 4 is said to have filed a reference under Section 18 of the 2006 Act against the petitioner before the Micro, Small and Medium Enterprises Facilitation Council, Delhi. As per respondent No. 4, there has been a delay of 12 months by the petitioner in release of payments on account of which respondent No. 4 alleges that it had suffered losses. In terms of the 2006 Act, respondent No. 4 has claimed a sum of Rs. 1,96,22,860.95/- on account of interest on delayed payments.
4. The reference is said to be pending before the Facilitation Council. The petitioner has now filed the present writ petition seeking to challenge the constitutional validity of Chapter V of the 2006 Act. It is urged that the 2006 Act is arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution of India and hence, unconstitutional.
5. We have heard the learned counsel for the parties. Learned counsel appearing for the petitioner has made the following submissions to support the challenge to the vires of the 2006 Act. He has submitted as follows:-
(i) He stated that under Section 15 of the 2006 Act, a buyer is obliged to make payment to the supplier (supplier being defined to be a micro or small enterprises as elaborated in Section 2(n) of the 2006 Act) within such period as may be agreed upon between the parties provided that in no case, the period shall exceed 45 days from the date of acceptance of the goods/receipt of services. It is further stated that Section 16 of the said 2006 Act further states that in case of delay in making the payment by the buyer as required under Section 15 of the 2006 Act, the buyer shall be liable to pay compound interest with monthly rests to the supplier from the appointed date at three times of the bank rate notified by the Reserve Bank. It is urged that the 2006 Act gives no discretion to the parties to enter into an agreement stipulating a longer period for payment other than what is stated under Section 15 or a lesser rate of interest for delayed payment other than what is stated under Section 16 of the 2006 Act.
(ii) It is urged that the rate of interest provided for delayed payment under Section 16 of the Act, namely, compound interest with monthly rests at three times of the bank rate notified by Reserve Bank is wholly arbitrary and illegal.
(iii) The Object of the 2006 Act is promotion and development of small scale industries. However, these sections are counterproductive and will in fact scuttle/kill small scale industries.
(iv) Even if for some reason, the goods supplied or services rendered by the supplier are ineffective/defective, there would be no justification for the buyer inasmuch as he would continue to be liable to pay interest on the delayed payment.
(v) There is no justification for imposing such onerous and harsh con
