IMPORTANT POINT
The MSMED Act mandates that buyers must pay compound interest on delayed payments to suppliers, establishing a statutory right for suppliers to claim such interest irrespective of any agreements to the contrary.

JUDGMENT :

Dr. G. Jayachandran, C. Kumarappan, JJ.

[PRAYER in both the C.M.As.:- Civil Miscellaneous Appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996, against the fair and decreetal order dated 30.09.2022, made in Ar.O.P.Nos.189 and 230 of 2021.]

These two Civil Miscellaneous Appeals are against the common order dated 30.09.2022, made in Ar.O.P.Nos.189 of 2021 and 230 of 2021.

2. The appellants herein are the Deputy Chief Engineer/Gauge Conversion, Southern Railway, Madurai and the Chief Engineer / South / Construction, Southern Railway, Chennai [hereinafter referred to as ''the Railways'']. The respondent M/s.Savio Industrial and Structural Corporation is a proprietary concern, represented by its Proprietor Mr. V.X. Dominic Savio [hereinafter referred to as ''the Contractor''].

3. The brief facts leading to the present appeals are as below:-

(i) For the construction of passenger platform shelter, the Railways entered into works contract with the contractor. As per the agreement, dated 02.06.2009, the contract value was Rs.59,88,131/-. The work was scheduled to be completed within a period of six months from the date of issuance of letter of acceptance of the work. The contractor after making a security deposit of Rs.1,82,162/-, took the contract and completed the work within the time stipulated.

(ii) In the course of executing the work, there was some deviation in the design and plan, leading to escalation of the construction cost. On completion of the work, the value of the work done was estimated as Rs.97,73,355.21. The Railways paid Rs.89,31,764/- and the balance amount was withheld. Hence, the contractor being a Small Manufacturing Enterprise, filed a Petition before the Micro and Small Enterprises Facilitation Council, Coimbatore Region [hereinafter referred to as ''the MSEFC''], claiming the total outstanding of Rs.10,04,651/- inclusive of security deposit with interest.

(iii) The said Petition in M&SEFC/CBER/15/2015 was allowed, vide Award dated 17.02.2015. The Railways was directed to pay the outstanding of Rs.10,04,651/- with compound interest with monthly rest at three times of Bank rate notified by the Reserve Bank of India till the date of settlement. This Award was passed inconsonance with Sections16 and 17 of the Micro, Small and Medium Enterprises Development Act, 2006 [hereinafter referred to as ''the MSMED Act''].

(iv) The Railways, being aggrieved by the Award, filed Ar.O.P.No.80 of 2015 under Section 34 of the Arbitration and Conciliation Act, 1996 before the Principal District Court, Madurai. In the said Ar.O.P., the Railways contended that they are liable to pay only Rs.4,69,557/- without interest. On 30.09.2019, this Ar.O.P. was disposed of, remanding back the matter to MSEFC, for fresh enquiry. The petition was renumbered as MSEFC/CBER/201/2019 and taken up for fresh consideration. After recording that the parties have exhausted the avenue of reconciliation, the MSEFC took up the matter for final disposal. After affording opportunity to the parties, the MSEFC held that pursuant to the deviation in the plan structure, the contractor has satisfactorily completed the work. Both the parties have agreed the final bill of Rs.97,73,355/-. Whereas, only Rs.89,31,764/- has been paid to the contractor. The reason stated by the Railways for deducting 10% of the cost is untenable and therefore, passed the following order:-

''Hence, on this day 10th December 2020 this MSEF Council orders that the respondent pays the petitioner his outstanding due of Rs.8,41,591/- together with compound interest with monthly rest at three times of Bank rate notified by the Reserve Bank of India as stipulated vide Sections 16 and 17 of MSMED Act 2006, calculated from the appointed day 31.08.2010 till 13.05.2016 and for Rs.78,068/- with compound interest with monthly rest at three times of Bank rate notified by the Reserve Bank of India as stipulated vide Sections 16 and 17 of MSMED Act, 2006, calculated from 13.05.20