The central legal point established in the judgment is that the provisions of the MSME Act have an overriding effect on any agreement between the buyer and supplier, and the liability to pay compound interest with monthly rests exists irrespective of any agreement.

JUDGMENT :

ANIL KSHETARPAL, J.

1. This appeal has been filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act of 1996’), assailing the correctness of the order dated 14.12.2020, passed by District Judge, Gurugram, while dismissing the objection petition under Section 34 of the 1996 Act. The Arbitral Tribunal appointed under Section 18 (3) of the Micro Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the ‘MSME Act’) has directed payment of Rs.2,54,866/- alongwith future interest at the rate of 20.25% to be calculated on the total outstanding amount of Rs.2,54,866/-.

2. In substance, the learned Arbitrator has passed the award on the premise that there was a delay in payment of the amount to a small scale industry i.e respondent no.1. The Arbitrator after examining the provisions of Section 16 of MSME Act ordered the payment of interest in accordance with the provisions contained therein.

3. It is appropriate to note that MSME Development Act, 2006 has been enacted to facilitate the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. As per the prefatory note contained in the statement of objects and reasons, it is apparent that the Act was enacted to make provisions to ensure timely and smooth flow of credit to small and medium enterprises to minimize the incidents of sickness and to enhance the capacity of such enterprises to compete.

4. Chapter V of the Act makes a specific provision for payment of interest on the delayed payments to the micro and small enterprises. On careful reading of Section 16, it is apparent that the statute has used non-obstante provisions so as to give an overriding effect to it. Section 16 provides that notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, the buyer shall be liable to pay compound interest with monthly rest to the supplier on the due amount from the appointed day at three times of the bank rate notified by the Reserve Bank of India. Section 15 defines the appointed day. It has been stated that in no case the period agreed between the supplier and buyer in writing shall exceed 45 days from the date of acceptance or the date of deemed acceptance.

5. Section 18 again starts with a non-obstante provision so as to give a dominant effect. Section 18 (3) provides that if the conciliation initiated under sub section 2 is not successful and stands terminated without any settlement between the parties, the council shall either itself take up the dispute for arbitration or refer it to any institution or the centre providing alternate dispute resolution services for such arbitration under the provisions of the Act of 1996 which shall apply as if the arbitration was in pursuance of an arbitration agreement referred to in sub section (1) of section 7 of that Act. Sub section (4) of Section 18 again uses the non-obstante provision so as to give an overriding effect to the arbitration proceedings conducted under the Act. Further, Section 24 again provides that the provisions of Section 15 to 23 shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force. Section 15, 16, 18 and 24 are extracted as under:-

15. Liability of buyer to make payment.-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 upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

16. Date from which and rate at which interest is payable.-Where any buyer fails to make payment of the amount to the supplie