Snehadeep Structures Pvt. Ltd. vs Maharashtra Small Scale Industries Development Corporation Ltd.

REPORTABLE IN THE SUPREME COURT OF INDIA

2024 INSC 201 CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. OF 2024 (arising out of SLP(C) No. 12063 OF 2018)

SNEHADEEP STRUCTURES PVT. LIMITED ..... APPELLANT(S)

VERSUS

MAHARASHTRA SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION LTD. ..... RESPONDENT(S)

J U D G M E N T

Leave granted.

2. We have heard learned Senior Advocate appearing for the

appellant – Snehadeep Structures Pvt. Limited1 and the Respondent -

Maharashtra Small Scale Industries Development Corporation Ltd.2

3. During the course of the hearing, our attention was drawn to

Sections 3, 4 and 5 of the Interest on Delayed Payments to Small

Scale and Ancillary Industrial Undertakings Act, 19933. For the

sake of convenience, the said Sections are reproduced below: -

“3. 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 Signature Not Verified between the supplier and the buyer in writing shall Digitally signed by Deepak Guglani Date: 2024.03.13

1 For short, “SSPL”.

19:00:16 IST Reason:

2 For short, “MSSIDCL”.

3 For short, “1993 Act”.

CA @ SLP(C) No. 12063/2018 1 exceed one hundred and twenty days from the day of acceptance or the day of deemed acceptance.

4. Date from which and rate at which interest is payable.- Where any buyer fails to make payment of the amount to the supplier, as required under section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at one-and- half time of Prime Lending Rate charged by the State Bank of India.

Explanation.- For the purposes of this section, "Prime Lending Rate" means the Prime Lending Rate of the State Bank of India which is available to the best borrowers of the bank.

5. Liability of buyer to pay compound interest.- Notwithstanding anything contained in any agreement between a supplier and a buyer or in any law for the time being in force, the buyer shall be liable to pay compound interest (with monthly interest) at the rate mentioned in section 4 on the amount due to the supplier.”

4. We would also reproduce the definition clauses (b), (c) and

(f) to Section 2, which are applicable, unless the context

otherwise requires. The same read thus: -

(b) "appointed day" means the day following immediately after the expiry of the period of thirty days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier;

CA @ SLP(C) No. 12063/2018 2 Explanation.-For the purposes of this clause,-

(i) "the day of acceptance" means,-

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding, acceptance of goods or services within thirty days from the day of the delivery, of goods or the rendering of services, the day on which such objection is removed by the supplier;

(ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within thirty days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

(c) "buyer" means whoever buys any goods or receives any services from a supplier for consideration;

xxx xxx /xxx

(f) "supplier" means an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory and includes,-

(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);

(ii) the Small Industries Development Corporation of a State or a Union territory,

CA @ SLP(C) No. 12063/2018 3 by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956).”

5. The proviso to Section 3, and the amendment to Section 2(f)

to include the addition of National Small Industries Corporation

and the Small Industries Development Corporation of a State or a

Union Territory to the definition of “supplier”, were incorporated

by Act No. 23 of 1998 with effect from 10.08.1998.

6. On a reading of Section 3 of the 1993 Act, as it stood before

the enactment of the proviso, the buyer and the supplier could

agree upon the date of payment. In case of absence of stipulation

with regard to the date of payment, the “appointed day” in terms of

Section 2(b) of the 1993 Act, would be the date, on which the

payment is due. This is also clear from reading Section 4, which

states the date from which interest is payable. As per Section 4,

the buyer is liable to pay interest if he fails to pay the amount

to the supplier as required by Section 3. Non-obstante part of

Section 4 only deals with the stipulation in a contract whereby

liability to pay interest is barred/prohibited. It does not, in any

way, override the contractual clause with regard to the date of

payment. In other words, in case the contract states that interest

will not be payable even in the case of belated payment, then

Section 4 of the Act will come into operation, overriding the

negative contractual clause.

7. The effect of the proviso to Section 3, made applicable with

effect from 10.08.1998, is that the supplier and the buyer may

CA @ SLP(C) No. 12063/2018 4 agree by contract on the date of payment, but in no case can the

date of payment exceed 120 days from the day of acceptance or the

day of deemed acceptance. The terms ‘the appointed date’, ‘the

acceptance date’ and ‘the deemed date of acceptance’ have been

defined vide clause (b) to Section 2 of the 1993 Act.

8. After enactment of the proviso to Section 3, the contractual

rights of the parties to agree to the date of payment, have been

restricted in terms of the said proviso. In other words, if the

contractual date of payment exceeds 120 days from the day of

acceptance or the day of deemed acceptance, interest would be

payable for the period beyond 120 days from the day of acceptance

or the date of deemed acceptance.

9. When we turn to the facts of the present case, the

supply/purchase order dated 30.03.1995 issued by MSSIDCL to SSPL,

had stated as under: -

“25. The price of the goods delivered and accepted by the consignee and when received from the consignee will be paid to the supplier by the Corporation subject to deductions of advances, if any, paid by the Corporation and the service changes [sic] and other moneys payable to the Corporation by the supplier. No advance payment will be made for any supply of the goods unless otherwise agreed by the Corporation.”

10. The contract had, therefore, postulated and the parties had

agreed that MSSIDCL would be liable to pay SSPL only after the

goods are delivered and accepted by the consignee, namely,

CA @ SLP(C) No. 12063/2018 5 Maharashtra State Electricity Board4 and on the payment being

received by MSSIDCL from the MSEB.

11. If the proviso to Section 3 applies, this contractual clause

will get modified in terms of the proviso to Section 3, which has

fixed the upper time limit for payment to 120 days from the day of

acceptance or the day of deemed acceptance. However, the question

would arise as to whether the said proviso 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.

12. Even if, for the sake of argument, it is to be accepted that

the proviso to Section 3 would be applicable in respect of supplies

or payments due or payable after 10.08.1998, the issue with regard

to calculation and computation of interest requires examination and

determination of the day of acceptance or the day of deemed

acceptance, as interest would be payable only after a period of 120

days from such date.

13. In these circumstances and in view of the aforesaid position,

we do not find any good ground and reason to interfere with the

conclusion in the impugned judgment passed by the Division Bench of

the High Court, setting aside the arbitral award dated 30.06.2003.

We would, however, record that the award having been set aside, the

provisions of Section 43(4) of the Arbitration and Conciliation

Act, 1996 would come into operation and would accordingly apply.

14. We clarify that MSEB need not be a party to the proceedings,

4 For short, “MSEB”.

CA @ SLP(C) No. 12063/2018 6 if any, which may be initiated by SSPL or MSSIDCL. However, any

adjudication for payment of interest under Sections 3 to 5 of 1993

Act, including the question relating to application of the proviso,

would require ascertainment of the appointed date, the date of

acceptance or the deemed date of acceptance. To this limited

extent, ascertainment of facts with reference to the consignee –

MSEB, to whom the goods were supplied by SSPL, is required. By way

of Act No.23 of 1998, which came in effect from 10.08.1998,

amending clause 2(f), MSSIDCL is to be treated or deemed to be a

supplier to MSEB. However, this will not deviate from the fact that

MSSIDCL was the buyer under the supply/purchase order dated

30.03.1995 issued by MSSIDCL to SSPL. Equally, the G.O. 2(1)/A/93-

SSI Bd. and Policy dated 05.05.1993 issued by the Ministry of

Industry, Department of SSI, Agro and Rural Industries, Office of

the Development Commissioner (Small Scale Industries), has an

effect of treating MSSIDCL as a supplier for the purpose of

claiming interest from the buyer, that is MSEB, with whom they have

entered into a contract for the purpose of the 1993 Act. The

liability to pay and the privity of contract in terms of the

supply/purchase order dated 30.03.1995 is between MSSIDCL and SSPL.

The contractual relationship, rights and obligations inter se

MSSIDCL and SSPL do not undergo any change.

15. On the question of liability under Section 5 as well, there

is a dispute as it is accepted that the principal amount has been

paid. A question would arise whether under Section 5, interest as

compounded is to be treated as a principal amount. This aspect has

CA @ SLP(C) No. 12063/2018 7 not been considered in the award passed by the sole arbitrator,

which has awarded compound interest on the interest element with

monthly rest at 1.5 times the Prime Lending Rate charged by the

State Bank of India.

16. We are informed that certain payments were made by MSSIDCL

and a substantial amount of over Rs.1.30 crores has been paid

to/withdrawn by SSPL. It will be open to MSSIDCL to move an

application under Section 144 of the Code of Civil Procedure, 1908

for restitution or execution, as it may be advised. MSSIDCL would

be entitled to enforce the security in case SSPL does not pay or

refund the said amount.

17. The appeal is dismissed in the above terms. However, there

shall be no order as to costs.

Pending application(s), if any, shall stand disposed of.

..................J. (SANJIV KHANNA)

..................J. (DIPANKAR DATTA) NEW DELHI;

MARCH 05, 2024.

CA @ SLP(C) No. 12063/2018 8