The New India Assurance Co. Ltd vs Winsome International Ltd

Appearance: Mr. Ratnanko Banerji, Sr. Adv. Mr. Srinjoy Bhattacharya, Adv. Ms. Nikita Rathi, Adv. ...for the petitioner

Mr. Samit Talukdar, Sr. Adv. Ms. Nandini Mitra, Adv. Mr. Pradip Sarawagi, Adv. Ms. Debolina Dey, Adv. ...for the respondent

The Court: This is an application for stay of an arbitral Award passed by

a learned sole Arbitrator on 3rd April, 2023. By the impugned Award, the

petitioner, who was the respondent in the arbitration, was directed to pay an

amount of Rs.24,11,07,449.15 to the respondent (the claimant in the

arbitration).

The petitioner is aggrieved by the addition of two components of interest

calculated at 24.6% per annum for two periods amounting approximately to

Rs.4.77 crores and Rs.13.16 crores. According to learned counsel appearing for

the petitioner, the interest calculated at 24.6% was based on the respondent 2

before this Court (claimant in the arbitration) being a "medium" enterprise.

Counsel submits that the calculation of interest at 24.6% is on the basis of

Section 16 mandate under The MSMED Act, 2006. Counsel seeks to make a

distinction between a medium, micro and small enterprise as defined under the

said Act.

Learned counsel appearing for the respondent/award-holder submits

that these points can only be taken in the application for setting aside of the

Award filed under Section 34 of the 1996 Act which is also part of the cause

list for the day. Counsel submits that the amount awarded was on the

admitted fact of the respondent being an MSME under the Act of 2006.

Micro, small and medium enterprises are defined in Section 2 of The

Micro, Small and Medium Enterprises Development Act, 2006. "Medium

enterprise'' is defined under Section 2(g) as an enterprise classified under

Section 7 and the sub-clauses thereunder. A "micro enterprise" is defined

under Section 2(h) while a "small enterprise" is defined under Section 2(m) of

the Act. Each of the definitions refer to specific clauses / sub-clauses of section

7(1) of the Act. The very fact that the three kinds of enterprises are defined in

three distinct and specific sub-sections of Section 2 means that they cannot be

viewed as a common set of similar enterprises coming within the fold of the

MSMED Act.

The distinction becomes further important with reference to the

definition of "supplier" under Section 2(n) which has been defined to mean a

"micro" or "small" enterprise which has filed a memorandum with the authority

referred to under Section 8(1) and further explained under the Clauses in 3 Section 2(n). The definition of "supplier" specifically excludes a "medium

enterprise" as defined under Section 2(g) of the Act.

The conscious exclusion of a "medium enterprise" from the definition of

"supplier" becomes significant in the interpretation of Section 16 of the Act

which deals with the rate of interest payable by a defaulting buyer to a

"supplier", as required under Section 15 which in turn deals with the liability of

a buyer to make payment to a supplier. Section 16 uses the term "supplier"

which traces back to Section 2(n).

Section 16 of The MSMED Act is an intervention by way of the liability to

be fixed on an errant buyer for non-payment to a supplier at three times of the

bank rate notified by the Reserve Bank of India with monthly rests on that

amount from the appointed date; "appointed day" has been defined in Section

2(b) of the Act. The result of the exclusion of a "medium enterprise" from the

definition of a supplier and the liability fixed on a buyer to make payment to a

supplier under Section 16 of the Act at three times the bank rate, therefore,

establishes that interest components could not have been awarded to the

respondent/supplier/claimant in the arbitration in accordance with the

mandate of Section 16 of the Act. The statutory position is therefore as follows:

A defaulting buyer will not be liable to pay interest at three times the bank rate

under Section 16 of the Act if the supplier is a medium enterprise. The position

entirely changes if the supplier is a micro or small enterprise.

The interference is not on account of any law as contemplated under

Section 34 of the 1996 Act but on a plain interpretation of Section 2(g), (h), (m)

and (n) of The MSMED Act. The respondent/supplier before the Court is

admittedly a "medium enterprise" and the impugned Award records the same. 4

This Court is accordingly of the view that the petitioner/award-debtor

should be directed to pay the principal amount of Rs.5,17,09,732.78 plus costs

at Rs.1 crore as computed by the learned Arbitrator for stay of the Award.

The submissions made on account of the irrationality of the quantum of

the costs imposed will be considered at the time of determining whether the

Award should be set aside under Section 34 of the 1996 Act.

The award-debtor/petitioner will make payment of the interest

component at 8% on the principal amount of Rs.5,17,09,732.78 for the two

time periods indicated in the tabulated statement. The time periods computed

will remain the same but the interest will be at 8% per annum instead of 24.6%

for the reason stated above.

The petitioner will secure 50% of the total amount of Rs.11,68,82,129.93

which comes to Rs.5,84,41,064.97 (50%) by way of cash deposit and the

balance by way of a bank guarantee with the Registrar, Original Side of this

Court within two weeks from today.

The operation of the impugned Award will be stayed on and from the date

of the petitioner securing the amount as directed. In the event the petitioner

defaults on the directions given, the respondent shall be at liberty of taking

steps for execution of the Award.

AP/418/2023 is disposed of in terms of the above.

(MOUSHUMI BHATTACHARYA, J.)

R.Bhar