Delayed Payment Interest for Small Scale Enterprises: Supreme Court Clarifies Legal Position

The case of M/s Shanti Conductors (P) Ltd. vs. Assam State Electricity Board revolves around the interpretation of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as “the Act”). The dispute concerned whether interest on delayed payments was applicable for transactions that occurred before the enactment of the Act but whose payments were delayed beyond its enforcement date. The Supreme Court of India was called upon to decide whether the Act applies retroactively and if the claim for interest on delayed payments was legally sustainable.

Background of the Case

The Assam State Electricity Board (ASEB), the respondent, placed two supply orders with the appellant, M/s Shanti Conductors (P) Ltd., in 1992 for the supply of aluminum electrical conductors. The supplies were completed in 1993, but full payments were not made immediately, leading to a dispute over interest due to the delay.

The appellant approached the courts seeking interest on delayed payments under the provisions of the 1993 Act. However, ASEB contended that the Act did not apply retroactively and that the appellant was not entitled to claim interest. The case went through multiple levels of litigation before reaching the Supreme Court.

Legal Issues Before the Supreme Court

The Supreme Court had to decide on the following legal questions:

• Whether the Act applies retroactively to transactions initiated before its enactment.
• Whether the claim for interest was barred by limitation.
• Whether the suit for interest alone was maintainable.
• Whether the decision in Purbanchal Cables & Conductors Pvt. Ltd. vs. Assam State Electricity Board operates as res judicata in this case.

Arguments by the Appellant

The appellant, M/s Shanti Conductors (P) Ltd., presented the following arguments:

• The Act should be applied retroactively since the liability to pay interest arises at the time of default, not when the contract was signed.
• The Act was enacted to protect small-scale industries from financial distress due to delayed payments, and its benefits should not be denied based on technicalities.
• The supply of goods was completed after the Act came into force, and therefore, delayed payments should attract interest under the Act.
• In Modern Industries v. Steel Authority of India Ltd., the Supreme Court had held that the 1993 Act confers a new statutory right, which should apply to ongoing transactions.

Arguments by the Respondent

The respondent, Assam State Electricity Board, countered with the following points:

• The Act does not apply retroactively, as clarified in Purbanchal Cables & Conductors Pvt. Ltd. vs. Assam State Electricity Board, where the Court ruled that the Act applies only to agreements entered into after its enactment.
• The payments in question were made before the enforcement of the Act, and hence, interest under the Act could not be claimed.
• The claim was barred by limitation as the suit was filed in 1997, whereas the last payment was made in 1994.
• The appellant’s reliance on Modern Industries v. Steel Authority of India Ltd. was misplaced, as that case dealt with different circumstances.

Supreme Court’s Observations

The Supreme Court made several key observations regarding the legal issues involved:

On the Retroactive Application of the Act

“The legislative intent of the 1993 Act is to protect small-scale industries from financial distress. However, the Act does not explicitly provide for retrospective application. Therefore, it cannot be applied to transactions that were fully executed before its enactment.”

The Court noted that while the Act aims to benefit small-scale industries, legal clarity requires that it be applied prospectively unless explicitly stated otherwise by the legislature.

On the Maintainability of the Suit

“The claim for interest alone, without seeking the principal amount, is maintainable under the Act, provided it falls within the period of limitation.”

The Court clarified that claims for interest under the 1993 Act are valid even when the principal amount has already been paid, as interest is an independent statutory right.

On the Limitation Period

“The claim for interest must be filed within the statutory limitation period. In this case, the payments were completed in 1994, and the suit was filed in 1997. Therefore, the claim was within the permissible time frame.”

On the Precedent Set by Purbanchal Cables Case

“The ruling in Purbanchal Cables clarified that the Act applies only to agreements entered into after its enactment. Since the agreement in this case was executed before 1993, the Act does not apply.”

Final Judgment

Based on its observations, the Supreme Court ruled as follows:

• The Act does not apply to transactions that were fully completed before its enforcement.
• The claim for interest alone is maintainable under the Act, but only for transactions covered by its provisions.
• The ruling in Purbanchal Cables applies, and therefore, the appellant is not entitled to claim interest under the Act.
• The suit was within the limitation period, but it failed on the ground that the Act was not applicable.

Implications of the Judgment

The Supreme Court’s ruling in this case has several important implications:

• Clarification on Retroactivity: The judgment makes it clear that unless explicitly stated, laws imposing financial liabilities cannot be applied retroactively.
• Maintainability of Interest Claims: The ruling confirms that claims for interest alone can be pursued under the 1993 Act, provided they fall within its applicability.
• Impact on Small-Scale Enterprises: While the Act was designed to protect small-scale enterprises, this ruling limits its benefits to agreements made after its enforcement.
• Precedential Value: The decision reaffirms the ruling in Purbanchal Cables, providing further legal certainty in cases involving delayed payment interest.

Conclusion

The Supreme Court’s decision in M/s Shanti Conductors (P) Ltd. vs. Assam State Electricity Board provides critical clarity on the applicability of the Interest on Delayed Payments Act, 1993. While the ruling ensures that small-scale enterprises can claim interest on delayed payments, it also confirms that the Act does not apply retroactively. This judgment sets a precedent for similar cases, ensuring that financial liabilities imposed by legislation cannot be applied to past transactions unless expressly provided for by law.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Ms Shanti Conductor vs Assam State Electric Supreme Court of India Judgment Dated 31-08-2016-1741878606621.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Company Law
See all petitions in Corporate Compliance
See all petitions in Contract Disputes
See all petitions in Judgment by V. Gopala Gowda
See all petitions in Judgment by Arun Mishra
See all petitions in dismissed
See all petitions in Declared Infructuous
See all petitions in supreme court of India judgments August 2016
See all petitions in 2016 judgments

See all posts in Corporate and Commercial Cases Category
See all allowed petitions in Corporate and Commercial Cases Category
See all Dismissed petitions in Corporate and Commercial Cases Category
See all partially allowed petitions in Corporate and Commercial Cases Category