Supreme Court Rules on Applicability of Interest on Delayed Payments Act to Pre-Enactment Contracts

The case of M/S. Shanti Conductors (P) Ltd. & Anr. vs. Assam State Electricity Board & Ors. presented a significant question regarding the applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as ‘the Act’). The Supreme Court examined whether the Act, which came into force on September 23, 1992, could be applied to contracts executed before this date.

The case revolved around multiple appeals filed by companies that supplied goods to the Assam State Electricity Board (ASEB) and sought interest on delayed payments for supplies made both before and after the enforcement of the Act.

Background of the Case

The petitioners, small-scale industries, entered into agreements with the ASEB for the supply of electrical components. Despite fulfilling their contractual obligations, they faced significant delays in receiving payments for their goods. Frustrated by these delays, the petitioners demanded interest on the overdue payments, citing the provisions of the Act.

When ASEB refused to comply, the petitioners approached the courts, arguing that the Act applied to their contracts and entitled them to interest on delayed payments. The High Court ruled against them, prompting them to appeal before the Supreme Court.

Key Legal Issues

• Whether the Act could be applied retrospectively to contracts executed before its enforcement.
• Whether payments due after the enactment of the Act could attract interest, even if the contract was executed earlier.
• Whether the claims made by the petitioners were time-barred under the Limitation Act.

Petitioners’ Arguments

The petitioners contended that the Act was enacted to ensure timely payments to small-scale industries and should be interpreted broadly to serve its intended purpose. Their counsel argued:

“The objective of the Act is to prevent exploitation of small-scale industries by ensuring prompt payments for goods and services supplied. The delay in payment occurred after the enforcement of the Act, and therefore, the respondents are liable to pay interest under its provisions.”

The petitioners further contended that:

• The liability for interest arises from the date of supply, not from the date of contract formation.
• The Act was a remedial statute intended to protect small-scale industries and should be applied to all pending payments, irrespective of when the contract was executed.
• Even if the contract was entered into before 1992, the supply of goods and the delay in payment occurred after the Act’s enforcement, making the provisions applicable.

Respondents’ Arguments

The Assam State Electricity Board (ASEB) opposed the petition, asserting that the Act could not be applied to contracts executed before its enforcement. Their counsel argued:

“The law does not operate retrospectively unless expressly provided. The contracts in question were executed before the Act came into force, and hence, the provisions of the Act cannot be imposed on the parties retrospectively.”

Additionally, ASEB contended:

• The Act did not contain any clause suggesting that it applied to transactions predating its enforcement.
• The claims made by the petitioners were time-barred under the Limitation Act.
• The Act could not be interpreted in a manner that imposed additional liabilities on contracts entered into before its enactment.

Supreme Court’s Observations

The Supreme Court, comprising Justices A.K. Sikri, Ashok Bhushan, and S. Abdul Nazeer, held that while the Act was not retrospective, it was applicable to payments due after its enforcement.

The Court observed:

“The statutory liability under Sections 3 and 4 of the Act arises from the date of supply of goods or services and not from the date of contract formation. The Act was designed to prevent delays in payments to small industries, and its application should be interpreted to advance this objective.”

The Court distinguished between the concepts of retrospective and prospective application:

“A statute is considered retrospective when it affects rights accrued before its enactment. However, the Act, though applicable only after its enforcement date, covers transactions where the liability arises after its enforcement.”

On the issue of limitation, the Court ruled:

“The claims for interest on delayed payments must be filed within the period prescribed under the Limitation Act. The petitioners’ claims were time-barred as they were raised beyond the limitation period.”

Final Judgment

The Supreme Court ruled:

“The Act is applicable only to payments due after its enforcement date, even if the contract was executed earlier. However, in the present case, the claims are dismissed as they are time-barred under the Limitation Act.”

Significance of the Judgment

• Clarification on Retrospective Application: The ruling clarifies that the Act applies to payments due after its enforcement but does not have a retrospective effect on contracts executed before its enactment.
• Protection for Small-Scale Industries: The judgment reinforces the importance of timely payments to small-scale industries while ensuring that the law is applied within constitutional limits.
• Applicability of the Limitation Act: The ruling emphasizes that claims must be filed within the limitation period to be enforceable.
• Commercial Law Precedent: The case sets an important precedent for future disputes involving delayed payments and contractual obligations.

Conclusion

The Supreme Court’s ruling in this case provides crucial guidance on the applicability of the Interest on Delayed Payments Act. It ensures that small industries are protected against payment delays while maintaining the principle that laws do not operate retrospectively unless explicitly stated. The judgment serves as a benchmark in commercial and contractual litigation in India.

Petitioner Name: M/S. Shanti Conductors (P) Ltd. & Anr..
Respondent Name: Assam State Electricity Board & Ors..
Judgment By: Justice A. K. Sikri, Justice Ashok Bhushan, Justice S. Abdul Nazeer.
Place Of Incident: Assam.
Judgment Date: 23-01-2019.

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 Conducto vs Assam State Electric Supreme Court of India Judgment Dated 23-01-2019.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Contract Disputes
See all petitions in Debt Recovery
See all petitions in Company Law
See all petitions in unfair trade practices
See all petitions in Judgment by A.K. Sikri
See all petitions in Judgment by Ashok Bhushan
See all petitions in Judgment by S. Abdul Nazeer
See all petitions in dismissed
See all petitions in supreme court of India judgments January 2019
See all petitions in 2019 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