IFC has jurisdiction under Section 6(2) to determine disputed amounts due from buyers, not just admitted liabilities

The SC held that IFC has jurisdiction under Section 6(2) of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 to determine disputed amounts due from buyers, not just admitted liabilities. The HC erroneously interpreted "amount due" as only admitted amounts. The buyer failed to contest the supplier's claim before IFC, filed no written statement despite opportunity, and improperly bypassed statutory appeal remedy by approaching HC under Article 226. The SC allowed appeals, set aside the HC judgment, and upheld IFC's award of Rs. 24,86,998 with 18% compound interest despite buyer's payment of Rs. 6.07 lakhs against original contract of Rs. 8.19 lakhs.

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Two principal issues arise for determination in this case. First, the interpretation of the phrase "amount due from a buyer, together with the amount of interest" under sub-section (1) of Section 6 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter the '1993 Act'). Second, whether the Industry Facilitation Council (IFC), when acting under sub-section (2) of Section 6, is empowered to adjudicate disputes extending beyond mere interest on delayed payments, including disputes relating to the principal amount payable by the buyer to the supplier.

The factual matrix involves a supply contract dated January 15, 1983, between a supplier and a buyer for manufacture and supply of specified goods. The contract underwent several modifications, including an agreement by the buyer to supply raw materials free of cost and extension of the delivery period until June 4, 1997. A dispute arose when the buyer withheld a portion of the payment, citing the cost of materials supplied, leading the supplier to seek recovery of the balance amount along with interest on delayed payment before the IFC under Section 6(2) of the 1993 Act.

The IFC issued an ex-parte award directing the buyer to pay a substantial sum with interest at 18% per annum compounded monthly, effective from the date following the last delivery plus the maximum credit period. The buyer challenged the award before the High Court, which quashed the IFC awards, holding that the IFC lacked jurisdiction because the amount claimed was not an admitted or settled sum due, and that the 1993 Act was inapplicable to contracts predating its enactment. The supplier appealed against this decision.

The 1993 Act was enacted to address the endemic problem of delayed payments to small scale and ancillary industrial undertakings, which affected their working capital and viability. The Act mandates prompt payment by buyers and prescribes statutory interest on delayed payments, overriding any contractual provisions to the contrary. The 1998 Amendment Act modified certain provisions, including the rate of interest and the mechanism for recovery.

Key definitions under the Act include "buyer" as any person who buys goods or receives services from a supplier for consideration, and "supplier" as a registered small scale or ancillary industrial undertaking. Section 3 imposes a duty on the buyer to make payment on or before the agreed date or the appointed day, which shall not exceed 120 days from acceptance if no date is agreed. Section 4 prescribes interest at one-and-a-half times the Prime Lending Rate of the State Bank of India on delayed payments, and Section 5 mandates compound interest with monthly rests at the same rate.

Section 6(1) provides that the "amount due from a buyer, together with the amount of interest" under Sections 4 and 5, shall be recoverable by the supplier by suit or other proceedings under any law. Sub-section (2) enables any party to a dispute to refer the matter to the IFC for arbitration or conciliation, with the Arbitration and Conciliation Act, 1996 applying as if pursuant to an arbitration agreement.

The supplier's contention was that the IFC's jurisdiction under Section 6(2) extends to disputes concerning both the principal amount due and the interest on delayed payments. The supplier argued that the High Court erred in restricting the IFC's jurisdiction to cases where the principal amount is admitted or settled, and that the phrase "amount due" should not be narrowly construed.

The buyer contended that the IFC's jurisdiction is limited to disputes concerning interest on amounts already determined or admitted as due. The buyer relied on the object and scheme of the 1993 Act, the use of the word "due," and authoritative dictionary and judicial definitions to argue that "amount due" presupposes a fixed, settled, or admitted liability. The buyer further argued that the 1993 Act is prospective and does not apply to contracts entered into before its commencement, which, according to the buyer, included the contract in question.

The Court undertook a detailed analysis of the term "due." Various authoritative sources were cited, including Webster's Dictionary, Concise Oxford English Dictionary, Black's Law Dictionary, Wharton's Law Lexicon, P. Ramanatha Aiyar's Law Lexicon, and Jowitt's Dictionary of English Law. The word "due" was found to have multiple meanings depending on context, ranging from an immediately enforceable debt to an obligation payable in the future. The Court emphasized that the interpretation must be context-sensitive and aligned with the statute's purpose.

Judicial precedents interpreting "amount due" in different statutes were examined. In particular, the Court referred to a three-Judge Bench decision interpreting "amounts due" in a revenue recovery statute, which held that the phrase excludes time-barred debts but depends on context. Another three-Judge Bench decision interpreting "any amount due from an employer" under the Employees Provident Fund Act held that the phrase includes both principal and interest liabilities to ensure the statute's object is not frustrated.

The Court also considered a Full Bench decision of the Gauhati High Court, which held that suits under the 1993 Act are maintainable for recovery of both principal and interest, and that the word "together" in Section 6(1) means "along with" or "as well as." The Gauhati Full Bench rejected the argument that interest recovery is maintainable only when the principal sum is undisputed and emphasized that the Act's object would be frustrated by such a restrictive interpretation.

Applying these principles, the Court held that the phrase "amount due from a buyer, together with the amount of interest" in Section 6(1) must be interpreted in light of the 1993 Act's purpose to ensure prompt payment and penalize delay. The phrase does not require the principal amount to be previously settled or admitted. Rather, the Act contemplates a single proceeding for recovery of both principal and interest, whether or not the principal amount is disputed. The IFC, acting under Section 6(2), has jurisdiction to adjudicate disputes concerning both the principal amount payable and the interest on delayed payments.

The Court rejected the High Court's reasoning that the IFC's jurisdiction is confined to cases where the amount is admitted or settled. It held that such a narrow construction is inconsistent with the legislative intent and the statutory scheme. The Preamble and Statement of Objects and Reasons do not limit the IFC's jurisdiction to admitted debts, and the IFC's powers as arbitrator or conciliator under the Arbitration and Conciliation Act, 1996, extend to disputes on the principal amount as well.

Regarding the applicability of the 1993 Act to the contract in question, the Court noted that although the original contract was executed in 1983, it was altered and modified on several occasions, the last alteration being in 1995, after the Act came into force. Therefore, the Act applies prospectively to such modifications and the dispute falls within its ambit. The Court distinguished precedents holding the Act inapplicable to contracts predating its commencement where no subsequent alteration occurred.

The Court also addressed the buyer's contention concerning the ex-parte nature of the IFC award and the absence of reasons. It observed that the buyer's predicament was self-inflicted, as the buyer failed to contest the claim before the IFC or file a written statement despite opportunities. The buyer did not challenge the award on merits before the High Court but instead bypassed the statutory remedy of appeal under Section 7 of the 1993 Act. In these circumstances, the buyer was not entitled to relief.

In conclusion, the Court allowed the appeals, set aside the High Court's judgment, and restored the IFC awards. It held that the IFC has jurisdiction under Section 6(2) to decide disputes relating to both principal and interest, and that the 1993 Act applies to contracts modified after its commencement. The parties were directed to bear their own costs.

Significant holdings include the following:

"The expression 'amount due from a buyer' followed by the expression 'together with the amount of interest' under sub-section (1) of Section 6 of 1993 Act must be interpreted keeping the purpose and object of 1993 Act and its provisions, particularly Sections 3, 4 and 5 in mind. This expression does not deserve to be given a restricted meaning as that would defeat the whole purpose and object of 1993 Act."

"Section 6(2) talks of a dispute being referred to IFC in respect of the matters referred to in sub-section (1), i.e., the dispute concerning amount due from a buyer for goods supplied or services rendered by the supplier to buyer and the amount of interest to which supplier has become entitled under Sections 4 and 5. It is true that word 'together' ordinarily means conjointly or simultaneously but this ordinary meaning put upon the said word may not be apt in the context of Section 6."

"Action under Section 6(2) could be maintained for recovery of principal amount and interest or only for interest where liability is admitted or has been disputed in respect of goods supplied or services rendered. IFC has competence to determine the amount due for goods supplied or services rendered in cases where the liability is disputed by the buyer."

"The Preamble to 1993 Act, upon which strong reliance has been placed by learned senior counsel, does not persuade us to hold otherwise. It is so because Preamble may not exactly correspond with the enactment; the enactment may go beyond Preamble."

"The 1993 Act, thus, will have no application in relation to the transactions entered into between June 1991 and 23-9-1992. The trial court as also the High Court, therefore, committed a manifest error in directing payment of interest at the rate of 23% up to June 1991 and 23.5% thereafter." (Distinguished on facts)

"Although the original contract was entered into in 1983, it got altered from time to time, the last alteration being on April 29, 1995. By that time, the 1993 Act had already come into force. Therefore, the Act applies prospectively to such modifications."

"The buyer chose not to contest the claim of the supplier before IFC on merits. No written statement was filed despite opportunity granted by IFC. The buyer did not challenge nor disputed diverse claims made by the supplier before IFC. Even before the High Court, no submission seems to have been made on merits of the award at all. In the circumstances, the buyer does not deserve any indulgence from this Court."

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