Prospective operation of delayed-payment interest law excludes pre-commencement supply orders unless novation is proved.

The 1993 Act applies prospectively to supply transactions initiated after its commencement, so interest and compound interest cannot be claimed where the supply order was placed before the Act came into force. The relevant transaction is the supply order or contractual initiation, not later supply completion or payment. A plea of novation or alteration under the Indian Contract Act, 1872 requires a factual basis showing substitution or rescission of the original contract; mere variation in quantity or extension of time is insufficient. Unless a fresh contractual foundation is proved, the original pre-commencement arrangement remains outside the Act's operation.

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Issues: (i) whether interest under the Interest on Delayed Payment to Small Scale Industries Act, 1993 applied to a supply order placed before the Act came into force, and (ii) whether a plea of novation or alteration of contract could be raised to bring the claim within the Act.

Issue (i): whether interest under the Interest on Delayed Payment to Small Scale Industries Act, 1993 applied to a supply order placed before the Act came into force.

Analysis: The statutory scheme makes the buyer liable to pay interest and compound interest only where the supply transaction falls within the operation of the Act. The Act is prospective in operation unless retrospective intent is clearly expressed or necessarily implied. The relevant transaction for applicability is the supply order or initiation of the contractual arrangement, not the later completion of supply or payment. Since the supply order in the case was placed before the Act commenced, the claim for interest under Sections 4 and 5 could not be sustained under the Act.

Conclusion: The claim to compound interest under the 1993 Act was not available and the issue was decided against the appellant.

Issue (ii): whether a plea of novation or alteration of contract could be raised to bring the claim within the Act.

Analysis: A plea of novation under Section 62 of the Indian Contract Act, 1872 requires a factual foundation showing substitution of a new contract, rescission, or material alteration. The record did not contain such a foundation, the plea had not been properly raised below, and the dispute involved mixed questions of law and fact that could not be entertained for the first time at final hearing. On the merits also, the correspondence showed only variation in quantity and extension of time while the essential supply order remained intact.

Conclusion: No novation or legally effective alteration of contract was established, and the issue was decided against the appellant.

Final Conclusion: The governing principle is that the 1993 Act applies only to transactions initiated after its commencement, and a fresh contractual basis must be proved before Section 62 of the Indian Contract Act, 1872 can be invoked to alter that position.

Ratio Decidendi: For purposes of the 1993 Act, the material transaction is the supply order initiating the contractual obligation, and the Act cannot be applied retrospectively to pre-commencement supply orders in the absence of a proved novation or substitution of contract.

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