Prospective application of delayed-payment interest law limits compound interest claims; reasonable interest applies under civil procedure rules.

The statutory interest regime for delayed payments to small-scale industrial undertakings was held to apply only prospectively from 23-9-1992, so it could not govern a suit based on a transaction and cause of action that arose earlier. In that situation, the claim for compound interest under the Act failed, and interest had to be assessed under Section 34 of the Code of Civil Procedure, 1908 as reasonable interest on the principal sum adjudged. Applying that standard, the higher rate with monthly rests was found unjustified and the interest award was reduced to 9% pendente lite and future interest.

---

---

Issues: Whether the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 applied to a suit transaction that arose before the Act came into force, and whether interest was to be awarded under that Act or under Section 34 of the Code of Civil Procedure, 1908.

Analysis: The Act was held to operate prospectively from 23-9-1992 and, on the authority of the earlier decision, it did not govern transactions concluded before that date. Since the suit and the underlying cause of action were prior to the commencement of the Act, the amended claim for compound interest under the Act could not be sustained. In such a case, the award of interest had to be tested under Section 34 of the Code of Civil Procedure, 1908, which permits reasonable interest on the principal sum adjudged. On the facts, the grant of 18% interest with monthly rests was found unjustified, and 9% was considered appropriate for pendente lite and future interest.

Conclusion: The statutory regime under the 1993 Act was inapplicable to the pre-commencement transaction, and interest was governed by Section 34 of the Code of Civil Procedure, 1908. The interest awarded below was reduced to 9% pendente lite and future interest.

Final Conclusion: The decree was modified by substituting the higher contractual and compound interest award with a reasonable rate of interest under the general civil procedure law applicable to the suit transaction.

Ratio Decidendi: A statutory provision granting enhanced or compound interest applies only prospectively from its commencement and cannot govern transactions arising before that date; where it does not apply, interest on a money decree is to be awarded under Section 34 of the Code of Civil Procedure, 1908 at a reasonable rate.

---