2019 (1) TMI 1906 - SC - Indian Laws

Supreme Court: Interest on Delayed Payments Act applies to pre-enforcement contracts

Shanti Conductors (P) Ltd. and Ors. Versus Assam State Electricity Board and Ors.

Shanti Conductors (P) Ltd. and Ors. Versus Assam State Electricity Board and Ors. - (2019) 19 SCC 529 Issues Involved:1. Applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 to contracts entered prior to its enforcement.2. Retrospective or retroactive nature of the Act.3. Limitation period for filing suits under the Act.4. Binding nature of prior judgments.5. Maintainability of suits filed solely for interest.6. Maintainability of appeals following withdrawal of earlier petitions.7. Authority of the High Court to award interest even if the Act is deemed inapplicable.Detailed Analysis:Issue 1: Applicability of the Act to Pre-Act ContractsThe Supreme Court examined whether the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (the 'Act') applies to contracts entered into before the Act's enforcement on 23.09.1992. The Court noted that the statutory liability under Sections 3 and 4 of the Act arises from the supply of goods or services and the subsequent failure to make timely payments. The Court held that the date of the agreement is irrelevant if the supply occurs after the Act’s enforcement. The judgment in Purbanchal Cables and Conductors Pvt. Ltd. and other similar cases, which held that the Act applies only to post-enactment agreements, was found to be incorrect. The Court concluded that the Act is applicable to supplies made after its enforcement, regardless of when the agreement was entered.Issue 2: Retrospective or Retroactive Nature of the ActThe Court clarified that the Act is prospective and not retrospective. It emphasized that the Act applies to transactions occurring after its enforcement date. The opinion of Justice Gowda, which suggested that the Act is retroactive, was not endorsed. The Court stated that the Act does not affect past transactions but applies to supplies and payments due after its commencement.Issue 3: Limitation Period for Filing SuitsThe Court addressed whether the suit filed by M/s. Shanti Conductors was barred by limitation. It was determined that the Trial Court erroneously held that Section 10 of the Act, which provides overriding effect, negated the applicability of the Limitation Act. The Supreme Court clarified that the Limitation Act, 1963, is applicable, and the limitation period for filing suits under the Act is governed by Article 113, which prescribes a three-year period from when the right to sue accrues. Since the last supply was made on 04.10.1993 and the suit was filed on 10.01.1997, it was held to be barred by limitation.Issue 4: Binding Nature of Prior JudgmentsGiven the finding that the suit was barred by limitation, the Court did not find it necessary to address the binding nature of the judgment in Purbanchal Cables and Conductors Pvt. Ltd., which had dismissed the appeal of M/s. Shanti Conductors.Issue 5: Maintainability of Suits Filed Solely for InterestThe Court upheld the maintainability of suits filed solely for the recovery of interest. It referred to the decision in Purbanchal Cables, which approved the view that a suit for interest alone is maintainable under Section 6 of the Act.Issue 6: Maintainability of Appeals Following Withdrawal of Earlier PetitionsThe Court examined whether the appeal by M/s. Trusses and Towers Pvt. Ltd. was maintainable after the withdrawal of an earlier Special Leave Petition (SLP). It was noted that the review petition was partly allowed by the High Court, awarding 9% interest. The Supreme Court held that the appeal challenging the review judgment was not maintainable, as it did not align with the grounds on which the review was permitted.Issue 7: Authority of the High Court to Award InterestThe High Court awarded 9% interest on the delayed payments, even while holding that the Act was not applicable. The Supreme Court found no error in this decision, referencing the precedent set in Assam Small Scale Industry Development Corporation Ltd. v. J.D. Pharmaceuticals, which allowed for interest on transactions made prior to the Act’s enforcement.Conclusion:The Supreme Court dismissed all the appeals, affirming the judgments of the lower courts where applicable and clarifying the interpretation and application of the Act.