Delayed payment interest law limits contractual payment dates to 120 days and requires acceptance-based computation of liability.

The 1998 proviso to section 3 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 curtails contractual freedom on payment timing by limiting any agreed payment date to a maximum of 120 days from acceptance or deemed acceptance. Interest under sections 4 and 5 is payable only after the appointed day, and its computation depends on determining the relevant acceptance date. Contractual terms linking payment to delivery, acceptance, or receipt from the consignee must therefore conform to this statutory ceiling. The text also notes that the treatment of compound interest as principal for section 5 was not satisfactorily examined in the arbitral award.

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Issues: Whether the proviso to section 3 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 restricted the parties' contractual stipulation on the date of payment and made interest payable only for delay beyond 120 days from acceptance or deemed acceptance; and whether the award of compound interest could be sustained.

Analysis: The proviso to section 3, introduced with effect from 10.08.1998, limits the freedom of buyer and supplier to agree on the date of payment, and any contractual date exceeding 120 days from the day of acceptance or deemed acceptance stands curtailed by the statute. Interest under sections 4 and 5 becomes payable only after the relevant appointed day, and computation of interest necessarily depends on ascertainment of the date of acceptance or deemed acceptance. The contractual arrangement in the purchase order, under which payment was linked to delivery, acceptance, and receipt of payment from the consignee, therefore had to be tested against the statutory ceiling. The Court also noted that the question whether compound interest could be treated as principal for the purpose of section 5 had not been satisfactorily examined in the arbitral award.

Conclusion: The challenge to the High Court's judgment failed, and the setting aside of the arbitral award was upheld.

Final Conclusion: The statutory regime governing delayed payment interest controlled the parties' contractual arrangement, and the award could not be restored. The dismissal also left open consequential restitutionary steps in accordance with law.

Ratio Decidendi: After the 1998 amendment, the proviso to section 3 of the 1993 Act curtails contractual freedom on payment timing by imposing a maximum period of 120 days from acceptance or deemed acceptance, and interest liability must be determined with reference to the appointed day and the relevant acceptance date.

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