Compound interest under the MSME Act follows the RBI rate at each monthly rest, not a rate frozen on the appointed day.

Section 16 of the MSME Act mandates payment of compound interest with monthly rests at three times the RBI bank rate, and that statutory regime prevails despite Section 18 being subject to the Arbitration and Conciliation Act, 1996. The applicable rate is the RBI-notified rate prevailing at each monthly rest, not a rate frozen on the appointed day, because the appointed day only marks the start of computation. Prior payment at a fixed rate does not create waiver or estoppel against the statute. Interest is therefore computed from the appointed day until payment using the RBI rate in force at each monthly rest, multiplied by three.

---

---

Issues: Whether interest under Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 is to be calculated at the RBI bank rate prevailing on the appointed day or at the rates notified from time to time at each monthly rest.

Analysis: Section 16 makes payment of interest mandatory and prescribes compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. Section 18 makes the arbitration under the MSME Act subject to the Arbitration and Conciliation Act, 1996, but the special provision in Section 16 prevails by reason of its non-obstante clause. The use of compound interest with monthly rests indicates a staggered mode of accrual, so the relevant rate is the rate prevailing at each monthly rest and not a rate frozen on the appointed day. The appointed day fixes the starting point for computation, but it does not fix the rate for the entire period. Any prior payment at a fixed rate cannot amount to waiver or estoppel against the statute.

Conclusion: The interest is to be calculated on the basis of the RBI-notified rates prevailing at each monthly rest, multiplied by three, from the appointed day till payment.

Ratio Decidendi: Where a special statute mandates compound interest with monthly rests at a statutory multiplier of the RBI bank rate, the applicable rate is the rate prevailing at each monthly rest and not the rate on the initial date of accrual.

---