Interest on Delayed Payment of Royalty

[kalyanaraman Venkatraman]

Hi,

Whether Interest is permissible for delayed payment of Royalty to the foreign collaborator? if yes what is the maximum rate of interest permissible?. Please provide the relevant provisions also.

Whether the interest rate applicable to trade credit (LIBOR+3.50%) is applicable only for Goods and not applicable to import of services. whether this argument is correct?

Thanks

[YAGAY andSUN]

C.2. Interest on Import Bills
(i) AD Category – I bank may allow payment of interest on usance bills or overdue interest on delayed payments for a period of less than three years from the date of shipment at the rate prescribed for trade credit from time to time.
(ii) In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which interest has been claimed or LIBOR of the currency in which the goods have been invoiced, whichever is applicable. Where interest is not separately claimed or expressly indicated, remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevailing LIBOR of the currency of invoice.

AI Summary

Interest on delayed royalty payments allowed when treated as usance import bills, payable at the applicable trade credit rate. AD Category I bank may allow payment of interest on usance bills or overdue interest on delayed payments for under three years at the trade credit rate. On pre payment of usance import bills, remittances must deduct proportionate interest for the unexpired usance at the claimed rate or the invoice currency LIBOR; if interest is not separately claimed, deduction is at the prevailing LIBOR of the invoice currency.