Holding

The 1993 Act does not apply to transactions and causes of action that pre‑date 23 September 1992; interest must be awarded under Section 34 of the CPC at a reasonable rate, here fixed at 9% per annum.

Summary

MIS. Rampur Fertiliser Ltd. sued M/s. Vigyan Chemicals Industries for unpaid bills and claimed interest at 18% per annum. During the pendency of the suit, the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 came into force (23‑Sept‑1992) and the plaintiff amended the plaint to claim a higher rate of interest under the Act. The Supreme Court held that the Act could not apply to transactions whose cause of action arose before its commencement, as the suit was filed on 31‑Oct‑1991. Consequently, the amendment was invalid and the appropriate rate of interest must be determined under Section 34 of the Code of Civil Procedure, 1908. Applying that provision, the Court fixed pendente‑lite and future interest at 9% per annum, modified the decree accordingly, and disposed of the appeal.

Issues considered

Whether the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 applies to a transaction and cause of action that arose before its commencement date.
Whether the amendment of the plaint to claim interest under the 1993 Act is permissible.
What rate of interest is appropriate under Section 34 of the Code of Civil Procedure, 1908 for the delayed payment claim.

Legislation cited

Code of Civil Procedure, 1908s. 34
Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993s. 1, s. 10, s. 3, s. 4, s. 5

Subjects

Interest on delayed paymentsApplicability of statuteSection 34 CPCRate of interestAmendment of plaintRetrospective effectCommercial transaction

Judgment

[2009] 2 S.C.R. 650

A MIS. RAMPUR FERTILISER LTD. .....
V.
M/S. VIGYAN CHEMICALS INDUSTRIES
Civil Appeal No. 1101 of 2009
FEBRUARY 18, 2009
B
[S.8. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]
Interest on Delayed Payments to Small Scale and
'1
Ancillary Industrial Undertakings Act, 1993: Applicability of the
Act - The Act came into effect on 23. 9. 1992 - Suit filed on
c 31.10.1991 - Held: The 1993 Act not applicable as cause of
action took place prior to 23. 9. 1992 - The plaintiff is entitled
to rate of interest in accordance with the provisions of s. 34 i-
CPC and not in accordance with 1993 Act - Code of Civil
Procedure, 1908 - s. 34.
D
Respondent supplied goods to the appellant.
Appellant· failed to pay the bill amount. Respondent filed
suit on 31.10.1991 clairr.ing the bill amount along with
interest @ 18% p.a. till date of suit. During pendency of
suit, Interest on Delayed Payments to Small Scale and
E Ancillary Industrial Undertakings Act, 1993 came into force.
Respondent amended the plaint and claimed interest @
24% p.a. from 1.11.1991 to 22.9.1992 and 2% per month
compounded with monthly rest from 23.9.1992 till actual
date of realization.
F
The question for consideration before this Court was
whether the claim· of respondent was justified.
Disposing of the appeal, the Court

G
HELD: 1. Interest or1 Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993 came
into effect from 23.9.1992. Therefore, the said Act would
have no application and would not apply to transactions
which took place prior to the aforesaid date. In the case
H 650
M/S. RAMPUR FERTILISER LTD. V. M/S. VIGYAN 651
CHEMICALS INDUSTRIES

in hand the transaction which was· the subject matter of A
yt
the suit took place prior to 23.9.1992. This position is clear
for the suit itself was filed on 31.10. 1991 and therefore
cause of action for filing the suit has to be prior in point of
time. (Para - 12) [657-E-F]
B
2. In the plaint the respondent-plaintiff had itself
stated that the cause of action for the suit arose on dates
}"
prior to coming into force of the Act. It is obvious from the
records that on the date when the Act came into force,
the present suit was pending for consideration, and
therefore, what would be applicable to the facts of the
c
present case is the provisions of Section 34 of the Code
of Civil Procedure, 1908. (Para - 13) [657-G-H; 658-A]
Assam Small Scale Industries Development Corpn. Ltd.
& Ors. v. J. D. Pharmaceuticals & Anr. (2005) 13 SCC 19 - D
relied on.
3. In the plaint the appellant claimed interest at the
rate of 18% per annum but later on when it was found
that the Act had come into force with effect from 23.9.1992
E
"r an amendment was sought t0r to the plaint which was
allowed by the trial court. The said amendment, should
not have been allowed as the said provisions of the Act
are not applicable to the facts and circumstances of the
present case. (Para - 14) [658-H, 659-A-B]
F
4. The quantum and rate of interest which the
appellant in the present case is entitled to would be in
accordance with the provisions of Section 34 of the Code
and not in accordance with t~e provisions of the Act.
According to the provisions of Section 34 of the Code G
interest is to be awarded at a reasonable rate and on the
_J
principal amount. (Para - 15) [659-C]
Clariant International Ltd. v. Securities & Exchange Board
of India (2004)" 8 SCC 524; Kaushnuma Begum v. New India
' H
652 SUPREME COURT REPORTS [2009] 2 S.C.R.

A Assurance Co. Ltd. (2001) 2 SCC 9; H. S, Ahammed Hussain ·,
v. lrfan Ahammed (2002) 6 SCC 52; United India Insurance
Co. Ltd. v.Patricia Jean Mahajan (2002) 6 SCC 281 - referred
to.
5. The High Court was not justified in granting
B interest at the rate of 18% per annum with monthly rests.
Considering the facts and circumstances of the present
case, it is directed that pendente lite and future interest at '(

the rate of 9% shall be paid. (Para - 18) [660.;C]

c Case Law Reference
(2005) 13 sec 1s Relied on Para - 9
'
(2004) a-sec 524 Referred to Para - 16
c2001 > 2 sec s Referred to Para - 16
o·
(2002) 6 sec 52 Referred to Para - 16
(2002) 6 sec 281 Referred to Para - 16
CIVILAPPELLATE JURISDICTION: Civil Appeal No 1101
of 2009
E
From the final Judgement and Order dated 2.5.2007 of
the High Court of Uttarakhand at Nainital in Second Appeal No.
167 of 2001.
Ashwani Garg (for Vijay Kumar), for the Appellant.
F
Jasbir Singh Malik (for S.K. Sabharwal), for the
Respondent.
The Judgement of the Court was delivered by
--

G DR. MUKUNDAKAM SHARMA, J.
1. Leave Granted. ~

2. Discord in this appeal lies in a very narrow compass.
The issue that arises for our_consideration is wi_th regard to the
nature of interest that the respondent is entitled to in respect of ;..
H
MIS. RAMPUR FERTILISER LTD. V. M/S. VIGYAN 653
CHEMICALS INDUSTRIES [DR MUKUNDAKAM SHARMA, JJ.]

the amount for which he had laid claim and in respect of which a A
decree was passed in its favour.
3. The present respondent filed a suit in the Court of Munsif,
Dehradun on 31.10.1991 for recovery of Rs. 15,027.75 along
with interest at the rate of 24% per annum and at 2% per month
compounded with monthly rest from 23.9.1992 till actual date of 8
recovery. According to the respondent-plaintiff it used to supply
hydrated lime to the appellant-defendant but the defendant did
not pay the bills amounted to Rs. 10,593.75. Consequently, the
aforesaid suit was filed cla~ming the amount of Rs. 10,593.73 .
along with interest at the rate of 18% per annum till the date of C
suit and cost of legal notices. However, during the pendency of
the suit, the plaint was amended after coming into force of the
Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 (hereinafter referred to as the
'Act'). The Act came into force with effect from 23.9.1992 D
whereunder if the buyer fails to make the payment on or before
the agreed date or where there is no agreement before the
appointed date the supplier becomes entitled to interest at such
rate which is 5%, point above the floor rate for comparable
lending with monthly rest. E
4. By virtue of the aforesaid amendment the respondent
requested for payment of interest at the rate of 24% per annum
from 1.11.1991to22.9.1992 and 2% per month compounded
with monthly rest from 23.9.1992 till the actual date of realization.
The aforesaid suit filed by the respondent-plaintiff was decreed F
by the Civil Judge (Junior Divis.ion) for recovery of Rs. 15,027. 75
along with interest at the rate of 18% per annum under judgment
and decree dated 30.7.1998.
5. Feeling aggrieved by the aforesaid judgment and G
decree passed by the trial court, the appellant~defendant
~ preferred an appeal before the Civil Judge (Senior Division)
which was registered as Civil Appeal No. 51 of 1998. The
·respondent-plaintiff filed a cross-objection contending inter a/ia
that the said respondent was entitled to higher rate of interest. H
654 SUPREME COURT REPORTS [2009] 2 S.C.R.

A The First Appellate Court vide its judgment and decree dated
21.2.2001 dismissed the app~al filed by the appellant but it
allowed the cross-objection of the respondent-plaintiff whereby
the First Appellate Court modified the decree to the extent that
the plaintiff would be entitled to get interest at the rate of 23%
B per annum with monthly rests from 23.9.2002 till the date of
realization. While arriving at the said finding the learned Civil
Judge (Senior Division) held that the Scheduled Banks provide
loan on interest at the rate of 18% per annum.
6. Being aggrieved by the aforesaid judgm~nt and decree
C the appellant-defendant preferred a Second Appeal No. 167 of
2001 in the High Court which was admitted on the questions of
law framed in the memo of appeal and the High Court also
stayed the aforesaid order dated 30. 7.1998. The appeal was
taken up for final hearing during the course of which reference
D was made to the provisions, particularly Section 4 and 5, of the
Act.
7. The learned Single Jude of the High Court disposed of
the said appeal by judgment and order dated 2.5.2007 and held
that the aforesaid Act No. 32 of 1993 was promulgated on
E 02.04.1993 and, therefore, the increased rate of interest would
be payable from 02.04~1993 whereas the present suit was filed
on 31.10.1991.
8. In the aforesaid premises it was held that the provisions
F of interest as provided in the said Act would not be applicable.
However, as the respondent-plaintiff had not filed any document
showing the scheduled banking rate of interest the learned
Single Judge presumed the same to be at the rate of 13% per
annum. Consequently, the decree passed by the trial court was
G modified to the extent that the respondent-plaintiff would be
entitled to recover interest on the decree amount at the rate of
18% per annum with monthly rests from 02.04.1993 till actual
payment. 11"·- ·

9. In the present appeal, therefore, the issue that is involved
H is the amount of interest that the respondent would be entitled
-,

M/S. RAMPUR FERTILISER LTD. V. M/S. VIGYAN 655
CHEMICALS INDUSTRIES [DR. MUKUNDAKAM SHARMA, JJ.]

to receive. The leaned counsel appearing for the appellant A
submitted before us that the High Court totally ignored the ratio
of the judgment of this Court in Assam Small Scale Industries
Development Corpn. Ltd. & Ors. v. J.D. Pharmaceuticals &
Anr. (2005) 13 sec 19. Relying on the ratio in the said case it
was submitted that the provisions of the Act could not have been B
made applicable to the facts of the present case.

)
10. We heard the learned counsel appearing for the
appellant on the aforesaid issue which was also raised in the
Assam Small Scale Industries Development Corpn. Ltd. &
Ors. (supra) (wherein one of us, namely, Sinha, J. was a c
member) after referring to the provisions of Section 1, 3, 4, 5
and 10 of the said Act, considered the scope of applicability of
the Act. Sections 1, 3, 4, 5, and 10 of the Act are extracted
below:
D
"1. Short title, extent and commencement.- (1) This
Act may be called the Interest on Delayed Payments to
Small Scale and Ancillary Industrial Undertakings Act,
1993.
(2) It extends to the whole of India except the State of E
Jammu and Kashmir.

(3) It shall be deemed to have come into force on the 23rd
day of September, 1992.
,.
3. Liability of buyer to make payment.- Where any F
supplier supplies any goods or renders any services to
any buyer, the buyer shall make payment therefor on or
before the date agreed upon between him and the supplier
in writing or, where there is no agreement in this behalf,
before the appointed day.
G
Provided that in no case the period agreed upon
between the supplier and the buyer in writing shall exceed
one hundred and twenty days from the day of acceptance
or the day of deemed acceptance.
H
656 SUPREME COURT REPORTS [2009] 2 S.C.R.

A 4. Date from which and rate at which interest is
payable.-Where any buyer fails to make payment of the
amount to the supplier, as required under Section 3, the
buyer shall, notwithstanding anything contained in any
agreement between the buyer and the supplier or in any
B law for the time being in force, be liable to pay interest to
the supplier on th~t amount from the appointed day or, as
the case may be, from the date immediately following the
· date agreed upon, at one-and-a-half time of Prime Lending .{

Rate charged by the State Bank of India.
C Explanation. - For the purposes of this section, "Prime
Lending Rate" means the Prime Lending Rate of the State
Bank of India which is available to the best borrowers of
the bank.
5. Liability of buyer to pay compound interest.-
D
Notwithstanding anything contained in any agreement
between a supplier and a buyer or in any law for the time
being in force, the buyer shall be liable to pay compound
interest (with monthly rests) at the rate mentioned in
Section 4 on the amount due to the supplier. ·
E
10. Overriding effect.-The provisions of this Act shall
have effect notwithstanding anything inconsistent therewith
contained 'in any other law for the time being in force."
11. It was held in Assam Small Scale Industries
F Development Corpn. Ltd. & Ors. (supra) that the provisions
of the Act· are applicable only with prospective effect.
Paragraphs ~37 and 3a· of the said case which deal with the
scope of the' applicability of the Act are reproduced hereunder :
"37. We have held hereinbefore that clause 8 of the terms
G
and conditions relates to the payments of balance 10%.
It is not in dispute that the plaintiff had demanded both the
principal amount as also the interest from the Corporation.
Section 3 of the 1993 Act imposes a statutory liability
upon the buyer to make payment for the supplies of any
H
~·

M/S. RAMPUR FERTILISER LTD. V. MIS. VIGYAN 657
CHEMICALS INDUSTRIES [DR. MUKUNDAKAM SHARMA, JJ.]

goods either on or before the agreed date or where there A
/
is no agreement before the appointed day. Only when
payments are not made in terms of Section 3, Section 4
would apply. The 1993 Act came into effect from 23-9-
1992 and will not·apply to transactions which took place
prior to that date. We find that out of the 71 suit transactions, 8
SI. Nos. 1 to 26 (referred to in the penultimate para of the
trial court judgment), that is supply orders between 5-6-
).
1991 to 28-7-1992, were prior to the date of the 1993 Act
coming into force. Only the transactions at SI. Nos. 27 to
71 (that is supply orders between 22-10-1992 to 19-6- c
1993), will attract the provisions of the 1993 Act.
38. The 1993Act, thus, will have no application in relation
to the transactions entered into between June 1991 and
23-9-1992. The trial courtas also the High Court, therefore,
D
committed a manifest error in directing payment of interest
.(
,/ at the rate of 23% up to June 1991 and 23.5% thereafter."
"
12. In view of the ratio of the aforesaid decision the scope
of the present appeal is very limited for it is already laid down
by this Court that the Act, namely Interest on Delayed Payments E
to Small Scale and Ancillary Industrial Undertakings Act, 1993
came into effect from 23.9.1992. Therefore, the said Act would
have no application and would not apply to transactions which
took place prior to the aforesaid date. In the case in hand the
transaction which was the subject matter of the suit took place F
prior to 23.9.1992. This position is clear for the suit itself was
filed on 31.10. 1991 and therefore cause of action for filing the
suit has to be prior in point of time.

13. In paragraph 11 of the plaint the respondent-plaintiff
G
had itself stated that the cause of action for the suit arose on
dates prior to coming into force of the Act. It is obvious from the
records that on the date when the Act came into force, the
present suit was pending for consideration, and therefore, what
,. would be applicable to the facts of the present case is the
H
~
~

658 SUPREME COURT REPORTS [2009] 2 S.C.R.

A provisions of Section 34 of the Code of Civil Procedure, 1908 "-...
(for short the 'Code') which are reproduced hereinbelow :
"34. Interest - (1) Where and in so far as a decree i.- for
the payment of money, the Cour~ may, in the decree, order
interest at such rate as the Court deems reasonable to be
B paid on ttie principal sum adjudged, from the date of the
suit to the date of the decree, in addition to any interest
adjudged on such principal sum for any period prior to the
institution of the suit, with further interest at such rate not '"
exceeding six per cent, per annum as the Court deems
c reasonable on such principal sum from the date of the
decree to the date of payment, or to such earlier date as
the Court thinks fit: f
Provided that where the liability in relation to the sum so
adjudged had arisen out of a commercial transaction, the
D
rate of such further interest may exceed six per cent, per
annum, but shall not exceed the contractual rate of interest
"
~"
or where there is no contractual rate, the rate at which
moneys are lent or advanced by nationalised banks in
relation to commercial transactions.
E
Explanation 1.-ln this sub-section, "nationalised bank"
means a corresponding new bank as defined in the
Banking Companies (Acquisition and Transfer of
Undertakings) Act 1970 (5 of 1970).
F Explanation 11.-For the purposes of this section, a
transaction is a commercial transaction, if it is connected
with the industry, trade or business of the party incurring
the liability.

G (2) Where such a decree is silent with respect to the
payment of further interest on such principal sum from the
date of the decree to the date of payment or other earlier ~

date, the Court shall be deemed to have refused such
interest, and a separate suit therefore shall not lie."
)
H 14. In fact, in the plaint the appellant claimed interest at
MIS. RAMPUR FERTILISER LTD. V. M/S. VIGYAN 659
CHEMICALS INDUSTRIES [DR. MUKUNDAKAM SHARMA, JJ.]

the rate of 18% per annum but later on when it was found that A
the Act had come into force with effect from 23.9.1992 an
amendment was sought for to the plaint which was allowed by
the trial court. The said amendment, in our opinion, should not
have been allowed as the said provisions of the Act are not
applicable to the facts and circumstances of the present case. 8
15. The quantum and rate of interest which the appellant
in the present case is entitled to would be in accordance with
the provisions of Section 34 of the Code and not in accordance
with the provisions of the Act. According to the provisions of C
Section 34 of the Code interest is to be awarded at a reasonable
rate and on the principal amount.
16. In Clariant International Ltd. v. Securities &
Exchange Board of India, (2004) 8 SCC 524, it was held by
this Court that the interest can be awarded in terms of an D
agreement or statutory provisions and it can also be awarded
by reason of usage or trade having the force of law or on
equitable considerations but the same cannot be awarded by
way of damages except in cases where money due is wrongfully
withheld and there are equitable grounds therefor, for which a E
written demand is mandatory. It was further held that in absence
of any agreement or statutory provision or a mercantile usage,
interest payable can be only at the market rate and such interest
is payable upon establishment of totality of circumstances
justifying exercise of such equitable jurisdiction. It was also held F
that in ascertaining the rate of interest the courts of law can take
judicial notice of both inflation as also fall in bank rate of interest.
The bank rate of interest both for commercial purposes and
other purposes has been the subject-matter of statutory
provisions as also the judge-made laws. In the said case G
reference was made to the decisions in Kaushnuma Begum v.
New India Assurance Co. Ltd. (2001) 2 SCC 9, H. S. Ahammed
Hussain v. /rfan Ahammed (2002) 6 SCC 52 and United India
Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC
281 and it was observed that even in cases of victims of motor H
I
I
·-

660 SUPREME COURT REPORTS [2009) 2 S.C.R.

A vehicle accidents, the courts have upon taking note of the fall in
the rate of interest held 9% interest to be reasonable. '
·~
. ;.
17. In Assam Small Scale Industries Development
Corpn. Ltd. (Supra) also in terms of Section 34 of the Code, in
relation to the transactions made prior to coming into force of ,.,
B the Act, simple interest at the rate of 9% per annum was granted •
taking the same to be bank rate at the relevant time.
18. Therefore, in view of the foregoing legal proposition,
we hold that the High court was not justified in granting interest
c. at the rate of 18% per annum with monthly rests. Considering
the facts and circumstances of the present case we direct that
pendente lite and future interest at the rate of 9% shall be paid.
19. With the aforesaid modification in the decree, the
present appeal is disposed off. i
L
'·,
D.G. Appeal disposed of.