SNEHADEEP STRUCTURES PVT. LIMITEDversusMAHARASHTRA SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION LTD.

          [2024] 3 S.C.R. 454 : 2024 INSC 201

       Snehadeep Structures Pvt. Limited
                       v.
 Maharashtra Small Scale Industries Development
               Corporation Ltd.
                (Civil Appeal No. 3856 of 2024)
                         05 March 2024
       [Sanjiv Khanna and Dipankar Datta, JJ.]

                    Issue for Consideration
High Court whether justified in setting aside the arbitral
award and holding that Maharashtra Small Scale Industries
Development Corporation Ltd. (MSSIDCL) cannot be said to be
a buyer within the meaning of Interest on Delayed Payments
to Small Scale and Ancillary Industrial Undertakings Act, 1993
and therefore, the appellant (SSPL) was not entitled to claim
interest under the 1993 Act against MSSIDCL; whether the
proviso to s.3, 1993 Act would be applicable to the agreement
in question entered into between the parties on 30.03.1995,
albeit the proviso was enacted and enforced with effect from
10.08.1998.

                           Headnotes
Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 – s.2(b), (c), (f); proviso
to s.3; s.4 – “buyer”; “supplier” – Liability of buyer to make
payment – Date from which and rate at which interest is
payable:
Held: On a reading of s.3 of the 1993 Act, as it stood before the
enactment of the proviso, the buyer and the supplier could agree
upon the date of payment – In case of absence of stipulation with
regard to the date of payment, the “appointed day” in terms of
s.2(b) of the 1993 Act, would be the date, on which the payment
is due – This is also clear from reading s.4, which states the
date from which interest is payable – As per s.4, the buyer is
liable to pay interest if he fails to pay the amount to the supplier
as required by s.3 – After enactment of the proviso to s.3, the
contractual rights of the parties to agree to the date of payment,
have been restricted in terms of the said proviso – Thus, if the
contractual date of payment exceeds 120 days from the day of
[2024] 3 S.C.R.                                                            455

    Snehadeep Structures Pvt. Limited v. Maharashtra Small Scale
             Industries Development Corporation Ltd.

     acceptance or the day of deemed acceptance, interest would
     be payable for the period beyond 120 days from the day of
     acceptance or the date of deemed acceptance – In the present
     case, the supply/purchase order dated 30.03.1995 issued by
     MSSIDCL to SSPL, postulated and the parties had agreed that
     MSSIDCL would be liable to pay SSPL only after the goods
     were delivered and accepted by the consignee-Maharashtra
     State Electricity Board (MSEB) and on the payment being
     received by MSSIDCL from the MSEB – No reason to interfere
     with the conclusion in the impugned judgment passed by the
     High Court, setting aside the arbitral award – Further, by way
     of Act No.23 of 1998, which came in effect from 10.08.1998,
     amending clause 2(f), MSSIDCL is to be treated or deemed to
     be a supplier to MSEB – However, this will not deviate from the
     fact that MSSIDCL was the buyer under the supply/purchase
     order dated 30.03.1995 issued by MSSIDCL to SSPL – Equally,
     the G.O. 2(1)/A/93- SSI Bd. and Policy dated 05.05.1993 issued
     by the Ministry of Industry, Department of SSI, Agro and Rural
     Industries, Office of the Development Commissioner (Small Scale
     Industries), had an effect of treating MSSIDCL as a supplier for
     the purpose of claiming interest from the buyer, that is MSEB,
     with whom they have entered into a contract for the purpose of
     the 1993 Act – The liability to pay and the privity of contract in
     terms of the supply/purchase order dated 30.03.1995 is between
     MSSIDCL and SSPL – The contractual relationship, rights and
     obligations inter se MSSIDCL and SSPL do not undergo any
     change. [Paras 6, 8-10, 13, 14]

                                List of Acts
     Interest on Delayed Payments to Small Scale and Ancillary Industrial
     Undertakings Act, 1993; Arbitration and Conciliation Act, 1996.

                             List of Keywords
     “Buyer”; “Supplier”; Interest; Date of payment; Appointed date,
     Acceptance date; Deemed date of acceptance; Small scale Industries.

                            Case Arising From
     CIVIL APPELLATE JURISDICTION : Civil Appeal No.3856 of 2024
     From the Judgment and Order dated 26.03.2018 of the High Court
     of Judicature at Bombay in AN No. 203 of 2017
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                                Appearances for Parties
       Ranjit Kumar, Siddharth Bhatnagar, Sr. Advs., Ms. Tahira Karanjawala,
       Arjun Sharma, Shreyas Maheshwari, Ms. Sukanya Das, Aditya Sidhra,
       M/s. Karanjawala & Co., Advs. for the Appellant.
       Dr. S. Muralidhar, Sr. Adv., Zubin Morris, Nirav Shah, Udit Gupta,
       Ms. Prachi Gupta, Ms. Pragya Gupta, Ms. Pallak Bhagat, M/s. Udit
       Kishan And Associates, Advs. for the Respondent.
                       Judgment / Order of the Supreme Court

                                       Judgment
       Leave granted.
2.     We have heard learned Senior Advocate appearing for the appellant
       – Snehadeep Structures Pvt. Limited 1 and the Respondent -
       Maharashtra Small Scale Industries Development Corporation Ltd.2
3.     During the course of the hearing, our attention was drawn to Sections
       3, 4 and 5 of the Interest on Delayed Payments to Small Scale
       and Ancillary Industrial Undertakings Act, 19933. For the sake of
       convenience, the said Sections are reproduced below: -
               “3. Liability of buyer to make payment.- Where any 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:
               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.
               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,


1    For short, “SSPL”.
2    For short, “MSSIDCL”.
3    For short, “1993 Act”.
[2024] 3 S.C.R.                                                            457

     Snehadeep Structures Pvt. Limited v. Maharashtra Small Scale
              Industries Development Corporation Ltd.

           notwithstanding anything contained in any agreement
           between the buyer and the supplier or in any law for the
           time being in force, be liable to pay interest to the supplier
           on that amount from the appointed day or, as the case may
           be, from the date immediately following the date agreed
           upon, at one-and-half time of Prime Lending Rate charged
           by the State Bank of India.
           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.-
           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 interest) at the rate mentioned in
           section 4 on the amount due to the supplier.”
4.   We would also reproduce the definition clauses (b), (c) and (f) to
     Section 2, which are applicable, unless the context otherwise requires.
     The same read thus: -
           (b) “appointed day” means the day following immediately
           after the expiry of the period of thirty days from the day
           of acceptance or the day of deemed acceptance of any
           goods or any services by a buyer from a supplier;
           Explanation.-For the purposes of this clause,-
           (i)    “the day of acceptance” means,-
                  (a)   the day of the actual delivery of goods or the rendering
                        of services; or
                  (b)   where any objection is made in writing by the buyer
                        regarding, acceptance of goods or services within
                        thirty days from the day of the delivery, of goods or
                        the rendering of services, the day on which such
                        objection is removed by the supplier;
           (ii)   “the day of deemed acceptance” means, where no objection
                  is made in writing by the buyer regarding acceptance of
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                   goods or services within thirty days from the day of the
                   delivery of goods or the rendering of services, the day of
                   the actual delivery of goods or the rendering of services;
            (c) “buyer” means whoever buys any goods or receives
            any services from a supplier for consideration;
                   xxx				xxx				xxx
            (f) “supplier” means an ancillary industrial undertaking or
            a small scale industrial undertaking holding a permanent
            registration certificate issued by the Directorate of Industries
            of a State or Union territory and includes,-
            (i)    the National Small Industries Corporation, being a company,
                   registered under the Companies Act, 1956 (1 of 1956);
            (ii)   the Small Industries Development Corporation of a State
                   or a Union territory, by whatever name called, being a
                   company registered under the Companies Act, 1956 (1
                   of 1956).”
5.     The proviso to Section 3, and the amendment to Section 2(f) to
       include the addition of National Small Industries Corporation and
       the Small Industries Development Corporation of a State or a Union
       Territory to the definition of “supplier”, were incorporated by Act No.
       23 of 1998 with effect from 10.08.1998.
6.     On a reading of Section 3 of the 1993 Act, as it stood before the
       enactment of the proviso, the buyer and the supplier could agree
       upon the date of payment. In case of absence of stipulation with
       regard to the date of payment, the “appointed day” in terms of Section
       2(b) of the 1993 Act, would be the date, on which the payment is
       due. This is also clear from reading Section 4, which states the
       date from which interest is payable. As per Section 4, the buyer is
       liable to pay interest if he fails to pay the amount to the supplier as
       required by Section 3. Non-obstante part of Section 4 only deals
       with the stipulation in a contract whereby liability to pay interest is
       barred/prohibited. It does not, in any way, override the contractual
       clause with regard to the date of payment. In other words, in case the
       contract states that interest will not be payable even in the case of
       belated payment, then Section 4 of the Act will come into operation,
       overriding the negative contractual clause.
[2024] 3 S.C.R.                                                           459

     Snehadeep Structures Pvt. Limited v. Maharashtra Small Scale
              Industries Development Corporation Ltd.

7.    The effect of the proviso to Section 3, made applicable with effect
      from 10.08.1998, is that the supplier and the buyer may agree by
      contract on the date of payment, but in no case can the date of
      payment exceed 120 days from the day of acceptance or the day of
      deemed acceptance. The terms ‘the appointed date’, ‘the acceptance
      date’ and ‘the deemed date of acceptance’ have been defined vide
      clause (b) to Section 2 of the 1993 Act.
8.    After enactment of the proviso to Section 3, the contractual rights
      of the parties to agree to the date of payment, have been restricted
      in terms of the said proviso. In other words, if the contractual date
      of payment exceeds 120 days from the day of acceptance or the
      day of deemed acceptance, interest would be payable for the period
      beyond 120 days from the day of acceptance or the date of deemed
      acceptance.
9.    When we turn to the facts of the present case, the supply/purchase
      order dated 30.03.1995 issued by MSSIDCL to SSPL, had stated
      as under: -
              “25. The price of the goods delivered and accepted by
              the consignee and when received from the consignee
              will be paid to the supplier by the Corporation subject to
              deductions of advances, if any, paid by the Corporation
              and the service changes [sic] and other moneys payable
              to the Corporation by the supplier. No advance payment
              will be made for any supply of the goods unless otherwise
              agreed by the Corporation.”
10. The contract had, therefore, postulated and the parties had agreed
    that MSSIDCL would be liable to pay SSPL only after the goods are
    delivered and accepted by the consignee, namely, Maharashtra State
    Electricity Board4 and on the payment being received by MSSIDCL
    from the MSEB.
11. If the proviso to Section 3 applies, this contractual clause will get
    modified in terms of the proviso to Section 3, which has fixed the
    upper time limit for payment to 120 days from the day of acceptance
    or the day of deemed acceptance. However, the question would



4    For short, “MSEB”.
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       arise as to whether the said proviso would be applicable to the
       agreement in question, which was entered into between the parties
       on 30.03.1995, albeit the proviso was enacted and enforced with
       effect from 10.08.1998.
12. Even if, for the sake of argument, it is to be accepted that the proviso
    to Section 3 would be applicable in respect of supplies or payments
    due or payable after 10.08.1998, the issue with regard to calculation
    and computation of interest requires examination and determination of
    the day of acceptance or the day of deemed acceptance, as interest
    would be payable only after a period of 120 days from such date.
13. In these circumstances and in view of the aforesaid position, we do
    not find any good ground and reason to interfere with the conclusion
    in the impugned judgment passed by the Division Bench of the High
    Court, setting aside the arbitral award dated 30.06.2003. We would,
    however, record that the award having been set aside, the provisions
    of Section 43(4) of the Arbitration and Conciliation Act, 1996 would
    come into operation and would accordingly apply.
14. We clarify that MSEB need not be a party to the proceedings, if
    any, which may be initiated by SSPL or MSSIDCL. However, any
    adjudication for payment of interest under Sections 3 to 5 of 1993
    Act, including the question relating to application of the proviso,
    would require ascertainment of the appointed date, the date of
    acceptance or the deemed date of acceptance. To this limited
    extent, ascertainment of facts with reference to the consignee –
    MSEB, to whom the goods were supplied by SSPL, is required. By
    way of Act No.23 of 1998, which came in effect from 10.08.1998,
    amending clause 2(f), MSSIDCL is to be treated or deemed to be
    a supplier to MSEB. However, this will not deviate from the fact
    that MSSIDCL was the buyer under the supply/purchase order
    dated 30.03.1995 issued by MSSIDCL to SSPL. Equally, the G.O.
    2(1)/A/93-SSI Bd. and Policy dated 05.05.1993 issued by the Ministry
    of Industry, Department of SSI, Agro and Rural Industries, Office of
    the Development Commissioner (Small Scale Industries), has an
    effect of treating MSSIDCL as a supplier for the purpose of claiming
    interest from the buyer, that is MSEB, with whom they have entered
    into a contract for the purpose of the 1993 Act. The liability to pay
    and the privity of contract in terms of the supply/purchase order
    dated 30.03.1995 is between MSSIDCL and SSPL. The contractual
[2024] 3 S.C.R.                                                        461

    Snehadeep Structures Pvt. Limited v. Maharashtra Small Scale
             Industries Development Corporation Ltd.

     relationship, rights and obligations inter se MSSIDCL and SSPL do
     not undergo any change.
15. On the question of liability under Section 5 as well, there is a dispute
    as it is accepted that the principal amount has been paid. A question
    would arise whether under Section 5, interest as compounded is to be
    treated as a principal amount. This aspect has not been considered
    in the award passed by the sole arbitrator, which has awarded
    compound interest on the interest element with monthly rest at 1.5
    times the Prime Lending Rate charged by the State Bank of India.
16. We are informed that certain payments were made by MSSIDCL
    and a substantial amount of over Rs.1.30 crores has been paid
    to/withdrawn by SSPL. It will be open to MSSIDCL to move an
    application under Section 144 of the Code of Civil Procedure, 1908
    for restitution or execution, as it may be advised. MSSIDCL would
    be entitled to enforce the security in case SSPL does not pay or
    refund the said amount.
17. The appeal is dismissed in the above terms. However, there shall
    be no order as to costs.
           Pending application(s), if any, shall stand disposed of.


     Headnotes prepared by: Divya Pandey                 Result of the case:
                                                          Appeal dismissed.