M/S Rampur Fertiliser
Ltd. Vs. M/S Vigyan Chemicals Industries  INSC 359 (18 February 2009)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1101 OF 2009 (arising
out of SLP (C) No. 17893 of 2007) M/s. Rampur Fertiliser Ltd. ...Appellant
Versus M/s. Vigyan Chemicals Industries ...Respondent
in this appeal lies in a very narrow compass. The issue that arises for our
consideration is with regard to the nature of interest that the respondent is
entitled to in respect of the amount for which he had laid claim and in respect
of which a decree was passed in its favour.
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 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.
aforesaid suit was filed claiming the amount of Rs. 10,593.73 along with
interest at the rate of 18% per annum till the date of 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 where under 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.
virtue of the aforesaid amendment the respondent requested for payment of
interest at the rate of 24% per annum from 1.11.1991 to 22.9.1992 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
by the Civil Judge (Junior Division) for recovery of Rs. 15,027.75 along with
interest at the rate of 18% per annum under judgment and decree dated
aggrieved by the aforesaid judgment and 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 alia that the
said respondent was entitled to higher rate of interest. The First Appellate
Court vide its judgment and decree dated 21.2.2001 dismissed the appeal 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% 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
aggrieved by the aforesaid judgment and decree 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 was made to the provisions,
particularly Section 4 and 5, of the Act.
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 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.
the aforesaid premises it was held that the provisions 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 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.
the present appeal, therefore, the issue that is involved is the amount of
interest that the respondent would be entitled to receive. The leaned counsel
appearing for the appellant 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
SCC 19. Relying on the ratio in the said case it was submitted that the
provisions of the Act could not have been made applicable to the facts of the
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 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 :
"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 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 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
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 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-a-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 rests) at the rate
mentioned in Section 4 on the amount due to the supplier.
effect.-The provisions of this Act shall have effect notwithstanding anything
inconsistent therewith contained in any other law for the time being in
was held in Assam Small Scale Industries Development Corpn. Ltd. & Ors. (supra)
that the provisions of the Act are applicable only with prospective effect.
Paragraphs 37 and 38 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 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 goods either on or before the agreed date or where
there 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, Sl. 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 Sl. Nos. 27 to 71 (that is
supply orders between 22-10-1992 to 19-6-1993), will attract the provisions of
the 1993 Act.
38. The 1993 Act,
thus, will have no application in relation to the transactions entered into
between June 1991 and 23-9- 1992. The trial court as also the High Court,
therefore, committed a manifest error in directing payment of interest at the
rate of 23% up to June 1991 and 23.5% thereafter."
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 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 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.
paragraph 11 of 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 present case is the 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 is for the payment of money, the Court may,
in the decree, order interest at such rate as the Court deems reasonable to be
paid on the 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 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:
Provided that where
the liability in relation to the sum so adjudged had arisen out of a commercial
transaction, the 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.
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).
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
(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."
fact, 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 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.
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 Section 34 of the Code interest is to be awarded at a reasonable
rate and on the principal amount.
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 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
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 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 reference was made to the decisions in
Kaushnuma Begum v. New India Assurance Co. Ltd. (2001) 2 SCC 9, H.S. Ahammed
Hussain v. Irfan 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 vehicle accidents, the courts have upon taking note of the
fall in the rate of interest held 9% interest to be reasonable.
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 the Act, simple interest at the rate of 9% per annum was granted
taking the same to be bank rate at the relevant time.
in view of the foregoing legal proposition, we hold that the High court was not
justified in granting interest 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.
the aforesaid modification in the decree, the present appeal is disposed off.