Modern Industries Vs. M/S Steel Auth. of India Ld.Tr. M.D.& Ors.  INSC
278 (15 April 2010)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 3305-3306
OF 2010 (Arising out of SLP(C) Nos. 26087-26088 of 2008) M/s. Modern Industries
...Appellant Versus M/s. Steel Authority of India Ltd. & Ors.
...Respondents JUDGEMENT R.M. Lodha, J.
main questions arise for consideration - first, as to the meaning of the
expression, `amount due from a buyer, together with the amount of interest'
under sub-section (1) of Section 6 of the Interest on Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993 (for short, `1993 Act')
and then, as to whether the Industry Facilitation Council (IFC) cannot go
beyond the scope of interest on delayed payments upon the matter being referred
to it by any party to dispute under sub-section (2) of Section 6.
Modern Industries, Rourkela (for short, `supplier') got an order from the Steel
Authority of India Limited - Rourkela Steel Plant (for short, `buyer') on
January 15, 1983 for manufacture of Right Manipulator Side Guard. The order
value was Rs. 8.19 lakhs. Inter alia, the terms and conditions of the order
were : (i) the job should be done exactly as specified in the drawings; (2) the
alignment of bearing housings be made by the supplier and for this purpose, a
spare shaft assembly would be issued against indemnity bond for checking the
perfect alignment and free rotation of the shaft ; (3) the essentiality
certificate would be issued by the buyer; (4) O.S.T./ T.O.T. 5% to be paid
extra and (5) 90 per cent payment to be made against the proof of dispatch
(R/R) and inspection certificate, balance 10 per cent payment would be made
within 2 thirty days after receipt of materials at site in good condition. It
appears that initially buyer did not issue raw-materials but later on the buyer
on May 28, 1985 agreed to supply the materials free of cost. The supplier also
informed the buyer that the drawings were defective. According to the supplier,
there was delay in supply of materials and removal of defects from drawings.
The buyer ultimately extended the period of supplies till June 4, 1997. It is
admitted case of the parties that supplies were made within extended period.
The buyer ordered for release of Rs. 6,07, 493/- as an interim payment but
deducted the balance payment of Rs. 2,11,506/- out of Rs. 8.19 lakhs of the
original order as the cost of the supply of materials. The supplier,
accordingly, raised a dispute in respect of balance payment together with
interest on delayed payment before IFC under Section 6(2) of 1993 Act.
took cognizance of the dispute referred to it by the supplier and issued notice
to the buyer on September 21, 1999. On October 23, 1999, nobody appeared for
buyer before IFC. However, IFC directed the buyer to settle the claims of the
supplier within thirty days of receipt of the communication and 3 gave an
opportunity to submit their defence within ten days of receipt of the said
communication and also depute a duly authorized officer to attend the
proceedings. Vide its letter dated December 20, 1999, the buyer objected to the
jurisdiction of IFC in dealing with the matter. It appears that on February 15,
2000, a representative of the buyer appeared before the IFC. On that date, the
IFC again directed the buyer to settle the dispute amicably in the presence of
Joint Director of Industries (Planning), Rourkela and also file its written
statement regarding its outcome on March 24, 2000. On March 24, 2000, the
representative of the buyer was not present before IFC nor any written statement
was filed as directed on February 15, 2000. In the circumstances, IFC passed an
ex-parte award against the buyer in the sum of Rs. 24,86,998/- with interest at
the rate of 18 per cent being one-and-half times of Prime Lending Rate of the
SBI compounded with monthly rests. IFC also directed that the interest would be
payable with effect from September 24, 1997 (the date of last delivery, i.e.,
May 28, 1997 plus maximum 120 days of credit period) till the date of full
ex-parte award passed against the buyer was kept in abeyance by IFC on May 6,
2000 for one month at the instance of the buyer to enable it to discuss and
settle the matter with the supplier. However, no settlement took place between
the parties and IFC on July 11, 2000 reiterated its ex- parte award dated March
writ petitions came to be filed by the buyer before the High Court of Orissa.
In the first writ petition, ex- parte award dated March 24, 2000 was challenged
and in the other, award dated July 11, 2000 as well as ex-parte award dated
March 24, 2000 was assailed. In both writ petitions, the buyer also challenged
the validity of the Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings (Amendment) Act 1998 (for short, `1998 Amendment Act').
Division Bench of the High Court vide its judgment dated February 18, 2008
allowed these writ petitions and quashed and set aside the awards dated March
24, 2000 and July 11, 2000. It is from this judgment that present appeals by
special leave have arisen.
Act was sequel to a policy statement on small scale industries made by the
Government in Parliament that suitable legislation would be brought to ensure
prompt payment of money by buyers to the small industrial units. It was felt
that inadequate working capital in a small scale and ancillary industrial
undertaking was causing an endemic problem and such undertakings were very much
affected. The Small Scale Industries Board - an apex advisory body on policies
relating to small scale industrial units - also expressed its views that prompt
payments of money by buyers should be statutorily ensured and mandatory
provisions for payment of interest on the outstanding money, in case of
default, should be made. It was felt that the buyers, if required under law to
pay interest, would refrain from withholding payments to small scale and
ancillary industrial undertakings. With these objects and reasons, initially an
Ordinance, namely, the Interest on Delayed Payments to Small Scale and
Ancillary Industrial Undertakings Ordinance, 1992 was promulgated by the
President on September 23, 1992 and then Bill was placed before both the Houses
of Parliament and the said Bill having been passed, 6 1993 Act was enacted. The
Preamble to the 1993 Act reads, `An Act to provide for and regulate the payment
of interest on delayed payments to small scale and ancillary industrial
undertakings and for matters connected therewith or incidental thereto'.
1998 Amendment Act, with effect from August 10, 1998, 1993 Act was amended
whereby few new provisions were inserted and some existing provisions amended.
Section 2(c), (e) and (f) define "buyer", "small scale
industrial undertaking" and "supplier" as follows :
Definitions. - In this Act, unless the context otherwise requires, - (c)
"buyer" means whoever buys any goods or receives any services from a
supplier for consideration;
"Small scale industrial undertaking" has the meaning assigned to it
by clause (j) of section 3 of the Industries (Development and Regulation) Act,
1951 (65 of 1951);
"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, 7 registered
under the Companies Act, 1956 (1 of 1956);
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).]"
Section 3 fastens liability on buyer to make payment for the goods supplied or
the services rendered by the supplier to him within the time mentioned therein.
It reads :
Liability of buyer to make payment.--Where any supplier supplies any goods or
renders any services to any buyer, the buyer shall make payment therefore 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:"
Section 4 imposes a liability of interest upon the buyer on failure to make
payment of the amount due to the supplier. Originally in 1993 Act, Section 4
was as follows :
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 such
rate which is five per cent points above the floor rate for comparable lending.
the purposes of this section, "floor rate for comparable lending"
means the highest of the 8 minimum lending rates charged by scheduled banks
(not being co operative banks) on credit limits in accordance with the directions
given or issued to banking companies generally by the Reserve Bank of India
under the Banking Regulation Act, 1949 (10 of 1949)."
amendment in 1998, Section 4 reads :
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-half time of Prime Lending Rate charged by the State Bank of India.
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."
Section 5 imposes a liability on the buyer to pay compound interest. It reads :
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
mode of recovery of amount due is provided in Section 6. Erstwhile Section 6 in
1993 Act read:
Recovery of amount due.--The amount due from a buyer, together with the amount
of interest calculated in accordance with the provisions of Sections 4 and 5,
shall be recoverable by the supplier from the buyer by way of a suit or other
proceedings under any law for the time being in force."
amendment in 1998, Section 6 provides :
Recovery of amount due.--(1) The amount due from a buyer, together with the
amount of interest calculated in accordance with the provisions of sections 4
and 5, shall be recoverable by the supplier from the buyer by way of a suit or
other proceeding under any law for the time being in force.
Notwithstanding anything contained in sub-section (1), any party to a dispute
may make a reference to the Industry Facilitation Council for acting as an
arbitrator or conciliator in respect of the matters referred to in that
sub-section and the provisions of the Arbitration and Conciliation Act, 1996
(26 of 1996) shall apply to such disputes as if the arbitration or conciliation
were pursuant to an arbitration agreement referred to in sub- section (1) of
section 7 of that Act."
Section 7 provides that no appeal against any decree, award or other order will
be entertained by any court or other authority unless the appellant (not being
a supplier) has deposited with it seventy-five per cent of the amount in terms
of the decree, award or, as the case may be, other order in the 10 manner
directed by such court or, as the case may be, such authority.
Prashant Bhushan, learned counsel for the supplier urged that the IFC under
Section 6(2) has jurisdiction to decide the dispute between supplier and buyer
relating not only in respect of interest but also the principal amount payable
by buyer to supplier. He submitted that the interpretation put by the High
Court upon the provisions of 1993 Act is erroneous and that jurisdiction of IFC
in resolving the dispute under Section 6 (2) is not only confined to the
dispute relating to interest but would also be available where there is dispute
regarding the principal amount payable by the buyer to the supplier. He
submitted that the High Court seriously erred in holding that the requirement
of `settled amount' between the supplier and buyer is sine qua non for the
applicability of 1993 Act.
the other hand, Mr. Ashwani Kumar, learned senior counsel for the buyer
submitted that findings of the High Court on the applicability of 1993 Act and
the issue of jurisdiction of the IFC are meritorious in law for the reasons 11
given in the judgment. He submitted that the entire scheme and structure of
1993 Act, including the Preamble and the Statement of Objects and Reasons when
construed harmoniously, would show that Section 6(2) can only be invoked in
cases of an existing determined, settled or admitted liability. He would submit
that the use of word `due' in Section 6 indicates that penal interest
provisions in Sections 4 and 5 of 1993 Act get attracted where the principal
amount payable is not in dispute, is settled or admitted or has been found by a
competent forum to be `due'. According to him, special law does not intend to
substitute the regular procedure for determining a disputed liability where
there is a bona fide dispute as to the amount due. He referred to the Blacks
Law Dictionary, Stroud's Judicial Dictionary of Words and Phrases and Aiyer's
Law Lexicon and also invited our attention to the decision of this Court in
State of Kerala and Others v. V.R. Kalliyanikutty and Another1 in support of
his argument that the expression `amount due' in Section 6 pre-supposes an
existing determined, settled or admitted liability. He would submit that the
Preamble and the Statement of Objects and Reasons and 1 (1999) 3 SCC 657 12 the
headings of Section can be referred to in determining the applicability and
scope of a statutory enactment. In this regard, he relied upon decisions of
this Court in State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat and
Others2, Bonam Satyavathi v. Addala Raghavulu3, Central Bank of India v. State
of Kerala and Others4 and Eastern Coalfields Limited v. Sanjay Transport Agency
Ashwani Kumar would also submit that 1993 Act even otherwise is not applicable
to the present case as the contract pertaining to which the buyer has been
saddled with a monetary liability was executed on January 15, 1983 and that
1993 Act came into effect much later. He relied upon two decisions of this
Court, namely, Assam Small Scale Industries Development Corpn. Ltd. and Others
v. J.D. Pharmaceuticals and Another6 and Shakti Tubes Ltd., v. State of Bihar
wholesome purpose and object behind 1993 Act as amended in 1998 is to ensure
that buyer promptly pays 2 (2005) 8 SCC 534 3 1994 (Suppl) 2 SCC 556 4 (2009) 4
SCC 94 5 (2009) 7 SCC 345 6 (2005) 13 SCC 19 7 (2009) 7 SCC 673 13 the amount
due towards the goods supplied or the services rendered by the supplier. It
also provides for payment of interest statutorily on the outstanding money in
case of default.
3, accordingly, fastens liability upon the buyer to make payment for goods
supplied or services rendered to the buyer on or before the date agreed upon in
writing or before the appointed day and when there is no date agreed upon in
writing, the appointed day shall not exceed 120 days from the day of acceptance.
Section 4 fixes the rate of interest at one- and-half time of Prime Lending
Rate charged by the SBI in case of default by the buyer in making payment of
the amount to the supplier. The rate of interest fixed in Section 4 overrides
any agreement between the buyer and supplier to the contrary. Section 5 imposes
a liability on the buyer to pay compound interest at the rate mentioned in
Section 4 on the amount due to the supplier. Section 6 is a crucial provision.
(1) thereof provides that the amount due from buyer together with amount of
interest calculated in accordance with the provisions of Sections 4 and 5 shall
be recoverable by supplier from the buyer by way of a suit or other proceeding
14 under any law for the time being in force. It thus provides for enforcement
of right relating to recovery of amount due and the amount of interest which
supplier may be entitled to in accordance with Sections 4 and 5. The mode of
such enforcement is by way of suit or any other proceeding under any law for the
time being in force. Sub-section (2), however, overrides the mode of
enforcement of right provided in sub- section (1) by enabling any party to a
dispute to make a reference to the IFC for recovery of amount due together with
amount of interest as provided in Sections 4 and 5. Once such dispute is
referred, IFC acts as an arbitrator or conciliator and the provisions of Arbitration and
Conciliation Act, 1996 get attracted as if the arbitration
and conciliation were being conducted pursuant to an arbitration agreement
referred to in sub-section (1) of Section 7 of that Act. A plain reading of
Section 6 would show that nature of dispute to be adjudicated by the IFC as an
arbitrator or resolution thereof as a conciliator is in respect of the matters
referred to in sub-section (1), i.e., the amount due from a buyer together with
the amount of interest calculated in accordance with the provisions of 15
Sections 4 and 5.
exactly is the meaning of words `amount due from a buyer' which are followed by
the expression `together with the amount of interest' under sub-section (1) of
Section 6 of 1993 Act? Do these words mean an admitted sum due? Or do they mean
the amount claimed to be due?
meaning of the word `due' has been explained in Webster Comprehensive
Dictionary, (International Edition) as follows :
Owing and demandable; owed; especially, payable because of the arrival of the
time set or agreed upon.
should be rendered or given; justly claimable;
Concise Oxford English Dictionary (10th Edition, Revised) explains `due' as
7..................(of a person) at a point where something is owed or merited.
required as a legal or moral obligation. 2 proper; appropriate............
ME: from OFr. deu `owed', based on L.
`owed', from debere `owe' ".
Black's Law Dictionary (Eighth Edition), the word `due' is explained :
"adj. 1. Just, proper, regular, and reasonable <due care> <due
notice>. 2. Immediately enforceable <payment is due on delivery>. 3.
Owing or payable;
Wharton's Law Lexicon (Fourteenth Edition) makes the following comment with
regard to word `due' :
owing. That which one contracts to pay or perform to another; that which law or
justice requires to be paid or done."
Ramanatha Aiyar in `Law Lexicon'; 2nd Edition (Reprint 1997) explains the word
`due'; as a noun : an existing obligation; an indebtedness; a simple
indebtedness without reference to the time of payment : a debt ascertained and
fixed though payable in future; as an adjective : capable of being justly
demanded; claimed as of right; owing and unpaid, remaining unpaid; payable;
regular; formal; according to rule or form.
Jowitt's Dictionary of English Law; 2nd Edition (Vol. 1) defines `due';
`anything owing, that which one contracts to pay or perform to another. As
applied to a sum of money, `due' means either that it is owing or that it is
payable; in other words, it may mean that the debt is payable at once or at a
17 It is
a question of construction which of these two meanings the word `due' bears in
a given case'.
Irish Land Commission v. Viscount Massereene and Ferrard8, Gibson J. stated
that word `due' may mean immediately payable (its common signification), or a
debt contracted, but payable in future. It was also highlighted that the
interpretation of the word `due' must be according to the reason and context of
the case of Hibernian Bank v. Yourell9 , O'Connor M.R. construed the word `due'
in Section 24(8) of the Conveyancing and Law of Property Act, 1881 as due and
29. The expression
`amount due' occurring in different statutes has come up for consideration
before this Court. In Madan Mohan and Another v. Krishan Kumar Sood10, this
Court while dealing with the expression `amount due' occurring in the third
proviso to clause (i) of sub-section (2) of Section 14 of H.P. Urban Rent
Control Act, 1987, held that the expression `amount due' in the context will
mean the amount due on and 8 (1904) 2 I.R. 1113 9 (1919) 1 I.R. Ch. D. 310 10
1994 Supp (1) SCC 437 18 up to the date of the order of eviction; it will take
into account not merely the arrears of rent which gave cause of action to file
a petition for eviction but will include the rent which accumulated during the
pendency of the eviction petition as well.
three-Judge Bench of this Court in V.R. Kalliyanikutty1 had an occasion to
interpret the words `amounts due' used in Section 71 of Kerala Revenue Recovery
71 of Kerala Act provided thus :
Power of Government to declare the Act applicable to any institution.--The
Government may, by notification in the Gazette, declare, if they are satisfied
that it is necessary to do so in public interest, that the provisions of this
Act shall be applicable to the recovery of amounts due from any person or class
of persons to any specified institution or any class or classes of
institutions, and thereupon all the provisions of this Act shall be applicable
to such recovery."
referring to Wharton in Law Lexicon and Black's Law Dictionary, it was held
that the words `amounts due' in Section 71 did not include time barred debt.
This Court, however, highlighted that in every case the exact meaning of the
word `due' will depend upon the context in which the word appears.
19 31. In
Maharashtra State Cooperative Bank Limited v. The Assistant Provident Fund
Commissioner and Others11, before a three-Judge Bench of this Court
interpretation of the expression `any amount due from an employer' used in
Section 11(2) of the Employees Provident Fund and Miscellaneous Provisions Act,
1952 came up for consideration. Section 11(2) of the said Act is as follows:
Priority of payment of contributions over other debts.--(l) Where any employer
is adjudicated insolvent or, being a company, an order for winding up is made,
the amount due-- (a) * * * * * (b) * * * * * (2) Without prejudice to the
provisions of sub-section (1), if any amount is due from an employer whether in
respect of the employee's contribution (deducted from the wages of the
employee) or the employer's contribution, the amount so due shall be deemed to
be the first charge on the assets of the establishment, and shall,
notwithstanding anything contained in any other law for the time being in
force, be paid in priority to all other debts."
interpreting the said expression `any amount due from an employer', this Court
referred to Section 11(1) besides the other 11 (2009) 10 SCC 123 20 provisions
of the said Act, namely, Sections 7A, 7Q, 14B and 15(2) and held that the said
expression cannot be accorded restricted meaning confining it to the amount
determined under Section 7(A) or the contribution payable under Section 8. This
is what this Court said :
The expression "any amount due from an employer" appearing in
sub-section (2) of Section 11 has to be interpreted keeping in view the object
of the Act and other provisions contained therein including sub-section (1) of
Section 11 and Sections 7-A, 7-Q, 14- B and 15(2) which provide for
determination of the dues payable by the employer, liability of the employer to
pay interest in case the payment of the amount due is delayed and also pay
damages, if there is default in making contribution to the Fund. If any amount
payable by the employer becomes due and the same is not paid within the
stipulated time, then the employer is required to pay interest in terms of the
mandate of Section 7-Q.
default on the employer's part to pay any contribution to the Fund can visit
him with the consequence of levy of damages.
mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act
40 of 1973 with a view to ensure that payment of provident fund dues of the
workers are not defeated by the prior claims of the secured and/or of the
unsecured creditors. While enacting sub-section (2), the legislature was
conscious of the fact that in terms of existing Section 11 priority has been
given to the amount due from an employer in relation to an establishment to
which any scheme or fund is applicable including damages recoverable under
Section 14-B and accumulations required to be transferred under Section 15(2).
The legislature was also aware that in case of delay the employer is
statutorily responsible to pay interest in terms of Section
Therefore, there is no plausible reason to give a 21 restricted meaning to the
expression "any amount due from the employer" and confine it to the
amount determined under Section 7-A or the contribution payable under Section
interest payable by the employer under Section 7- Q and damages leviable under
Section 14 (sic Section 14-B) are excluded from the ambit of expression
"any amount due from an employer", every employer will conveniently
refrain from paying contribution to the Fund and other dues and resist the
efforts of the authorities concerned to recover the dues as arrears of land
revenue by contending that the movable or immovable property of the
establishment is subject to other debts. Any such interpretation would
frustrate the object of introducing the deeming provision and non obstante clause
in Section 11(2). Therefore, it is not possible to agree with the learned
Senior Counsel for the appellant Bank that the amount of interest payable under
Section 7-Q and damages leviable under Section 14-B do not form part of the
amount due from an employer for the purpose of Section 11(2) of the Act."
Assam State Electricity Board and Ors. v. Shanti Conductors Pvt. Ltd. and
Another12, inter-alia, the question that fell for consideration before the Full
Bench of Gauhati High Court was as to whether the suit for recovery of a mere
interest under 1993 Act is maintainable. The argument on behalf of the
appellant therein was that no suit merely for the recovery of the interest
under 1993 Act is maintainable under the provisions of Section 6. It was
contended that both principal sum and the 12 (2002) 2 GLR 550 22 interest on
delayed payment simultaneously must co-exist for maintaining a suit under
Section 6 of the 1993 Act.
Full Bench held that the suit is maintainable for recovery of the outstanding
principal amount, if any, along with the interest on delayed payments as
calculated under Sections 4 and 5 of the 1993 Act. It said :
opening words of Section 6(1) "the amount due from the buyer, together
with the amount of interest....."
mean that the principal sum due from the buyer as well as or along with the
amount of interest calculated under the provisions of the Act, are recoverable.
The word 'together' here would mean 'as well as' or 'along with'. This cannot
mean that the principal sum must be due on the date of the filing of the suits.
The suits are maintainable for recovery of the outstanding, principal amount,
if any, along with the amount of interest on the delayed payments as calculated
under Sections 4 and 5 of the Act. We are unable to agree with that if the
principal sum is not due, no suit would lie for the recovery of the interest on
the delayed payments, which might have already accrued. If such an
interpretation is given the very object of enacting the Act would be
frustrated. The Act had been enforced to see that small scale industries get
the payment regarding supply made by them within the prescribed period and in
case of delay in payments the interest would be at a much higher rate (1 1/2
times of lending rate charged by the State Bank of India). The obligation of
payment of higher interest under the Act is mandatory. Sections 4 and 5 of the
Act of 1993 contain a non-obstante clause i.e. "Notwithstanding any thing
contained in any agreement between the buyer and the supplier". In other
words, the parties to the contract cannot even contract out of the provisions
of the 1993 Act. Even if such provision that interest under the Act on delay
meant would not be chargeable is incorporated in 23 the contract, Sections 4
and 5 of the Act of 1993 would still prevail as the very wording of these
sections indicate. Take for instance that the buyer has not paid the
outstanding amount of the supply by the due date.
much delay he offers the outstanding amount of the supply to the supplier. If
the argument of the learned counsel for the appellant is to be accepted, then,
if the supplier accepts entire amount he would be losing, his right to recover
the amount of interest on the delayed payment under the Act. Therefore, he
would have to refuse to accept the amount of payment and then file a suit for
recovery of the principal amount and the interest on the delayed payment under
the Act. The Act does not create any embargo against supplier not to accept
principal amount at any stage and thereafter file a suit for the recovery or
realization of the interest only on the delayed payments under the Act."
word `due' has variety of meanings, in different context it may have different
meanings. In its narrowest meaning, the word `due' may import a fixed and
settled obligation or liability. In a wider context the amount can be said to
be `due', which may be recovered by action. The amount that can be claimed as
`due' and recoverable by an action may sometimes be also covered by the
expression `due'. The expression `amount due from a buyer' followed by the
expression `together with the amount of interest' under sub-section (1) of
Section 6 of 1993 Act must be interpreted keeping the 24 purpose and object of
1993 Act and its provisions, particularly Sections 3, 4 and 5 in mind. This
expression does not deserve to be given a restricted meaning as that would
defeat the whole purpose and object of 1993 Act. Sub-section (1) of Section 6
provides that the amount due from buyer together with amount of interest
calculated in accordance with the provisions of Sections 4 and 5 shall be
recoverable by the supplier from the buyer by way of suit or other proceeding under
any law for the time being in force. If the argument of senior counsel for the
buyer is accepted, that would mean that where the buyer has raised some dispute
in respect of goods supplied or services rendered by the supplier or disputed
his liability to make payment then the supplier shall have to first pursue his
remedy for recovery of amount due towards goods supplied or services rendered
under regular procedure and after the amount due is adjudicated, initiate
action for recovery of amount of interest 25 which he may be entitled to in
accordance with Sections 4 and 5 by pursuing remedy under sub- section (2) of
Section 6. We are afraid the scheme of Section 6 of 1993 Act read with Sections
3,4 and 5 does not envisage multiple proceedings as canvassed. Rather, whole
idea of Section 6 is to provide single window to the supplier for redressal of
his grievance where the buyer has not made payment for goods supplied or
services rendered in its entirety or part of it or such payment has not been
made within time prescribed in Section 3 for whatever reason and/or for
recovery of interest as per Sections 4 and 5 for such default. It is for this
reason that sub-section (1) of Section 6 provides that `amount due from the
buyer together with the amount of interest calculated in accordance with the
provisions of Sections 4 and 5' shall be recoverable by the supplier from buyer
by way of a suit or other legal proceeding. Sub-section (2) of Section 6 talks
of a dispute being referred to IFC in respect of the 26 matters referred to in
sub-section (1), i.e. the dispute concerning amount due from a buyer for goods
supplied or services rendered by the supplier to buyer and the amount of
interest to which supplier has become entitled under Sections 4 and
5. It is
true that word `together' ordinarily means conjointly or simultaneously but
this ordinary meaning put upon the said word may not be apt in the context of
Section 6. Can it be said that the action contemplated in Section 6 by way of
suit or any other legal proceeding under sub-section (1) or by making reference
to IFC under sub-section (2) is maintainable only if it is for recovery of
principal sum along with interest as per Sections 4 and 5 and not for interest
alone? The answer has to be in negative. We approve the view of Gauhati High
Court in Assam State Electricity Board12 that word `together' in Section 6(1)
would mean `alongwith' or `as well as'. Seen thus, the action under Section
6(2) could be maintained for recovery of principal 27 amount and interest or only
for interest where liability is admitted or has been disputed in respect of
goods supplied or services rendered. In our opinion, under Section 6(2) action
by way of reference to IFC cannot be restricted to a claim for recovery of
interest due under Sections 4 and 5 only in cases of an existing determined,
settled or admitted liability. IFC has competence to determine the amount due
for goods supplied or services rendered in cases where the liability is
disputed by the buyer. Construction put upon Section 6(2) by learned senior
counsel for the buyer does not deserve to be accepted as it will not be in
conformity with the intention, object and purpose of 1993 Act. Preamble to 1993
Act, upon which strong reliance has been placed by learned senior counsel, does
not persuade us to hold otherwise. It is so because Preamble may not exactly
correspond with the enactment; the enactment may go beyond Preamble.
Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Limited and Another13,
this Court observed that sub-section (2) of Section 6 expressly incorporates
the provisions of the Arbitration and Conciliation Act, 1996 and it further
creates a legal fiction whereby disputes referred to IFC are to be deemed to
have been made pursuant to an arbitration agreement as defined in sub-section
(1) of Section 7 of that Act. There is, thus, no reason as to why IFC, which
acts as an Arbitrator or Conciliator under the provisions of Arbitration and
Conciliation Act, 1996, cannot deal with the dispute concerning principal amount
due to the supplier for the goods supplied or services rendered.
High Court, in the impugned order, however, held that expression `amount due
from a buyer' would be amount admitted to be due in its plain and natural
meaning and when admitted due amount is not paid by the buyer, the provisions
of Sections 3 to 6 along with other provisions of 1993 13 (2004) 3 SCC 447 29
Act would be applicable. In the opinion of High Court since the buyer has
alleged breach of contract by the supplier, there was no amount admitted to be
due or settled amount and, therefore, there was no question of delayed payment
and reference of the dispute to the IFC under sub-section(2) of Section 6 was
without jurisdiction. The High Court in the impugned order held thus :
Therefore, the said matter before the IFC would be limited to the amount due
from the buyer together with amount of interest calculated only in accordance
with the provisions of Sections 4 and 5 of the Act.
applies only when Section 3 is applied.
the ultimate focus in the Act is on Section 3 as already discussed above.
Section 3 speaks about the settled amount and not the amount which may be
calculated according to the calculations of the supplier disputed by the buyer
or where there is dispute regarding delayed supply causing loss to the buyer or
defective supply of the materials. Therefore "the amount due from a buyer
would be interpreted in its plain and natural manner i.e. amount admitted to be
due" and when it is not paid by the buyer, the provisions of Section 3 to
6 along with other provisions of the Act would be applicable.
the instant case, the buyer i.e. the petitioner has alleged that the supply was
not made by the opposite party No. 2 in time and there was delay in supply of
materials which caused loss to the petitioner and by the time of supply of
materials, technology has already been changed. Therefore, in nutshell, the
petitioner has alleged breach of contract by opposite party No. 2 and
therefore, in case of allegation of breach of contract, it cannot be said that
there is any amount admitted to be due or settled amount. Hence, 30 there is no
question of delayed payment and referring the dispute to the IFC under the
provisions of Sub- section 2 of the Section 6, to our mind, would be without
find it difficult to accept the reasoning of the High Court. The interpretation
put by the High Court upon the expression `amount due from the buyer' is
fallacious for the reasons indicated above which we need not respect.
the submission of learned senior counsel for the buyer with regard to the
applicability of the 1993 Act to the present case may be considered. His
argument is that 1993 Act is not applicable to the present case as contract was
entered into on January 15, 1983 and 1993 Act came into effect on September 23,
1992. The argument does not appeal us for more than one reason. In the first
place, this contention was not raised before the High Court; it is canvassed
before us for the first time. Secondly, and more importantly, from the
available material, it transpires that although the initial contract was
entered into between the parties in January 1983 but it got altered from time
to time in view of negotiations between the parties about supply of
raw-materials by the buyer free of cost;
defect in drawings and assignment of additional works and last of such
alteration was on April 29, 1995.
1993 Act is prospective in operation is settled by two decisions of this Court.
In Assam Small Scale Industries Development Corporation Ltd. and Others6, this
Court held :
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.
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."
Small Scale Industries Development Corporation Ltd. and Others6 has been
followed recently by this 32 Court in the case of Shakti Tubes Limited7 . In
Shakti Tubes Limited7, this Court said :
In our considered opinion, the ratio of the aforesaid decision in Assam Small
Scale Industries case,(2005)13 SCC 19, is clearly applicable and would squarely
govern the facts of the present case as well.
decision was rendered by this Court after appreciating the entire facts as also
all the relevant laws on the issue and therefore, we do not find any reason to
take a different view than what was taken by this Court in the aforesaid
judgment. Thus, we respectfully agree with the aforesaid decision of this Court
which is found to be rightly arrived at after appreciating all the facts and
circumstances of the case.
have considered the aforesaid rival submissions. This Court in Assam Small
Scale Industries case,(2005)13 SCC 19 has finally set at rest the issue raised
by stating that as to what is to be considered relevant is the date of supply
order placed by the respondents and when this Court used the expression
"transaction" it only meant a supply order.
made it explicitly clear in para 37 of the judgment which we have already
extracted above. In our considered opinion there is no ambiguity in the
aforesaid judgment passed by this Court. The intent and the purpose of the Act,
as made in para 37 of the judgment, are quite clear and apparent. When this
Court said "transaction" it meant initiation of the transaction i.e.
placing of the supply orders and not the completion of the transactions which
would be completed only when the payment is made. Therefore, the submission
made by the learned Senior Counsel appearing for the appellant-plaintiff fails.
Consequently, we hold that the supply order having been placed herein prior to
the coming into force of the Act, any supply made pursuant to the said supply
33 orders would be governed not by the provisions of the Act but by the
provisions of Section 34 CPC.
otherwise, we are of the considered view that there was neither any alteration
of the contract nor any novation of the contract in the present case. The
correspondence between the parties clearly disclosed that after the respondents
issued the supply order, the appellant-plaintiff did not supply the pipes in
terms of the supply order and it urged mainly for the increase in the price of
the goods. Subsequently, they relied upon the price escalation clause and asked
for increase in the price of pipes."
two decisions, however, do not help the case of the buyer for what we have
indicated above viz., that in the present case the original contract got
altered from time to time and it was last altered on April 29, 1995. By that
time, 1993 Act had already come into force.
Lastly, it was submitted by learned senior counsel for the respondents that
IFC's award was delivered ex-parte and no reasons have been given in support
thereof; the award does not reflect any application of mind. He would submit
that if appeals are allowed and award is sustained that would cause grave prejudice
to the buyer inasmuch as the original contract was for a sum of Rs. 8.19 lakhs,
out of which Rs. 6.07 lakhs have already been paid in July, 1997 and goods
worth balance 34 amount were given to the supplier and yet buyer is saddled
with the liability for an amount of Rs. 24,86,998/- with interest at the rate
of 18 per cent compounded with monthly rests from September 24, 1997 which may
run into crores of rupees. The situation in which the buyer has been placed is
their own creation. They chose not to contest the claim of the supplier before
IFC on merits. No written statement was filed despite opportunity granted by
IFC. The buyer did not challenge nor disputed diverse claims made by the
supplier (including additional work) before IFC. Even before the High Court, no
submission seems to have been made on merits of the award at all. In the
circumstances, the buyer does not deserve any indulgence from this Court.
Pertinently, though 1993 Act provides a statutory remedy of appeal against the
award but the buyer did not avail of the statutory remedy and instead
challenged the award passed by IFC before High Court in extraordinary
jurisdiction under Article 226 of the Constitution bypassing statutory remedy
which, in our view, was not justified.
result is that appeals are allowed and impugned judgment dated February 18,
2008 passed by the High Court is set aside. Parties shall bear their own costs.
..............................J (R. V. Raveendran)
.............................J (R. M. Lodha)
April 15, 2010.