Full Judgment Text
REPORTABLE
IN THE 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.
Leave granted.
2. Two 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.
3. M/s. 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.
4. IFC 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
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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 payment.
4
5. The 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 24, 2000.
6. Two 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’).
7. The 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.
5
8. 1993 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,
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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’.
9. By 1998 Amendment Act, with effect from August
10, 1998, 1993 Act was amended whereby few new provisions
were inserted and some existing provisions amended.
10. Section 2(c), (e) and (f) define “buyer”, “small scale
industrial undertaking” and “supplier” as follows :
“S.2.- 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;
(e) “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);
(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,
7
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).]”
11. 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 :
“S.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:”
12. 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 :
“S.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 such
rate which is five per cent points above the floor rate for
comparable lending.
Explanation.— For the purposes of this section, “floor
rate for comparable lending” means the highest of the
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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).”
After amendment in 1998, Section 4 reads :
“S.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-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.”
13. Section 5 imposes a liability on the buyer to pay
compound interest. It reads :
“S.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.”
9
14. The mode of recovery of amount due is provided in
Section 6. Erstwhile Section 6 in 1993 Act read:
“S.6-. 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.”
After amendment in 1998, Section 6 provides :
“S.6.- 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.
(2) 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.”
15. 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.
16. Mr. 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.
17. On 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
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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.
1
Kalliyanikutty and Another 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.
2
Mirzapur Moti Kureshi Kassab Jamat and Others , Bonam
3
Satyavathi v. Addala Raghavulu , Central Bank of India v. State
4
of Kerala and Others and Eastern Coalfields Limited v. Sanjay
5
Transport Agency and Another .
18. Mr. 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
6
and Another and Shakti Tubes Ltd., v. State of Bihar and
7
Others .
19. The 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.
Section 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.
Sub-section (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
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Sections 4 and 5.
20. What 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?
21. The meaning of the word ‘due’ has been explained
in Webster Comprehensive Dictionary, (International Edition) as
follows :
“1. Owing and demandable; owed; especially, payable
because of the arrival of the time set or agreed upon.
2. That should be rendered or given; justly claimable;
appropriate.”
th
22. Concise Oxford English Dictionary (10 Edition,
Revised) explains ‘due’ as follows :
“DUE •……………… ˃ (of a person) at a point where
something is owed or merited. required as a legal or
˃
moral obligation. 2 proper; appropriate…………
…………………
-ORIGIN ME: from OFr. d eu ‘owed’, based on L.
debitus ‘owed’, from debere ‘owe’ ”.
23. In Black’s Law Dictionary (Eighth Edition), the word
‘due’ is explained :
16
“adj. 1. Just, proper, regular, and reasonable <due
care> <due notice>. 2. Immediately enforceable
<payment is due on delivery>. 3. Owing or payable;
constituting a debt…..”
24. Wharton’s Law Lexicon (Fourteenth Edition) makes
the following comment with regard to word ‘due’ :
“anything owing. That which one contracts to pay or
perform to another; that which law or justice requires to
be paid or done.”
nd
25. P. Ramanatha Aiyar in ‘Law Lexicon’; 2 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.
nd
26. Jowitt’s Dictionary of English Law; 2 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 future time.
17
It is a question of construction which of these two meanings the
word ‘due’ bears in a given case’.
27. In Irish Land Commission v. Viscount Massereene
8
and Ferrard , 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 statute.
9
28. In the case of Hibernian Bank v. Yourell , O’Connor
M.R. construed the word ‘due’ in Section 24(8) of the
Conveyancing and Law of Property Act, 1881 as due and
legally recoverable.
29. The expression ‘amount due’ occurring in different
statutes has come up for consideration before this Court. In
10
Madan Mohan and Another v. Krishan Kumar Sood , 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.
30. A three-Judge Bench of this Court in V.R.
1
Kalliyanikutty had an occasion to interpret the words ‘amounts
due’ used in Section 71 of Kerala Revenue Recovery Act, 1968.
Section 71 of Kerala Act provided thus :
“S.71.- 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.”
After 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.
11
The Assistant Provident Fund Commissioner and Others ,
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:
“S.11.- 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.”
While 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 :
“ 67. 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.
Likewise, default on the employer’s part to pay any
contribution to the Fund can visit him with the
consequence of levy of damages.
68. As 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
17. 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 8.
69. If 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.”
32. In Assam State Electricity Board and Ors. v. Shanti
12
Conductors Pvt. Ltd. and Another , 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.
33. The 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 :
“ The opening words of Section 6(1) "the amount due
from the buyer, together with the amount of interest....."
can only 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 'alongwith'. 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.
After 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. ”
34. The 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
12
Court in Assam State Electricity Board 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.
28
35. In Secur Industries Ltd. v. Godrej & Boyce
13
Mfg. Co. Limited and Another , 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.
36. The 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 :
“16. 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.
Section 4 applies only when Section 3 is applied.
Therefore, 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.
17. In 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
jurisdiction.”
37. We 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.
38. Now, 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;
31
the defect in drawings and assignment of additional works and
last of such alteration was on April 29, 1995.
39. That 1993 Act is prospective in operation is settled
by two decisions of this Court. In Assam Small Scale Industries
6
Development Corporation Ltd. and Others , this Court held :
“ 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.”
40. Assam Small Scale Industries Development
6
Corporation Ltd. and Others has been followed recently by this
32
7
Court in the case of Shakti Tubes Limited . In Shakti Tubes
7
Limited , this Court said :
“18 . 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.
The said 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.
21. We 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.
The Court 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.
22. 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.
31. Even 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.”
41. These 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.
42. 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.
35
43. The 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)
New Delhi
April 15, 2010.
36