Mandatory MSMED Act interest applies before and after an arbitral award on principal alone.

Biogenetic Drugs Pvt. Ltd. (“Biogenetic”) manufactured pharmaceutical products under a loan-licence agreement with Bengal Chemicals & Pharmaceuticals Ltd. and another. Following disputes over payments for supplies made between 16 December 2006 and 2 March 2007, the sole arbitrator issued an award on 1 September 2014.

The arbitrator awarded simple interest at 18% per annum on Rs.1,35,57,266 from 2 April 2007 to the award date, and provided for post-award interest at the rate under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) on the award amount if payment was not made within 45 days. Bengal Chemicals challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996; Biogenetic sought modification to obtain the principal amount claimed and statutory interest under the MSMED Act.

1. Whether Biogenetic’s registration status under the MSMED Act entitled it to statutory interest, notwithstanding that the supplies preceded the asserted fresh-registration period.

2. Whether Biogenetic was entitled to pre-award interest under Sections 15–17 of the MSMED Act on Rs.1,35,57,266, rather than the interest awarded by the arbitrator.

3. Whether post-award interest under the MSMED Act could be calculated on the aggregate award, including pre-award interest, or should be confined to the principal amount.

Sections 15–17 of the MSMED Act require a buyer to pay a supplier within the prescribed or agreed period and impose compound interest with monthly rests, at three times the RBI-notified bank rate, on delayed amounts; Section 24 gives the relevant MSMED Act provisions overriding effect over inconsistent laws.

Under Section 8(1) and its proviso, filing a memorandum is discretionary for qualifying micro and small enterprises, as explained in NBCC (India) Ltd. v. State of W.B.

The Court also applied the special-statute-over-general-statute principle recognised in Snehadeep Structures, Shilpi Industries and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods.

Section 34 review is narrow and does not permit an appellate reassessment of the award, but Gayatri Balasamy v. ISG Novasoft Technologies Ltd. recognises a limited power to sever and modify separable parts of an award, including interest.

The Court found that Biogenetic had pleaded that it was a small-scale industry, that its plant-and-machinery investment brought it within the statutory category, and that this material was not disputed. It also held that Biogenetic’s pre-existing registration was covered by Section 8’s proviso and that filing a fresh memorandum was not mandatory for a qualifying micro or small enterprise.

Since the supplier’s status and delayed payment were established, statutory interest under Sections 15–17 followed; the arbitrator could not instead apply a different pre-award interest regime.

Applying Gayatri Balasamy, the Court treated the interest directions as severable and modified them. It accepted, however, that post-award interest should not be applied to the aggregate amount including pre-award interest, and confined the statutory interest base to the principal of Rs.1,35,57,266.

The award was modified to entitle Biogenetic to pre-award and post-award interest under Sections 15–17 of the MSMED Act on Rs.1,35,57,266, from 2 April 2007 until payment or deposit of the entire awarded amount. The post-award interest was therefore confined to the principal amount, rather than the aggregate including pre-award interest.