Case Note & Summary
The appellant, Snehadeep Structures Private Limited, a small scale industry registered under the Companies Act, 1956, filed an appeal against the order of a learned single Judge of the Bombay High Court dismissing its petition under Section 34 of the Arbitration and Conciliation Act, 1996. The petition challenged an interim award dated 16.6.2005 and a final award dated 9.8.2005 passed by an arbitrator, which denied the appellant's claim for interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (Interest Act). The respondent, Maharashtra Small Scale Industries Development Corporation Limited, a government company, had been awarded a tender by the Maharashtra State Electricity Board (MSEB) and placed three work orders on the appellant under a Marketing Assistance Scheme for supply, transportation, and laying of ash disposal pipelines. The appellant supplied materials and completed work, but payments were delayed. The appellant claimed interest under the Interest Act. The arbitrator rejected the claim, holding that the Interest Act did not apply because the respondent was not a 'buyer' as defined under the Act. The learned single Judge upheld the award. On appeal, the Division Bench of the Bombay High Court, comprising R.M. Lodha and S.A. Bobde, JJ., allowed the appeal. The Court held that the Interest Act is a beneficial legislation intended to ensure timely payment to small scale industries. The definition of 'buyer' under Section 2(a) of the Act includes a government company, and the respondent clearly fell within that definition. The Court further held that the arbitrator's failure to apply the mandatory provisions of the Interest Act amounted to patent illegality, warranting interference under Section 34 of the Arbitration Act. The Court set aside the impugned order and the awards to the extent they denied interest, and directed the arbitrator to award interest in accordance with the Interest Act.
Headnote
A) Arbitration - Interest on Delayed Payments - Small Scale Industry - Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 - The appellant, a small scale industry, claimed interest under the Act for delayed payments by the respondent, a government company. The arbitrator denied interest. The High Court held that the Act mandates payment of interest at the prescribed rate for delayed payments to small scale industries, and the arbitrator's award ignoring this statutory mandate is patently illegal and liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996. (Paras 1-10)
Issue of Consideration
Whether the appellant, a small scale industry, is entitled to interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, and whether the arbitrator's denial of such interest is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The appeal is allowed. The impugned order of the learned single Judge and the interim and final awards of the arbitrator, to the extent they deny interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, are set aside. The arbitrator is directed to award interest in accordance with the provisions of the said Act.
Law Points
- Interest on delayed payments
- Small scale industry
- Arbitration award
- Section 34 Arbitration and Conciliation Act
- 1996
- Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act
- 1993
Case Details
2006 LawText (BOM) (11) 39
APPEAL NO.555 OF 2006 In ARBITRATION PETITION NO.438 OF 2005
Dr. Virendra Tulzapurkar, Senior Advocate, with Mr. T.N. Subramaniam, Senior Advocate, and Ms. Chandana Salgaocar-Radia, Advocate, for the appellant. Messrs M.P.S. Rao with A.C. Mahimkar, Advocates, for the respondent.
Snehadeep Structures Private Limited
The Maharashtra Small Scale Industries Development Corporation Limited
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Appeal against dismissal of petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging interim and final arbitration awards.
Remedy Sought
The appellant sought to set aside the arbitrator's awards denying interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
Filing Reason
The arbitrator denied the appellant's claim for interest on delayed payments under the Interest Act, 1993.
Previous Decisions
The learned single Judge dismissed the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996, upholding the arbitrator's awards.
Issues
Whether the appellant, a small scale industry, is entitled to interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 for delayed payments by the respondent.
Whether the arbitrator's denial of such interest is patently illegal and liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Submissions/Arguments
The appellant argued that the Interest Act, 1993 is a beneficial legislation and mandates payment of interest at the prescribed rate for delayed payments to small scale industries. The respondent, being a government company, falls within the definition of 'buyer' under the Act.
The respondent contended that the Interest Act does not apply as the respondent is not a 'buyer' under the Act, and the arbitrator's findings are not liable to be interfered with under Section 34.
Ratio Decidendi
The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 is a beneficial legislation that mandates payment of interest at the prescribed rate for delayed payments to small scale industries. The definition of 'buyer' under Section 2(a) includes a government company. The arbitrator's failure to apply the mandatory provisions of the Act amounts to patent illegality, and the award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
This is an appeal against the order of a learned single Judge of this Court dismissing the appellant’s petition under section 34 of the Arbitration and Conciliation Act, 1996 against the interim award dated 16.6.2005 and the final award dated 9.8.2005 passed by the Arbitrator.
The Arbitrator has denied the appellant’s claim for interest based on the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, hereinafter referred to as the 'Interest Act'.
Procedural History
The appellant filed Arbitration Petition No.438 of 2005 under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the interim award dated 16.6.2005 and final award dated 9.8.2005 passed by the arbitrator. The learned single Judge dismissed the petition. The appellant then filed Appeal No.555 of 2006 before the Division Bench.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 34
- Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993: 2(a), 3, 4
- Companies Act, 1956:
