Madras High Court Rejects MSME's Interest Claim Under MSMED Act In Absence Of Contract

The Madras High Court has dismissed an MSME's claim for interest under the Micro, Small and Medium Enterprises Development Act, 2006, holding that such interest cannot be awarded where the claim arises as compensation under Section 70 of the Contract Act and not from a contractual debt

Justice Senthilkumar Ramamoorthy, in a judgment delivered on April 01, 2026, held that, “In any event, the plaintiff cannot claim interest on compounded basis with monthly rests, whether by invoking Section 16 of the MSMED Act or otherwise, in an action for compensation under Section 70 of the Contract Act, as opposed to an action to recover a debt. An action for compensation under Section 70 of the Contract Act is maintained under the principle of quantum meruit, where a supply is made without a contract, and, therefore, the terms of supply have not been agreed to by and between the parties. In those circumstances, the claim is not for a debt due but for reasonable compensation,” while decreeing the suit in favour of Sri Vasan Minerals and awarding the principal claim with interest at 9% per annum.

The court was dealing with a commercial suit instituted by Sri Vasan Minerals, an unregistered firm, for recovery of Rs. 2.55 crore allegedly due towards the supply of goods to Totale Global Pvt. Ltd. Sri Vasan Minerals supplied recycled raw material to Totale Global Pvt. Ltd. for use in the manufacture of refractory products.

It was alleged that a total of 102 invoices raised between February 2023 and November 2023 remained unpaid, aggregating to Rs. 2,55,63,034.

Sri Vasan Minerals contended that the suit was maintainable despite it being an unregistered firm because it was not seeking to enforce a contractual right, as barred under Section 69(2) of the Partnership Act, but a statutory right under Section 70 of the Contract Act, 1872, for compensation for a non-gratuitous supply of goods.

It relied upon invoices, e-way bills, and GST returns to establish the supply. It was further contended that, as a registered MSME, it was entitled to compounded monthly interest at 24% per annum on account of delayed payments.

Totale Global Pvt. Ltd., on the other hand, raised objections before the Court regarding maintainability and contended that the suit did not comply with the summary suit procedure and could not be treated as a commercial suit for want of a statement of truth.

It was further argued that Sri Vasan Minerals was not entitled to claim interest under the MSMED Act because it had not complied with the statutory requirements under the Act and that the transactions came before the MSME registration.

Totale Global also alleged that the supplies were not bona fide, stocks were dumped on it, and that Sri Vasan Minerals indulged in over-invoicing.

Rejecting Totale's objection regarding maintainability, the Bench held that the suit was maintainable as a commercial suit, noting that the alleged non-compliance with summary procedure had not caused any prejudice to the party and that a statement of truth had in fact been filed.

The court also noted that the suit did not fall within the scope of a summary suit as it was not based on a contract or liquidated demand evidenced by a document.

The court held that since there was no written or oral agreement between Sri Vasan Minerals and Totale Global Pvt. Ltd. regarding price, margin, credit period, or other material terms of supply, the supplies were not made pursuant to a contract. In light of the absence of a contract, the Court held that the embargo under Section 69(2) of the Partnership Act does not apply, since it bars only the enforcement of rights arising from contracts.

The bench further found that since Sri Vasan Minerals had supplied goods to Totale Global Pvt. Ltd., the supply was not gratuitous, and Totale Global Pvt. Ltd. had accepted and used the goods without returning them, the claim could be sustained under Section 70 of the Contract Act.

It noted that, “In the ultimate analysis, the rationale underlying Section 70 is that there should be no unjust enrichment. Therefore, I conclude that all three requirements to sustain a claim for compensation under Section 70 of the Contract Act stand established.”

The court awarded simple interest of 9% per annum from the date of the plaint until realisation. Totale Global Pvt. Ltd. was directed to pay the principal sum of Rs. 2.55 crore, along with interest and Rs. 6 lakh as costs.

For Plaintiff: Senior Advocate Yashodh Vardhan, for R. Gophinath

For Defendant: Advocates K. Shanmugakani for R. Subramoniam