MSME Supplier's Interest Claim Cannot Be Denied Merely Because Principal Dues Are Paid: Gauhati High Court

The Gauhati High Court has recently ruled that an MSME supplier's claim for statutory interest on delayed payments cannot be disregarded merely because the principal contractual amount has subsequently been paid.

Justice Kaushik Goswami observed, “Section 17 of the MSMED Act expressly makes the buyer liable to pay the amount due together with interest thereon as provided under Section 16. Therefore, subject to verification of the relevant dates of acceptance/deemed acceptance and the period of delay, the petitioner's claim for statutory interest cannot be disregarded merely because the principal contractual amount has subsequently been paid.”

The order came on a writ petition filed by SRK Metals and Plastics (Pvt.) Ltd. The company had approached the High Court after its contractual bills were not cleared.

During the proceedings, the principal amount was paid. The issue that remained was the statutory interest payable for the delay.

SRK Metals is engaged in the manufacture of UPVC pipes and fittings. It had received a work order for providing, fixing, testing and commissioning Rain Water Harvesting Systems, including storage-capacity items.

After completing the work to the satisfaction of the authorities and receiving a completion certificate, it raised its contractual bills. The bills were not cleared, leading to the writ petition.

The company submitted that the interest payable under Sections 15, 16 and 17 of the Micro, Small and Medium Enterprises Development Act, 2006 remained outstanding despite payment of the principal dues.

It relied on an earlier decision of the Gauhati High Court in Garg Poly Industries and Anr. v. The State of Assam and 4 Ors. The court in that case had laid down the procedure for dealing with delayed payment of admitted bills.

The Public Works Department, however, contended that any dispute over an amount allegedly due under Section 17 had to be referred to the Micro and Small Enterprises Facilitation Council under Section 18 of the Act.

The court examined Sections 15 to 18, which deal with payment timelines, statutory interest and the mechanism for resolving disputes involving amounts due to micro and small enterprises.

Under Section 15, payment has to be made within the period agreed in writing. Where there is no such agreement, payment has to be made before the appointed day.

The agreed period cannot exceed 45 days from acceptance or deemed acceptance of the goods or services.

Section 16 provides for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India when payment is delayed. Section 17 makes the buyer liable to pay the amount due along with that interest.

Section 18 provides the mechanism for resolving a dispute concerning an amount due under Section 17 through the Micro and Small Enterprises Facilitation Council.

The court observed that where a genuine dispute exists over the amount claimed, the statutory mechanism under Section 18 would ordinarily have to be followed.

That, however, was not the situation before the court. The principal contractual amount had admittedly been paid during the proceedings.

The surviving issue was limited to statutory interest on the admitted contractual dues.

The court also referred to Charu Technology (Pvt.) Ltd. v. The State of Assam and 3 Ors. Another coordinate bench had followed the approach in Garg Poly Industries while dealing with delayed payment under the MSMED Act.

The court directed SRK Metals to submit its claim for statutory interest under Sections 16 and 17 within one month. The claim must be accompanied by the relevant supporting documents.

The authorities must then verify the acceptance or deemed acceptance dates. They must also verify when the principal amount became payable, the dates on which payment was actually made, and the resulting period of delay.

The verification and determination exercise must be completed within two months of receiving the claim.

Any amount found payable as interest must thereafter be released within a reasonable period.

The court made clear that its directions were based on the principal contractual dues having been admitted and paid. If the authorities dispute the underlying liability or any other substantive component of the amount claimed, the parties may pursue the statutory remedy under Section 18.

For Petitioner: Senior Advocate M. Hazarika, assisted by Advocate D. Khan.

For Respondents: P. Nayak, Standing Counsel for the PWD; P. J. Barman for Respondent No. 3.