REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  1101    OF   2009 (arising out of SLP (C) No. 17893 of 2007)  

M/s. Rampur Fertiliser Ltd.  …Appellant

Versus

M/s. Vigyan Chemicals Industries  …Respondent  

JUDGMENT

Dr. Mukundakam Sharma, J.

1. Leave Granted.

2. Discord in this  appeal  lies  in a very narrow compass.   The issue that

arises for our consideration is with regard to the nature of interest that

the respondent is entitled to in respect of the amount for which he had

laid claim and in respect of which a decree was passed in its favour.   

3. The present respondent filed a suit in the Court of Munsif, Dehradun on

31.10.1991 for recovery of Rs. 15,027.75 along with interest at the rate

of 24% per annum and at 2% per month compounded with monthly rest

from 23.9.1992 till actual date of recovery.  According to the respondent-

plaintiff it used to supply hydrated lime to the appellant-defendant but

the  defendant  did  not  pay  the  bills  amounted  to  Rs.  10,593.75.

Consequently, the aforesaid  suit  was filed claiming the amount of Rs.

10,593.73 along with interest at the rate of 18% per annum till the date

of suit and cost of legal notices.  However, during the pendency of the

suit, the plaint was amended after coming into force of the Interest on

Delayed Payments to Small Scale and Ancillary Industrial Undertakings

Act, 1993 (hereinafter referred to as the ‘Act’). The Act came into force

with effect  from 23.9.1992 whereunder if  the buyer fails  to  make the

payment on or before the agreed date or where there is no agreement

before  the  appointed  date  the  supplier  becomes  entitled  to  interest  at

such rate which is 5%, point above the floor rate for comparable lending

with monthly rest.

4. By  virtue  of  the  aforesaid  amendment  the  respondent  requested  for

payment  of  interest  at  the  rate  of  24% per  annum from 1.11.1991  to

22.9.1992  and  2%  per  month  compounded  with  monthly  rest  from

23.9.1992 till the actual date of realization.  The aforesaid suit filed by

the respondent-plaintiff was decreed by the Civil Judge (Junior Division)

for recovery of Rs. 15,027.75 along with interest at the rate of 18% per

annum under judgment and decree dated 30.7.1998.

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5. Feeling aggrieved by the aforesaid judgment and decree passed by the

trial court, the appellant-defendant preferred an appeal before the Civil

Judge (Senior Division) which was registered as Civil Appeal No. 51 of

1998.  The respondent-plaintiff filed a cross-objection contending inter

alia that the said respondent was entitled to higher rate of interest.  The

First  Appellate  Court  vide  its  judgment  and  decree  dated  21.2.2001

dismissed  the  appeal  filed  by  the  appellant  but  it  allowed  the  cross-

objection of the respondent-plaintiff whereby the First Appellate Court

modified the decree to the extent that the plaintiff would be entitled to

get  interest  at  the  rate  of  23%  per  annum  with  monthly  rests  from

23.9.2002 till the date of realization.  While arriving at the said finding

the learned Civil Judge (Senior Division) held that the Scheduled Banks

provide loan on interest at the rate of 18% per annum.    

6. Being  aggrieved  by the  aforesaid  judgment  and  decree  the  appellant-

defendant preferred a Second Appeal No. 167 of 2001 in the High Court

which  was  admitted  on  the  questions  of  law framed  in  the  memo of

appeal  and  the  High  Court  also  stayed  the  aforesaid  order  dated

30.7.1998.  The appeal was taken up for final hearing during the course

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of which reference was made to the provisions,  particularly Section 4

and 5, of the Act.

7. The learned Single Jude of the High Court disposed of the said appeal by

judgment and order dated 2.5.2007 and held that the aforesaid Act No.

32 of 1993 was promulgated on 02.04.1993 and, therefore, the increased

rate of interest would be payable from 02.04.1993 whereas the present

suit was filed on 31.10.1991.

8. In the aforesaid premises it  was held that the provisions of interest as

provided  in  the  said  Act  would  not  be  applicable.   However,  as  the

respondent-plaintiff had not filed any document showing the scheduled

banking rate of interest the learned Single Judge presumed the same to

be at the rate of 13% per annum.  Consequently, the decree passed by the

trial court was modified to the extent that the respondent-plaintiff would

be entitled to recover interest on the decree amount at the rate of 18% per

annum with monthly rests from 02.04.1993 till actual payment.

9.   In the present appeal, therefore, the issue that is involved is the amount

of interest that the respondent would be entitled to receive.  The leaned

counsel appearing for the appellant  submitted before us that  the High

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Court totally ignored the ratio of the judgment of this Court in  Assam

Small  Scale  Industries  Development  Corpn.  Ltd.  &  Ors.  v.  J.D.

Pharmaceuticals & Anr. (2005) 13 SCC 19.  Relying on the ratio in the

said case it was submitted that the provisions of the Act could not have

been made applicable to the facts of the present case.

10. We  heard  the  learned  counsel  appearing  for  the  appellant  on  the

aforesaid  issue  which  was  also  raised  in  the  Assam  Small  Scale

Industries Development Corpn. Ltd. & Ors. (supra) (wherein one of us,

namely,  Sinha,  J.  was  a  member)  after  referring  to  the  provisions  of

Section  1,  3,  4,  5  and  10  of  the  said  Act,  considered  the  scope  of

applicability  of  the  Act.   Sections  1,  3,  4,  5,  and  10  of  the  Act  are

extracted below :

“1.  Short title, extent and commencement.-     (1) This Act may be called the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.

(2) It extends to the whole of India except the State of Jammu and Kashmir.  

(3) It shall be deemed to have come into force on the 23rd day of September, 1992.  

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

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upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day.  

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed one hundred and  twenty  days  from the  day  of  acceptance  or  the  day  of deemed acceptance.

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-a-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.  

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.

10.  Overriding effect.-The provisions of  this  Act shall  have effect  notwithstanding  anything  inconsistent  therewith contained in any other law for the time being in force.”  

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11. It was held in Assam Small Scale Industries Development Corpn. Ltd.

& Ors.  (supra) that the provisions of the Act are applicable only with

prospective effect.  Paragraphs 37 and 38 of the said case which deal

with the scope of the applicability of the Act are reproduced hereunder :

“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.”

12.In view of the ratio of the aforesaid decision the scope of the present

appeal is very limited for it is already laid down by this Court that the

Act, namely Interest on Delayed Payments to Small Scale and Ancillary

Industrial  Undertakings  Act,  1993  came  into  effect  from  23.9.1992.

Therefore, the said Act would have no application and would not apply

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to transactions which took place prior to the aforesaid date.  In the case

in  hand the transaction  which  was the subject  matter  of  the suit  took

place prior to 23.9.1992.  This position is clear for the suit  itself  was

filed on 31.10. 1991 and therefore cause of action for filing the suit has

to be prior in point          of time.

13.In paragraph 11 of the plaint  the respondent-plaintiff  had itself  stated

that the cause of action for the suit arose on dates prior to coming into

force of the Act.  It is obvious from the records that on the date when the

Act came into force, the present suit was pending for consideration, and

therefore, what would be applicable to the facts of the present case is the

provisions of Section 34 of the Code of Civil Procedure, 1908 (for short

the ‘Code’) which are reproduced hereinbelow :

“34. Interest –  (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court  deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the  decree,  in  addition  to  any  interest  adjudged  on  such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent, per annum as the Court deems reasonable on such principal  sum from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:   

Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but

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shall not exceed the contractual rate of interest or where there is  no  contractual  rate,  the  rate  at  which  moneys  are  lent  or advanced  by  nationalised  banks  in  relation  to  commercial transactions.

Explanation I.-In this sub-section, "nationalised bank" means a corresponding new bank as defined in the Banking Companies (Acquisition  and  Transfer  of  Undertakings)  Act  1970  (5  of 1970).

Explanation II.-For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.

(2)  Where  such  a  decree  is  silent  with  respect  to  the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court  shall  be  deemed  to  have  refused  such  interest,  and  a separate suit therefore shall not lie.”  

14.  In fact, in the plaint the appellant claimed interest at the rate of 18% per

annum but later on when it was found that the Act had come into force

with effect from 23.9.1992 an amendment was sought for to the plaint

which  was  allowed  by  the  trial  court.   The  said  amendment,  in  our

opinion, should not have been allowed as the said provisions of the Act

are not applicable to the facts and circumstances of the present case.   

15.The quantum and rate of interest which the appellant in the present case

is entitled to would be in accordance with the provisions of Section 34 of

the  Code  and  not  in  accordance  with  the  provisions  of  the  Act.

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According to the provisions of Section 34 of the Code interest is to be

awarded at a reasonable rate and on the principal amount.

16. In  Clariant International  Ltd.  v.  Securities  &  Exchange  Board  of

India, (2004) 8 SCC 524, it was held by this Court that the interest can

be awarded in terms of an agreement or statutory provisions and it can

also be awarded by reason of usage or trade having the force of law or on

equitable  considerations  but  the  same cannot  be  awarded  by  way  of

damages except in cases where money due is wrongfully withheld and

there  are  equitable  grounds  therefor,  for  which  a  written  demand  is

mandatory.  It  was  further  held  that  in  absence  of  any  agreement  or

statutory provision or a mercantile usage, interest payable can be only at

the  market  rate  and  such  interest  is  payable  upon  establishment  of

totality  of  circumstances  justifying  exercise  of  such  equitable

jurisdiction. It was also held that in ascertaining the rate of interest the

courts of law can take judicial notice of both inflation as also fall in bank

rate of interest. The bank rate of interest both for commercial purposes

and other purposes has been the subject-matter of statutory provisions as

also the judge-made laws. In the said case reference was made to the

decisions  in  Kaushnuma  Begum  v. New  India  Assurance  Co.  Ltd.

(2001) 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed (2002) 6

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SCC 52 and United India Insurance Co. Ltd. v. Patricia Jean Mahajan

(2002) 6 SCC 281 and it was observed that even in cases of victims of

motor vehicle accidents, the courts have upon taking note of the fall in

the rate of interest held 9% interest to be reasonable.  

17. In Assam Small Scale Industries Development Corpn. Ltd. (Supra) also

in terms of Section 34 of the Code, in relation to the transactions made

prior to coming into force of the Act, simple interest at the rate of 9% per

annum was granted taking the same to be bank rate at the relevant time.  

18.Therefore, in view of the foregoing legal proposition, we hold that the

High court was not justified in granting interest at the rate of 18% per

annum with monthly rests. Considering the facts and circumstances of

the present case we direct that pendente lite and future interest at the rate

of 9% shall be paid.   

19.With  the  aforesaid  modification  in  the  decree,  the  present  appeal  is

disposed off.

       ………………………..J.

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                          [S.B. Sinha]

  ...………………………J.             [Dr. Mukundakam Sharma]

New Delhi, February 18, 2009

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