In Contracts, Payment Period Cannot Exceed 120 Days from Acceptance - Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993: Supreme Court

The Supreme Court of India, in a significant ruling, has clarified the applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, emphasizing the limitation on payment terms between buyers and suppliers.

Legal Point of Judgement: Interpretation of Payment Terms Under the 1993 Act

The bench, comprising Justices Sanjiv Khanna and Dipankar Datta, dealt with the complexities surrounding Sections 2(b), (c), (f), 3, 4, 5 of the 1993 Act. The crux of the matter hinged on interpreting the maximum permissible payment period in contracts and the initiation of interest on delayed payments.

Facts and Issues: Snehadeep Structures Pvt. Limited vs Maharashtra Small Scale Industries Development Corporation Ltd.

In this civil appeal, Snehadeep Structures Pvt. Limited (SSPL) challenged the arbitral award set aside by the High Court in favor of Maharashtra Small Scale Industries Development Corporation Ltd. (MSSIDCL). The primary issue revolved around the agreed payment terms and the calculation of interest on delayed payments as stipulated by the 1993 Act.

Court's Detailed Assessment:

120-Day Payment Limit: The court held that any agreement between a supplier and a buyer must adhere to a maximum payment term of 120 days from the date of acceptance or deemed acceptance, as per the proviso to Section 3 of the Act.

Definition Clarity: The court underscored the importance of definitions such as 'appointed day', 'buyer', and 'supplier' within the 1993 Act for calculating interest on delayed payments.

Compound Interest Considerations: The Court raised the need for clarity on whether compounded interest under Section 5 of the Act should be treated as principal for future interest calculations.

Restitution and Enforcement of Security: MSSIDCL's entitlement to enforce security or seek restitution under Section 144 of the Code of Civil Procedure, 1908, was affirmed.

Decision of the Court: The Supreme Court dismissed the appeal, maintaining the High Court's decision to set aside the arbitral award. The court directed further proceedings to determine the facts relevant to the date of acceptance or deemed acceptance for interest calculation under the 1993 Act.

Date of Decision : March 5, 2024.

Snehadeep Structures Pvt. Limited vs Maharashtra Small Scale Industries Development Corporation Ltd. -