Calcutta High Court: A single bench comprising of Moushumi Bhattacharya,* J., observed that a defaulting buyer will not be liable to pay interest at three times the bank rate under Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) if the supplier is a medium enterprise and held that the petitioner is liable to pay an interest of 8% instead of 24.6% on the principle amount.
Brief Facts
In the instant matter, vide order 03-04-2023, the sole Arbitrator passed an Arbitral Award directing the petitioner to pay an amount of Rs. 24,11,07,449.15 to the respondent. Aggrieved by the impugned order where the interest calculated at 24.6% was based on the respondent being a “medium” enterprise under Section 16 of the MSMED Act, the petitioner preferred an application before this Court seeking a stay on impugned Arbitral Award and prayed to make a distinction between a ‘Medium, Micro and Small enterprise’ as defined under the MSMED Act. The respondent contended that the grounds taken by the petitioner are to be considered only at the time of setting aside of the Award as per Section 34 of the Arbitration and Conciliation Act, 1996 (the Act, 1996).
Court’s Observation
The Court observed that the definition of “supplier” as per Section 2(g) of the MSMED Act excludes a “median enterprise”. While looking at Section 2(g), (h), (m), (n) of the MSMED Act, the Court observed that the defaulting buyer will not be liable to pay the interest three times that of charged by the Bank if the supplier is a median enterprise but same principle is not applicable in if the supplier is a micro or small enterprise.
The Court opined that the petitioner should pay the principal amount of Rs. 5,17,09,732.78 plus costs at Rs. 1 crore as computed by the sole Arbitrator for stay of the Award. The Court further observed that question related to irrationality of the quantum of the costs imposed to be determined under Section 34 of the Act, 1996.
Court’s Verdict
The Court held that the s liable to pay an interest of 8% at the place of 24.6% on the principle amount and secure the 50% of the total amount by way of cash deposit and the rest by way of a bank guarantee with the Registrar, Original Side of this Court within two weeks from today.
The Court stayed the operation of the impugned Arbitral Award on and from the date of the petitioner securing the amount as directed.
The Court disposed of the application with the liberty to the respondent to take appropriate of steps for execution of the Arbitral Award.
[New India Assurance Co. Ltd. v. Winsome International Ltd., 2023 SCC OnLine Cal 2090, order dated 05-07-2023]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case :
Mr. Ratnanko Banerji, Sr. Adv., Mr. Srinjoy Bhattacharya and Ms. Nikita Rathi, Counsel for the Petitioner;
Mr. Samit Talukdar, Sr. Adv., Ms. Nandini Mitra, Mr. Pradip Sarawagi and Ms. Debolina Dey, Counsel for the Respondent.
Buy Arbitration and Conciliation Act, 1996 HERE
