jharkhand high court

Jharkhand High Court: In an appeal challenging Writ Court’s judgment dated 16-05-2019 remanding the matter to Jharkhand Micro, Small and Medium Enterprises Facilitation Council (‘MSEFC Jharkhand’) for adjudication of claim for interest on delayed payment of bills raised, the Division Bench of Shree Chandrashekhar and Anubha Rawat Choudhary*, JJ. concurred with the Writ Court regarding maintainability and law allowing claim for principal amount as well as separate claim for interest.

The SEFC Jharkhand had vide order dated 4-03-2016 dismissed the application under Section 18 of Micro Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’) with the observation that a claim only on account of interest on delayed payment of bills was not maintainable.

Factual Matrix

The petitioner registered as a Small-Scale Industrial unit (SSI Unit) for manufacture of books, magazines and stationery on 7-08-2003. It participated in tender process in furtherance of notice issued by appellants on 6-12-2012 for printing and supply of poster. The work order was issued to the petitioner on 8-02-2013. The Bill was submitted by the petitioner after completion of work, but an outstanding amount of Rs 3,80,05,000 remained unpaid, which led the petitioner to file writ petition seeking suitable directions for payment of dues. The principal amount was paid to the petitioner on 13-01-2015, but no payment was made on account of interest on delayed payment. The petitioner thus filed an interlocutory application seeking withdrawal of writ petition in order to avail alternate remedy for recovery of outstanding interest thereof, which was allowed by the High Court on 17-12-2015.

The petitioner filed an application under Section 18(1) of MSMED Act for recovery of the outstanding interest amount of Rs 2,78,33,503 against the appellants before MSEFC Jharkhand, which decided against the petitioner on 4-03-2016 stating that since outstanding principal was Zero, the claim only for interest was not maintainable. Challenge against the same led the High Court to remit the matter back to MSEFC Jharkhand.

Issues considered

  • Whether the writ Court was justified in entertaining the writ petition?

It was contended that the writ was not maintainable since the matter should have proceeded as per Section 34 of Arbitration and Conciliation Act, 1996. However, the Bench highlighted that even notice was not issued and the petition was dismissed at the threshold without even conciliation, and hence, there was no occasion for MSEFC Jharkhand to go with arbitral proceedings. It relied on Kapildeo Manjhi v. State of Jharkhand, 2021 SCC OnLine Jhar 1257 to express that the order passed by MEEFC Jharkhand could not be said to be an award as per law. The Bench upheld the maintainability of writ petition against the order passed by MSEFC Jharkhand.

  • Whether the petition claiming interest was maintainable before MSEFC Jharkhand after withdrawal of previous writ petition filed, during the pendency of which, only the principal amount was paid?

The Bench first clarified that while allowing withdrawal of the writ petition after payment of initial amount, the Court had granted liberty to agitate claim before alternative forum for adjudication of remaining claim. It further rejected the argument that claim for payment of interest was not maintainable before MSEFC Jharkhand after withdrawal of previous petition, since the Court had not adjudicated that aspect. It further referred to Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd., (2023) 6 SCC 401 regarding Supreme Court’s examination of the scheme of MSMED Act.

  • Whether a petition claiming only interest on delayed payment of bills was maintainable before MSEFC Jharkhand constituted under MSMED Act, 2006?

As against the argument on non-maintainability of an application under Section 18(1) of MSMED Act for recovery of only interest amount and not the principal amount, the Bench scrutinised Sections 18(1), 17, 16 and 15 of MSMED Act to state that the buyer has a liability to pay the principal amount and the interest amount, and such liability is not erased by payment of principal amount on a date beyond the stipulated time frame. The Bench further commented that “The MSMED Act, 2006 is a beneficial legislation with an object to promote and develop micro, small and/or medium enterprises and the aforesaid interpretation regarding a reference for the interest component alone would be in consonance with the object of the Act.”

The Bench referred to Modern Industries v. SAIL, (2010) 5 SCC 44; Shanti Conductors (P) Ltd. v. Assam SEB, (2019) 19 SCC 529 to support the decision that an application for recovery of mere interest is also maintainable. The Bench compared the various provisions of Interest on Delayed Payments in Small Scale and Ancillary Industrial Undertakings Act, 1993 as against the MSMED Act (the former was repealed vide MSMED Act) to state that the two are pari materia.

The Bench concluded that the petition to claim only interest after principal amount was already paid, was maintainable before the MSEFC, which in turn was duty bound to deal with the procedural mandate of Section 16 of MSMED Act. The Bench also concurred with the Writ Court’s findings that MSEFC Jharkhand failed in discharging the statutory duty and committed jurisdictional error in not entertaining the petition claiming only interest on delayed payment.

However, the Bench resorted to modify the aspect when writ Court remitted the matter back for adjudication, stating that the stage of adjudication would come only after the conciliation fails, and thus, directed for restoration of case before MSEFC Jharkhand to proceed in terms of Section 18 of MSMED Act.

[State Project Director v. National Printers, 2023 SCC OnLine Jhar 1351, decided on 11-09-2023]

Judgment by: Justice Anubha Rawat Choudhary

Advocates who appeared in this case :

For Appellants: Advocate Krishna Murari, Advocate Raj Vardhan

For Respondents: Advocate Rahul Lamba, Advocate Aditya Mohan Khandelwal, AC to GA-V Amrit Raj Kisku

Buy Arbitration and Conciliation Act, 1996   HERE

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