Justice Jasmeet Singh, Delhi High Court
Interest U/S 16 Of MSMED Act Can Be Granted Under Ad-Hoc Arbitration: Delhi High Court
|The Delhi High Court noted that the high rate of interest contemplated under Section 16 of the MSMED Act is a deterrent to prevent non-payment of the dues to micro and small industries.
The Delhi High Court held that an interest as contemplated under Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) can be granted under ad-hoc arbitration.
The Court held thus in a Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking to challenge the Arbitral Award.
A Single Bench of Justice Jasmeet Singh observed, “… section 15 and 16 are substantive rights and are independent of section 18. In order to attract the rigors of section 15 and 16, it need not be that dispute redressal mechanism as provided under section 18 of the MSMED Act be initiated. Interest as contemplated under section 16 can be granted under ad-hoc arbitration.”
The Bench added that the purpose of Section 16 is to encourage timely payment(s) to medium and small-scale industries as their success/failure depends upon timely payment(s) and, hence, the high rate of interest contemplated under Section 16 of the MSMED Act is a deterrent to prevent non-payment of the dues to micro and small industries.
Advocate Vaibhav Gaggar represented the Petitioner while Advocate Satyam Dwivedi represented the Respondents.
Factual Background
The Petitioner was held to be jointly and severally liable along with the Respondent No. 2 to pay a sum of Rs. 6,56,84,982/- to the Respondent No. 1 company along with interest at the rate of 38.85% from the date of the award till the actual payment is made. The Petitioner was a leading civil engineering, construction and infrastructure development public limited company and the Respondent No. 1 was engaged in the business of bulk material handling systems. The Respondent No. 2 was a public limited company which invited bids through a tender for the engineering, procurement, transportation, supply to site, and insurance of main plant equipment and accessories along with balance of plants (BOP) equipment and accessories.
Thereafter, it invited bids for designing, engineering, manufacturing, supply, erection, and commissioning of a Coal Handling Project. A contract was executed and the Petitioner submitted its quotation, which was approved. Pursuantly, a Tripartite Agreement was executed and the Petitioner became the EPC contractor. Soon after, certain disputes arose between the parties and arbitration was invoked. The Respondent No. 1 filed a Petition and sought appointment of a Sole Arbitrator for adjudication of disputes between the Petitioner and Respondents. The Sole Arbitrator was appointed and the Arbitral Award was passed against the Petitioner. Being aggrieved, the Petitioner was before the High Court.
Reasoning
The High Court in the above context of the case, said, “As regards, the interest component is concerned, the argument advanced by the petitioner is that the award of interest at the rate of 38.85% under section 16 of the MSMED Act is legally unsustainable, as the arbitration was not conducted under section 18 of the MSMED Act. Since the arbitration was ad hoc, the benefit of interest under section 16 does not apply.”
The Court noted that the challenge to the interest is without merit.
Accordingly, the High Court dismissed the Petition and upheld the Arbitral Award.
Cause Title- Shristi Infrastructure Development v. Scorpio Engineering Private Limited and Anr. (Neutral Citation: 2025:DHC:3185)
Appearance:
Petitioner: Advocate Vaibhav Gaggar
Respondents: Advocates Satyam Dwivedi, Harshit Prakash, and Puja Jakhar.