M/S. Shakti Tubes Ltd v. State of Bihar & Ors

 

CASE COMMENT:

M/S. Shakti Tubes Ltd v. State of Bihar & Ors on 7th July 2009

Citation: (2009) 7 SCC 673

Author: M Sharma

Bench: Mukundakam Sharma, B.S. Chauhan

APPELLANT……………………………………………….M/S. Shakti Tubes Ltd

                                                        Versus

RESPONDENTS……………………………………………State of Bihar & Ors

Date of Judgement: 7th July 2009

Introduction:

The appeal filed in the Supreme Court was against the order passed by the Patna High Court on 22nd February 2006. In this suit, wherein the plaintiff won the case in the trial court and demanded the payment with interest, the respondents filed an appeal in the Patna High Court, saying the interest rate is too high for what the plaintiff is entitled to. The respondents won the case in Patna High Court, where the court reduced the interest rate from 24% per annum to 9% per annum. Hence, this appeal is filed by the appellant (plaintiff) because of not being satisfied with the order passed by the High Court and to claim the higher rate of interest.

ACTS:

The Interest on Delayed Payment to Small Scale Industries Act, 1993 came into force on 23rd September 1992. Sections 2(b), 3, 4, and 5 are considered from this Act.

Section 3 of Industries Development and Regulation Act, 1951

Section 34 of Civil Procedure Code, 1908

Section 64 of the Indian Contract Act

Companies Act, 1956

Issue raised:

In this case, only one issue was raised: -

Whether the appellant (plaintiff) is entitled to a higher rate of interest on the amount or not?

Facts of the case:

The appellant (plaintiff) is incorporated under the Indian Companies Act as a Small-Scale Industry. The industry got into an agreement to deliver pipes to the State of Bihar at 174.95 INR per meter, for which 90% of the payment was to be made after receiving the pipes, and the balance of 10% had to be paid within one month after the delivery after proper verification. 

Terms were agreed upon, and the order for the pipes was placed on 10th July 1992. It was also mentioned and agreed in the contract that the payment shall be made o the escalated value of the pipes. Firstly, payment was not made on receiving the pipes as per the terms, but after some time, the payment was made at a lower price, i.e., 190.48 INR per meter instead of 199.04 INR per meter. After all the calculations, the amount of 38,13,480 INR remained withheld with the respondents illegally.

Eventually, a suit was filed in the Trial Court by the appellant (plaintiff) for recovery of the amount of 38,13,480 INR with an interest rate of 24% per annum, which was granted by the Trial Court on 31st May 1999. Interest was effective from 1st June 1993 till realization. Nevertheless, the respondents, not satisfied with the interest rate, knocked on the doors of the Patna High Court and filed an appeal. The issue raised was that the interest rate charged by the appellant (Plaintiff) is higher than what the industry was entitled to. The Patna High Court agreed and changed the rate of interest from 24% per annum to 9% per annum on 20th February 2006.

The appellant (plaintiff) files this appeal in the Supreme Court of India and raises the issue of whether the appellant is entitled to an interest of 24% per annum or not. This issue was raised as per the terms of the provisions of the Interest on Delayed Payment to Small Scale Industries Act, 1993.

Contentions:

Arguments by the Appellant:

Counsel for the appellant: Mr. G.C. Bharuka

The provisions of the ‘Interest on Delayed Payment to Small Scale Industries Act, 1993’ (referred to as ‘the Act’ in the rest of the document) were discussed. This played the most critical role in deciding the rate of interest. The case of Assam Small Scale Industries Development Corporation Ltd. & Ors. v. J.D. Pharmaceuticals & Anr. was taken into consideration, whose judgment was passed by this very court. The supply of goods was made after the Act came into existence and was enforceable. The objects and reasons for the Act were also brought into the picture. Earlier supply order that was issued on 16th July 1992 was altered by a fresh supply order issued on 18th March 1993, by which the Act was already enforced. Hence, the appellant is entitled to higher rates of interest as in sections 4 and 5 of the Act. There was an alteration in the contract, and hence, section 62 of the Indian Contract Act was applicable. The word transaction was given importance, and it was said that a transaction is said to be complete only when the supplier supplies the goods, and since the goods were supplied on the date before which the Act came into force, the appellant is entitled to a higher rate of interest as per section 4 and 5 of the Act.

Arguments by the respondent:

Counsel for the respondent: Mr. Dinesh Dwivedi

As the supply order was issued on 16th July 1992, as per the terms mentioned in Assam Small Scale Industries Development Corporation Ltd. & Ors. v. J.D. Pharmaceuticals & Anr., the appellant is not entitled to a higher interest rate as demanded. The appellant is only entitled to an interest rate of 9% per annum. Also, the novation of supply order dated 16th July 1992 was never argued before in any appeal and hence cannot be argued now, for the first time, at the time of the final hearing. The council also submitted to the court that there was no new supply order by either party, and there was no alteration of the earlier supply order. The earlier supply order continued with a few variations. A point made by the appellant counsel was also countered, saying that if the transactions depend on the supply of goods, then the suppliers would take undue advantage of it and keep postponing the delivery and ask for higher rates of interest as payments.

 

 

Liability of the buyer:

The buyer has to pay for the services and goods received on or before the decided date as per section 3 of the Act. If he fails to do so, then he is bound to pay interest from the last date decided. The interest rate would be one and a half times of prime lending rate charged by the State Bank of India. Payment of compound interest as per the rate mentioned in section 4 of the Act.

The Objective of the Law:

·       There is no doubt about the Act being welfare legislation. It was enacted to protect the suppliers and their interests.

·       However, the Act cannot be given retrospective effect as long as the Act itself knows its proper intentions of the Act.

The Decision of the Supreme Court:

The court clarified the meaning of transaction as initiating the transaction by placing supply orders and not the completion of the transaction, which is completed only when the payment is made. The point made by the appellant about the novation and alteration in the contract was never raised before, neither in the trial court nor in the Patna High Court. Even in the supreme court, it was not raised. It was raised for the first time during the final hearing, and hence this cannot be considered as it questions the facts and questions the law. Such mixed questions of law and facts should not be allowed to be raised during the final hearing.

It was found that there was no alteration of the contract in the present case. To gain a high price for the pipes, the appellant delayed the supply of goods. There was only a variation in the quantity as there was a delay in supply and all the other terms were as it is, including the price escalation term. Moreover, the parties entered into the agreement before the Act came to force.

The counsel for the appellant had no factual or legal basis. Therefore, the decision of the Patna High Court was considered correct, and the decision remained the same. However, for this suit, in the Supreme Court, the parties are to bear their own losses, and no compensation shall be given.

 

Inference:

The Hon’ble Supreme Court rightly pointed out all the facts and legal aspects of the present case and served justice to whoever deserved it. It was brought to light the fact that there was no alteration or novation of the contract which was entered by the parties, and hence it cannot be considered as a new contract as per section 62 of the Indian Contract Act. Also, the Act came into force on 23rd September 1992, before which the parties had already entered into the agreement. Hence, the new law was not applicable for the present case, and so the appellant (plaintiff) was not entitled to a higher interest rate of 24% per annum. Instead, the appellant was allowed an interest rate of 9% per annum as per the term discussed in the considered case of Assam Small Scale Industries Development Corporation Ltd. & Ors. v. J.D. Pharmaceuticals & Anr. Ultimately, the decision was passed in favor of the respondent.

Conclusion:

The case of M/S. Shakti Tubes Ltd v. State of Bihar & Ors was a money suit filed in the Supreme Court. The main issue of this case was whether the appellant (plaintiff) is entitled to a higher rate of interest or not for the penalty of late payment by the respondent. Firstly, the case was about the respondent not paying the amount for the pipes delivered to them. This case was filed in the trial court, and the judgment was in favor of the appellant (plaintiff). An interest rate of 24% was allowed on the amount as a penalty, which was considered too high by the respondent, and hence, they filed an appeal before the Hon’ble Patna High Court regarding this issue. The Hon’ble Patna High Court decided in favor of the respondents and reduced the interest rate from 24% per annum to 9% per annum. However, the appellant (plaintiff) was not satisfied with the judgment and filed an appeal before the Hon’ble Supreme Court, where the issue of whether the appellant is entitled to a higher rate of interest or not was addressed. The Hon’ble Supreme Court gave the judgment in favor of the respondent, saying that there was no alteration in the contract, so section 62 of the Indian Contract Act could not be applied, and the agreement was made before the Act came into force, so the terms of the Act cannot be considered for the present suit.