CASE NAME: SHANTI CONDUCTORS PVT LTD V ASSAM STATE ELECTRICITY BOARD AND ORS.
CITATION: [2019] 16 SCR 25
BENCH: HON’BLE JUSTICE DR. A. K. SIKRI, HON’BLE JUSTICE ASHOK BHUSHAN, HON’BLE JUSTICE S. ABDUL NAZEER
PARTIES INVOLVED:
- Shanti Conductors (P) Ltd. (Appellant)
- Trusses and Towers (P) Ltd. (Appellant)
- Brahmaputra Concrete Pipe Industries (Appellant)
- Assam State Electrical Board (Respondent)
FACTS:
1. Shanti Conductors (P) Ltd. (Appellant)
The appellant is a Private Limited Company that is registered in Kokrajhar, Assam, as a small-scale industrial unit for the production of electrical conductors and/or wires. Shanti Conductors received a payment of Rs. 2.15 Cr from the Assam Electricity Board for a series of trade practices.
On October 1, 1997, Shanti Conductors initiated legal proceedings to recover Rs. 53.68 lakhs, asserting that they were entitled to interest on delayed payments. The trial court issued a decree on February 2, 2000, ordering the recovery of a total of Rs. 51,60,507.42 (fifty-one lakh sixty thousand five hundred seven rupees and 42 paise) with compounding interest at a rate of 23.75% per annum.
2.Trusses and Towers (P) Ltd. (Appellant)
The board placed two orders on specific dates with the petitioner for the supply of pre-stressed cement concrete poles. Payments were made from April 23rd, 1993 to October 8th, 1993. The appellant has initiated legal proceedings against the board, requesting a decree of Rs. 16,55,623 with interest for the delayed payment, as per the Ancillary Industrial Undertakings Act,1993, commonly referred to as the Act.
3. Brahmaputra Concrete Pipe Industries (Appellant)
The appellant has filed money suit number 32 of 1996 to recover an amount of Rs. 10,03,466.23 along with interest.
4. Assam State Electrical Board (Respondent)
The Act was passed and was scheduled to take effect immediately from 23.09.1992. The supply of the mentioned equipment was completed by Shanti Conductors on 4.10.1993, and the full payment of 2.15 Cr was made and received on 05.03.1994.
ISSUES:
- Whether the 1993 Act inapplicable in cases where the contract for supply was initiated between parties prior to the Act’s enforcement, specifically on September 23, 1992?
- Whether the event that the 1993 Act is determined to be applicable to a contract that was entered into prior to its enforcement, and the contract’s supplies were made after the 1993 Act was enforced, can the 1993 Act be defined as having retrospective operation?
- Whether Shanti Conductors’ money suit precluded by rule of limitations?
- Whether the court’s judgment in Purbanchal Cables (2012) 7 SCC 462, which also dismissed the appeal of Shanti Conductors, binding between the parties involved, namely Shanti Conductors and Assam State Electricity Board? Can the appellant be prevented from questioning this judgment in these appeals?
- Whether the suit filed by the appellants for the recovery of only interest, when it is admitted that the entire principal amount was paid before filing the suit, be considered maintainable?
- Whether the Trusses and Towers Pvt. Ltd.’s appeal against the review judgement dated 19-3-2013 be allowed in light of the fact that the court in SLP © No. 12217 of 2001 did not grant any liberty when the SLP filed in opposition to the high court’s main judgment dated 5-4-2001 was dismissed as withdrawn?
- Whether the plaintiff receive 9% interest even after the high court declared that the 1993 Act did not apply in its consideration of Trusses and Towers Pvt. Ltd.’s Review Petition No. 75 of 2001?
HOLDING:
- In this case the buyer’s obligation to make payment and the date on which payment and interest are due and payable under Sections 3 and 4 do not pertain to any event that occurred prior to the 1993 Act.
- The 1993 Act is clearly prospective in nature.
- The 1993 Act does not include any provision regarding limitation. Therefore, the provision of the Limitation Act that pertains to filing a suit will still be in effect, as there is nothing in the 1993 Act that contradicts or overrides it.
- A proceeding for recovery of interest under the 1993 Act can be undertaken only when any “principal amount” is due. (S. 6 of the 1993 Act)
PROCEDURAL HISTORY:
Sec. 3, 4, 6, 10 of the 1993 Act were taken into consideration along with the limitation act and the following precedents:
- Purbanchal Cables and Conductor Pvt Ltd v. Assam SEB (2012) 7 SCC 462
- Assam Small Scale Industries Development Corpn. Ltd. v. J.D. Pharmaceuticals, (2005) 13 SCC
CONTENTION
Petitioner’s Argument:
Application of the Act:
- Argued that the Micro, Small and Medium Enterprises Development Act, 1993 (the Act) should be applicable to their case.
- Emphasized that the Act, 1993, was enacted as beneficial legislation to protect small-scale industries. They contended that the Act focused on supplies made after its enactment, irrespective of when the contract for supply was entered into.
- Claimed that even if the orders for supply were issued before 23.09.1992, the supplies made after the Act came into force should be covered under the Act’s provisions for interest on delayed payments.
Statutory Provisions for Interest:
- Stated that the Act ensures mandatory payment of interest on outstanding money to deter buyers from withholding suppliers’ amounts. They argued that this was not a new concept but a statutory reinforcement of existing provisions for commercial transactions.
Limitation Period:
- Asserted that their suit was not barred by limitation. The last payment was made on 05.03.1994, and the suit filed on 10.01.1997 was within the limitation period of three years.
Res Judicata and Principle of Merger:
- Contended that the judgment in Purbanchal Cables should not operate as res judicata since the appeal decided only the legal questions and not the merits of the case. Therefore, the principle of merger should not be attracted.
Respondent’s Arguments:
Non-Applicability of the Act:
- Argued that the Act, 1993, was not applicable to contracts entered into before its enforcement on 23.09.1992. They relied on the judgment in Purbanchal Cables, which held that the Act does not apply retrospectively to such contracts.
Suit Barred by Limitation:
- Contended that the suit filed by Shanti Conductors was barred by time. They argued that the amount became due on 04.10.1993, and the limitation period began from 04.11.1993, making the suit filed in January 1997 beyond the three-year limit.
Binding Nature of Previous Judgment:
- Asserted that the judgment in Purbanchal Cables was binding on the parties, including Shanti Conductors. They maintained that this judgment could not be questioned again as it had settled the law regarding the applicability of the Act to contracts made before its enforcement.
Payment of Principal Amount:
- Highlighted that the entire principal amount had been paid to Shanti Conductors by 04.10.1993, and therefore, a suit solely for the recovery of interest was not maintainable
The counsel representing the board contends that since the Special Leave Petition (S.L.P.) filed against the judgment of the Gauhati High Court was withdrawn without obtaining liberty, Civil Appeal No. 8445 of 2016 challenging the Review Order and judgment dated 19.03.2003, is not maintainable. In an earlier Court order, it was noted that the appellant intended to move the High Court for a review, claiming an error in recording that “all the bills were paid earlier to the commencement of this act.” While the Review Petition partly allowed interest at 9%, the High Court did not explicitly address whether all the bills were paid before the commencement of the Act.
RATIONALE:
The legislation aims to ensure prompt payments from buyers, as mandated by the 1993 Act through mandatory provisions.
Section 3 of the 1993 Act establishes a legal obligation for the buyer to fulfil payment.
According to Section 3, both the supply or service and payment must occur after the Act has been enforced.
Section 6 of the 1993 Act stipulates that the recovery of interest can only be pursued when the amount is owed.
A statute does not have retroactive effect simply because it impacts existing rights. Nor does it have retroactive effect simply because it relies on information from a time before its enactment.
DEFECTS OF LAW:
The case of Shanti Conductors Pvt Ltd v Assam State Electricity Board and Ors. [2019] 16 SCR 25 highlights several defects and issues within the legal system. Here are some key points regarding the defects of law observed in this case
- Delay in Judicial Process: One of the significant defects noted in this case is the delay in the judicial process. The case took 3 years to reach a conclusion, highlighting the inefficiency and slow pace of the legal system.
- Ambiguity in Contract Terms: The case also underscores the issues related to ambiguity in contract terms and conditions. Disputes often arise from unclear or poorly drafted contractual clauses, leading to differing interpretations and subsequent litigation. This case emphasizes the need for precise and unambiguous drafting of contracts.
- Enforcement of Contracts: The difficulty in enforcing contracts is another defect highlighted by this case. Even when a contractual obligation is clear, the enforcement mechanisms may be cumbersome and time-consuming, leading to a lack of confidence in the legal system’s ability to uphold contractual agreements efficiently.
INFERENCE:
The judicial proceedings of Shanti Conductors Pvt Ltd, v Assam State Electricity Board and Others [2019] 16 SCR 25 provides valuable insights into contractual issues. Clear and precise contract drafting is crucial to prevent misunderstandings and conflicts that may arise from terms. This case underscores the difficulties in enforcing contracts, emphasizing the significance of robust enforcement mechanisms in the face of legal and bureaucratic complexities. In addition, it highlights the detrimental effects of court delays on businesses, eroding their trust in the system. This underscores the need for urgent reforms to expedite processes and reduce court backlog. The lengthy legal battles portrayed in this case demonstrate the impact of prolonged disputes on business resources and operations, highlighting the importance of effective dispute resolution methods. The inclusion of organizations such as the Assam State Electricity Board introduces an additional level of intricacy, highlighting the challenges that businesses face due to inefficiencies and regulatory uncertainties. Furthermore, it highlights the importance of considering alternative dispute resolution (ADR) options like arbitration and mediation, which can provide more affordable ways to resolve disputes.
It highlights the urgent need for updates to the legal structure to address delays, reduce costs, and streamline enforcement processes, ultimately improving the overall efficiency of the legal and regulatory system.
Prajjwal Sehgal
OP Jindal Global University