2024 (8) TMI 652 - HC - Indian Laws

Interest on MSME Act Section 16 awards calculated at three times RBI rates with monthly rests using fluctuating rates

The HC ruled on interest calculation for MSME Act Section 16 money awards. The court held that interest must be calculated at three times the RBI-notified ... Enforcement of a money-award rendered in favour of the petitioner - Calculation of rate of interest on the money award - to be calculated on the basis of the bank rate fixed by the Reserve Bank of India (RBI) as on the appointed date or be calculated on the basis of the fluctuating rates at different points of time as notified by the RBI from the appointed date till the date of payment - Section 16 of the MSME Act - HELD THAT:- Upon a comprehensive assessment of the provisions of Section 16, the inevitable conclusion is that the interest envisaged therein is to be paid at the rate of three times the RBI notified rates, the incidence of which would be at each monthly rest, meaning thereby that the rates would be fluctuating along with the RBI-notified rates at variable points of time, to be taken at each monthly interval which is the point of incidence of such rates. Accordingly, the version of the award-debtor is accepted. The rate of interest has to be calculated from the appointed date till the date of repayment, calculated on the basis of compound interest with monthly rests, the rate of interest being taken at each point of incidence at each monthly rest, in terms of the RBI rates prevalent at that point of time, multiplied by three. Hence, the award-debtor is to pay interest to the award-holder at the variable rates of interest as notified by the RBI from time to time, multiplied by three, throughout the period, calculated at each monthly interval at the then prevailing rates. The mode of calculation having thus been determined, the award-debtor is directed to make the full payment of interest as per the calculations in the light of the observations above to the award-holder within four (04) weeks from date. For such purpose, along with such payment of the entire interest component over and above the principal awarded amount, deducting the amounts already paid/deposited in terms of court orders, the award-debtor shall also file in court a copy of the detailed calculations for arriving at the amount paid to the award-holder. The award holder will be at liberty to withdraw (if deposited), alternatively utilize (if paid directly) the amount already deposited/paid by the award debtor. The matter shall next be listed under the heading “For Orders” on August 6, 2024 when the award-debtors shall file an affidavit of compliance, showing payment of such entire amount of interest along with the principal to the award-holder, annexing to the said affidavit a break-up of the detailed calculations of interest till the date of payment. Issues Involved:1. Calculation of interest under Section 16 of the MSME Act.2. Interpretation of 'appointed day' and 'monthly rests' in the context of interest calculation.3. Whether the interest rate should be fixed or variable.4. Applicability of estoppel against the law in the context of interest payments.Issue-wise Detailed Analysis:1. Calculation of Interest under Section 16 of the MSME Act:The core dispute revolves around the method of calculating interest on the award amount. The petitioner argues that the interest should be calculated based on the bank rate fixed by the Reserve Bank of India (RBI) as on the 'appointed day.' In contrast, the respondent contends that the interest should be calculated based on fluctuating rates as notified by the RBI from the appointed date till the date of payment.2. Interpretation of 'Appointed Day' and 'Monthly Rests':The MSME Act defines the 'appointed day' as the day following immediately after the expiry of 15 days from the day of acceptance or deemed acceptance of goods or services. The petitioner argues that the interest should be calculated based on the rate as on this appointed day. However, Section 16 of the MSME Act specifies that the interest should be compound interest with monthly rests, indicating that the interest is to be compounded at the end of each month after the appointed day.3. Whether the Interest Rate Should Be Fixed or Variable:The judgment delves into the nature of compound interest versus simple interest. Simple interest is calculated at a fixed rate from the commencement date till the date of payment. In contrast, compound interest involves a variable progression, with interest calculated at defined intervals (monthly rests). The court concludes that the interest rate should be variable, taking into account the bank rate notified by the RBI at the end of each month. This interpretation aligns with the concept of compound interest and the statutory language of Section 16.4. Applicability of Estoppel Against the Law in the Context of Interest Payments:The respondent argues that the petitioner cannot be bound to a fixed rate of interest due to prior payments made at a fixed rate, citing the principle that there cannot be any estoppel against the law. The court agrees, stating that the law as interpreted in Section 16 of the MSME Act cannot be waived by the award-debtor merely by making certain payments of interest. The court emphasizes that the executing court cannot go behind the award itself and must enforce it as per the statutory provisions.Conclusion:The court concludes that the interest under Section 16 of the MSME Act should be calculated at three times the RBI-notified bank rates, with the incidence of interest occurring at each monthly rest. This means that the interest rate will be variable, fluctuating with the RBI rates at each monthly interval. The award-debtor is directed to pay the interest calculated in this manner within four weeks, providing detailed calculations to the court and the award-holder. The matter will be listed for further orders on August 6, 2024, to ensure compliance.