HC Rightly Upheld Award as Respondent Subcontracted Pipeline Supply, Creating Liability With Appellant on Default | SC

Case Details: Snehadeep Structures (P.) Ltd. v. Maharashtra Small Scale Industries Development Corporation Ltd. - [2024] 160 taxmann.com 481 (SC)

Judiciary and Counsel Details

• • Sanjiv Khanna & Dipankar Datta, JJ.

Facts of the Case

In the instant case, the Respondent Corporation placed a work order with the appellant company for the supply of pipelines. Pursuant to the supply order, the products/goods ordered were supplied by the appellant.

The appellant submitted running bills in respect of goods supplied and work undertaken, as per the terms of the work order and supply order. According to the appellant, it was entitled to receive full payment of bills within 10 days of submission of bills. However, the respondent failed to pay the bills within the prescribed time.

Consequently, the appellant called upon the respondent to pay interest on delayed payment under the provisions of the Interest on delayed payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Further, for the settlement and adjudication of disputes, the parties resorted to the arbitral mechanism and an arbitrator was appointed.

The arbitrator directed the respondent to pay Rs.78 lakh along with an interest to the appellant. Before the High Court, the respondent argued that in terms of the purchase order, it would be liable to pay the appellant only after the goods were delivered and accepted by the Maharashtra State Electricity Board (MSEB) and upon payment being received by the respondent from MSEB.

Further, the respondent contended that it was not a “Buyer’ under the 1993 Act, and, therefore, it was not liable to pay interest on delayed payment. The High Court, by the impugned order, upheld the arbitral award.

It was noted that by way of amending clause 2(f), the respondent was to be treated or deemed to be a supplier to MSEB. However, this would not deviate from the fact that the respondent was a buyer under the supply/purchase order issued by the respondent to the appellant.

Further, it was noted that G.O. 2(1)/A/93- SSI Bd. and Policy dated 05.05.1993 issued by the Ministry of Industry, Department of SSI, Agro and Rural Industries, Office of Development Commissioner (Small Scale Industries), had the effect of treating the respondent as a supplier to claim interest from the buyer, i.e. MSEB, with whom they have entered into a contract for the purpose of the 1993 Act.

Supreme Court Held

The Supreme Court held that the liability to pay and the privity of contract in terms of the supply/purchase order was between the respondent and the appellant and the contractual relationship, rights and obligations between them did not undergo any change. Thus, the High Court was justified in upholding the arbitral award.