Section 16 higher Interest of MSMED Act applies even in adhoc arbitration

Judgment dated 1.5.2025   of the High Court of Bombay in O.M.P. (COMM.) 246/2022 of Shristi Infrastructure Development  Vs.   Scorpio Engineering Private Limited and another

In this case, the respondent no.1 had chosen to file section 11 petition, instead of approaching MSME Facilitation Council under Section 18 of the MSMED Act.

As a result, the Arbitral Award was passed under the Arbitration Act.

Arbitral Award dated 16.10.2019 holding the petitioner jointly and severally liable with respondent no.2 to pay Rs.6,56,84,982/- to the respondent no.1.  Claim Nos.1 and 4 were allowed.  Rest of the claims of the respondent no.1 and the counter claim of the respondent no.2 were rejected.

The Arbitrator awarded interest at 38.85% from the date of award till actual payment is made i.e. Rs.83,69,904/- on Rs.5,73,15,078/-.

In that context, it was contended that since the arbitration was not conducted under Section 18 of the MSMED Act and since the arbitration was adhoc, the benefit of interest under section 16 does not apply.

It was HELD that sections 15 and 16 of the MSMED Act are substantive rights and are independent of Section 18.  In order to attract the rigors of sections 15 and 16, it need not be that dispute redressal mechanism under section 16 is initiated.  Interest as contemplated under section 16 can be granted under ad-hoc arbitration.

Considering the objects of section 16 of the said Act, it was HELD that the purpose of section 16 is to encourage timely payments and small-scale industries as their success / failure depends upon timely payments.  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.