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TMI Blog2024 (8) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... as notified by the RBI from the appointed date till the date of payment. 2. Learned counsel for the petitioner argues that the MSME Act is a beneficial or welfare statute and should be given a liberal and not a strict interpretation. If capable of constructions, the one which is more in consonance with the object of the Act is to be preferred. In support of such contention, the award-holder cites Regional Provident Fund Commissioner vs. Hooghly Mills Company Limited and others, reported at (2012) 2 SCC 489 as well as a Co-ordinate Bench judgment of this Court in Bharat Heavy Electricals Limited Electric Division Vs. Optimal Power Synergy India Pvt. Ltd., reported at AIR 2021 Cal 274. 3. Learned counsel argues that the Act defines "appointed day" and the notified interest should be calculated on the basis of the rates as on such date. The word "monthly" used in Section 16 of the Act refers to compound interest with "monthly rests" and not "monthly interest". In case the contention of the respondent is accepted, the calculation has to be made on the basis of several appointed days, taking into account notified rates at different points of time, which is completely contrary to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ") shall apply to the disputes, if referred to arbitration, as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of Section 7 of that Act. 11. Section 31(7) of the 1996 Act provides that in case of awards for payment of money, the Arbitral Tribunal may include in the sum for which the award is made, interest at such rate as it deems reasonable. Unless the award otherwise directs, the awarded sum has to carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of the award, from the date of award to the date of payment. 12. However, Section 16 of the MSME Act, which is a special statute in respect of MSME Units, clearly provides that such interest has to be mandatorily paid as compound interest with monthly rests at 3 times the bank rate notified by the RBI. In view of the non-obstante clause in Section 16, the same overrides Section 31(7) of the 1996 Act and it is the stipulation of Section 16, thus, which is to be reckoned with in the context. 13. Section 16 is set out hereinbelow: "16. Date from which and rate at which interest is payable.-where any buyer fails to make payment of the amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue, the very concept of compound interest versus simple interest is to be explored, since compound interest is the chosen mode in Section 16. Importantly, it has also been stipulated in Section 16 of the MSME Act that the compound interest shall be with "monthly rests". Thus, the interest is to be compounded at the end of each month after the appointed day. 21. The very concept of compound interest is variable progression, as opposed to simple interest which, by its very definition, always has to be at a fixed rate as on the date of commencement of calculation. In case of simple interest, the interest is calculated at the fixed rate which prevailed at the juncture of commencement of calculations till the date of payment, on the principal. 22. As opposed thereto, the premise of compound interest is staggered progression in the sense that the interest has to be calculated at defined intervals, in the present case, at monthly intervals, which are known as "rests". Hence, for example, if the principal is Rs. 100/- and the initial rate of interest on the appointed day is 10%, after the end of the first month, the total amount would be Rs. 100 + 10% thereof that is Rs. 10/-, which eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of compound interest makes it fluid and variable. If the rate of calculation of interest is fixed at the date of inception of calculation, the same would be a counter-intuitive, artificial and arbitrary superimposition on the normal mode of calculation as given in the statute, since Section 16 provides that the compound interest will be calculated with „monthly rests‟, at which points the prevailing bank rate of interest is to be taken into account. 29. Just as in the case of the simple interest if suddenly varied rates are imposed it would be arbitrary since the mode of calculation is continuous, similarly, in case of compound interest, which is to be calculated on a staggered basis, fixation of the rate prevailing at the inception would also be arbitrary. 30. The very premise of compound interest with monthly rests is that the calculation of further interest is made at the end of every month at the rates prevailing then. In a Section 16 scenario, the rate at which interest is to be imposed at each monthly rest is three times the bank rate notified by the RBI prevalent at that juncture. 31. Hence, by its very definition, compound interest at monthly rest is varia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. As to the judgment of Krishna Rai (supra), the ratio of the same is applicable to the present case. Although the award-debtor had paid interest at a fixed rate for some time in terms of orders of the court and as per its submission before the court, the same cannot bind the award-debtor if it is opposed to the statute. It is well-settled that there cannot be any estoppel against the law. 38. Thus, the law as interpreted above, as comprised in Section 16 of the MSME Act, could not have been waived by the award-debtor merely by making certain payments of interest. In any event, mere payment at a certain rate, without anything else, cannot amount to a concession on the variability or otherwise of rates of interest, since the question never came up or was considered by court at any stage before. 39. As such, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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