Narayanarao Murali (Advocate) 13 May 2011

Guidance required

Dear Members

An Arbitration case details are furnished hereunder. Kindly confirm whether my views are correct:

The claimant filed a statement of claim for certain value and for the interest thereon, under “delayed payment receivable” by an SSI Unit. In the statement of claim, they have indicated totally six Invoices raised against six lots of supplies effected on different dates to the respondent company. But out of six (6) invoices, supplies were made against L/C established by the respondent for the partial supplies and three (3) invoices were raised separately. After supplies the claimant negotiated the above said (3) three invoices and received payment through Bank against the L/C terms.

The business relations/transactions between the claimant and the respondent were spread over a period of 4 financial years. The respondent did not pay against certain invoices/supplies as the material supplied by the claimant were defective. Keeping aside the settlement of dispute on defective material value and the resultant loss, the respondent was buying material from the claimant and was releasing payment by means of cheques/DDs/L.C. At times the cheques issued by the respondent were bounced and were made good by issuing fresh cheuqes / DDs in lieu of bounced cheques.

Now when the arbitration proceedings are on, the claimant says that he has adjusted the payments received on first in first out basis viz., against the Invoices which were raised against supplies under L/C terms of payment to those which were payable by the respondent under direct credit basis. Further the claimant in his claim statement showing those invoices which he received payment against L/C as due and claiming interest also.

My view is as per the accounting practice, unless there is an understanding oral/in writing between the claimant/respondent (creditor & debtor), the claimant can not adjust the amounts received against those bills which he raised against specific L/C with those of other Bills which he raised for supplies under direct credit basis. Please guide me. Regards.

Reply Follow

2 Replies

Narendra Sharma (Consultant) 13 May 2011

Yes, your view is also as per section 59 of Contract Act, 1872, hence correct. Unless there is an understanding oral/in writing between the claimant/respondent (creditor & debtor), the claimant can not adjust the amounts received against those bills which he raised against specific L/C with those of other Bills which he raised for supplies under direct credit basis.Regards-N.K.SHARMA

rajasekaran (director) 17 April 2012

According to you the claimant filed a statement of claim for certain value and for the interest thereon, under “delayed payment receivable” by an SSI Unit, which means he has invoked the provisions of THE MICRO, SMALL & MEDIUM ENTERPRISES DEVELOPMENT (MSMED) ACT, 2006.

Section 15,16,17 & 18 govern the period of payment to MSEs and section 24 a non ostante clause over riding inconsistancy over any other law for the time being in force..

Section 15

Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty five days from the day of acceptance or the day of deemed acceptance.

Section 16

Where any buyer fails to make payment of the supplier, as required under section 15, the buyer shall, not withstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by Reverse bank.

Section 17 & 18

These Sections have provision that any party can make a reference to the Micro and Small Enterprises Facilitation Council, in case of a dispute with regard to any amount due because of delayed payment. On receipt of a reference, the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services. Where the conciliation initiated is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services. The Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have the same jurisdiction to act as an Arbitrator or conciliator under this section in a dispute between the supplier located within the jurisdiction and a buyer located anywhere in India. The Act also has provision that every reference made under this section shall be decided within a period of ninety days from the date of making the reference.

Rate of interest on outstanding amount increased to three times the prevailing bank rate of Reserve Bank of India compounded on monthly basis.