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Can a writ court under Article 226 of the Constitution of India directly adjudicate complex contractual disputes and calculate statutory interest under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 when the underlying questions of fact remain unresolved? In Charu Technology Pvt. Ltd. v. State of Assam and Ors.1, the High Court of Gauhati answered this decisively in the negative, holding that while Micro, Small, and Medium Enterprises (MSMEs) are statutorily entitled to protection and compound interest for delayed payments, a writ court cannot transform itself into a fact-finding forum to calculate exact interest liabilities or verify supply timelines. Instead, the Court established that the proper recourse is to direct the state department to verify the claims based on structured mathematical computations provided by the claimant, reserving the right of the parties to approach the MSME Facilitation Council under Section 18 if an amicable resolution fails.
The petitioner, Charu Technology Pvt. Ltd., claiming status as a small enterprise under the MSMED Act, 2006, supplied UPVC pipes to the Public Health Engineering (PHE) Department of the Government of Assam pursuant to multiple work orders. Following persistent non-payment of its dues, the petitioner initially approached the High Court in 2018, which directed the department to consider its representations. When the department failed to comply, contempt proceedings were initiated, culminating in a Memorandum of Understanding (MoU) where the final outstanding dues under the National Rural Drinking Water Programme (NRDWP) account were mutually settled at ₹5,35,25,305. Following this settlement, the petitioner withdrew its contempt application in 2022 and accepted fresh work orders for supplies in 2020 and 2021.
However, history repeated itself as the state again failed to clear the payments for these subsequent supplies. Although the PHE Department initiated communication in mid-2024 to achieve an amicable and equitable resolution, the lack of actual disbursement prompted the petitioner to formally withdraw from the MoU in April 2025. After subsequent representations in July and August 2025 yielded no results, the petitioner filed the present writ petition seeking a statutory direction for the release of its outstanding principal dues alongside interest compounded with monthly rests under Section 16 of the MSMED Act. The respondents resisted the writ on the grounds that the petitioner had an alternative, efficacious remedy under Section 18 of the Act via the MSME Facilitation Council, and that some claims were hit by the prior amicable settlement.
In evaluating whether the writ petition should be entertained, Mr. Justice Devashis Baruah closely examined the interplay between statutory mandates under the MSMED Act and the limitations of writ jurisdiction over disputed questions of fact. The Court relied heavily on its own recent coordinate bench precedent, Garg Poly Industries & Others Vs. State of Assam & Others2, to dismantle the state’s preliminary objection regarding the alternative remedy. Garg Poly Industries clarified that when a state authority fundamentally questions or suppresses an entity’s status as a registered MSME within its internal rejection orders, such an existential administrative determination cannot be effectively adjudicated by the MSME Facilitation Council itself, thereby making a writ petition under Article 226 maintainable.
The core of the judgment, however, shifts to the exact mechanics of interest calculation under the MSMED Act. Section 15 of the Act imposes a strict statutory obligation upon buyers to clear payments within the agreed timeline, which can never exceed forty-five days from the day of acceptance or deemed acceptance. Section 16 penalizes any deviation by mandating that the buyer must pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India, irrespective of any agreement to the contrary.
To interpret how this compounding operates over changing economic cycles, the Gauhati High Court adopted the lucid principles laid down by the Calcutta High Court in V.K. Patel & Others Vs. Simplex Infrastructure Ltd3. The V.K. Patel decision emphasized that compound interest with monthly rests is fundamentally a “staggered progression” rather than a static concept. The Calcutta High Court ruled that while the “appointed day” serves as the unyielding starting point of the calculation, the interest rate itself is fluid and cannot remain frozen at the rate prevalent on that inception date. Instead, the calculation must progress month by month, taking the principal amount, adding the interest accrued during that specific month to form a new base principal for the subsequent month, and applying three times the dynamic RBI-notified bank rate prevalent at the end of each specific monthly rest.
Applying this jurisprudential matrix to the present facts, the Gauhati High Court observed that the petitioner’s representations completely failed to demonstrate how these interest components were computed. The High Court observed that crucial questions of fact such as the exact dates of supply delivery, whether there was actual or deemed acceptance, the corresponding variations in historical RBI bank rates, and the verification of the petitioner’s continued status as a “Small Enterprise” cannot be determined within a writ proceeding. A writ court possesses neither the institutional machinery nor the evidentiary mandate to conduct a detailed accounting audit of commercial transactions.
The High Court of Gauhati effectively balanced the enforcement of public law duties with commercial pragmatism by disposing of the writ petition with a structured, time-bound framework. The petitioner was granted liberty to submit a fresh, mathematically rigorous representation within sixty days to the PHE Department, charting its claims alongside an interest calculation mapped strictly to the dynamic compounding principles of V.K. Patel. Concurrently, the Special Chief Secretary to the Government of Assam was ordered to verify these claims against physical work orders and supply receipts within four months, either releasing the due payments or issuing a reasoned speaking order if the claims are legally unsustainable.
By ordering that statutory interest would remain frozen during this four-month administrative window unless the reconciliation fails and leads to an outright dispute the Court creatively curbed the inflation of liabilities against the public exchequer while ensuring administrative accountability. Ultimately, the ruling reinforces a vital legal boundary: while the high courts will readily intervene to compel public authorities to perform their statutory obligations under the MSMED Act, they will not bypass the specialized domain of the MSME Facilitation Council or the administrative verification machinery when a case turns entirely on audited facts and financial calculations.
Citations
Expositor(s): Adv. Jahnobi Paul
