A.I. Construction Pvt. Ltd. vs Goodwill (I) Ltd.
1997 Latest Caselaw 537 Del

JUDGMENT

K.S. Gupta, J.

(1) By the order dated October 7, 1996, petition under Section 20 of the Arbitration Act registered as Suit No. 1571/89 filed by respondent No. 1 was allowed and the disputes as raised in para 14 of the petition were referred to the sole arbitration of Shri Sashivansh Bahadur, Advocate and Omp No. 60/90 preferred under Sections 30,31 & 33 of the Arbitration Act by the appellant was dismissed by the learned Single Judge FAO(OS) No. 53/97 is against the former part while FAO(OS) No 52/97 is against the latter part of the aforesaid order. Since both these appeals arise out of the same order we propose to dispose them of by this common order.

(2) Suit No. 1571/89 was filed by respondent No. 1, inter alia, contending that it is carrying on business' of giving on lease equipment, vehicles, etc. It leased out machinery/equipment described as Stanford Eder Hydraulic Excavator Model R. 825 Lc to the appellant under a lease-agreement dated December 9, 1987, duly executed between respondent No. 1, on the one hand, and appellant and respondents 2 & 3 on the other hand on the terms and conditions mentioned therein. Lease rental amounting to Rs. 26,11,200.00 was payable to respondent No. 1 in 24 lease rentals as agreed upon. Appellant paid only an amount of Rs. 3,27,000.00 i.e. three rentals out of 24 rentals. The two cheques, one amounting to Rs..2,18,000.00 and the other amounting to Rs. 3,27,000.00 , issued by the appellant to respondent No. 1, when presented to the bank for encashment were bounced. It was prayed that as the appellant had failed to make further payments, in respect of the lease rental, dispute arising between the parties were liable to be referred to the named arbitrator as per the arbitration clause being No. 39 contained in the aforesaid lease agreement dated December, 9,1987.

(3) Appellant filed Omp No. 60/90 under Section 33 read with Sections 30 & 31 of the Arbitration Act praying for declaration to the effect that the lease agreement dated December 9, 1987, is invalid, illegal, ineffective and void. On identical plea the appellant contested the petition by filing written statement.

(4) By the impugned order dated October 7, 1996, both Suit.No. 1571/89 and Omp No. 60/90 were disposed of in the manner staled above observing:-

"........THErespondents are estopped from contending at the present stage that the agreement itself is invalid having agreed to the terms Bad conditions with open eyes and having received benefit thereof and having not refuted the said clauses earlier. Even otherwise, the said clauses in my opinion, could not be said to be against the public policy as is alleged by the respondents. The Court should always given effect to the terms and conditions of a commercial contract entered into between the private parties in view of the fact that the parties to the contract of their own free will have entered into the terms and conditions of the contract in the context of their needs and requirement and, therefore, the Court should not ordinarily declare the terms of the agreement to be invalid unless it is established with the cogent reasons that the same is either against the public policy or in violation of any of the provisions of the Contract Act."

Contention advanced by Shri W.S.Kathuria, whom we have heard on the point of admission of appeals was that clauses 25 & 33 of the lease agreement dated December 9, 1987 render that lease agreement invalid and void and when the agreement itself is invalid/void every part of it including the clause' as to arbitration contained therein becomes invalid and the impugned order is, thus, not legally sustainable. Strong reliance was placed by him on the decisions in Jaikishan Dass Mull Vs Luchhiminarain Kanoria & Co., , K.P.Subbama Sastri & Others Vs K.S.Raghavun & Others, and Kamla Prasad Ram Pandey Vs. HasanAli Khan .

Aforesaid clauses 25 & 33 of the agreement in question (annexure A), due execution whereof is admitted by the appellant, provide as under:-

"25. If the Lessee shall make any default in charges or any other sums due and payable by the Lessee to the Lessor under this Agreement, the Lessee shall pay to the Lessor interest at the rate of 2-1/2% per mensem on the amount due for the time being and from time to time on arrears from the date on which such amount ought to have been paid by the Lessee in accordance with the' terms of this Agreement until the date of actual payment thereof but it is expressly agreed and declared that nothing contained in this clause shall in any way prejudice or be deemed to prejudice the LESSOR'S other rights or remedies under this Agreement or otherwise at law including the right to retake or repossess the Equipment or to terminate this Agreement or otherwise."

"33. Not with standing anything to the contrary herein contained the Lessor shall be at liberty to terminate this Agreement at any time by giving to the Lessee 90 days prior notice in writing without assigning any reason. Upon such termination the Lessee shall return the Equipment to the Lessor on the expiration of the notice period.

According to Shri Kathuria reserving the right to terminate the agreement in clause 33 by giving 90 days prior notice in writing only to respondent No. 1 and the stipulation, in clause 25 as to the payment of interest at an exorbitant rate of 2-1/2% per mensem on the amount due, make the agreement in question invalid and void.

We are unable to agree with the submission. It may be noticed that none of the clauses of the agreement in question prohibits or debars the appellant from terminating the agreement before the expiry of the period of 24 months for which it was executed it was open to the appellant to have terminated the agreement at any point, according to law, without reference to the aforesaid clause 33 or any other term of the agreement. What is contained in clause' 33 does not render the agreement in question invalid.

As regards stipulation as to the payment of interest at the aforesaid rate, in our view even though it may appear to be exorbitant but that alone will not render the agreement in question invalid or void. Objection as to the rate of interest being penal. If raised, can be taken note of and will have to be adjudicated upon by the Arbitrator to whom the matter has been referred.

It is pertinent to state here that Sections 24 to 30 of the Indian Contract Act specifically deal with void agreements. Subjects covered by either of the aforementioned clauses 25 and 33 of the agreement do not fall in the category of any of the void agreements as enumerated in Sections 24 to 30 of the Contract Act.

There cannot be any dispute with regard to the proposition of law laid down in the authority of Jaikishan Dass Mull (supra) that when a contract is invalid every part of it including the clause as to arbitration contained therein must also be invalid. In the decision of Kamla Prasad Ram Pandey (supra) rate of interest of 24% per annum was found to be excessive and was reduced to simple interest of 18% per annum. Judgment in K.P.Subbarama Sastri & Others (supra) was rendered with reference to the provisions contained in Section 74 of the Contract Act. Neither of the said three decisions has any bearing on the points raised before us on behalf of the appellant.

Impugned order does not suffer from any illegal infirmity which may call for interference in appeal.