Housing And Urban Development ... vs Leela Hotels Ltd.
2009 Latest Caselaw 2716 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+      E.F.A. (OS) no. 4/2009 with CMs 1078-79, 5245-
       5246 of 2009
                           Reserved on: 15th July, 2009
                           Pronounced on: 20th July, 2009.


#      HOUSING AND URBAN DEVELOPMENT
       CORPORATION LIMITED    ........Petitioner


!      Through:          Mr. A.S. Chandhiok, ASG;
                         Mr. S. Kumar, Advocate, Mr. Ayush
                         Aggarwal, Advocate and Mr. Ritesh
                         Kumar, Advocate.

                     VERSUS


$      LEELA HOTELS LTD.               ..........Respondent


^             Through: Mr. Rajiv Nayyar, Senior Advocate
                       Mr. Mukul Rohatgi, Senior
                       Advocate; Mr. Abhimanhu
                       Mahajan, Advocate and Ms. Kanika
                       Agnihotri, Advocate.
CORAM:-


THE HON'BLE MR. JUSTICE VIKRAMAJIT SEN
THE HON'BLE MR. JUSTICE V.K.JAIN




E.F.A. (OS) no. 4/2009                            Page 1 of 21
        1. Whether Reporters of Local newspapers may

          be allowed to see the Judgment? Yes

       2. To be referred to the Reporter or not? Yes

       3. Whether the Judgment should be reported in

          the Digest? Yes


V.K.Jain, J.

This is an Appeal against the Order dated

19.11.2008 passed by the learned Single Judge, in execution of

an Award dated 25.6.2002, directing payment to the

respondent in terms of the calculations made by it.

2. The facts in brief, giving rise to the passing of the

impugned order are, as follows:

On 17.10.1996, the appellant HUDCO invited offers for

grant of sub-lease of lands measuring 11,480 sq.m. in HUDCO

Place, situated in Andrews Ganj, New Delhi, for construction of

a Five Star Hotel thereon. The respondent being the highest

bidder, a Letter of Allotment of the said land was issued to it on

31.3.1997 which was followed by a Perpetual Sub-Lease dated

4.7.1997. Out of the total consideration, first instalment

representing 40% of the consideration was paid by the

respondent on 10.4.1997. The second and third instalment of

Rs.65,38,29,000/- each were payable by 31.3.1998 and

31.3.1999 respectively. It was stipulated in the sub-lease that

in the event of second and third instalment not being paid by

due date, the respondent could pay the same along with

interest of 20% per annum, within three months of the due

date. It further stipulated that if payment was not made within

three months of the due date, the allotment would

automatically stand cancelled and in that event 50% of the

amount paid upto that date would stand forfeited and the

balance 50% would be refunded without interest. The second

instalment was paid by the respondent along with the interest

for the delayed payment. Ground rent for the period upto

31.3.1998 was also paid by it.

3. Since there was default by the respondent in payment of

third instalment, the lease Agreement was cancelled and

consequently the appellant, as per terms and conditions of the

Agreement, refunded 50% of the total amount paid by the

Respondent, amounting to Rs.76,28,00,500/- while forfeiting

the balance 50% amount. Being aggrieved, the respondent

filed a petition in this Court praying for appointment of an

arbitrator in terms of arbitration clause which was registered

as Arbitration Application No. 193/1999. On 23.6.1999, an

arbitrator was appointed by this Court. Before the arbitrator,

the respondent claimed a sum of Rs 142,16,08,896/- from the

appellant along with interest at the rate of 20% per annum

besides the amount of Rs.19,24,45,800/- being the ground rent

paid by it along with interest thereon at the rate of 25% per

annum and a sum of Rs.5,98,22,058/- towards refund of

Property Tax. Damages amounting to Rs 5,62,27,715/- were

also claimed by the respondent. Counter claims were also filed

by the appellant before the Arbitrator.

4. While rejecting the Counter Claim, the learned Arbitrator

granted the claims of the appellant in the following terms:

"Leela Hotels is entitled to recover, and HUDCO is obliged to pay, damages computed with reference to the amounts paid as the first and second instalments of the premium together with interest paid with the second instalment less amount refunded by HUDCO to Leela Hotels under letter dated 8th July, 1999 and as further reduced by the amount of property tax paid by HUDCO on behalf of Leela Hotels to MCD. Interest at 20% per annum shall be payable by HUDCO to Leela Hotels as follows:

On the amount representing property tax: For the period during which that amount remained with HUDCO until payment to MCD.

On the amount refunded by HUDCO under its letter dated 8th July, 1999 :

For the period for which that amount remained with HUDCO until repayment to Leela Hotels. On the balance of the amount:

From the date of the respective payments made initially by Leela Hotels to HUDCO to the date of the Award."

5. Objections under Section 34 of the Arbitration and

Conciliaion Act, 1996 were filed by the appellant before the

Court. During pendency of the objections, the appellant

tendered an Undertaking to deposit "Principal Sum awarded by

the arbitrator" on or before 21.10.2002. The deposit was

allowed without prejudice to the rights and contentions of the

appellant. This order was passed in the presence of learned

counsels for both the parties. When the cheque of Rs

89,78,84,930/- was brought to the court on 21st October, 2002,

the appellant, got recorded in the presence of the Ld. Counsel

for the respondent, that it represented the net principal amount

due and payable to the respondent under the award and was

the amount which had been deposited with it by the

respondent, in terms of the agreement between the parties. It

was also made clear by the appellant that deposit was being

made without liability on its part, to pay future interest on that

amount. The petition filed by the appellant under Section 34 of

the Arbitration and Conciliation Act, 1996 was dismissed by this

Court vide order dated 20.1.2003. The FAO filed by the

appellant against that order having been dismissed by this

Court on 9.11.2004, Special Leave Petition was filed before the

Hon'ble Supreme Court against that order. After granting

Leave to Appeal, the Hon'ble Supreme Court dismissed the

Appeal filed by the appellant vide its order dated 12.2.2008,

but, reduced the rate of interest, for the pre-award period, from

20% to 18% per annum. Earlier, while granting leave, the

Hon'ble Supreme Court had directed the appellant to pay or

deposit 50% of the balance decretal amount. Vide order dated

16.9.2006, the Hon'ble Supreme Court clarified that vide its

order dated 12.2.2006, it had not allowed the respondent to

charge compound interest. In compliance of the order of the

Hon'ble Supreme Court dated 12.2.2006, the appellant paid a

sum of Rs.59,61,12,3606.50 on 23.3.2006. The appellant paid

an amount of Rs.48,09,2638.08 on 16.4.2008 and, according to

the appellant, that payment satisfied the decree.

6. A perusal of the calculation-sheet filed by the respondent

shows that it wants to appropriate amount of Rs. 89,78,84,930/-

towards the interest due to it under the award and has also

claimed interest on interest. On the other hand, the calculation

sheet filed by the appellant shows that it wants appropriation of

the aforesaid sum of Rs. 89,78,84,930/- towards the principal

sum payable to the respondent under the award and has

calculated simple interest at the rate awarded by the

Arbitrator, as modified by the Hon'ble Supreme Court.

Therefore, the issues in this appeal are (1) Whether the

respondent could have adjusted the aforesaid amount of Rs.

89,78,84,930/- towards the interest or was obliged to

appropriate it only towards the principal sum due to it under

the award and (2) whether the respondent is entitled to charge

interest on interest/compound interest as per the method

applied in the calculation sheet filed by it.

7. The question as to whether the payment made by a

Judgment Debtor is to be appropriated first towards discharge

of the Principal or towards discharge of the interest came up

for consideration before the Hon'ble Supreme Court in I.C.D.S.

Ltd. -vs- Smt. Smithaben H. Patel and others; AIR 1999

Supreme Court 1036, a judgment relied upon by the Ld.

Counsel for the respondent. During the course of judgment,

the Hon'ble Supreme Court, inter-alia, held as under:

"We are of the opinion that Sections 59 and 60,

Contract Act, would be applicable only in pre decretal

stage and not thereafter. Post-decretal payments have to

be made either in terms of the decree or in accordance

with the agreement arrived at between the parties though

on the general principles as mentioned in Sections 59 and

60 of the Contract Act. As and when such an agreement

either express or implied is relied upon, the burden of

proving it would always be upon its propounder."

8. After considering the case law on the subject, including

the decision of Lahore High Court in Jia Ram -vs- Sulakhan

Mal, AIR 1941 Lahore 386, and its own decision in Mathunni

Mathai v Hindustan Organic Chemicals Ltd, (1995) 4 SCC 26

and Methraj -vs- Mst. Bayabai, AIR 1970 SC 161, the Hon'ble

Supreme Court summarised the legal principles on the subject

as under:

                      "In    view   of     what   has    been     noticed

       hereinabove,        we   hold    that   the   general    rule    of

appropriation of payment towards a decretal amount is

that such an amount is to be adjusted firstly strictly in

accordance with the directions contained in the decree

and in the absence of such direction, adjustments, be

made firstly in payment of interest and costs and

thereafter in payment of the principal amount. Such a

principle is, however, subject to one exception, i.e. that

the parties may agree to the adjustment of the payment

in any other manner despite the decree. As and when

such an agreement is pleaded, the onus of proving is

always upon the persons pleading the agreement

contrary to the general rule of the terms of the decree

schedule. The provisions of Sections 59 and 61 of the

Contract Act are applicable in cases where a debtor owes

several distinct debts to one person and do not deal with

cases in which the principal and interest are due on a

single debt."

9. Thus, unless the appellant is able to show that the parties

in this case had, either expressly or by implication, agreed to

adjustment of the amount of Rs 89,78,84,930/- towards

Principal Sum, the respondent would be entitled to adjust the

same towards the payment of interest. If, however, the

appellant is able to satisfy the court that there was an express

or implied agreement for adjustment of aforesaid amount of Rs.

89,78,84,930/- towards Principal Sum, the respondent would

be precluded from appropriating the same towards interest.

10. A perusal of the order of the court dated 11.10.2002 in

OMP No. 308 of 2002 would show that on that date, the

appellant herein was represented by Mr. R.N. Trivedi,

Additional Solicitor General along with briefing counsels,

whereas the respondent herein was represented by Mr. Arun

Jaitley and Shri Rajiv Nayyar, Senior Advocates, assisted by the

briefing counsels. The order further shows that in the

presence of the learned counsel for the respondent, the learned

counsel for the appellant gave an undertaking to deposit the

"principal amount awarded by the Arbitrator" on or before 21st

October, 2002. When the matter came up again on 21.10.2002,

the parties were represented by the same counsels. The court

specifically recorded that the petitioner (Appellant herein) had

brought to the court a cheque for a sum of Rs. 89,78,84,930/-

being the alleged net principal amount due and payable to the

respondent in terms of the award and which was deposited by

the respondent with the petitioner in terms of their agreement.

It was further recorded by the court that the deposit made by

the appellant (Petitioner in OMP) was without any liability on

the part of the appellant to make payment of further interest

on the aforesaid amount. The proceedings which took place

before the court on 11.10.2002 and 21.10.2002 leave no doubt

that what the appellant had undertaken to deposit on

11.10.2002 and then deposited on 20.10.2002 was the

"principal sum due and payable to the respondent under the

award." The appellant also made it clear that this was the

amount which was deposited by the respondent with it in terms

of the agreement between the parties. It further made it clear

that the deposit was being made without any liability on its

part to make payment of further interest on the aforesaid

amount. The respondent did not raise any objection, in the

court, to the deposit of sum of Rs 89,78,84,930/- towards the

principal sum. Admittedly, before withdrawing the aforesaid

amount of Rs. 89,78,84,930/-, the respondent did not seek

permission of the court to appropriate the sum towards

interest. Admittedly, before withdrawing this amount, the

respondent did not even intimate either the court or the

appellant that it would be appropriating the same towards

interest and not towards the principal amount due and payable

to it in terms of the award. While withdrawing the amount, the

respondent did not even say that it was withdrawing the same

without prejudice to its right to appropriate the same towards

payment of interest.

11. It has to be kept in mind that on 11.10.2002 when the

appellant (Petitioner in OMP) undertook to deposit the

principal sum awarded by the Arbitrator as also on 21.10.2002

when it brought to the court a cheque of Rs. 89,78,84,930/-

towards payment of principal amount due and payable to the

respondent in terms of the award, the objections filed by the

appellant against the award were still pending. The Arbitrator

had not granted compound interest to the respondent, though,

he had awarded heavy interest on the principal sum held

payable to the respondent. The award could not have been

executed till the final decision of the OMP. Therefore, there

was no compulsion on the appellant to pay to the respondent at

that point of time.

12. Since compound interest was not awarded, there was no

incentive for the appellant to make payment of the interest

component of the award to the respondent on that point of

time. However, since the principal sum awarded to the

respondent carried heavy interest, the appellant obviously was

keen to avoid the possibility of paying further interest on the

principal sum in the event of its objections being dismissed and

that is why it offered to deposit the principal sum payable to

the respondent under the award. It made perfect sense on the

part of the appellant to deposit the principal sum, while

holding back the interest component of the award pending

adjudication of the objections filed by it. The logic behind the

respondent not objecting to deposit of Rs 89,78,84,930/-

specifically towards principal sum payable to it under the

award and withdrawing the same without any reservation or

any liberty to appropriate it towards interest could be that the

respondent did not know how long the objections would take to

decide. Since the stakes of the parties were quite high, the

respondent could anticipate the Appeal and then Special Leave

Petition to the Supreme Court, by the losing party. All this

could have taken considerable time. Moreover, the respondent

could not have been sure of the fate of the objections filed by

the appellant. It could not have been sure whether the

objections would ultimately be dismissed or would be upheld.

Therefore, it made a good business sense on the part of the

respondent, at that time, to accept the amount of Rs.

89,78,84,930/- towards principal sum payable to it under the

award and utilise the sum for its business, instead of waiting

for the final outcome of the litigation between the parties. Had

the respondent insisted on the application of the amount

brought by the appellant firstly towards interest, the appellant

in all probability would not have deposited the sum pending

adjudication of its objections and in that case, the respondent

would not have been able to use that amount for a long period.

13. This is not a case where amount of Rs. 89,78,84,930/-

was sent to the respondent by post or was remitted in its

absence. Here, both the parties were represented by their

respective counsels when the appellant undertook to deposit

the "Principal amount awarded by the Arbitrator". They

continued to be represented by their respective lawyers on

21.10.2002, when the appellant brought in the court a cheque

for a sum of Rs. 89,78,84,930/- and got it recorded in the

proceedings that it was brought towards principal amount due

and payable to the respondent in terms of the award and that

this was the amount which was deposited by the respondent

with it in terms of their agreement. The court specifically

recorded that the deposit made by the appellant was without

any liability on the part of the appellant to make payment of

further interest on the aforesaid amount. When one party

takes such an unequivocal stand, while depositing the amount

in the court, and this happens in the presence of learned

counsels for the other party, without any protest or reservation

by them and is followed by withdrawal of that amount by the

respondent, without any permission from the court to

appropriate the same towards interest and without even

reserving its right to appropriate the same towards interest, it

cannot be denied that there was any implied agreement

between the parties in the court on 11.10.2002 and

21.10.2002 for deposit of the sum of Rs. 89,78,84,930/-, by the

appellant, towards principal sum and its application, by the

respondent, towards the principal sum due and payable to the

respondent under the award. If the terms on which the deposit

was proposed to be made by the respondent i.e. deposit

towards the principal sum due to the respondent under the

award was not acceptable to the respondent, its lawyers would

definitely have objected to the deposit being made towards

principal sum and would have insisted on its application

towards payment of interest. In any case, had the respondent

not agreed to apply the aforesaid amount of Rs. 89,78,84,930/-

towards the principal sum due and payable to it under the

award, it would not have withdrawn the aforesaid amount

without permission of the court to apply it towards interest. We

would also note that even after withdrawing the aforesaid

amount of Rs 89,78,84,930/-, the respondent did not write to

the appellant nor did they inform the court that the amount

withdrawn by it would be appropriated by it towards payment

of interest and not towards payment of principal sum due and

payable to it under the award. It has also to be kept in mind

that the amount deposited by the appellant was not a round

figure but was a specific sum calculated by it as the amount

due and payable by it to the respondent under the award.

When deposit of such a specific amount is made by the

appellant and then the same is withdrawn by the respondent in

the above noted circumstances, there is no escape from the

conclusion that there was an implied agreement between the

parties that the appellant would deposit the aforesaid amount

towards principal sum payable to it under the award so that it

could avoid liability of payment of interest on that amount and

the respondent had agreed to the offer made by the appellant

in this regard.

14. In any case, having allowed the deposit of Rs.

89,78,84,930/- to be made by the respondent towards principal

sum due and payable to it under the award, without any protest

or even a reservation and then having withdrawn that amount

without seeking permission of the court to appropriate the

same towards payment of interest, the respondent is now

estopped from claiming that it is entitled to appropriate the

aforesaid amount towards payment of interest.

15. The Ld. Single Judge has directed payment to the

respondent in terms of the calculation made by the respondent.

The calculation made by the respondent is available on page

227 of the appeal file. We find that not only the calculation is

based on appropriation of the amount of Rs. 89,78,84,930/-

towards interest, the respondent has also claimed compound

interest/interest on interest, though the Arbitrator has not

granted compound interest to the respondent. In fact the

order of Hon'ble Supreme Court dated 15.09.2006 leaves no

doubt that compound interest has not been allowed to the

respondent. We therefore are of the view that the calculation

made by the respondent is not correct and the appellant cannot

be directed to make payment as per this calculation. We have

also perused the calculation of the appellant which is available

on page 217 of the appeal file. Though we have not gone into

the figures arrived at by the appellant, we are in agreement

with the basis on which the calculation has been made by the

appellant, as we find that the amount of Rs. 89,78,84,930/- has

been debited towards the principal sum payable to the

respondent and thereafter interest has been calculated firstly

from the date of payment by the respondent till the date of

award @ 18 per cent per annum and then from the date of

award till the date of payment of the principal sum @ 15 per

cent per annum.

16. In Meghraj and others, -vs- Mst. Bayabai and others, AIR

1970 SC 161, the Hon'ble Supreme Court inter-alia held as

under:

"4. Under the preliminary decree an amount of Rs. 42,430-2-6 was declared due upto June 23, 1941 towards principal and interest. The mortgagors made no payments under the decree directly to the mortgagees. But from time to time they claim to have made deposits in the Court under Order 21 Rule 1 of the CPC, and in depositing some of the amounts they stated that the payments were towards the

principal due. But there is no evidence on the record that the mortgagees were informed that the amounts were deposited towards the principal due, nor is there evidence that the mortgagees accepted the amounts towards the principal. For quite a long time the mortgagees did not withdraw the amount lying in Court. Unless the mortgagees were informed that the mortgagors had deposited the amount only towards the principal and not towards the interest, and the mortgagees agreed to withdraw the money from the Court accepting the conditional deposit, the normal rule that the amounts deposited in Court should first be applied towards satisfaction of the interest and costs and thereafter towards the principal would apply."

In the present case, not only the appellant deposited the

amount of Rs. 89,78,84,930/- specifically towards the principal

sum due and payable to the respondent under the award, this

offer was made and the deposit was allowed to be made in the

presence of Ld. Counsels for the respondent and without any

protest and reservation by them. Thus, applying to decision in

Meghraj's Case (Supra), coupled with withdrawal of that

deposit by the respondent without any reservation would take

this case out of the purview of the normal rule of application of

payment made by a judgment debtor to a Decree Holder and

would disentitle the respondent from adjusting the aforesaid

amount towards satisfaction of interest.

In the case of ICDS Ltd. (Supra), immediately after the

first payment was made, the Decree Holder had furnished the

statement of account to the Judgement Debtor wherein it was

specifically indicated that the payment had been adjusted

towards cost and interest and not the principal amount. As

against this, in the present case, the respondent did not

intimate either the court or the respondent that it would apply

the amount deposited by the appellant towards the satisfaction

of the interest. Moreover, in the case of ICDS Ltd., the

payment was sent by the Judgement Debtor in the absence of

the Decree Holder and therefore the Decree Holder had no

occasion to object to the payment being made towards

discharge of principal sum. On the other hand, in the present

case, the deposit was made in the presence of Ld. Counsels for

the respondent, without any reservation or objection from them

and even while withdrawing the aforesaid amount, the

respondent did not intimate either the appellant or the court

that it would be applying the same towards payment of

interest.

17. For the reasons given in the preceding paragraphs, we

set aside the order dated 19.11.2008 passed by Learned Single

Judge. A sum of Rs. 50.54 crores has been deposited by the

appellant during the pendency of this appeal. The Ld. Single

Judge will decide in the light of this judgment, whether any

further amount is payable by the appellant to the respondent in

terms of this judgment or not. If he finds any amount payable

to the respondent, that amount would be paid to the

respondent out of the amount deposited by the appellant

during the pendency of the appeal and the remaining amount,

if any, shall be refunded to the appellant. If no amount is found

due to the respondent, the entire amount deposited by the

appellant during the pendency of the appeal will be refunded to

it.

(V.K. JAIN)

JUDGE

(VIKRAMAJIT SEN)

JUDGE

July 20, 2009.

acm/sn