Delhi High Court
M/S Bartonics India Ltd & Anr vs M/S S.E Investments Ltd on 19 September, 2018
$~27
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 19th September, 2018
+ O.M.P. 1683/2014
M/S BARTONICS INDIA LTD & ANR ..... Petitioners
Through: Mr. Sudipto Sircar, Advocate.
(M:9871908992)
versus
M/S S.E INVESTMENTS LTD ..... Respondents
Through: Mr. P. Nagesh and Mr. Dhruv Gupta,
Advocates. (M:9999877566)
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. The present petition challenging the award dated 12th July, 2014 has
been filed under Section 34 of the Arbitration and Conciliation Act, 1996
(hereinafter, „the Act‟). The learned Arbitrator has awarded in favour of
Respondents/Claimants in the following terms: -
"30. This Tribunal therefore holds that the
Claimant is entitled to receive a sum of
Rs.10,40,87,831/- (Rupees Ten Crore Forty Lacs
Eighty Seven Thousand Eight Hundred Thirty One
only) due till 10.07.2013 jointly and severally from the
two Respondents which they must pay. Further in
addition to above sum of Rs.10,40,87,831/-(Rupees Ten
Crore Forty Lacs Eighty Seven Thousand Eight
Hundred Thirty One only) late fees from 11.07.2013
(Date of start of arbitration) and till 11.07.2017 has
been worked out at Rs. 6,45,32,877/-(Rupee Six Crore
Forty Five Lacs Thirty Two Thousand Eight Hundred
Seventy Seven Only), however after 11.07.2013 there
are two items first the amount of Rs.15,00,000/-
(Rupees Fifteen Lacs Only) on 28.09.2013 and TDS
adjustment of Rs.8,27,750/-(Rupees Eight Lacs Twenty
Seven Thousand Seven Hundred Fifty Only) on
22.10.2013 have to be adjusted to the credit of
Respondents, which thus makes a total claim awarded
at Rs.16,62,92,958/- (Rs. Sixteen Crore Sixty Two Lacs
Ninety Thousand Nine hundred Fifty Eight Only) the
Respondents will pay interest on the sum aforesaid
@18% p.a. compounded monthly from the date of this
award i.e. 12.07.2014 to the date of actual realization
and shall also pay the cost of the award/decree to the
Claimant which are assessed of Rs.2,50,000/-(Rupees
Two Lacs Fifty Thousand Only), which include the fees
and administrative charges of the Arbitration and this
award is made accordingly."
2. The facts leading up to the passing of the award are that the
Petitioners availed of a loan facility of a total sum of Rs.16.5 crores, by way
of two separate loan agreements, both dated 19th November, 2010. There
were two loan accounts namely; LD2414 and LD2416 i.e. the former for
Rs.8 crores and latter for Rs.8.5 crores. LD2414 and LD2416 were to be
repaid in 24 instalments equally. Thus, under LD2414, the total payment
was to be Rs.9.72 crores with an interest component of Rs.1.72 crores and in
LD 2416, the total payment was to be Rs.10,32,75,000/-, with an interest
component of Rs.1,82,75,000. Petitioner No.2 acted as a guarantor to the
above loans.
3. The Petitioners made payments of a few instalments and did not make
the remaining payments. Thus, the Respondents invoked the arbitration
clause on 10th July, 2013 and a sole arbitrator was appointed. Orders were
passed under Section 9/Section 15, which are not the subject matter of the
present petitions. The final award was thereafter passed on 12th July, 2014.
4. The learned counsel appearing for the Petitioners' submits that the
main ground of challenge is that the imposition of late fee is unreasonable
and even the interest which has been granted by the arbitrator is on the
higher side. Further it is submitted by learned counsel for the Petitioners,
Mr. Sudipto Sircar, that the initial amount which was held back by the
Respondents at the time of disbursal of the loan, ought to be given credit for.
The total amount which has been awarded in favour of Respondents is
beyond what was even agreed to in the contract, and thus, is liable to be set
aside.
5. On the other hand, Ld. Counsel for the Respondents, Mr. P. Nagesh,
submits that the Petitioners admittedly defaulted in making the payments,
and therefore, the arbitrator has awarded the interest and the licence fee as
per the contractual rate as stipulated in the loan agreements. The submission
of the learned counsel is that the arbitrator is bound by the terms of the
agreement and cannot go beyond the same. Furthermore, the Petitioners
having enjoyed the loan facility and the funds of the Respondents, ought to
be made to adhere to the terms of the contract. However, he fairly submitted
that insofar as the amount of Rs.4.12 crores is concerned, the adjustment of
the same could be given to the Petitioners.
6. Upon hearing the counsels for the parties, one fact which is admitted
is the availing of the loan facility. The execution of the loan agreement is
also not disputed. This being the position, Petitioners' obligation to repay
the loan with interest is also beyond dispute. The only question is as to
whether the late fee charges which were to be imposed to the tune of
Rs.5,98,45,837 and Rs.6,45,32,877/- are liable to be granted to the
Respondents or not.
7. The loan agreement dated 19th November, 2010 has the following
stipulations/terms and conditions: -
"1. The said loans shall carry interest as the flat
rate of 10.75% per annum or such modified
rates as indicated by the company. In addition
to the said interest, the interest tax, service tax
or any other tax or levy imposed by the
Government and other authorities from time to
time shall also be payable by the borrower.
2.That the financed amount shall not exceed
Rs.8,00,00,000/- (Rupees Eight Crores Only).
This amount may be disbursed in one or more
tranches at the opinion of the Company on
execution of such documents by the Borrower
and Guarantors as required by the Company
and this facility will be available for a period
of 24 months only from the date of
disbursement of the loan tranche.
.....................
7.Without prejudice to the other rights of the
Company, if the Borrower defaults in making
payments to the Company on due dates, the
late fee at the rate of Rs.2/- per thousand per
day shall be charged or at such higher rate as
the Company may specify from time to time, on
the entire outstanding amounts from the date
of default till the date of payment of the entire
outstanding amount.
............................
Attached to and forming part of
Loan/Hypothecation agreement dated 19.11.2010
SCHEDULE "A"
(Description of the hypothecated assets)
All machinery equipments installation and
other movables etc, and all other goods &
commodities which belongs to the borrower
including intangibles assets.
SCHEDULE "B"
(Due Date & Amount of each installment)
Case No. Name Date: Amount Interest(Rs)
LD-2414 Bartronics 19.11.2010 8,00,00,000/- 1,72,00,000/-
India Ltd
Ins. No. Due Date Amount Principal Interest
1 20.11.10 48,60,000/-
2. 19.12.10 48,60,000/-
3. 19.01.11 48,60,000/-
4. 19.02.11 48,60,000/-
5. 19.03.11 48,60,000/-
6. 19.04.11 48,60,000/-
7. 19.05.11 48,60,000/-
8. 19.06.11 48,60,000/-
9. 19.07.11 48,60,000/-
10. 19.08.11 48,60,000/-
11. 19.09.11 48,60,000/-
12. 19.10.11 48,60,000/-
13. 19.11.11 32,40,000/-
14. 19.12.11 32,40,000/-
15. 19.01.12 32,40,000/-
16. 19.02.12 32,40,000/-
17. 19.03.12 32,40,000/-
18. 19.04.12 32,40,000/-
19. 19.05.12 32,40,000/-
20. 19.06.12 32,40,000/-
21. 19.07.12 32,40,000/-
22. 19.08.12 32,40,000/-
23. 19.09.12 32,40,000/-
24. 19.10.12 32,40,000/-
8. The second loan agreement has clauses which are almost identical
except that the loan amount which was disbursed was Rs.8.5 crores and
Schedule A and B of the second agreement reads as under: -
"Attached to and forming part of
Loan/Hypothecation agreement dated 19.11.2010
SCHEDULE "A"
(Description of the hypothecated assets)
All machinery equipments installation and
other movables etc, and all other goods &
commodities which belongs to the borrower
including intangibles assets.
SCHEDULE "B"
(Due Date & Amount of each installment)
Case No. Name Date: Amount Interest(Rs)
LD-2416 Bartronics 19.11.2010 8,50,00,000/- 1,82,75,000/-
India Ltd
Ins. No. Due Date Amount Principal Interest
1. 20.11.10 51,63,750/-
2. 19.12.10 51,63,750/-
3. 19.01.11 51,63,750/-
4. 19.02.11 51,63,750/-
5. 19.03.11 51,63,750/-
6. 19.04.11 51,63,750/-
7. 19.05.11 51,63,750/-
8. 19.06.11 51,63,750/-
9. 19.07.11 51,63,750/-
10. 19.08.11 51,63,750/-
11. 19.09.11 51,63,750/-
12. 19.10.11 51,63,750/-
13. 19.11.11 34,42,500/-
14. 19.12.11 34,42,500/-
15. 19.01.12 34,42,500/-
16. 19.02.12 34,42,500/-
17. 19.03.12 34,42,500/-
18. 19.04.12 34,42,500/-
19. 19.05.12 34,42,500/-
20. 19.06.12 34,42,500/-
21. 19.07.12 34,42,500/-
22. 19.08.12 34,42,500/-
23. 19.09.12 34,42,500/-
24. 19.10.12 34,42,500/-
9. In the present petition, it was recorded on 24th December, 2014 that
the Petitioners restricts its challenge to the award only to the payment of
penalty and rate of interest. It was also recorded that the Petitioners are also
willing to pay the principal amount. On 21st April, 2015, the Petitioners were
directed to pay the principal amount before the next date, failing which the
petition would not be entertained. Thereafter, settlement negotiations took
place between the parties, they however failed. As recorded on 24th
February, 2016, there was a difference between the parties on what
constituted the principal amount and thus, without prejudice, payment of
Rs.1 crore was made by the Petitioners in two equal instalments, to be paid
by 15th March, 2016 and 31st March, 2016.
10. In view of the fact that the imposition of the late fee and the interest
amount are the subject matter of the challenge, the entire principal amount
which is due is liable to be paid by the Petitioners. The question is as to what
is the principal amount which is due. The calculations in schedule B
attached to the loan agreement are based on the total number of instalments
that were to be paid back by the Petitioners. Admittedly, the actual
disbursement, against the sanctioned amount was as under:
Loan Account No. Sanctioned Amount Disbursed Amount
LD2414 Rs.8 crores Rs.6 crores
LD2416 Rs.8.5 crores Rs.6,37,50,000/-
11. As held in M/s. Schifflies India Ltd. & Anr. v. M/s. S.E. Investments
Ltd. & Others [OMP 1589/2014 decision dated 7th September, 2018], the
late fee charges are in the nature of penalty and thus, cannot be imposed
without proving actual loss. The observation in the said judgment is set out
below:
"10. However, insofar as the late fee of Rs.2 per
thousand per day of default is concerned, the same is
in the nature of a penalty. A penalty cannot be imposed
as part of the contract unless and until actual loss is
established, as per Sections 73 and 74 of the Contract
Act. This is the settled position as per Fateh Chand v.
Balkishan Dass (1964) 1 SCR 515, and Oil and
Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003)
5 SCC 705. Thus, the payment of late fee is liable to be
set aside."
12. From the above it is clear that 25% of the amount was, therefore,
retained as cash collateral by the Respondents. Thus, the adjustment has to
be given for the said cash collateral amount. Since, the actual disbursement
under both the agreements was Rs.6 crores and Rs.6,37,50,000 i.e.
Rs.12,37,50,000/-, the Petitioners are liable to pay the entire principal
amount i.e. Rs.12,37,50,000/-. The Respondents are entitled to interest as
per clause 1 of the contract till date of award on the sum of
Rs.12,37,50,000/- minus any instalment amounts that stand paid by the
Petitioners, which shall be given complete credit for. Thereafter, from the
date of award till actual payment, simple interest @18% p.a. shall be
payable on the said amount. From the amount so calculated, a sum of Rs.1
crore shall be deducted w.e.f. 1st April, 2016 and interest would be liable to
be paid only on the remaining amount. No late fee shall be payable by the
Petitioners.
13. The OMP is disposed of accordingly. Parties are directed to bring the
calculations as per the above order in order to avoid any ambiguity in future.
List on 12th December, 2018.
PRATHIBA M. SINGH
JUDGE
SEPTEMBER 19, 2018
Rekha
