Delhi High Court
M/S Pret Study By Janak Fashion Pvt ... vs Namrata Goyal on 14 February, 2019
$~J-
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: 14.02.2019
+ O.M.P. 17/2017
M/S PRET STUDY BY JANAK FASHION PVT LTD....Petitioner
Through Ms.Kaadambari Singh Puri and
Ms.Aditi Sharma, Advs.
Versus
NAMRATA GOYAL ..... Respondent
Through Mr.Mukesh Anand, Advs.
+ OMP (COMM) 271/2017
NAMRATA GOYAL .... Petitioner
Through Mr.Mukesh Anand, Advs.
Versus
PRET STUDY BY JANAK FASHION PVT. LTD ...Respondent
Through Ms.Kaadambari Singh Puri and
Ms.Aditi Sharma, Advs.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
1. The above two petitions are filed under section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act')
seeking to challenge the award dated 07.03.2017 passed by the learned
arbitrator. OMP (COMM) 17/2017 is filed by M/s. Pret Study by Janak
Fashion Pvt. Ltd. OMP (COMM) 271/2017 is filed by Ms.Namrata Goyal.
2. The case was originally filed by Mrs.Namrata Goyal (hereinafter
referred to as 'the claimant') against M/s Pret Study By Janak Fashion Pvt.
Ltd. (hereinafter referred to as 'the respondent'). The case of the claimant is
that the respondent company deals in Mens Designers Wears business
having its Registered Office at N-9, South Extension, Part-1 New Delhi and
Corporate Office at A-17, Info City, Sector-34, Gurgaon. The claimant is
having its shop at Sadar Bazar, Nabha District, Patiala and is dealing in the
sale of garments. Both the parties were desirous of having an outlet for
providing apparels of the respondent. The parties entered into a Franchise
Agreement dated 05.03.2007 and the claimant become the franchisee of the
respondent.
3. The Franchise Agreement dated 05.03.2007 had various terms
including that the franchisor (the respondent) shall give 22% commission on
MRP or subject to minimum guarantee of Rs.65,000/- per month. The
respondent was to pay 6% per annum interest on security of Rs.5 lakhs.
4. It is the case of the claimant that as per the agreement the claimant
developed the infrastructure as per specifications given by the respondent
and their architect. The claimant states to have incurred a lot of expenses in
development of infrastructure. A grand inauguration and opening of the
outlet was arranged. Lot of money was spent on the Grand Inauguration. A
lot of money was also spent on publicity, hoardings etc.
5. The plea of the claimant is that the respondent supplied only 800
garments till opening of the showroom against an assurance of 2000
garments. Even in the peak season of winter the respondent failed to supply
necessary garments to the claimant. The claimant claims that there was a
continuous problem in performance of the terms and conditions of the
Franchise Agreement by the respondent.
6. The case of the respondent is that there was a serious breach of the
terms of the contract by the claimant and hence the respondent vide letter
dated 08.11.2007 terminated the Franchise Agreement in accordance with
clause 15.1 of the Franchise Agreement. It is pleaded that the breach by the
claimant included the fact that the showroom staff was not upto the mark,
claimant had broken billing rules, the claimant failed to deposit sale receipts
in the respondent's account. The sales figures of the claimant were
extremely low indicating that the claimant was not interested in performing
part of the bargain etc.
7. The claimant pleads that the respondent have illegally and malafidely
cancelled the Franchise Agreement. On 14.02.2008 the claimant sent a
demand/notice for release of Rs.35,76,406/- to the respondent. A legal notice
was sent on 20.09.2008. The claimant thereafter filed a winding up petition
under sections 433, 434 and 439 of the Companies Act, 1956. During
pendency of the said winding up petition, vide order dated 27.01.2011 the
matter was with the consent of the parties referred to the Arbitrator Sh.Prem
Kumar, (Retd. District & Sessions Judge).
8. Before the learned Arbitrator, the claimant raised a claim for
Rs.71,20,157/-
9. The respondent filed a counter claim for Rs.22,12,190/-. It was stated
that the material worth this amount was supplied to claimant which was not
returned back to the respondent. It is pleaded that the said goods/stock are
still lying with the claimant since 2009.
10. In support of her claim, the claimant examined three witnesses,
namely, Balbir Singh CW2, Rajeshewar Modi Accountant as CW3 and
Rajesh Goyal, attorney of the claimant as CW4. The respondent examined
its Manager Legal Mr.A.K.Chaturvedi as DW1.
11. While dealing with the claim of the claimant, the learned Arbitrator
noted that the basic document by which the relationship between the parties
is governed is the Franchise Agreement dated 05.03.2007. According to
Clause 2.1 of the said agreement, the Franchisor, namely, the respondent
would provide 22% commission on MRP subject to minimum guarantee of
Rs.65,000/- per month. The claimant also gave a security of Rs.5 lakhs. The
respondent agreed to pay 6% per annum interest on the said security. As far
as the security amount is concerned, the learned Arbitrator noted that there is
no specific denial in the reply-cum-counter-claim that the respondent has not
received the sum of Rs.5 lakhs as refundable security. The Award also notes
that on 27.01.2011 in Co. Pet. 370/2008, the Delhi High Court had while
appointing the Sole Arbitrator directed the respondent to deposit the security
amount of Rs. 5 lakhs with the Arbitrator pending adjudication of the
disputes. The respondent has deposited Rs. 5 lakhs in UCO Bank,
Connaught Place, New Delhi in favour of the Arbitrator. This amount with
accumulated interest was directed to be paid to be petitioner.
On interest on the security deposit, the learned Arbitrator awarded 6%
per annum interest from 15.03.2007 till 02.05.2011 i.e. Rs.1,27,200/-.
The claimant had also claimed amount on account of advertisement
charges. The learned Arbitrator noted that part 9 of the Franchise Agreement
dealt with the publicity expenses. Noting the terms of Clause 9.2 whereby
the respondent was to bear all the expenses for publicity and the terms of
Clause 2.2, the learned Arbitrator awarded Rs.40,000/- towards costs of
hoardings, Rs.48,000/- towards rent of hoardings, Rs. 19,800/- towards local
cable charges i.e. Rs. 1,07,800/- in all.
The claim for furniture and infrastructure was denied in view of
Clauses 3.11 and 11.5 of the Franchise Agreement.
For the expenses towards AC and computer, the learned Arbitrator
noted Clause 2.2 of the Agreement which provides for software support.
Noting that the computer that was bought remained in the custody of the
claimant, an award of Rs. 21,000/- towards computer was passed.
The main claim pertained to minimum guarantee/commission. The
claimant had claimed Rs.28,60,222/-. It is pleaded that the minimum
guarantee from 24.04.2007 to 23.04.2011 i.e. for a period of four years
comes to Rs.29,90,611/-. An amount of Rs.1,29,389/- had been received.
Hence, a balance of Rs. 28,60,222/- was claimed by the claimant. The
learned Arbitrator noted that the Franchise Agreement is determinable in
nature. He also relied upon the judgment of the Supreme Court in the case of
Indian Oil Corporation Ltd. v. Amritsar Gas Services & Ors., 1991 SCC(1)
553. The Award notes the reasons given by the respondent for termination of
the contract. The learned Arbitrator also noted the judgment of the Supreme
Court in ONGC Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629 and concluded
that it was for the claimant to prove that the legal injury resulted from breach
of the contract and the claimant suffered losses. The Award notes that the
claimant was required to prove actual loss or damage suffered by the
claimant for the pre-mature termination of the contract. Considering the
principle of mitigation of damages and also taking into account the fact that
it may have taken the claimant a period of 2 to 3 months to get back on rails,
the learned Arbitrator awarded an amount of Rs. 1.50 lakhs as an appropriate
amount towards loss of profit to the claimant due to pre-mature termination
of the contract. This was over and above the minimum guarantee amount
admitted by the respondent in his letter dated 21.12.2007 which comes to
Rs.5,41,666/-.
Another issue was issue No. 3, as to whether the claim was barred by
time. The learned Arbitrator noted that at what point of time the arbitration
was sought and by which party is not clear in the order dated 27.01.2011.
However, by the said order by mutual consent, the parties agreed to refer the
disputes to arbitration. Noting that the Arbitrator was appointed on
27.01.2011 on mutual consent of both the parties, the learned Arbitrator
concluded that the arbitration commenced within time.
The respondent had in its counter claim sought a sum of Rs.
22,12,190/- on account of goods illegally withheld by the claimant. It is
stated that stock continued to lie with the claimant and has become outdated
and are no longer saleable as fashion garments.
The learned Arbitrator noted that the stock was lying with the
claimant since 2007. On 27.05.2011, the clamant filed an application before
the Tribunal that the goods are still lying. Learned counsel for the
respondent had made a statement that they would collect the goods within
four weeks. The respondent did not implement the said order. The
respondent filed an application for appointment of a local commissioner.
The Local Commissioner was appointed to visit the site and to get the entire
stock photographed and prepare an inventory. The value of the unsold stock
was verified by the Local Commissioner as per their MRP which comes to
Rs.13,70,030/-. Noting the conduct of respondent that the stock was lying
with the claimant for the last 10 years and the despite the orders of the
learned Arbitrator, the goods were not lifted, the learned Arbitrator
disallowed the counter-claim.
12. A total award was passed in favour of the claimant for Rs.14,47,666/-
as follows:-
"
i) Security Amount: Rs.5,00,000/-
ii) Interest on the security deposit
Upto 02.05.2011: Rs.1,27,200/-
iii) Advertisement Charges: Rs.1,07,800/-
iv) Furniture & Infrastructure: Nil
v) Expenses towards AC & Computer: Rs.21,000/-
vi) Hotel Bills: Nil
vii) Minimum Gaurantee/Commission: Rs.1,50,000/-
Rs.5,41,666/-
viii) Sales Tax Refund: Nil
Total Rs.14,47,666/- "
13. I have heard the learned counsel for the parties.
14. The learned counsel for the claimant has vehemently argued as
follows:
i) The contract was for a minimum period of 3 years and hence as the
respondent had illegally terminated the contract, the respondent
automatically become liable to pay the agreed minimum guarantee in
terms of the clause 2.1 of the Franchise Agreement @ Rs.65,000/- per
month. It is pleaded that reduction of this amount to Rs.6,91,666/-
based on plea that the claimant had an onus to mitigate the losses is
misplaced.
ii) Number of other heads including the expenses/costs incurred by the
claimant of Rs.6,90,000/- towards furniture and infrastructure have
been wrongly disallowed.
15. The learned counsel for the respondent has vehemently argued that
the claim of the applicant was barred by limitation. This court had on
27.01.2011 referred the parties to the arbitration. The order specifically kept
open all issues including the preliminary objections raised by the respondent
regarding limitation. Hence, he pleads that the present claim was barred by
limitation.
16. I may firstly note that the learned Arbitrator has passed his award
based on the interpretation of the terms and conditions of the Franchise
Agreement dated 05.03.2007 and the findings of facts recorded in respect of
the claims/evidence placed on record by the parties. These findings as
recorded by the learned Arbitrator are plausible. The parties have failed to
point out any ground before this court to show that the interpretation of the
Agreement dated 05.03.2007 as per award was erroneous or that the findings
of fact recorded by the learned Arbitrator are erroneous and should be set
aside by this court.
17. The learned arbitrator is the master of the quality and quantity of the
evidence to be relied upon. The findings recorded are reasonable and cannot
be faulted with.In this context reference may be had to the judgment of the
Supreme Court in Associate Builders vs. DDA (2015) 3SCC 49 where the
Court held as follows:
"31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where-
1. a finding is based on no evidence, or
2. an arbitral tribunal takes into account something
irrelevant to the decision which it arrives at; or
3. ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In H.B. Gandhi, Excise and Taxation Officer-
cum-Assessing Authority v. Gopi Nath & Sons,1992 Supp
(2) SCC 312 at p.317, it was held:
7. .....It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant
material or by taking into consideration
irrelevant material or if the finding so
outrageously defies logic as to suffer from the vice
of irrationality incurring the blame of being
perverse, then, the finding is rendered infirm in
law.
..........."
Hence, this court cannot sit over appeal over the award of the learned
arbitrator. There is no reason as to why this court should interfere in the
finding of facts recorded by the learned arbitrator.
18. Similarly, the legal position with regard to interpretation of the
contract is also quite clear. The same is within the domain of the arbitrator.
In McDermott International Inc. vs. Burn Standard Co. Ltd. & Ors.,
(2006) 11 SCC 181, the Supreme Court held as follows:-
"112. It is trite that the terms of the contract can be express or
implied. The conduct of the parties would also be a relevant
factor in the matter of construction of a contract. The
construction of the contract agreement is within the jurisdiction
of the arbitrators having regard to the wide nature, scope and
ambit of the arbitration agreement and they cannot be said to
have misdirected themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be
taken into consideration for the purpose of construction of a
contract. Interpretation of a contract is a matter for the arbitrator
to determine, even if it gives rise to determination of a question
of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC
593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325].)"
19. In my opinion, the interpretation of the Franchise Agreement dated
05.03.2007 recorded by the arbitrator is a plausible interpretation.
20. The next issue which is the main issue raised by the respondent is
about Limitation. It has been pleaded that the present claim was completely
barred by limitation.
21. The respondent in her reply/counter claim has pleaded limitation
aspect as noted in the award as follows:
"110. According to the respondent company the claim of the
Claimant is barred by limitation on the face of the Claim
Petition. The cause of action for filing the present claim petition
could at best be the termination of the contract by the
Respondent/Counter Claimant vide letter dated 08.11.2007.
Furthermore, vide e-mail dated 13.11.2007 it was once again
informed to the claimant that its Franchise Agreement would
stand terminated w.e.f. 15.11.2007. Even as per the admitted
stand of the Claimant as represented through its proprietor as
adopted in its letter dated 28.11.2007, claimant had not received
Minimum Guarantee from 01.07.2007, i.e. for a period of 4
months till date of termination. Hence, the present Claim
Petition is hopelessly barred by the law of limitation."
Hence, as per the respondent, the contract was terminated on
08.11.2007. On 13.11.2007 the respondent again informed the claimant that
its Franchisee Agreement would stand terminated w.e.f. 15.11.2007.
22. Section 21 of the Arbitration Act reads as follows:
"21. Commencement of arbitral proceedings.--Unless
otherwise agreed by the parties, the arbitral proceedings in
respect of a particular dispute commence on the date on which a
request for that dispute to be referred to arbitration is received
by the respondent."
23. Hence, limitation period would stop running when any of the parties
invokes the arbitration clause. The Supreme Court in Milkfood Ltd. v. GMC
Ice Cream (P) Ltd., 2004 (7) SCC 288 has noted the observations of
P.Chandrashekhra Rao, noted author, that unless otherwise agreed by the
parties, the arbitral proceedings in respect of a particular dispute commence
on the date on which a request for that dispute to be referred to arbitration is
received by the respondent. The request should clearly indicate that the
claimant seeks arbitration of the dispute.
24. In the present case, the claimant did not invoke the arbitration clause
but chose to issue a notice under Sections 433, 434 and 439 of the
Companies Act, 1956 on 20.09.2008. Relevant portion of the statutory
demand notice/legal notice dated 20.09.2008 sent by the learned counsel for
the claimant reads as follows:
".....
That in the above given circumstances, the undersigned on
behalf of my client request you through this legal demand
notice for payment of Rs.35,76,406/- along with 1.5% per
month interest to be compounded monthly to my client within
period of 21 days from the date of receipt of this notice, failing
which my client shall be constrained to effectively take up the
winding up petition against your company before Hon'ble High
Court and shall be constrained to take action under criminal law
of the land, and in such eventuality you shall be held
responsible for the expenses incurred therein and consequences
thereof."
Hence, there is no reference to the arbitration clause or to any attempt
to seek reference to arbitration. This notice is a statutory notice as per
requirements of The Companies Act, 1956.
25. The winding up petition was filed in 2008. On 27.01.2011, with the
consent of the parities, the court referred the parties to the Sole Arbitrator
but all issues including the issue of limitation was kept open. Relevant
portion of the order dated 27.01.2011 passed in Co.Pet. 370/2008 reads as
follows:
"... The security deposit of Rs.5 lacs shall be deposited with the
learned arbitrator pending adjudication of the disputes. Needless
to say that this order is without prejudice to the rights and
contentions of both the parties. At the cost of repetition, it is
clarified that all objections to the petitioner's claim including
preliminary objection relating to limitation are left open.
Petitioner is also at liberty to file an application before the
learned arbitrator seeking a direction to the respondent to collect
the goods lying with the petitioner."
The above order which is passed by the consent of the parties is the
first request to refer the disputes to arbitration and hence, the relevant date
for the purpose of section 21 of the Arbitration and Conciliation Act. The
arbitral proceedings can be said to commence on the said date in terms of
section 21 of the Arbitration Act.
26. The contract in this case was terminated by the respondent on
08.11.2007, w.e.f. 15.11.2007. Hence, under Article 55 of Schedule to the
Limitation Act, the limitation would start from the date when the contract
was broken i.e. 08.11.2007. The Arbitration clause was invoked on
27.01.2011 when this court by consent of parties referred the parties to
arbitration. There is no other date on record to show invocation of the
Arbitration Clause. In the ordinary course this would clearly render the claim
of the claimant barred by limitation being well beyond the period of three
years from 08.11.2007.
27. The question would arise as to whether the claimant can take
advantage of Section 14 of the Limitation Act keeping in view the fact that
the winding up petition was filed in 2008 or can it be said that the claim of
the claimant got barred by limitation during pendency of the winding up
proceedings. In this context reference may be had to the judgment of this
court in Diwan Chand Kapoor vs. The New Rialto Cinema Pvt. Ltd., 28
(1985) DLT 310 whether this court held as follows:-
"6. True, Section 441 embodies the principle of 'relation back',
but I am unable to see how the theory of 'relation back, is of any
assistance to the petitioners, who seek a winding up order or
continuance of proceedings for winding up merely on the basis of
a claim, which, after the petition was filed, has become barred by
time. The filing of a petition for winding up cannot be equated
with the institution of a Suit. Once a Suit has been filed within a
period of limitation, there is no question of the claim being hit by
the law of limitation. The action for which there is limitation has
already been taken before the expiry of the period provided by
the Limitation Act. The filing of a winding up petition is not
analogous to filing a Suit. Section 14 of the Limitation Act would
also be of no assistance to the petitioners because the petitions
for winding up and the eventual suit for which the exclusion may
be claimed could not be said to "relate to the same matter in
issue" The object of winding up petition is to have the Company
wound up. Winding up petition is not a forum for the
adjudication of disputes between the parties nor is it an ordinary
mode of recovery of money. The only question with which the
winding up court is concerned is if the Company is liable to be
wound up. The other conditions of Section 14(1) with regard to
"difficulty of jurisdiction" or "other cause of a like nature" would
also not be satisfied. Section 14 would, Therefore, be
inapplicable in deciding the question if the claim has become
barred by time. There is no other provision in the Limitation Act
which is of any assistance to the petitioners in the present
situation. Section 458-A of the Companies Act provides for
exclusion of certain time in computing periods of limitation
where a winding up order has been made, but the benefit of the
Section is confined to proceeding "in the name and on behalf of a
company which is being wound up by the Court." It is not
available against the Company being wound up. It is only
available to the company which is being wound up. Moreover, it
is not sufficient that the claim was within time when the petitions
were filed because the liability of the Company to be would up is
to be considered by the Court when it makes the winding up
order, even though the question whether a petition should be
admitted or not has to be decided at an earlier stage. In the
present cases, the claims became barred by time before either of
the two stages because they became barred by time during the
pendency of the proceedings on show cause notices. In any event,
the defense of the Company that the claim became barred by time
during the pendency of the petition would, on any reckoning, be
bona fide, as well as, substantial so as to render the petitions
liable to be dismissed on that ground alone."
28. Similarly, this court in the case of Anil Pratap Singh Chauhan v.
M/s Onida Savak Ltd., AIR 2003 Del 252 held as follows:
"14.The question, Therefore, to be considered is whether the
period spent in pursuing the winding up petition is liable to be
excluded or not?. The submissions made by the learned counsel
for the plaintiff have already been noted and his reliance has been
on Chalisgaon Shri Laxmi Narayan Mills Co. Ltd. v. Armit Lal
Kalidas Kanji (supra) and Pavan Om Parkash Kejriwal v. Partap
Steel Rolling Mills (1935) Ltd. (supra). As I had heard Mr. R. P.
Sharma, Counsel for the plaintiff at length, I considered it
appropriate to take assistance from Mr. Manmohan, advocate,
who was appointed amices in the matter. Mr. Manmohan has
rendered valuable assistance in this matter.
.......
16. Let us apply the legal principles enunciated in the foregoing
authorities as also the pre-condition, set out before the benefit
under Section 14 of the Limitation Act can be claimed. Even in
the benefit having in good faith and diligently prosecuting the
winding up petition is assumed in favor of the plaintiff, the
remaining requirements of Section 14 are not satisfied. As held
by the Supreme Court in Yeshwant Deorao v. Walchand
Ramachand (supra), the relief sought in an insolvency or in the
present case the winding up proceedings and that for a suit for
recovery and the procedure are widely different. In Diwan Chand
Kapoor v. The New Rialto Cinema Pvt. Ltd. (supra), the learned
single Judge of this Court has succinctly brought out the
difference in the nature of an action for winding up petition and
that of eventual suits, which may be brought out the proceedings
cannot be said to "relate to the same matter in issue." I am in
respectful agreement with the view expressed in Diwan Chand
Kapoor v. The New Rialto Cinema Pvt. Ltd. (supra). The object
in a winding up petition is to have a company which is unable to
meet its legitimate debts wound up, the same is neither a forum
for adjudication of disputes between the parties nor is it the
ordinary mode for recovery of money. This apart the three
conditions of the earlier proceedings, having been failed on
account of defect of jurisdiction or a cause of the like nature is
not made in the instant case. A perusal of the order passed,
dismissing the winding up petition clearly shows that the winding
up petitions in all the cases have been dismissed upon the learned
Judge finding that a bona fide defense had been set up by the
respondents. The learned Company Judge found that there was a
clear admission that between the two groups of companies on
either side there have adjustments of claims and counter claims
were freely made. The plaintiff was only seeking that there
would be no adjustment after 1-4-1995. The Company Judge also
noted the submission of the respondent that the petition had been
filed as a counter blast to certain suits that had been instituted by
the defendant group of companies. There is no doubt upon a
perusal of the order passed In winding up petition that the same
were dismissed on merit and not on account of any defect in
jurisdiction or a defect or objection of a like nature. This being
the position the benefit of Section 14 of the Limitation Act
cannot be availed of by the plaintiff. Before parting with the case,
it would be appropriate to take note of the two decisions relied on
by the learned counsel for the plaintiff. In Chalisgaon Shri Laxmi
Narayan Mills Co. Ltd. v. Armitlal Kalidas, Kanji (supra), the
District Judge had rejected the claim of the liquidator on the
ground that it could not be disposed of summarily in the
proceeding by way of claim. It appears that the dismissal or
rejection was not on merits rather it was on account of a cause of
a like nature as defect of jurisdiction. In any case, it was not a
dismissal on merits while the present case is wholly
distinguishable. In a later decision of the Bombay High Court in
Rajan Products v. Jayant Vegoiles and Chemicals Pvt. Ltd.
reported at 1990 (CC2) GJX 0008 Bom, the Court declined to
give benefit of Section 14 of the Limitation Act on the ground
that the earlier proceedings for winding up of the company had
been initiated relying on the judgment of the Supreme Court in
Yeshwant Deorao v. Walachand Ramchand. The Court held that
in the Company Petition the plaintiffs had asked for winding up
of the company and, Therefore, the observations made in the said
decision by the Supreme Court definitely would apply and,
Therefore, the contention tried to be raised that the plaint tiffs are
entitled to the exclusion of time under Section 14 of the
Limitation Act cannot be considered as having substance. The
Court further held that, "even if the plaintiff pursuing a remedy
for winding up under the Company Law, they ought to have filed
a suit for recovery of the amount due to them within the period of
limitation."
29. Recently the Division Bench of this court in Co.App. 21/2018, titled
Make India Smart Pvt. Ltd. v. M/s RST Semi Conductors Pvt. Ltd. by order
dated 29.10.2018 relied upon the judgment of the Bombay High Court in
Rajan Products v. Jayant Vegoiles & Chemicals, (1991) 72 Comp. Cases 181
and held that section 14 of the Limitation Act cannot be invoked to avoid
limitation where the party was pursuing a remedy before the company court.
Relevant paras of the judgment are as follows:
"15. However, the Court finds that there was no warrant in law
for the learned Single Judge to have further ordered that in such
civil proceedings, the Appellant would be precluded from
opposing the invocation by the Respondent of Section 14 of the
Limitation Act. The Bombay High Court in Rajan Products v.
Jayant Vegoiles and Chemicals (1991) 72 Company Cases 181,
held that Section 14 of the Limitation Act cannot be invoked to
avoid limitation where the party was pursuing a remedy before
the Company Court.
16. Be that as it may, the Court is of the view that no party can
be deprived of a legal defence which it might otherwise have
and it is for the Court concerned to deal with such defence in
accordance with law."
30. It follows from the legal and the factual position as stated above that
the claims filed by both the sides before the learned arbitrator were barred by
limitation. The learned arbitrator however noted that at what point of time,
the arbitration was sought by which party is not clear from the order dated
27.01.2011, however, the order was passed by mutual consent of both the
parties. The learned arbitrator concluded that the arbitration commenced
within time. Clearly, the impugned award is erroneous on facts and law on
the issue of limitation. A bare perusal of the order of this court dated
27.01.2011 would show that when the matter was referred to arbitration, all
issues were kept open including the issue regarding limitation. Hence, there
was no consent on the part of the respondent which would enable the
extension of period of limitation as has been noted and concluded by the
learned arbitrator.
31. It follows that the entire claim filed by the parties was barred by
limitation before the learned Arbitrator. The question that may arise in this
case is that the claimant had diligently pursued the winding up petition. By
consent the parties agreed to go to Arbitration. Hence, the Company Petition
was disposed off. Can the petitioner now be non-suited merely because he
agreed to pursue the arbitration clause by the consent of the parties? In my
opinion, this view would be misplaced inasmuch as when the matter was
referred to arbitration on 27.01.2011, the respondent agreed to the reference
but kept all issues open including the issue of limitation. Secondly, in any
case, I am unable to convince myself in the facts of the case that a winding
up petition itself would lie against the respondent other than for refund of the
security.
32. I may however note that the learned Arbitrator has awarded a sum of
Rs. 5 lakhs to the claimant for refund of security. The Award also notes that
in the reply cum-counter-claim, the respondent has not specifically denied
receipt of Rs.5 lakhs as refundable security. This is an admitted claim. The
learned arbitrator in this regard in the award noted as follows:
"... The respondent had deposited the amount of Rs.5 Lakhs in
UCO Bank, Connaught Place, New Delhi in the name of the
arbitrator under Keber Yojna Deposit Scheme bearing CKY
No.0413583 on 20.08.2011 @ 9.25% for 12 months. The
claimant is allowed to take the original Fixed Deposit Receipt
from the Tribunal with no objection from the respondent
company and get the amount credited to its account. The
amount so received by the claimant would be adjusted against
the amount in this award."
33. By consent of both the parties the company court had directed the
respondent to deposit a sum of Rs.5 lacs on account of the security deposit
with the learned arbitrator pending adjudication of the disputes. This
direction of the company court to the respondent to deposit Rs.5 lakhs with
the learned arbitrator subject to the direction of the learned arbitrator
attained finality, as it was not challenged.
34. The money having deposited with the learned arbitrator by consent of
both the parties subject to further directions of the learned arbitrator, in my
opinion, the directions given by the learned arbitrator to the extent of
security deposit and interest would survive. This is so as the order has been
passed by consent of both the parties and money has already gone out of the
hands of the respondent by the order of the company court. Even otherwise
there was no serious dispute that this amount was payable to the claimant.
35. Accordingly, I hold that other than the award/direction relating to the
Fixed Deposit Receipt and interest awarded on this security deposit, rest of
the claim on the face of it is barred by limitation. Hence, the award to that
extent suffers from material illegality and is passed contrary to the
provisions of law. The award to the extent it ignores the statutory legal
provisions regarding limitation is contrary to the fundamental policy of law
and is illegal and irregular.
36. Reference in this context may be had to the judgment the Supreme
Court in Associate Builders v. Delhi Development Authority, (supra), noted
as follows:
"In DDA v. R.S. Sharma and Co., (2008) 13 SCC 80, the Court
summarized the law thus:
"21. From the above decisions, the following principles
emerge:
(a) An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and
Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section
34(2) of the Act.
(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so
unfair and unreasonable that it shocks the
conscience of the court.
(d) It is open to the court to consider whether the
award is against the specific terms of contract and
if so, interfere with it on the ground that it is
patently illegal and opposed to the public policy of
India. ..............."
37. The Award is accordingly set aside except the award of Rs. 5 lakhs
granted towards security and a sum of Rs. 1,27,200/- being the interest on
the security deposit and consequent directions.
38. In view of the above both the petitions stand disposed of.
(JAYANT NATH)
JUDGE
FEBRUARY 13, 2019/v/rb
