Delhi High Court
M/S Bpl Ltd vs Morgan Securities & Credits Pvt Ltd on 19 July, 2024
Author: Dharmesh Sharma
Bench: Yashwant Varma, Dharmesh Sharma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on : 06 May 2024
Judgment pronounced on : 19 July 2024
+ FAO(OS)(COMM) NO. 46/2019, CM APPL. 9205/2019, CM
APPL. 38801/2022
M/s BPL LIMITED ..... Appellant
Through: Mr. Sajan Poovayya, Sr. Adv.
with Mr. Rishi Agrawala, Mr.
Karan Luthra, Mr. Pranjit
Bhattacharya, Mr. Prabhav
Bahuguna, Ms. Tarini & Mr.
Naman, Advs.
versus
M/s MORGAN SECURITIES & CREDITS PVT. LTD.
..... Respondent
Through: Mr. Simran Mehta, Mr. Ankur
Chawla, Mr. Amit Ranjan
Singh & Mr. Prakash Chand,
Advs.
CORAM:
HON‟BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE DHARMESH SHARMA
JUDGMENT
DHARMESH SHARMA, J.
1. The appellant has preferred this appeal under Section 37(1)(b)
of the Arbitration and Conciliation Act, 19961 read with Section 13 of
the Commercial Courts Act, 2015, assailing the Impugned Order dated
18.12.2018 passed by the learned Single Judge of this Court in OMP
(COMM) No. 176/2017 titled ―M/s BPL Ltd. v. M/s Morgan Securities
KUMAR VATS
Signing Date:19.07.2024
16:31:38
& Credits Pvt. Ltd.‖, whereby the learned Single Judge upheld the
arbitral award dated 14.12.2016 to the extent that it directs the
appellant to make payments to the respondent/claimant under all Bills
of Exchange and proportionate interest thereon, except for one Bill of
Exchange bearing No. OMR-35, which claim was given up by the
respondent otherwise too.
FACTUAL BACKGROUND:
2. Shorn of unnecessary details, one M/s BPL Display Device
Ltd./BDDL had sold certain goods to the appellant herein/BPL over a
period of time. As there arose some issues of timely payments, the
buyer and seller companies viz., BPL and BDDL, together approached
the respondent for extending a bill discounting facility to BDDL, to
which the respondent agreed. Accordingly, the bill discounting facility
was sanctioned by the respondent vide letters dated 27.12.2002 (to the
extent of Rs. 6 crores) and 11.06.2003 (to the extent of Rs. 6.5 crores).
It would be apposite to bring to the fore, some relevant terms of the
Sanction Letters, as mutually agreed between the parties:
The said Sanction Letters referred to BDDL as the ‗Drawer' and
the appellant/BPL as the ‗Drawee'.
It was provided that the ―Bill of Exchange /Hundi shall be with
recourse to Drawer.‖
The repayment of the amount was mutually agreed to be both the
responsibility of the drawer/BDDL and drawee/appellant jointly
and severally.
The facility was approved at a concessional rate of interest i.e.,
22.5% per annum payable upfront as against the normal agreed rate
of interest i.e., 36% per annum but in case of default in making
payment on its due dates, the concessional rates would stand
withdrawn and the normal rate of interest i.e., @ 36% per annum
would become payable.
Arbitration Act
KUMAR VATS
Signing Date:19.07.2024
16:31:38
The bill discounting period was up to 150 days.
As per the Sanction Letter dated 11.06.2003, one M/s Electronic
Research Pvt. Ltd./ERPL stood surety for the repayment of Rs.
6,43,32,301/- in the event the drawer and drawee failed to repay
the amount due in term of sanction letter dated 11.06.2003. In
pursuance of the same, ERPL furnished a ‗Comfort letter' along
with PDCs guaranteeing repayment of the amounts due and
payable to the respondent/claimant.
3. However, dispute between the parties arose when a sum of
Rs.25,79,91,096/- against particular Bills of Exchange became due
and payable to the respondent/claimant by BPL and BDDL in 2004,
which amount they defaulted in repaying despite several reminders on
behalf of the respondent/claimant. It is stated that during the
subsistence of the contract, BDDL along with ERPL had issued post-
dated cheques (PDCs) to discharge their respective partial contractual
liabilities towards the respondent/claimant. However, BPL allegedly
requested the claimant to not encash the said cheques and assured the
respondent/claimant that given some more time, they would make
arrangements for the payments. The respondent/claimant, in good
faith, considered the requests and upon assurances of BDDL, did not
present the cheques for encashment.
4. After an extension of time to make the payments was sought,
admittedly, the appellant/BPL made two payments to the respondent
herein vide Demand Drafts dated 08.08.2005 and 29.08.2005 both
drawn on Bank of India for a sum of Rs. 50,00,000/- each, and it is
stated that such amounts were adjusted by the respondent/claimant
towards seven Bills of Exchange drawn pursuant to the Sanction
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Letter dated 11.06.2003, the details of which are reproduced
hereinbelow:
5. However, despite the assurances extended by the appellant/BPL
and BDDL as well as the indulgence accorded by the respondent, the
appellant/BPL and BDDL failed to repay the amounts due with
interest and relying upon the letter of acknowledgement of debt dated
02.02.2007 issued by the appellant/BPL, the respondent invoked
arbitration by way of issuance of a Notice dated 28.06.2007, against
the appellant/BPL as well as BDDL. Accordingly, a sole Arbitrator
was appointed to preside over the matter.
ARBITRAL PROCEEDINGS:
6. In a nutshell, the respondent/claimant raised a total of four
claims; three claims under the sanction letter dated 11.06.2003, and
one claim under the sanction letter dated 27.12.2002, amounting to an
aggregate of Rs.25,79,91,096/- which had become due and payable by
the appellant/BPL and BDDL to the respondent herein. It is pertinent
to note that during the course of the arbitration proceedings, ERPL
was impleaded as respondent No.3 and the claim against BDDL was
KUMAR VATS
Signing Date:19.07.2024
16:31:38
dropped by the respondent/claimant, since BDDL was undergoing
liquidation proceedings.
7. On the basis of the pleadings, the following issues were framed
by the learned sole Arbitrator:
1. Whether the claimant is entitled to a sum of Rs.7,27,05,579/- as on
10.08.2007 against Bill Discounting Facility Agreement/ sanction
vide letters dated 27.12.2002 and Rs,20,62,28,681/- as on
10.08.2007 on account of the Bill Discounting Facility Agreement/
Sanction letter dated 11.06.2003?
2. Whether the claimant is entitled to any damages. .If so, to what
amount?
3. Whether the claimant is entitled to interest. If so, at what rate and
from which date?
4. Whether the claimant is entitled to cost?
5. Whether the claims have been validly instituted? OPR2
6. Whether, assuming the Respondent No.2 is liable for payment
under the Bill Discounting Facility Agreement dated 27.12.2002
and 11.06.2003, the claim is barred by time? OPR2
7. Whether the Claimant can claim any amount from Respondent
No.2 under the Bill Discounting Facility Agreement dated
27.12.2002 and 11.06.2002 in view of the Respondent No.2 having
tendered post-dated cheques towards payment of liability on the
hundies discounted by the Claimant? OPR2
8. Whether the Respondent N.o.2 made any verbal representation to
the Claimant not to present the post-dated cheques issued by the
Respondent No.2 as alleged by the Claimant? OPR2
9. If not, did the Claimant waive its right to the payment of the
amounts of each cheque issued by Respondent No.2 and under the
Bill Discounting Agreement? OPR2
10. Reliefs.
8. As regards Issue No.1, the learned Arbitrator firstly rejected the
contention of the appellant that the transaction between the parties is
governed by the Usurious Loans Act, 1918, as amended by the Punjab
Relief of Indebtedness Act, 1934, by observing that the transaction
between the parties was neither a loan nor a debt, rather it was simply
in the nature of a commercial transaction wherein BPL and BDDL
KUMAR VATS
Signing Date:19.07.2024
16:31:38
being ‗traders', had transacted a deal in the course of their business
since BDDL was not in a financial position to pay BPL, and therefore,
they together approached the respondent/claimant to pay to the seller
the amounts of the transactions, with a stipulation that the same would
be repaid to the respondent/claimant along with interest as per the
terms agreed upon. Secondly, the learned Arbitrator held that it cannot
be said that the sanction letters are distinct from the Bills of
Exchange/hundis or that the bill discounting agreements/sanction
letters are not binding upon BPL and BDDL; nor can it be said that the
claim of the non-payment of the bills of exchange is not governed by
the terms of the said bill discounting agreements/sanction letters.
Accordingly, the learned Arbitrator decided Issue No.1 in favour of
the claimant/respondent herein.
9. As regards Issue No. 2, it was held by the learned Arbitrator
that the claimant has failed to prove that damages had been suffered,
and thus, the said issue was decided against the claimant/respondent
herein.
10. As regards Issue No.3, relying upon Class Motors Ltd v.
Maruti Udyog Ltd.2, Modi Rubber Ltd v. Morgan Security and
Credits3 and West Bengal Cement Ltd v. Syndicate Bank4 , the
learned Arbitrator held that the terms of payment of interest as
mutually agreed upon by the parties vide sanction letters dated
27.12.2002 and 11.06.2003 cannot be held to be unconscionable,
arbitrary, or excessive in case of non-payment after the stipulated due
1996 SCC OnLine Del 872
2009 SCC OnLine Del 3318
KUMAR VATS
Signing Date:19.07.2024
16:31:38
date. It was held that BPL and BDDL were under no obligation to
enter into a contract with the respondent/claimant in the first place,
and thus, having taken the advantage of the contract, the appellant
herein, could not be allowed to turn around and raise a plea that the
rate of interest was excessive or unconscionable. Moreover, the
learned Arbitrator by relying upon Central Bank of India v.
Ravindra and Others5, rejected the contention of the appellant that
the interest cannot be added to the principal amount and held that
since the compounding of interest on monthly rest was provided in the
mutually agreed upon terms of the contract entered into between the
parties, therefore, the respondent/claimant was entitled to claim
interest as per the terms of the contract i.e., @ 36% per annum with
monthly rests. Accordingly, Issue No. 3 was decided in favour of the
claimant/respondent herein.
11. Issue No. 5 was decided by the learned Arbitrator in favour of
the claimant/respondent herein by observing that Section 64 of
Negotiable Instruments Act, 18816 is not applicable to the facts of the
present case and the surety ERPL (Respondent No.3 therein) having
admitted the existence of the arbitration agreement/sanction letter
dated 11.06.2003, has rightly been impleaded to the arbitration
proceedings. It was further held that BPL has also been rightly
impleaded in view of the joint liability clause contained in the sanction
letters dated 27.12.2002 and 11.06.2003.
2002 SCC OnLine Del 546
2001 SCC OnLine SC 1266
6 NI Act
KUMAR VATS
Signing Date:19.07.2024
16:31:38
12. As regards Issue No.6 qua the issue of limitation, the learned
Arbitrator while observing that the part payments amounted to
acknowledgement and would extend the period of limitation, held that
since, admittedly, there was a part payment made by BPL within the
period of limitation i.e., in August 2005, and the debt was
acknowledged vide letter dated 02.02.2007, by no stretch of
imagination can the claims of the claimant/respondent herein be said
to be barred by time in view of the fact that the claimant invoked
arbitration within six months from 02.02.2007. Thus, Issue No. 6 was
decided in favour of the claimant/respondent herein.
13. In respect of Issues No. 7, 8 and 9, relying upon the decision in
Harish Chander v. Ganga Singh and Sons 7, it was held that despite
the fact that the claimant/respondent herein did not present the post-
dated cheques issued by BDDL, it would not absolve the appellant
herein from its liability. However, with regard to ERPL, it was held
that its liability stood discharged on account of the failure of the
claimant/respondent herein to present the post-dated cheques issued
by ERPL for payment coupled with the fact that ERPL never issued
any letter of acknowledgement of debt either, and thus, the claim of
the respondent herein against ERPL was dismissed as barred by
limitation.
14. Resultantly, the learned Arbitrator, by way of the impugned
award dated 14.12.2016, directed the appellant to pay a sum of Rs.
7,27,05,579/- as well as Rs. 20,62,28,681/- with interest as applicable
in the terms of the sanction letters i.e., @ 36% per annum from the
KUMAR VATS
Signing Date:19.07.2024
16:31:38
date these amounts were due till the date of the Award, and @10% per
annum from the date of the Award till realization.
FIRST APPEAL UNDER SECTION 34 OF THE
ARBITRATION ACT:
15. Aggrieved by the Award dated 14.12.2016, each of the rival
parties instituted an application under Section 34 of the Arbitration
Act before this Court. On one hand, the appellant herein challenged
the directions of the learned sole Arbitrator to make the payment of
the claim to the respondent herein, while on the other hand, the
respondent herein challenged the dismissal of its claims against ERPL.
IMPUGNED ORDER DATED 18.12.2018:
16. On a careful perusal of the impugned judgment passed by the
learned Single Judge, the gist of the observations arrived at appear to
be as follows:
(i) The claim of the respondent/claimant was not on the basis of the
Bills of Exchange but on the basis of two Sanction Letters to which
the appellant herein was admittedly a party. Section 80 of the NI
Act, which prescribes a fixed rate of interest to be charged, has no
application to the present case.
(ii) As per Section 31(7) of the NI Act, the transaction in question does
not fall within the ambit of the Usurious Loans Act, 1918 as
amended by the Punjab Relief of Indebtedness Act, 1934 since the
transaction in question was not in the nature of a loan or a debt,
rather it pertained to discounting of Bills of Exchange which was
simply a commercial transaction.
(iii) The interest awarded by the learned sole Arbitrator, having been
granted interest in accordance with the terms of the contract
between the parties, cannot be set aside by invoking the general
principles of fairness or equity.
(iv) Since the respondent/claimant had stated on affidavit that it had
adjusted the part payments made by the appellant against seven
particular Bills of Exchange, the respondent cannot claim the
1973 SCC OnLine P&H 40
KUMAR VATS
Signing Date:19.07.2024
16:31:38
benefit of extension of limitation for those Bills of Exchange for
which it did not receive any payment. Therefore, the claim of the
respondent for Bill of Exchange bearing OMR No.35 has to be
held as being barred by limitation.
(v) As per Section 37 of NI Act as well as the terms of the Sanction
Letters, the Drawer/BDDL and the Drawee/BPL of the Bills of
Exchange are jointly and severally liable for repayment of the
amounts discounted. Merely because the terms of the Sanction
Letters state for reference to the Drawer/BDDL, it cannot absolve
the Drawee/BPL of such liability.
(vi) Non-application of Section 64, NI Act to the facts and
circumstances of the present case is a finding on fact made by the
learned Sole Arbitrator, hence it cannot be interfered into in
Section 34, Arbitration Act proceedings.
(vii) There was no acknowledgment of liability by ERPL that could
have extended the period of limitation against it. Further, no reason
for non-presentation of the Post-Dated Cheques issued by ERPL
was presented by the respondent/claimant before the Arbitrator or
before this Court. Thus, the ERPL has been rightly discharged
from the liability by the ld. Sole arbitrator.
(viii) Post-award interest awarded by the learned Sole arbitrator is a
matter of discretion of the arbitrator, hence the same cannot be
faulted merely because the Court could have exercised its
discretion in another manner.
17. Accordingly, the learned Single Judge vide common impugned
order dated 18.12.2018, partly allowed the petition under Section 34
of the Arbitration Act preferred by the appellant herein and dismissed
the petition filed by the respondent herein while passing the following
directions:
―63. In view of the above, the Award on the principal sum
of Bill of Exchange bearing No.OMR-35 of an amount of
Rs.75,39,304/- is set aside. The Award inasmuch as it
directs the petitioner to make payments to the respondent
except for the above Bill of Exchange and proportionate
interest thereon, is upheld.‖
GROUNDS OF APPEAL:
KUMAR VATS
Signing Date:19.07.2024
16:31:38
18. The impugned order dated 18.12.2018 passed by the learned
Single Judge has been assailed by the appellant herein: firstly, on the
ground that the learned Single Judge did not appreciate that the
awarded claims are ex-facie barred by limitation as the letter dated
02.02.2007 cannot be construed as an acknowledgment of debt against
the appellant; secondly, on the ground that the learned Single Judge
erred by not appreciating that the claims of the respondent are based
on the Bills of Exchange, and therefore, hit by Section 80 of the NI
Act; thirdly, on the ground that the learned Single Judge erred in not
appreciating that the dispute between the parties is not arbitrable in
view of the fact that there is no arbitration clause contained in the Bills
of Exchange; fourthly, on the ground that the learned Single Judge did
not appreciate that the appellant herein stands discharged under
Section 64 of NI Act since it is an admitted position that the
respondent never presented the post-dated cheques issued by the
appellant for payment of its dues; fifthly, on the ground that the
learned Single Judge ought to have rejected the claim for interest
bearing an exorbitant rate of 36% per annum for being excessive and
unconscionable, therefore being against the public policy of India; and
lastly, on the ground that the learned Single Judge did not appreciate
that Clause 3 of the Sanction Letters was incorporated in each Bill of
Exchange drawn by BDDL that is endorsed with the phrase ―With
Recourse to the Drawer‖ which makes it a contract to the contrary
within the meaning of Sections 32 and 37 of the NI Act i.e., if the
Drawee fails to pay under a Bill of Exchange, the Drawer shall do so.
ANALYSIS & DECISION:
KUMAR VATS
Signing Date:19.07.2024
16:31:38
19. We have given our thoughtful consideration to the issues raised
and canvassed by the learned counsels at the Bar and we have also
gone through the record, including the original record of the
arbitration proceedings as also the case laws cited at the Bar.
20. First things first, it would be expedient to elucidate the
principles enunciated by the Apex Court in some of the recent
decisions pertaining to the scope of challenge and interference with an
arbitral award under Section 34 of the Arbitration Act, as also the
scope of appeal under Section 37 of the Arbitration Act, which
provisions read as under:
―34. Application for setting aside arbitral award. -(1) Recourse
to a Court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub-
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application establishes on the basis of the
record of the arbitral tribunal that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or
not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission
to arbitration:
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only that part of the
arbitral award which contains decisions on matters not submitted to
arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless
such agreement was in conflict with a provision of this Part from
which the parties cannot derogate, or, failing such agreement, was
not in accordance with this Part; or
KUMAR VATS
Signing Date:19.07.2024
16:31:38
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation 1.--For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.--For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
court, if the court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
evidence.
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making that
application had received the arbitral award or, if a request had been
made under Section 33, from the date on which that request had
been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within
the said period of three months it may entertain the application
within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion of
arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
37. Appealable orders.--(1) (Notwithstanding anything contained
in any other law for the time being in force, an appeal) shall lie
from the following orders (and from no others) to the court
authorised by law to hear appeals from original decrees of the
Court passing the order, namely:--
KUMAR VATS
Signing Date:19.07.2024
16:31:38
((a) refusing to refer the parties to arbitration under Section 8;
(b) granting or refusing to grant any measure under Section 9;
(c) setting aside or refusing to set aside an arbitral award under
Section 34.)
(2) An appeal shall also lie to a court from an order of the arbitral
tribunal--
(a) accepting the plea referred to in sub-section (2) or sub-section
(3) of Section 16; or
(b) granting or refusing to grant an interim measure under Section
(3) No second appeal shall lie from an order passed in appeal under
this section, but nothing in this section shall affect or take away
any right to appeal to the Supreme Court.‖
[EMPHASIS SUPPLIED]
21. It is well ordained in law that the jurisdiction of the Court under
Section 34 of the Arbitration Act is neither in the nature of an
appellate remedy nor is it in the nature of a revisional remedy. It is
also well settled that an award cannot be challenged on merits except
for the limited grounds that have been spelled out vide sub-sections (2)
and (3) of Section 34, by way of filing an appropriate application. This
is exemplified from a bare reading of sub-section (4) whereupon the
receipt of an application, the Court may dispose of the Section 34
proceedings and direct the Arbitral Tribunal to resume the arbitral
proceedings or take such action as would eliminate the grounds for
setting aside the arbitral award and make the same enforceable.
Incidentally, it is also relevant to take note that Section 34 is modelled
on the UNCITRAL Model Law on International Commercial
Arbitration, 1985, under which no power to modify an award is given
to a court hearing a challenge to an award8.
Article 34. Application for setting aside as exclusive recourse against arbitral award.--
(1) Recourse to a court against an arbitral award may be made only by an application for setting
aside in accordance with paragraphs (2) and (3) of this article.
KUMAR VATS
Signing Date:19.07.2024
16:31:38
22. Avoiding a long academic discussion, we may refer to the
decision in the case of MMTC Ltd. v. Vedanta Ltd.9, wherein a plea
was advanced that the Appellate Court should be competent to come
to a different conclusion based on evaluation of the evidence placed
on the record. Outrightly rejecting the aforesaid plea, the Supreme
Court elucidated the contours of the powers of a Court under Sections
34 and 37 of the Arbitration Act, and held as under:-
―As far as interference with an order made under Section 34, as per
Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the restrictions
laid down under Section 34. In other words, the court cannot
undertake an independent assessment of the merits of the
award, and must only ascertain that the exercise of power by
the court under Section 34 has not exceeded the scope of the
provision. Thus, it is evident that in case an arbitral award has
been confirmed by the court under Section 34 and by the court in
an appeal under Section 37, this Court must be extremely cautious
and slow to disturb such concurrent findings.‖
[EMPHASIS SUPPLIED]
23. The Supreme Court in NHAI v. M. Hakeem10, delved into the
issue as to whether the power of the Court under Section 34 of the
Arbitration Act, to set aside an award passed by an Arbitrator, would
also include the power to modify such an award. It was a case
wherein the Division Bench of the Madras High Court had disposed of
a large number of appeals under Section 37 of the Arbitration Act by
laying down, as a matter of law, that arbitral awards made under the
****
(4) The court, when asked to set aside an award, may, where appropriate and so requested by a
party, suspend the setting aside proceedings for a period of time determined by it in order to give
the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action
as in the Arbitral Tribunal's opinion will eliminate the grounds for setting aside.‖
(2019) 4 SCC 163
10 (2021) 9 SCC 1
KUMAR VATS
Signing Date:19.07.2024
16:31:38
National Highways Act, 1956 read with Section 34 of the Arbitration
Act should be read so as to permit the modification of an arbitral
award, thereby, the Division Bench enhanced the amount of
compensation awarded by the learned Arbitrator. Frowning upon such
a course of action, it was categorically held as under:-
―It can therefore be said that this question has now been settled
finally by at least 3 decisions [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari
Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5
SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam
Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this
Court. Even otherwise, to state that the judicial trend appears to
favour an interpretation that would read into Section 34 a power to
modify, revise or vary the award would be to ignore the
previous law contained in the 1940 Act; as also to ignore the
fact that the 1996 Act was enacted based on the Uncitral Model
Law on International Commercial Arbitration, 1985 which, as has
been pointed out in Redfern and Hunter on International
Arbitration, makes it clear that, given the limited judicial
interference on extremely limited grounds not dealing with the
merits of an award, the "limited remedy" under Section 34 is
coterminous with the "limited right", namely, either to set
aside an award or remand the matter under the circumstances
mentioned in Section 34 of the Arbitration Act, 1996.
{paragraph 42}
Quite obviously if one were to include the power to modify an
award in Section 34, one would be crossing the Lakshman
Rekha and doing what, according to the justice of a case, ought
to be done. In interpreting a statutory provision, a Judge must put
himself in the shoes of Parliament and then ask whether Parliament
intended this result. Parliament very clearly intended that no
power of modification of an award exists in Section 34 of the
Arbitration Act, 1996. It is only for Parliament to amend the
aforesaid provision in the light of the experience of the courts in
the working of the Arbitration Act, 1996, and bring it in line with
other legislations the world over.‖ {paragraph 48}
[EMPHASIS SUPPLIED]
24. The dictum that there is no power vested in the Court to modify,
revise or vary the terms of an award under Section 34 of Arbitration
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Act was further reiterated in a decision titled Hindustan
Construction Company Limited v. National Highways Authority
of India11, wherein the Supreme Court held that ―Courts under
Section 34 are not granted the corrective lens and cannot re-
appreciate the decision on merits unless the conclusions drawn are
patently perverse.‖ Likewise, in the case of Reliance Infrastructure
Ltd. v. State of Goa12, the decision in the case of Delhi Airport
Metro Express Private Limited v. Delhi Metro Rail Corporation13
was referred with approval and it was observed that ―The arbitrator is
a Judge chosen by the parties and his decision is final. The Court is
precluded from reappraising the evidence. Even in a case where the
award contains reasons, the interference therewith would still be not
available within the jurisdiction of the Court unless, of course, the
reasons are totally perverse or the judgment is based on a wrong
proposition of law".
25. That being the scope and ambit of the powers of this Court, we
may further briefly elaborate on how the expression ―the public policy
of India‖ contained in Section 34(2)(b)(ii) of the Arbitration Act is to
be construed. The Supreme Court in the case of ONGC Ltd. v. Saw
Pipes Ltd.14 explained the expression as under:
"31. Therefore, in our view, the phrase ―public policy of India‖
used in Section 34 in context is required to be given a wider
meaning. It can be stated that the concept of public policy connotes
some matter which concerns public good and the public interest.
What is for public good or in public interest or what would be
2023 SCC OnLine SC 1063
2023 SCC OnLine SC 604
(2022) 1 SCC 131
(2003) 5 SCC 705
KUMAR VATS
Signing Date:19.07.2024
16:31:38
injurious or harmful to the public good or public interest has varied
from time to time. However, the award which is, on the face of
it, patently in violation of statutory provisions cannot be said to
be in public interest. Such award/judgment/decision is likely to
adversely affect the administration of justice. Hence, in our view
in addition to narrower meaning given to the term ―public policy‖
in Renu Sagar case [Renu agar Power Co. Ltd. v. General Electric
Co., 1994 Supp (1) SCC 644] it is required to be held that the
award could be set aside if it is patently illegal. The result would be
-- 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; or
(d) in addition, if it is patently illegal.
[EMPHASIS SUPPLIED]
26. Again, avoiding a long academic discussion, the said
expression came to be discussed in a recent decision of the Supreme
Court in S.V. Samudram v. State of Karnataka 15, approving its
earlier decision in Associate Builders v. DDA16 (two-Judge Bench) ,
wherein it was held that an award can be said to be against the public
policy of India, inter alia, under the following circumstances:
―42.1. When an award is, on its face, in patent violation of a
statutory provision.
42.2. When the arbitrator/Arbitral Tribunal has failed to adopt a
judicial approach in deciding the dispute.
42.3. When an award is in violation of the principles of natural
justice.
42.4. When an award is unreasonable or perverse.
42.5. When an award is patently illegal, which would include an
award in patent contravention of any substantive law of India or in
patent breach of the 1996 Act.
42.6. When an award is contrary to the interest of India, or against
justice or morality, in the sense that it shocks the conscience of the
Court.‖
SANCTION LETTERS & ARBITRATION CLAUSE:
(2024) 3 SCC 623
KUMAR VATS
Signing Date:19.07.2024
16:31:38
27. In view of the aforesaid proposition of law, reverting to the
instant matter, a new plea has been countenanced by the learned
counsel for the appellant herein that it was not a signatory to the bill
discounting agreements dated 27.12.2002 and 11.06.2003.
Unhesitatingly, we find that such a plea was never taken in the arbitral
proceedings as also by way of objections during the proceedings under
Section 34 of the Arbitration Act. Although, a perusal of the sanction
letters dated 27.12.2002 and 11.06.2003 would show that it was under
the letter head of the respondent/claimant and addressed to BDDL,
there was no denial at any point of time that the same was not binding
upon the appellant herein, and as a matter of fact, there was no denial
during the arbitral proceedings that the appellant herein was not a
signatory to the aforesaid discounting letters as also a beneficiary
thereof, pursuant to which the hundis were issued from time to time
towards payment for the sale of goods to the appellant/BPL, which
were by all necessary implication, acquiesced to. Admittedly, both the
sanction letters dated 27.12.2002 and 11.06.2003 contained an
arbitration clause17 to which the appellant was also bound, and
therefore, the plea countenanced must be rejected at the outset.
(2015) 3 SCC 49
―Any dispute or difference whatsoever arising between the parties out of or in relation to the
construction, meaning, scope, operation or effect of any transaction/s or the validity or the breach
thereof arising out of or in connection with the present agreement and for any other transaction/s
between the parties shall be settled by Arbitration of a Sole Arbitrator appointed by Chairman of
Morgan Securities- Credits Private Limited, who would also have right to appoint alternate
Arbitrator in place of the aforesaid Arbitrator, in case of his death or being incapable or refusal to
act or in the event of termination of his mandate for any reason. The arbitration proceedings shall
be held at New Delhi. The power of the Chairman to appoint a Sole Arbitrator shall not be
challenged by either party, Further, the parties agree that the Arbitrator so appointed may be an
employee and / or professional retainer and/or a person who has a relation or interest in the
company. Both parties agree not to ask for any adjournment except under extra-ordinary reasons.
The award given by the arbitrator shall be final and binding upon the parties.‖
KUMAR VATS
Signing Date:19.07.2024
16:31:38
COMPUTATION OF CLAIMS & ISSUE OF LIMITATION:
28. Unhesitatingly, the arbitral record brings out the findings
rendered by the learned Arbitrator to the effect that the computation of
claims pursuant to sanction letter dated 27.12.2002 Ex.CW-1/294 due
as on 10.08.2007, indicating that not even a single hundi had been
discharged and there was an outstanding amount of Rs. 7,27,05,579/-,
was not challenged by the appellant herein. Likewise, the
computation of claims arising out of sanction letter dated 11.06.2003
Ex.CW-1/295 due as on 10.08.2007, totalling to Rs. 20,62,28,681/-
was also not assailed. Thus, there is no patent illegality or perversity
in the finding by the learned Arbitrator that no accounting fallacy had
been pointed out by respondent No.2/BPL (appellant herein).
29. As regards the issue of the claims being barred by limitation,
the appellant in the present appeal vide paragraph (10) has provided
tabular details of the Bills of Exchange with respective due dates for
repayment in terms of the sanction letter dated 11.06.2003, which is
attached as Annexure „A‟ to this judgment. On a careful perusal of
the same, it appears that the respective due dates for payment were
16.02.2004 vide entry No. 29, which fell within three years of the
letter dated 02.02.2007 Ex.C-281. During the course of the arbitral
proceedings, CW-1 Mr. P.K. Gupta in his affidavit-in-evidence dated
12.11.2008 substantiated the statement in the said tabular form,
showing part-payments which were made against specific Bills of
Exchange as recorded by the respondent/claimant, which is attached
as Annexure-„B‟ to this judgment. It was also brought out in the
course of the arbitration proceedings that the two post-dated cheques
KUMAR VATS
Signing Date:19.07.2024
16:31:38
for Rs. 50 lacs each, dated 10.08.2005 and 31.08.2005 respectively,
were not presented for payment by the respondent at the instance of
the appellant, as evidently the appellant requested for some more time
to make good the amount due and payable.
30. At this juncture, it would be apposite to reproduce the contents
of the letter dated 02.02.2007 issued to the respondent/claimant by the
appellant, which is reproduced hereinbelow:
―This is with reference to the discussions we had today at our
Office with your representative, Mr. Madhukar Dodrajka regarding
outstanding dues pertaining to BDDL account.
At the outset, I would like to thank you for your patience and
understanding during the really trying phase of BPL Limited.
As you may be aware, BPL Limited has restructured its businesses
and has formed a joint venture company for its Colour Television
business with our JV partners, SANYO. After the formation of the
JV, BPL has been striving hard, to get back to normalcy and is in
touch with various financial institutions for sanction of required
funds for our working capital requirements and settlement of all
outstanding dues. 1 am constantly monitoring the situation and rest
assured we will settle your outstandings within the next 6 months.
Looking forward to your support, as always and thank you once
again for your patience and understanding.‖
31. Before deciphering the narrative of the aforesaid letter, a careful
perusal of the composite table for both the discounting facilities under
the two sanction letters would make it evident that the first part-
payment was made on 10.02.2004, which date falls within three years
of the letter of acknowledgment dated 02.02.2007 and all other
payments were subsequent in time. In respect of the Bills for which
there was no part-payment, the due dates fell squarely within three
years of the acknowledgment dated 02.02.2007. Although, much
mileage was sought to be taken by the learned counsel for the
KUMAR VATS
Signing Date:19.07.2024
16:31:38
appellant that OMR 3518 for Rs. 75,39,304/- had been excluded by the
learned Single Judge, which fortifies its plea that each Bill of
Exchange was a separate one, learned counsel for the appellant
overlooks the fact that its due date was 03.07.2003, thereby beyond
three years of the acknowledgment dated 02.02.2007, and therefore,
held to be beyond limitation. Incidentally, the claim with regard to
such Bill of Exchange was rather given up by the respondent/claimant
before the learned Single Judge.
32. There is no escape from the conclusion that the principal
liability under the sanction letters dated 27.12.2002 and 11.06.2003
and also the liability for discharge of Bills of Exchange issued
thereunder was joint and several. That being the case, the learned
Single Judge, while construing the contents of the letter dated
02.02.2007 reproduced hereinabove, rightly found that there was
clearly an acknowledgment of liability in terms of Section 1819 of the
28th entry in Annexure-‗B'
Effect of acknowledgment in writing.
(1) Where, before the expiration of the prescribed period for a suit or application in respect of any
property or right, an acknowledgment of liability in respect of such property or right has been
made in writing signed by the party against whom such property or right is claimed, or by any
person through whom he derives his title or liability, a fresh period of limitation shall be computed
from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of
the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.--For the purposes of this section,--
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of
the property or right, or avers that the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is
coupled with a claim to set off, or is addressed to a person other than a person entitled to the
property or right,
(b) the word "signed" means signed either personally or by an agent duly authorised in
this behalf, and
(c) an application for the execution of a decree or order shall not be deemed to be an
application in respect of any property or right.
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Limitation Act, 1963 thereby upholding the observations by the
learned Arbitrator, and observed as under:
―45. In my view, the same is clearly an acknowledgment of
liability in terms of Section 18 of the Limitation Act. The
Arbitrator has also considered the said issue as under and arrived at
the same conclusion:
"Reading of this letter it can safely be concluded that it is a
clear case of acknowledgement of liability of the
outstanding amounts against hundies pertaining to BDDL
account on the part of the respondent No.2. Reading of
this letter, nowhere indicate that the respondent was
talking about acknowledging of liability of any particular
or specific hundi. Moreover, in view of the fact that there
was. a part payment made by respondent No.2 within the
period of limitation i.e. August 2005 as admitted by the
respondent and the acknowledgement made vide letter
dated 2/2/2007 within time, by no stretch of imagination it
can be said that claims of claimant are barred by time.
Within six months of 2/2/2007 when payments was made
of outstanding dues, claimant invoked arbitration. Further,
55. Mr. Joshi further contended that letter dated 2/2/2007
cannot be construed as an acknowledgement of liability by
respondents as the said letter has been signed by Mr.Ajit
Nambiar in his personal capacity as Chairman and
Managing Director. It cannot be construed as an
acknowledgement of liability by respondent No.2 even
though letter is written on the letter head of respondent
No.2; Mr. Nambiar was not representing Respondent No.2
nor was authorized to represent respondents No.l or
respondent No.3. Tribunal find no merits in this
submission of Mr. Joshi because if Mr. Ajit Nambiar was
not authorized to represent respondent No.2 he ought to
have stepped into the witness box to say so. But he choose
not to do so. Mr. Ajit Nambiar, CMD of Respondent No.2
in no uncertain words admitted the liability vide letter
dated 2/2/2007 and promised to pay outstanding dues
within six months. The issue is, therefore, decided against
the respondent No.2."
33. In view of the same, the learned Single Judge held as under:
―46. As far as the part payments are concerned, though the
Arbitrator holds that such payment having not been made by the
KUMAR VATS
Signing Date:19.07.2024
16:31:38
petitioner against particular Bills of Exchange, has to be considered
as a part payment and admission of liability towards the entire
claim of the respondent, I am unable to agree with the same. In the
affidavit of Evidence filed by the respondent, the respondent had
clearly shown the adjustment of the part payments against each
particular Bill of Exchange. The respondent having itself adjusted
such payments against particular Bills of Exchange, cannot claim
benefit of extension of limitation even for those Bills of Exchange
for which it did not receive any payment. Therefore, the claim of
the respondent for Bill of Exchange bearing OMR No.35 has to be
held as being barred by limitation. However, the claims against
other Bills of Exchange were within the period of limitation and
the objection of the petitioner qua those is rejected.‖
34. We are in agreement with the aforesaid reasoning articulated by
the learned Single Judge. The appellant was a direct beneficiary of the
two sanction letters and at the cost of repetition, the letter dated
02.02.2007 acknowledged their liability towards the Bills of
Exchange, manifestly forming a part of the statements that have been
referred to hereinabove. Evidently, the letter dated 02.02.2007
expressly spoke of the ―outstanding dues pending to the BDDL
account‖ and time was sought on behalf of the appellant company to
settle the outstanding dues within six months. In the face of the fact
that the author of the said letter did not enter the witness box on behalf
of the appellant, both the learned Arbitrator as well as the learned
Single Judge rightly went by the plain and simple grammatical purport
of the said letter in light of the larger context of the commercial
transactions undertaken amongst the three parties before it.
35. We say no more than to find that the aforesaid reasons are
fortified by the decision in the case of Lakshmiratan Cotton Mills
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Co. Ltd. v. Aluminium Corporation of India Ltd.20, wherein the
Supreme Court had an occasion to examine Section 19 of the
Limitation Act of 1908, which provision is in pari materia to Section
18 of the 1963 Act, and made the following observations in respect of
the issue pertaining to whether or not the letter in evidence before the
Arbitrator therein, constituted a valid acknowledgement of liability,
which would afford a fresh period of limitation:
―8. Section 19(1) of the Limitation Act, 1908, provides that where,
before the expiration of the period prescribed for a suit in respect
of any property or right, an acknowledgment of liability in respect
of such property or right has been made in writing signed by the
party against whom such property or right is claimed, a fresh
period of limitation shall be computed from the time when the
acknowledgment was so signed. The expression ‗signed' here
means not only signed personally by such a party, but also by an
agent duly authorised in that behalf. Explanation 1 to the section
then provides that an acknowledgment would be sufficient though
it omits to specify the exact nature of the property or right, or avers
that the time for payment has not yet come, or is accompanied by a
refusal to pay or is coupled with a claim to a set-off, or is addressed
to a person other than the person entitled to the property or right.
The new Act of 1963, contains in Section 18 substantially similar
provisions.
9. It is clear that the statement on which the plea of
acknowledgment is founded must relate to a subsisting liability
as the section requires that it must be made before the
expiration of the period prescribed under the Act. It need not,
however, amount to a promise to pay, for, an acknowledgment
does not create a new right of action but merely extends the
period of limitation. The statement need not indicate the exact
nature or the specific character of the liability. The words used
in the statement in question, however, must relate to a present
subsisting liability and indicate the existence of jural
relationship between the parties, such as, for instance, that of a
debtor and a creditor and the intention to admit such jural
relationship. Such an intention need not be in express terms
and can be inferred by implication from the nature of the
AIR 1971 SC 1482
KUMAR VATS
Signing Date:19.07.2024
16:31:38
admission and the surrounding circumstances. Generally
speaking, a liberal construction of the statement in question
should be given. That of course does not mean that where a
statement is made without intending to admit the existence of jural
relationship, such intention should be fastened on the person
making the statement by an involved and far-fetched reasoning.
(See Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad
Chamaria [1962 (1) SCR 140] and Tilak Ram v. Nathu [AIR 1967
SC 935 at 938, 939] ). As Fry, L.J., Green v. Humphreys [(1884)
26 Ch D 474 at 481] said ―an acknowledgment is an admission by
the writer that there is a debt owing by him, either to the receiver of
the letter or to some other person on whose behalf the letter is
received but it is not enough that he refers to a debt as being due
from somebody. In order to take the case out of the statute there
must upon the fair construction of the letter, read in the light of the
surrounding circumstances, be an admission that the writer owes
the debt‖. As already stated, the person making the
acknowledgment can be both the debtor himself as also a person
duly authorised by him to make the admission. In Khan Bahadur
Shapoor Fredoom Mazda case the Court accepted a statement in a
letter by a mortgagor to a second mortgagee to save the mortgaged
property from being sold away at a cheap price at the instance of
the prior mortgagee by himself purchasing it as one amounting to
an admission of the jural relationship of a mortgagor and
mortgagee, and therefore, to an acknowledgment within Section
19. Also, an agreement of reference to arbitration containing an
unqualified admission that whoever on account should be proved to
be the debtor would pay to the other has been held to amount to an
acknowledgment. Such an admission is not subject to the condition
that before the agreement should operate as an acknowledgment,
the liability must be ascertained by the arbitrator. The
acknowledgment operates whether the arbitrator acts or not.
(See Tejpal Saraogi v. Lallanjee Jain [ CA No. 766 of 1962,
decided on February, 8, 1965] , approving Abdul Rahim Oosman &
Co. v. Ojamshee Prushottamdas & Co. [1928 ILR 56 Cal 639] ).‖
[EMPHASIS SUPPLIED]
SECTION 64 OF THE NEGOTIABLE INSTRUMENTS ACT,
1881:
36. As regards the objections espoused to the effect that since the
respondent/claimant failed to present the post-dated cheques given to
them by the appellant, the same would absolve the appellant of any
KUMAR VATS
Signing Date:19.07.2024
16:31:38
liability, in keeping with Section 6421 of the Negotiable Instruments
Act, 1881, the said plea has been dealt with by the learned Arbitrator
in the following manner:
"60. The admitted facts on record are that post-dated cheques given
by respondents were not presented by claimant. What was the
reason for that has been explained by. Mr. P.K. Gupta CW1 in his
additional affidavit wherein it has clearly been stated that CMD of
Respondent No.2 assured him personally with regard to the out-
standings amounts and that claimant to have patience and
understand the position of respondent. This expression also find
mention in the letter dated 2/2/2007. This fact has also been
pleaded in para 1.10 and 1.17 of the statement of claim as well as
in paras 24 and 29 of the evidence affidavit of CW1. This position
was reiterated by CW1 in paras 2 and 3 of his additional affidavit
wherein he specifically stated the dates on which Mr. Madhukar
Dodrajka visited Bangalore to pursue the matter of outstanding
amounts with Respondent No.2 and that the CMD of Respondent
No.2 talked to CW1 personally that the outstanding amounts would
be paid. Moreover, if the post-dated cheques were given towards
discharge of liabilities of hundies, then what was the necessity for
the respondent No.2 to make part payments in the year 2004, 2005
and subsequent thereto. No letter has been produced on record to
show that the respondent informed the claimant that since post-
dated cheques have already been given, therefore its liability under
the hundies stood discharged on account of non-presentment of the
post-dated cheques. Rather vide letter dated 2/2/2007 the
respondent No.2 through its MD acknowledged the liability and
asked the claimant to have patience and understanding. Patience
2164. Presentment for payment.--(1) Promissory notes, bills of exchange and cheques must be
presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf of the
holder as hereinafter provided. In default of such presentment, the other parties thereto are not
liable thereon to such holder.
[Where authorized by agreement or usage, a presentment through the post office by
means of a registered letter is sufficient.]
Exception.--Where a promissory note is payable on demand and is not payable at a specified
place, no presentment is necessary in order to charge the maker thereof.
(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated
cheque is presented for payment, the drawee bank is entitled to demand any further information
regarding the truncated cheque from the bank holding the truncated cheque in case of any
reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the
suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled to
further demand the presentment of the truncated cheque itself for verification:
Provided that the truncated cheque so demanded by the drawee bank shall be retained by
it, if the payment is made accordingly.
KUMAR VATS
Signing Date:19.07.2024
16:31:38
and understanding has been explained by the claimant through its
witness Mr. P.K. Gupta CW1 who categorically stated that on
presentation of cheques was on the request of Mr. Ajit Nambiar,
hence vide letter dated 2/2/2007 he appreciated the patience and
understanding of the claimant.
61. It was for the respondent No. 2 to rebut this averment of the
claimant by adducing the evidence of Mr. Ajit Nambiar. Mr. Ajit
Nambiar never stepped into the witness box to explain as to why he
asked claimant to have patience and understanding or that he never
told claimant not to present the cheques. Testimony of Mr. P.K.
Gupta CW1 cannot be discarded nor can be called hearsay. In fact
from the above discussions, it can safely be concluded that cheques
given by respondent No.2 were not presented because of the
understanding between the Respondent No. 2 and claimant.‖
37. At the cost of repetition, in view of the fact that the Managing
Director of the appellant company did not step into the witness box,
no interference is warranted in respect of the aforesaid findings
rendered by the learned Arbitrator. The concurrent findings given by
the learned Arbitrator as well as the learned Single Judge are based on
evidence and there is nothing to suggest that there is any patent
illegality or unconscionability attached to the reasoning accorded. It is
also pertinent to mention here that in the additional affidavit dated
09.01.2010 filed by Mr. P.K. Gupta, Authorized Representative of the
respondent/claimant, it was deposed that payments pursuant to the
accounts were made by way of two cheques for a sum of Rs.
5,00,000/- each, bearing Nos. 920339 and 936616 dated 28.09.2007
and 03.12.2007 respectively, which were thereafter encashed on
05.10.2007 and 11.12.2007 respectively, as reflected in the statement
of accounts of the respondent/claimant with HDFC Bank (Ex.CW-
1/297 and CW-1/298). Thus, the turnaround by the appellant to agitate
KUMAR VATS
Signing Date:19.07.2024
16:31:38
that it was never liable to pay the claims due or in the alternative, the
plea that the claims were barred by limitation, falls flat on its face.
ISSUE RAISED UNDER SECTION 8022 OF THE NEGOTIABLE
INSTRUMENTS ACT, 1881:
38. We find from the arbitral record that no plea was taken by the
appellant before the learned Arbitrator that the respondent/claimant is
entitled to interest @ 18% per annum as no rate of interest was
indicated in the Bills of Exchange. In any case, the Bills of Exchange
emanated from the sanction letters, which vide clause 4 provided as
under:-
―4. The Drawee/Drawer agrees that normal agreed rate for
providing Bill Discounting facility is 36% p.a., however as a
special case the Discounting Company is providing the Bill
Discounting facility at concessional rate of 22.5% p.a. payable
upfront. in case of delay or default in making payment of amount
of the Bill of Exchange or overdue bill discounting charges/interest
or any part thereof on it's due date, the concessional rate will be
withdrawn and the normal rate of bill discounting charges of 36%
p.a. monthly rests, shall be payable by the Drawee/Drawer from its
due date. Margin @ 3% p.m. for 3 days shall be deducted at the
time of discounting, to be adjusted against delays in repayment, if
any.
39. Agreeing with the reasoning accorded by the learned Single
Judge, that a bare reading of Section 80 of the NI Act would show that
interest @ 18% per annum is payable when no rate of interest is
specified in the instruments, we find that the rate of interest was
2280. Interest when no rate specified.-- When no rate of interest is specified in the instrument,
interest on the amount due thereon shall, 1 [notwithstanding any agreement relating to interest
between any parties to the instrument], be calculated at the rate of 2 [eighteen per centum] per
annum, from the date at which the same ought to have been paid by the party charged, until tender
or realization of the amount due thereon, or until such date after the institution of a suit to recover
such a mount as the Court directs. Explanation.--When the party charged is the indorser of an
KUMAR VATS
Signing Date:19.07.2024
16:31:38
expressly provided by the sanction letters to be payable on the hundis
and the same is per se claimable in terms of Section 7923 of the NI
Act. A careful perusal of Section 79 of the NI Act would show that the
rate of interest need not be written in the instrument itself. The express
condition may be binding by virtue of any agreement executed
amongst the drawer, drawee and payee. On a conjoint and harmonious
construction of Section 79 and Section 80 of the NI Act, it follows that
a provision for interest payable on delayed honouring of an instrument
can just as well be made into a separate agreement between the
parties. It strikes all the more to reason that if an instrument emanates
from an agreement between the parties, both the agreement and the
instrument have to be read as whole and the import thereof may be
determined on a conjoint reading of Section 79 and 80 of the
Negotiable Instruments Act, 1881.
40. All said and done, the learned Arbitrator has chosen to award
pendente lite interest strictly in terms of the agreement between the
parties, thus conforming to the mandate of Section 31(7)(a)24 of the
Arbitration Act. The bill discounting facilities advanced in terms of
the sanction letters were pursuant to commercial transactions
instrument dishonoured by non-payment, he is liable to pay interest only from the time that he
receives notice of the dishonour.
23 79. Interest when rate specified.--When interest at a specified rate is expressly made payable
on a promissory note or bill of exchange, interest shall be calculated at the rate specified, on the
amount of the principal money due thereon, from the date of the instrument, until tender or
realization of such amount, or until such date after the institution of a suit to recover such amount
as the Court directs.
31. Form and contents of arbitral award.- (7)(a) Unless otherwise agreed by the parties,
where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may
include in the sum for which the award is made interest, at such rate as it deems reasonable, on the
whole or any part of the money, for the whole or any part of the period between the date on which
the cause of action arose and the date on which the award is made.
KUMAR VATS
Signing Date:19.07.2024
16:31:38
undertaken between two corporate entities and there was no plea that
the sanction letters in any manner were vitiated by threat, coercion,
undue influence, or inequality of bargaining powers as such and
therefore, the principle of unconscionability or public policy cannot be
culled out.
USURIOUS LOANS ACT, 1918:
41. Without further ado, there is no merit in the plea advanced by
the learned counsel for the appellant that the transaction in question
falls foul of the Usurious Loan Act, 1918. It would be apposite to refer
to the observations made by the learned Single Judge on the said
aspect of law, which read as under: -
―31. The petitioner itself has placed reliance on Section 80 of the
NI Act which, in absence of any stipulation in the Bills of
Exchange, provides for payment of interest at the rate of 18% per
annum. Clearly therefore, Usurious Loans Act would have no
application to the transaction in question, which was. of
discounting of Bill of Exchange.
32. The Arbitrator has also considered the nature of transaction in
question and has held as under:
"26. The Usurious Loan Act, 1918 was followed by the
Punjab Relief of Indebtedness Act, 1934 (hereinafter
called "1934 Act") The said 1934 Act is applicable to the
Union Territory of Delhi. Section 2(3) of the 1934 Act
defines "loan" to mean "loan whether of money or kind".
The question for consideration is whether the present
transaction can be called a "loan". To call a transaction a
loan it means lending money by one party to the other
with condition to repay along with interest. In this case'
the claimant had not simply lent money to the respondent
No. 1. It was paid on behalf of respondent No.2 because of
the business transaction entered into between respondent
No.1 and 2. The respondents had a business dealing. It can
also be called "commercial transaction" pursuance to
which both the respondents approached the claimant to
pay the price of the goods upfront to respondent No.1 on
behalf of respondent No. 2 on the terms and conditions
KUMAR VATS
Signing Date:19.07.2024
16:31:38
stipulated in the sanction letters. Such a transaction which
is a business transaction or a trade transaction by no
stretch of imagination can be construed as "loan" as
defined in sub section 3 of Section 2 of 1934 Act or
section 2 of Usurious Loan Act, 1918. This being a
commercial transaction or a trade transaction which
happened between the two business entities on whose
request claimant made payment, hence cannot be said to
be a "loan". Respondent No.1 and respondent No.2
transacted business and since respondent No.2 was not in a
financial position to pay to respondent No. 1 therefore
respondents approached the claimant to pay to the seller
the amounts of the transaction with a stipulation that the
same would be repaid to the claimant along with the
interest as per the terms of the sanction letters. Therefore,
this tribunal is of the view that such transaction cannot be
called a "loan".
xxxx
30. To arrive at the conclusion that the present transaction
is neither a debt nor a loan, help can also be taken from the
Punjab Debtors Protection Act, 1936 in short "Act 1936".
Section 2 sub section (6) of. the Act' 1936 defines "loans"
to mean an advance whether of money or in kind at agreed
interest and shall include any transaction which the Court
finds to be in substance a loan, but does not include
..............................................
(iv) a loan advanced by a bank, co-operative society or a
company
whose accounts are subject to audit by a certified auditor
under the Indian Companies Act) 1913;
(v) a loan advanced to a trader;
(vi) an advance made on the basis of a negotiable
instrument as defined in the Negotiable Instruments Act,
1881 (XXVI of 1881), other than a promissory note;
31. Sub section (8) of section 2 of Act 1936 also defines
the expression "trader" as used in section 2(vi), to mean a
person who
in the regular course of business buys and sells the goods
or other property, whether moveable or immoveable and
shall include six categories (i) a wholesale or retail
merchant, commission agent, a broker, a manufacturer, a
contractor, a factory owner but shall not include a person
who sells his own agriculture produce or cattle or buys
agriculture produce or cattle for his own use. In the
present case the respondent No. l and 2 are in the business
KUMAR VATS
Signing Date:19.07.2024
16:31:38
where one bought the goods of the other. Therefore,
respondents are traders.
32. For the reasons stated above, I am of the considered
view that the transaction in question was neither a loan nor
debt. It was a simple commercial transaction in which one
respondent sold its goods and the other respondent bought
it. They jointly approached the claimant to pay on behalf
of respondent No.2 and provide bill discounting facility.‖
33. I am in agreement with the findings of the Arbitrator. The
provisions of the Act, especially Section 31(7) and the
provisions of NI Act would clearly show that the transaction in
question would not fall within the ambit of the Usurious Loans
Act.‖
42. We find that there is not an iota of patent illegality in the
aforesaid reasoning spelled out by learned Single Judge except for a
typographical error that the learned judge was referring to Section
31(7) of the A& C Act. The Usurious Loan Act, 1918 as followed by
the Punjab Relief of Indebtedness Act, 1934, were promulgated in a
different era and the power of the Court to adjudicate if the interest on
a loan amount is excessive has to give way in view of the plenary
powers of the Courts provided under the later enactment i.e., the
Arbitration & Conciliation Act. Unhesitatingly, the transactions
between the parties whereby payments were made for supply of goods
to the appellant by the respondent/claimant were not in the nature of a
loan or an advance. In essence, the respondent/claimant had been
making payment to the appellant for the supply of goods to BDDL and
such payments were purely in the nature of commercial transactions as
amongst the parties. Both parties, the appellant herein/BPL and the
respondent No.2/BDDL evidently approached the respondent/
claimant for providing bill discounting facilities and agreed to their
KUMAR VATS
Signing Date:19.07.2024
16:31:38
joint and several liabilities towards the discounting of the Bills of
Exchanges.
FINAL ORDER:
43. In view of the foregoing discussion, this Court finds that neither
the learned Arbitrator nor the learned Single Judge, while adjudicating
the issues raised by the rival parties, has committed any patent
illegality or perversity that go to the root of the matter. The arbitral
award, although, has granted interest at a rate which is on the higher
side, cannot be held to be so unfair and unreasonable so as to shock the
conscience of this Court. There is nothing to suggest that the Award is
opposed to public policy, and therefore, inexecutable.
42. In view of the above, the instant appeal is dismissed, thereby
holding that there is no illegality, infirmity or incorrect approach
adopted by the learned Single Judge in passing the impugned order
dated 18.12.2018, thereby awarding a sum of Rs. 7,27,05,579/- and
Rs. 20,62,28,681/- with interest as applicable in accordance with the
terms of the agreements/Sanction Letters from the date these amounts
became due till the date of the award as well as interest @ 10% per
annum from the date of the award till realization.
43. The parties are left to bear their own costs.
YASHWANT VARMA, J.
DHARMESH SHARMA, J.
JULY 19, 2024
Sadiq
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Annexure „A‟
Amount on Date of Expiry
Amount of Bill of
No. of Date of Bill of Bill of of
SN Invoice Exchange Due Date
Invoice Invoice Exchange Exchang Limitati
(In Rs.) No.
(In Rs.) e on
1 6411 02.12.2002 1786400 OMR/001 1786400 17.10.03 15.03.04 15.03.07
2 6412 02.12.2002 2041600 OMR/002 2041600 17.10.03 15.03.04 15.03.07
3 6413 02.12.2002 1893120 OMR/003 1893120 17.10.03 13.03.04 13.03.07
4 6422 03.12.2002 2041600 OMR/004 2041600 17.10.03 12.03.04 12.03.07
5 3190000 NOI/001 3190000 17.10.03 11.03.04 11.03.07
29.12.2002 255200
6657 28.12.2002 255200
6654 16.12.2002
6 638000 NOI/004 1740000 17.10.03 10.03.04 10.03.07
6550 16.12.2002 591600
1740000
1276000
6525 13.12.2002
255200
7 6499 11.12.2002 NOI/005 1786400 17.10.03 09.03.04 09.03.07
255200
6498 11.12.2002
1786400
03.12.2002 1148400
6427 03.12.2002
8 591600 OMR/005 1740000 17.10.03 08.03.04 08.03.07
1740000
9 6947 06.02.2003 1893120 PKD/001 1893120 17.10.03 12.03.04 12.03.07
10 6950 06.02.2003 1893120 PKD/002 1893120 17.10.03 06.03.04 06.03.07
30.12.2002 1183200
6660 30.12.2002
11 1183200 NOI/003 2366400 17.10.03 05.03.04 05.03.07
2366400
12 6784 18.01.2003 2041600 OMR/006 2041600 17.10.03 04.03.04 04.03.07
13 6787 18.01.2003 2041600 OMR/007 2041600 17.10.03 03.03.04 03.03.07
14 6789 18.01.2003 1990560 OMR/008 1990560 17.10.03 02.03.04 02.03.07
15 6803 21.01.2003 1893120 OMR/011 1893120 17.10.03 01.03.04 01.03.07
08.01.2003 1276000
6708 08.01.2003
16 382800 NOI/002 1658800 17.10.03 13.03.04 13.03.07
1658800
16.01.2003 381408
6755 16.01.2003 254272
6756 16.01.2003
17 254272 NOI/006 2165952 17.10.03 28.02.04 28.02.07
6757 17.01.2003 1276000
2165952
KUMAR VATS
Signing Date:19.07.2024
16:31:38
24.01.2003 591600
6816 24.01.2003 638000
18 6817 25.01.2003 NOI/007 2505600 17.10.03 27.02.04 27.02.07
1276000
2505600
591600
19 6865 29.01.2003 638000 NOI/008 1229600 17.10.03 26.02.04 26.02.07
1229600
20 8070 01.08.2003 1753920 OMR/013 1753920 17.10.03 25.02.04 25.02.07
21 1160000 OMR/014 1160000 17.10.03 24.02.04 24.02.07
22 1624000 OMR/015 1624000 17.10.03 26.02.04 26.02.07
23 7621 01.05.2003 1624000 OMR/016 1624000 17.10.03 26.02.04 26.02.07
24 1519693 OMR/017 1519693 17.10.03 21.02.04 21.02.07
7923 01.07.2003 378624
7924 01.07.2003 302899
7965 12.07.2003 328141
25 7966 12.07.2003 NOI/009 2271744 17.10.03 20.02.04 20.02.07
252416
8027 22.07.2003 1009664
2271744
26.06.2003 1286208
7898 26.06.2003
26 185600 PKD/006 1471808 17.10.03 19.02.04 19.02.07
1471808
27 8047 26.07.2003 1729792 PKD/007 1729792 17.10.03 18.02.04 18.02.07
28 8055 28.07.2003 1729792 PKD/008 1729792 17.10.03 17.02.04 17.02.07
29 2041600 OMR/009 2041600 17.10.03 16.02.04 16.02.07
30 2041600 OMR/010 2041600 17.10.03 02.03.04 02.03.07
31 6804 21.01.2003 1786400 OMR/012 1786400 17.10.03 10.03.04 10.03.07
32 6762 16.01.2003 1893120 PKD/003 1893120 17.10.03 09.03.04 09.03.07
33 6767 17.01.2003 1893120 PKD/004 1893120 17.10.03 08.03.04 08.03.07
34 1893120 PKD/005 1893120 17.10.03 05.03.04 05.03.07
1925786
9083 17.12.2003
35 1784730 OMR/022 3710516 19.04.04 16.09.04 16.09.07
9097 18.12.2003
3710516
1925786
36 19.12.2003 1784730 OMR/023 3710516 19.04.04 15.09.04 15.09.07
3710516
1784730
9149 21.12.2003
37 1784730 OMR/025 3569460 19.04.04 14.09.04 14.09.07
9158 22.12.2003
3569460
1784730
9326 02.01.2004
38 1781760 OMR/027 3569490 19.04.04 13.09.04 13.09.07
9327 02.01.2004
3569490
KUMAR VATS
Signing Date:19.07.2024
16:31:38
Annexure „B‟
Amount Interest as on Date of Payment Due Date Net Due Hundi No.
Outstanding Due Payment Recd.
(10.8.2007) Recd.
1,967,360 2,089,436 3-Mar-04 1,967,360 5-Jun-03 2,089,436 PKD22
1,967,360 2,098,268 3-Mar-04 1,967,360 4-Jun-03 2,098,268 PKD23
1,967,360 2,107,099 3-Mar-04 1,967,360 3-Jun-03 2,107,099 PKD24
1,967,360 2,115,931 3-Mar-04 1,967,360 2-Jun-03 2,115,931 PKD25
2,459,200 2,804,768 23-Feb-04 2,459,200 14-May-03 2,804,768 NOI54
2,644,800 3,001,790 23-Feb-04 2,644,800 8-May-03 3,001,790 NOI55
2,816,480 3,211,964 10-Feb-04 2,816,480 2-May-03 3,211,964 NOI56
1,967,360 2,080,604 3-Mar-04 1,967,360 6-Jun-03 2,080,604 PKD21
1,967,360 2,133,594 3-Mar-04 1,967,360 31-May-03 2,133,594 PKD26
1,967,360 2,151,258 3-Mar-04 1,967,360 29-May-03 2,151,258 PKD27
1,967,360 2,116,060 3-Mar-04 1,967,360 29-May-03 2,116,060 PKD28
2,115,840 2,279,404 23-Feb-04 2,115,840 28-May-03 2,279,404 PKD29
2,115,840 2,298,512 23-Feb-04 2,115,840 26-May-03 2,298,512 PKD30
2,115,840 2,327,173 23-Feb-04 2,115,840 23-May-03 2,327,173 PKD31
2,552,000 2,887,561 23-Feb-04 2,552,000 16-May-03 2,887,561 NOI86
1,276,000 1,443,781 23-Feb-04 1,276,000 16-May-03 1,443,781 NOI87
1,967,360 1,999,007 5-Mar-04 1,967,360 17-Jun-03 1,999,007 PKD32
1,967,360 2,007,565 5-Mar-04 1,967,360 16-Jun-03 2,007,565 PKD33
1,967,360 2,023,664 5-Mar-04 1,967,360 13-Jun-03 2,023,664 PKD34
1,967,360 1,990,450 5-Mar-04 1,967,360 18-Jun-03 1,990,450 PKD35
2,115,840 2,011,822 5-Mar-04 2,115,840 2-Jul-03 2,011,822 OMR28
2,115,840 3,071,073 5-Mar-04 1,688,181 30-Jun-03 3,498,732 OMR29
2,115,840 2,076,247 7-May-04 2,115,840 25-Jun-03 2,076,247 OMR30
1,322,400 1,555,348 7-May-04 1,322,400 27-Jun-03 1,555,548 NOI89
2,115,840 2,515,989 7-May-04 2,115,840 24-Jun-03 2,515,989 OMR31
2,023,040 2,388,073 7-May-04 2,023,040 26-Jun-03 2,388,073 OMR32
2,115,840 2,451,690 7-May-04 2,115,840 1-Jul-03 2,451,690 OMR33
1,721,440 5,817,864 3-Jul-03 7,539,304 OMR35
2,060,160 3,270,597 7-May-04 1,652,040 4-Jul-03 3,678,717 OMR34
1,753,920 2,485,343 10-Aug-05 1,753,920 25-Feb-04 2,485,343 OMR13
1,100,000 1,645,375 10-Aug-05 1,160,000 24-Feb-04 1,645,375 OMR14
1,624,000 2,309,035 31-Aug-05 1,624,000 23-Feb-04 2,309,035 OMR15
1,624,000 2,360,869 31-Aug-05 1,624,000 26-Feb-04 2,360,869 OMR16
1,519,693 2,235,249 31-Aug-05 1,519,693 21-Feb-04 2,235,249 OMR17
1,471,808 3,662,420 19-Feb-04 5,134,228 PKD6
1,729,792 4,310,369 18-Feb-04 6,040,161 PKD7
KUMAR VATS
Signing Date:19.07.2024
16:31:38
1,729,792 4,316,355 17-Feb-04 6,046,147 PKD8
2,271,744 5,645,104 20-Feb-04 7,916,848 NOI9
1,658,800 3,568,458 31-Aug-05 425,267 13-Mar-04 4,801,991 NOI2
2,165,952 5,323,913 28-Feb-04 7,489,865 NOI6
2,505,600 6,167,338 27-Feb-04 8,672,938 NOI7
1,229,600 3,029,927 26-Feb-04 4,259,527 NOI8
2,041,600 4,982,599 4-Mar-04 7,024,199 OMR6
2,041,600 4,989,459 3-Mar-04 7,031,059 OMR7
1,990,560 4,871,410 2-Mar-04 6,861,970 OMR8
1,893,120 2,646,705 10-Aug-05 1,893,120 1-Mar-04 2,646,705 OMR11
1,740,000 4,223,149 8-Mar-04 5,963,149 OMR5
1,893,120 4,569,250 12-Mar-04 6,462,370 PKD1
1,893,120 4,607,507 6-Mar-04 6,500,627 PKD2
2,366,400 5,767,335 5-Mar-04 8,133,735 NOI3
1,786,400 4,293,751 15-Mar-04 6,080,151 OMR1
2,041,600 4,907,144 15-Mar-04 6,948,744 OMR2
1,893,120 849,030 3-Aug-04 1,893,120 13-Mar-04 849,030 OMR3
2,041,600 4,927,723 12-Mar-04 6,969,323 OMR4
3,190,000 7,710,285 11-Mar-04 10,900,285 NOI1
1,740,000 4,211,456 10-Mar-04 5,951,456 NOI4
1,786,400 4,329,764 9-Mar-04 6,116,164 NOI5
1,786,400 4,323,762 10-Mar-04 6,110,162 OMR12
1,893,120 4,588,425 9-Mar-04 6,481,545 PKD3
1,893,120 4,594,786 8-Mar-04 6,487,906 PKD4
3,710,516 487,262 3-Nov-04 3,710,516 16-Sep-04 487,262 OMR22
3,710,516 6,824,334 0 15-Sep-04 10,534,850 OMR23
3,569,460 6,574,949 0 14-Sep-04 10,144,409 OMR25
3,566,490 6,579,514 0 13-Sep-04 10,146,004 OMR27
132,323,523 219,245,945 72,456,977 279,112,491
SUMMARY UPTO 10,
Aug 2007
TOTAL AMOUNT RECOVERABLE 351,569,468
WITH PENAL INTEREST
LESS:
TOTAL AMOUNT RECEIVED 72,456,977
MARGIN MONEY HELD BY US 178232
BALANCE AMOUNT RECOVERABLE 278,934,259
KUMAR VATS
Signing Date:19.07.2024
16:31:38
