[Cites 11, Cited by 0]
Delhi High Court
M/S Khubi Ram Rajiv Kumar & Co Thr Partner ... vs M/S Naveen Enterprises & Ors on 20 December, 2025
$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 20.12.2025
+ FAO 407/2016 & CM APPLs. 30319/2017, 33949/2018, 50942/2022
& 52182/2022
M/S KHUBI RAM RAJIV KUMAR & CO
THR PARTNER RAM AVTAR BANSAL .....Appellant
Through: Ms. Prem Lata Bansal, Sr. Advocate
with Mr. Paras Chaudhary and
Mr.Shivang Bansal, Advocates
versus
M/S NAVEEN ENTERPRISES & ORS .....Respondents
Through: None.
CORAM:
HON'BLE MS. JUSTICE CHANDRASEKHARAN SUDHA
JUDGMENT (ORAL)
CHANDRASEKHARAN SUDHA, J.
1. The present appeal under Section 37(b) of the Arbitration
and Conciliation Act, 1996 (the A&C Act) has been filed by the
petitioner in Suit No. 134/2014 on the file of the Additional
District and Session's Judge-03, Tis Hazari Courts, Delhi (the trial
court), aggrieved by the Order dated 31.03.2016, by which their
petition under Section 34 of the A&C Act, assailing the Arbitration
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Award dated 31.03.2014 (the Award), was dismissed.
2. The parties herein shall be referred to in the same rank and
capacity as they were arrayed in Suit No. 134/2014.
3. Brief facts emerging from the record reads thus: The
petitioner is a registered partnership firm engaged in the business
of commission agency (Aadhatiya) in cloth and fabrics and is a
bonafide member of the Delhi Hindustani Mercantile Association.
The petitioner was carrying on business with the respondents for
several years, during which period the latter purchased cloth and
fabrics from the former on credit basis in the course of regular
commercial transactions.
3.1. It is the case of the petitioner that a running account was
maintained in its books in respect of the transactions with the
respondents. According to the petitioner, an amount of
₹1,92,483.46 was outstanding against the respondents as on
01.04.2011. In support of the claim, the petitioner relied upon
invoices/bijaks, statements of account and transport records. The
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petitioner asserted that the terms and conditions governing the
transactions, including the arbitration clause and the clause relating
to levy of interest, were printed on the reverse of the bills issued to
the respondents and were binding upon them. It was further
pleaded that despite repeated oral demands, the respondents failed
to clear the outstanding dues. The petitioner thereafter issued a
letter dated 03.03.2012 followed by a legal notice dated
12.03.2012 calling upon the respondents to discharge their
liability. Upon failure of the respondents to comply with the said
demands, the petitioner invoked the arbitration clause under the
rules of the Delhi Hindustani Mercantile Association seeking
recovery of the outstanding amount along with interest and costs.
3.2. During the arbitral proceedings, the respondents did not
enter appearance despite service of notice and hence were
proceeded ex-parte.
3.3. The learned Arbitrator framed issues, inter alia, with
respect to the existence of an arbitration agreement and the
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entitlement of the petitioner to recover the claimed amount with
interest. While holding that a valid arbitration agreement existed
between the parties, the learned Arbitrator, upon examination of
the statement of accounts and other documentary material
produced by the petitioner, dismissed the claim vide Award dated
31.03.2014.
3.4. Aggrieved by the Award, the petitioner filed objections
under Section 34 of the A&C Act contending that the Award was
contrary to law and public policy and that the Arbitrator had failed
to consider the contractual terms, usage of trade and documentary
evidence on record, thereby acting in violation of Section 28(3) of
the A&C Act.
3.5. The District Court, vide the impugned Order, dismissed
the objections holding that the grounds urged by the petitioner
essentially sought re-appreciation of evidence and re-examination
of factual findings returned by the learned Arbitrator, which was
impermissible within the limited scope of interference under
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Section 34 of the A&C Act. The Court further held that an
erroneous interpretation of contractual terms or an alleged
incorrect appreciation of evidence did not constitute patent
illegality or conflict with the public policy of India and that the
Award represented a plausible view based on the materials on
record, warranting no interference.
4. Aggrieved, the petitioner has come up in appeal.
5. This Court vide order dated 07.04.2025 directed the matter
to be proceeded ex-parte as the Respondents failed to appear
despite sufficient opportunities being granted.
6. It is submitted by the learned Senior counsel for the
appellant/petitioner that the Award as well as the impugned Order
are vitiated by patent illegality and contravene the mandate of
Section 28(3) of the A&C Act, 1996, inasmuch as the learned
Arbitrator failed to enforce the contractual terms agreed between
the parties. Reliance was placed on the dictum in Foong v. Saw
Pipes Ltd., (2003) 5 SCC 705: 2003 SCC OnLine SC 545,
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wherein it was held that it is the primary duty of the arbitrator to
enforce the contract between the parties and that an award passed
in contravention of the terms of the contract is violative of Section
28(3) of the A&C Act and liable to be set aside. The learned
Senior counsel submitted that in the case on hand, the
invoices/bijaks issued by the petitioner clearly contained printed
terms relating to levy of interest in the event of delayed payment,
in addition to the arbitration clause. Having held that the
arbitration clause printed on the invoices constituted a valid
arbitration agreement, the learned Arbitrator could not have
selectively disregarded the remaining contractual stipulations
forming part of the same document.
6.1. It is further submitted that the finding of the learned
Arbitrator that the claim was essentially one for interest and
interest upon interest is contrary to the record and ignores settled
principles governing commercial transactions. It is argued that the
claim was fundamentally for recovery of outstanding amounts
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under unpaid invoices and that interest was claimed as a
contractual and compensatory consequence of delayed payment. In
this regard, reliance was placed on Irrigation Deptt., Govt. of
Orissa v. G.C. Roy, (1992) 1 SCC 508: 1991 SCC OnLine SC
342, wherein the Apex Court recognised that a party deprived of
the use of money to which it is legitimately entitled has a right to
be compensated for such deprivation, and that interest is a normal
accretion in commercial dealings unless expressly prohibited by
contract.
6.3. It is further urged by the learned Senior counsel that
even assuming, for argument sake, that the contract was silent on
certain aspects of interest calculation, the learned Arbitrator was
not justified in rejecting the claim outrightly, particularly when the
respondents had been proceeded ex-parte and had not rebutted the
documentary evidence led by the petitioner. The Arbitrator failed
to appreciate the statement of accounts, sundry debtors list and
transport records, which cumulatively established the subsisting
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liability of the respondents and such non-consideration of material
evidence renders the Award perverse and arbitrary, goes the
argument.
6.4. It is further contended that the District Court erred in
declining interference by mechanically characterising the
objections as an attempt at re-appreciation of evidence. It was
submitted that the objections squarely fell within the permissible
grounds under Section 34(2) of the A&C Act, as explained by the
Apex Court in DDA v. R.S. Sharma and Co., (2008) 13 SCC 80 :
2008 SCC OnLine SC 1298, which holds that an award can be set
aside if it is contrary to substantive law, the provisions of the A&C
Act, or the terms of the contract, or if it is patently illegal or shocks
the conscience of the court. However, in the present case, the
Court failed to examine whether the Award was in conflict with
the fundamental policy of Indian law or suffered from patent
illegality arising from disregard of contractual terms and trade
usage.
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7. Heard the appellant/petitioner and perused the records.
8. On perusal of records, it emerges that the existence of
commercial transactions between the parties, evidenced by
invoices/bijaks issued by the petitioner and the maintenance of a
running account, is not in dispute. The major dispute between the
parties centres around the petitioner's entitlement to interest on
delayed payments in terms of the conditions printed on the said
invoices.
9. Therefore, the principal issue that falls before this court for
consideration is whether the learned Arbitrator as well as the
District Court was justified in rejecting the petitioner's claim for
interest, despite the existence of a contractual stipulation relating
thereto and statutory framework governing award of interest under
the A&C Act.
10. At the outset, it is apposite to refer to Clause 2 of the
'Note' printed on the back side of the invoice/bijak governing the
transactions between the parties, which reads as thus:
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"2. याज दर 1.75 o सेकड़ा िलया जायेगा।"
(Translation: "Interest at the rate of 1.75 per hundred shall
be charged.")
10.1. The aforesaid clause clearly records an agreement
between the parties for levy of interest rate @1.75 per hundred. In
trade language, particularly in Adhatiya (middlemen/brokerage)
transactions, the said expression denotes interest @1.75% per
month. The petitioner's claim of interest @21% per annum is only
an annualised expression of the said agreed monthly rate.
11. It is pertinent to note that, once invoices are accepted as
binding contractual documents, the terms and conditions printed
thereon, including the clause relating to the levy of interest cannot
be selectively ignored. Therefore, the learned Arbitrator, having
held that there is a valid arbitration agreement between the parties
on the basis of the clauses printed on the invoices/bijaks, erred in
disregarding Clause 2 thereof, while adjudicating the claim for
interest. This approach of the learned Arbitrator is contrary to
Section 28(3) of the A&C Act which reads thus:
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"28.Rules applicable to substance of dispute.--
xxxxx
(3) While deciding and making an award, the arbitral
tribunal shall, in all cases, take into account the terms of
the contract and trade usages applicable to the
transaction."
11.1. The learned Arbitrator erred in appreciating the terms
of the agreement between the parties while holding that the
petitioner had essentially filed the claim only for recovery of
unlimited and unjustified interest under the garb of outstanding bill
amounts, despite the interest clause printed on the bills and the
course of dealings between the parties. The reasoning of the
learned Arbitrator that the interest clause did not specify the basis
or manner of levy of interest cannot be sustained. The rate of
interest was contractually stipulated, and the manner of its
application flows from established trade usage. The rejection of
interest on the ground of alleged ambiguity is, therefore,
unsustainable. As held by the Apex Court in the dictum of ONGC
(supra), the primary duty of the Arbitral Tribunal is to enforce the
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contract between the parties, and an award rendered in disregard of
the contractual terms is patently illegal and opposed to public
policy.
12. Even otherwise, Section 31(7)(a) of the A&C Act confers
the power upon the Arbitral Tribunal to award interest for the
period between the date on which the cause of action arose and the
date of award, unless otherwise agreed by the parties. Section
31(7) of the A&C Act reads thus:
"31. Form and contents of arbitral award.--
xxxxx
(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.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the rate
of two per cent higher than the current rate of interest
prevalent on the date of award, from the date of award to
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the date of payment.
Explanation. -- The expression "current rate of interest"
shall have the same meaning as assigned to it under clause
(b) of section 2 of the Interest Act, 1978 (14 of 1978)."
12.1. In Interstate Construction v. National Projects
Construction Corporation Ltd: 2025 KHC 6492: 2025 SCC
OnLine SC 1127, it has been held the power of the arbitrator to
grant pre-reference interest, pendente lite interest, and post award
interest under Section 31(7) of the A&C Act is fairly well - settled.
This provision has two parts. Under clause (a), the arbitrator can
award interest for the period between the date of cause of action to
the date of the award, "unless otherwise agreed by the parties".
Clause (b) provides that unless the award directs otherwise, the
sum directed to be paid by an arbitral award shall carry interest @
2% higher than the current rate of interest, from the date of the
award to the date of payment (referring to the post 23.10.2015
position).
12.2. The wordings of Section 31(7) (a) of the A&C Act
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marks a departure from the A&C Act in two ways: first, it does not
make an explicit distinction between pre-reference and pendente
lite interest as both of them are provided for under this sub-section;
second, it sanctifies party autonomy and restricts the power to
grant pre-reference and pendente lite interest, the moment the
agreement bars payment of interest, even if it is not a specific bar
against the arbitrator. The power of the arbitrator to award pre-
reference and pendente lite interest is not restricted when the
agreement is silent on whether interest can be awarded or does not
contain a specific term that prohibits the same. While pendente lite
interest is a matter of procedural law, pre-reference interest is
governed by substantive law. Therefore, the grant of pre-reference
interest cannot be sourced solely in Section 31(7) (a) of the A&C
Act (which is a procedural law), but must be based on an
agreement between the parties (express or implied), statutory
provision (such as Section 3 of the Interest Act, 1978), or proof of
mercantile usage.
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12.3. It was further held that, from a minute reading of sub-
section (7), it can be seen that it has got two parts: the first part
i.e., clause (a) deals with passing of award, which would include
interest up to the date on which the award is made. The second
part i.e., clause (b) deals with grant of interest on the 'sum'
awarded by the arbitral tribunal. Hence, under Section 31(7) of the
A&C Act, an arbitral tribunal has the power to grant-- (i) pre-
award; (ii) pendente lite; and (iii) post-award interest. The Apex
Court also explained the reason for award of such interest as - the
intention behind awarding pre-award interest is primarily to
compensate the claimant for the pecuniary loss suffered from the
time the cause of action arose till passing of the arbitral award.
Further, this is also to ensure that the arbitral proceedings is
concluded within a reasonable period to minimise the impact of the
pre-award interest as well as interest pendente lite; thereby
ensuring that the debtor does not delay payment of the arbitral
amount to the award holder promoting efficiency in the arbitration
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process. Similarly, the grant of post-award interest also serves a
salutary purpose. It primarily acts as a disincentive to the award
debtor not to delay payment of the arbitral amount to the award
holder.
12.4. It has been further held that the sum awarded would
mean the principal amount plus the interest awarded from the date
of cause of action up to the date of the award. The sum awarded in
Section 31(7) (a) of the A&C Act would mean principal amount
plus the interest awarded. Thereafter, as per Section 31(7) (b) of
the A&C Act, the sum (principal amount + interest) would carry
further interest @ of 2 % higher than the current rate of interest
prevalent on the date of the award to the date of payment.
13. Coming to the case on hand, Clause 2 of the Note
expressly permits levy of interest. Thus, this is not a case where
the tribunal was required to infer power to grant interest in the
absence of an agreement; rather, there existed a clear contractual
stipulation authorising levy of interest. The learned Arbitrator,
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therefore, committed a manifest error in declining interest despite
the existence of such an agreement. As held in Irrigation Deptt.,
Govt. of Orissa (supra) as well as in Interstate Construction
(supra), a party deprived of the use of money to which it is
legitimately entitled must ordinarily be compensated for such
deprivation, and that interest is a normal accretion in commercial
transactions, squarely applies to cases where the contract itself
provides for payment of interest.
14. The District Court, while dismissing the objections raised
by the appellant/petitioner under Section 34 of the A&C Act,
failed to appreciate the statutory position and erroneously
proceeded on the premise that the challenge raised by the
petitioner amounted to mere re-appreciation of the evidence.
Hence, this court is of the view that the Arbitral Award, insofar as
it rejects the claim for interest, cannot be sustained.
15. Accordingly, the appeal is allowed.
16. The impugned judgement dated 31.03.2016 and the
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Arbitral Award dated 31.03.2014 are set aside to the extent they
reject the petitioner's claim for interest. The petitioner shall be
entitled to interest in terms of Clause 2 of the Note printed on the
invoices, i.e., @ of 1.75% per month (equivalent to 21% per
annum, simple interest) on the outstanding principal amount of
₹1,92,483.46, from the date the amount became due, i.e.,
01.04.2011 till the date of the arbitral award, i.e., 31.03.2014 and
thereafter @ of 18% per annum till realisation.
17. The appeal stands disposed of in the above terms.
Applications, if any, pending, shall stand closed.
CHANDRASEKHARAN SUDHA
(JUDGE)
DECEMBER 20, 2025
RN
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