Karnataka High Court

S Balaji vs M/S Outback Adventure on 23 December, 2021

Bench: B.M.Shyam Prasad

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       IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 23RD DAY OF DECEMBER, 2021

                         BEFORE

         THE HON'BLE MR.JUSTICE B.M.SHYAM PRASAD

       MISCELLANEOUS FIRST APPEAL NO.3787/2016 (AA)

BETWEEN:

S BALAJI
S/O S.A.SANKARAN
AGED ABOUT 42 YEARS
R/AT NO.604, PRANAVA APPLE BLOSSOM,
GREEN GLEN LAYOUT,
BELLANDUR,
BENGALURU - 560103
                                        ... APPELLANT
(BY SRI. SURESH S. LOKRE, SENIOR ADVOCATE FOR
    SRI. SAMARTH S. LOKRE, ADVOCATE)



AND:

M/S OUTBACK ADVENTURE
NO.711, OPP. TO S.R.S. BUS STOP,
HOOTAGALLI,
MYSORE
REPRESENTED BY ITS PARTNERS,

1.     ABDUL ALEEM
       S/O ABDUL AZEEZ
       AGED ABOUT 32 YEARS
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2.    P.G. BHARATH
      S/O P.S.GOPAL
      AGED ABOUT 36 YEARS
                                           ... RESPONDENTS

(BY SRI P N MANMOHAN FOR C/R, ADVOCATE)


     THIS MISCELLENEOUS FIRST APPEAL IS FILED UNDER
ORDER MFA FILED U/S 37(1)(b) OF ARBITRATION AND
CONCILIATION ACT AGAINST THE JUDGMENT AND DECREE
DATED 29.2.2016 PASSED IN A.S.NO.3/2014 ON THE FILE OF
THE PRINCIPAL DISTRICT AND SESSIONS JUDGE, MYSURU,
DISMISSING THE SUIT FILED U/SEC 34 OF ARBITRATION
AND CONCILIATION ACT, 1996.

    THIS MISCELLENEOUS FIRST APPEAL COMING ON FOR
ADMISSION THIS DAY, THE COURT DELIVERED THE
FOLLOWING:

                            JUDGMENT

The appellant is the plaintiff in A.S. No.03/2014 on

the file of the Principal District and Sessions Judge,

Mysuru (for short, 'the civil Court'). The appellant has

impugned the civil Court's order dated 29.02.2016 in the

aforesaid suit in A.S.No.03/2014 and the award dated

31.07.2014 by the learned Sole Arbitrator -

Sri. R.Venkatesh (a Retired District and Sessions Judge

and hereafter referred to as 'the learned Sole Arbitrator').

2. The facts necessary for disposal of this appeal

are briefly stated thus:

2.1. The first and the second respondents, who are

the partners of a Partnership Firm, called M/s. Outback

Adventures, reconstituted this Firm on 10.04.2008 with the

inclusion of the appellant as the third partner. The

appellant retired from the Firm executing the Retirement

Deed dated 07.11.2009 and while executing this deed, the

appellant issued four [4] cheques for a total sum of

Rs.14,54,986/- (Rupees Fourteen Lakhs Fifty Four

Thousand Nine Hundred Eighty Six Only). These cheques

are dated 06.12.2009, 06.01.2010, 06.02.2010 and

10.02.2010. Other than the first cheque dated 06.12.2009,

which is for a sum of Rs.3,00,000/- (Rupees Three Lakhs

Only), all the other cheques are returned for insufficiency of

funds. The respondents contend that these cheques are

issued for payment of the amount acknowledged as payable

by the appellant under the Retirement Deed dated

07.11.2009.

2.2. The respondents have initiated proceedings

under Section 138 of Negotiable Instruments Act, 1881 in

C.C.No.2267/2010. The appellant is convicted, but with

his appeal against such conviction also being dismissed,

the appellant has filed criminal revision petition. This

criminal revision petition is pending before this Court, and

the appellant has deposited 45% of the amount covered

under the three [3] cheques, which are returned in

compliance with the interim order.

2.3 The appellant and the respondents have filed

their respective petitions under Section 11 of the

Arbitration and Conciliation Act, 1996 (for short, 'the

Arbitration Act') in CMP.No.153/2010 and

CMP.No.172/2010, and these petitions are disposed of with

the appointment of the learned Arbitrator. The respondents

have filed their claim petition for recovery of a sum of

Rs.11,54,986/- (Rupees Eleven Lakhs Fifty Four Thousand

Nine Hundred Eighty Six Only) - a sum covered under the

three [3] cheques that are returned - and for "interest from

the date of deed of retirement dated 07.11.2009 till the date

of realization of the amount due and for damages".

2.4. The appellant has filed his claim for declaration

that the Retirement Deed dated 07.11.2009 is illegal, null

and void and that the liabilities covered under the aforesaid

cheques are not enforceable with a further prayer for

direction to the respondents to pay a sum of

Rs.59,96,474/- (Rupees Fifty Nine Lakhs Ninety Six

Thousand Four Hundred Seventy Four Only) with another

sum of Rs.3,00,000/- (Rupees Three Lakhs Only) with

interest at the rate of 24% per annum.

2.5 After due enquiry, the learned Sole Arbitrator by

his award dated 31.07.2014 has rejected the appellant's

claim but the respondents' claim is allowed in part

directing the appellant to pay a sum of Rs.11,47,486/-

(Rupees Eleven Lakhs Forty Seven Thousand Four Hundred

Eighty Six Only) with interest at the rate of 18% per annum

from 07.11.2009 till realization. The award also contains

certain directions towards the cost of the arbitral

proceedings.

2.6. The appellant has impugned the award dated

31.07.2014 under Section 34 of the Arbitration Act in

A.S.No.03/2014. The civil Court in dismissing the

appellant's suit has observed that the petitioner cannot

succeed in his challenge against the award either on the

ground that the constitution of the Retirement Deed dated

07.11.2009 is vitiated by fraud or that the learned

Arbitrator was biased or that the learned Arbitrator, in view

of the directions of this Court in CMP.No.147/2011, could

not have decided the claims without the assistance of a

Chartered Accountant. The civil Court has observed that

these grounds would not be available to the appellant when

he does not dispute that he had issued four [4] cheques

simultaneously with the Retirement Deed dated

07.11.2009, and one [1] of these cheques is en-cashed

while the other cheques are returned. The civil Court has

examined the grounds urged on behalf of the appellant as

aforesaid in the light of the provisions of Section 34 of the

Act.

3. Sri. Suresh S. Lokre, the learned Senior counsel

for the appellant, submits that the learned Sole Arbitrator's

finding on the enforceability of the Retirement Deed dated

07.11.2009 does not pass muster in law and the civil Court

should have interfered under Section 34 of the Arbitration

Act. However, in the absence of definite grounds in support

of this contention, in the circumstances of the case

mentioned first and the reasons assigned by the civil Court

as well as the limited scope for interference under Section

34 of the Arbitration Act as pointed out by

Sri.P.N.Manmohan, the learned counsel for the

respondents, this Court need not detain itself on this

ground.

4. Sri. Suresh S. Lokre next submits that the

learned Arbitrator could not have granted interest at the

rate of 18% per annum either from the date of the

Retirement Deed dated 07.11.2009 or even otherwise, and

in support of this contention, he canvasses that:

[i] The learned Sole Arbitrator has acted beyond

jurisdiction because it is undisputed that the Deed of

Retirement, which is relied upon by the respondents, does

not contain any clause on the payment of interest. The

Hon'ble Supreme Court in Union of India Vs. Bright

Power Projects (India) Private Limited1 has held that if

the parties to the agreement agree not to pay interest to each

1 (2015) 9 SCC 695

other, the learned Arbitrator cannot award interest pendente

lite.

[ii] The learned Arbitrator did not frame any Issue

on the rate of interest to be awarded or the period for which

the interest is to be paid, and the parties were not at Issue

in these regards. Nevertheless, the learned Sole Arbitrator

has awarded interest at the rate of 18% per annum from

07.11.2009 [the date of the Retirement Deed] without

assigning any reason. He relies upon decision of the

Hon'ble Supreme Court in Som Datt Builders Limited Vs.

State of Kerala2 and draws attention of this Court to

paragraph No.25, which reads as under:

"The requirement of reasons in support of the award under Section 31(3) is not an empty formality.

It guarantees fair and legitimate consideration of the controversy by the Arbitral Tribunal. It is true that the Arbitral Tribunal is not expected to write a judgment like a court nor is it expected to give elaborate and

2 (2009) 10 Supreme Court Cases 259

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detailed reasons in support of its finding(s) but mere noticing the submissions of the parties or reference to documents is no substitute for reasons which the Arbitral Tribunal is obliged to give. Howsoever brief these may be, reasons must be indicated in the award as that would reflect the thought process leading to a particular conclusion. To satisfy the requirement of Section 31(3), the reasons must be stated by the Arbitral Tribunal upon which the award is based; want of reasons would make such award legally flawed."

[iii] The manner in which interest is awarded must

shock the judicial conscience [the test for interference

under Section 34 of the Arbitration Act], and with the

petitioner demonstrating that neither Issues were framed

nor reasons assigned, the test is satisfied. Therefore, this

Court must intervene. He relies upon the decision of the

Hon'ble Supreme Court in PSA SICAL Terminals Pvt. Ltd.

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Vs. Board of Trustees of V.O. Chidambranar Port Trust

Tuticorin and others3 in support of this contention.

5. Sri. P.N.Manmohan, relying upon the provisions

of Section 31(7) of the Arbitration Act as it stood as on the

date of the award, submits that a sum directed to be paid

by an Arbitral Tribunal, unless the award directs otherwise,

shall carry interest at the rate of 18% per annum from the

date of the award to the date of the realization. Therefore,

there cannot be any quarrel with the grant of interest for

the period from the date of the award at the grant of 18%

per annum.

6. Sri. P N Manmohan, insofar as the award of

interest pre-reference and pendente lite, relies upon the

decision of the Hon'ble Supreme Court in Reliance

Cellulose Products Ltd. V/s. Oil and Natural Gas

3 AIR 2021 SUPREME COURT 4664

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Corporation Limited4 and argues that the Hon'ble

Supreme Court, after a conspectus of the decisions under

the erstwhile Arbitration Act, 1940, has observed that an

Arbitrator has power to grant pre-reference interest as well

as pendente lite and future interest unless the agreement

between the parties contain any express bar to the award of

such interest, and even when there is an agreement for

payment of such interest, the Hon'ble Supreme Court has

observed that those clauses must receive strict

construction.

7. The learned counsel also submits that the

Hon'ble Supreme Court has observed with the enactment of

the Arbitration and Conciliation Act 1996, the provisions of

Section 31(7)(a) of the Arbitration and Conciliation Act

1996 sanctifies an agreement where the parties have agreed

that no interest shall be payable from the date of cause of

action. However, in the present case, he emphasizes that

4 (2018) 9 Supreme Court Cases 266

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there is no contract excluding payment of either pre-

reference or pendente lite interest and therefore, the learned

Arbitrator is justified in granting such interest at the rate of

18% per annum.

8. Sri. P.N.Manmohan, in response to the

submissions by Sri. Suresh S. Lokre on the lack of

reasoning for deciding on the rate of interest at 18% per

annum, submits that the learned Arbitrator may not have

assigned separate reasons for grant of interest, but in

considering the rival submissions and the questions that

arise for consideration in the light of such rival

submissions, has offered cogent and clear reasons to allow

the respondent's claim and in offering such cogent and

clear reasons has decided a commercial dispute. Therefore,

this Court must not intervene even with the award of

interest on the ground that it is not bad for want of

reasoning.

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9. The question for consideration in the light of the

rival submissions is:

"Whether the appellant is able to establish that the grant of "pre-reference interest", "pendente lite interest" and "future interest" at the rate of 18% per annum is contrary to the provisions of Section 31 of the Arbitration and Conciliation Act 1996."

10. The Hon'ble Supreme Court, in the decision in

Jaiprakash Associates Ltd. v. Tehri Hydro

Development Corp. (Inc) Ltd5 referring to the decision in

Reliance Cellulose Products Ltd. V/s. Oil and Natural

Gas Corporation Limited (supra), as also the decision in

Secretary, Irrigation Department, Government of

Orissa & Ors. v. G.C. Roy6 and the reasons assigned

therein has held as follows:

(2019) 17 SCC 786 6 (1992) 1 SCC 508

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"As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.

Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principle that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement."

This Court, in the light of this declaration of law and when

it is undisputed that the parties have not said anything in

the Retirement Deed dated 07.11.2009 about the payment

of interest, cannot opine that there is any error in the

award of either pre-reference or pendente lite interest.

Further, the decision is 'Union of India Vs Bright Power

projects (India) Pvt. Ltd' does not lay down the proposition

canvassed relying upon it.

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11. As regards the past award interest at the rate of

18% per annum, the provisions of Section 31(7) (b) of the

Arbitration Act as it stood as of the date award read as

under:

"(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 18 per centum per annum from the date of award to the date of payment"7.

If the provisions mandate interest at the rate of 18% per

annum, there cannot be any dispute that the learned

Arbitrator is justified in granting interest at the rate 18%

per annum for the period from the date of the award till the

date of realization ("the future interest") or the pre-reference

and the future interest at the aforesaid rate.

7 A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 2 per cent. Higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

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12. The grant of interest at the rate of 18% per

annum is contested on the ground that it is not backed by

way of a reasoned order. The merit of this argument must

be considered in the light of the recent decision of the

Hon'ble Supreme Court in Dyna Technologies Private

Limited Vs. Crompton Greaves Limited8 . The Hon'ble

Supreme Court has declared that the mandate under the

provision of the Arbitration Act is that the reasoning must

be intelligible and adequate and in appropriate cases can

even be implied even by the Courts from a fair reading of

the award and the documents referred to any. The Hon'ble

Supreme Court has also held that the degree of adequacy of

reasons to test the validity of an award under Section 34 of

the Arbitration and Conciliation Act 1996 cannot be of any

degree of particularity or be stated in a precised manner as

the same would depend on the complexity of the issues. It

has further held that even if the Court comes to a

8 (2019) 20 Supreme Court Cases 1

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conclusion that there are gaps in the reasoning for a

conclusion reached by an Arbitral Tribunal, the Courts

must have regard to the documents submitted by the

parties and the contentions raised by the Tribunal so that

awards with inadequate reasons are not set aside in casual

or cavalier manner. The paragraph Nos.34 and 35 of this

decision reads as follows::

"34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.

35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged

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strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards."

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13. The appellant has not contested the

respondents' claim for interest before the learned Sole

Arbitrator and it is seen from the claim petition filed by the

respondents that it includes the claim for interest from the

date of Retirement Deed. Further, the appellant, though

unsuccessful in his claim for different monies, has sought

for award of interest at the rate of 24% per annum. These

circumstances and fact that the appellant has issued

cheques simultaneously with the execution of the

Retirement Deed must be considered, and these

circumstances have been rightly considered by the learned