Delhi High Court
Morgan Securities And Credits Pvt. Ltd. vs Morepen Laboratories Ltd. And Anr. on 17 July, 2006
Equivalent citations: 2006(3)ARBLR159(DELHI), 132(2006)DLT588
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed
JUDGMENT Badar Durrez Ahmed, J.
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1. These applications have been filed under Order 47 read with Section 151 of the Code of Civil Procedure, 1908 by way of objections to the Execution Petition. The Execution Petition has been filed by the Decree Holder for execution of the consent award made and published by the Sole Arbitrator Justice A.P. Chowdhri (Retired) on 28.6.2003.
BACKGROUND:
2. As noted in the Award the Decree Holder had advanced a loan of Rs. 5 crores to Morepen Laboratories Limited (JD No. 1). The terms and conditions of the loan were incorporated in the Inter Corporate Deposit (ICD) Agreement dated 19.9.2002. Clause 5 of the said ICD Agreement provided for the rate of interest and was as under:
5. The normal agreed rate of interest for placement of the ICD is 36% p.a., however as a special case the lender is placing the ICD at concessional rate of 21% front ended payable at quarterly rests. In case of delay or default in making payment of principal amount or any part thereof on its due date, the normal rate of interest of 36% p.a. with monthly rests shall be payable by the borrower from the date of default till the date of repayment of the ICD along with interest/overdue interest in full.
The said ICD Agreement contained an arbitration clause, namely, Clause 20. Mr. Sushil Suri (JD No. 2) had extended a personal guarantee. Mr. Arun Suri (JD No. 3) also extended a guarantee for the repayment of the loan and Blue Coast Hotels and Resorts Ltd (JD No. 4) stood surety.
3. Disputes had arisen between the parties with regard to the repayment of the loan. The said disputes were referred to arbitration of the said sole Page 2603 arbitrator. However, during the pendency of the arbitration proceedings, the parties negotiated the settlement and presented a Memorandum of Settlement dated 27.5.2003 in respect of the said ICD Agreement dated 19.9.2002. By virtue of the said settlement the judgment debtors acknowledged their joint and several liability to pay to the decree holder a sum of Rs. 5,46,74,808/- towards principal and overdue interest calculated up to 7.5.2003 at the rate of 30% per annum at monthly rests. It was also agreed and understood by the parties that the judgment debtors shall also pay interest at the rate of 30% per annum on monthly rests basis on the amount aggregating to Rs. 5,46,74,808/- outstanding as on 7.5.2003 till the actual date of payment. The other terms and conditions are mentioned in detail in the Award. It was specifically mentioned in the Award that the Award was being made under Section 30 of the Arbitration and Conciliation Act, 1996 in terms of the said Memorandum of Settlement as per the joint request of the parties and the Memorandum of Settlement along with annexures thereto were made an integral part of the Award. It was also noted in the Award that the parties agreed that the Award will not be challenged under Section 34 of the Arbitration and Conciliation Act, 1996 by any of the parties. On the basis of the said settlement, joint application and statements, the learned Arbitrator made the Award on the following agreed terms:
1. That the Respondents are jointly as well as severally liable to pay the debt. due and payable to the Claimant as per Annexure 'A' of the Settlement Agreement towards principal and interest on principal calculated @ 30% p.a. at monthly rest from the due date of ICD i.e. 17.01.2003 till the date of payment.
2. It is declared that in case the Respondents make payments in terms of the Settlement Agreement, the Claimant will give a rebate in the rate of interest @ 13% per annum and the Respondents shall pay the amount of debt payable as mentioned in Annexure 'B' of the Settlement Agreement. The Respondents had accordingly given cheques for monthly payments as per schedule annexed as Annexure 'C'.
3. It is directed that on occurrence of default as defined in clause 3 and if the default is not remedied as mentioned in clause 4 of Settlement Agreement, then (i) the pledge will become enforceable forthwith which includes the right of sale of shares pledged; (ii) the entire balance amount of debt due and payable under this Award shall become recoverable in lump sum and the Award become executable forthwith.
4. It is directed that the Memorandum of Settlement dated 27.05.2003 including Annexures 'A', 'B' and 'C' referred to above shall form an integral part of this Award.
5. It is further directed that the parties as well as Pledgers shall remain bound by their statements, declaration and affidavits as well as statement of their counsel Mr. Ashish Aggarwal, Advocate.
6. It is declared that the terms of the Settlement set out in Memorandum of Settlement is perfectly in accordance with law and nothing stated therein is against the public policy of India.
7. It is further directed that in the event of market price of the pledged shares of M/s Blue Coast Hotels & Resorts Ltd. falls below Rs. 70/- per Page 2604 equity share, the Respondents shall make up the deficiency in the short fall in the security within a weeks time from the date of receipt of notice, failing which default will be deemed completed.
8. It is lastly directed that in case Respondents make payment ahead of schedule, running of interest on the amount paid shall stop and the said payment shall be duly accounted for in the outstanding amount.
9. The fee of the Arbitrator has been paid in terms of the order dated 04.06.2003.
4. As indicated above, the Award provided that in the event of the judgment debtors making payment in terms of the Memorandum of Settlement, the decree holder would give a rebate at the rate of 13% so that interest would be payable at the rate of 17% per annum with monthly rests from the due date of the said Inter Corporate Deposit i.e., 17.1.2003, the detailed calculations of which were given in Annexure-B to the Memorandum of Settlement. It was also provided in the Award that if the judgment debtors failed to make the payment in terms of the installments in Annexure-B to the Memorandum of Settlement, the entire amount, as mentioned in Annexure-A would become due and payable forthwith to the decree holder.
5. The decree holder has stated that after the said award, the judgment debtors had paid only a sum of Rs. 12,50,000/- and, thereafter, they failed to pay any amount and the three cheques which had fallen due on 20.9.2003, 20.10.2003 and 20.11.2003 were dishonoured on presentation. Thus, the decree holder, in terms of the award, stated that it became entitled to the total amount as per Annexure A to the said Memorandum of Settlement. It is further stated that the judgment debtors made a further payment of a sum of Rs. 25,00,000/- but thereafter, have made no other payment. According to the decree holder, as on 31.12.2003, a total sum of Rs. 6,24,44,250/- was due from the judgment debtors and that the judgment debtors were further liable to pay interest at the rate of 30% per annum with monthly rests till such time the entire amount was paid by them to the decree holder. It is under these circumstances that the present petition for execution of the decree has been filed.
6. The decree holder has contended that the award was made under Section 30 of the Arbitration and Conciliation Act, 1996. The parties had agreed not to challenge the award. However, in any event, an award made under the said Act could be challenged only under Section 34 thereof. The time granted to a party challenging such an award is of three months with one month further grace if sufficient cause is shown failing which under the provisions of Section 36 of the said Act the award becomes enforceable under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. It was submitted on behalf of the decree holder that the period prescribed for moving application for setting aside the award under Section 34 of the said Act as also the grace period of one month had expired and the judgment debtors had not challenged the award. That being the case the award not only attained finality but also became executable as a decree of the Court and it is in this context that the present petition for execution of the decree has been moved. It was, therefore, prayed that, in execution of the award Page 2605 which has become a decree, warrants of attachment be issued against the judgment debtors' properties indicated in paragraph 10 of the application.
Objections of the judgment debtors:
7. The judgment debtors filed their objections under Section 47 of the Code of Civil Procedure, 1908. The objection taken is that the rate of interest payable under the Inter Corporate Deposit at the rate of 36% per annum as also under the Memorandum of Settlement incorporated in the consent award at the rate of 30% per annum with monthly rests or interest at 17% per annum with monthly rests is illegal. It is the contention of the judgment debtors that commercial transactions between private persons in the State of Delhi are governed by the Usurious Loans Act, 1918 as amended and made applicable to the State of Delhi by the Punjab Relief of Indebtedness Act. According to the judgment debtors by virtue of the provisions of the Usurious Loans Act, 1918 as applicable to Delhi and more particularly Section 3 thereof, the maximum rate of interest which is chargeable for a secured loan is 71/2% per annum and 121/2% per annum for an unsecured loan. It is contended on behalf of the judgment debtors that, in comparison to this, the decree holder has been awarded an exorbitant and illegal rate of interest at the rate of 30% per annum with monthly rests which is far above the maximum rate permissible under the law. It is the contention of the judgment debtors that in view of the provisions of Section 3 of the Usurious Loans Act, 1918, once the rate of interest is found by the Court to be beyond the legally permissible rate, then, the Court is bound to reopen the whole transaction between the parties and pass such further directions by determining the amount payable or directing the refund, wherever so required. It was also contended on behalf of the judgment debtors that the consent award is not an adjudication on merits. The said award dated 28.6.2003 simply reproduces the agreed terms as stated in the Memorandum of Settlement dated 27.5.2003. According to the judgment debtors, as the learned Arbitrator had not applied his mind on the merits of the matter, at the time of passing of the consent award, the award can be challenged on all the legal grounds on which a contract can be challenged including the ground that it violated the provisions of the Usurious Loans Act, 1918, as applicable to Delhi.
Submissions on behalf of the Decree Holder:
8. In response to these objections, it was submitted on behalf of the decree holder that:
(i) The provisions of Section 3 of The Usurious Loans Act, 1918 were not applicable to the present proceedings which were conducted under the Arbitration and Conciliation Act, 1996. Section 3 would be applicable to suits. The present proceeding does not emanate from a suit;
(ii) In any event, even under Section 3 of The Usurious Loans Act, 1918, the proviso thereto makes it clear that the said Section is not applicable to 'any decree of a Court.' By virtue of the provisions of Section 36 of the Arbitration and Conciliation Act, 1996, the award dated 28.6.2003 has to be construed as a decree of a court because it is enforceable in the same manner as if it were a decree of the Court;
Page 2606
(iii) The executing Court, cannot go behind the decree unless the decree was passed by a Court having inherent lack of jurisdiction. A consent award which is final and binding and enforceable as a decree cannot be reopened by the Executing Court, when there is no allegation of inherent lack of jurisdiction insofar as the arbitrator who made the award is concerned;
(iv) In any event, the Arbitration and Conciliation Act, 1996 is a special legislation and a complete Code and the only way in which an arbitral award can be challenged is by filing a petition under Section 34 thereof. No such petition was filed in the present case and, therefore, the Executing Court would not be permitted to go behind the award because if that were to be done, then it would amount to do something indirectly which cannot be done directly.
These in brief are the contentions raised by Mr. Harish Malhotra, the learned Senior Counsel appearing on behalf of the decree holder. He referred to various decisions in support of his submissions which shall be considered hereinbelow.
Submissions on behalf of the judgment debtors:
9. Mr. Valmiki Mehta, the learned Senior Counsel who appeared on behalf of the judgment debtors, submitted contrarywise. Firstly, he submitted that The Usurious Loans Act, 1918 was applicable to the present proceedings inasmuch as the word 'suit' is used in a generic sense and covers the present proceedings. Secondly, he submitted that a distinction must be drawn between a decree on merits and a consent decree. The decree that is referred to in the proviso to Section 3 is a decree on merits and not a consent decree. According to Mr. Mehta, a consent decree is nothing more than a contract which has the imprimatur or seal of the Court and the same can be challenged on any ground on which a contract can be challenged. Thirdly, he submitted that the objections taken by the judgment debtors can certainly be looked into by the Executing Court and, particularly, it it can be established that the decree is a nullity. He submitted that in the present case the consent award was contrary to the statutory provisions contained in The Usurious Loans Act, 1918. Lastly, it was submitted by Mr. Mehta that the argument based on the premise that no objections were filed under Section 34 of the Arbitration and Conciliation Act, 1996 and, therefore, the award became final and binding and enforceable and, as such cannot be brushed aside by the Executing Court, is incorrect because, according to him, even a compromise decree of a Civil Court in a regular suit can be challenged by way of appeal under Order XLIII Rule 1A (2) of the Code of Civil Procedure, 1908 and, as such, objections in execution of such a compromise decree can be entertained by the executing Court. Mr. Mehta also referred to a number of decisions in support of his submissions. The same shall be considered below.
Questions:
10. The following four questions arise for determination:
I. Does The Usurious Loans Act, 1918 apply to the present proceedings?
II. Does the expression 'any decree of a Court' appearing in the proviso to Section 3(1) of The Usurious Loans Act, 1918 cover the arbitral award made on agreed terms?
Page 2607 III. Can the Executing Court go behind the decree and take up considerations on merits of the matter?
IV: Can the judgment debtors challenge the award in execution proceedings, having chosen not to file a petition under Section 34 of the Arbitration and Conciliation Act, 1996?
The answers are: I, No; II. Yes; III. No; IV. No. The reasons for which are mentioned hereinbelow.
I. Does The Usurious Loans Act, 1918 apply to the present proceedings?
11. In order to examine this question, it would be necessary to refer to the relevant provisions of The Usurious Loans Act, 1918 as applicable to Delhi. Section 2(iii) of the said Act defines the expression 'suit to which this Act applies' to mean 'any suit -
(a) for the recovery of a loan made after the commencement of this Act; or
(b) for the enforcement of any security taken or any agreement, whether by way of settlement of account or otherwise, made, after the commencement of this Act, in respect of any loan made either before or after the commencement of this Act; or
(c) for the redemption of any security given after the commencement of this Act in respect of any loan made either before or after the commencement of this Act.
Section 3 of the Act is relevant and, in the form applicable to Delhi, reads as under:
3. Reopening of transactions. - (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court has reason to believe:
(a) that the interest is excessive; or
(b) that the transaction was, as between the parties thereto, substantially unfair, the Court shall exercise all or any of the following powers, namely, shall -
(i) re-open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest;
(ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, reopen any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof;
(iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem just:
Provided that, in the exercise of these powers, the Court shall not-
(i) re-open any agreement purporting to close previous dealings and to create a new obligation which has been Page 2608 entered into by the parties or any persons from whom they claim at a date more than [twelve] years from the date of the transaction;
(ii) do anything which affects any decree of a Court.
Explanation.- In the case of a suit brought on a series of transactions the expression 'the transaction' means, for the purposes of proviso (i), the first of such transactions.
(2) (a) In this section 'excessive' means in excess of that which the Court deems to be reasonable having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the date of the loan.
(b) In considering whether interest is excessive under this section, the Court shall take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premia, renewals or any other charges and if compound interest is charged, the periods at which it is calculated, and the total advantage which may reasonably be taken to have been expected from the transaction.
(c) In considering the question of risk the Court shall take into account the presence or absence of security and the value thereof, the financial condition of the debtor and the result of any previous transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been known, to the creditor.
(d) In considering whether a transaction was substantially unfair, the Court shall take into account all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same were known, or must be taken to have been known, to the creditor.
(e) The Court shall deem interest to be excessive if it exceeds seven and a half per centum per annum simple interest or is more than two per centum over the Bank rate, whichever is higher at the time of taking the loan, in the case of secured loans, or twelve and a half per centum per annum simple interest in the case of unsecured loans:
Provided that the Court shall not deem interest in excess of the above rates to be excessive if the loan has been advanced by the Imperial Bank of India or any bank included in the Second Schedule, Reserve Bank of India Act, 1934, or any banking company registered under the Indian Companies Act, 1913, prior to the first day of April, 1937, or any cooperative society under, the Co-operative Societies Act, 1912.
Explanation.- Interest may be itself be sufficient evidence that the transaction was substantially unfair.
(3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security.
Page 2609 (4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Court that the transfer to him was bona fide, and that he had at the time of such transfer no notice of any fact which would have entitled the debtor as against the lender to relief under this section.
For the purposes of this sub-section, the word 'notice' shall have the same meaning as is ascribed to it in Section 4 of the Transfer of Property Act, 1882.
(5) Nothing in this section shall be construed as derogating from the existing powers or jurisdiction of any Court.' Reading Section 3 of The Usurious Loans Act, 1918 as applicable to Delhi, it is clear that reopening of transactions is contemplated 'in any suit to which this Act applies' and if, while dealing with such suit, the Court has reason to believe that either the interest is excessive or the transaction as between the parties thereto is substantially unfair. It is then, that the Court is enjoined to exercise the powers specified in Sub-clauses (i), (ii) and (iii) of Clause (b) of Sub-section (1) of Section 3 thereof. So the proceedings which must be before the Court must be a suit to which the Act applies. This expression, as already indicated above, has been defined as 'any suit for the recovery of a loan made after the commencement of the Act or for the recovery of any security taken or any agreement, whether by way of settlement of account or otherwise, made, after the commencement of the Act, in respect of any loan made either before or after the commencement of the Act or for the redemption of any security given after the commencement of this Act in respect of any loan made either before or after the commencement of this Act.' On a plain reading of these provisions, it is abundantly clear that transactions can be reopened only by the Court in which any such suit is pending adjudication. It does not extend to any Executing Court. Furthermore, the expression 'suit to which this Act applies' has been given a specific meaning by virtue of Section 2(3) of The Usurious Loans Act, 1918 and, therefore, the argument of Mr. Mehta that the word 'suit' must be considered in its generic sense as including any proceeding cannot be accepted.
12. Mr. Mehta had referred to a decision of the Supreme Court in the case of Patel Roadways Ltd v. Birla Yamaha Ltd. AIR 2000 SC 1461. In that decision the Supreme Court was, inter alia, considering whether Section 9 of the Carriers Act, 1865 is applicable to a proceeding under the Consumer Protection Act, 1865. The expression used in Section 9 of the Carriers Protection Act, 1865 was 'in any suit brought against a common carrier for the loss, damage or non-delivery owing to the negligence or criminal act of the carrier, his servants or agents.' It was contended before the Supreme Court that the use of the term 'suit' in Section 9 of the Carriers Act shows that the provision is applicable only to cases filed in a civil Court and does not extend to proceedings before the National Commission which is a forum which is to decide complaints by consumers following a summary procedure. The Supreme Court observed that the term 'suit' had not been defined in the Carriers Act nor is it provided in the said Act that the term 'suit' will have the same meaning as in the Civil Procedure Code. It is in this context that the Supreme Court observed that therefore, the ordinary dictionary meaning of the term will have to be taken Page 2610 for ascertaining its meaning. It referred to P. Ramanatha Ayar's Law Lexicon 1997 Edition wherein the term was defined as under:
'Suit' Prosecution of pursuit of some claim, demand or request, the act of suing, the process by which one endeavors to gain an end or object, attempt to attain a certain result; the act of suing, the process by which one gains an end or object, an action or process for the recovery of a right or claim, the prosecution of some demand in a Court of Justice, any proceeding in a Court of Justice in which plaintiff pursues his remedy to recover a right or claim; the mode and manner adopted by law to redress Civil injuries, a proceeding in a Court of Justice for the enforcement of a right.
The word 'suit' in Section 51 to 55 Act IX of 1879, Court of Wards Act, does not mean only what is usually called a 'regular suit'. It embraces all contentious proceedings of an ordinary civil kind, whether they arise in a suit or miscellaneous proceedings.
Suit Action, 'Suit' is a term of wider signification than action it may include proceedings on a petition.' The Supreme Court, referring to the above, came to the conclusion that the term 'suit' is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right vested in him under law. However, the Supreme Court significantly noted that 'the meaning of the term 'suit' also depends on the context of its user which in turn, amongst other things, depends on the Act or the Rule in which it is used. Analysing the provisions of Section 9 of the Carriers Act, 1865, the Supreme Court, in this background, came to the conclusion that no doubt the proceeding before a National Commission is ordinarily a summary proceeding and in an appropriate case where the Commission feels that the issues raised by the parties are too contentious to be decided in a summary proceeding it may refer the parties to a civil Court, but, that did not mean that the proceeding before the Commission is to be decided ignoring the express statutory provisions of the Carriers Act in a proceeding in which a claim is made against a common carrier as defined in the said Act. The Supreme Court was of the view that accepting such a contention would defeat the object and purpose for which the Consumers Protection Act was enacted. It, therefore, concluded that a proceeding before the National Commission, in its considered view, comes within the term 'suit' as appearing in Section 9 of the said Carriers Act.
13. This decision does not in any way militate against the contention that the present Execution proceedings would not fall within the expression 'any suit to which this Act applies' appearing in Section 3 of The Usurious Loans Act, 1918. In Patel Roadways Ltd (supra), the Supreme Court itself made it clear that the meaning of the term 'suit' also depends on the context of its user which, in turn, amongst other things, depends on the Act or the Rule in which it is used. Apart from that the Supreme Court's view that the term 'suit' was used in its generic sense and covered proceedings before the National Commission was also rendered on the basis that the word 'suit' had not been defined in the Carriers Act. In the present case, I find that the Page 2611 expression 'suit to which this Act applies' has been specifically defined, inter alia, as a suit for recovery of a loan or for redemption of any security or for enforcement of any security. The generic and wide interpretation is, therefore, circumscribed by the limited definition given under the The Usurious Loans Act itself.
14. What is also of great significance is that the interpretation of the term 'suit', even if it is accorded a generic meaning, contemplates proceedings initiated by a party for realisation of a right vested in him under law. This must be read in the context of Section 3(3) of The Usurious Loans Act, 1918 which categorically specifies that 'this Section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security.' Therefore, call it a suit or proceeding, in whichever form, it must be an action which is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of the loan or for the redemption of any such security. It is only if such an action is pending adjudication before the Court that the Court can, if the said conditions precedent are satisfied, reopen the transaction while acting under Section 3 of The Usurious Loans Act, 1918. When a decree is passed in such an action, the rights of the parties stand conclusively determined. The stage of adjudicating the rights of the parties is already over. Section 3 would apply to an action, call it a suit or a proceeding, prior to the passing of a decree or final determination of the rights of the parties. Execution proceedings pending before an Executing Court for execution of a decree would definitely not fall within the ambit of the action contemplated.
15. At this juncture, it would be relevant to note some provisions of the Arbitration and Conciliation Act, 1996. Section 5 of this Act limits the extent of judicial intervention and provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I (Section 2 to Section 43), no judicial authority shall intervene except where so provided in Part I. Section 30 which falls within Part I of this Act provides for settlement. It reads as under:
30. Settlement. - (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
3. An arbitral award on agreed terms shall be made in accordance with Section 31 and shall state that it is an arbitral award.
4. An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.
Reading Section 30 it is quite clear that the arbitrator is fully empowered to record a settlement where parties settle their disputes and the arbitrator is also Page 2612 empowered to terminate the proceedings upon recording such settlement in the form of an arbitral award on agreed terms. It is quite clear that the award on agreed terms is to be made in accordance with Section 31 and shall also state that it is an arbitral award. What is most important is that Sub-Section (4) of Section 30 provides that an arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute. This clearly stipulates that whether it is an award on agreed terms or an award on the substance of a dispute the effect and status is the same. And, therefore, in terms of Section 30(4) no distinction can be made between an award made on merits and an award made on agreed terms. This aspect of the matter would be relevant when the distinction that is sought to be brought about by Mr. Mehta between a consent decree and a decree on merits will be considered hereinbelow.
16. The next provision of the Arbitration and Conciliation Act, 1996 which is of significance is Section 34 thereof. Sub-section (1) of Section 34 specifically provides that recourse to Courts 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). This implies that an arbitral award can only be set aside by way of an application under Section 34 and by no other proceeding. Sub-section (3) of Section 34 stipulates that such an application for setting aside of the arbitral award cannot be made after three months have elapsed from the date on which the party making that application had received the arbitral award. The proviso to Section 34(3) permits the making of such application within a further period of 30 days if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within such period of three months. The proviso specifically stipulates that no such application can be made after these thirty days have also expired. Section 35 speaks of the finality of an arbitral award and Section 36 which is of material significance in the context of the present case speaks of enforcement of the arbitral award. Section 36 reads as under:
36. Enforcement. - Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.
An analysis of the aforesaid provisions would lead us to the following conclusions:
(i) There can be no interference with respect to matters covered under Part I of the Arbitration and Conciliation Act, 1996 except where it is so provided. This is notwithstanding anything contained in any other law for the time being in force;
(ii) An arbitral tribunal is fully empowered to record a settlement between the parties settling their disputes and to make an arbitral award on agreed terms;
(iii) Once an arbitral award on agreed terms is made, it shall have the same status and effect as any other arbitral award on the substance of the disputes. There is no distinction between an arbitral award on agreed terms or an arbitral award on the substance of the disputes.
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(iv) Recourse to Court against an arbitral award can be had only by an application for setting aside such award under Section 34 of the Arbitration and Conciliation Act, 1996 and that, too, within the period stipulated under Section 34(3) thereof.
(v) Where no application under Section 34 is made during the stipulated period, the award is to be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court.
17. The proceeding which is pending before this Court is essentially a proceeding consequent upon Section 36 of the Arbitration and Conciliation Act, 1996. It is not an action for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security. Therefore, the present execution proceedings do not fall within the ambit of the expression 'in any suit to which this Act applies.
II: Does the expression 'any decree of a Court' appearing in the proviso to Section 3(1) of The Usurious Loans Act, 1918 cover the arbitral award made on agreed terms?
18. Mr. Harish Malhotra, the learned Senior counsel appearing on behalf of the decree holder submitted that, in any event, the proviso contained in Section 3(1) of The Usurious Loans Act, 1918, inter alia, categorically stipulates that the Court shall not do anything which affects any decree of a Court. His submission is that once there is a decree of a Court, then, even if the Court has reason to believe that the interest is excessive or the transaction is substantially unfair, the Court cannot do anything so as to upset, vary or modify the decree already passed. He submitted that in view of the provisions of the Arbitration and Conciliation Act, 1996 to which I have already referred above, an arbitral award, which has not been challenged within the time specified under Section 34, is to be enforced under the Code of Civil Procedure,1908 in the same manner as if it were a decree of the Court. Thus, once an Execution Petition is filed for enforcement of an award, under Section 36 of the Arbitration and Conciliation Act, it is to be enforced in the same manner as if it were a decree of the Court. Therefore, the arbitral award passed in this case would also be treated as a decree of the Court and would fall within the contemplation of the proviso to Section 3(1) of The Usurious Loans Act, 1918. Mr. Valmiki Mehta submitted that a decree which is not an adjudication by a Court applying its mind, but is only a compromise decree simply incorporating the agreed terms between the parties, the Court having not had an opportunity to examine the legal validity of the agreed terms, is at best only an agreement and the same can be challenged on all the grounds on which an agreement can be challenged. He, therefore, contended that the arbitral award made in the present case, being a consent award, could not be regarded as an award on the merits of the disputes made by the arbitrator after due application of mind. The award remained merely an agreement between the parties with the arbitrator merely recording the same. Therefore, the agreement being in violation of the provisions of The Usurious Loans Act, 1918 would be a nullity and, therefore, would not be enforceable or executable. Of course, I have already held that the present proceedings do not fall within the purview of Section 3 of The Usurious Loans Act, 1918 and, therefore, there is actually no necessity to examine this issue any further. Page 2614 However, since elaborate arguments were advanced, I am expressing my view for the sake of completeness. There is no doubt that in some of the decisions cited by Mr. Mehta, the Supreme Court held that a compromise decree does not stand on a higher footing than any agreement and that the same would be liable to be set aside on any of the grounds which invalidate the agreement. One such decision is in the case of The Ruby Sales and Services (P) Ltd and Anr. v. State of Maharashtra and Ors. . Another decision is in the case of Union Carbide Corporation and Ors. v. Union of India and Ors. . The Supreme Court observed that a consent order does not entail any adjudicative imposition of the Court. A consent order is merely a setting of a seal of the Court which is essentially an agreement which is open to challenge on any ground on which an agreement could be set aside. Another decision is in the case of Devkaran Nenshi Tanna (dead) by L.Rs v. Manharlal Nenshi and Anr. wherein the Supreme Court observed that the parties cannot contract out of the statute and the seal of approval of the court does not superadd to its sanctity, nor receive its legality or validity or sanctity without due adjudication. Mr. Mehta also referred to the Supreme Court decision in K.K. Chari v. R.M. Seshadri wherein the Supreme Court held that if a decree is void it is not executable and the executing Court will have to adjudicate upon the plea based on relevant materials. It must be noted that no exception can be taken with regard to the settled principles of law indicated in the aforesaid decisions of the Supreme Court. The question is whether those principles are applicable to the facts of the present case. One must keep in mind the distinction between a decree passed in a suit and an award made by an arbitral tribunal. The two are on different footings. While a decree in a suit is appealable, an arbitral award can be set aside on very limited grounds and that too by making an application to the Court under Section 34 of the Arbitration and Conciliation Act, 1996. All the aforesaid decisions related to decrees passed by a Court and not to arbitral awards which are only to be enforced as if they were decrees of the Court. The parallel that is sought to be drawn from the distinction between a compromise decree and a decree on merits based on adjudication is not appropriate. This is so because while there is a specific provision under the Arbitration and Conciliation Act, 1996 contained in Section 30(4) thereof stating that an arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute, there is no such or similar provision in the Code of Civil Procedure, 1908. So while a distinction may be made between a consent decree or a decree on compromise passed in terms of Order XXIII Rule 3 of the Code of Civil Procedure, 1908 and a decree which is a formal expression of an adjudication, such a distinction between an arbitral award on agreed terms Page 2615 and an arbitral award on the substance of a dispute is barred in view of the express provisions of Section 30(4) of the Arbitration and Conciliation Act, 1996. Therefore, the decisions relied upon by Mr. Mehta would have no application to the facts of the present case.
19. A plain and simple reading of the provisions of law makes it clear that the award made by an arbitral tribunal is to be enforced as a decree and, therefore, nothing can be done by the Court, even if it is assumed that the Court can in the present fact situation exercise jurisdiction under Section 3 of The Usurious Loans Act, 1918, which in any manner affects the decree. It is clear that the expression 'any decree of a Court' appearing in the proviso in Section 3(1) of The Usurious Loans Act, 1918 does include reference to an arbitral award inasmuch as it is enforceable in much the same manner as a decree of the Court.
20. It may be mentioned that there are some decisions of the Supreme Court which say that a consent decree is as binding upon the parties thereto as a decree passed by invitum. One such decision is in the case of Shankar Sitaram Sontakke and Anr. v. Balkrishna Sitaram Sontakke and Ors. wherein the Supreme Court in paragraph 9, held that it is well settled that a consent decree is as binding upon the parties thereto as a decree passed by invitum. It further held that the compromise having been found not to be vitiated by fraud, mis-representation, mis-understanding or mistake, a decree passed thereon has the binding force of res judicata. Then, there is a decision of the Supreme Court in the case of Salendra Narayan Bhanja Deo v. State of Orissa wherein in paragraph 8 thereof, the Supreme Court observed that a judgment by consent or default is as affective as an estoppel between the parties as a judgment whereby the Court exercises its mind on a contested case. In Byram Pestonji Gariwala v. Union Bank of India and Ors. , the Supreme Court followed the decisions in Shankar Sitaram (supra) and Salendra Narayan (supra) and held that a judgment by consent is intended to stop litigation between the parties and is as much a judgment as one resulting at the end of a long drawn out fight. A compromise decree creates an estoppel by judgment. Referring to the facts before it, the Supreme Court in Byram Pestonji (supra) observed that the consent decree made therein remained unchallenged. Nobody questioned it. The appellant never raised any doubt as to its validity and genuineness and he had no case that the decree was vitiated by fraud or misrepresentation or his counsel lacked validity to enter into compromise on its behalf. Nevertheless, after six years he questioned its validity by Page 2616 summons. The Supreme Court observed that this was rightly rejected by the High Court for reasons of delay, estoppel or res judicata. Similar considerations also arise in the present case and the judgment debtors cannot be permitted to resile from their commitment and/or consent.
III: Can the Executing Court go behind the decree and take up considerations on merits of the matter?
21. It is a well settled principle that a Court executing a decree cannot go behind the decree. It must take the decree as it stands for the decree is final and conclusive as between the parties to the suit. This was held in Topanmal Chhotamal v. M/s Kundomal Gangaram and Ors. . It was also held in C. Gangacharan v C. Narayanan: in paragraph 4 that:
It is now well settled that the executing court cannot go behind the decree of a court of competent jurisdiction except when the decree is void ab initio or without jurisdiction....
In Rafique Bibi (Dead) By Lrs v. Sayed Waliuddin (Dead) by Lrs. and Ors. , the Supreme Court further observed that the lack of jurisdiction must be patent. In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman and Ors.: , the Supreme Court also held that the executing court cannot go behind the decree and that the Executing Court cannot entertain any objection that the decree was incorrect in law or in facts. In view of these overwhelming pronouncements of the Supreme Court, there is no scope for this Court as an Executing Court from going behind the award which is to be enforced as a decree of the Court. There is no allegation that the arbitral tribunal lacked jurisdiction in any manner whatsoever. There is also no allegation that the parties had entered into an agreement for settlement by virtue of any fraud or misrepresentation. The only point urged by the judgment debtors is that the interest rate agreed upon by them was exorbitant and excessive and was hit by Section 3 of The Usurious Loans Act, 1918. But, that agreement has already culminated in the making of the arbitral award which has to be enforced in the same manner as a decree of the Court and, accordingly, this Court cannot go behind the said decree. It may also be mentioned that the passing of an order on interest at the time of making the award is clearly contemplated by the provisions of the Arbitration and Conciliation Act, 1996. Sections 31(7)(a) and (b) may be referred to for this purpose. Clause (a) of Section 31(7) of the Act permits the arbitral tribunal to award interest in cases where the award is for the payment of money at such rate as it deems reasonable. Clause (b) provides that where a sum is directed to be paid by an arbitral award, unless the award otherwise directs, such sum shall carry interest at the rate of 18% per annum from the date of the award to the date of payment. Assuming for the sake of argument, Page 2617 that an arbitral award had been made only for the return of the principal amount then by virtue of Section 31(7)(b), it would carry interest at the rate of 18% per annum from the date of the award to the date of payment. Would this provision be considered to be hit by Section 3 of The Usurious Loans Act, 1918? The obvious answer is, No. It would not because the Arbitration and Conciliation Act is also a statute and it permits the arbitral tribunal to award interest from the date of the cause of action till the making of the award as well as from the date of the award till the making of payment and even stipulates that where the award does not otherwise direct, the rate of interest upon the award would be 18% per annum which is much higher than the rate of interest contemplated under The Usurious Loans Act, 1918. It may be noted that Section 3 of The Usurious Loans Act, 1918 contains a non-obstante clause but it is with regard to the Usury Laws Repeal Act, 1855 and not any other Act. The Arbitration and Conciliation Act, 1996 is also later in time and, therefore, even if there is a conflict the latter would apply. Leges posteriores priores contrarias abrogant. Anyhow, these are considerations which do not require determination in the present case and have been discussed only because Mr. Harish Malhotra, the learned Counsel for the decree holder had made the submissions to show that the interest rate agreed to by the parties and recorded by the arbitral tribunal is not without jurisdiction and is also not contrary to law.
IV: Can the judgment debtors challenge the award in execution proceedings, having chosen not to file a petition under Section 34 of the Arbitration and Conciliation Act, 1996?
22. The broad parameters concerning this question have already been discussed above. The position is that if the objections preferred by the judgment debtors are to be accepted then, it would amount to the setting aside of the arbitral award. Such a course is permissible only under Section 34. But, the judgment debtors did not file any application under Section 34 of the Arbitration and Conciliation Act. Instead, after making some payment under the arbitral award, they have moved these objections, the object of which is to set aside the arbitral award. Such a course of conduct cannot be permitted as it would amount to permitting the judgment debtors to do something indirectly which they cannot do directly. The judgment debtors did not file any application within the time prescribed under Section 34 of the Arbitration and Conciliation Act, 1996 and have lost their right, even if they had one, to petition for setting aside the award under Section 34 of the said Act. If they are not permitted to move an application for having the award set aside under Section 34 then surely they cannot be permitted to raise objections which, if accepted, would have the same effect as that of setting aside the award. This is what I mean when I say that the judgment debtors cannot be permitted to do something indirectly which it is not open for them to do directly.
23. In view of the foregoing discussion the objections preferred by the judgment debtors are not tenable and are rejected. The applications are, therefore, dismissed.
24. A copy of this order be also placed in the file of Execution Petition No. 18/2004.