Bombay High Court
Arvind V Sheth And Anr vs Mahendra Mohanlal Jain on 1 August, 2022
Author: Gauri Godse
Bench: G.S. Patel, Gauri Godse
4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97-
2020.DOC
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL APPELLATE DIVISION
COMMERCIAL APPEAL NO. 97 OF 2020
IN
COMM ARBITRATION PETITION NO. 343 OF 2019
Arvind V Sheth & Anr ...Appellants
Versus
Mahendra Mohanlal Jain ...Respondent
WITH
INTERIM APPLICATION NO. 569 OF 2019
IN
SHEPHALI
COMMERCIAL APPEAL NO. 97 OF 2020
SANJAY
MORMARE IN
Digitally signed
by SHEPHALI
SANJAY
MORMARE
COMM ARBITRATION PETITION NO. 343 OF 2019
Date: 2022.08.02
14:31:46 +0530
Arvind V Sheth & Anr ...Applicants
In the matter between
Arvind V Sheth & Anr ...Appellants
Versus
Mahendra Mohanlal Jain ...Respondent
Mr Ziyad Madon,with Kevin Pereira & Chinmya Acharya, i/b
Jaswandi Khatu, for the Appellants/Applicants.
Mr Mayur Khandeparkar, with Ish Jain, Kiran Jain, Duj Jain &
Shikhar Khadelwal, i/b Kiran Jain & Co, for the Respondent.
Mr Anand Sheth, son of Applicant No. 1 is present in Court.
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1st August 2022
4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97-
2020.DOC
CORAM G.S. Patel &
Gauri Godse, JJ.
DATED: 1st August 2022 PC:-
1. The Appeal under Section 37 of the Arbitration and Conciliation Act 1996 ("Arbitration Act") is directed against an order of 11th September 2019 made by the learned Single Judge in a Petition under Section 34 of the Arbitration and Conciliation Act 1996. The present Appellants were the Section 34 Petitioners, and the respondents in arbitration. They impugned an arbitral Award dated 1st December 2017. By that Award, the Arbitrator directed the Petitioners to pay the present Respondents a sum of Rs. 1,37,70,861/- with interest at 18% per annum from the date of filing of statement of claim until realisation. Costs of the arbitration were quantified at Rs. 10 lakhs against the Petitioners.
2. Between the parties there was a Memorandum of Understanding ("MoU") dated 14th June 2007. The Petitioners were the Sole Selling Agents for a project undertaken by the Respondent. Clause 7 of the MoU said that the Respondent would pay a sum of Rs. 2 lakhs per month to the Petitioners and if the project did not start or any other situation arose halting the project, the Respondent would be entitled to recall the entire amount with simple interest at 12% per annum to be calculated within three months from the expiry of 36 months. Clause 9 of the MoU said that as long as project was not finalised, any amount given by the Respondent to the Petitioners for pre-launch preliminary Page 2 of 11 1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC expenditure would be considered as a deposit or a loan on account. The Respondent paid Rs. 72 lakhs and another Rs. 4.50 lakhs to the Petitioners. The project did not commence. As the refund was not made, disputes were referred to arbitration under the Arbitration Agreement in Clause 10 of the MoU. The learned Arbitrator made an Award in the amount mentioned above and also awarded interest at 18% per annum.
3. Before the learned Single Judge, the Petitioners argued that the learned sole Arbitrator could not have awarded interest at 18% per annum but at best the claim would be restricted to 12% per annum. The submission before the learned Single Judge was that the Respondent (the claimant in Arbitration) had claimed compound interest which would exceed even 18% per annum. Thus, the resultant submission was that the principal claim was awarded with an impermissible rate of interest of 18% per annum.
4. In response, it was argued that Clause 7 of the MoU would have to be read with Clause 9. Consequently the entire amount would be treated as a deposit in the account of the Petitioners and had to be paid with interest from the date of such deposit every month. There was another dispute regarding the amount of Rs. 4,50,000/- but that need not detain us today. Before the learned Single Judge, the Respondent submitted that Clauses 7 and 9 did not contemplate payment of compound interest or interest at 18% per annum but, read together, these Clauses meant that the Respondent was entitled to claim interest on each instalment. Thus, every instalment was to be treated as a deposit or a loan amount on a reducing balance. Thus, it was argued, the Respondent would be Page 3 of 11 1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC entitled to interest at 12% per annum until the date of payment after 36 months.
5. The learned Single Judge's attention was drawn to the particulars of claim in the statement of claim before the Arbitrator. Interest had been specifically and separately computed on each instalment. The submission was that the Section 34 Court had the power to sever that portion of the Award and to modify it under Section 34.
6. In paragraph 11 of the impugned order the learned Single Judge framed the question before him thus:
"10. Learned Counsel invited my attention to the particulars of claim annexed to the statement of claim and would submit that each installment paid by the respondent to the petitioners was separately reflected in the particulars of claim. Separate amount of interest was added to such installment. He submits that this Court has power to severe that part of the award and to modify the award under section 34 of the Arbitration Act. The respondent has already attached the immovable property of the petitioners in the execution of the arbitral award."
7. The learned Single Judge, on a careful consideration of the rival submissions, concluded that the Petitioners were correct in saying that interest could not have been awarded at 18% per annum under Clause 7. He however held that the Respondent was entitled to interest at 12% per annum from the date of deposit until the date of payment. Reference was made to Section 31(7)(a) of the Arbitration Act and its provision that unless otherwise agreed by the Page 4 of 11 1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC parties where an Arbitral Award is for payment of money the Arbitral Tribunal may include in the Award interest as such rate as it deems reasonable. The learned Single Judge held that since the parties had agreed to fixed rate of interest under Clause 7, and which had to be read with Clause 9 of the MoU, the Arbitrator could not have awarded compound interest nor interest at 18% per annum.
8. It was argued before the learned Single Judge, though without reference to any particular authority, that the Court had no power to modify any part of the Award.
9. The learned Single Judge severed the award of interest and directed that interest would be paid by the Petitioners to the Respondent on each installment of Rs. 2 lakhs from the date of deposit till payment at the rate of 12% per annum and also on the amount of Rs. 4,50,000/- from the date of deposit till payment with interest at the same rate.
10. Before us the same argument is raised that the learned Single Judge could not have modified the Award. In support of this contention, our attention is invited to the decision of the Supreme Court in NHAI v M Hakeem & Anr.1 Mr Madon for the Appellants invites our attentions to paragraphs 31 and 48 of the decision in Hakeem:
31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. The sheet anchor of the argument of the 1 (2021) 9 SCC 1.Page 5 of 11
1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 : (2015) 1 Mad LJ 5] . This matter arose out of a claim for damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally.
48. 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.
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11. Unfortunately, this submission is made without reference to what it was that the Section 34 Court and the Section 37 Court did in that particular case. As judgment itself indicates, in a challenge under Section 34, without there being any question of severability, the Section 34 Court modified the base rate awarded by the Arbitrator and substituted it with another rate. This is clear from paragraph 3 of Hakeem:
"3. The facts in all these appeals concern notifications issued under the provisions of the National Highways Act and awards passed thereunder. These notifications are all of the years 2009 onwards and consist of awards that have been made by the competent authority under the Act, who is a Special District Revenue Officer. In all these cases, awards were made based on the "guideline value" of the lands in question and not on the basis of sale deeds of similar lands. The result is, in all these case, that abysmally low amounts were granted by the competent authority. As an example, in SLP (Civil) No. 13020 of 2020, amounts ranging from Rs. 46.55 to Rs. 83.15 per square metre were awarded. Int he arbitral award made by the District Collector in all these cases, being an appointee of Government, no infirmity was found in the aforesaid award, as a result of which the same amount of compensation was given to all the claimants. In Section 34 petitions that were filed before the District and Sessions Judge, these amounts were enhanced to Rs 645 per square metre and the award of the Collector was therefore modified by the District Court in exercise of jurisdiction under Section 34 of the Arbitration Act to reflect these figures. In the appeal filed to the Division Bench, the aforesaid modification was upheld, with there being a remand order to fix compensation for certain trees and crops."
(Emphasis added) Page 7 of 11 1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC
12. That is not what has happened here. In Hakeem, there was no question of severability, and the courts below had literally changed the entire Award. In the present case, the learned single Judge carefully severed and separated only the award of interest. He did not increase it. He lowered it.
13. Mr Khandeparkar rebuts the submission by citing the decision of the Supreme Court in Madhya Pradesh Power Generation Co Ltd & Anr v Ansaldo Energia Spa & Anr.2 Hakeem does not and could not have held Ansaldo not to be good law. There is no finding that Ansaldo is per incuriam. Paragraph 24 of Ansaldo says this:
"24. The fundamental policy of India was explained in ONGC Ltd. v. Western Geco International Ltd. as including all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. It was held inter alia, that a duty is cast on every tribunal or authority exercising powers that affect the rights or obligations of the parties to show a "judicial approach".
It was further held that judicial approach ensures that an authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and its decision is not actuated by any extraneous considerations. It was also held that the requirement of application of mind on the part of the adjudicatory authority is so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law.
This Court further observed that the award of the Arbitral Tribunal is open to challenge when the arbitrators fail to draw an inference which ought to be drawn or if they had drawn an inference which on the face of it is untenable resulting in miscarriage of justice. The Court has the 2 (2018) 16 SCC 661.
Page 8 of 111st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC power to modify the offending part of the award in case it is severable from the rest, according to the said judgment. (Western Geco International Ltd.)."
(Emphasis added)
14. This seems to us to be far more apposite and more pertinent to the facts of the present case.
15. In addition there is the decision of the Full Bench of this Court (also cited before the learned Single Judge) in RS Jiwani (M/s.) Mumbai v Ircon International Ltd 3 which speaks directly to the concept of severability.
16. The attempt of the Appellants/Petitioners before us seems to be directed toward saying that they should not have to face an interest award of either 18% per annum (as awarded), nor an award at the contractually stipulated rate of 12% per annum. The effort seems to be to dislodge the order of the learned single Judge on the ground of a so-called 'impermissible modification' and then revert to some totally different, unspecified and unawarded rate under the Act itself. Indeed, we find it difficult to comprehend what Mr Madon suggests when he says on instructions that the interest should be awarded 'as per the Act'. It is unclear who will make that award of interest or how.
17. In the present case, there is no question of accepting the submission that the entire Award can go. There is also no question of accepting the submission that the order of the learned Single 3 (2010) BCR 529 (FB) : (2010) Mh.LJ 547.
Page 9 of 111st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC Judge is erroneous and needs to be set aside. The word 'modified' used in the impugned order will not itself change the character of what it is that the learned Single Judge did. Had the rate of interest been increased, that would have been clearly impermissible. What the learned Single Judge has done is to permit interest strictly according to the terms of the contract. The submission before us is that the learned Single Judge's order correcting the rate of interest should be set aside. But, at the same time, it is submitted that the Award of interest should also be set aside and therefore the Respondent should only be entitled to recover interest as per the Act. The submission needs only to be stated to be rejected.
18. There is no merit whatsoever in the Appeal. It is dismissed.
19. Ordinarily, we would not have been minded to award costs in a matter such as this. We do so now because on four separate occasions we have asked Mr Madon to take instructions as to whether this Appeal is seriously being pressed. He has, in our estimation, understood the situation and even before us explained the position over and over again to the son of the 1st Appellant who is present in Court. That person is empathetic in his instructions that under no circumstances are the Appellants willing to concede the position.
20. Consequently we are left with no option but to award costs for this quite unreasonable conduct in view of the amended provisions of Section 35 of the Code of Civil Procedure 1908 in terms of the Commercial Courts Act 2016. The amended provision sets out inter Page 10 of 11 1st August 2022 4-OSCOMAP-97-2020 IN CARBP-343-2019 WITH IA-569-2019 IN COMAP-97- 2020.DOC alia the considerations that must be borne in mind by a Court while awarding costs. It also says that in a commercial matter, costs are the rule and an exemption from costs is the exception. Costs must follow the event and the losing party must pay. Sub-Clause 3 of the amended Section says that the Court must bear in mind inter alia the conduct of the parties and whether the party has made frivolous claim or instituted a vexatious proceedings wasting the time of the Court.
21. In the facts and circumstances of the case, we have no hesitation in holding that the insistence on pressing this Appeal is not appropriate conduct and is clearly a waste of the time of the Court.
22. The Appeal is dismissed with an order of costs of Rs. 2.5 lakhs against the Appellants and in favour of the Respondent, payable within two weeks and recoverable as an order of costs. If not paid within that time, the costs will carry interest at 6% per annum until payment or realization.
(Gauri Godse, J) (G. S. Patel, J)
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