Delhi High Court
Modi Rubber Ltd. vs Morgan Securities & Credits Pvt. Ltd. & ... on 21 October, 2009
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: August 06 2009
Date of Order: October 21, 2009
+ OMP No.267/2004
% 21.10.2009
1. MODI RUBBER LTD. .... Petitioner
Through : Mr. P.V. Kapoor, Sr. Adv. with
Mr. Ajay Kumar Jain, Adv.
Versus
MORGAN SECURITIES & CREDITS PVT. LTD. & ANR.
... Respondents
Through: Mr. P.S.Bindra, Adv.
OMP No. 277/2004
2. DR. B.K.MODI .... Petitioner
Through : Mr. L.K.Dhir with
Mr. Manoj Yadav, Advs.
Versus
MORGAN SECURITIES & CREDITS PVT. LTD. & ANR.
... Respondents
Through: Mr. P.S.Bindra, Adv.
OMP No.278/2004
3. V.K. MODI .... Petitioner
Through : Mr. P.V. Kapoor, Sr. Adv. with
Mr. Ajay Kumar Jain, Adv.
Versus
MORGAN SECURITIES & CREDITS PVT. LTD. & ANR.
... Respondents
Through: Mr. P.S.Bindra, Adv.
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the
judgment? No.
2. To be referred to the reporter or not? Yes.
3. Whether judgment should be reported in Digest? Yes.
OMP Nos.267, 277 & 278/2004 Page 1 of 10
JUDGMENT
1. By this order I shall dispose of above three petitions challenging common award passed by the learned Arbitrator against the petitioner Modi Rubber Ltd. and its two directors.
2. Brief facts relevant for purpose of deciding these petitions are that the petitioners approached respondent company for grant of Inter Corporate Deposit. The respondent agreed to grant Rs. 5 crore of amount as Inter Corporate Deposit with interest @ 21% per annum. Both the parties entered into an agreement dated 20.3.2001. On the same date the documents like demand promissory note, letter of continuity and Inter Corporate Deposit receipt were executed in favour of the respondent by the two petitioners namely Mr. V.K.Modi and Mr. B.K. Modi who were Directors of Modi Rubber Ltd. and they also executed deeds of personal guarantee in favour of the respondent. The respondent gave cheque of Rs.5 crores dated 20th March, 2001 drawn on Housing Development Finance Corporation (HDFC) Bank Ltd., New Delhi. As per agreement this amount was to be repaid within 90 days. The amount was not paid back in terms of agreement instead letters dated 17.6.01 & 19.9.01 were written by Modi Rubber Ltd. for extension of time for payment of amount. The respondent however expressed its inability to give further time and asked for refund of the Inter Corporate Deposit. The respondent thereafter wrote letters dated 26.7.01, 19.9.07, 10.10.01, 17.10.01 and 3.12.01 requesting for refund of amount. The cheques issued by the OMP Nos.267, 277 & 278/2004 Page 2 of 10 petitioner initially for repayment of loan were deposited by the respondent in the account but got dishonoured. The respondent in terms of the agreement appointed a sole Arbitrator and informed the petitioner about the appointment of Arbitrator and filed a claim of Rs.6,72,63,015/- before the Arbitrator inclusive of the interest upto the date against the petitioners. The petitioners took a stand before the Arbitrator that there was no valid arbitration agreement between the parties and the appointment of Arbitrator was not legally valid under the terms of agreement. However, petitioners also staked a counter claim of Rs.50 lakhs against the respondent as cost of time spent by management and staff on the proceedings and one crore as damages and loss of goodwill and reputation of the petitioners due to the proceedings initiated by the respondent.
3. The learned Arbitrator after considering the evidence and documents, passed an award holding that the respondent was entitled to receive jointly and severally Rs.6,72,63,015/- upto the date of reference and thereafter the respondent would be entitled to interest at the contractual rate of 21% per annum from the date of reference till the date of award and thereafter from the date of award till payment, simple interest at the rate of 18% per annum would be payable. However, a concession was given that if the entire payment was made within 3 months from the date of award, the rate of interest from the date of award till the date of payment shall stand reduced to 12% per annum.
OMP Nos.267, 277 & 278/2004 Page 3 of 10
4. The petitioner company namely Modi Rubber Ltd. in the meantime filed an application before BIFR for declaring it as a sick company and the proceedings before BIFR were continuing even after passing of arbitration award.
5. The petitioners assailed the arbitration award on the ground that the arbitration clause was invalid as the arbitration agreement was one sided and misleading. The arbitration clause vested a right in respondent of appointing an Arbitrator and the clause does not give mutual rights to both the parties for appointing an Arbitrator each of their choice. The award was therefore liable to be set aside.
6, The petitioners had entered into contract with open eyes. The petitioners were at liberty not to enter into the contract if the arbitration clause was not agreeable to them. Moreover, such a clause as is contained in the arbitration agreement is not an unusual or illegal clause. The respondent had provided in the clause that the Arbitrator shall be appointed by it. Such reservation regarding appointment of Arbitrator is normally found in arbitration clauses. Where a person enters into such an arbitration clause, he cannot later on say that the clause was illegal or void. It is settled law that parties are bound by agreement entered into between them including the arbitration clause. If the arbitration clause provided that the arbitration proceedings shall be conducted only by a particular Arbitrator appointed by the respondent such a clause is OMP Nos.267, 277 & 278/2004 Page 4 of 10 not an illegal clause and the petitioner is bound by the arbitration clause. I therefore find no force in this objection.
7. The other objection taken by Modi Rubber Ltd. is that the award was liable to be set aside since a proper notice was not given by the respondent of invoking the arbitration clause and the letter dated 24th January, 2002 issued by the respondent was a combined notice calling upon the petitioner to pay the amount of Rs.4 crores with interest and in case of refusal it was provided that the matter would be referred to Mr. S.C. Goyal, a Director of the Lender Company for appointment of a sole Arbitrator. I find no force in this argument. The respondent had been writing to the petitioner for refund of the amount along with the interest from July, 2001 onwards. Several letters were written by the respondent to the petitioner. In the last letter dated 24th January, 2002, the respondent while invoking arbitration clause had simultaneously told the petitioner to pay back the amount. Such a notice is not an illegal notice and it cannot be said that the award was bad or arbitration clause was invoked without giving proper advance notice to the petitioner of appointment of Arbitrator.
8. The other ground taken by the petitioner is that the agreement entered into between the parties regarding Inter Corporate Deposit provided for exorbitant rate of interest. i.e., 21% per annum plus penal rate of 3% at monthly basis in case of non- payment after the due date, plus commission at 4.5% of the loan OMP Nos.267, 277 & 278/2004 Page 5 of 10 amount. Such a high rate was unconscionable and unreasonable, the agreement therefore was void.
9. The petitioners entered into this agreement with open eyes and they had requested respondent for giving Inter Corporate Deposit of a huge amount for a period of 3 months. The rate of interest agreed was 21% per annum for the period of these 3 months. The penal interest provisions were only in case of their failure of giving back the loan amount. The petitioners cannot take a ground that the agreement was unreasonable and void. An agreement signed between the parties with open eyes, without an allegation of fraud is a valid agreement. If the petitioners felt that the rate of interest was exorbitant and the rate of interest was unconscionable, the petitioners were at liberty to pay back the amount and take loan from other banks and financial company. The petitioners cannot take the stand that once they had taken advantage and received the amount of Rs.5 crore as Inter Corporate Deposit, the agreement became void because of the provisions of interest and they were not liable to pay back the amount. Under Section 65 of the contract Act, in those cases where an agreement is discovered to be void or becomes void subsequently, any person who has received advantage of such an agreement or contract is bound to restore the benefits to the other party. The petitioners were therefore bound to return the amount of Rs.5 crore immediately to the respondent. The petitioners cannot assail the validity of the award on this ground.
OMP Nos.267, 277 & 278/2004 Page 6 of 10
10. The other ground taken by the petitioner, Modi Rubber Ltd. is that it was a case of signing on dotted line of the documents sent to the petitioners. The documents of guarantee of directors were only "make believe" cover documents and not meant to act upon. I consider that such an arguments cannot be entertained and has to be outrightly rejected being a malicious and perverse argument made by a person who has received advantage under the agreement but now does not want to pay back the amount of loan.
11. The next ground taken by the petitioner is that the Arbitrator lacked inherent jurisdiction and the proceedings before the Arbitrator were therefore without jurisdiction. This argument is based on the ground that the petitioner company was a sick industrial company within the meaning of Clause (o) of Section 3(1) of Sick Industrial Companies (Special Provision) Act, 1985 requiring a reference to BIFR within prescribed period. The Board of Directors of the petitioners company decided to make a reference to the BIFR on 6th December, 2003 and the reference was made on 4 th February, 2004.
12. The arbitration in this case was invoked in 2002 itself. At that time, the petitioners company was not a sick company and the petitioners should have returned the amount. It was not necessary for the petitioners either to make the company a sick company or to wait for the company to become a sick company so that they can take the plea of the company having become a sick company so as not to pay to creditors after enjoying their hard OMP Nos.267, 277 & 278/2004 Page 7 of 10 earned money. The award itself was passed by the learned Arbitrator on 6th May, 2004 when there was no order of BIFR declaring the company as a sick company. This ground is therefore not available.
13. During pendency of the petition, counsel for the petitioners again raised issue of petitioner no. 1 being a sick company before the Court and sought a stay of the proceedings of this petition under Section 34. This Court vide judgment dated 9th April, 2009 observed that the contention of the petitioner regarding stay of proceedings under Section 34 of the Act have no force and the objections were to be decided on merits. It was also observed by this Court that Section 22 of SICA cannot be used to breed dishonesty.
14. The petitioner raised an argument about the post award interest of 18% granted by learned Arbitrator to be on higher side and exorbitant. Supreme Court in State of Rajasthan vs. Ferro Concrete Construction Pvt. Ltd 2009 (8) Scale had made the position in respect of interest clear after coming into force of Interest Act, 1978 and laid down as under:
"34. The position regarding award of interest after the Interest Act, 1978 came into force, can be stated thus:
(a) where a provision has been made in any contract, for interest on any debt or damages, interest shall be paid in accordance with the such contract.OMP Nos.267, 277 & 278/2004 Page 8 of 10
(b) where payment of interest on any debt or damages is expressly barred by the contract, no interest shall be awarded.
(c) where there is no express bar in the contract and where there is also no provision for payment of interest then the principles of section 3 of Interest Act will apply in regard to the pre-suit or pre-reference period and consequently interest will be payable:
(i) where the proceedings relate to a debt (ascertained sum) payable by virtue of a written instrument at a certain time, then from the date when the debt is payable to the date of institution of the proceedings;
(ii) where the proceedings is for recovery of damages or for recovery of a debt which is not payable at a certain time, then from the date mentioned in a written notice given by the person making a claim to the person liable for the claim that interest will be claimed, to date of institution of proceedings.
(d) payment of interest pendent lite (date of institution of proceedings to date of decree) and future interest (from the date of decree to date of payment) shall not be governed by the provisions of Interest Act, 1978 but by the provisions of section 34 of Code of Civil Procedure 1908 or the provisions of the law governing Arbitration as the case may be."
15 Thus it is clear from the provisions of Interest Act that where a provision has been made in contract for interest, the interest has to be paid in accordance to such contract. The Arbitrator has ordered payment of interest on the award amount only in accordance with the contract and for subsequent period, the Arbitrator has awarded interest at the rate of 18%. I consider that looking at the conduct of the petitioners who have been trying to delay the proceedings at every stage and even in respect of Inter OMP Nos.267, 277 & 278/2004 Page 9 of 10 Corporate Deposit had shown their dishonest intention from the day one of not paying back the amount and raising frivolous pleas, the award of interest was not on higher side and was in accordance with law. I find no force in these petitions. The petitions are hereby dismissed.
October 21, 2009 SHIV NARAYAN DHINGRA J.
ak
OMP Nos.267, 277 & 278/2004 Page 10 of 10