Kerala High Court
M/S.Peniel Cashew Company vs M/S. Ahcom Sarl on 6 December, 2019
Equivalent citations: AIRONLINE 2019 KER 785
Author: Sunil Thomas
Bench: Sunil Thomas
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE SUNIL THOMAS
FRIDAY, THE 06TH DAY OF DECEMBER 2019 / 15TH AGRAHAYANA, 1941
OP(C).No.23 OF 2019
AGAINST THE ORDER/JUDGMENT IN EP 97/2013 DATED 05-12-2018 OF II
ADDITIONAL DISTRICT COURT & ADDITIONAL MOTOR ACCIDENT CLAIMS
TRIBUNAL ,KOLLAM
PETITIONER/RESPONDENT/AWARD DEBTOR:
M/s.PENIEL CASHEW COMPANY,
PUTHOOR P.O,
KOLLAM- 691507,
REPRESENTED BY ITS PROPRIETOR JOB G.OOMMEN.
BY ADVS.
SRI.N.D.PREMACHANDRAN
SRI.D.AJITHKUMAR
RESPONDENT/PETITIONER/AWARD HOLDER:
M/S. AHCOM SARL,
GALERIE DU GRAND LARGE,
42 QUAL JEAN-CHARLES REY,
98000 MONACO
REPRESENTED BY ITS AUTHORIZED SIGNATORY,
ANILKUMAR S., 237,
13TH STREET,
GIRINAGAR,
KOCHI - 682020.
R1 BY ADV. SRI.T.R.ASWAS
OTHER PRESENT:
ADV.KRISHNANUNNI T. SR.COUNSEL FOR THE PETITIONER
THIS OP (CIVIL) HAVING BEEN FINALLY HEARD ON 12-06-2019, THE
COURT ON 06-12-2019 DELIVERED THE FOLLOWING:
O.P(C).23/19
2
SUNIL THOMAS, J.
=================
O.P(C).No.23 of 2019
=================
Dated this the 6th day of December, 2019
JUDGMENT
Respondent herein had entered into a contract with petitioner for the supply of 16 containers of raw cashew nuts. When the load reached the port, the petitioner refused to take delivery of it on an allegation that, it was of substandard quality and that the consignment was earlier rejected by another dealer. Invoking arbitration clause in the contract, respondent initiated arbitration proceedings and an ex parte foreign arbitration award dated 20.12.2012 was obtained. The award obliged the original petitioner herein to pay the difference between the invoice value and the amount which was paid on 02.11.2012 with interest from 01.09.2012. The award did not stipulate the quantum of the interest payable.
2. The respondent levied execution before the Additional District Court, Kollam on 11.12.2013. The petitioner appeared and filed his objections. Respondent thereafter filed a calculation statement produced as Ext.P5 in the original petition. According to the calculation statement, the amount due under the award was 288125.02 US Dollars and the fee payable to the arbitrator was 2770 Pound Sterling. It was stated that, exchange rate for the US Dollars and the Pound Sterling were Rs.64.9 O.P(C).23/19 3 and Rs.90.39 respectively as on the date when the award became enforceable under section 49 of the Arbitration Act, which was reckoned as 15.03.2018. Respondent claimed interest @18% per annum. Consequently, the total amount recoverable was claimed at Rs.3,79,94,134/-. Subsequently, a revised statement was filed by the award holder on 05.11.2018. It was clarified that the objection of the award debtor (original petitioner herein) regarding the enforceability of the award under section 49 of the Arbitration Act was rejected by the court below on 15.03.2018. It was challenged by the original petitioner before this Court in an original petition. It was finally dismissed on 30.10.2018. Hence, it was claimed in the revised statement that, conversion rate has to be reckoned as on the date when this Court finally rejected the objection regarding the executability of the award, which was 30.10.2018. According to the respondent, corresponding rates were Rs.73.66 for US Dollars and Rs.93.96 for Sterling Pound.
3. Original petitioner filed a detailed objection traversing the various claims made in the petition. It was stated that the original award did not specify any rate of interest or provision for conversion. It was contended that, in the absence of any specific rate of interest, the only conclusion that could have been arrived at was that, arbitrator intended the rate of interest prevailing in US dollars, during December 2012, the date of award. It was contended that the maximum rate of interest that existed at that time was 3% per annum. Even assuming that the United Kingdom rates were applicable, the maximum receivable was 2% above O.P(C).23/19 4 the rate of interest prevailing on the date of award. It was claimed that the amounts payable in India during the corresponding period of December 2012 was 8.5% to 9%. The interest rate @18% claimed was absolutely baseless and could not be granted. It was also stated that conversion rate ought to have been fixed as on the date of award, since the execution proceedings were not delayed by the respondent.
4. Court below by the impugned order, relying on section 31(7)
(a) and (b) of the Arbitration and Conciliation Act held that the interest payable was 18% per annum from the date of award till the date of payment. Regarding the exchange rate, relying on the decision in Furest Day Lawson v. Jindal Exports (194(2012) DLT 439), it was held that, under section 49 of the Arbitration Act, crucial date on which the foreign award became enforceable was the date of final rejection of objections to the enforceability of foreign award and that will be the date for fixing the exchange rate. It was held that, this view was accepted by the Delhi High Court in Progetto Grano SPA v. Shri Lal Mahal Limited in Ex.Petition No.52 of 2012 decided on 29.05.2014. It was held that, this Court had rejected the objection regarding the executability of the award on 30.10.2018 and hence, the conversion rate was liable to be calculated on the basis of the rate applicable as on that day. This is challenged in the original petition.
5. Heard the learned senior counsel for the original petitioner and the learned counsel for the respondent. Examined the records. O.P(C).23/19 5
6. Two issues arise for consideration in the present case. Firstly, the rate of interest chargeable on the amount awarded and the date with reference to which the conversion rate has to be reckoned.
7. The rate of interest Admittedly the rate of interest is not fixed in the arbitration award. Court below by Ext.P9 impugned order referred to section 31(7)(b) of the Arbitration and Conciliation Act which provided that, when a sum is directed to be paid by the arbitral award, unless the award otherwise directs, it shall carry interest @18% per centum per annum from the date of award to the date of payment. The Court held that, section 31(7) of the Act becomes lex fori in the instant matter and nothing has been brought to the court's attention to conclude that the foreign award sought to be executed stipulated a different rate of interest. The Court repelled the contention of the learned counsel for the petitioner herein that the rate of interest applicable was only 2 to 3%, since it was the rate applicable at UK, which was apparently the place of arbitration. The Court noted that, in Bharath Aluminium Company v. Kaiser Aluminium Technical Services Inc (2012 (9) SCC 552) (hereinafter referred as 'Balco's case), it was held that, Part I of the Arbitration Act was applicable only to arbitrations which take place within the territory of India. However, the execution Court proceeded to hold that, however, when the foreign award is found by a court in India to be enforceable, it shall be deemed to be a decree of that Court as per section 49 of the Act and that in the Balco's case, it was not expressly stated that section 31(7) of the Act was not O.P(C).23/19 6 applicable to foreign awards. The Court relied on the decision of Andhra High Court in International Investor KCSC v. Sanghi Polysters Ltd. (2003(1) ALT 364) to support the above view.
8. Challenging this finding, learned senior counsel contended that, both the conclusions arrived at by the court below that, in the absence of specific reference in Balco's case that section 31(7) was not applicable to the foreign awards, it would apply, and that, when foreign award was found to be enforceable, it shall be deemed to be a decree of Court as per section 49 of the Act were palpably incorrect and cannot be legally sustained.
9. The Constitution Bench of the Supreme Court in Balco's case finally settled the question as to whether Part I of the Arbitration Act applied to domestic arbitrations alone. It was held that, part I of the Arbitration Act was applicable to all arbitrations which take place within the territory of India and part I of the Arbitration Act 1996 would have no application to the international commercial arbitration held outside India. Award was subject to the jurisdiction of the Indian Court only when the same was enforced in India, in accordance with provisions contained in Part II of the Arbitration Act. Balco's case thereby overruled the earlier contrary view of the Supreme Court in Bhatia International v. Bulk Trading SA (2002)4 SCC 105).
10. Subsequently, in Union of India v. Reliance Industries Ltd. and another (2015)10 SCC 213) Supreme Court held that, once parties consciously agreed that juridical seat of arbitration was outside India and O.P(C).23/19 7 arbitration agreement should be governed by the laws of that country, the proper law of arbitration would be the laws applicable to that country and consequently, the Arbitration and Conciliation Act 1996 will not be applicable to such arbitration proceedings. It was held that, the law laid down in BALCO's case will apply and consequently Part I of the Arbitration Act will not apply to such arbitration.
11. In this regard, it is essential to refer to clause 7 in the arbitration agreement, wherein, it was provided as follows:
Clause 7 : Dispute Resolution: All disputes arising out of this contract including its validity shall be resolved by binding arbitration as per CENTA terms and conditions. Only section 9 in Part I of the Arbitration and Conciliation Act 1996 shall apply.
Relying on this, it was contended by the learned senior counsel for the petitioners that, this clearly showed that parties consciously and by agreement made applicable only section 9 of Part I of the Arbitration and Conciliation Act to the agreement and thereby understood and proceeded as if the remaining provisions of Part I would not apply to them. Hence, by necessary implication and also by operation of law, in the light of Balco's decision, section 31(7) which falls in the first part of the Arbitration Act will not apply.
12. To amplify this, learned senior counsel further relied on the decision of the Supreme Court in Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. ((2015)9 SCC 172), wherein, it was held O.P(C).23/19 8 that, exclusion of Part I was possible by necessary implication, if it was found that on the facts of the case either the seat of arbitration was outside India or the law governing the arbitration agreement was the law other than Indian law or both conditions applying cumulatively.
13. In Bharath Aluminium Company v. Kaiser Aluminium Technical Service Inc (2016(4) SCC 126), a three Judges Bench of the Supreme Court reiterated that, where the juridical seat of arbitration was outside India and where the law other than Indian law governed the arbitration agreement, Part I of the Arbitration Act, 1996 would be excluded by necessary implication. It was held that the intention of the parties was supreme.
14. In Imax Corporation v. E-City Entertainment India (P) Ltd (2017)5 SCC 331) it was held that the place of arbitration determines the law that will apply to the arbitration and related matters like challenge to the award etc. In pursuance of the arbitration agreement, the arbitration took place outside India. Hence, it was held that there was a clear exclusion of Part I of the Arbitration and Conciliation Act.
15. It was contended by the learned senior counsel that the execution court thoroughly went wrong in interpreting section 49 of the Arbitration Act. Implication of section 49 of the Arbitration Act, it was contended, was that, section 49 only ensures that when a foreign award was found to be enforceable by the execution court, the award shall be deemed to be a decree of that Court. It only implied that by a deeming O.P(C).23/19 9 provision, award shall be deemed for all practical purposes to be a decree passed by the execution Court. The reasoning of the Court that by virtue of section 49 of the Act, Arbitration Act becomes lex fori even in matters concluded by award does not stand to reason nor conveys a reasonable interpretation of section 49 of the Arbitration Act. It was also contended that, Constitution Bench decision in Balco's case specifically excluded the operation of Part I of the Arbitration Act from the international arbitrations. The conclusion arrived at by the court below that since section 31(7) was not specifically referred to in Balco's case, it continues to apply will amount to committing violence to the judgment and does not lay down the correct law. It was further contended that, parties by implication and also in the light of clause (7) of the Arbitration agreement had excluded all other provisions of first part of the Arbitration Act, except section 9 of the Act.
16. Learned senior counsel further relied on the decision in Vendatha Ltd. v. Shenzen Shandong Nuclear Power Construction Company Ltd. (2018(4) KLJ 712) to contend that section 31(7) of the Arbitration and Conciliation Act applies only to international commercial arbitration held in India. Relying on the above legal proposition, learned senior counsel contended that the reliance placed by the court below in the International Investor KCSC (supra) decision was misplaced in the light of the authoritative pronouncement of the Constitution Bench in Balco's case.
O.P(C).23/19 10
17. Answering the above contentions, learned counsel for the respondent pointed out that the EP was filed claiming 18% interest. Detailed objection was filed on 22.07.2013 on the available grounds under section 48 of the Arbitration Act and also refuting 18% interest claimed. The objections were rejected by the court below on 15.03.2018 and mandatorily declared under section 49 of the Act that the award was enforceable. It was confirmed by this Court on 30.10.2018 and affirmed by the Supreme Court on 11.01.2019 in SLP No.122 of 2019. Hence the objections raised to claim 18% interest stands specifically rejected by order dated 15.03.2018 of court below. The petitioner is not entitled to rake up the same issue again and is precluded from raising such an objection by virtue of principle of good faith, resjudicata, issue estoppel and the principle of single proceeding in execution.
18. To support the contention that the petitioner is precluded from raising a second time objection regarding the interest payable on the foreign arbitration award, in the light of the principles of res judicata and issue estoppel, the learned counsel placed reliance on Ajit Mittal v. Heat Exchange (P) Ltd. (2010(4) Abr LR 52 Delhi (DB).
19. Learned counsel for the respondent further contended that, the principles of good faith and the principle of single proceeding in arbitration proceedings, as settled by a catena of decisions apply in the facts of the case. It was contended that, in Furest Day Lawson Ltd. v. Jindal Exports Ltd. (2001)6 SCC 356) , it was held by the Supreme Court that, enforcement proceedings of a foreign award under sections 46 O.P(C).23/19 11 to 49 was a single proceeding. It was reiterated in Shrilal Mahal v. Progetto Spa, (2014)2 SCC 133) that there cannot be a second look of the foreign award at the enforcement stage. In LMJ International Ltd. And Ors. v. Sleepwell Industries Co. Ltd. (MANU/SC/0251/2019) , it was held by the Supreme Court that scheme of Section 48 of the Act does not envisage piecemeal consideration of issue of maintainability of execution of the award at first place and then the issue of enforceability. It would result in encouraging multiple round of proceedings in execution of foreign awards. To further support this, the learned counsel relied on the decisions in Kandla Export Corporation and Ors. v. OCI Corporation and Ors. (MANU/SC/0112/2018) and Union of India (UOI) v. Varindera Constructions Ltd. and Ors.
(MANU/SC/0439/2018).
20. It was further contended that, after having raised the objections at one stage on those grounds which were available under section 48, it cannot be re-agitated again at a later stage, which is opposed to the principles of good faith in arbitration proceedings as held in Peniel Cashew v. Ahcom Sarl (2018(4) KLJ 857).
21. Answering the above, learned senior counsel for the petitioner contended that, procedure for enforcement of foreign award was prescribed by the provisions of sections 46 to 49. It was held in Fuerst Day Lawson's case (supra) that if the foreign award produced by the award holder was found to be enforceable, the award shall be deemed to be a decree of the court under section 49 of the Act. It was argued that O.P(C).23/19 12 principles of good faith may not extent in the case of allegation of fraud as held in International Nut Alliance LLC v. Johns Cashew Company E.P.(ICA)No.1 of 2018 wherein it was held that good faith principle was not available when there is fraud, and fraud vitiates everything.
22. Regarding the principle of issue estoppel in civil proceedings, the question is covered by the decision of the Supreme Court in Venture Global Engineering v. Tech Mahindra Ltd. And Another ((2018)1 SCC 656).
23. The records show that the objections to the executability was rejected by the executing court on 15.03.2018. There is nothing to show that any objection was either raised at that stage by the petitioner to the claim of 18% interest or that it was expressly or impliedely rejected by the Court. On the other hand, the respondent filed Ext.P5 affidavit dated 28.03.2018 claiming 18% interest and referred to the exchange rates for USD and Sterling Pound. An application was filed along with Ext.P5 requesting the Court to provisionally decide on the amounts due to the petitioner under the award sought to be enforced and to incorporate same into the EP. Thereafter, Ext.P6 revised statement was filed on 05.11.2018 claiming different amount. It is evident that after the determination of the executability, the decree holder/respondent raised claims on the basis of 18% interest and exchange rate. After having raised such a claim at that stage and inviting an adjudication on it, the respondent cannot now turn round and allege that petitioner was seeking piecemeal adjudication, delaying the proceedings and that objection is hit by resjudicata, issue O.P(C).23/19 13 estoppel and that his conduct lacks good faith.
24. In a proceeding under section 49 of the Arbitration Act, only the executability of the decree is considered and the respondent herein, after having raised an issue regarding the interest payable, which is conspicuously absent in the award cannot take up a contention now that the petitioner herein is precluded from raising that objection in the light of the principles of good faith, single proceeding issue of estoppel and resjudicata.
25. The question on the interest payable came up for consideration before the Delhi High Court in Progetto Grano SPA's case (supra). The High Court considered the case laws on the subject commencing from Renusagar Power Company Ltd. v. General Electric Co. (1994 Supp(1) SCC 644) and concluded that BALCO's case (supra) has concluded the issue. The Court referred to a decision of the same High Court in Jindal Exports Ltd v. Fuerst Day Lawson Ltd (MANU/DE/3204/2009) wherein it was held that the Court has no power to award interest in case of a foreign award. It was held that a Court dealing with enforcement and execution of a foreign award has no power to go behind the award. This view was approved by the Bombay High Court in Toepfer International Asia Pvt. Ltd. v. Thapar Ispat Limited (AIR 1999 Bombay 417) . I agree with the above proposition of law.
26. The view taken by the court below, based on the Andhra High Court decision in International Investor KCSC (supra) following O.P(C).23/19 14 Renusagar Power Company Ltd's case (supra) cannot be good law in the light of the authoritative pronouncement of the Supreme Court in BALCO's case (supra).
27. It is evident from the case laws referred that section 31(7) has no application to the facts of the case in the light of BALCO's case and the specific exclusion of provisions of Part I of the Arbitration Act except section 9 of the Act. Hence the law applicable regarding the interest payable shall be the law applicable to the jurisdiction, wherein the award was passed.
28. Conversion rate The next question that arises is the relevant date on the basis of which the conversion rate is to be adopted. Court below, on the basis of the materials placed before it, held that, conversion rate has to be reckoned as on the date of final adjudication of the objection which was held to be 30.10.2018, as the relevant date for fixing the exchange rate. Challenging the above, learned counsel for the petitioner contended that the reliance placed by the court below in the decision in Furest Day Lawson's case (supra) that the crucial date will be the final date of adjudication of the objections of the enforcement of the award by the Supreme Court does not apply to the facts of the case. It was contended that, in the light of the decision in Progetto Spa's case (supra), the relevant date for deciding exchange rate of conversion is the date of dismissal of the appeal by the Supreme Court. According to the petitioner, SLP filed by the judgment debtor as the SLP No.122 of 2019 O.P(C).23/19 15 was dismissed by the Supreme Court on 11.01.2019 and the exchange rate as on that day has to be reckoned.
29. Evidently, the provision of law is clear that the crucial date for reckoning is the date on which the Court conclusively and ultimately finds the executability of the award. The conclusion of the court below that the above relevant date should be the date for fixing the exchange rate does not call for any interference. In the case at hand, executability of the award was opposed by the petitioner and the matter was taken up to the Supreme Court. The objections were rejected and the award was held to be enforceable under section 49 of the Arbitration Act on 11.01.2019. However, it seems that the court below has fixed the relevant date as 30.10.2018. The court below, to answer the issue correctly relied on the judgment in Progetto Grano's case (supra), that the relevant date would be the date of dismissal by the Supreme Court, which was 08.07.2013 in that case. Applying the above, the relevant date ought to be 11.01.2019 in this case and not 30.10.2018 as held by court below.
30. In the light of the above discussion of facts, it is only to be concluded that the rate of interest payable will be the relevant rate applicable as per the local law prevalent at the seat of arbitration award as on the date of award. Evidently, section 31(7) of the Arbitration Act has no application to the facts of the case. Hence, court below shall proceed to determine the rate of interest applicable to international arbitrations at the seat of arbitration as on the date of award after giving reasonable opportunity to both sides to establish it. The relevant date for O.P(C).23/19 16 fixing the conversion rate applicable will be 11.01.2019. To that extent, the impugned order requires to be interfered. Considering the huge delay that has occurred in the execution of the proceedings and considering the fact that, on several occasions, the parties have taken up the matter before this Court and later, Supreme Court, the court below shall finally determine the above issues and fix the amount due within a period of one month from the date of receipt of a copy of this judgment.
Original petition is allowed as above. Impugned order is set aside.
Sd/-
SUNIL THOMAS
Sbna JUDGE
O.P(C).23/19
17
APPENDIX
PETITIONER'S/ EXHIBITS:
EXHIBIT P1 A COPY OF THE CONTRACT NO.S/RCN/014/12
DATED 21.08.2012.
EXHIBIT P2 A COPY OF THE FRESH CONTRACT.
EXHIBIT P3 COPY OF THE EMAIL DATED 19.10.2012.
EXHIBIT P4 A COPY OF THE AWARD DATED 20.12.2012.
EXHIBIT P5 A COPY OF THE PETITION FILED BY THE AWARD
HOLDER AS EA NO.131 OF 2018 IN EP NO.97 OF
2013 RESPONDENT BEFORE THE 2ND ADDITIONAL
DISTRICT COURT.
EXHIBIT P6 A COPY OF THE EA NO.441 OF 2018.
EXHIBIT P7 A COPY OF THE OBJECTION FILED BY THE
RESPONDENT.
EXHIBIT P8 A COPY OF THE JUDGMENT DATED 30.10.2018
PASSED BY THIS HON'BLE COURT IN
OP(C)NO.1877 OF 2018.
EXHIBIT P9 A COPY OF THE ORDER DATED 05.12.2018 PASSED
BY THE DISTRICT COURT.