Calcutta High Court
Srei Infrastructure Finance Limited vs Candor Gurgaon Two Developers And ... on 19 July, 2018
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
GA 1401 OF 2018
AP 346 OF 2018
With
GA 1399 of 2018
AP 343 of 2018
With
GA 1400 of 2018
AP 345 of 2018
SREI INFRASTRUCTURE FINANCE LIMITED
Versus
CANDOR GURGAON TWO DEVELOPERS AND PROJECTS PVT. LTD.
BEFORE:
The Hon'ble JUSTICE ASHIS KUMAR CHAKRABORTY
.
For the petitioners : Mr. S. N. Mookherjee, Sr. Adv.
Mr. Ratnanko Banerjee, Sr. Adv.
Mr. Swatarup Banerjee, Adv.
Ms. Hashnuhana Chakraborty, Adv.
Ms. Neelina Chatterjee, Adv.
For the respondents : Mr. S. K. Kapur, Sr. Adv.
Mr. Siddartha Mitra, Sr. Adv.
Mr. Akash Bajaj, Adv.
Ms. Shreya Singh, Adv.
Heard On : 17.07.2018
Judgement on : 19.07.2018
Ashis Kumar Chakraborty, J.
The petitioner has filed three applications, A.P. No. 346 of 2018, A.P. No. 343 of 2018 and A.P. No. 345 of 2018, under section 34 of the Arbitration and Conciliation Act, 1996, as amended by the Act 3 of 2016 (hereinafter referred to as "the Act"), for setting aside of three awards all dated December 11, 2017, read with three separate corrective awards all dated February 06, 2018 and additional awards dated March 05, 2018 passed by the learned sole Arbitrator.
In the arbitration proceedings, before the learned Arbitrator, the respondent in these applications was the claimant and the petitioner in these applications was the respondent, respectively.
By the first award dated December 11, 2017, read with corrective award dated February 06, 2018 and additional award dated March 05, 2018 challenged in A.P. No. 346 of 2018, which are hereinafter collectively referred to as "the first award", the learned Arbitrator has directed the present petitioner to pay Rs. 60,09,18,356/- to the present respondent, within a period of 30 days from the date of publication of the award, in default, the petitioner would be liable to pay interest at the rate of 16%, per annum, until such liability is fully discharged. The learned Arbitrator further directed the present petitioner to pay Rs. 50 lac to the present respondent towards costs. By the second award dated December 11, 2017, read with corrective award dated February 06, 2018 and additional award dated March 05, 2018 challenged in A.P. No. 343 of 2018, which are hereinafter collectively referred to as "the second award", the learned Arbitrator has directed the present petitioner to pay Rs. 89,94,06,575/- to the present respondent, within a period of 30 days from the date of publication of the award, in default the petitioner would be liable to pay interest at the rate of 16%, per annum, until such liability is fully discharged. By second impugned award also the learned Arbitrator further directed the present petitioner to pay Rs. 50 lac to the present respondent towards costs. By the third award dated December 11, 2017, read with corrective award dated February 06, 2018 and additional award dated March 05, 2018 challenged in A.P. No. 345 of 2018, which are hereinafter referred to as "the third award", the learned Arbitrator has directed the present petitioner to pay Rs. Rs.74,02,47,944/- to the present respondent, within a period of 30 days from the date of publication of the award, in default, the petitioner would be liable to pay interest at the rate of 16%, per annum, until such liability is fully discharged. Even by the third award the learned Arbitrator further directed the present petitioner to pay Rs. 50 lac to the present respondent towards costs.
The petitioner has also filed three separate applications, being G.A. No. 1401 of 2018, G.A. No. 1399 of 2018 and G.A. No. 1400 of 2018, respectively under Section 36(2) of the Act seeking for stay of operation of the first award, the second award and the third award, respectively.
Inasmuch as, the disputes between the parties herein resulting in passing of all the three awards by the learned Arbitrator, arose out of similar Inter Corporate Deposit Agreements entered into between them and the decisions in all the three applications involve adjudication of issues arising out of similar set of facts and the common question of law relating to the condition for obtaining stay of operation of a money award made by an arbitrator, all the three applications, being G.A. No. 1401 of 2018, G.A. No. 1399 of 2018 and G.A. No. 1400 of 2018 are disposed of by this common judgement and order.
Since the claim of the present respondent, as the claimant in each of the arbitral proceeding against the present petitioner arose out of three Inter Corporate Deposit Agreements entered into between them, containing similar terms and the petitioner had set up similar defence in all the three arbitral proceedings, for the sake of brevity, the discussion of the facts giving rise to the passing of the first award by the learned Arbitrator will be sufficient for deciding all the three applications filed by the petitioner under Section 36(2) of the Act.
The petitioner company is an Infrastructure Finance Company, engaged in the business of advancing infrastructure finance, leasing and hire purchase finance towards acquisition of construction equipments, bill discounting and other activities. The disputes between the parties adjudicated upon by the learned Arbitrator by the first award arose out of an Inter Corporate Deposit agreement dated January 16, 2012 (hereinafter referred to as "the ICD dated January 16, 2012"), whereby the present respondent deposited Rs. 40 crore with the present petitioner, inter alia, on the term that the petitioner would repay the said amount after 364 days, together with the agreed rate of interest at the rate of 10.9%, per annum, payable monthly in arrears. According to the respondent, at the instance of the petitioner the said ICD dated January 16, 2012 was renewed twice; first up to October 15, 2013 and thereafter, till July 15, 2014. Since the petitioner did not repay the deposited amount of Rs. 40 crore together with the agreed rate of interest, the present respondent invoked the arbitration agreement between the parties and in an application under Section 11(6) of the Act, a learned Single Judge of this Court appointed the learned Arbitrator to adjudicate upon the disputes between the parties relating to the said ICD dated January 16, 2012.
In the arbitration proceeding the present respondent, as the claimant claimed recovery of the aforementioned deposited amount with interest and ancillary relief. While admitting to have received Rs. 40 crore the present petitioner, as the respondent in the arbitral proceeding sought to resist the claim of the claimant on the ground that by virtue of an oral agreement between the parties it was entitled to adjust the liability under the said ICD agreement dated January 16, 2012, against the liability of the present respondent under a different agreement called SRE-256 made between the present respondent and a company called 'Unitech'. After considering the pleadings of the respective parties and the oral and documentary evidence adduced on their behalf, by the first award the learned Arbitrator held the defense case made out by the respondent in the arbitral proceeding, being the present petitioner to be wholly incredible and legally untenable. Thus, by the first award the learned Arbitrator directed the present petitioner to pay the aforementioned amount of money to the claimant, the respondent herein.
Suffice it to say, that in the background of similar ICD Agreements dated January 27, 2012 and March 29, 2012 the present petitioner received deposits of Rs. 60 crore and Rs. 50 crore, respectively from the present respondent on the terms similar to that of the ICD agreement dated January 16, 2012, which amount along with the agreed rate of interest it failed to repay to the present respondent. Thus, as per arbitration agreements contained in the said ICD Agreements dated January 27, 2012 and March 29, 2012 the other two arbitration proceedings commenced between the parties before the same learned Arbitrator, which culminated in the second award and the third award, respctively against the present petitioner.
Mr. S.N. Mookherjee, learned senior counsel appearing in support of the application, submitted that the Reserve Bank of India has classified the petitioner company as an Infrastructure Finance Company (IFC) within the overall classification of "Non-Banking Finance Company" and the petitioner has also been notified as a Public Financial Institution by the Ministry of Corporate Affairs, Government of India. By referring to the reports of the two Credit Rating Agencies, namely, 'CARE Rating' and 'Brickwork', it was strenuously urged that the petitioner is a profit making concern having sound financial base. As per the report of CARE, the rating of the petitioner's Long Term Bank Facilities is 1A+ and the rating of its Short Term Bank Facilities is A1+. Further, as per the report of Brickwork the rating of the petitioner's Short Term Debt Programme and Short Term Debt Programme is A1+. Brickwork has further reported that the value of the assets owned by the petitioner has increased from Rs. 33,329 crore in the financial year 2013 to Rs. 37,683 crore in the financial year ending with March 31, 2017. By referring to the Balance Sheet of the petitioner as at March 31, 2017 learned senior counsel further submitted that in the year ended March 31, 2016 the profit earned by the petitioner was Rs. 5,740 lakh and as at March 31, 2017 the profit earned by the petitioner after tax has increased at Rs. 9,607 lakh. Therefore, it was strenuously urged for the petitioner that even if all the three awards passed by the Arbitrator are upheld by this Court, there is no likelihood of the petitioner being unable to pay the dues of the respondent under the three arbitral awards and, as such, this Court would allow the petitioner to furnish any other security, instead of deposit in cash of the amounts awarded by the learned Arbitrator as a condition for stay of operation of all the three awards passed against it.
It was further submitted by the prtitioner that though the provisions contained in sub-sections (2) and (3) of Section 36 of the Act, incorporated by the Amending Act No.3 of 2016 are applicable in the present case, but this Court has the discretion to decide whether the petitioner would be required to furnish cash security or the security in any other form as a condition for obtaining stay of operation of the impugned award. According to the petitioner, in view of the provisions contained in sub-section (3) of Section 36 of the Act and the Proviso thereto, while considering the prayer of a party for obtaining stay of operation of the money award passed by an Arbitrator, the Court has to consider the provisions contained in sub-rules (3) and (5) of Rule 5 of XL1 of the Code of Civil Procedure (in short "the Code"), but even the said provisions confer large discretion on this Court not to require the petitioner to deposit cash security for obtaining stay of operation of the three awards made by the Arbitrator against it. In support of such contention, reliance was placed on behalf of the petitioner on the decision of the Supreme Court in the case of Sihor Nagar Palika Bureau -versus- Bhabhlubhai Virabhai & Co. reported in (2005) 4 SCC 1. By referring to an unreported decision dated March 14, 2018 passed by the Division Bench of the Bombay High Court in Appeal No. 101 of 2018, in Notice of Motion No. 2059 of 2017 (Ecopack India Paper Cub Pvt. Ltd. -versus- Sphere International) it was further submitted that Proviso to sub-section(3) of Section 36 of the Act confers discretion on the Court even to pass an unconditional order of stay of operation of the money award passed by an Arbitrator. Mr. Mukherjee reiterated that when the petitioner has proved its financial solvency, this Court would direct the petitioner to obtain stay of operation of any of the all the three awards made against it by the learned Arbitrator by furnishing security in any form other than deposit of the awarded amounts in cash.
On the other hand, Mr. S. K. Kapoor, learned senior counsel appearing for the respondent, the claimant in all three abitral proceedings, strongly contended that if the petitioner is willing to obtain stay of operation of any of the three arbitral award, it has to deposit the awarded amount in cash with the Registrar, Original Side of this Court. He submitted that admittedly, way back in the year 2012 the petitioner received the total amount of Rs.150 crore under the three ICD agreements dated January 16, 2012, January 27, 2012 and March 29, 2012, respectively by way of Inter Corporate Deposits and utilised the said amounts for its business of advancing finance/loans to its various customers and to earn interest. It was further submitted that as the petitioner did not make payment of any money within 30 days from the date of the three arbitral awards, the respondent filed three separate applications under Section 9 of the Act, before this High Court, praying for an order directing the present petitioner to secure the total amount awarded against it by the three awards. By a common order dated May 17, 2018 a learned Single Judge of this Court disposed of the said three application by directing the present petitioner, as the award debtor to secure half of the total awarded amount of Rs.225,55,72,875, that is, Rs.112,77,86,437.50 by depositing the said amount with the Registrar, Original Side of this Court within May 28, 2018. The petitioner has, however, not deposited any money in terms of the said order dated May 17, 2018. It was further argued for the respondent that in paragraph 6 of each application it is the case of the petitioner that if it is required to put in cash security for the awarded amount, the same would have a negative impact on its financial health. Therefore, according to the respondent, this Court should not accept the submissions made on behalf of the petitioner that it has a strong financial base to repay the awarded amounts. Learned senior counsel appearing for the respondent emphasized that in the facts of the present case, this Court should direct the petitioner to secure the total amount awarded by the three arbitral awards against it by depositing cash amount with the Registrar, Original Side of this Court as a condition for obtaining stay of operation of the three arbitral awards. In support of his contention, Mr. Kapoor relied upon the decisions of the Supreme Court in the case of Kanpur Jal Sansthan vs. Bapu Constructions reported in (2015) 5 SCC 267 and in the case of M/s. Malwa Strips Pvt. Ltd. vs. M/s. Jyoti Ltd. reported in AIR 2009 SC 1581. With regard to the decision of the Supreme Court in the case of Sihor Nagar Palika Bureau(supra) cited by the petitioner, it was submitted that in the said case the appellant was a statutory body constituted under and governed by the provisions of the Gujrat Municipalities Act, 1963 and was involved in discharge of various public utility services and the Court found that if the appellant was required to secure the decreed amount by deposit of cash security the same would affect its functioning towards discharge of public utility services and, as such, the Supreme Court allowed the said appellant to obtain stay of operation of the money decree passed against it by the trial Court by securing one of its unencumbered immovable property. It was submitted that in the facts of the present case, the said decision of the Supreme Court is of no assistance to petitioner to support its contention that for obtaining stay of operation of any of the three arbitral awards without deposit of cash security. The unreported decision of the Bombay High Court in the case of Eco Park India Paper Cup Pvt. Ltd. (supra) cited by the petitioner, was sought to be distinguished on behalf of the respondent on the ground that in the said case the application under section 36 of the Act was filed for stay of operation of an interim award passed by the Arbitrator.
In his reply, Mr. Mookherji submitted that in the case of Kanpur Jal Sansthan (supra) the question that fell for consideration before the Supreme Court whether the appelant Kanpur Jal Sansthan could be treated as 'Government' within the meaning of said term under Order XXVII Rule 8A of the Code and, as such, the said decision cited by the respondent has no application in this case. He further submitted that in the said case, the appellant had filed an appeal against the rejection of its application under Section 34 of the Act before the Division Bench of the Allahabad High Court and, as such, the appellant was required to secure the amount awarded against it by the Arbitrator which had become enforceable.
I have considered the facts of the case, as well as the arguments advanced by the learned Senior Advocates appearing for the respective parties. With the insertion of sub-sections (2) and (3) of Section 36 of the Act with effect from October 25, 2015, in order to obtain stay of operation of the arbitral award, the party challenging the award has to file an application for such relief and the Court has the discretion to direct stay of operation of the arbitral award, subject to such conditions as it may deem fit. However, in terms of the Proviso to sub-section (3) of Section 36 of the Act when a party seeks for stay of operation of an arbitral award for payment of money, the Court shall have regard to the provisions for grant of stay of money decree under the provisions of the Code. Therefore, in the present case, while considering the prayer of the petitioner for stay of operation of the three arbitral awards made against it for payment of money, this Court has to follow the provisions contained in sub-rules (3) and (5) of Rule 5 of Order XL1 of the Code.
While interpreting the scope and effect of sub-rules (3) and (5) of Order XL1 of the Code in paragraph 6 of the judgement in the case of Sihor Nagar Palika Bureau (supra), the Supreme Court held as follows:
"6. Order 41 Rule 1(3) CPC provides that in an appeal against a decree for payment of amount the appellant shall, within the time permitted by the appellate court, deposit the amount disputed in the appeal or furnish such security in respect thereof as the court may think fit. Under Order 41 Rule 5(5), a deposit or security, as abovesaid, is a condition precedent for an order by the appellate court staying the execution of the decree. A bare reading of the two provisions referred to hereinabove, shows a discretion having been conferred on the appellate court to direct either deposit of the amount disputed in the appeal or to permit such security in respect thereof being furnished as the appellate court may think fit. Needless to say that the discretion is to be exercised judicially and not arbitrarily depending on the facts and circumstances of a given case. Ordinarily, execution of a money decree is not stayed inasmuch as satisfaction of money decree does not amount to irreparable injury and in the event of the appeal being allowed, the remedy of restitution is always available to the successful party. Still the power is there, of course a discretionary power, and is meant to be exercised in appropriate cases."
With regard to the scope and purport of sub-rules (3) and (5) of Rule 5 of Order XL1, the above finding in the case of Sihor Nagar Palika Bureau (supra) was reiterated by the Supreme Court, in the cases of Malwa Strips Pvt. Ltd. (supra) and Kanpur Jal Sansthan (Supra). In view of the Proviso to sub-section (3) of Section 36 of the Act, when the provisions of sub-rules (3) and (5) of Rule 1 of Order XL1 are squarely applicable to the present case, this Court is required to exercise judicial discretion as to whether the petitioner should be directed either to deposit the amounts awarded by the three awards or to permit it to furnish any security in respect of the awarded amounts. The applicability of the provisions of sub-rule (5) of Rule 1 of Order XLI to the present case has not been disputed by the petitioner. The petitioner has, however, claimed that as a condition for obtaining stay of operation of the three awards instead of requiring to deposit the entire awarded amounts, this Court should allow it to furnish security in any other form.
The said decision of the Supreme Court in the case of Kanpur Jal Sansthan (Supra) delivered on January 03, 2014 was on the basis of unamended provisions of Section 36 of the Act of 1996 when with the filing of the application under Section 34 of the Act, the operation of the impugned arbitral award was deemed to have been stayed. Therefore, in the said case, when the appellant award debtor preferred an appeal the decision of the learned District Judge, Kanpur rejecting its application under Section 34 of the Act for setting aside of the money award the applicability of the provisions of sub-rule (5) of Rule 1 of Order XLI arose for the first time before the appellate Court. But with the insertion of sub-sections (2) and (3) to Section 36 of the Act of 1996 with effect from October 25, 1996 as discussed above, the provisions of sub-rules (3) and (5) of Rule 1 of Order XLI of the Code are required to be complied with by the petitioner in the present case for obtaining stay of operation of the money awards passed against it by the learned Arbitrator during pendency of the respective applications filed under Section 34 of the Act. Therefore, I do not find any merit in the argument advanced on behalf of the petitioner that the decision of the Supreme Court in the case of Kanpur Jal Sansthan (Supra) has no application in the present case. The principles enunciated by the Supreme Court in the said case for exercise of discretion by the Court under sub-rules (3) and (5) of Rule 1 of Order XLI of the Code are applicable to this case. Further, section 31(6) of the Act confers power on an arbitral tribunal to make an interim arbitral award on any matter with respect to which it may make a final arbitral award. In terms of Section 2(1)(c) of the Act the term "arbitral award" includes an interim award. A party aggrieved by an interim award passed by an arbitral tribunal is entitled to challenge the same by filing an application under Section 34 of the Act before the appropriate Court. An interim award made by an Arbitrator is also enforceable under Section 36 of the Act. Accordingly, in view of insertion of sub-sections (2) and (3) of Section 36 of the Act with effect from October 23, 2015 while dealing with an application for stay of operation of the interim money award passed by an arbitral tribunal, the Court has to judicially exercise its discretion under sub-rules (3) and (5) of Rule 1 of Order XLI of the Code to direct the applicant either deposit of the awarded amount or to permit such security in respect thereof being furnished in Court. Therefore, in view of the decisions of the Supreme Court in the cases of Sihor Nagar Palika Bureau (supra), Kanpur Jal Sansthan (Supra) and Malwa Strips Pvt. Ltd. (supra), as mentioned above, I am unable to convince myself to agree with the unreported decision of Bombay High Court in the case of Eco Park India Paper Cup Pvt. Ltd. (Supra), where the Division Bench of the Bombay High Court upheld the Single Bench decision directing unconditional stay of operation of the interim money award made against the respondent in the arbitral proceeding with the prima facie observation that while passing the interim award the arbitral tribunal did not consider the entire case of the respondent in its statement of defence and that the arbitral tribunal ought to have rendered a final award after giving an opportunity to both the parties to lead evidence.
Unlike the appellant in the case of Sihor Nagar Palika Bureau (supra) the appellant is not involved in discharge of any public utility service. In the instant case, the disputes between the parties resulting in passing of the first, second and third arbitral award arose out of the said ICD agreements dated January 16, 2012 January 27, 2012 and March 29, 2012, respectively under which the petitioner received the total amount of Rs.150 crore from the respondent by way of Inter Corporate Deposits and utilised the said amount for its business of infrastructure finance. Although, it was strongly contended on behalf of the petitioner that it has a strong financial base, but in paragraph 5 of each of the application the petitioner has claimed that if it is required to deposit the awarded amount its business will suffer and it shall have negative impact on overall financial health. Further, it is not the case of the petitoner that it owns any unencumbered immovable property having valuation equivalent to the amount of Rs. 225,55,72,875/-, being the total amount awarded by the three arbitral awards against it. Even if, it be accepted that the corporate rating reports and its balance sheet relied upon by the petitioner suggest its strong financial base, then the petitioner should not suffer any prejudice to secure the entire amount awarded by the three arbitral awards in cash. This Court cannot loose sight of the fact that in spite of the direction of the learned Single Judge on May 17, 2018, passed in AP Nos. 242 of 2018, 243 of 2018 and 245 of 2018, the petitioner has not deposited the amount of Rs.112,77,86,437.50 with the Registrar, Original Side of this Court. For all these reasons, I find substance in the submissions urged on behalf of the respondent to direct the petitioner to deposit the total awarded amount of Rs. 225,55,72,875/- with the Registrar, Original Side of this Court.
Accordingly, the petitioner is directed to deposit three demand drafts/bankers cheques of Rs. 60,09,18,356/-, Rs. 89,94,06,575/ and Rs. 74,02,47,944/-, respectively with the Registrar, Original Side of this Court within August 10, 2018 upon notice to the respondent.
There shall be an unconditional stay of operation of all the three awards passed by the learned Arbitrator till August 13, 2018. Subject to the deposit of the above Demand Drafts/ Banker's Cheques with the Registrar, Original Side of this Court within the time stipulated above all the three arbitral awards dated December 11, 2017, read with the corrective awards dated February 06, 2018 and the additional awards dated March 05, 2018 made by the learned Arbitrator shall remain stayed till disposal of the applications, A.P. No. 346 of 2016, A.P. No. 343 of 2018 and A.P. No. 345 of 2018.
If, the petitioner deposits the Demand Drafts/ Banker's Cheque as directed above, the Registrar Original Side shall encash the same and keep the proceeds thereof invested in a short term fixed deposit to be maintained with the United Bank of India, High Court Branch.
It is, however, clarified that in the event of any default on the part of the petitioner to deposit any of the three Demand Drafts/ Banker's Cheques with the Registrar, Original Side, within the time stipulated above, the respondents in these applications shall be free to execute the relevant arbitral award dated December 11, 2017, read with the corrective awards dated February 06, 2018 and the additional awards dated March 05, 2018 without any further reference to this Court.
Let, the applications under Section 34 of the Act, A.P. No. 346 of 2016, A.P. No. 343 of 2018 and A.P. No. 345 of 2018 appear for hearing in the monthly list of September, 2018.
With the above directions, the applications, G.A. No. 1401 of 2018, G.A. No. 1399 of 2018 and G.A. No. 1400 of 2018 stand disposed of, without any order as to costs.
Urgent photostat certified copy of this judgement, if applied for, be made available to the parties subject to compliance with all requisite formalities.
(ASHIS KUMAR CHAKRABORTY, J.)