Delhi High Court
Kanha Credit And Holding Pvt. Ltd. vs Janacim Electronics on 4 February, 2005
Equivalent citations: AIR2005DELHI415, 2005(1)ARBLR338(DELHI), 117(2005)DLT564, 2005(80)DRJ151, AIR 2005 DELHI 415, (2005) 1 ARBILR 338, (2005) 80 DRJ 151, (2005) 117 DLT 564
Author: Mukul Mudgal
Bench: Mukul Mudgal
JUDGMENT Mukul Mudgal, J.
1. On 24.5.1996, an agreement for sale of immovable property at Rs.3,50,11,000/- was made between the petitioner/objector and the respondent. Pursuant to the above agreement, the respondent made an initial payment of Rs.70,11,000/- and the balance consideration of Rs.2,80,00,000/- remained to be paid. On 26th August, 1998, the respondent filed a suit for specific performance of the agreement to sell dated 24th May, 1996 with an alternate prayer for refund of the amount of Rs.70,11,000/- with interest and damages. In the meanwhile, on 25th August, 1999 the property in question was sold by the petitioner for Rs.3,30,00,000/- to Dheer Industries, third party by the petitioner. By an order dated 19th July, 2000, during the pendency of the suit Justice J.K. Mehra, was appointed as the sole arbitrator, with the consent of the parties as the sole arbitrator.
2. The Arbitrator by his impugned award dated 31st May, 2002 held as follows:-
(i) The contention raised in the counter claim of the Kanha/petitioner that Janacim/respondent was in default in failing to pay the balance consideration by 26th November, 1996 i.e. 21 days from the receipt of the letter intimating clearance in Form 37-I under the Income Tax Act, 1996 and hence liable to pay interest on the balance amount of Rs.2,80,00,000/- @ 2% per month from that date until 11th March, 1999, from 12th March, 1999 to 1st April, 1999, 2nd April 1999 to 7th April 1999 from 8th April 1999 to 23rd August 1999, are rejected since the counter claim of the Kanha/petitioner is barred by limitation as it was not filed within a period of 3 years from the date of the breach/cause of action i.e. 26th November, 1996.
It is not the quantification of loss (as claimed by the Kanha/petitioner) but breach of the contract by Kanha/petitioner that has given rise to the cause of action leading to to the suit/arbitration proceedings.
(ii) The plea taken by Kanha/petitioner that it is entitled to adjustment for the amount claimed against amount retained is also rejected because
(a) It has not been taken earlier and was never pleaded.
(b) It cannot be allowed to be raised for the first time on the last date of hearing.
(c) On the facts of the present case such a plea cannot arise since if it is accepted by Kanha/petitioner that Janacim/respondent was entitled to a refund of amount, it could only be because there was no fault by Janacim/respondent, in which case no claim for damages against Janacim/respondent arises.
(d) The claim of Kanha/petitioner is for over Rs.1.58 crores while the amount paid is Rs.70,11,000/-. Thus, there can be no adjustment beyond Rs.70,11,000/-.
(e) Kanha/petitioner has failed to prove losses beyond Rs.70,11,000/-.
(f) The balance of claims would in any case, be time barred.
(iii) The claim of brokerage, by Kanha/petitioner is remote because:
(a) brokerage is not a loss/damage.
(b)brokerage would only have been payable if transaction with the Janacim/respondent had gone through.
(iv) Janacim/respondent's claim for damages of Rs.1,44,66,430/-, suffered by Janacim/respondent's sister concern 'Marcsat Communication Pvt. Ltd., is rejected as the contract was executed between Janacim/respondent and Kanha/petitioner to which Marcsat Communication was not a party.
(v) Kanha/petitioner is in default because material on record proves that the permission of HSIDC was required to be taken by the Kanha/petitioner before it could ask the Janacim/respondent to pay the balance consideration of Rs.2,80,00,000/-, but the Kanha/petitioner failed to do the same.
(vi) Since the Janacim/respondent apparently did not take any steps in assisting the Kanha/petitioner to obtain permission from HSIDC, interest of justice would be met if the Kanha/petitioner is compensated for the difference in sale consideration between the Janacim/respondent and the Kanha/petitioner and resale to Dheer Industries Pvt. Ltd., i.e. Rs.20,11,000/-
(vii) Kanha/petitioner's forfeiture up to Rs.20,11,000/- would be legal and valid. The bar of limitation does not apply to this amount which was legally forfeited. The Kanha/petitioner is required to refund balance of Rs.50,00,000/- to Janacim/respondent.
(viii) Kanha/petitioner's claim for interest of balance of payment is untenable because :
(a) Clause 5 of the Agreement, which provides for the contractual rate of interest, relied upon by Kanha/petitioner, does not apply to a situation where the seller terminates the contract, but if the seller choses to enforce the same.
(b) To allow interest on balance payment would lead to absurd results since the seller could wait indefinitely to sell the plot and claim interest even beyond the value of the plot.
(c) Kanha/petitioner has not complied with its statutory duty under section 73 of the Indian Contract Act, to mitigate the losses as no evidence has been led by Kanha/petitioner to show any attempt to immediately sell the property, after default on the part of the Janacim/respondent.
(ix). Interest claimed @ 24% is an extremely high rate of interest for a transaction of this nature. Interest @ 12% p.a. (simple) is sufficient compensation to the Janacim/respondent on the balance amount wrongly withheld by the Kanha/petitioner i.e. the sum of Rs.50,00,000/-. This interest shall run from 26th November, 1996 until payment.
(x) All other claims and counter claims are dismissed.
3. The Arbitrator by its award dated 31st May, 2002 disposed of the claim of the petitioner and inter alia directed that since the respondent had paid earnest money totalling Rs.70,11,000/- and the petitioner had sold the property at Rs.3,30,00,000/- instead of Rs.3,50,11,000/- agreed to with the respondent, the loss suffered by the petitioner is Rs.20,11,000/-. Since the petitioner has received an earnest money of Rs.70,11,000/- and the respondent was not found to be in breach of the contract, the balance amount of Rs.70,11,000 - Rs.20,11,000/- i.e. Rs.50,00,000/- was directed to be returned to the respondent with interest @ 12% p.a. It is the said award which is under challenge here.
4. The principal grounds for challenge to this award by the petitioner are :
(a) The Arbitrator has erred in holding the petitioner to be defaulter under the agreement and contradicted himself by holding the petitioner to be defaulter and yet permitted the petitioner to retain Rs.20,11,000/-. This clearly shows that in fact the defaulter was the respondent.
(b) The award only permitted for interest on delayed payment to the respondent and there was no provision in the agreement that if any refund has to be made by the petitioner to the respondent then the petitioner would pay the amount with interest. The award is flawed because the Arbitrator by ignoring the stipulations under the agreement denied interest to the petitioner for the delay in payment by the respondent and has nevertheless allowed interest to the respondent while directing the petitioner to refund the balance amount.
(c) The award is also liable to be set aside as under the terms of the agreement the respondent had no right to delay the payment to the petitioner and the petitioner at the time of receiving the payment was to execute the power of attorneys so that the respondent could obtain the necessary permissions for mutating the land in their favor.
5. In my view none of the challenges raised above by the petitioner would fall within the parameters of the judgment of the Hon'ble Supreme Court in Oil & Natural Gas Corporation Limited v. SAW Pipes Limited, which judgment was interpreted and applied by the Division Bench of this Court by its order dated 16th February, 2004 in FAO(OS) 1/2004, titled Gian Chand Totu and Ors. v. Subhash Chander Kathuria. The relevant portions of ONGC's judgment (supra) and Gian Chand Totu's judgment are as under:-
"ONGC's case
31. Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/ judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar case it is required to be held that the award could be set aside if it is contrary to :
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscious of the court. Such award is opposed to public policy and is required to be adjudged void.
Gian Chand's case
7. In our view, the pivotal principle laid down by the Hon'ble Supreme Court in the ONGC judgment (supra) while defining the scope for interference with awards on the grounds of public policy is that the award can be set aside if it is patently illegal but the illegality must go to the root of the matter and if the illegalities are of the trivial nature it cannot be held that the award is against public policy. It further held the award can also be set aside if it is so unfair and unreasonable so as to shock the conscious of the Court."
6. The Arbitrator has inter-alia found on merits of the dispute that the cause of action for the suit filed by respondent which led to arbitration, was occasioned by the breach of contract and default by the petitioner Kanha failed to prove losses beyond Rs.70,11,000/- and brokerage was not payable unless the transaction had fructified. Since it was also found by the Arbitrator that the respondent had not taken steps to assist the petitioner to obtain the permission from HSIDC, the interest of justice were balanced by the arbitrator by compensating Kanha/petitioner for difference of Rs.20,11,000/- in sale consideration between Janacim/respondent i.e. Rs.3,50,00,000/- and Dheer Industries i.e. Rs.3,30,00,000/-. The petitioner was also directed to refund Rs.50,00,000/- out of the sum of Rs.70,11,000/- deposited by Janacim/respondent as part consideration and simple interest @ 12% p.a. from 1996 until the date of payment.
7. While rejecting the claim of interest raised by the petitioner it was inter alia found that clause 5 of the agreement only applied when the seller chose to enforce the contract and not on the facts of the present case where the seller has terminated the contract and in such a situation allowing interest on balance payment would be unjust because in such a situation the petitioner could lay claim to interest even beyond the actual value of plot by indefinitely delaying the sale. The petitioner also did not comply with the duty cast by Section 73 of the Indian Contract Act, to mitigate losses by not attempting to immediately sell the property after respondent's default.
8. The petitioner's plea that there was default found by the arbitrator and at the same time there was also a finding that the default committed by the petitioner was wrongly found, cannot be entertained because the finding as to who had committed the default in respect of a contract is a pure finding of fact. Assuming that the finding of fact recorded by the arbitrator was faulty, such a finding is not amenable to the exercise of limited jurisdiction available to a Court under Section 34 of the Act in respect of a reasoned award.
(a) In order to consider the plea raised by the petitioner that the agreement did not contemplate payment of interest for any refund to be made by the petitioner and the award is vitiated for non-awarding of interest to the petitioner for the delayed payment, it is necessary to set out Clause 5 of the Agreement which reads as follows:-
"That the parties shall be under an obligation as per clause 1(b) regarding payment and possession and in the eventuality of the purchasers not making the balance payment or in the eventuality of the vendors not purchasers being ready and willing to pay the balance purchase price in that event the parties shall have the right of specific performance of this agreement against the other. The vendors will be entitled to claim the balance amount with interest @ 2%."
9. The arbitrator has held that this clause does not apply in a situation where the seller wants to terminate the contract and only applies if the seller choses to enforce the contract. In my view the arbitrator's reasoning for interpretation of the clause so as to avoid an absurdity permitting the seller to wait indefinitely to sell the plot and claim interest even beyond the value of the plot, cannot be faulted quite apart from the fact that such a plea advances the cause of justice.
10. The arbitrator has rightly found that the seller cannot have the advantage of possessing the plot and at the same time claim interest on the delayed payment. No fault can be found with the aforesaid interpretation of the contract. Clause 5 of the agreement in my view has rightly been held to apply only in such a situation where the seller terminated the contract.
11. In so far as the third plea of the petitioner that the terms of agreement indicated that the respondent had no right to delay the payment, a fact, not said to be appreciated by the arbitrator is concerned, this plea is not sustainable even because Kanha's own witness had admitted that it had not obtained any permission from HSIDC. The arbitrator clearly found that the permission of HSIDC was required before the transfer of the property could take place and such permission had been taken when the suit property had been on an earlier instance transferred from Vashisht Electronics to M/s R. Exports. The arbitrator also found that Kanha never offered to register the sale deed even without the said permission during the relevant period. In fact the arbitrator found that the correspondence by the petitioner clearly disclosed that the permission would be obtained after the balance amount is paid and registration of the sale deed could take place only thereafter. The consequent finding of the arbitrator is that the Kanha was at default. Such a finding of fact based on appreciation of evidence by the arbitrator cannot be challenged under Section 34 of the Act.
12. Accordingly there is no merit in any of the pleas raised by the petitioner. Consequently the objections to the award 31st May, 2002 preferred by the petitioner are dismissed.
13. The learned counsel for the respondent on 3rd November, 2004 stated that he had no objection to the Court awarding whatever interest it deems fit. Even though on 10th November, 2004 the counsel for the petitioner did not agree to reduction of rate of interest as suggested by the counsel for the respondent and thus no settlement took place, I am nevertheless satisfied that in view of the statement made by the learned counsel for the respondent, interest should be reduced to 6% p.a. to accord with the prevailing rates of interest. Subject to aforesaid reduction as to rate of interest, the award stands affirmed. Consequently, the awarded amount plus 6% interest on the awarded amount as directed by the arbitrator shall be released to the respondent out of the amount deposited in this Court, by the registry on or before 31st March, 2005. The remaining amount shall be released to the petitioner on or before 30th April, 2005.
14. Consequently none of the objections raised by the petitioner are sustainable in view of the above findings.
15. The objections preferred by the petitioner to the award dated 31st May, 2002 therefore stand dismissed and are disposed of accordingly.
16. All pending applications also stand disposed of.