Belwal Spinning Mills Ltd. vs ICDS Ltd. and Another

Rajiv Sahai Endlaw, J.—The petition u/s 34 of the Arbitration Act, 1996 has been preferred with respect to the arbitral award dated 25th November, 2000 of Respondent No. 2 Sh. B.I. Sharma, Advocate Udupi, Karnataka.

The admitted position is that a lease agreement dated 10th May, 1991 was executed between the respondent No. 1 M/s. Industrial Credit and Development Syndicate Ltd. since known as ICDS Ltd. on the one hand and the petitioner on the other hand whereunder the petitioner agreed to take the assets described in Schedule A to the Agreement on lease from the respondent No. 1, to be installed at the premises of the petitioner at 14th Floor, Hansalya Building ,15 Barakhamba Road, New Delhi on the terms and conditions and lease rent as mentioned therein. (Though the petition gives the date of lease agreement as 1st August, 1989 but the same is an error, being the date of another lease agreement between the parties and with respect to arbitral award wherefrom OMP No. 369/1999 was preferred in this Court and which is informed to have been dismissed in default long back)

It is further the admitted position that a letter dated 11th February, 1999 was sent by the respondent No. 1 to the petitioner as well as to Mr. Mahesh Belwal and M/s. Impact Advertising Pvt. Ltd. both of which are stated to have stood guarantors for payment of lease rental by the petitioner to the respondent No. 1, stating that a breach had been committed of the terms and conditions of the aforesaid lease agreement dated 10th May, 1991 and a sum of Rs. 3,00,060/- was due towards balance lease rental from 10th December, 1991 to 10th April, 1994 and a further sum of Rs. 6,47,269.99 was due towards overdue compensation at 3% per month from the respective lease due dates and also claiming Rs. 20,000/- towards costs of registered notices and other expenses and either the possession of the assets leased or in alternative thereto claiming Rs. 1,000/-, in terms of the lease agreement. The said letter also notified that the petitioner and the guarantors aforesaid will continue to be liable for overdue compensation at 3% per month on Rs. 3,00,060/- in future also till final payment. The letter dated 11th February, 1999 further proceeds to state that the claim aforesaid of the respondent No. 1 had been agreed to be settled by sole arbitration of the aforesaid Sh. B.I. Sharma, Advocate, Udupi and the respondent No. 1 was making reference of the claims to the arbitrator.

The aforesaid letter dated 11th February, 1999 was replied by the petitioner vide its letter dated 27th February, 1999. The petitioner merely stated that as per its books of accounts nothing was payable to the respondent No. 1.

It appears that the respondent No. 1 pursuant to the letter dated 11th February, 1999 approached the agreed arbitrator who made the award aforesaid impugned in this petition. The award inter alia records that the arbitrator after accepting the reference, issued notice of enquiry dated 19th April, 1999 to the petitioner as well as to the two guarantors aforesaid and that the said notice had been duly served on the petitioner and one of the guarantors. Since the notice dated 19th April, 1999 sent to the other addressee was neither returned nor confirmation of delivery received, the award records that a fresh notice of enquiry dated 2nd August, 1999 was sent and which was served by registered post AD. Though there is some inconsistency in the award as to whether the second notice was issued to the petitioner or to one of the guarantors, the same is immaterial. The award further records that the petitioner and the guarantors aforesaid failed to appear in spite of notices and were as such proceeded ex parte.

The Arbitral Award after referring to the Agreement dated 10th May, 1991 (supra) and the evidence tendered by the respondent No. 1, allows the claims of the respondent No. 1 for the amounts as claimed in the letter dated 11th February, 1999 save that instead of costs of registered notices of Rs. 20,000/-, Rs. 500/- was awarded and alternate relief of Rs. 1,000/- instead of award of return of assets was made. It is further the award that though in terms of the agreement the respondent No. 1 is entitled to claim future interest at 3% per month and interest at 21% per annum only from 12th February, 1999 till realization has been awarded.

It is inter alia the case of the petitioner that it was not in the know of the arbitration proceedings and learnt of the same for the first time on 6th March, 2001 only when the petitioner received the award.

Objections have been preferred against the award on three counts. Firstly, it is contended that the award is liable to be set aside because it has been made without notice to the petitioner. Secondly, it is contended that on the date of the commencement of the arbitration proceedings the petitioner had been declared sick within the meaning of SICA, 1985 and thus the proceedings could not be initiated or continued against the petitioner and lastly it is stated that the award is arbitrary and whimsical in allowing overdue compensation of more than double the lease rent due. Challenge is also made to the rate of interest.

The counsel for the parties have informed that an order of winding up of the petitioner company had been made by the Delhi High Court. From the order sheet also it transpires that notice at one stage was issued to the official liquidator attached to this Court. The counsel for the petitioner has relied upon the order dated 26th April, 2004 of the Division Bench in Co. A. No. 68/2003 in appeal preferred against the order of winding up, ordering that no coercive steps shall be taken by the official liquidator. The counsel for the petitioner has contended that though the order of winding up has not been stayed by the same but the effect of the said order dated 26th April, 2004 is of stay of winding up and hence he is competent to represent the petitioner. The counsel for the respondent No. 1 has however contended that the petitioner has subsequently deposited Rs. 1.32 crores in the Court and the appeal against the order of winding up has been admitted and the order of winding up has been stayed. Thus there is no impediment to the counsel appointed by the petitioner pursing the present proceedings.

At this stage, it may be noted that though the petition is pending since 2001 and is listed in the category of finals of this Court but till date no order has been made for requisitioning the arbitral record. However, after perusing the entire record specially the objections preferred by the petitioner I am of the view that non- availability of the arbitral record does not come in the way of the adjudication of the petition.

The counsel for the respondent No. 1 has at the outset raised an objection with respect to the territorial jurisdiction of this Court to entertain the petition as well as of the present petition being barred by time.

As far as the plea of territorial jurisdiction is concerned reliance is placed on Clause 27 of the lease agreement dated 10th May, 1991 between the parties which is as under:

It is expressly agreed that in case any dispute between the parties concerning this agreement or any part thereto the interpretation of any clause of the Agreement the courts in Udupi alone shall have the jurisdiction.

It is contended that the arbitration proceedings were held at Udupi, the respondent No. 1 applied for execution of the award as a decree in the Courts at Udupi and only on obtaining transfer for execution of the decree from the Courts at Udupi was the execution of the award filed in this Court.

A perusal of the lease agreement shows the same to have been executed at Delhi. The agreement provides for the payment of the lease rental thereunder at the address of the respondent No. 1 given in the agreement i.e. of Syndicate House, Manipal, Karnataka. The assets subject matter of hire were as aforesaid to be located/installed at Delhi. From a reading of the entire agreement I am unable to gather any cause of action with respect thereto accruing at Udupi. On enquiry from the counsel for the respondent No. 1 in this regard he only contends that since in terms of the agreement the arbitration was agreed to be held at Udupi, hence Udupi will have jurisdiction.

I am unable to accept the said contention of the counsel for the respondent No. 1. The place of arbitration does not influence the definition of the Court within the meaning of Section 2(e) of the Act. u/s 20 of the Act, the parties are free to agree on the place of arbitration and failing any such agreement the place of arbitration is determinable by the Arbitral Tribunal. However ''Court'' has been defined as the court which would have jurisdiction to decide the questions forming the subject matter of arbitration if the same had been the subject matter of the suit.

It is settled law that the parties by consent cannot confer territorial jurisdiction on a court which otherwise in law has no territorial jurisdiction. Certainly the parties by agreement are entitled to restrict the jurisdiction to one of the many courts which under the law may have jurisdiction. In the present case, neither is it found nor the counsel for the respondent No. 1 able to show that the Courts at Udupi had jurisdiction over the dispute, if any, arising out of the agreement aforesaid between the parties. The clause aforesaid in the agreement restricting the jurisdiction to the courts at Udupi which under the law had no jurisdiction is contrary to law and void and cannot oust the jurisdiction of this Court. This Court otherwise would have jurisdiction to entertain the petition, the agreement having been executed at Delhi. The counsel for the respondent No. 1 has not contended that any earlier petition/application within the meaning of Section 42 of the Act had been preferred in any other Court.

The next contention of the counsel for the respondent No. 1 is with respect to limitation. As aforesaid the award is dated 25th November, 2000 and the present petition has been filed on 31st March, 2001. u/s 34(3) of the Act, the limitation for filing the application is three months from the date on which the party making the application has received the award and under proviso thereto, the said time is extendable by a further period of 30 days only. The Apex Court in Union of India Vs. M/s Popular Construction Co., has held that the court is not empowered to condone the delay.

It is the pleading of the petitioner that the petitioner received the arbitral award on 6th March, 2001 for the first time. If the said plea of the petitioner is found to be correct the petition would be within time else it is barred by time.

The petitioner save for the bare averment of having received the award on 6th March, 2001 has not placed any material to substantiate the same, not even the envelope in which the award may have been received by it. The petition is vague as to from whom the petitioner received the award. In the absence of any plea, it has to be presumed that the petitioner must have received the award from the arbitrator only. It is not the case of the petitioner that the arbitrator who is an advocate based at Udupi has personally delivered the award to the petitioner. In the absence of any plea, it has to be again presumed that the award must have been received either by post or by courier and in both of which cases, from the envelope, the date of delivery could have been deciphered. The said envelope if any ought to have been available with the petitioner. The burden was on the petitioner to establish the said fact. The petitioner has utterly failed to prove the same.

Though as aforesaid the arbitral record has not been called but the respondent No. 1 has along with its reply filed photo copy of the letter dated 25th November, 2000 of the arbitrator of publication of the award and enclosing therewith copy of the award.

I find it contrary to human conduct that if the arbitrator had not sent the award to the petitioner under the cover of letter dated 25th November, 2000 (supra) as contended by the respondent No. 1, why would the arbitrator suddenly in March, 2001 send the award to the petitioner.

Yet another factor which in my opinion conclusively establishes the falsehood of the petitioner is that the petitioner along with the petition filed list of documents, in part III of the record. The said list of documents contains a true typed copy of the aforesaid letter dated 25th November, 2000 of the arbitrator intimating the publication of the award and enclosing the copy thereof. There is no explanation whatsoever from the petitioner in spite of opportunity having been given today also as to how the petitioner came to be possessed of the said letter. In view of the case made by the petitioner, of having all of a sudden and to his surprise and shock having received the award, it has to be presumed that the award was received under cover of the said letter only. The petitioner has shied away from filing the original of the said letter and from which the true typed copy was made. The petitioner having admitted receipt of letter dated 25th November, 2000 enclosing the award, it seems improbable that the same was received on 6th March, 2001. In any case, petitioner has failed to discharge the burden of rebutting the presumption of service of said letter within reasonable time of 25th November, 2000. Thus it stands conclusively established that the petitioner received the award under cover of letter dated 25th November, 2000 of the arbitrator and which would make the present petition palpably barred by time.

Though the petition is liable to be dismissed on the aforesaid ground but since this order is appealable, it is deemed expedient to deal with the other objections also of the petitioner.

The counsel for the petitioner admits that in view of the dicta of this Court in M/s LLoyd Insulations (India) Ltd. and Others Vs. Cement Corporation of India Ltd. and Another, the plea of the arbitration proceeding being barred Section 22 of SICA 1985 does not survive and is untenable. The same is accordingly rejected.

As far as the claim of the petitioner of having no notice of arbitration is concerned, the counsel for the petitioner has contended that the letter dated 11th February, 1999 of the respondent No. 1 to the petitioner demanding Rs. 9,68,329.99 p and intimating reference to arbitration, addressed to the petitioner at its registered office at 14th Floor, Hansalya Building ,15 Barakhamba Road, New Delhi was not received. The counsel for the petitioner has also drawn attention to the photocopy of Form 18 under the Companies Act filed by it from which it transpires that the registered office of the petitioner was changed from 14th Floor, Hansalya Building ,15 Barakhamba Road, New Delhi to B-14, Competent House, F-14 Middle Circle Connaught Place, New Delhi-110001 w.e.f. 1st October, 1998, It is contended that thus the address at which notice was sent was no longer the registered office of the petitioner and the notice could not have been served on the petitioner.

The arbitrator has however in the award recorded that the said notice dated 11th February, 1999 was replied by the respondent, as also noted above. Thus it transpires that though as on 11th February, 1999 the Hansalya address was not the address of the registered office of the petitioner but the petitioner was receiving dak addressed thereto and also replied to the same. It is significant that the petitioner has in its reply dated 27th February, 1999 not asked the respondent No. 1 to address future communications to any other address. Though it has been argued and pleaded that the respondent No. 1 was aware of the new address of the petitioner but the counsel for the petitioner save for contending that the new address was given in OMP No. 369/1999 preferred by the petitioner with respect to another transaction/award with the respondent, nothing has been shown vide which the petitioner informed the respondent No. 1 of the change in registered office. The address given by the petitioner in the agreement is of Hansalya building. As per Clause 24 of lease agreement the notices thereunder are required to be given personally or left at or posted to the petitioner at last known address of the petitioner and the last known address of the petitioner to the respondent No. 1 is of Hansalya Building only. Nothing is shown as to when the notice of OMP No. 369/1999 was served on the respondent No. 1.

The other pleadings of the petitioner with respect to non- receipt of notices recorded in the award to have been sent by the arbitrator are only with respect to change in address. A perusal of paragraph 13 and grounds ''C'' and ''E'' would show that the petitioner has not controverted the award to the extent of recording dispatch of notices of hearing by the arbitrator to the petitioner. All that has been stated is that the notices were sent at the old address and not at the new address of the registered office of the petitioner. It is for this reason only that notwithstanding the arbitral record being not called, need was not felt to call for the record at this stage. The respondent No. 1, along with its reply has filed photocopy of letter dated 19th April, 1999 sent by arbitrator, and of postal receipts of dispatch thereof and of A.D. cards returned to the arbitrator showing delivery thereof.

The factum of the petitioner replying to the letter dated 11th February, 1999 sent at the old address, even after the change of address of the registered office, unequivocally establishes that the plea of non service for reason of change of address is false. The only pleading is that the address of the registered office had changed. It is not pleaded that the office of the petitioner at Hansalaya Building ceased to exist, though it is orally contended so by the counsel for the petitioner.

For the reasons aforesaid, I do not find any merit in the plea of the petitioner, of having no notice of arbitration proceedings. In fact the petitioner is found to have acted mala fide, as borne out from filing of copy of the letter dated 25th November, 2000 (supra).

As far as the finding of the arbitrator on the claims is concerned, there is really no plea. All that has been pleaded is that arbitrarily overdue compensation on lease rental has been allowed and the rate of interest is whimsical. It is not the plea that the said overdue compensation was not payable in terms of the agreement as held in the award. No interference is called for in the approach of the arbitrator of allowing the claims in terms of the agreement. The transaction between the parties was a commercial transaction, virtually of a loan and if the parties had agreed to the payment of overdue compensation as a deterrent to default in payment of agreed installment, there is no reason for the petitioner not to be bound with the same. Similarly, considering the nature of transaction and the agreement between the parties nothing can be found wrong with the award of interest w.e.f. from 12th February, 1999 till the date of the payment at 21% per annum. The said rate of interest is in fact considerably less than the interest agreed to be paid. However, in view of the recent judgments in view of falling rates of interest, the rate of interest during the pendency of the objections before this Court is reduced to 15% per annum. If payment is not made within two months hereof, the respondent No. 1 thereafter, as under the award shall again be entitled to interest again at 21st % per annum.

Save for modification aforesaid in the award, the petition is dismissed. The petitioner having been found to have approached this Court with a false case of date of receipt of the award is also burdened with costs of Rs. 22,000/-.

File be consigned to records.