Muthoot Vehicle vs P.B. Hamsa, Aged 46

The respondents before the District Court in O.P. (Arb No.1080/2011) is the appellant herein, challenging the order dated 1.11.2013. The original petition before the District Court was instituted by the respondent herein, questioning an award passed by the sole Arbitrator dated 16.7.2011.

The issue in dispute resolved through the arbitration pertains to the alleged liability of the respondents herein arising out of a loan agreement (hypothication agreement) executed by the respondents 1 and 2 in favour of the appellants on availing a loan to the extent of Rs.2,16,000/- for purchase of a motor cycle. Claim of the appellant was that, in accordance with the agreement, the 1st respondent had promised to repay the loan along with interest, in 60 monthly instalments. The 2nd respondent was the guarantor to the loan transaction. It is alleged that the respondents have failed in due payment of the monthly instalments. Since the respondents have failed to make up payment of the arrears, the arbitration was proceeded by invoking Clause 27 (A) of the agreement. By virtue of the award, the sole Arbitrator had permitted the appellant to realise an amount of Rs.1,38,840/- along with future interest at 18% per annum from the date of filing of the claim petition till realisation, from the respondents personally and from their assets. It is further ordered that the appellant will be entitled to realise cost of Rs.2,000/-.

In the appeal instituted by the respondents, the District Court found that, the Arbitrator had failed to consider the contention of the respondents that, charging of 36% interest on the defaulted amount, terming it as compensation, is illegal and unsustainable. Therefore the appellant was allowed to realise the claim amount along with interest only at the rate of 18% per annum. The decision was rendered by observing that the award is in derogation of the statutory principles on charging of interest, taking into consideration of the dictum contained in Central Bank of India Vs.Raveendra [2002 (1) KLT 743 (SC)]. It was observed that, the appellant had calculated the amount by charging interest at the rate of 36% per annum over and above the interest of 7.01% per annum, as agreed and reflected in Ext.A2 agreement which is added to the principle amount in order to fix the amount of instalments. The court below found that, the part of the award allowing interest at the rate of 36% per annum is against law and therefore is in conflict with the public policy of India. It is further found that an amount of Rs.20,000/- paid by the respondents on 23.10.2008 was not given proper credit. Without showing any details regarding the computation, the District Court found that;

"That sum in total is Rs.84,158/-, which is available from the first column of Ext.A7 and B1. The said amount along with reasonable interest is entitled to be realised by the respondents. So, on setting aside the part of the award as adverted to above, the award pertaining to the instalment amount due along with future interest is liable to be retained or confirmed. The rate of future interest shall be 9% per annum. So the award shall be that the respondent/claimant is entitled to realise Rs.84,158/- along with interest at the rate of 9% per annum from the date of claim petition i.e. 19.6.2009 and costs of arbitration from the petitioners and their assets. The point is answered accordingly.

In the result, the petition is allowed in part. The award stands modified to the effect that the respondent/claimant is entitled to realise Rs.84,158/-along with interest at the rate of 9% per annum from 19.6.2009 till realisation and costs of arbitration from the petitioners and their assets. No costs."

The appellant is approaching this Court aggrieved by the order of the District Court by mainly contending that, the reduction of interest ordered by the court below is illegal and unsustainable. It is further contended that the interference in the award made by the court below in exercise of jurisdiction vested under Section 34 of the Arbitration and Conciliation Act, was totally illegal, erroneous and incorrect.

We heard learned Counsel appearing for the appellant as well as well as the counsel who entered appearance for the respondents.

It is contended on behalf of the appellant that, the Arbitrator had already found that Clause 3 (c) of Ext.A2 agreement which insist that on default the respondents are liable to pay interest at the rate of 36% on the entire outstanding amount, is quite excessive and unsustainable. It was found that the claimants have limited the interest to 18%, which is quite reasonable and just. Therefore the Arbitrator had passed the award by permitting the appellant to realise the amount claimed at Rs.1,38,840/-, with future interest at the rate of 18% per annum, from the date of filing of the claim petition till realisation. Therefore the interference made by the District Court in exercise of power vested under Section 34 was illegal and is without jurisdiction. It is contended that, the realisation of the charges on default of payment of instalments, at the rate of 36% per annum, by virtue of Clause 3 (c) of Ext.A2 agreement cannot be interfered as excessive. It is pointed out that, Section 31 (7) of the Arbitration and Concilliation Act deals only with ordering of interest for the period between the date of the cause of action and the date of award as well as with respect to the period from the date of the award till the date of payment.

In the case at hand, the Arbitrator had already fixed the rate of interest which is liable to be paid from the date of claim petition as 18%. Therefore, the re-computation made by the District Court with respect to the amount payable was illegal and unsustainable. In support of such a contention the appellant had placed reliance on the judgment of a Division Bench of this Court in Arbitration Appeal No.53/2015 dated 7.7.2016. It was observed therein that, the contract between the parties does not contain any stipulation regarding the rate of future interest. The Arbitrator was therefore perfectly justified in awarding interest at the rate of 18% per annum. The interference made by the District Court observing that the financier had already realised certain amount towards compensation for delayed payment is not a tenable reasoning adopted by the District Court. It was held that the compensation deducted by the financier with respect to belated payments of instalments, is not a reason to hold that the Arbitrator had erred in awarding interest at the rate of 18% per annum. Referring to Section 31 (7) (b), as it stood on the date of the award, the future interest ordered at the rate of 18% can be sustainable.

In this regard, a scanning of the provisions contained in Section 31 (7) of the Arbitration and Concilliation Act would be beneficial. Sub Section 7 (a) provides that the the Arbitration Tribunal may include in the sum for which the award is passed, interest at such rate, as it deems reasonable on the whole or part of the money for whole or part of the period, between the date on which the cause of action arose and the date on which the award is made. In Sub Section 7 (b) it is provided that, unless the award otherwise directs, it carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment. But sub section 7 (b) is an amendment which came into force only with effect from 23.10.2015. The unamended provision of sub section 7 (b) provides that, unless the award otherwise directs it carry interest at the rate of 18% per annum from the date of the award to the date of payment.

Referring to the above provisions, learned Counsel appearing for the appellant contended that, the Arbitration Tribunal was justified in awarding interest at the rate of 18% per annum from the date of the claim petition till realisation. Consequently it was contended that, the intereferene made by the District Court is illegal and unreasonable.

Learned Counsel appearing for respondents 1 and 2 had canvassed for a relief from this court to the extent of setting aside the arbitral award itself. It was contended that, the respondents are entitled to take such a plea based on provisions contained in Order XLI Rule 33 of the Code of Civil Procedure. It is further contended that, the award in question is in conflict with public policy of India, because the principle of 'no evidence Rule' would apply. It was also contended that, since the award is based on no evidence, it has to be presumed that the award is in conflict with the most basic notions of morality and justice. In support of the above contention, the learned counsel had cited a decision of the Bombay High Court in Kuoni Travels (India) Pvt.Ltd. Vs. Pharmaco Flavours and Fragrances Pvt.Ltd., Mumbai (2016 KHC 2260). It is held that, if the finding of the Arbitrator is based on no evidence that part of the award deserves to be set aside. He had also cited another decision of the same High Court in Union of India Vs. M/s. Arora Associates and another (2003 KHC 3275). It is stated that if the finding of the Arbitrator was contrary to the material available on record, it is liable to be set aside.

Primarily it has to be considered as to whether the explanation introduced through the amendment to Section 34(2)(b) would apply to any award which was passed prior to the amendment. However, it remains undisputed that, if the award is in conflict with the public policy of India, interference is possible under Section 34 of the Act. Recent trends of legal precedents are to the effect that if the decision of the Arbitrator is in violation of any statutory provisions or if it is totally unconscionable, it can be termed as a decision which is opposed to public policy of the country. But in the case at hand, the 'no evidence rule' agitated on behalf of in the respondents cannot be made use of in order to contend that the award is opposed to the public policy of the country or opposed to morality or justice. It is to be noted that, before the arbitrator, the appellants herein have adduced documentary evidence by producing the agreement, accounts statements etc. Oral evidence was also let in support of those documents, by examining CW1. Even assuming for the sake of argument that there occurred a misappreciation or erroneous appreciation or even perverse appreciation of the evidence on record, which may amount to applicability of the 'rule of no evidence', that by itself cannot be taken as a ground to hold that the award is opposed to public policy of the country or it is opposed to morality and justice. In this regard we take note of the findings in the award of the Arbitrator which would reveal that, the respondents have denied the agreement itself and contended that the signature therein are forged. But the Tribunal found that they have not adduced any evidence to substantiate such a contention.

Further, it was found that, in some portion of the counter statement filed before the Arbitrator, the respondents have conceded about the loan arrangement and disputed the quantum of arrears due. Under such circumstances, it cannot be said that the Arbitrator was lacking jurisdiction in any manner nor had decided the issue in a totally unsustainable or perverse manner. The specified grounds enumerated under Section 34 of the Act is incorporated with an intention to put a restriction on the jurisdiction of the District Court. It remains now trite that, while exercising the jurisdiction vested under Section 34 the District Court is not acting as an appellate court. The proceedings under Section 34 is in the nature of an original petition which can be entertained only under the specific grounds enumerated in Section 34. Under such circumstances, we are not inclined to consider the contentions raised on behalf of the respondents to set aside the Award.

With respect to the grounds raised by the appellant on the question of awarding interest, as already observed, the provisions in the statue is governing the field with respect to awarding of interest for the period from the date of the claim till the date of the award, as well as from the date of the award till realization. The law as it stood then, the arbitral tribunal was at liberty to award interest at such rate as it deems reasonable for the period from the date on which the cause of action arose till the date of passing an award. So also, it is provided in sub Section 7 (b) that the sum directed to be paid through the award will carry interest at the rate of 18% p.a from the date of the award till the date of payment.

In the case at hand, the Arbitrator had awarded 18% interest from the date of the claim till realization.

The District Court found that the awarding of interest at such rate is opposed to the dictum contained in Raveendra's case (supra). But the said decision deals only with the interpretation of Section 34 of the Code of Civil Procedure, with respect to awarding of interest at the rate specified therein on the amount of decree, for the future period after passing of the decree. The said provision cannot be made applicable to a proceeding of arbitration, because awarding of interest for the period from the date of the claim till the date of the award as well as from the date of the award till realization, is specifically governed by provisions of Section 31(7) of the Arbitration and Conciliation Act. In the judgment of this court about which reference was made in the foregoing paragraphs, in Arb.Appeal.No.53 of 2015, also reiterates the above view, to the extent that, if the Arbitrator had fixed the rate of interest payable with respect to the periods as mentioned above, no interference can be possible.

There is no reason or ground existing which warrants interference on the Award by the District Court. Therefore we are of the opinion that the impugned order of the District Court to the extent it reduced the rate of interest to 9% from 18% for the period after institution of the claim till realization, cannot be sustained. The Appeal is liable to be allowed to that extent.

Yet another question remains as to whether the District Court was justified in reducing the claim made by the appellant on the basis that the default charges were levied at the rate of 36%. On going through the impugned order of the District Court, it is not discernible as to how the calculation was arrived with respect to the amount payable. It is also not clear from the findings as to the reasons upon which such recalculation was made. In paragraph 11 of the order it is stated that, proper credit was not given to Rs. 20,000/- (Rupees Twenty Thousand only) paid by the respondents on 23.10.2008. It is further stated that the respondents are liable to pay interest on the amount due to be paid. The order further proceed to say that, the sum in total is Rs. 84,158/- (Rupees Eighty Four Thousand One Hundred and Fifty Eight only), which is discernible from Ext.A7 and Ext.B1.

We are at a loss to understand as to how the amount at the reduced rate of interest was calculated by the District Court from the account statement produced by the appellant. We find that no details were mentioned in the impugned order as to how the figure was arrived.

Learned counsel for the appellant had raised a contention that the interference made by the District Court with respect to the amount of claim was beyond the scope of powers vested under Section 34 of the Act. On the other hand, learned counsel for the respondents contended that the District Court was perfectly justified in interfering with such findings, because the calculations made based on default charges at 36% is opposed to public policy, morality and justice. Since no detailed reasoning on this aspect is reflected in the impugned order and since the impugned order does not give details of the calculations made, we are of the considered opinion that a remittance of the matter for a fresh consideration and disposal, after providing opportunity to both sides, is necessary. The District Court shall pass appropriate orders mentioning detailed reasoning on the basis of all the contentions which will be raised in this regard and the order should reflect such reasons and also the method of calculation, if it is found that the claim can be interfered in any manner.

In the result, the appeal is allowed in part. The impugned order of the District Court is hereby set aside. That court is directed to consider the original petition afresh and to pass appropriate orders thereon, after affording opportunity of hearing to both sides. While passing fresh order, the court shall take into consideration of the findings arrived by this court on the question allowing interest at the amount awarded, with respect to the periods after the claim petition till passing of the award and from the date of the award till realization.

Taking note of the fact that the original petition is of the year 2011, the District Court shall take all earnest endevour to dispose of the same at earliest possible, at any rate within a period of four months from the date of receipt of a copy of this judgment.

The parties shall appear before the court below on 3rd April, 2018.