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2013 (8) TMI 84 - HC - Indian LawsLease agreement - Indemnity clause - Arbitration award - interpretation of agreement - On the issue as to whether claim made by the respondents for creation of fund would fall under clause 14 of the lease agreement or not and whether such claim was beyond the scope of clause 14 or not, the learned arbitrator held that clause 14 was wide in its scope and could not have been given any narrow interpretation as sought by the petitioners. - Held that:- Respondents had initially prayed for creation of fund in view of pendency of appeal before Income Tax Appellate Tribunal filed by them - Petitioners had agreed to keep respondents indemnified against any loss or seizure of equipment under distress, execution or other legal process or destruction or damage to equipment by fire, accident or other cause - Expression ‘all losses, damages, claims, penalties, expenses, suits or proceedings’ would apply only to situation where there was any damage to equipment by fire, accident, any risk or liability arisen due to death or loss of limb of any person whether employee of Lessee or any third party - it is clear that same would not apply for creation of fund arising out of dis-allowance of claim for depreciation made by Assessing Officer - Clause 14 has to be interpreted as whole to ascertain intent of parties and not few words in isolation - Decided in favour of petitioner. Whether claim made for creation of fund by respondents in statement of claim was beyond scope of reference - Held that:- Arbitration agreement did not require party to state nature of claim and dispute which such party proposed to make in arbitration proceedings for which notice is issued invoking arbitration agreement, such party cannot be precluded from making any additional claim or claims not notified in such notice in arbitration proceedings - Following decision of Ms. Veena Naresh Seth vs. Seth Industries Limited [2010 (10) TMI 931 - BOMBAY HIGH COURT] - Decided against petitioner. Whether cause of action as claimed in statement of claim filed by respondents survived - Held that: - claim for depreciation which was disallowed by Assessing Officer and on setting aside such order by Income Tax Appellate Tribunal, there was no demand of any income tax from Income Tax Department. If respondents were entitled to invoke arbitration by virtue of Assessing Officer's disallowance of depreciation, respondents could have done so separately. Proceedings which had become infructuous by virtue of initial order of dis-allowance of depreciation having been set aside, such proceeding could not have been continued by respondents - Decided in favour of petitioner. Limitation period - Whether claim made by Respondents is time barred - Held that:- payment of residual amount of 26th March, 2004 by petitioners to respondents would not extend period of limitation. Cause of action had already begun on 31st March, 1997 when Deputy Commissioner disallowed depreciation for assessment year 1994–95 and on 31st March, 1998 when said claim was disallowed for assessment year 1995–96. Merely because appeal was filed by respondents before Commissioner of Income Tax or before Income Tax Appellate Tribunal, limitation would not stop - said payment would even otherwise not extend limitation as same was not within period of three years from date of accrual of cause of action. Accord and satisfaction - partial claim accepted - whether there was any accord and satisfaction in view of respondents accepting residual amount from petitioners during pendency of appeal before Income Tax Appellate Tribunal - Held that:- respondents having accepted residual value unconditionally and by issuing proforma invoice in favour of petitioners, respondents could not raise any demand subsequently based on letter of sanction/agreement against petitioners - Decided in favour of petitioner. Whether there was any ambiguity and whether principle of contra proferentem would come into operation or not - Held that:- there was no ambiguity in any of terms of agreement and thus principles of Contra Proferentem would not be attracted in this case - there is no merit in submission of petitioners that there was any ambiguity and/or inconsistency in any of terms of lease agreement which would attract principles of Contra Proferentem or that benefit arising out of such ambiguity has to be given to petitioners - Decided against petitioner. Whether continuation on part of respondents to encash cheques for lease rental at old rate inspite of there being change in income tax rate would amount to waiver of its right under clause 16 of lease agreement or not - Held that:- due to negative inflow in this particular transaction there may not be actual payment of income tax. Petitioner cannot plead that though depreciation claim is disallowed and that would affect over all deduction claimed by respondents unless respondents shows actual payment of income tax on individual transaction, respondents cannot raise demand - Decided against petitioner. Whether respondents could have raised demand for increased rentals or for creation of fund with view to secure claims of respondents irrespective of respondents having suffered any loss due to disallowance of depreciation by assessing officer - Held that:- there is no merit in submission of petitioners on this issue that only in event of respondents paying any income tax due to disallowance of depreciation on this individual transaction, respondents could have demanded said amount from petitioners and not otherwise - Decided against petitioner. Whether claims for creation of fund so as to secure respondents’ from any liability which may arise due to disallowance of depreciation, respondents could claim only such amount which would be required to be paid by respondents or respondents could ask for creation of fund by claiming increase in rental with retrospective effect with interest at rate of 30% per annum in accordance with provisions of lease agreement - Held that:- even if respondents could have invoked clause 14 for creation of fund, claims by invoking indemnity and for creation of security in favour of respondents could not exceed amount which respondents would be ultimately liable to pay to income tax department due to such disallowance of depreciation on equipment. - Claim of indemnity cannot be calculated based on provision for payment of revised lease rental with retrospective effect with penal interest - arbitrator failed to appreciate that by directing petitioners to pay amount calculated by respondents towards revision of lease rent deemed to in default with retrospective effect and with compound interest at rate of 30% per annum would amount to unjust enrichment in favour of respondents and against petitioners - Decided in favour of petitioner. Whether interest at rate of 30% per annum was exorbitant or not - Held that:- since award of principle amount itself by arbitrator is illegal, arbitrator could not have awarded interest thereon. In any event, even if principle amount was required to be awarded for securing claim of respondents, arbitrator could not have awarded interest at rate other than what was required to be paid under Income Tax Act, 1961 and not at rate provided in agreement between parties. arbitrator also could not have awarded interest on interest and that also from 12th December, 2006 i.e. period prior to date of award. arbitrator atmost could have awarded interest on principle amount from date of award till payment at rate provided under Income Tax Act, 1961. Since award granting principal amount is set aside, award interest cannot sustain - Decided in favour of petitioner.
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