TMI Blog2006 (7) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof on its due date, the normal rate of interest of 36% p.a. with monthly rests shall be payable by the borrower from the date of default till the date of repayment of the ICD along with interest/overdue interest in full. The said ICD Agreement contained an arbitration clause, namely, Clause 20. Mr. Sushil Suri (JD No. 2) had extended a personal guarantee. Mr. Arun Suri (JD No. 3) also extended a guarantee for the repayment of the loan and Blue Coast Hotels and Resorts Ltd (JD No. 4) stood surety. 3. Disputes had arisen between the parties with regard to the repayment of the loan. The said disputes were referred to arbitration of the said sole arbitrator. However, during the pendency of the arbitration proceedings, the parties negotiated the settlement and presented a Memorandum of Settlement dated 27.5.2003 in respect of the said ICD Agreement dated 19.9.2002. By virtue of the said settlement the judgment debtors acknowledged their joint and several liability to pay to the decree holder a sum of ₹ 5,46,74,808/- towards principal and overdue interest calculated up to 7.5.2003 at the rate of 30% per annum at monthly rests. It was also agreed and understood by the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and affidavits as well as statement of their counsel Mr. Ashish Aggarwal, Advocate. 6. It is declared that the terms of the Settlement set out in Memorandum of Settlement is perfectly in accordance with law and nothing stated therein is against the public policy of India. 7. It is further directed that in the event of market price of the pledged shares of M/s Blue Coast Hotels Resorts Ltd. falls below ₹ 70/- per equity share, the Respondents shall make up the deficiency in the short fall in the security within a weeks time from the date of receipt of notice, failing which default will be deemed completed. 8. It is lastly directed that in case Respondents make payment ahead of schedule, running of interest on the amount paid shall stop and the said payment shall be duly accounted for in the outstanding amount. 9. The fee of the Arbitrator has been paid in terms of the order dated 04.06.2003. 4. As indicated above, the Award provided that in the event of the judgment debtors making payment in terms of the Memorandum of Settlement, the decree holder would give a rebate at the rate of 13% so that interest would be payable at the rate of 17% per annum wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutable as a decree of the Court and it is in this context that the present petition for execution of the decree has been moved. It was, therefore, prayed that, in execution of the award which has become a decree, warrants of attachment be issued against the judgment debtors' properties indicated in paragraph 10 of the application. Objections of the judgment debtors: 7. The judgment debtors filed their objections under Section 47 of the Code of Civil Procedure, 1908. The objection taken is that the rate of interest payable under the Inter Corporate Deposit at the rate of 36% per annum as also under the Memorandum of Settlement incorporated in the consent award at the rate of 30% per annum with monthly rests or interest at 17% per annum with monthly rests is illegal. It is the contention of the judgment debtors that commercial transactions between private persons in the State of Delhi are governed by the Usurious Loans Act, 1918 as amended and made applicable to the State of Delhi by the Punjab Relief of Indebtedness Act. According to the judgment debtors by virtue of the provisions of the Usurious Loans Act, 1918 as applicable to Delhi and more particularly Section 3 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t award which is final and binding and enforceable as a decree cannot be reopened by the Executing Court, when there is no allegation of inherent lack of jurisdiction insofar as the arbitrator who made the award is concerned; (iv) In any event, the Arbitration and Conciliation Act, 1996 is a special legislation and a complete Code and the only way in which an arbitral award can be challenged is by filing a petition under Section 34 thereof. No such petition was filed in the present case and, therefore, the Executing Court would not be permitted to go behind the award because if that were to be done, then it would amount to do something indirectly which cannot be done directly. These in brief are the contentions raised by Mr. Harish Malhotra, the learned Senior Counsel appearing on behalf of the decree holder. He referred to various decisions in support of his submissions which shall be considered hereinbelow. Submissions on behalf of the judgment debtors: 9. Mr. Valmiki Mehta, the learned Senior Counsel who appeared on behalf of the judgment debtors, submitted contrarywise. Firstly, he submitted that The Usurious Loans Act, 1918 was applicable to the present proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his question, it would be necessary to refer to the relevant provisions of The Usurious Loans Act, 1918 as applicable to Delhi. Section 2(iii) of the said Act defines the expression 'suit to which this Act applies' to mean 'any suit - (a) for the recovery of a loan made after the commencement of this Act; or (b) for the enforcement of any security taken or any agreement, whether by way of settlement of account or otherwise, made, after the commencement of this Act, in respect of any loan made either before or after the commencement of this Act; or (c) for the redemption of any security given after the commencement of this Act in respect of any loan made either before or after the commencement of this Act. Section 3 of the Act is relevant and, in the form applicable to Delhi, reads as under: 3. Reopening of transactions. - (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court has reason to believe: (a) that the interest is excessive; or (b) that the transaction was, as between the parties thereto, substantially unfair, the Court shall exercise all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditor. (d) In considering whether a transaction was substantially unfair, the Court shall take into account all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same were known, or must be taken to have been known, to the creditor. (e) The Court shall deem interest to be excessive if it exceeds seven and a half per centum per annum simple interest or is more than two per centum over the Bank rate, whichever is higher at the time of taking the loan, in the case of secured loans, or twelve and a half per centum per annum simple interest in the case of unsecured loans: Provided that the Court shall not deem interest in excess of the above rates to be excessive if the loan has been advanced by the Imperial Bank of India or any bank included in the Second Schedule, Reserve Bank of India Act, 1934, or any banking company registered under the Indian Companies Act, 1913, prior to the first day of April, 1937, or any cooperative society under, the Co-operative Societies Act, 1912. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a specific meaning by virtue of Section 2(3) of The Usurious Loans Act, 1918 and, therefore, the argument of Mr. Mehta that the word 'suit' must be considered in its generic sense as including any proceeding cannot be accepted. 12. Mr. Mehta had referred to a decision of the Supreme Court in the case of Patel Roadways Ltd v. Birla Yamaha Ltd. AIR 2000 SC 1461. In that decision the Supreme Court was, inter alia, considering whether Section 9 of the Carriers Act, 1865 is applicable to a proceeding under the Consumer Protection Act, 1865. The expression used in Section 9 of the Carriers Protection Act, 1865 was 'in any suit brought against a common carrier for the loss, damage or non-delivery owing to the negligence or criminal act of the carrier, his servants or agents.' It was contended before the Supreme Court that the use of the term 'suit' in Section 9 of the Carriers Act shows that the provision is applicable only to cases filed in a civil Court and does not extend to proceedings before the National Commission which is a forum which is to decide complaints by consumers following a summary procedure. The Supreme Court observed that the term 'suit& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... express statutory provisions of the Carriers Act in a proceeding in which a claim is made against a common carrier as defined in the said Act. The Supreme Court was of the view that accepting such a contention would defeat the object and purpose for which the Consumers Protection Act was enacted. It, therefore, concluded that a proceeding before the National Commission, in its considered view, comes within the term 'suit' as appearing in Section 9 of the said Carriers Act. 13. This decision does not in any way militate against the contention that the present Execution proceedings would not fall within the expression 'any suit to which this Act applies' appearing in Section 3 of The Usurious Loans Act, 1918. In Patel Roadways Ltd (supra), the Supreme Court itself made it clear that the meaning of the term 'suit' also depends on the context of its user which, in turn, amongst other things, depends on the Act or the Rule in which it is used. Apart from that the Supreme Court's view that the term 'suit' was used in its generic sense and covered proceedings before the National Commission was also rendered on the basis that the word 'suit' h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls within Part I of this Act provides for settlement. It reads as under: 30. Settlement. - (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement. (2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. 3. An arbitral award on agreed terms shall be made in accordance with Section 31 and shall state that it is an arbitral award. 4. An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute. Reading Section 30 it is quite clear that the arbitrator is fully empowered to record a settlement where parties settle their disputes and the arbitrator is also empowered to terminate the proceedings upon recording such settlement in the form of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1908) in the same manner as if it were a decree of the Court. An analysis of the aforesaid provisions would lead us to the following conclusions: (i) There can be no interference with respect to matters covered under Part I of the Arbitration and Conciliation Act, 1996 except where it is so provided. This is notwithstanding anything contained in any other law for the time being in force; (ii) An arbitral tribunal is fully empowered to record a settlement between the parties settling their disputes and to make an arbitral award on agreed terms; (iii) Once an arbitral award on agreed terms is made, it shall have the same status and effect as any other arbitral award on the substance of the disputes. There is no distinction between an arbitral award on agreed terms or an arbitral award on the substance of the disputes. (iv) Recourse to Court against an arbitral award can be had only by an application for setting aside such award under Section 34 of the Arbitration and Conciliation Act, 1996 and that, too, within the period stipulated under Section 34(3) thereof. (v) Where no application under Section 34 is made during the stipulated period, the award is to be enfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on all the grounds on which an agreement can be challenged. He, therefore, contended that the arbitral award made in the present case, being a consent award, could not be regarded as an award on the merits of the disputes made by the arbitrator after due application of mind. The award remained merely an agreement between the parties with the arbitrator merely recording the same. Therefore, the agreement being in violation of the provisions of The Usurious Loans Act, 1918 would be a nullity and, therefore, would not be enforceable or executable. Of course, I have already held that the present proceedings do not fall within the purview of Section 3 of The Usurious Loans Act, 1918 and, therefore, there is actually no necessity to examine this issue any further. However, since elaborate arguments were advanced, I am expressing my view for the sake of completeness. There is no doubt that in some of the decisions cited by Mr. Mehta, the Supreme Court held that a compromise decree does not stand on a higher footing than any agreement and that the same would be liable to be set aside on any of the grounds which invalidate the agreement. One such decision is in the case of The Ruby Sales a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed in terms of Order XXIII Rule 3 of the Code of Civil Procedure, 1908 and a decree which is a formal expression of an adjudication, such a distinction between an arbitral award on agreed terms and an arbitral award on the substance of a dispute is barred in view of the express provisions of Section 30(4) of the Arbitration and Conciliation Act, 1996. Therefore, the decisions relied upon by Mr. Mehta would have no application to the facts of the present case. 19. A plain and simple reading of the provisions of law makes it clear that the award made by an arbitral tribunal is to be enforced as a decree and, therefore, nothing can be done by the Court, even if it is assumed that the Court can in the present fact situation exercise jurisdiction under Section 3 of The Usurious Loans Act, 1918, which in any manner affects the decree. It is clear that the expression 'any decree of a Court' appearing in the proviso in Section 3(1) of The Usurious Loans Act, 1918 does include reference to an arbitral award inasmuch as it is enforceable in much the same manner as a decree of the Court. 20. It may be mentioned that there are some decisions of the Supreme Court which say th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in C. Gangacharan v C. Narayanan: in paragraph 4 that: It is now well settled that the executing court cannot go behind the decree of a court of competent jurisdiction except when the decree is void ab initio or without jurisdiction.... In Rafique Bibi (Dead) By Lrs v. Sayed Waliuddin (Dead) by Lrs. and Ors. , the Supreme Court further observed that the lack of jurisdiction must be patent. In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman and Ors. the Supreme Court also held that the executing court cannot go behind the decree and that the Executing Court cannot entertain any objection that the decree was incorrect in law or in facts. In view of these overwhelming pronouncements of the Supreme Court, there is no scope for this Court as an Executing Court from going behind the award which is to be enforced as a decree of the Court. There is no allegation that the arbitral tribunal lacked jurisdiction in any manner whatsoever. There is also no allegation that the parties had entered into an agreement for settlement by virtue of any fraud or misrepresentation. The only point urged by the judgment debtors is that the interest rate agreed upon by them was exorbitant and exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties and recorded by the arbitral tribunal is not without jurisdiction and is also not contrary to law. IV: Can the judgment debtors challenge the award in execution proceedings, having chosen not to file a petition under Section 34 of the Arbitration and Conciliation Act, 1996? 22. The broad parameters concerning this question have already been discussed above. The position is that if the objections preferred by the judgment debtors are to be accepted then, it would amount to the setting aside of the arbitral award. Such a course is permissible only under Section 34. But, the judgment debtors did not file any application under Section 34 of the Arbitration and Conciliation Act. Instead, after making some payment under the arbitral award, they have moved these objections, the object of which is to set aside the arbitral award. Such a course of conduct cannot be permitted as it would amount to permitting the judgment debtors to do something indirectly which they cannot do directly. The judgment debtors did not file any application within the time prescribed under Section 34 of the Arbitration and Conciliation Act, 1996 and have lost their right, even if they had one, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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