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Morgan Securities And Credits Pvt. Ltd. Versus Morepen Laboratories Ltd.

Dated:- 17-7-2006 - Badar Durrez Ahmed, J. JUDGMENT Badar Durrez Ahmed, J. 1. These applications have been filed under Order 47 read with Section 151 of the Code of Civil Procedure, 1908 by way of objections to the Execution Petition. The Execution Petition has been filed by the Decree Holder for execution of the consent award made and published by the Sole Arbitrator Justice A.P. Chowdhri (Retired) on 28.6.2003. BACKGROUND: 2. As noted in the Award the Decree Holder had advanced a loan of ͅ .....

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payment of principal amount or any part thereof 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 H .....

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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 parties that the judgment debtors shall also pay interest at the rate of 30% per annum on monthly rests basis on the amount aggregating to ₹ 5,46,74,808/- outstanding as on 7.5.2003 till the actual date of payment. The other terms and conditions are mentioned in .....

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6 by any of the parties. On the basis of the said settlement, joint application and statements, the learned Arbitrator made the Award on the following agreed terms: 1. That the Respondents are jointly as well as severally liable to pay the debt. due and payable to the Claimant as per Annexure 'A' of the Settlement Agreement towards principal and interest on principal calculated @ 30% p.a. at monthly rest from the due date of ICD i.e. 17.01.2003 till the date of payment. 2. It is declared .....

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s mentioned in clause 4 of Settlement Agreement, then (i) the pledge will become enforceable forthwith which includes the right of sale of shares pledged; (ii) the entire balance amount of debt due and payable under this Award shall become recoverable in lump sum and the Award become executable forthwith. 4. It is directed that the Memorandum of Settlement dated 27.05.2003 including Annexures 'A', 'B' and 'C' referred to above shall form an integral part of this Award. 5. .....

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esorts 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 .....

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Award that if the judgment debtors failed to make the payment in terms of the installments in Annexure-B to the Memorandum of Settlement, the entire amount, as mentioned in Annexure-A would become due and payable forthwith to the decree holder. 5. The decree holder has stated that after the said award, the judgment debtors had paid only a sum of ₹ 12,50,000/- and, thereafter, they failed to pay any amount and the three cheques which had fallen due on 20.9.2003, 20.10.2003 and 20.11.2003 w .....

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able to pay interest at the rate of 30% per annum with monthly rests till such time the entire amount was paid by them to the decree holder. It is under these circumstances that the present petition for execution of the decree has been filed. 6. The decree holder has contended that the award was made under Section 30 of the Arbitration and Conciliation Act, 1996. The parties had agreed not to challenge the award. However, in any event, an award made under the said Act could be challenged only un .....

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Act as also the grace period of one month had expired and the judgment debtors had not challenged the award. That being the case the award not only attained finality but also became executable 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 .....

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ent 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 thereof, the maximum rate of interest which is chargeable for a secured loan is 71/2% per annum and 121/2% per annum for an .....

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n, the Court is bound to reopen the whole transaction between the parties and pass such further directions by determining the amount payable or directing the refund, wherever so required. It was also contended on behalf of the judgment debtors that the consent award is not an adjudication on merits. The said award dated 28.6.2003 simply reproduces the agreed terms as stated in the Memorandum of Settlement dated 27.5.2003. According to the judgment debtors, as the learned Arbitrator had not appli .....

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able to the present proceedings which were conducted under the Arbitration and Conciliation Act, 1996. Section 3 would be applicable to suits. The present proceeding does not emanate from a suit; (ii) In any event, even under Section 3 of The Usurious Loans Act, 1918, the proviso thereto makes it clear that the said Section is not applicable to 'any decree of a Court.' By virtue of the provisions of Section 36 of the Arbitration and Conciliation Act, 1996, the award dated 28.6.2003 has t .....

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vent, 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. Hari .....

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eneric sense and covers the present proceedings. Secondly, he submitted that a distinction must be drawn between a decree on merits and a consent decree. The decree that is referred to in the proviso to Section 3 is a decree on merits and not a consent decree. According to Mr. Mehta, a consent decree is nothing more than a contract which has the imprimatur or seal of the Court and the same can be challenged on any ground on which a contract can be challenged. Thirdly, he submitted that the objec .....

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came final and binding and enforceable and, as such cannot be brushed aside by the Executing Court, is incorrect because, according to him, even a compromise decree of a Civil Court in a regular suit can be challenged by way of appeal under Order XLIII Rule 1A (2) of the Code of Civil Procedure, 1908 and, as such, objections in execution of such a compromise decree can be entertained by the executing Court. Mr. Mehta also referred to a number of decisions in support of his submissions. The same .....

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cution proceedings, having chosen not to file a petition under Section 34 of the Arbitration and Conciliation Act, 1996? The answers are: I, No; II. Yes; III. No; IV. No. The reasons for which are mentioned hereinbelow. I. Does The Usurious Loans Act, 1918 apply to the present proceedings? 11. In order to examine this 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 &# .....

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ore 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 or an .....

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rder the creditor to repay any sum which it considers to be repayable in respect thereof; (iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem just: Provided that, in the exercise of these powers, the Court shall not- (i) re-open any agreement purporting to close previous dealings and to create a n .....

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sonable having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the date of the loan. (b) In considering whether interest is excessive under this section, the Court shall take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premia, renewals or any other charges and if compound interest is charged, the periods at which it is calculated, and the total advantage which may reasonably be t .....

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aterially 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 o .....

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society under, the Co-operative Societies Act, 1912. Explanation.- Interest may be itself be sufficient evidence that the transaction was substantially unfair. (3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security. (4) Nothing in this section shall affect the rights of any transferee for value who satisfies .....

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Section 3 of The Usurious Loans Act, 1918 as applicable to Delhi, it is clear that reopening of transactions is contemplated 'in any suit to which this Act applies' and if, while dealing with such suit, the Court has reason to believe that either the interest is excessive or the transaction as between the parties thereto is substantially unfair. It is then, that the Court is enjoined to exercise the powers specified in Sub-clauses (i), (ii) and (iii) of Clause (b) of Sub-section (1) of S .....

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edemption 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.' On a plain reading of these provisions, it is abundantly clear that transactions can be reopened only by the Court in which any such suit is pending adjudication. It does not extend to any Executing Court. Furthermore, the expression 'suit to which this Act applies' has been given a specific meaning by virtue of Section 2(3) of The Usuri .....

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ression 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 whic .....

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Ayar's Law Lexicon 1997 Edition wherein the term was defined as under: 'Suit' Prosecution of pursuit of some claim, demand or request, the act of suing, the process by which one endeavors to gain an end or object, attempt to attain a certain result; the act of suing, the process by which one gains an end or object, an action or process for the recovery of a right or claim, the prosecution of some demand in a Court of Justice, any proceeding in a Court of Justice in which plaintiff p .....

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nification than action it may include proceedings on a petition.' The Supreme Court, referring to the above, came to the conclusion that the term 'suit' is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right vested in him under law. However, the Supreme Court significantly noted 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 .....

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s to be decided ignoring the 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 .....

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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' had not been defined in the Carriers Act. In the present case, I find that the expression 'suit to which this Act applies' has been specifically defined, inter alia, as a suit for recovery of a loan or for redemption of any security or for enforcement of any security .....

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Section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security.' Therefore, call it a suit or proceeding, in whichever form, it must be an action which is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of the loan or for the redemption of any such security. It i .....

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termination of the rights of the parties. Execution proceedings pending before an Executing Court for execution of a decree would definitely not fall within the ambit of the action contemplated. 15. At this juncture, it would be relevant to note some provisions of the Arbitration and Conciliation Act, 1996. Section 5 of this Act limits the extent of judicial intervention and provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part .....

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ourage 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 an .....

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tant is that Sub-Section (4) of Section 30 provides that an arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute. This clearly stipulates that whether it is an award on agreed terms or an award on the substance of a dispute the effect and status is the same. And, therefore, in terms of Section 30(4) no distinction can be made between an award made on merits and an award made on agreed terms. This aspect of the matter wou .....

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). This implies that an arbitral award can only be set aside by way of an application under Section 34 and by no other proceeding. Sub-section (3) of Section 34 stipulates that such an application for setting aside of the arbitral award cannot be made after three months have elapsed from the date on which the party making that application had received the arbitral award. The proviso to Section 34(3) permits the making of such application within a further period of 30 days if the Court is satisfi .....

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cation to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 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 provid .....

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he 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 enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. 17. The proceeding .....

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ing in the proviso to Section 3(1) of The Usurious Loans Act, 1918 cover the arbitral award made on agreed terms? 18. Mr. Harish Malhotra, the learned Senior counsel appearing on behalf of the decree holder submitted that, in any event, the proviso contained in Section 3(1) of The Usurious Loans Act, 1918, inter alia, categorically stipulates that the Court shall not do anything which affects any decree of a Court. His submission is that once there is a decree of a Court, then, even if the Court .....

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decree of the Court. Thus, once an Execution Petition is filed for enforcement of an award, under Section 36 of the Arbitration and Conciliation Act, it is to be enforced in the same manner as if it were a decree of the Court. Therefore, the arbitral award passed in this case would also be treated as a decree of the Court and would fall within the contemplation of the proviso to Section 3(1) of The Usurious Loans Act, 1918. Mr. Valmiki Mehta submitted that a decree which is not an adjudication b .....

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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 neces .....

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. State of Maharashtra and Ors. . Another decision is in the case of Union Carbide Corporation and Ors. v. Union of India and Ors. . The Supreme Court observed that a consent order does not entail any adjudicative imposition of the Court. A consent order is merely a setting of a seal of the Court which is essentially an agreement which is open to challenge on any ground on which an agreement could be set aside. Another decision is in the case of Devkaran Nenshi Tanna (dead) by L.Rs v. Manharlal .....

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ls. It must be noted that no exception can be taken with regard to the settled principles of law indicated in the aforesaid decisions of the Supreme Court. The question is whether those principles are applicable to the facts of the present case. One must keep in mind the distinction between a decree passed in a suit and an award made by an arbitral tribunal. The two are on different footings. While a decree in a suit is appealable, an arbitral award can be set aside on very limited grounds and t .....

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and Conciliation Act, 1996 contained in Section 30(4) thereof stating that an arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute, there is no such or similar provision in the Code of Civil Procedure, 1908. So while a distinction may be made between a consent decree or a decree on compromise 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 adjudi .....

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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 .....

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by fraud, mis-representation, mis-understanding or mistake, a decree passed thereon has the binding force of res judicata. Then, there is a decision of the Supreme Court in the case of Salendra Narayan Bhanja Deo v. State of Orissa wherein in paragraph 8 thereof, the Supreme Court observed that a judgment by consent or default is as affective as an estoppel between the parties as a judgment whereby the Court exercises its mind on a contested case. In Byram Pestonji Gariwala v. Union Bank of Indi .....

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The appellant never raised any doubt as to its validity and genuineness and he had no case that the decree was vitiated by fraud or misrepresentation or his counsel lacked validity to enter into compromise on its behalf. Nevertheless, after six years he questioned its validity by summons. The Supreme Court observed that this was rightly rejected by the High Court for reasons of delay, estoppel or res judicata. Similar considerations also arise in the present case and the judgment debtors cannot .....

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agraph 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 t .....

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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 excessive and was hit by Section 3 of The Usurious Loans Act, 1918. But, that agreement has already culminated in the making of the arbitral award which has to be enforced in the same manner as a decree of the Court and, accordingly, this Court cannot go behind the said decree. It may also be mentioned that the passing of an order on interest at the ti .....

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at the rate of 18% per annum from the date of the award to the date of payment. Assuming for the sake of argument, that an arbitral award had been made only for the return of the principal amount then by virtue of Section 31(7)(b), it would carry interest at the rate of 18% per annum from the date of the award to the date of payment. Would this provision be considered to be hit by Section 3 of The Usurious Loans Act, 1918? The obvious answer is, No. It would not because the Arbitration and Conci .....

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8 contains a non-obstante clause but it is with regard to the Usury Laws Repeal Act, 1855 and not any other Act. The Arbitration and Conciliation Act, 1996 is also later in time and, therefore, even if there is a conflict the latter would apply. Leges posteriores priores contrarias abrogant. Anyhow, these are considerations which do not require determination in the present case and have been discussed only because Mr. Harish Malhotra, the learned Counsel for the decree holder had made the submis .....

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