TMI Blog2009 (7) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... each case: (a). An Inter Corporate Deposit Agreement between M/s Ganga Automobiles Ltd. and the petitioner in each case. In the said agreements, identical in language, M/s Ganga Automobiles Ltd. is described as the borrower and the petitioner in each case as the lender. The language of the said agreements is inter-alia as under: Whereas the borrower is at present in need of financial assistance for the usual business operations of the company and had approached the lender for the same by way of Inter Corporate Deposits. And whereas lender has agreed to grant to the borrower the required Inter Corporate Deposit herein after referred to as ICD (of Rs. 1 crores in favour of petitioner M/s Poysha Oxygen Pvt. Ltd. and Rs. 2.70 crores in favour of petitioner M/s Goyal MG Gases Ltd.) on the above representation of the borrower, for a period of 90 days at an interest rate of.... In view of the above consideration lender has advanced on this day the sum of (Rs. 1 crores in case of petitioner M/s Poysha Oxygen Pvt. Ltd. and Rs. 2.70 crores in case of petitioner M/s Goyal MG Gases Ltd.) to the borrower as ICD for a period of 90 days at an interest rate of 30% per annum payable...the receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the lender. The guarantor hereby agrees and undertakes to make without delay, demur or protest on first demand the payment of any or all of the obligations that may become payable at any point of time even if the borrower in any way refuses, defaults, denies, disputes or fails to pay or reimburse the due amounts to the guarantor or to lender or otherwise. 4. Needless to mention that all the aforesaid documents contained an arbitration clause. 5. Disputes and differences having arisen between the parties, an arbitrator was appointed and the petitioner in each of the cases claiming default of M/s Ganga Automobiles Ltd. and the respondents herein as guarantors preferred claims against them. 6. The respondents herein as well as M/s Ganga Automobiles Ltd. filed a joint reply to the claims of each of the petitioner. It was inter- alia their case that a fortnight before 14th February, 1997 the representatives of the petitioners had a meeting with Sh. Ashwini Suri and Sh. G. Sagar Suri i.e respondents No. 1 2 herein and had promised to provide them a temporary loan of Rs. 2.70 crores and Rs. 1 crore respectively provided corporate guarantee was given for that purpose by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents herein and M/s Ganga Automobiles Ltd. continued to appear for the respondents. 9. The arbitrator has in the award held that the Inter Corporate Deposit Agreement executed by M/s Ganga Automobiles Ltd. in favour of the petitioners was for consideration. The arbitrator for holding M/s Ganga Automobiles Ltd. liable to both the petitioners has held that it is an admitted fact that as on 14th February, 1997 the said M/s Ganga Automobiles Ltd. owed Rs. 2.70 crores and Rs. 1 crore respectively to the petitioners on the basis of previous agreements and further that in terms of the previous agreements, M/s Ganga Automobiles Ltd. was a guarantor and in the transaction on 14th February, 1997 it became the principal borrower. The arbitrator has further found that the respondent No. 1 herein Sh. Ashwini Suri being the Managing Director of M/s Ganga Automobiles Ltd. was aware of the transaction in question and of the existing liability of M/s Ganga Automobiles Ltd. and further found that in case fresh documents were not to be executed, the petitioners would have immediately taken legal steps for recovery of admitted liabilities. The arbitrator held forbearance to enforce legal right is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents. 13. The senior counsel for the petitioners has made a short submission. He has contended that the award is contrary to public policy because the claims have been allowed against M/s Ganga Automobiles Ltd. from which nothing can be recovered, having been ordered to be wound up and have been declined against the respondents from whom alone the monies could be recovered. It is argued that the arbitrator has thus left the petitioners with a paper decree; umbilical cord of the documents executed by all the respondents was stated to be the monies which the arbitrator also has found to have been advanced by the petitioners to the respondents. Contradiction is also pointed out in the award, in at one place holding forbearance to be a good consideration and at another place holding otherwise. It is further argued that once the monetary award had been made against the principal borrower, the award is unfair in holding the guarantees to be bad. It is further contended that there are inconsistencies and contradictions in allowing the claim against respondent Sh. Ashwini Suri in one case and disallowing it in the other, and it is further contended that what is good against Sh. Ashwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee and need not appear in writing. Reference was also made to Jagadindranath Roy v. Chandranath (1904) 31 Cal 242 where the surety bond was executed two years after the deed and it was held that the demand for fresh surety was made and the surety became a fresh surety in order to save the principal debtor from the results of failure to comply with the demand of the creditor and as such the execution of the surety resulted in advantage to the debtor and therefore was sufficient consideration for execution of the surety bond. With reference to illustration (c) to Section 127 (Supra) it was held, that the same cannot cut down the amplitude of Section 127 and though an illustration to a section could not be readily assumed to be repugnant thereto, reliance was placed on Shambhu Nath Mehra v. The State of Ajmer holding that an illustration does not exhaust the full content of the section which it illustrates but equally it can neither curtail nor expand its ambit. ii. Illustration (c) to Section 127 also came up for consideration before the Division Bench of the Gujarat High Court in State Bank of India v. Smt. Kusum Vallabhdas Thakkar It was held that this kind of illustration wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarly held that there being no ambiguity in the language of Section 127, illustration c. could not be read as abridging or explaining the same. v. Another Division Bench of the Gujarat High Court in State Bank of India v. Premco Saw Mill : AIR 1984 Guj 93 held that it is a settled legal position that if the document is stating some wrong consideration, oral evidence can be given to show that real consideration was other than what has been stated in the document. In that case also the guarantee deeds were executed as if the payments were to be made to the principal debtor in future when in fact the loans had already been advanced and they were not to be advanced afresh at the time of or subsequent to the agreement of guarantee. So ex facie the consideration mentioned in the guarantee deed was incorrect. However, the court found that consideration for which the guarantee was given was in the knowledge of the parties and the language of the guarantee bond was held to be immaterial. vi. As far as this Court is concerned, I find that a single judge in Rattantrya Dhari Jain v. S. Avtar Singh held that Section 128 of the Contract Act says that anything done or any promise made can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the courts have refused to read the illustration (c) to Section 127 literally as done by the arbitrator. In view of the said settled position of law, there is no option but to hold the award to the extent declining the claim of the petitioners against the respondents Sh. G. Sagar Suri and M/s Delhi Auto as well as partly against the respondent Sh. Ashwini Suri as contrary to law. As per the law laid down in ONGC Ltd. v. Saw Pipes Ltd. [2003]3SCR691 , the same would constitute a ground for setting aside of the award to the said extent. 18. However, I would be failing in my duty if I do not refer to judgments taking a contrary view of Section 127 and/or illustration (c) thereto. 19. Reference may first be made to Ram Narain v. Lt. Col. Hari Singh where a single judge held on the basis of illustration (c) to Section 127 that anything done or any promise made for the benefit of the principal debtor must be contemporaneous to the surety's contract of guarantee in order to constitute consideration therefore .It was further held that a contract of guarantee executed afterwards without any consideration is void. Reliance was placed upon Nanak Ram v. Mehin Lal (1875) ILR 1 All 487 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Ganga Automobiles Ltd. and the respondents/guarantors. 23. In fact it was the case of respondents and M/s Ganga Automobiles Ltd. in their reply before the arbitrator that the transaction of the petitioners was with Sh. Ashwini Suri and Sh. G. Sagar Suri. Thus not only from the pleadings of the respondents, the involvement of the respondent Sh. G. Sagar Suri is made out but also of respondent M/S Delhi Auto, in as much as it is the pleading of Delhi Auto also that the petitioners had about 10 days prior to 14th February, 1997 met/approached the respondents Ashwini Suri and G. Sagar Suri with the offer to lend monies to Ganga Automobiles Ltd. and all the respondents had agreed to stand guarantee for the same. Once the arbitrator reached the conclusion that consideration for execution of documents was not fresh loan but past transactions, the joint case of the respondents could not be split up as done in the award. Once the case set up by the respondents was found to be false to that extent, there was no occasion for the arbitrator to give the benefit given to the respondents. The award also loses sight of the fact that it was not the case of the respondents that they were strang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd FAO (OS) No. 1 of 2004, as quoted in NTPC Ltd. v. Wig Brothers Builders Engineers Ltd. 160 (2009) DLT 642, has held that the pivotal principle while deciding the scope for interference with award on grounds of public policy is that the award can be set aside if it is patently illegal, but the illegality must go to the root of the matter and if the illegalities are of trivial nature, it cannot be held that the award is against public policy. It was further held that the award can be set aside if it was so unfair and unreasonable so as to shock the conscience of the court. 28. There is inherent danger in laying down such tests of shocking the judicial conscience of the court. for setting aside of the arbitral awards. The same is bound to lead to a lot of subjectivity; the measure/perception of such shock. and judicial conscience. being inherently different of different courts. I have been unable to find to any judgment defining the same. Rather than attempting to define the same, it is deemed necessary to set out reasons why the conscience of this Court is shocked and why the arbitral award in the present case is found to be so unfair and unreasonable so as to be set aside. 29. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call him to order. Justice Krishna Iyer in Bushing Schmitz Private Limited v. P.T. Menghani [1977]3SCR312 quoted with approval Lord Erskine there is no branch of the jurisdiction of this Court more delicate than that, which goes to restrain the exercise of a legal right . He further held But the principle of unconscionability clothes the court with the power to prevent its process being rendered a parody . 31. I also find an inherent inconsistency in the award in so far as denying the claims of the petitioner, M/s. Poysha Oxygen Pvt. Ltd. against the respondent Sh. Ashwini Suri while allowing the claim of the petitioner, Goyal MG Gases Pvt. Ltd. against him. No rationale is found in making the said distinction when the transactions in the two cases were identical. 32. I thus set aside the award in so far as disallowing the claims of the petitioners against respondents G. Sagar Suri and M/S Delhi Auto and in so far as disallowing the claim of petitioner M/S Poysha Oxygen Pvt. Ltd. against respondent Ashwini Suri. The next question which arises is as to whether the parties are to be referred back to arbitration. 33. Section 34 of the 1996 Act, literally read, empowers the court only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changes made in the Arbitration Law. If the powers of the court under Section 34 are restricted to not include power to modify, even where the court without any elaborate enquiry and on the material already before the arbitrator finds that the lis should be finally settled with such modification and if the courts are compelled to only set aside the award and to relegate the parties to second round of arbitration or to pursue other civil remedies, we would be not serving the purpose of expeditious / speedy disposal of lis and would be making arbitration as a form of alternative dispute resolution more cumbersome than the traditional judicial process. With great respect, I find myself unable to hold so. The Constitution Bench of Apex Court in SBP Co reversed the judgment of earlier Constitution Bench inter alia holding that when a statute confers a power or imposes a duty on judicial authority, that authority unless shown otherwise is to act judicially. The Constitution Bench adopted the procedure laid therein in the context of the Act and to best serve the purpose sought to be achieved by the Act of expediting the process of arbitration without too many approaches to the court at v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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