A legal battle unfolds between a leading tractor manufacturer and a dealers firm in the recent challenge against an Arbitration Award. The issue at hand revolves around the denial of interest as part of the settlement agreement between the two parties. Stay tuned to uncover the intricacies of this case before the Delhi High Court.
Facts
- The sole Arbitrator incorrectly computed the principal amount by deducting Rs. 9,74,184/- from Rs. 58,54,677/-.
- A cheque issued towards outstanding liability was dishonoured, leading to a complaint under Section 138 of the Negotiable Instrument Act, 1881.
- Renewed Agreement modified Clause 34 to refer disputes to arbitration with a sole Arbitrator appointed by the petitioner.
- Petition filed challenging the Award, claiming it goes against the MoU/Settlement Agreement terms from 05.03.2005.
- Admitted liability of Rs. 66,00,000/- reduced to Rs. 58,54,677/- in settlement, ignoring interest specified in Clause 6 of Agreement.
- Petitioner, a leading manufacturer of agricultural tractors, had Dealer Sales Agreement since 01.06.1995 with the respondent firm.
- An amicable settlement reached through MoU/Settlement Agreement on 05.03.2005 for payment of Rs. 58,54,667/- to clear all dues.
- Application for condonation of 22 days delay has been disposed of.
- Legal Notice issued on 07.02.2005 for outstanding amount of Rs. 64,55,000/-, repeated default in payment led to arbitration proceedings.
- First round of arbitration resulted in fresh arbitration due to non-appearance of some respondents.
- Part payment made through two Demand Drafts totaling Rs. 9,74,184/-, credited to petitioner’s account.
- Dealer Sales Agreement renewed multiple times, the latest being on 01.04.2005.
- The Settlement Agreement dated 05.03.2005 stated that if the respondents defaulted in payment of Rs. 58,54,677/-, they would be liable to pay Rs. 66,00,000/-
- The Sole Arbitrator’s Award on 04.05.2019 only partly allowed the petitioner’s claim, granting Rs. 48,80,493/- but denying pendente lite and future interest
- The respondents did not honor the Settlement Agreement, leading to the first round of arbitration being set aside and remanded for a second round of proceedings
Arguments
- The Arbitrator’s denial of pendente lite and future interest is deemed erroneous.
- Clause 14(d) of the Dealer Sales Agreement explicitly stated interest at the rate of 1.5% per month or 18% per annum for delayed payment.
- Citing the case of Bhai Jaspal Singh vs CCT, (2011) 1 SCC 39 in support of the petitioner’s position.
- The Arbitrator’s rationale that awarding 12% interest would be severe on the respondents is contested as it contradicts the terms explicitly agreed upon in the Dealer Sales Agreement dated 01.06.1995.
- The Award is contended to be contrary to basic notions of morality and justice as the money has been enjoyed by the respondents through the further sale of goods provided by the petitioner since 2005.
- The petitioner was deprived of its legitimate dues despite the respondents benefitting from the situation.
- The issue stems from the dishonored cheques issued by the respondents, leading to a complaint under Section 138 of the Negotiable Instrument Act in 2005.
- A final settlement was reached in March 2005, acknowledging an outstanding amount of Rs. 66,00,000, with the parties agreeing on a payment of Rs. 58,54,677 as the settlement amount.
- The challenge to the Award is primarily based on the Arbitrator’s denial of pendente lite and future interest, which was agreed upon by the parties in their settlement agreement.
Analysis
- The arbitrator determined the total payable amount as Rs. 58,54,677/- after deducting Rs. 9,74,184/-, resulting in Rs. 48,80,493/-.
- Interest amount claimed by the claimant was found to be escalated to Rs. 16,00,000/-, which the arbitrator deemed excessive.
- Considering the MoU, the total payable amount was settled at Rs. 58,54,677/- minus the credited amount of Rs. 9,74,184/-.
- In the first arbitration, Rs. 66,00,000/- was initially awarded to the petitioner but was set aside for fresh proceedings.
- The settlement agreement indicated that Rs. 66,00,000/- was outstanding, of which Rs. 58,54,677/- was agreed upon for settlement.
- The Arbitrator decided not to impose interest penalties at the rate of 12% per month due to specific circumstances.
- Interest of 12% per annum was granted by the Arbitrator from the date of the Award till the realization of the amount.
- The Arbitrator justified his decision not to award pendente lite interest, citing his discretion in providing interest.
- Scope of Section 34 of the Act, 1996 is limited to contraventions related to fundamental Indian legal principles, national interests, justice, morality, or patent illegality.
- It was established that interpretation of a contract is within the arbitrator’s purview, even if it involves determining a question of law.
- The construction of the contract agreement falls under the jurisdiction of the arbitrators.
- In the case of Pure Helium India (P) Ltd. vs Oil and Natural Gas Commission (2003) 8 SCC 593 and D.D. Sharma vs Union of India (2004) 5 SCC 325, it was established that the arbitrators have the authority to interpret the terms of the contract.
- Rashtriya Ispat Nigam Ltd. vs Dewan Chand Ram Saran (2012) 5 SCC 306 highlighted that as long as the arbitrator’s view is possible if not plausible, it is considered within their jurisdiction and not against the contract terms.
- The Ld. Sole Arbitrator provided substantive reasons for interpreting the contract
- The Arbitrator concluded that pendente lite interest should be denied based on the interpretation of the contract
- The denial of pendente lite interest cannot be reviewed in a Section 34 petition under the Act, 1996
Decision
- Application allowed, 22 days delay condoned in re-filing petition.
- Impugned Award found to have no patent illegality.
- No merit in present petition, dismissed.
Case Title: ESCORTS LTD. Vs. BENGAL TRACTORS & ORS. (2024:DHC:3831)
Case Number: O.M.P. (COMM)-414/2019
