2011 Supreme(SC) 1076

2011 (8) Supreme 44
SUPREME COURT OF INDIA
Altamas Kabir, Cyriac Joseph and Surinder Singh Nijjar, JJ
Leela Hotels Ltd. — Appellant
versus
Housing & Urban Development Corporation Ltd. — Respondent
Civil Appeal No.9763 of 2011
(Arising out of SLP(C) No.18509 of 2009)
Decided on : 15-11-2011

IMPORTANT POINT
Indian Contract Act, 1872 ¯ Sections 59 to 61 ¯ Appropriation of payments ¯ When monies are received without a definite appropriation on one side or the other, well established rule is that in ordinary cases in these circumstances, the money is first applied in payment of interest, and when that is satisfied, in payment of capital. The creditor to whom principal and interest are owed are entitled to appropriate any indefinite payment to the payment of interest.

Headnote:(a) Indian Contract Act, 1872 ¯ Sections 59 to 61 ¯ Respondent-HUDCO inviting offers for grant of lease of a plot of land for construction of a Five Star Hotel thereupon ¯Appellant being the highest bidder respondent issuing a letter of allotment followed by a perpetual sub-lease ¯ Appellant paying 40% of the consideration amount, the second and third instalment of the remaining amount were payable by 31.3.1998 and 31.3.1999 respectively with clear stipulation that in case of default of second and third instalments, the second and third instalments could be paid along with interest of 20% per annum within three months from the due dates, on failure even in terms of relaxation, the allotment would be automatically cancelled, and 50% of the amount paid by the appellant upto that date would stand forfeited and balance 50% would be refunded without interest ¯ Appellant paying second instalment but not paying third instalment, hence respondent canceling lease agreement and as per terms of agreement refunding 50% of the total amount paid by the appellant and forfeiting the balance 50% ¯ Arbitrator appointed on appellant’s application allowing the claim of the appellant and rejecting the counter-claim of the respondent ¯ High Court dismissing the objection under Section 34 filed by the appellant on 21.1.2003 ¯ Before the dismissal of the objection respondent on 21.10.2002 depositing the principal sum Rs. 89,78,84,930/- without prejudice to the rights and contentions of the respondent, stating that the amount deposited represented the net principal amount due and payable to the appellant under the award, without liability on its to pay future interest them ¯ Respondent filing special appeal before Supreme Court ¯ On 12.2.2008, the Supreme Court dismissed the Special leave petition but reducing the rate of interest for the pre-award period from 20% to 18% per annum ¯ Respondent paying Rs. 59.61 crores to the appellant on 23.3.2006 and further a sum of Rs. 48.09 crores on 16th April 2008 ¯ Respondent contending that satisfied the arbitrator’s award ¯ In the impugned judgment, Division Bench of the High Court holding that the respondent had agreed to deposit the sum of Rs. 89,79,84,930/- towards the principal amount and the said amount was appropriated by the appellant towards the principal amount ¯ Hence this appeal ¯ Held, the amount was deposited and accepted by the appellant without prejudice to its rights and contentions in appeal ¯ Since the appellant accepted the amount under protest, the appellant was entitled to appropriate the amount towards interest falling due by the date ¯ Appeal allowed.

        (b) Indian Contract Act, 1872 ¯ Sections 59 to 61 ¯ Appropriation of payments ¯ When monies are received without a definite appropriation on one side or the other, well established rule is that in ordinary cases in these circumstances, the money is first applied in payment of interest, and when that is satisfied, in payment of capital. The creditor to whom principal and interest are owed are entitled to appropriate any indefinite payment to the payment of interest. In the instant case the amount of Rs. 89,79,84,930/- of the award deposited by the respondent was accepted by the appellant without prejudice to its rights and contentions in appeal ¯ Since the appellant accepted the amount under protest, the appellant was entitled to appropriate the amount towards interest falling due by the date. (Para 26)

        (c) Arbitrator and Conciliation Act, 1996 ¯ Section 36 ¯ The language used in Section 36 of the Arbitration and Conciliation Act, 1996, makes it very clear that such an Award has to be enforced under the Code of Civil Procedure in the same manner as it were a decree of the Court. (Para 30)

       Facts of the case

        On 17th October, 1996, the Housing and Urban Development Corporation Ltd. (HUDCO) invited offers for grant of sub-lease of land measuring 11,480 sq. meters in HUDCO Place situated in Andrews Ganj, New Delhi, for construction of a Five-Star Hotel thereupon. The Appellant herein being the highest bidder, a letter of allotment of the said land was issued to it on 31st March, 1997, which was followed by a perpetual sub-lease dated 4th July, 1997. Out of the total consideration, the first instalment comprising 40% of the consideration amount was paid by the Appellant on 10th April, 1997. The second and third instalments, each amounting to Rs.65,38,29,000/-, were payable by 31st March, 1998, and 31st March, 1999, respectively. It was stipulated in the sub-lease that in case of default in payment of the second and third instalments, the same could be paid along with interest at the rate of 20% per annum within three months of the due date. It was further stipulated that in default of payment even in terms of the said relaxation, the allotment would automatically stand cancelled and in such event 50% of the amount paid upto that date would stand forfeited and the balance 50% would be refunded without interest. The second instalment was paid by the Appellant along with interest for the delayed payment and ground rent was also paid till 31st March, 1998. Since, however, the Appellant defaulted in payment of the third instalment, the lease agreement was cancelled and as per the terms of the agreement 50% of the total amount paid by the Appellant amounting to Rs.76,28,00,500/- was refunded by the Corporation to the Appellant, while forfeiting the balance 50%. Arbitrator appointed on appellant’s application allowed the claim of the appellant and rejected the counter-claim of the respondent. High Court dismissed the objection under Section 34 filed by the appellant on 21.1.2003. Before the dismissal of the objection respondent on 21.10.2002 deposited the principal sum Rs. 89,78,84,930/- without prejudice to the rights and contentions of the respondent, stating that the amount deposited represented the net principal amount due and payable to the appellant under the award, without liability on its to pay future interest them. Respondent filed special appeal before Supreme Court. On 12.2.2008, the Supreme Court dismissed the Special leave petition but reduced the rate of interest for the pre-award period from 20% to 18% per annum. Respondent paid Rs. 59.61 crores to the appellant on 23.3.2006 and further a sum of Rs. 48.09 crores on 16th April 2008. Respondent contended that satisfied the arbitrators award. In the impugned judgment, Division Bench of the High Court held that the respondent had agreed to deposit the sum of Rs. 89,79,84,930/- towards the principal amount and the said amount was appropriated by the appellant towards the principal amount. Hence this appeal. Appeal allowed.

       Findings

        Held, the amount of Rs. 89,79,84,930/- was accepted by the appellant without prejudice to its rights and contentions in appeal. Since the appellant accepted the amount under protest, the appellant was entitled to appropriate the amount towards interest falling due by the date.