Angel Infin Pvt. Ltd. vs Echjay Industries Ltd.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2007 Supreme(Bom) 68

2007(2) ALL MR 530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
D. K. DESHMUKH, J.
M/s. Angel Infin Pvt. Ltd. - Petitioner.
Vs.
M/s. Echjay Industries Ltd. - Respondent.
Arbitration Petition No.408 of 2006
17th January, 2007.
Advocates Appeared
Mr. H. THAKKAR, Sr. Advocate with Mr.
UMESH SHETTY and Ms. YAMINI CHANDRAN i/b M/s. Umesh Shetty & Co., for the Petitioners.
Mr. D. J. KHAMBATTA, Sr. Advocate with Mr. J. P. SEN and Ms. SITA KAPADIA i/b Federal & Rashmikant, for the Respondents.

Headnote:Arbitration and Conciliation Act, 1996 - Sections 31(7) and 34 - Interest Act, 1972, Section 3(3)(c) - Award of interest - On interest - Court under Section 3 of Interest Act not empowered to award interest on interest - However Section 31 of Arbitration Act empowered arbitrator to award interest on interest - As award includes amount of interest. - The law incorporated in this provision is that Section 3 of the Interest Act does not empower the Court to award interest on interest. In other words, the provision does not incorporate a negative mandate that no Court can award interest on interest. The only law incorporated in this provision is that Section 3 of the Interest Act does not empower the Court to award interest upon interest. Therefore, it is possible that if there is any other provision in law empowering the Court or the arbitrator to award interest upon interest. Section 3 of the Interest Act will not come into play. Perusal of the provisions of sub-section (7) of Section 31 of the Arbitration Act shows that it does not contain any prohibition like the one contained in Section 3 of the Interest Act. On the contrary, it empowers the arbitrator to award interest on the entire sum for which the award is made which may include the amount of interest.
Arbitration and Conciliation Act, 1996 - Section 34 - Limitation Act, 1963, Articles 19 and 25 - Award of interest - Recovery of loan - Payable with interest on demand - Limitation period - Extension of - Principal and interest both due - Payment towards principal or interest extends period of limitation for both. - A comparison of sub-section (1) of Section 20 of the 1908 Limitation Act as amended in the year 1942 and the provisions of Section 19 of the Limitation Act, 1963 shows that the provisions are identical and therefore, the provisions of un-amended Section 20 of Limitation Act, 1908 and the provisions of Section 20 after its amendment in the year 1942 becomes relevant to consider what is the meaning to be attached to the term "a debt" used in Section 19 of the Limitation Act, 1963. It, thus, becomes clear that initially Section 20 made a clear distinction so far as extension of period of limitation is concerned between the payment made towards principal and payment made towards interest. Perusal of the provisions of sub-section (1) of Section 20 of the Limitation Act, 1908, as amended in the year 1942 shows that the distinction made between payment made towards interest and payment made towards principal was done away with. It is clear that the Legislature wanted to extend the benefit of extension period of limitation when payment is made by the debtor to a creditor irrespective of whether payment is made towards principal or payment is made towards interest. But only requirement is that the date on which the part payment is made, both principal and interest should be due.

JUDGMENT :- Petition has been filed under Section 34 of the Arbitration & s Conciliation Act challenging the award dated 16-6-2006 made by the learned sole arbitrator partly allowing the claim made by the Respondents. The Respondents were the claimants before the arbitrator and the Petitioners were the Respondents. It was the claimant's case before the learned arbitrator that they had advanced loan of Rs.1.5 crore to the Petitioners in two branches of Rs.50 lakh and Rs.1 crore under an agreement contained in two documents dated 6th April, 1998 and dated 29th May, 1998. While the document dated 6th April, 1998 provided for interest at the rate of 30% p.a. The agreement dated 29th May, 1998 provided for payment of interest at the rate of 27% p.a. In fact the Respondents claimed interest only at the rate of 27% p.a. on the entire loan of Rs.1.5 crore before the learned arbitrator. The loan advanced initially for a period of three months was to stand automatically extended for a further period of one month in each case, unless the Respondents give a notice to the Petitioners requiring them to pay the said loan on expiry of the notice period.

2. The Petitioners did not repay the said amount within the period stipulated in the said documents nor did they make any payment towards interest due thereunder. It was the Respondents case before the learned arbitrator that thereafter in a meeting held in September, 1998, the Petitioners sought deferment of the loan and interest and promised to make lump sum payments which they requested be appropriated first towards principal and then towards interest and that the Respondents agreed to this.

3. Subsequently, the Petitioners repaid the principal amount of Rs.1.5 crore during the period from 8th February, 1999 to 15th February, 2000. No payments were however made by the Petitioners during the said period or thereafter towards the interest due. By their letter dated 27th March, 2000 the Respondents raised a debit note of even date on the Petitioners debiting their account to the extent of Rs.50,85,985/- being the interest payable at the rate of 27% p.a. upto that date. The Petitioners did not make payment of interest demanded by the Respondent. The dispute thus arose between the parties in relation to the liability of the Petitioners to pay interest. By letter dated 12th December, 2002 the Respondents invoked the arbitration clause contained in the loan documents and the disputes between the parties were referred to Mr. Jitendra Shah, the named arbitrator in the Arbitration Clause.

4. The said arbitrator made the award dated 6-2-2003 in favour of the Respondents. It was challenged by the Petitioners in Arbitration Petition No.240 of 2003 before this court. By order dated 15th July, 2003 the said award was set aside by consent of the parties and the disputes between the parties were referred to Hon'ble Mr. Justice A. B. Palkar (Retd.). The said order provided that the date of reference would be the date on which the matter was first referred to the Arbitrator whose award was set aside i.e. 12th December, 2002.

5. The Respondents thereafter filed the statement of claim for an amount of Rs.1,06,53,871/- and further interest. The Petitioners disputed their liability to pay the amount claimed by the Respondents. In the reply filed by the Petitioners three defences were raised, (i) because of an oral agreement reached between the parties, the Respondents had waived their claim to interest; (ii) that the claim was almost entirely barred by law of limitation; (iii) that the claim was in part in the nature of interest upon interest and therefore that claim cannot be awarded.

6. The Respondents/claimants examined their Managing Director as the witness in support of their claim. The Petitioners did not lead any oral evidence.

7. The learned arbitrator after considering the material on record made the award. The learned arbitrator partially allowed the Respondent's claim to the extent of Rs.37,44,492/- and gran

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2007 Supreme(Bom) 68

Cases Referred (2)