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2023 Supreme(Online)(Del) 21868
DELHI HIGH COURT
MORGAN SECURITIES & CREDITS PVT LTD – Appellant
Versus
SAMTEL DISPLAY SYSTEMS LTD – Respondent
OMP-476_2012
An arbitral award containing internal contradictions and inconsistency is perverse and patently illegal and can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Headnote:
ARBITRATION - AWARD - INCONSISTENCY - CONTRADICTION - SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - INTERPRETATION OF CONTRACT - FACTUAL ISSUES - FINAL ARBITER - REAPPRAISAL OF EVIDENCE - PERVERSE AWARD - INTERNAL CONTRADICTION - PATENT ILLEGALITY - SETTING ASIDE OF AWARD
Fact of the Case:
The petitioner, Morgan Securities & Credits Pvt Ltd., had granted an Inter-Corporate Deposit (ICD) facility to Samtel Colors Limited (borrower) and received a surety/pledge of 11 lakh shares held by the respondent, Samtel Display Systems Ltd., as security for repayment of the outstanding amount under the ICD. The borrower repaid the ICD, and the respondent claimed the return of the pledged shares. The petitioner retained the shares, and the respondent initiated arbitration proceedings seeking the return of the shares and damages for the loss in value of the shares. The arbitral award held that the respondent had failed to prove the value of the shares at the time of pledge or filing of the claim petition and dismissed the claim for damages. However, the award granted interest on the presumed value of the shares, which was inconsistent with the finding that the value of the shares was not proven.
Finding of the Court:
The court held that the arbitral award was perverse and patently illegal due to the internal contradiction between the findings rendered in respect of claim no.2 and claim no.3. The court found that the award assumed the value of the shares to be Rs. 17/- per share for the purpose of adjudicating claim no.3, despite categorically holding in respect of claim no.2 that the respondent had failed to prove the value of the shares.
Issues: Whether the arbitral award was perverse and patently illegal due to internal contradiction and inconsistency.
Ratio Decidendi: An arbitral award suffering from internal contradictions and inconsistency would be perverse and patently illegal. An arbitrator is the final arbiter on factual issues and the interpretation of the terms of the contract between the parties. However, the court will interfere with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, if the award is so palpably perverse that no reasonable person could arrive at the conclusion reached by the arbitrator.
Final Decision: The court set aside the impugned award to the extent of the findings/directions rendered in respect of claim no.3 in the arbitration proceedings.
$~J-6
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IN THE HIGH COURT OF DELHI AT NEW DELHI
Pronounced on: 15.12.2023
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O.M.P. 476/2012 & IA No. 5379/2023
MORGAN SECURITIES & CREDITS PVT LTD. .... Petitioner
Through:
Mr. Simran Mehta, Mr. Ankur
Chawla and Mr. Shivam Tandon,
Advs.
versus
SAMTEL DISPLAY SYSTEMS LTD
..... Respondent
Through:
Mr. Jay Savla, Sr. Adv. alongwith
Mr. Sanjay Chhabra, Mr. Satish
Choudhary and Mr. Dhruv Chawla,
Advs.
CORAM:
HON'BLE MR. JUSTICE SACHIN DATTA
JUDGMENT
1.
The present petition under Section 34 of the Arbitration and
Conciliation Act, 19961 has been filed assailing the arbitral award dated
06.12.2011 read with order dated 10.01.2012 under Section 33 of the Act.
Factual Background
2.
The factual background in the context of which the present petition
has been filed is briefly enumerated as under:
3.
A company i.e. Samtel Colors Limited (herein referred to as
borrower) availed from the petitioner an Inter-Corporate Deposit (ICD)
facility for a sum of Rs. 1,70,00,00,000/- on 12.02.2007. The same was
granted subject to the borrower furnishing a surety/pledge of 11 lakh shares
held by the respondent in the borrower company, as a security for repayment
Digitally Signed
By:RADHA BISHT
Signing Date:15.12.2023
18:24:13
Signature Not Verified
of the outstanding amount under the ICD. It is the case of the petitioner that
the said surety was given as a security for repayment of all outstanding
amounts not only under the ICD but also “any other existing or future
agreement”.
4.
It was the case of the respondent (claimant) that the borrower repaid
the ICD on 19.11.2007 and thereby the borrower stood discharged.
Consequently, the respondent (claimant) being the surety, automatically
stood discharged and the petitioner herein was bound to return the shares
pledged by the respondent (claimant). It was the case of the respondent
(claimant) in the arbitration proceedings that the petitioner herein instead of
returning the shares, unlawfully retained the same. In the above background,
the respondent (claimant) herein invoked arbitration seeking to raise the
following claims:
(i)
Claim no.1: For return of 11,00,000 (Eleven Lakh) shares pledged to
the petitioner.
(ii)
Claim no. 2: Claim of Rs. 44,00,000/- on the averment that as on
26.04.2007 (the date when the pledged shares should have been returned),
the market value of the shares was Rs. 21 per share whereas the market
value of the shares on the date of the filing of the claims was Rs. 17 per
share, resulting in a loss of Rs. 4 per share. In support of the said claims, the
statement of claim contained the following averments :-
“Claim No.2
1the „Act‟
Digitally Signed
By:RADHA BISHT
Signing Date:15.12.2023
18:24:13
Signature Not Verified
Shares;”
(iii) Claim no. 3: Claim of Rs. 1,24,74,000/- being interest @18% p.a.
from April 2007 (when the pledged shares ought to have been returned) till
the date of filing of the statement of claim. This claim was raised on the
basis that the average price per share was Rs. 21 as on 26.04.2007 when,
according to the respondent the shares were liable to be returned to it.
(iv) Claim no. 4: The claim for future loss on the shares along with the
future interest @ 18% p.a.
(v)
Claim no. 5: Direction seeking that the petitioner be directed to return
the shares to the respondent/claimant.
5.
Parallel to the arbitration which is the subject matter of the present
petition, the petitioner also initiated arbitration proceedings against the
borrower in respect of unpaid dues under a bill discounting facility dated
09.11.2004. The said proceedings culminated in an Award dated 06.12.2011
in terms of which certain money was awarded to the petitioner recoverable
from Samtel Color Limited (borrower). The said Award is subject matter of
separate proceedings under Section 34 of the Arbitration and Conciliation
Act, 1996 resulting in judgment/order dated 14.05.2012 passed in O.M.P
