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S.E. Investments Ltd. v/s Shakuntla Educational & Welfare Society & Others

    OMP (ENF.) (COMM.). Nos. 104 to 111, 113 of 2017 & EA No. 35 of 2021, IA. Nos. 13834 to 13840 of 2017
    Decided On, 15 April 2021
    At, High Court of Delhi
    By, THE HONOURABLE MR. JUSTICE VIBHU BAKHRU
    For the Appellant: P. Nagesh, Senior Advocate, Shivam Wadhwa, Akshay Sharma, Advocates. For the Respondents: Ashwini Mata, Sunil Dalal, Senior Advocates, Karan Gaur, Ghanisht Bagaria, Jaspreet Singh Chawla, Advocates.


Judgment Text
[Hearing held through video conferencing]

(Oral)

1. Mr Mata, learned senior counsel appearing for the Judgment Debtors in these petitions has raised two issues pertaining to the calculation of the amount due and payable to the Decree Holder. First, he submits that the Decree Holder has calculated future interest on the pendente lite interest awarded by the learned Arbitrator and the same would amount to providing compound interest, which cannot be inferred from the plain language of the impugned award. He submitted that a plain reading of the award does not indicate that the Arbitral Tribunal has awarded any such compound interest. Second, he submits that an aggregate of Rs.2.45 crores, which was deposited as security deposits against the loans extended to the respondent were lying with the Decree Holder. And, the Judgment Debtors were entitled to credit for the said deposits on the date when the same were made and in any event on the date when the Decree Holder had foreclosed the loans. He referred to paragraph 125 of the Arbitral Award in support of his contention that the Arbitral Tribunal had also accepted the said position and had, accordingly, directed that the adjustment be made on account of the security deposits which were paid by the respondents (Judgment Debtors) while calculating the loan amounts.

2. Mr Nagesh, learned senior counsel appearing for the Decree Holder countered the aforesaid submissions. He drew the attention of this Court to the operative part of the arbitral award. He pointed out that the Arbitral Tribunal had specifically awarded future interest not only on the amount as specified but also on the interest thereon. Insofar as the appropriation of security deposit is concerned, he drew the attention of this Court to paragraph 184 of the Arbitral Award, wherein the Arbitral Tribunal had specifically directed that the credit of Rs.2.45 crores be given to the respondents (Judgment Debtors) and the same amount be deducted from the total awarded amount. He submitted that there was no ambiguity in the Arbitral Award and the adjustment of the said amount was required to be made from the awarded amount. He also submitted that the Judgment Debtors cannot now seek to raise fresh issues at the stage of enforcement of the Arbitral Award and this Court cannot go behind the award to adjudicate any such contentious issues. He also submitted that the parties had exchanged various calculations during the proceedings relating to the application filed by the Judgment Debtors for impugning the arbitral award and none of the calculations circulated by the Judgment Debtors in those proceedings reflected that the sum of Rs.2.45 crores is required to be adjusted in any manner except from the awarded amount. He submitted that the Judgment Debtors are precluded at this stage from raising any such issue.

3. I have heard the learned counsel for the parties.

4. The first question to be addressed is whether Arbitral Tribunal has awarded future interest on the pendente lite and pre-reference interest and if so, whether the same is permissible.

5. It is seen that the Arbitral Award is a common award in respect of disputes arising from ten loan agreements. The Arbitral Tribunal had after returning the findings of the contentious issues set out the amounts payable in respect of each loan agreement. The operative part of the award is in similar terms (except that the amounts awarded in respect of loan agreements differ in each case). At this stage, to examine the award, it is relevant to refer the operative part of one such loan agreement (LD No. 2518). Paragraph 136 of the arbitral award – which is the operative award in regard to LD No. 2518 – is set out below:

“136. In view of the foregoing, in respect of AC No. 1/2014 regarding LD No. 2518, an Award is passed as under:-

a. An Award in the sum of Rs. 46,59,132/- in favour of the Claimant and against the Respondents who are liable to pay the said amount to the Claimant jointly and severally.

b. The prayer for awarding a sum of Rs. 3,00,000/- towards legal expenses has not allowed as the Expenses have not been proved on record.

c. On the awarded amount, the Claimant is entitled to interest @ 26% p.a. w.e.f. 10.08.2014 till the date of the passing of the Award. Future interest on amount awarded with interest thereon would be paid @ 18% p.a. from the date of the Award till payment.

d. The Claimant is awarded Rs. 3,00,000/- towards costs of the arbitration.”

6. A plain reading of sub-para (c) of paragraph 136 of the arbitral award clearly indicates that the Arbitral Tribunal had awarded future interest on the “amount awarded with interest thereon”.

7. There is no ambiguity in the arbitral award and the future interest would be payable on the entire awarded amount, which would include the specific sums as mentioned against each loan agreement (in the case of LD No. 2518, it is Rs.46,59,132/-) as well as the interest payable thereon.

8. A plain reading of Section 31(7) indicates that the Arbitral Tribunal is empowered to award interest and include the same in the awarded amount. Insofar as the power of the Arbitral Tribunal to award pendente lite and future interest is concerned, Mr Mata fairly states that there is no dispute that the Arbitral Tribunal is duly empowered to do so and thus, awarding future interest on the pre-award interest is permissible and within the jurisdiction of the Arbitral Tribunal.

9. There is merit in the contention advanced by Mr Nagesh that in these proceedings this Court is only concerned with enforcing the Arbitral Award and cannot examine the substratum controversies decided in terms of the arbitral award. As stated above, the language of the award sought to be enforced is unambiguous and this Court is of the view that the Arbitral Tribunal has in clear terms, awarded future interest on the amount as specified which includes the pre-award interest. The pre-reference interest is included in the sums as quantified and pendente lite interest has been specifically included.

10. The next question to be examined is regarding the date on which the security deposits payable to the Judgment Debtor are required to be adjusted. Before the Arbitral Tribunal, it was contended by the Decree Holder that a sum of Rs.2.45 crores which was payable by the Judgment Debtors was on account of consultancy services. This contention is rejected by the Arbitral Tribunal. It was held that the said amounts were towards the security deposits and the same are required to be adjusted from the amounts due in respect of the loans advanced by the Decree Holder. It is, thus, not disputed that due adjustments for a sum of Rs.2.45 crores is required to be made from the amounts due from the Judgment Debtors. The only controversy relates to the date(s) on which credit for the security deposits is to be provided to the Judgment Debtors. In this regard, Mr Mata had referred to paragraph nos. 123, 125, 134 and 184 of the arbitral award. The same are reproduced below:

“123. Respondents have raised a further plea that a sum of Rs. 2.5 Crores with the Claimant has not been accounted for and as such the Respondents are required to be given adjustment in respect thereof. The Claimant has not denied the receipt of Rs. 2.45 Cores but its plea is that it was towards Consultancy Services rendered by the Claimant to the Respondents. According to Learned Counsel for the Respondents, the sum of Rs.2.45 crores remained with the Claimant after adjustment of the Security Deposits of Rs. 8.46 Crores and as such it has to be accounted for. It is submitted that the plea raised by the Claimant that this amount was towards Consultancy services is false as the Claimant was not into any Consultancy Business nor it was competent enough to give consultancy to the Respondents. It is submitted that the Balance Sheets of the Claimant do not mention the receipt of this amount towards consultancy services or other income nor any Service Tax was charged by the Claimant in regard to this amount, which was essential, if it was towards consultancy services. It is submitted that CW-1 in his cross-examination has admitted that the only relationship between the Claimant and Respondents was that of Lender & Borrowers. In his cross-examination on 11.09.2015, CW-1 categorically stated that to his knowledge the Claimant did not render any other services to the Respondents, except processing of the Loans.

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125. After considering the submissions made by the Learned Counsel for the Parties and examining the evidence on record, I am of the considered view that amount of Rs. 2.45 Crores paid by the Respondents was not towards Consultancy Services but towards Security Deposits, the adjustment of which had to be given by the Claimant to the Respondents while calculating the amounts due in respect of the Loans advanced by it to the Respondents.

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134. Adjustment of Rs. 2.45 crores already recovered by the Claimant has to be given to the Respondents after calculating the total income due to the Claimant in respect of all the 10 loans.

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184. The Awards have been made on 23.01.2017at New Delhi. Each Award has been made on a Stamp Paper of Rs. 100/-. The Claimant to make up the deficiency in the Stamp Duty for each Award within 30 days of the receipt of the copies of the Award.”

11. The amount of Rs.2.45 crores, which is the subject matter of the present controversy and is an aggregate sum of the various deposits that were made against different loan agreements. Therefore, the various components of the said amount are required to be adjusted against the amounts due against the respective loans. This is amply clear from paragraph 125 of the Arbitral Award. The Arbitral Tribunal has clearly held that adjustment of amounts are required to be made while calculating the amount “amounts due in respect of the loans advanced by it [Decree Holder] with the respondent [Judgment Debtors]”.

12. The operative part of the award in this regard is set out in paragraph 184 of the Arbitral Award which expressly provides that credit of Rs.2.45 crores has to be given to the respondents (Judgment Debtors) and the amount has to be deducted from the total of the awarded amount. According to the Decree Holder, the said amount is required to be adjusted from the total amount (including pendente lite interest) as due, on the date of the award. Whilst the said argument may appear to be appealing in the first blush; a closer examination of the Arbitral Award indicates that the Arbitral Award cannot be construed as such. The security deposits were required to be adjusted against the loans due from the Judgment Debtors. The Arbitral Tribunal had accepted this contention as is evident in paragraph 125 of the Arbitral Award. The date on which such credit is required to be provided is also clear from paragraph 184 of the Arbitral Award. It would be the date of the Arbitral Award as the Arbitral Tribunal had directed that credit for such security deposits be deducted from the total of the awarded amount. According to the Decree Holder, the awarded amount would be the amount as mentioned in the operative part of the Arbitral Award plus the pendente lite interest awarded by the arbitrator. If the Arbitral Award is construed in this manner, it would mean that even though the Decree Holder held security deposits which were required to be adjusted against the amounts due, the said amount would remain unadjusted and interest free till the date of the award and, would in effect be adjusted against the pendente lite interest. Clearly, this is not the intent of the Arbitral Tribunal. The expression “awarded amount” as used in paragraph 184 of the arbitral award, thus, must mean to be the specified sum as mentioned by the Arbitrator which would include the overdue loan amount and the pre-reference interest. It would not be apposite to read the Arbitral Award to include pendente lite interest as a part of the awarded amount for the purposes of credit as required to be given under paragraph 184 of the arbitral award.

13. There may be good reason why the adjustments ought to have been made on the date when the loans were recalled as is contended by Mr Mata. However, that was the matter to be agitated before the Arbitral Tribunal. The deposits were interest free and therefore cannot be adjusted on the date when they were made. The Arbitral Award cannot be construed or interpreted to mean that the amount of Rs.2.45 crores is required to be adjusted on the date when the loans were recalled because the language of the Arbitral Award does not permit any such interpretation.

14. In this view, it is clarified that the amount of Rs.2.45 crores is required to be set off against the amount of Rs.31,04,10,456/-, which is the aggregate of the specific amounts awarded against the amounts due, as mentioned in the Arbitral Award. This includes the principal amount as well as the pre-reference interest, that is subsumed in the amounts as specifically computed by the Arbitral Tribunal.

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/> 15. In addition to the above, the parties had also raised a controversy regarding the ‘Tax Deducted at Source’. The said issue was discussed in the order dated 08.04.2021 and it was directed that the Decree Holder shall give credit for a sum of Rs.33,14,823/- along with interest at the rate of 0.5% per month computed at Rs.2,81,760/- to the Judgment Debtors. It was also directed that the said credit would be accounted for as on 10.08.2014. 16. Mr Mata states that if the amounts due are calculated in terms of the above observations made in this order, a sum of Rs.11,08,78,005/- would be due and payable as on date, by the Judgment Debtors to the Decree Holder. He states that currently the Judgment Debtors are facing certain liquidity problems. However, he assures this Court that by the first week of July, the Judgment Debtors would ensure that the outstanding is reduced by a sum of Rs.1 crore at the least. This would mean that the Judgment Debtors would pay the interest accrued from date till the first week of July and, in addition pay a further sum of at least Rs.1 crore. He requests that further proceedings be deferred till the first week of July 2021. 17. Since the amounts being paid by the Judgment Debtors are awarded debts; TDS is not required to be deducted (see All India Reporter Ltd. v. Ramachandra D. Datar, (1961) 2 SCR 773). The awarded sums shall be discharged without withholding any tax. 18. List on 09.07.2021.
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