B. Rajendran, J.@mdashThe deceased first Appellant herein filed the Claim Petition before the Arbitrator/second Respondent herein against the first Respondent/Corporation, hereinafter referred to as ''corporation'', for recovery of a sum of Rs. 1,71,493.89 as the amount allegedly due from the corporation. The claim petition was resisted by the Corporation. The Corporation also made a counter claim for a sum of Rs. 10,26,000/-with interest. The learned Arbitrator, after hearing both sides and upon considering the documentary evidence, rejected the claim made by the deceased sole Appellant and entertained the counter claim filed by the Corporation. Ultimately, the learned arbitrator passed an award holding that the Corporation is entitled to recover a sum of Rs. 9,27,792.27 from the deceased first Appellant. Aggrievied by the award passed by the learned Arbitrator, the deceased first Appellant filed O.P. No. 913 of 2007 before this Court u/s 34 of the Arbitration and Conciliation Act, hereinafter referred to as the Act. The Original Petition filed by the deceased first Appellant was dismissed by the learned single Judge on 08.01.2010 confirming the award passed by the learned Arbitrator. As against the same, the present Original Side appeal was filed by the deceased first Appellant. Pending the appeal, the first Appellant died and his legal heirs have been brought on record as Appellants 2 and 3.
2. According to the Appellants 2 and 3, who are the legal heirs of the deceased first Appellant Arumugam, their father was engaged as a Distributor by the Corporation ever since 1984 for supply of urea. For the urea lifted by the deceased first Appellant, bills were periodically raised for payment as per the agreement entered into between the parties. It was agreed that the corporation has to pay the invoice amount within a stipulated time. Though the Appellants would contend that it is 45 days credit, according to the corporation, the credit was only for 31 days. Further, as per the communications dated 31.03.1990 and 22.02.1993, all the distributors were given credit period for remittance without interest. The grievance of the Appellants was without excluding the agreed 45 days credit period, the Corporation had calculated the dues payable by the deceased first Appellant, thereby calculated the payment to be made from 31st day onwards. Therefore, according to the Appellants, levying interest without adhering to the credit period and the interest brought forward in the account with further levy of interest on interest is totally against the contractual terms as well as the provisions of Section 3(3) of The Interest Act. Therefore, the deceased first Appellant raised a dispute before the learned Arbitrator questioning the correctness of the charging of interest as well as interest on interest by the corporation. The Appellants would further contend that the counter claim made by the Corporation is barred by limitation in view of the fact that it is not a running account. If it is not a running account, the Corporation can, at best, make the claim for repayment within three years prior to the last date of supply or from the last transaction. Admittedly, the last transaction took place only in the year 2002 and therefore, the counter claim made by the Corporation in the year 2006 is barred by limitation. The Appellants also contend that interest was claimed for the belated payment continuously from the year 1994 when every year payments has to be settled in that year end. Therefore, the cause of action would arise only for that year and therefore also the counter claim made by the Corporation is unsustainable. In any event, the counter claim made by the Corporation three years after the last date of transaction is not maintainable and it is barred by limitation. The learned Arbitrator, ignoring the fact that the claim is barred by limitation and without taking into consideration that the transaction is not a continuous one passed the award. The learned single Judge also, dismissed the Original petition filed by the deceased first Appellant without considering the above said facts. The learned single Judge also failed to take into consideration that the claim is barred by limitation in view of the fact that the account is not a running account.
3. The Learned Counsel appearing for the first Respondent/Corporation would mainly contend that the counter claim made by the Corporation is not barred by limitation as the transaction between the parties is not a running account. Even in the pleadings of the deceased first Appellant, it was admitted that he has been making payment continuously and trating the transaction as a continuous transaction. Further, as per the Circulars and as per the terms of the contract, if the payment is made within 45 days, no interest is levied by the Corporation and if it is not paid, interest will be charged not for the full 45 days, but only from the 31st day till the date of payment and this is also not disputed by the Appellants. Further, the Corporation has not made any claim for interest on interest, as contended by the Appellants. In fact, as per the usual accounting practice, what was due in the previous year would be reflected as the opening balance for the succeeding year. When the past due is treated as opening balance, as per contract, further 45 days was granted to the deceased first Appellant for payment. If such payment is not made, that amount was treated as principal amount for that year and interest was calculated from the 31st day. Therefore, the contention of the Appellants that the Corporation has levied interest on interest is legally not sustainable and it is only in accordance with the terms of the contract and as per the custom prevailing in the business. As rightly pointed out by the learned Arbitrator, the entire transaction only pertains to the interest on the delayed payment and not on the original amount. It is also admitted that payment has been made irregularly and belatedly by the deceased first Appellant and in that event the corporation is entitled for interest. The Learned Counsel for the first Respondent also brought to our notice Ex.R16 in which both the parties have signed. Relying on Ex.R16, the Learned Counsel for the first Respondent would contend that taking into consideration the submission of account and co-relation in respect of the documents, it is not open for the Appellants, at this stage, to dispute the counter-claim made by the Corporation. The learned Arbitrator also has rightly rejected the credit note No. 714 for Rs. 97,245.81 by holding that the amount due by the Appellants is only Rs. 9,27,794.27 as against the claim of Rs. 10,62,000/-. The conclusion arrived at by the learned Arbitrator was also upheld by the learned Single Judge by dismissing the Original Petition filed by the deceased first Appellant. The Appellants have not made out any case and he prayed for dismissal of the original side appeal.
4. We have heard the counsel for both sides. By consent of counsel for both sides, the Original Side Appeal itself is taken up for final disposal.
5. Mr. T.P. Manoharan, Learned Counsel appearing for the Appellants would mainly contend that the deceased first Appellant was an agent of the Corporation for supply of Urea. According to the Learned Counsel for the Appellants, the transaction the deceased first Appellant had with the corporation was not a continuous transaction and it is only a transaction renewed year after year. According to the Learned Counsel for the Appellants, there was a credit understanding between the parties for payment within 45 days. If any payment is made within 45 days, then there will not be any interest and if the amount is not paid within 45 days, then the deceased first Appellant has to pay interest only from the 46th day till the date of payment. Contra, the claim made by the Corporation that for non-payment of the dues, they are entitled to levy interest from 31st day onwards is contrary to the agreed terms and conditions. Further, the Appellant made a claim before the arbitrator, claiming amount under various bills raised on the corporation, which were either been given credit to or credit note given has not been accepted or paid back. The learned Arbitrator, without going into the merits of the claim of the Appellant in respect of the various claims made has taken into consideration the counter claim made by the Corporation against the deceased first Appellant to the tune of Rs. 10,62,000/-. In so far as the counter claim is concerned, the main contention of the Learned Counsel for the Appellants is that the counter claim is barred by limitation as it was made before the learned Arbitrator for the first time in the year 2006. According to the Learned Counsel for the Appellants, when admittedly the last transaction between the deceased first Appellant and the Corporation took place only in the year 2002, the counter-claim made by the corporation in the year 2006 is belated and the learned Arbitrator ought not to have entertained the same. Article 15 of the Limitation Act would be applicable only if an action is initiated within three years from the date on which cause of action arisen for filing a claim. Even otherwise, if any amount is due, it is to be paid at the end of the year as it is not a continuous transaction and every year, the transaction between the deceased first Appellant and the Corporation comes to a close. Therefore, the counter claim made by the corporation is highly belated and it is liable to be rejected. The learned arbitrator as well as the learned single Judge, have failed to appreciate the contentions raised by the Appellants in the proper perspective and therefore he prayed for setting aside the award passed by the learned arbitrator as well as the order passed by the learned single Judge.
6. When we analyse the award passed by the learned arbitrator, it is seen that the learned arbitrator dealt with the claim and counter claim made by the parties and held that the deceased first Appellant is not entitled to make any claim against the corporation and that the corporation is entitled for recovery of amount from the deceased first Appellant. In so far as counter claim is concerned, the learned Arbitrator awarded a sum of Rs. 9,27,794.27. The learned arbitrator, while dealing with the question of limitation, stated that since the transaction between the parties is a running transaction, the counter claim made by the corporation is not barred by limitation. The learned single Judge also considered the plea regarding limitation and held that the counter-claim made by the Corporation is in time. The learned arbitrator, to arrive at such a conclusion, relied on Ex.R16. If Ex.R16 is analysed, it is an account statement submitted by both sides even during the pendency of arbitration proceedings before the learned arbitrator. Both sides have signed Ex.R16 on 12.03.2007. Ex.R16, a statement of account was produced before the learned arbitrator by both sides. Ex.R16 indicates the opening balance, interest charged, supplies made, payments made for such supplies and the closing balance. It is also seen from the bottom of Ex.R16 under the caption ''Note'', that "interest from 1990-91 has to be calculated at the agreed rate as given in the Annexure. The closing balance after incorporating the interest will be revised accordingly." It is further stated in Ex.R16 that interest for the previous year will be debited to the account on the first of immediate following year and free-period will be allowed as stated in the annexure. In the next page, the details of interest, as agreed between the parties from 1988-2006, was noted and signed by both the parties. In the third page, the details of free-period for payment is given and this would clearly indicate that the number of days for which interest is excluded is also indicated therein and it was signed by both sides. Therefore, from Ex.R16, it is clear that the parties have agreed as to how the amount has to be arrived at, what was the period for calculation of interest and what is the percentage of interest. Further, in the fourth page of Ex.R16, the worksheet has been given which is in accordance with the details of free-period given in the third page of Ex.R16 and amount of Rs. 9,27,794.27 was arrived at, which is the interest amount payable till 31.07.2002. and which is less than the amount claimed by the Corporation in their counter-claim before the learned arbitrator. The Learned Counsel for the corporation also brought to our notice that to counter-check Ex.R16 as to whether the calculation made therein is correct or whether any admission made by the deceased first Appellant himself, he took us to document No. 14, which is a letter dated 12.06.1995 written by the deceased first Appellant himself in which it was clearly stated that he is not in any way disputing the interest payable from 1985-1986 to 1989-1990 for five years, but only in so far as the period 1990-1991 to 1993-1994, there was a slight increase in the rate of interest and he sought for reduction. Along with this letter, the deceased first Appellant sent a complete worksheet in that he clearly admits that from 1988, he is transacting with the corporation and it is a running account. In this letter, the deceased first Appellant himself calculated the interest for the year 1990-1991 at Rs. 1,19,758.15, which is brought forward as the interest and opening balance and also interest charged for the year 1991, which we finds a place in Ex.R16. Even though the interest claimed by the Corporation was Rs. 1,19,758.15, actually it was reduced to Rs. 1,11,738.86. Therefore, the statement of account prepared by the deceased first Appellant himself and the annexure to Ex.R16 would clearly indicate that the counter-claim made by the Corporation is sustainable. The only argument now made by the Learned Counsel for the Appellant is that even though three pages were duly signed by both sides, the last page has not been signed by the deceased first Appellant for which explanation offered by the Learned Counsel for the Corporation is that the calculation was made by the parties and the actual amount has to be decided only by the learned Arbitrator and it was given to the learned Arbitrator to decide. In fact, the learned arbitrator, on analysis of evidence, has rightly come to the conclusion that the corporation is entitled to recover the amount of Rs. 9,27,794.27 as per the calculation made by the deceased first Appellant, however, rejected the claim made by the corporation in so far as a credit note is concerned. Ultimately, the learned arbitrator has passed an award only for Rs. 9,27,794.27 as against the claim of Rs. 10,62,000/-made by the corporation. Therefore, from a reading of the documents produced before us, it is clear that the deceased first Appellant himself admitted regarding the amount payable towards interest, the number of days for which interest is payable etc., besides that the transaction is a running transaction. When there is clear admission on the part of the deceased first Appellant that the transaction is a running transaction, it cannot be said that the counter claim made by the Corporation is beyond the period of limitation or the claim was belated. Therefore, the argument of the Learned Counsel for the Appellants that the counter-claim made by the Corporation is hit by the provisions of Limitation Act cannot be accepted.
7. The learned arbitrator has passed a reasoned award. The learned arbitrator also taken into account Ex.R16 and held that Ex.R16 contains the accounts in different style namely (a) without debiting interest (b) rate of interest as per Clause 22 of the agreement (c) free period for payment (d) debiting interest calculating at 30 days. Therefore, when the learned arbitrator has taken into consideration these details and arrived at a conclusion based on the materials available on record, coupled with the admission made by the deceased first Appellant himself in document No. 14, it cannot be said that the transaction between the parties is not a running account. In so far as period of limitation is concerned, when it is a running account, the counter-claim made by the Corporation is within the period of limitation especially when the deceased first Appellant as well as the Corporation have signed Ex.R16 during the pendency of the arbitration proceedings. Therefore, the counter claim made by the Corporation during the year 2006 before the learned arbitrator is maintainable and the plea of bar raised by the Learned Counsel for the Appellants, as contemplated under Article 15 of the Limitation Act, is not applicable to the present case.
8. In this connection, the conduct of the parties has to be taken note of. During the year 2002, when the deceased first Appellant has failed to make the payment in time, the Corporation had invoked the bank guarantee furnished by the deceased first Appellant to the tune of Rs. 10 lakhs. When this right was exercised by the Corporation even as early as on 05.08.2002, the deceased first Appellant filed W.P. No. 33470 of 2002 before this Court and this Court, by an order dated 17.06.2006 held as follows:
2. Now, the Respondent/NLC undertakes to appoint an Arbitrator within a period of 30 days from today. In such an event, the Petitioner agrees to approach the arbitrator immediately. As the parties have agreed to maintain status-quo as on date for a period of two months from the date of appointment of an Arbitrator to enable them to seek their remedy before the Arbitrator, they are accordingly directed to maintain status quo as on date for two months from the date of appointment of arbitrator. This order is passed by consent of Learned Counsel on either side.
3. With the above direction, the writ petition is disposed of. No costs.
9. It is also to be stated that during the pendency of W.P. No. 33470 of 2002, this Court granted interim injunction restraining the Corporation from invoking the bank guarantee. In fact, by that time, the Corporation had invoked the bank guarantee and a cheque was also sent by the bank, but it could not be encashed by the Corporation due to the interim order granted by this Court. Ultimately, as mentioned above, on 17.06.2006, the writ petition itself was disposed of by this Court as per the consent given by both sides. Pursuant to the order dated 17.06.2006, the learned Arbitrator was also appointed and the deceased first Appellant filed the claim petition. Therefore, only due to the filing of the writ petition and interim order passed by this Court, the corporation could not initiate action against the deceased first Appellant during the year 2002 for recovery of the amount due and payable by him. Under those circumstance, the Appellants are estopped from contending that the counter-claim made by the Corporation is belated or it is hit by the provisions of Limitation Act.
10. It is now brought to the notice of this Court that when the writ petition was filed before this Court, as a condition precedent for granting interim order, this Court directed the deceased first Appellant to pay Rs 1,00,000/-and the deceased first Appellant also paid Rs. 1,00,000/-even during the year 2002. Subsequently, after the award was passed by the learned Arbitrator and pending the Original Petition filed by the deceased first Appellant before this Court, the corporation had invoked the bank guarantee in the year 2007, the cheque was also issued by the bank and it was encashed by the Corporation. Thus, the corporation had received a total sum of Rs. 11,00,000/-from the deceased first Appellant during the pendency of the Original Petition filed by him before this Court.
11. As far as the plea regarding levying interest on interest is concerned, the Learned Counsel for the Appellant would contend that the corporation themselves have admitted in a letter dated 20.06.2000, Ex.C15 that they are levying interest on interest. When we read Ex.C15, the letter dated 20.06.2000 it is clearly stated that "Thus your allegation of credit notes not accounted then and there is not true and without any basis. Moreover, only during 1990-91, the free credit was allowed for 45 days from the date of sales and afterwards free credit period was 30 days only. So, your statement is incorrect. For charging interest on interest, please note that unless you remit the interest charged in every year the outstanding closing balance will be taken as due amount in opening balance in the next year and so on." Therefore, it is clear that if payment is made beyond 45 days, interest will be charged by the corporation from 31st day and the interest amount, which is due and payable would be shown as opening balance for the next year. Even in the next year, further 30 days time will be granted and only if the amount is not paid within that period, interest will be charged. Therefore, it is a clear case that the Appellant had enjoyed the benefit of credit for the first 30 days during the previous year and for another 30 days during the succeeding year when the interest payable is shown as opening balance for the next year. Therefore, it is futile on the part of the Appellant, at this stage, to contend that the corporation is charging interest on interest which is prohibited under The Interest Act. What was due in the previous year become principal and on that principal alone, interest was levied by the corporation. Moreover, as mentioned above, even during the pendency of the arbitration proceedings before the learned Arbitrator, the deceased first Appellant and the Corporation have prepared Ex.R16, which contains the number of days for which interest is payable etc., and signed the same. Therefore also, it is not open for the Appellants to contend that the corporation had levied interest on interest.
12. It is well settled law that the award passed by an arbitrator can be interfered with by the appellate Court only if it is patently illegal. In this context, we are fortified by the decision of the Honourable Supreme Court reported in (Oil
&74. In the result, it is held that:
"(A) (1) The Court can set aside the arbitral award u/s 34(2) of the Act if the party making the application furnishes proof that;
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law, to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitreal award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
2. The Court may set aside the award;
(i) (a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties (b) failing such agreement, the composition of the arbitral Tribunal was not in accordance with part I of the Act
(ii) If the arbitral procedure was not in accordancewith;
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with part I of the Act. However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogage.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract....
13. In this case, the Appellants are unable to point out any patent irregularity or illegality in the award passed by the learned arbitrator and therefore, the award passed by the learned arbitrator is sustainable and valid.
14. The Learned Counsel appearing for the Appellants relied on the decision reported of the Honourable Supreme Court reported in (Satna Stone and Lime Company Limited v. Union of India) (2008) 14 SCC 785 and contend that this Court has got ample powers to interfere with the award passed by the learned arbitrator when there is an error apparent on the face of the record and inasmuch as the learned Arbitrator has not followed the statutory legal provisions and therefore this Court would be justified in interfering with the award. In that decision, the Honourable Supreme Court held that "The error apparent on the face of the award contemplated by Section 16(1)(c) as well as Section 30(c) of the Arbitration Act is an error of law apparent on the face of the award and not an error of fact......The Supreme Court has very limited jurisdiction to interfere with the reasoned award. Only when the award is based upon a proposition of law which is unjustified in law, the error of law must appear from the award itself or from any document or note incorporated in it or appended to it. It is not permissible to travel beyond and consider material not incorporated or appended to the award."
15. The Learned Counsel for the Appellants also relied on the decision reported in
16. The Learned Counsel for the Appellant also relied on the decision reported in
23. The award of the arbitrator is liable to be set aside as there is a clear error apparent on the face of the award. The award is a speaking award. It extracts the relevant clauses of the insurance policy including the excess clause. It then proceeds to put an interpretation thereon which is contrary to the express words of the contract and opposed to the well-recognised insurance practices and principles. Hence, the award was rightly set aside by the High Court.
17. The above decisions are relied on by the Learned Counsel for the Appellant to contend that the award passed by the learned arbitrator is shocking the conscience of this Court and there is an error apparent on the face of the record and that the arbitrator has exceeded his jurisdiction, therefore, the award necessarily has got to be set aside. We are unable to accept the contention of the counsel for the Appellant and we do not find any ground to hold that the award passed by the learned arbitrator shocks the conscience of this Court or there is an error apparent on the face of the record. On the contrary, the reasons assigned by the learned arbitrator to reject the claim of the Appellant is fair and correct. The learned single Judge also considered it in detail and has not come across any reason to interfere with the award passed by the learned arbitrator. Even the grounds of appeal, which are now raised and arguments advanced on the basis of the same does not warrant interference by this Court. Under those circumstances, the decisions relied on by the Learned Counsel for the Appellants will not help the Appellants in any manner.
18. At this stage, the only grievance put forward by the Learned Counsel for the Appellants is that the interest awarded by the learned arbitrator and confirmed by the learned single Judge is on the higher side. When we look into the award passed by the learned arbitrator, in so far as interest is concerned, the learned arbitrator simply stated that the usual interest will be granted. But as per Section 31(7)(b) of Arbitration and Conciliation Act, 1996, in the absence of any direction to the contrary, the sum of money directed to be paid shall carry an interest of 18% from the date of award till the date of payment. According to the Appellant, the rate of interest awarded by the learned Arbitrator at 18% per annum was too heavy and onerous. At this juncture, the Learned Counsel for the first Respondent fairly submitted that the claim made by the Corporation is with regard to the interest for the delay in payment, the Corporation is agreeable to receive the amount with interest at the rate of 12% per annum in view of the fact that the deceased first Appellant had already paid Rs. 1,00,000/-during the pendency of WP No. 33470 of 2002 and the corporation also invoked the bank guarantee and realised the amount during March 2011. In this connection, it is also pertinent to point out here that the award was passed on 31.08.2007 whereas, a sum of Rs. 1 lakh was paid by the deceased first Appellant as per the order of this Court even during the year 2002 itself. Therefore, the interest payable by the Appellants could only be on the sum of Rs. 8,27,794.27 by giving credit to the sum of Rs. 1,00,000/-already paid by the deceased first Appellant way back in the year 2002.
19. Taking into consideration of the submission of the Learned Counsel for the first Respondent, we confirm the order passed by the learned single Judge, but modify the award passed by the learned arbitrator only in so far as it relates to rate of interest alone and the Appellants are directed to pay interest at the rate of 12% per annum from the date of award i.e., 31.08.2007 on Rs. 8,27,794.27 only, after giving credit to the sum of Rs. 1,00,000/-already paid by the deceased first Appellant during 2002 and the Appellants are liable to pay interest only upto March 2011 when the Corporation had encashed the bank guarantee of Rs. 10 lakhs given by the deceased first Appellant. The interest is payable only from 31.08.2007 till March 2011 @ 12% on Rs. 8,27,794.27. It is needless to say that the amount of Rs. 10 lakhs realised by the Corporation during March 2011 should be adjusted from the actual amount arrived at along with interest.
20. With the above modification in the award passed by the learned arbitrator/second Respondent herein, the original side appeal filed by the appellants is ordered accordingly. No costs. Consequently, conne cted miscellaneous petitions are closed.
