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2019 DIGILAW 2252 (BOM)

Nirmal v. Alankar Real Estate (Pvt) Ltd, Nagpur

2019-09-30

A.S.CHANDURKAR

body2019
JUDGMENT : A.S. Chandurkar, J. This appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, 'the said Act') takes exception to the judgment dated 25.06.2008 in Miscellaneous Civil Application No.03/2006 by which the application preferred by the appellant under Section 34 of the said Act has been dismissed. 2. The facts giving rise to the present proceedings are that on 26.11.1999 the appellant and the respondent nos. 1 and 2 entered into two agreements by which the appellant agreed to purchase two flats from the respondent nos. 1 and 2. By the first agreement a flat on the fourth floor of Building No.2 admeasuring about 230.8545 square meters was agreed to be purchased by the appellant for a consideration of Rs.18,00,000/-. As a consideration for undivided share in the said property, further amount of Rs.7,00,000/-was agreed to be paid. In the said agreement, it was stated that out of the amount of Rs.18,00,000/-, an amount of Rs.15,00,000/-had already been received by the respondent nos.1 and 2 and remaining amount of Rs.3,00,000/- was to be paid by 26.01.2000. The further amount of Rs.7,00,000/- was also agreed to be paid by 26.01.2000. It was agreed between the parties that the time was the essence of the contract and delay on the part of the appellant in making any payment would result in interest @ 24% per annum being liable to be paid. It was however provided that the respondent nos. 1 and 2 could extend the time to pay the balance amount. In the said agreement Clause 14 provided for referring the disputes that could arise in relation to the said agreement with reference to the matters covered by the agreement and / or connected therewith to be referred to an Arbitrator. By the second agreement also entered into on the same day the appellant agreed to purchase another flat on the fifth floor of Building No.2 having same area as per the flat on the fourth floor. It was agreed that total consideration for the said flat would be Rs.26,28,000/-. Rs.18,00,000/- was agreed as cost of construction of the said flat and Rs.1,28,000/- was to be paid for an extra servant room that was to be constructed. Rs.7,00,000/- were to be paid towards undivided share in the said property. It was agreed that an amount of Rs.18,00,000/- was already received by the respondent nos. Rs.18,00,000/- was agreed as cost of construction of the said flat and Rs.1,28,000/- was to be paid for an extra servant room that was to be constructed. Rs.7,00,000/- were to be paid towards undivided share in the said property. It was agreed that an amount of Rs.18,00,000/- was already received by the respondent nos. 1 and 2 and on the date of the agreement Rs.5,52,000/- was to be paid. The amount of Rs.1,48,000/- was to be paid by 26.01.2000. Similarly, the remaining amount of Rs.1,28,000/- was to be also paid by 26.01.2000. There was a similar clause with regard to payment of interest and Clause No.14 also related to referring the disputes to the named Arbitrator in case such disputes arose. 3. According to the respondent nos. 1 and 2, the appellant did not comply with the time schedule within which the payments were to be made. Though certain post-dated cheques had been issued by the appellant to the respondent nos. 1 and 2, they were not presented immediately for clearance on the request of the appellant. It was further stated that the appellant was liable to pay interest on the belated payments as well as occupation charges @ Rs.12,000/- per month as the appellant was in possession since December, 1999. The appellant did not reply to the said notice. Thereafter on 12.12.2001 the respondent nos. 1 and 2 again issued a legal notice to the appellant reiterating the aforesaid stand taken in the earlier notice. It was then stated that since the disputes between the parties were not being resolved, the respondent nos. 1 and 2 intended to invoke the arbitration clause. The appellant filed a reply to the aforesaid notice on 02.01.2002. It was stated that the claim made by the respondent nos. 1 and 2 was beyond the purview of both the agreements. There was no dispute whatsoever that could be referred for arbitration. 4. The respondent nos. 1 and 2 thereafter approached the named Arbitrator by invoking the arbitration clause and they filed their statement of claim on 30.10.2002. According to the respondent nos. 1 and 2 they were entitled to received Rs.18,27,283/- being interest on account of short payment of installments. There was no dispute whatsoever that could be referred for arbitration. 4. The respondent nos. 1 and 2 thereafter approached the named Arbitrator by invoking the arbitration clause and they filed their statement of claim on 30.10.2002. According to the respondent nos. 1 and 2 they were entitled to received Rs.18,27,283/- being interest on account of short payment of installments. The claim for Rs.8,16,000/- towards illegal occupation charges of the flats along with an amount of Rs.21,912/- towards short payment of maintenance and interest thereon and an amount of Rs.1,00,000/- as costs of the proceedings were sought to be claimed. To justify the claim for interest the amount due on that count was indicated in paragraph 14 of the statement of claim by referring to a chart indicating the dates when the payments were due and the same were actually received. In response to the said statement of claim the appellant initially filed an application under Section 13 of the said Act praying that there were circumstances giving rise to reasonable doubts as regards the named Arbitrator. Thereafter written statement was filed by the appellant on 23.07.2005. A stand was taken that the entire agreed amounts as per the agreements were duly paid and there was nothing due and payable by the appellant. It was further stated that the demands made in the statement of claim were beyond the scope of the agreements and hence were not liable to be granted. It was thus stated that the claim as made was liable to be rejected. 5. The sole Arbitrator thereafter considered the respective stands of the parties. Written notes of arguments were also placed on record by the parties before the Arbitrator. On 17.10.2005 the Arbitrator passed his award and directed the appellant to pay Rs.18,27,283/- being the amount due on account of delayed payments with interest @18% per annum from 30.10.2002 till actual date of payment. Further amount of Rs.21,902/- was directed to be paid with interest @ 18% per annum from filing of the statement of claim which was 30.10.2002 till the actual date of payment. The stand as raised by the appellant that the cheques given to the respondent nos. 1 and 2 were deposited by them belatedly on their own was not accepted. It was held that said defence was not proved by the appellant. The calculations furnished by the respondent nos. The stand as raised by the appellant that the cheques given to the respondent nos. 1 and 2 were deposited by them belatedly on their own was not accepted. It was held that said defence was not proved by the appellant. The calculations furnished by the respondent nos. 1 and 2 were accepted. However, the interest @ 18% per annum was awarded instead of 24% per annum. Other ancillary directions were accordingly given on the basis of which the respondent nos. 1 and 2 were to execute sale deed of the said flats in favour of the appellant. 6. The appellant being aggrieved by the said award filed an application under Section 34 of the said Act before the District Court. The learned District Judge-1 after hearing both the sides by his judgment dated 25.06.2008 recorded a finding that the award in question was not shown to be perverse or that there was any violation of law while making the same. Considering the scope available under Section 34 of the said Act, the learned District Judge-1 refused to interfere with that award. The application was accordingly dismissed. Being aggrieved by the aforesaid judgment, the appellant has filed the present appeal. 7. Shri S.C. Mehadia, learned counsel for the appellant submitted that the Arbitrator travelled beyond the agreements while awarding interest on delayed payments especially those payments which were made before the date of the agreements. According to him, the agreements in question were entered into on 26.11.1999 and it was stated in the agreements itself that substantial payments had already been made by the appellant. As regards the first agreement, the amount payable after the said agreement was only Rs.10,00,000/- while under the second agreement the balance amount payable was Rs.8,28,000/-. In the agreements, it had not been stated that the appellant would be liable to pay interest on account of delay with regard to the payments already made prior to the date of the agreements. Under Clause 3 of the said agreements this position was clear and reference was made only with regard to payment of interest @ 24% per annum for the extended period. It was open for the respondent nos. 1 and 2 to have reserved the right to claim interest in respect of the amounts already received on the date of the agreements. However, there was no such stipulation in the agreements. It was open for the respondent nos. 1 and 2 to have reserved the right to claim interest in respect of the amounts already received on the date of the agreements. However, there was no such stipulation in the agreements. Thus by awarding interest on delayed payments in terms of paragraph 14 of the statement of claim, the arbitrator had travelled beyond the terms of the agreements. Placing reliance on the decision in Bharat Coking Coal Ltd. Vs. Annapurna Construction, (2003) 8 SCC 154 , it was submitted that the Arbitrator was bound by the terms of the contract and his jurisdiction was confined to the four corners of the contract. It was then submitted that the manner in which the amount of Rs.18,27,283/- had been calculated had not been indicated. Without any such basis that amount had been claimed and the Arbitrator without verifying the correctness of the same had proceeded to award the same. He disputed the calculation with regard to the amount of interest of Rs.18,27,283/-. Further it had not been agreed between the parties that maintenance charges @ Rs.12,000/- per month would be payable. By accepting that claim the Arbitrator travelled beyond the terms of the contract. There was no question of granting any amounts based on any oral agreement as the parties were bound by the terms of the agreements. He then submitted that despite postdated cheques being given to the respondent nos. 1 and 2, the same were deposited belatedly by the respondent nos. 1 and 2 for which the appellant could not be blamed. No interest was liable to be paid on that count as the appellant was not responsible for such delayed deposit. Despite the fact that all these objections were raised in the proceedings under Section 34 of the said Act, the Civil Court refused to go into the same for no justifiable reasons. The learned District Judge ought to have exercised jurisdiction under Section 34 of the said Act and ought to have examined the award in that backdrop. As the Civil Court failed to exercise jurisdiction vested in it, the appellant was entitled to raise such grievance under Section 37 of the said Act. It was thus submitted that the award was liable to be set aside on these grounds. 8. Shri S.P. Dharmadhikari, learned Senior Advocate for the respondent nos. 1 and 2 supported the impugned judgment. As the Civil Court failed to exercise jurisdiction vested in it, the appellant was entitled to raise such grievance under Section 37 of the said Act. It was thus submitted that the award was liable to be set aside on these grounds. 8. Shri S.P. Dharmadhikari, learned Senior Advocate for the respondent nos. 1 and 2 supported the impugned judgment. He submitted that the Arbitrator acted within his jurisdiction in awarding interest on the delayed payments. The arbitration clause had to be read in a meaningful manner encompassing all disputes between the parties. All payments made towards the sale consideration were liable to be taken into consideration. The appellant had agreed to pay interest @ 24% per annum while the Arbitrator had infact awarded the same @ 18% per annum. The rate of interest though reduced by the Arbitrator was not challenged by the respondent nos. 1 and 2. He further submitted that the manner in which the claim for interest was made was clearly indicated in paragraph 14 of the statement of claim. The relevant dates when the cheques were given to the respondents and the dates when they were actually presented as per the request of the appellant indicated the period of delay and the amount of interest had been accordingly calculated. Though a notice dated 27.08.2001 had been issued to the appellant demanding interest, there was no reply to the same indicating that the appellant did not have any grievance to the statements/claims made therein. He also referred to the written statement filed on behalf of the appellant to indicate that the contents of paragraph nos. 3 and 4 of the statement of claim were not disputed and that there was an evasive denial of the contents of paragraph no.13 of the statement of claim. It could not be said that the appellant was not liable to pay interest on delayed payments merely on the ground that certain payments had been made prior to date of the agreements. Both the flats were booked earlier and the agreements were entered into at latter point of time. In fact, the payments made even prior to the agreements were referred to therein and hence if there was any delay in making such payments, the appellant was rightly held liable to pay interest for the same. It was submitted that considering the law as laid down in Associate Builders Vs. In fact, the payments made even prior to the agreements were referred to therein and hence if there was any delay in making such payments, the appellant was rightly held liable to pay interest for the same. It was submitted that considering the law as laid down in Associate Builders Vs. Delhi Development Authority, (2015) 3 SCC 49 , the scope of interference under Section 34 of the said Act was limited. The learned District Judge-1 was conscious of such limited jurisdiction and therefore he rightly refused to interfere with the award of the Arbitrator. It was thus submitted that there was no reason to interfere with the judgment and the appeal was liable to be dismissed. 9. I have heard the learned counsel for the parties at length and with their assistance I have perused the records of the case. Since the disputes between the parties arise in the context of the agreements in question, it would be necessary to first refer to certain relevant clauses thereof. In the first agreement with regard to the flat on the fourth floor, it has been agreed that the total consideration of the same would be Rs.25,00,000/-. The constructed portion of the said flat was valued at Rs.18,00,000/- while the undivided share in the property was valued at Rs.7,00,000/-. The respondent nos. 1 and 2 admitted that Rs.15,00,000/- were already received by them and the remaining amount of Rs.3,00,000/- for the constructed portion was to be paid by 26.01.2000. Similarly consideration for the undivided share of Rs.7,00,000/- was also to be paid by 26.01.2000. This agreement is dated 26.11.1999. If the entire agreement is perused, it can be seen that there is no reference to the payments already received having been paid by the appellant belatedly. The agreement recites that Rs.15,00,000/- were already paid by the appellant and the balance amount of Rs.10,00,000/- was to be paid by 26.01.2000. Though the parties had agreed to make the time was the essence of the contract, there is no reference to any delayed payment by the appellant prior to the agreement. A discretion has been granted to the respondent nos. 1 and 2 to extend the time to make the balance payment subject to interest @ 24% per annum being paid for the extended period. A discretion has been granted to the respondent nos. 1 and 2 to extend the time to make the balance payment subject to interest @ 24% per annum being paid for the extended period. Clause 14 of the said agreement contemplates that disputes between the parties to the agreement in relation to the interpretation of the agreement and / or in respect of the matter covered by such agreement and / or connected therewith was to be referred to the Arbitrator. On a plain reading of the entire agreement, it becomes crystal clear that the amounts already received by the respondent nos. 1 and 2 with regard to the agreed total consideration have been accepted without any reference to that amount being paid belatedly by the appellant. The stipulation to pay interest is in respect of balance unpaid amount which was to be paid by 26.01.2000. This is evident from the plain reading of the entire agreement. There is no term in the said agreement to infer that even in respect of payments already made prior to entering into the agreement, the appellant was liable to pay any interest. Similar is the position with regard to second agreement. Out of total consideration of Rs.26,28,000/- an amount of Rs.18,00,000/- was already received by the respondent nos. 1 and 2 before 26.11.1999. The amount of Rs.8,28,000/- which was the balance amount was to be paid by 26.01.2000. The terms of this agreement being identical to the first agreement, it becomes clear that the amounts already received prior to entering into the agreements have been accepted by the respondent nos. 1 and 2 without demur and without making any provision for payment of interest on account of any delay for the period prior to the agreement. 10. From the aforesaid, it can be thus seen that the parties had agreed to the terms and conditions mentioned in the agreements dated 26.11.1999. With regard to the payment of balance consideration under both the agreements, the time was the essence of the contract and in case of any delayed payments beyond 26.01.2000, the appellant was liable to pay interest @ 24% per annum for the period for which the time to make such payment was extended. With regard to the payment of balance consideration under both the agreements, the time was the essence of the contract and in case of any delayed payments beyond 26.01.2000, the appellant was liable to pay interest @ 24% per annum for the period for which the time to make such payment was extended. In Bharat Coking Coal Ltd (supra), it has been held that the jurisdiction of an Arbitrator when the claim is based on contract is confined to the four corners of the contract. The Arbitrator cannot ignore the important clauses in the agreement. It was emphasised that the role of the Arbitrator was to arbitrate within the terms of the contract and he has no power apart from what the parties have given to him under the contract. If the Arbitrator travels beyond the contract, he would be acting without jurisdiction. However, if he has remained within parameters of the contract his award cannot be questioned on the ground that it contains an error apparent on the face of record. If the Arbitrator deals with matters not allotted to him, it amounts to a jurisdictional error. 11. If the award in question is perused, it is seen that the Arbitrator has not accepted the defence as raised by the appellant that the cheques given to the respondent nos. 1 and 2 were presented belatedly by the respondent nos. 1 and 2 themselves for which they alone were responsible. This finding recorded by the Arbitrator is in view of the fact that the appellant could not lead any evidence to indicate that such delayed presentation of the cheques was on the volition of the respondent nos. 1 and 2. To that extent the said finding of the Arbitrator is liable to be upheld. However the award of interest by relying upon the chart in paragraph 14 of the statement of claim with regard to the period prior to the agreements is found to be in respect of the matter not covered by the agreements. As per that chart receipt of amounts from 16.11.1998 to 25.12.1999 have been indicated. There are about 18 receipts in that chart though the total is wrongly shown as 19. The receipts at serial nos. 1 to 12 are for the period from 16.11.1998 to 20.09.1999. This period is prior to date of the agreements which is 26.11.1999. As per that chart receipt of amounts from 16.11.1998 to 25.12.1999 have been indicated. There are about 18 receipts in that chart though the total is wrongly shown as 19. The receipts at serial nos. 1 to 12 are for the period from 16.11.1998 to 20.09.1999. This period is prior to date of the agreements which is 26.11.1999. The subsequent receipts from 25.12.1999 indicate the cheques being presented after the date of the agreements. The entire chart has been accepted by the Arbitrator without indicating the basis for grant of interest on payments made prior to the date of the agreements. As noted above, the payments made prior to the date of the agreements were acknowledged without demur and there was no stipulation in the agreements that interest @ 24% per annum was liable to be paid on the payments made prior to the date of the agreements. Thus by awarding interest on the payments made prior to 26.11.1999, the Arbitrator has travelled beyond the terms of the agreements. The jurisdiction of the Arbitrator was confined to award interest from the date of the agreements and the payments made belatedly after 26.01.2000. Since the receipts post the agreements indicate the payments having been made after 26.01.2000, it is clear that the respondent nos. 1 and 2 would be entitled for interest on those payments alone. In other words, the appellant would be liable to pay interest for the period of delay with regard to payments made after 26.01.2000. The receipts in that regard are indicated at serial nos. 13, 14 and 16 to 19 in the chart at paragraph 14 of the statement of claim. The direction to pay interest for the receipts at serial nos. 1 to 12 is thus beyond the terms of the agreements and the Arbitrator had no jurisdiction to award interest on those payments. To that extent, there is an error apparent on the face of the record in the award. The learned District Judge-1 ought to have considered this relevant aspect which was evident from a plain reading of the agreements itself. By failing to consider this aspect, the Civil Court has failed to exercise jurisdiction vested under Section 34 of the said Act in accordance with law. It is thus held that the award to the extent it grants interest for the payments made as per receipts at serial nos. By failing to consider this aspect, the Civil Court has failed to exercise jurisdiction vested under Section 34 of the said Act in accordance with law. It is thus held that the award to the extent it grants interest for the payments made as per receipts at serial nos. 1 to 12 is beyond jurisdiction. 12. Though it was urged on behalf of the respondent nos. 1 and 2 that as per Clause 14 of the said agreements by which the disputes were to be referred to an Arbitrator, it was agreed that such disputes would also include any dispute in relation to interpretation of the agreements and / or connected therewith, the arbitration clause however cannot be read in the manner as sought to be canvassed by the learned Senior Advocate. Since there is no reference to any delayed payments being made by the appellant prior to 26.11.1999 and the payments up to that date having been received without demur, there is no scope to interpret Clause 14 in the manner as suggested by the respondent nos. 1 and 2. Clause 14 would have to be read harmoniously with all other clauses of the agreements. The impugned order was also sought to be supported by relying upon the observations in paragraph 33 of the decision in Associate Builders (supra) wherein it has been observed that while applying the "public policy" test to an arbitral award it does not act as court of appeal and therefore errors of facts cannot be corrected. The ratio of the aforesaid decision cannot apply to the present case as it is crystal clear that the Arbitrator while awarding interest on account of delayed payments made prior to the date of the agreements has travelled beyond the terms of the agreements. 13. As regards award of amount of Rs.21,902/- being short payment of maintenance charges and interest is concerned, it is seen that both the agreements do not contemplate payment of any maintenance charges by the appellant. The only stipulation is with regard to payment of the total consideration referred to in the agreements. There is no stipulation whatsoever of any kind of maintenance/occupation charges being payable by the appellant. In the statement of claim, occupation charges/maintenance charges @ Rs.12,000/- per month were claimed from December 1999 and onwards. The only stipulation is with regard to payment of the total consideration referred to in the agreements. There is no stipulation whatsoever of any kind of maintenance/occupation charges being payable by the appellant. In the statement of claim, occupation charges/maintenance charges @ Rs.12,000/- per month were claimed from December 1999 and onwards. In absence of any such agreement between the parties to pay maintenance charges @ Rs.12,000/- per month, there was no jurisdiction with the Arbitrator to direct payment of that amount. Hence for the same reasons, the award to that extent is liable to be set aside. 14. Thus from the aforesaid discussion it becomes clear that the Arbitrator by accepting the claim for payment of interest with regard to delay in respect of amounts paid prior to the date of the agreements and by directing payment of occupation charges has travelled beyond the terms of the agreements between the parties. That part of the award is therefore liable to be set aside. The learned District Judge-1 failed to exercise jurisdiction under Section 34 of the said Act when he refused to entertain the challenge as raised to the award on those counts. It is thus found that the case has been made to partly modify the award dated 17.10.2005. 15. Accordingly the following order is passed: (i) The award dated 17.10.2005 is partly modified. It is held that the appellant would be liable to pay interest @18% per annum on the payment made after 26.01.2000 in terms of the receipts at Serial Nos. 13, 14 and 16 to 19 in para 14 of the statement of claim. Interest accordingly is liable to be paid from 30.10.2002 till the date the amount of Rs.5,00,000/- was deposited by the appellant with the appellate Court. The amount awarded towards interest for delayed payments with regard to receipt nos. 1 to 12 stands set aside as being beyond the scope of the agreements dated 26.11.1999. (ii) The award to the extent it directs payment of Rs.21,902/- with interest @ 18% per annum from 30.10.2002 is also set aside. (iii) On making balance payment in terms of the award the appellant is entitled to have sale deeds executed in his favour as stipulated in the award itself. An amount of Rs.5,00,000/- has been deposited by the appellant with the District Court. After calculating the entitlement of respondent nos. (iii) On making balance payment in terms of the award the appellant is entitled to have sale deeds executed in his favour as stipulated in the award itself. An amount of Rs.5,00,000/- has been deposited by the appellant with the District Court. After calculating the entitlement of respondent nos. 1 and 2 in accordance with paragraph no.15(i) above, that amount with proportionate interest at the same rate as accrued from the date of deposit of Rs.5,00,000/- till realisation shall be paid to the respondent nos.1 and 2. The balance amount if any is liable to be refunded to the appellant with accrued interest. Needless to state that shortfall if any shall be made good by the appellant on the same terms. (iv) The judgment in Miscellaneous Civil Application No.03/2006 dated 25.06.2008 is accordingly set aside. The arbitration appeal is partly allowed in aforesaid terms with no orders as to costs. Pending civil application is also disposed of.