Eastern Chemicals & Minerals Pvt.Ltd.3. M/s.Universal Enterprises4. M/s.Amka Trading Company v. M/s.Kalpana Lamps & Components Ltd. 22, Eldams Road, Chennai-18.2. S.Nandagopal

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 07.12.2007CORAM:THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANO.S.A.No.5 of 20031. M/s.Eastern Trading Company2. M/s.Eastern Chemicals & Minerals Pvt.Ltd.3. M/s.Universal Enterprises4. M/s.Amka Trading Company The appellants' place of business at No.6, Cathedral Garden Lane Nungambakkam Chennai-600 034... Appellants versus1. M/s.Kalpana Lamps & Components Ltd. 22, Eldams Road, Chennai-18.2. S.Nandagopal.. RespondentsPRAYER: Original Side Appeal under Order 36, Rule 1 of the OriginalSide Rules read with Clause 15 of the Letters Patent, against theorder of the learned single Judge of this Court dated 11.4.2001 madein O.P.No.565 of 1999.For appellant :Mr.R.MurariFor 1st respondent :Mr.R.Venkatavaradhan https://hcservices.ecourts.gov.in/hcservices/ JUDGMENTCHITRA VENKATARAMAN,J.This appeal is against the order of the learned single Judgedated 11.4.2001 made in O.P.No.565 of 1999, confirming the awardpassed by the Arbitrator, thereby rejecting the application filedunder Section 34 of the Arbitration and Conciliation Act, 1996. Thepetitioners in O.P.No.565 of 1999 are the appellants before thisCourt. 2. The respondents herein are engaged in the business ofselling lamps and tube-lights. The appellants were acting as soledistributors of the respondents herein since 1979 for the areas ofTamil Nadu and Pondicherry. It is an admitted fact that there wasno written agreement between the parties enumerating the terms ofdistributorship and the terms of their arrangement was to be seenfrom the trade practice and the conduct of the parties. It isstated that in 1995, there was a change in the management of therespondent company and the Anchor Group of Companies took over thecontrol of the first respondent herein. Differences arose betweenthe parties herein when the first respondent started withholdingcredits due to the appellants herein. Due to the strainedrelationship, the parties entered into an arbitration agreement andappointed one P.S.Swaminathan, Chartered Accountant, Chennai, as thesole Arbitrator. By agreement dated 9th September 1996 between theparties herein, both parties agreed to file their respective claimstatement and participate in the enquiry before the Arbitrator. Thefirst respondent made a claim for Rs.1,45,40,712/- together withinterest thereon till the payment was made. The appellants hereinfiled a counter claim of Rs.96,38,794/- exclusive of interest anddenied its liability to pay the respondents. It is stated thatbefore the proceedings concluded, the Arbitrator originallyappointed by the parties passed away. Thereafter, this Courtappointed Mr.S.Nandagopal, Chartered Accountant, as the Arbitratorto continue the proceedings. The Arbitrator passed the award on24.4.1999 awarding a sum of Rs.94,92,936/- in favour of the firstrespondent.3. Before the Arbitrator, the appellant took a specific pleathat the claim was barred by limitation. Learned Arbitrator pointedout that the parties agreed to 31.3.1995 as the cut off date for thepurposes of settlement of the dispute before the Arbitrator and thatthe balance sheet of 1995 exhibiting the liabilities amounted tosufficient acknowledgment of debts and hence, the claim was notbarred by limitation. The amount due and payable in the case ofEastern Trading Co., the first appellant herein, was a sum ofRs.1,02,52,746/-. As regards Eastern Chemicals and Minerals, the https://hcservices.ecourts.gov.in/hcservices/ second appellant herein, a sum of Rs.21,68,500/- was due. Theamount due and payable by Universal Enterprises, third appellantherein, was fixed at Rs.16,56,282/-. Eastern Trading Company, firstappellant herein, agreed its liability to the extent ofRs.18,90,952/- as not time barred. As regards interest, learnedArbitrator held that the interest paid by the first respondentherein to the bank against hundis accepted by the appellants had tobe reimbursed by the appellants. As regards the counter claim madeby "ETC", the appellant Group, learned Arbitrator rejected the claimexcept to an extent of Rs.47,055/- being the credit agreed to by thefirst respondent against the supply of electrocast refractories. Onthe question of set off, learned Arbitrator held that the appellantwas entitled to a credit of Rs.29,28,660/- as against a claim ofRs.35,40,343/- being the credit shown in the books of the firstrespondent on account of the appellants herein. Ultimately, thelearned Arbitrator held that the transaction between the parties inall aspects had been only on the basis of an oral agreement and theappellants had not produced any written commitment to pay any tradediscount and that the appellants had already filed a suit againstthe promoter of the respondent company as regards the amount paid inseveral instalments. Thus, the Arbitrator finally arrived at thenet amount payable at Rs.94,92,936/-. The Arbitrator awarded 18%interest per annum from the date of the referring the dispute toarbitration i.e., 9.9.1996, till the date of award and interest at18% per annum from the date of award till the date of payment. 4. The appellants herein challenged the award under Section34 of the Arbitration and Conciliation Act, 1996, before thisCourt. By order dated 11.4.2001 made in O.P.No.565 of 1999, thelearned single Judge dismissed the petition filed to set aside theaward. Referring to the decision of this Court reported in 1951 MLJ535 (RAJAH OF VIZIANAGARAM Vs. THE OFFICIAL LIQUIDATOR, VIZIANAGARAMMINING COMPANY LIMITED, VISAKHAPATNAM AND OTHERS), AIR 1958 Punjab341 (LAHORE E. & S. CO. Vs. A.K.BHALLA), 1999 TLNJ 248 (SWARNA PAPERCUTTING WORKS AND ANOTHER Vs. M/S.INDIAN EXPRESS, learned singleJudge confirmed the view of the Arbitrator that the claim was notbarred by limitation and that the liability shown in the balancesheet amounted to sufficient acknowledgment of the debts. Referringto the balance sheet, learned single Judge pointed out that properadjustment was given by the Arbitrator; as such, the contention ofthe appellants that the balance sheet figures had not been taken asa whole could not be sustained. On the granting of interest,learned single Judge held that in the absence of any specificprovisions on the payment of interest, it was open to the learnedArbitrator to award interest. Taking the view that the scope ofinterference under Section 34 of the Arbitration and ConciliationAct, 1996 was very limited and that the Court was not sitting inappeal under Section 34, learned single Judge rejected the petition.Hence, the present appeal. https://hcservices.ecourts.gov.in/hcservices/

5. Learned counsel appearing for the appellant made hissubmission on two fronts, one on the point of limitation andsecondly that the award passed were based on bills which did nottally with the set of bills given originally before the firstArbitrator. He pointed out that there was no statement of claim.Consequently, he submitted that the award suffered from fundamentalillegalities and liable to be set aside by this Court. 6. Learned counsel submitted that the arbitration agreement andappointment of the Arbitrator was referable to the agreement writtenon 9th September 1996. Therefore, the bills which were alive as onthe date of reference alone could go for arbitration. Placingreliance on Section 21 of the Arbitration and Conciliation Act,1996, he submitted that the arbitral proceedings commenced on thedate on which the request for reference to arbitration was receivedby the respondents. Here, in this case, admittedly, on 9th September1996, the parties agreed mutually to appoint an Arbitrator fordeliberation and hence, the proceedings commenced on 9.9.1996.Learned counsel pointed out that going by the dates of the bills ason the date of commencement of the proceedings, if the entire claimwas time barred, the question of passing an award on the basis ofthe claim did not arise. So too, the interest on this amountclaimed. 7. The appellant pointed out that the second set of bills filedby the respondents, even on a cursory glance, showed that they weretotally different one. In these circumstances, the Arbitrator musthave satisfied himself that the outstanding amount claimed by therespondents must be shown as relatable to the bills. He pointed outthat there was no acknowledgment of the liability as stated withreference to the letter dated 21.9.1994. Referring to the balancesheet as on 31.3.1995, he submitted that the learned Arbitrator hadnot considered three items given as credit subsequently. Hence, theArbitrator ought to have taken note of the net amount alone for thepurpose of resolving the issue. He pointed out to the variousdocuments relating to each one of the appellants and contended thatmere amount tallying between the two bills does not give a reasoningfor passing an award. 8. Learned counsel, in this connection, placed reliance on thedecision reported in AIR 1999 SC 3275 (STEEL AUTHORITY OF INDIA Vs.J.C.BUDHARAJA) and (2005) 7 SCC 510 (POPAT AND KOTECHA PROPERTY Vs.STATE BANK OF INDIA STAFF ASSOCIATION) on the ground that the awardpassed ignoring the period of limitation would be violating thepublic policy and hence liable to be interfered with under Section34. Any award passed against the statutory provisions or ignoringthe same is against public policy and hence, he relied on thedecision reported in (2003) 5 SCC 705 (ONGC Vs. SAW PIPES LTD.) and https://hcservices.ecourts.gov.in/hcservices/ contended that the order in appeal confirming the award is totallyerroneous and unsustainable. On the question of interest, hereferred to the decision reported in (2007) 2 SCC 720 (KRISHNABHAGYA JALA NIGAM LTD. Vs. G.HARISCHANDRA REDDY) that in any event,the award should carry a normal interest and not an abnormally highinterest rate. 9. Per contra, Mr.Venkatavaradhan, learned counsel for therespondents, pointed out that the agreement between the partiesdated 9.3.1996 was on very wide terms. He submitted that theparties specifically agreed that the cut-off date for the purposesof arbitration was 31.3.1995. Pointing out to the balance sheetwhich was placed before the Arbitrator for his consideration asregards the claims and counter claims, he submitted that theschedule of sundry creditors in the case of the appellants includedthe name of the respondents herein, specifiying the amount due. Hesubmitted that the claim of the parties was decided in terms of thebalance sheets of the parties herein; as such, no exception could betaken to the award passed in terms of the acknowledged liability ofthe appellants. 10. Pointing out to the jurisdiction of this Court underSection 34 of the Arbitration and Conciliation Act, 1996, learnedcounsel placed reliance on the decision reported in (2003) 5 SCC 705(ONGC Vs. SAW PIPES LTD.) that the Apex Court has interpretedSection 34 of the Arbitration Act, 1996 that the jurisdiction ofthis Court is not that of an appellate Court and that thejurisdiction is corrective only to the extent laid down underSection 34 as explained by the Apex Court. He submitted that thelearned single Judge had correctly held that the jurisdiction underSection 34 was not that of a Court of appeal and hence, no exceptionshould be taken to the view of the learned single Judge indismissing the petition filed by the appellants.11. We heard the argument of the learned counsel on either sideand perused the materials on record. Before dealing with thecontention of the counsel herein, the provision of Section 34 of theArbitration and Conciliation Act, 1996 relating to the scope ofjurisdiction of this Court need to be noted.12. The relevant clauses of Section 34 of the Arbitration andConciliation Act reads as follows:"34. Application for setting aside arbitral award: - (1) Recourse to a Court against an arbitral award maybe made only by an application for setting aside suchaward in accordance with sub-section (2) and sub-section(3).(2) An Arbitral award may be set aside by the Courtonly if - https://hcservices.ecourts.gov.in/hcservices/ (a) the party making the application furnishes proofthat -(i) a party was under some incapacity; or(ii) the arbitration agreement is not valid under thelaw to which the parties have subjected it or, failing anyindication thereon, under the law for the time being inforce; or(iii) the party making the application was not givenproper notice of the appointment of an arbitrator or ofthe arbitral proceedings or was otherwise unable topresent his case; or(iv) the arbitral award deals with a dispute notcontemplated by or not falling within the terms of thesubmission to arbitration, or it contains decisions onmatters beyond the scope of the submission to arbitration:Provided that, if the decisions on matters submittedto arbitration can be separated from those not sosubmitted, only that part of the arbitral award whichcontains decisions on matters not submitted to arbitrationmay be set aside; or (v) the composition of the arbitral tribunal or thearbitral procedure was not in accordance with theagreement of the parties, unless such agreement was inconflict with a provision of this Part from which theparties cannot derogate, or, failing such agreement, wasnot in accordance with this Part; or (b) the Court finds that -(i) the subject-matter of the dispute is not capableof settlement by arbitration under the law for the timebeing in force, or (ii) the arbitral award is in conflict with thepublic policy of India.Explanation: - Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for theavoidance of any doubt, that an award is in conflict withthe public policy of India if the making of the award wasinduced or affected by fraud or corruption or was inviolation of section 75 or section 81.(3) ....(4) ....."13. Thus, it could be seen that an application under Section 34of the Arbitration and Conciliation Act, 1996 can be filed only forsetting aside the arbitral award.14. Dealing with the scope of Section 34 of the Arbitration andConciliation Act, 1996, the Apex Court in the case of MC.DERMOTTINTERNATIONAL INC. VS. BURN STANDARD CO.LTD., AND OTHERS, (2006) 11SCC 181 held thus: https://hcservices.ecourts.gov.in/hcservices/ "In terms of the 1996 Act, a departure was made so faras the jurisdiction of the court to set aside an arbitralaward is concerned vis-a-vis the earlier Act. Whereas underSections 30 and 33 of the 1940 Act, the power of the courtwas wide, Section 34 of the 1996 Act brings about certainchanges envisaged thereunder. Section 30 of the ArbitrationAct, 1940 did not contain the expression "error of law...."The same was added by judicial interpretation. .... The1996 Act makes provision for the supervisory role of courts,for the review of the arbitral award only to ensurefairness. Intervention of the court is envisaged in fewcircumstances only, like, in case of fraud or bias by thearbitrators, violation of natural justice, etc. The courtcannot correct errors of the arbitrators. It can only quashthe award leaving the parties free to begin the arbitrationagain if it is desired. So, the scheme of the provision aimsat keeping the supervisory role of the court at minimumlevel and this can be justified as the parties to theagreement make a conscious decision to exclude the court'sjurisdiction by opting for arbitration as they prefer theexpediency and finality offered by it..... The arbitralaward can be set aside if it is contrary to (a) fundamentalpolicy of Indian law; (b) the interests of India; (c)justice or morality; or (d) if it is patently illegal orarbitrary. Such patent illegality, however, must go to theroot of the matter. The public policy violation,indisputably, should be so unfair and unreasonable as toshock the conscience of the court. Lastly, where thearbitrator, however, has gone contrary to or beyond theexpressed law of the contract or granted relief in thematter not in dispute, would come within the purview ofSection 34 of the Act."(underline supplied)15. It is a well established legal principle that so long asthe arbitrator has decided the matter in accordance with the termsof the contract and has acted within his authority, and according tothe principle of fair play, the award of the arbitrator isordinarily final and conclusive and power of the Court to set asidethe award is restricted to the instances set out under Section 34 ofthe Arbitration and Conciliation Act and the reappraisal of theevidence by the Court is not permissible. Useful reference can behad to the judgments of the Supreme Court in ISPAT ENGINEERING &FOUNDRY WORKS VS. STEEL AUTHORITY OF INDIA LIMITED, (2001) 6 SCC 347and ONGC LIMITED VS. SAW PIPES LIMITED, (2003) 5 SCC 705. 16. Thus, under the provisions of the Act, if any one of theabove contingencies is there in the award passed by the arbitrator,the Court exercising the jurisdiction under Section 34 of the Act https://hcservices.ecourts.gov.in/hcservices/ can set aside the award. However, it cannot take the role of theArbitrator and pass an award. 17. As to the merits of the contentions on the question of pleaof limitation raised by the appellants, it is seen that the learnedsingle Judge pointed out that the appellants had filed their balancesheet before the Income Tax authorities, wherein, there was aspecific admission as regards the liability towards the respondentsherein, which amounted to sufficient acknowledgment of debts. Goingby the cut off date agreed to between the parties and considered bythe learned Arbitrator, the learned single Judge rightly upheld theaward holding that the claims were not hit by the provisions of theLimitation Act. 18. However, we do not find any ground to uphold the contentionof the appellant herein that the award was unsustainable on groundsof limitation and hence the same suffers from patent illegality. 19. It may also be noted that the Arbitrator had rightlyconsidered the balance sheet as a whole and reduced the outstandingamount payable by the respondents to the appellants to arrive at thefinal figure. Learned single Judge, in paragraph 15 of thejudgment, dealt with this aspect and upheld the award. We confirmthe order of the learned single Judge.20. On the question of interest, it is not denied by theparties herein that there was no specific prohibition on the awardof interest in the agreement. Noting the same, learned single Judgerightly held that the award of interest could not be held to becontrary to the provisions of the Act. 21. Learned counsel for the appellant, however, pointed outthat as per the decision reported in (2007) 2 SCC 720 (KRISHNABHAGYA JALA NIGAM LTD. Vs. G.HARISCHANDRA REDDY), the award ofinterest at 18% per annum for the period prior to and post award istotally against the decision of the Apex Court. He placed relianceon paragraph 11 of the said decision to impress on the fact that inthe overall scenario witnessing a reduction in the interest rate,the learned Judge should have reduced the rate of interest andhence, seeks reduction of the same in terms of the said decision. 22. A perusal of the Apex Court judgment referred to aboveshows that taking note of the fact that after the economic reformsin our country, the interest rates had substantially reduced, theApex Court reduced the awarding of interest at 18% per annum duringthe pre-arbitration period, for the pendente lite period and thefuture interest to 9% per annum. Taking note of the said decisionof the Apex Court, we agree with the plea of the learned counsel fora reduction in the rate of interest that as against the interest https://hcservices.ecourts.gov.in/hcservices/ awarded at 18% per annum by the Arbitrator, confirmed by the learnedsingle Judge for the period from 9.9.1996 to the date of award,i.e., 24.4.1999 and from the date of the award till the date ofpayment, be reduced to 9% per annum. In the above circumstances,except for the reduction in the rate of interest awarded, we do notfind any ground to interfere with the order of the learned singleJudge. Hence, the appeal stands dismissed. No costs. ConnectedC.M.P.Nos.656 and 5698 of 2003 are closed.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.ksvTo1. The Sub Assistant RegistrarOriginal Side, High Court, Madras.2. Mr.S. Nandagopal, Arbitrator,156 Thambuchetty Street,Chennai-11 cc to Mr.R. Murari, SR. 725531 cc to Mr.R. Venkatavaradhan, SR. 73039O.S.A.No.5 of 2003 RL (CO)kk 19/12