Food Corporation of India vs M/S Shankar Rice and General Mills and others

L.N. Mittal, J.—Decree holder Food Corporation of India has filed this revision under Article 227 of the Constitution of India impugning order dated 21.12.2007, Annexure P/2 passed by executing court i.e. learned Additional Civil Judge (Senior Division), Jalandhar thereby allowing objections preferred by respondents/judgment debtors and thereby dismissing execution petition filed by the petitioner-decree holder. Harbans Lal since deceased (predecessor of respondents no. 2 to 6) was running M/s Shankar Rice & General Mills (respondent no. 1) as its sole proprietor. Petitioner supplied paddy for milling to respondent no. 1 - Mill. The Mill had furnished two bank guarantees of Rs. 1,50,000/- and Rs. 30,000/-, totaling Rs. 1,80,000/- to the petitioner. Dispute arose between the parties and was referred to Arbitrator who gave award dated 29.2.1988.

Operative part of the said award, as reproduced in impugned order is reproduced hereunder: -

After adjustment of claims and counter claims, the contractor (M/s Shankar Rice & General Mills) is directed to pay a sum of Rs. 1,10,663.56. This amount is to be adjusted against the bank guarantees of Rs. One lac, if surviving. The remaining amount after adjustment from the bank guarantee or the entire balance amount awarded as the case may be is to be paid by the contractor within period of four months failing which he will be liable to pay the interest @ 12% per annum till payment or award made rule of the court.

Aforesaid award was made rule of the court under Arbitration Act, 1940 (in short, the Act) by the trial court vide order dated 20.11.1996. Appeal against the same preferred by the petitioner was dismissed on 6.11.2000.

Respondent no. 1 - Mill filed suit for permanent injunction against the petitioner herein restraining the petitioner from encashing the aforesaid bank guarantees. In that case, temporary injunction to this effect was granted by the trial court but was later on vacated. Thereafter the petitioner encashed the aforesaid guarantees. Suit for permanent injunction was amended and is said to have been ultimately decreed in favour of respondent no. 1 for release of balance amount of the bank guarantees.

Petitioner filed execution petition claiming interest on the awarded amount @ 12% per annum. Respondents filed objection petition in the execution petition alleging that the entire awarded amount was adjustable out of the amount of bank guarantees and the balance amount of bank guarantees was payable to respondents and therefore, respondents are not liable to pay any interest to the petitioner. Petitioner - decree holder has alleged that it is entitled to interest @ 12% per annum as the awarded amount was not paid within period of four months from the date of award as stipulated in the award.

Learned executing court vide impugned order Annexure P/2 accepted objection petition filed by respondents and dismissed the execution petition filed by the decree holder. Feeling aggrieved, decree holder has filed this revision petition.

I have heard learned counsel for the parties and perused the case file.

Counsel for the petitioner contended that since the awarded amount was not paid by the respondents within period of four months as directed by the Arbitrator, the petitioner is entitled to interest on the awarded amount.

On the other hand, counsel for respondents contended that the entire awarded amount was adjustable out of the amount of bank guarantees and therefore, nothing was payable by the respondents to the petitioner and consequently, the question of payment of any interest would not arise.

I have carefully considered the rival contentions. The Arbitrator himself directed in the award that the amount awarded to the petitioner shall be adjusted against bank guarantees, if surviving. The bank guarantees were admittedly alive. However, it appears that the Arbitrator committed error in mentioning the amount of bank guarantees as Rs. 1 lac only whereas admittedly the bank guarantees were for Rs. 1,80,000/- and the entire awarded amount was adjustable out of the amount of bank guarantees, leaving some surplus amount. Consequently, respondents were not to pay any amount to the petitioner pursuant to the award. As contended by counsel for the petitioner, the awarded amount could be adjusted only after the award was made rule of the court. However, respondents cannot be held liable to pay interest when the entire awarded amount was required to be adjusted against bank guarantees and nothing was payable by respondents to the petitioner.

However, it has to be observed that the respondents obtained temporary injunction against encashment of bank guarantees thereby delaying encashment of bank guarantees by the petitioner. Consequently, the petitioner is entitled to interest on the awarded amount of Rs. 1,10,663.56 @ 12% for the period during which the aforesaid temporary injunction remained operative. The contention of counsel for the respondents that temporary injunction was granted on 20.7.2001 i.e. after expiry of four months even after dismissal of appeal on 6.11.2000 (affirming award as rule of court) would not make any difference because the respondents by obtaining temporary injunction further delayed the encashment of the bank guarantees during the period the temporary injunction remained operative. For the earlier delay, respondents are not being subjected to any interest and the petitioner itself suffered by the said delay.

For the reasons aforesaid, I find merit in this revision petition to the aforesaid extent. Impugned order of the executing court suffers from illegality and jurisdictional error to that extent. Accordingly, the revision petition is allowed partly. Impugned order Annexure P/2 passed by the executing court is modified and the petitioner - decree holder is held entitled to interest @ 12% per annum on the awarded amount of Rs. 1,10,663.56 for the period during which temporary injunction remained operative in injunction suit filed by respondent no. 1. Parties are directed to appear before the executing court on 25.4.2012 for further execution proceedings regarding recovery of the aforesaid interest amount.