AI Structured Summary
Not yet generated for this judgment
Judgment
R.D. Dhanuka, J—By this petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 (for short the said "Arbitration Act"), the petitioner seeks to impugn the arbitral award dated 4th December 2014 thereby allowing some of the claims made by the respondent. The petitioner herein was the original respondent whereas the respondent was the original claimant in the arbitral proceedings. Some of the relevant facts for the purpose of deciding this petition are as under :-
The respondent is a Non Banking Finance Company registered with the Reserve Bank of India. The petitioner was desirous of selling, transferring and/or assigning its rights to the amounts due and payable by its borrowers arising under various loan agreements executed by the petitioner and its borrowers. The petitioner offered to sell, transfer and assign to the respondent for consideration of such receivables. The petitioner and the respondent accordingly executed Agreement for Assignment of Receivables on 28th June 2010.
Under the said agreement, the petitioner agreed to sell, transfer and assign aggregate of all amounts due and payable by the identified borrowers including all principal amounts, interest amounts, additional finance charges, additional interest, liquidated damages, premium on prepayment, costs, charges, expenses and all other monies whatsoever payable by the identified borrowers under the terms of their respective borrowing contracts. The said amounts were defined as ''Receivables'' under the said agreement. The petitioner assigned the said receivables to the respondent which amounted to an aggregate amount of Rs. 104,00,00,000/- only. The said agreement dated 28th June 2010 was executed by the petitioner in its capacity as as Assignor as well as collection agent. Under the said agreement, it was agreed that the petitioner would collect the amounts due from the identified borrowers for and on behalf of the respondent and credit the same in the designated account of the respondent.
On 28th June 2010, a Deed of Assignment of Receivables was executed between the parties. Under the said Deed of Assignment, the respondent purchased the Receivables mentioned therein along with all the right, title and interest including security interest on payment of purchase price of Rs. 99,43,44,581/- at a discount rate of 10.5%. As a part of the agreement dated 28th June 2010, the petitioner provided an irrevocable undertaking to the respondent whereby the petitioner undertook that if there was a short fall in making payment of the monthly amount that was agreed to be paid by the petitioner to the respondent as the collection agent, the same shall be made good by the petitioner by making payment of the amount equal to the shortfall under the irrevocable undertaking. The said Assignment Deed further provided that the responsibility of the petitioner under the irrevocable undertaking shall not exceed 15% of the Receivables to be assigned from time to time under the agreement.
Article 6 of the agreement dated 28th June 2010 provided that the irrevocable undertaking issued by the petitioner would be for the full term of the assignment document and could be invoked several times during the validity of the agreement. The amount invoked, however, could not exceed the stipulated amount of the said irrevocable undertaking. The said agreement also provided that the petitioner had irrevocably and unconditionally undertaken that if the aggregate sum of monies due to be paid by the borrowers during the collection period is less than the aggregate amount of the payouts payable to the respondent on the relevant payout date, the petitioner shall make payment of the amount required to ensure that the amount payable to the respondent on a payout date would be equal to the aggregate amount of the payment which was to be made to the respondent on the payout date.
It is not in dispute that till October 2010, the petitioner in its capacity as collection agent, collected amounts due from the identified borrowers and deposited the same in the designated account as envisaged by the agreement and the Assignment Deed. Admittedly, there was no short fall till October 2010.
Under the Assignment Deed, the petitioner used to issue post dated cheques for amounts which were equivalent to the amount of monthly payouts. On or about 12th July 2010, the petitioner gave a post dated cheque for an amount of Rs. 12,58,35,298/- in respect of monthly payouts for the month of November 2010. The amounts due from the identified borrowers and collected by the petitioner were not adequate to meet the monthly payouts due to the respondent and there was a short fall.
On 16th October 2010, the Government of Andhra Pradesh introduced the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance, 2010. The petitioner herein challenged the constitutional validity of the said Ordinance by filing Writ Petition No. 25999 of 2010 before the Andhra Pradesh High Court.
On 22nd October 2010, the Andhra Pradesh High Court passed interim order in the said writ petition directing the petitioner to carry on its business subject to adherence to Section 9 and Section 16 of the said Ordinance and directed filing of returns after every 48 hours. The said period of 48 hours was modified by an order dated 29th October 2010 to one week with respective authority prescribed for registration under the said Ordinance. By the said order, it was made clear that in the event, the petitioner commits any violations, if any, the State would be at liberty to initiate appropriate actions but arrest would be deferred till the next date of hearing before the Andhra Pradesh High Court.
It is the case of the petitioner that for the period between November 2010 and April 2011, due to reasons beyond the control of the petitioner, there were alleged short falls in the payment of monthly payouts to the respondent by the petitioner. On 5th March 2011, the petitioner approached the Corporate Debt Restructuring Forum (CDR) to secure the monies lent by the banks and financial institutions. On 3rd June 2011, the respondent invoked the irrevocable undertaking in terms of Article 6 of the Assignment Agreement and called upon the petitioner to pay an amount of Rs. 15,59,07,322/- being 15% of the Assigned Receivables towards the alleged amount of shortfall in the payment of monthly payouts since November 2010.
It is the case of the petitioner that on 29th June 2011, the core group of the CDR forum approved admission of the petitioner under its package for restructuring. On 8th July 2011, the respondent once again called upon the petitioner to pay an amount of Rs. 15,59,07,322/-. On 3rd February 2012, the monitoring committee of the CDR Forum refused to include the respondent in the CDR package. On 2nd February 2013, the respondent called upon the petitioner to make payment of Rs. 25,98,73,003/- i.e. the entire alleged balance outstanding together with interest amounting to Rs. 10,79,93,252/- together with further interest thereon.
On 11th February 2013, the Andhra Pradesh High Court rejected the writ petition filed by the petitioner and other Non Banking Finance Companies and upheld the constitutional validity of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and refused to grant any relief to the petitioner.
The petitioner filed a Special Leave Petition No. 14676 of 2013 and impugned the said order dated 11th February 2013 passed by the Andhra Pradesh High Court in the Supreme Court.
On 4th March 2013, the respondent invoked the arbitration clause under Article 18 of the Assignment Agreement and appointed a former Judge of this Court as the sole arbitrator to adjudicate the disputes between the parties. On 8th April 2013, the respondent filed its Statement of Claim inter alia seeking for a declaration that the Assignment Agreement and Assignment Deed were valid, subsisting and binding on the petitioner and prayed for an award for an amount of Rs. 25,98,73,003/- with interest @24% p.a.
On 23rd April 2013, the Supreme Court extended the interim reliefs granted by the Andhra Pradesh High Court. The said special leave petition is pending before the Supreme Court. The Statement of Claim filed by the respondent was refuted by the petitioner by filing Statement of Defence on 11th July 2013. On 19th December 2013, the respondent filed an affidavit of evidence of first witness Mr. Hari Dasan E.V.K. before the learned arbitrator who was cross-examined by the petitioner. The respondent thereafter, examined Ms.Sharada Kamath by filing her affidavit of evidence who was cross-examined by the respondent. Petitioner also examined a witness. Both the parties filed their written submissions before the learned arbitrator.
On 4th December 2014, the learned arbitrator passed the impugned award directing the petitioner to pay an amount of Rs. 25,98,73,003/- together with interest @24% p.a. amounting to Rs. 11,94,41,904/- from 10th May 2011 till 8th April 2013 and further interest @ 24% p.a. on the amount of Rs. 25,98,73,003/- from the date of the impugned award till the date of realization and further awarded a sum of Rs. 10,00,000/- as costs of arbitration.
Mr. Joshi, learned senior counsel for the petitioner submits that though the petitioner had disputed the correctness of the alleged amounts claimed by the respondent, the learned arbitrator has awarded the entire claim made by the respondent based on an incorrect and perverse recording of admission of liability.
It is submitted by the learned senior counsel that the impugned award is contrary to the terms of the contract and understanding agreed by and between the parties. My attention is invited to clause 19 of the letter of guarantee and it is submitted that though the said clause restricted the liability of the petitioner to the maximum extent of 15% of all the Outstanding Receivables Value under the respective Deeds of Assignment executed from time to time under the Agreement for Assignment, the learned arbitrator has rendered a perverse finding that the letter of guarantee and the undertaking were the documents executed not for the purpose of limiting liability of the petitioner in case of default but the same were in the nature of additional safeguard of the interest of the respondent and has illegally awarded the amount as claimed by the respondent.
Learned senior counsel submits that all the agreements including the letter of guarantee were part of the single and indivisible contract and were to be read together. He submits that the letter of guarantee was not a guarantee in its strict sense but was an indemnity provided by the petitioner to the respondent wherein the liability of the petitioner to reimburse the outstanding recoveries under the contract was limited to 15% of Outstanding Receivables which in any event could not have exceeded Rs. 3,89,80,950.40 i.e. 15% of Rs. 25,98,73,003/-. He submits that if the contract entered into between the parties was containing several documents, such documents have to be interpreted harmoniously without ignoring the clauses in any particular document to ascertain the real intention of the parties. He submits that the parties had entered into a composite contract and each of the writings did not form part of independent contract. He submits that though the liability of the petitioner was restricted to the maximum extent of 15% of the Outstanding Receivables, the learned arbitrator has allowed the entire claim of the alleged Outstanding Receivables of Rs. 25,98,73,003/-.
Learned senior counsel placed reliance on the judgment of the Supreme Court in the case of S. Chattanatha Karayalar Vs. The Central Bank of India and Others, AIR 1965 SC 1856 : (1965) 3 SCR 318 and in particular paragraph 3 thereof and the judgment of this Court in the case of The Associated Bombay Cinemas Private Limited Vs. Urmi Developers Private Limited, (1997) 2 BomCR 257 and more particularly paragraph 12 thereof and would submit that when one document refers to another, the two may be read together so as to constitute a complete memorandum. He submits that all such Deeds and the documents have to be read and interpreted together and they have the same legal effect for all purposes as they were one document.
Learned senior counsel also placed reliance on the judgment of the Delhi High Court in the case of The Commissioner of Income Tax, Delhi-IV Vs. Shiv Raj Gupta delivered on 22nd December 2014 in ITA No. 41/2002 and in particular paragraph 24 thereof in support of the aforesaid submission.
It is submitted by the learned senior counsel that it was the case of the respondent themselves that they were entitled to recover 15% of the Outstanding Receivables and not the entire amount of the Outstanding Receivables. My attention is invited to ground (vi) of the arbitration petition. It is submitted that though the witness examined by the respondent during the cross-examination had clearly admitted that the petitioner herein was further obliged to make good of any shortfall in such collection to the extent of 15% of the assigned receivables under the Irrevocable Letter of Undertaking which was a part of the Agreement for Assignment of Receivables dated 28th June 2010, the learned arbitrator ignored the said oral evidence in the impugned award and has allowed the entire claim made by the respondent. He submits that the learned arbitrator has exceeded his jurisdiction by allowing the claim more than Rs. 3.89 crores. The award is unreasoned award while rendering the finding that the liability of the petitioner was not restricted to the extent of 15% of the Outstanding Receivables.
The next submission of the learned senior counsel for the petitioner is that in any event, the petitioner was not liable to pay any amount due to force majeure situation which was beyond the control of the petitioner. He submits that admittedly, till October 2010, the petitioner had not committed any default. Major part of the default was committed by third party in the State of Andhra Pradesh only and as a result thereof, the petitioner could not make payment to the respondent. He submits that in view of the ordinance issued by the Andhra Pradesh Government, the rights and obligations of the petitioner were affected. He submits that as collection agent, the petitioner was not liable to pay any payment of short fall in recovering the amount from the borrowers and creditors. There was no general liability of the agent in making payment of short fall to the principal.
Learned senior counsel submits that the learned arbitrator has awarded interest even during the pendente lite period at the contractual rate. He submits that the learned arbitrator was not bound by an agreement entered into between the parties in so far as pendente lite period as well as further interest is concerned. He submits that the award of interest is contrary to Section 31(7)(a) of the Arbitration Act.
Mr. Kanade, learned counsel for the respondent, on the other hand, invited my attention to various findings rendered by the learned arbitrator in the impugned award and submits that such findings rendered by the learned arbitrator are based on the appreciation of the evidence led by both the parties and the same being not perverse thus this Court cannot interfere with such findings of facts. He submits that the learned arbitrator has interpreted the agreements including the letter of guarantee entered into between the parties and has rightly come to a conclusion that the letter of guarantee was in the nature of an additional safeguard for recovery of the amounts which the respondent herein became entitled to recover from the petitioner under the agreement and the Deed of Assignment. He submits that the learned arbitrator has also held that the letter of guarantee and the undertaking are documents executed not for the purpose of limiting liability of the petitioner in case of default but in the nature of additional safeguard of the interest of the respondent. He submits that interpretation of the learned arbitrator of the provisions of the agreement entered into between the parties is a possible interpretation and the same cannot be substituted by another interpretation by this Court.
Learned counsel for the respondent submits that the petitioner had already acted upon the agreement and had recovered the amounts under the said agreement till October 2010. He submits that even on the issue of force majeure and/or frustration of the contract raised by the petitioner, the learned arbitrator has rendered a finding of fact that the petitioner had already acted upon the agreement till October 2010 and though the entire recovery of the petitioner was not recoverable from the borrowers in the State of Andhra Pradesh but substantial number of borrowers were outside the State of Andhra Pradesh, the petitioner did not recover the amounts from the borrowers outside the State of Andhra Pradesh. Learned counsel submits that the learned arbitrator has also dealt with oral evidence led by both the parties on this issue and rendered finding of fact which cannot be interfered with by this Court.
REASONS AND CONCLUSIONS:-
In so far as the submission of the learned senior counsel that the liability of the petitioner under the agreement entered into between the parties was only to the extent of 15% of all Outstanding Receivables and not any other amount is concerned, a perusal of the record indicates that the learned arbitrator has dealt with this issue at length in paragraphs 12, 26 and 27 of the impugned award. A perusal of the award indicates that the learned arbitrator has interpreted the terms of the Deed of Assignment and also the Letter of Guarantee and has held that the letter of guarantee is in the nature of an additional safeguard for recovery of the amounts to which the respondent became entitled to recover from the petitioner under the agreement and the Deed of Assignment. It is held that the letter of guarantee and the undertaking were documents executed not for the purpose of limiting liability of the petitioner in case of default but the same were in the nature of additional safeguard of the interest of the respondent. The learned arbitrator accordingly held that the respondent was entitled to recover the entire amount that was defaulted and not merely only 15% of the Outstanding Receivables.
The learned arbitrator, on the appreciation of the evidence led by the parties, has also rendered a finding that on 28th June 2010 i.e. on the date when the Agreement and the Deed of Assignment were executed, the same were admittedly the valid transaction. It is held that there was no dispute between the parties that till October 2010, the payouts were regularly made by the petitioner to the respondent under the Agreement and the Deed of Assignment and that there was no shortfall. It is an admitted position that there were shortfalls in the amount of payouts from November 2010. The learned arbitrator has rendered a finding that the parties have actually acted upon that contract. There was no dispute about the fact that under the Agreement and the Deed of Assignment, monthly payouts amounts were to be paid by the petitioner to the respondent. The learned arbitrator has also held that the correspondence of parties would show that the petitioner had not only admitted its liability to make payments under the assignment documents to the respondent but till October 2010 was also regularly making payment as per the agreement and the assignment documents.
It is not in dispute that the parties had entered into various writings as aforesaid. It is clear that the petitioner had agreed to pay the entire amount that was defaulted and not merely 15%. The petitioner had as a matter of record paid such amounts till October 2010. However, under the excuse of the alleged problem faced due to promulgation of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010 and the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2011, the petitioner committed default in making payment from November 2010. In my view, the petitioner was acting in dual capacity, one as Assignor and another as Guarantor. It is not the case of the petitioner that by virtue of execution of the letter of guarantee, assignment agreement executed between the parties was substituted and given a go-bye. In my view, the rights and obligations of the parties under all the writings have to be construed harmoniously. In my view, by executing the letter of guarantee, the obligations of the petitioner to make payment under the assignment agreement were not substituted or curtailed. It could not be said that as an Assignor, the liability of the petitioner was restricted only to the extent of 15% of all Outstanding Receivables. In my view, the learned arbitrator has rightly interpreted all the documents harmoniously and has rendered a correct finding that the respondent herein was entitled to recover the entire amount that was defaulted and not merely only 15%. In my view, the said finding of fact rendered by the learned arbitrator is not perverse and thus no interference is permissible with such finding of fact. Interpretation of the learned arbitrator is a possible interpretation and the same cannot be substituted by another interpretation by this Court.
Next submission of the learned senior counsel for the petitioner that in view of promulgation of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010 and the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2011, there was a force majeure situation which caused frustration of the contract due to the situation beyond the control of the petitioner is concerned, a perusal of the impugned award indicates that the learned arbitrator has dealt with this issue at length in paragraphs 13 to 20 of the impugned award. The learned arbitrator has rendered a finding that till October 2010, the petitioner had made payment under the agreement entered into between the parties. The petitioner had challenged the constitutional validity of the said Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010 and the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2011 before the Andhra Pradesh High Court. The High Court of Andhra Pradesh had rejected the said writ petition filed by the petitioner. It is held by the learned arbitrator that under the provisions of the said Ordinance and the Act, the petitioner was required to get registration with the designated district authority by specifying its area of operation, system of disbursement of loans, the method of recovery etc. It is also held that the petitioner was admittedly not operating only in the State of Andhra Pradesh but its operations extended to several States in the Indian Union. The said Ordinance and the Act operated only in the State of Andhra Pradesh and had no impact on the business of the petitioner in the States other than the State of Andhra Pradesh. The witness examined by the petitioner admitted that after promulgation of the Ordinance and the Act, the petitioner was free to carry on its business without any restriction in the States other than the State of Andhra Pradesh. It is not in dispute that the petitioner was required to get registration under the said Ordinance and the Act and then carry on its business which the petitioner failed.
The witness examined by the petitioner admitted that the petitioner had operations in rural, semi urban and urban areas in the selected States such as Kerala, Andhra Pradesh, Telengana, Karnataka, Goa, Maharashtra, Chattisgarh, Orissa, Jharkhand, Uttar Pradesh, Madhya Pradesh and Gujarat. The learned arbitrator has considered the fact that out of totally 95,684 identified borrowers who were covered by the contract, 48,045 identified borrowers were from the State of Andhra Pradesh and remaining 47,639 identified borrowers were from the States other than the State of Andhra Pradesh. Learned arbitrator had held that there was no explanation given by the petitioner anywhere as to why there was failure on the part of the petitioner to make recovery from the borrowers who were not from the State of Andhra Pradesh. Learned arbitrator has also considered the oral evidence led by the respondent on this issue. The witness examined by the respondent had deposed that from the month of April 2011, there were meagre recoveries made by the petitioner. There was no cross-examination of the said witness on behalf of the petitioner on this deposition of the witness of the respondent. Learned arbitrator has rightly rendered a finding that the petitioner has not been able to establish that its inability to abide by the schedule of payouts agreed between the parties was only because of the Andhra Pradesh Ordinance and the Act and has rightly held that the defence of the petitioner in this regard could not be accepted.
Learned arbitrator, in my view, has rightly held that in the absence of total prohibition imposed by the Andhra Pradesh Ordinance and the Act on the petitioner to carry on their business in the State of Andhra Pradesh and in the absence of any material placed on record by the petitioner to show as to why they could not carry on their business by complying with the requirement of the interim order passed by the High Court of Andhra Pradesh, the defence of the petitioner that because of the promulgation of the Andhra Pradesh Ordinance and the Act, the contract was frustrated could not be accepted. In my view, the said finding of the learned arbitrator is not perverse and based on the appreciation of the evidence which cannot be interfered with by this Court.
The next submission of the learned senior counsel for the petitioner is that the learned arbitrator could not have awarded interest @24% p.a. for the pendente lite period and also at the same rate from the date of award. A perusal of the award indicates that the learned arbitrator has awarded interest @24% p.a. from 10th May 2011 till 8th April 2013 and further interest on the principal amount from 9th April 2013 till payment and/or realization.
It is not in dispute that under clause 11.4 of the Agreement for Assignment of Receivables, it was provided that in the event of the Assignor failing to pay any of the moneys referred to in the said agreement or the transaction documents, the Assignee will be at liberty to pay the same. Such payment, if any, paid by the assignee shall be reimbursed by the Assignor, whether recoverable from the identified obligors or not, within 15 business days from the date of notice of demand thereof, together with interest @24% p.a. commencing from the date of defaulted amounts became due and payable by the Assignor till such defaulted amounts are actually paid in full in case of delay in making payments to the Assignee as contemplated in the said agreement and other transaction.
In view of the agreement entered into between the parties read with Section 31(7)(a) of the Arbitration Act, in my view, the agreed rate will be from the due date, for the whole or any part of the period between the date, on which the cause of action arose and the date on which the award is made. In my view, there is thus no substance in the submission of the learned senior counsel for the petitioner that the learned arbitrator could not have awarded interest @24% p.a. for the pendente lite period. In so far as interest @24% p.a. from the date of the award is concerned, in my view, the learned arbitrator ought to have awarded interest at a reasonable rate from the date of the award till payment. The interest @24% p.a. from the date of the award till payment is not a reasonable rate of interest and is accordingly reduced from 24% p.a. to 12% p.a.
In so far as the judgments relied upon by the learned senior counsel for the petitioner referred to aforesaid are concerned, there is no dispute about the proposition of law laid down by the Supreme Court and this Court. Learned arbitrator has also interpreted all the agreements entered into between the parties and has not considered any agreement in isolation. The said judgments thus relied upon by the learned senior counsel for the petitioner would not assist the case of the petitioner.
I therefore pass the following order:-
a) Arbitration petition is partly allowed in so far as the rate of interest from the date of the award till payment is concerned. The rate of interest is reduced from 24% p.a. to 12% p.a. from the date of the award till payment. The impugned award is modified to this extent.
b) Rest of the award is upheld.
c) There shall be no order as to costs.