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Telangana High Court
The State Trading Corporation Of India … vs M/S Shreeji Trading Company And Another on 16 April, 2025
Author: P. Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
THE HON'BLE SRI JUSTICE P. SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
CIVIL MISCELLANEOUS APPEAL NOs.412 OF 2006 &1586 OF 2008
COMMON JUDGMENT:
(Per Hon’ble Sri Justice N. Tukaramji)
These Civil Miscellaneous Appeals are filed under Sections
37 and 39 of the Arbitration and Conciliation Act, 1996.
C.M.A.No.412 of 2006 is filed by the appellant/State Trading
Corporation of India Limited, Hyderabad (STC), C.M.A.No.1586 of
2008 is filed by the appellant/M/s.Shreeji Trading Company,
Mumbai, challenging the decree and judgment dated 28.10.2005 in
O.P.No.2151 of 2003 on the file of the XIV Additional Chief Judge,
City Civil Court, Hyderabad (FTC).
2. We have heard Ms. M.Vidyavathi, learned counsel for the
appellant/State Trading Corporation of India Limited, Hyderabad in
C.M.A.No.412 of 2006 and respondent No.1 in C.M.A.No.1586 of
2008; and Mr. S.Ravi, learned Senior Counsel for appellant/ M/s.
Shreeji Trading Company, Mumbai in C.M.A.No. 1586 of 2008 and
respondent No.1 in C.M.A.No. 412 of 2006.
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3. Since both the appeals are filed assailing the selfsame decree
and judgment, they were heard together and are being decided by
this common judgment.
4. The appellant/State Trading Corporation of India Limited,
Hyderabad in C.M.A.No. 412 of 2006 and the appellant/M/s. Shreeji
Trading Company, Mumbai in C.M.A.No. 1586 of 2008 are
hereinafter referred to as ‘claimant and respondent’ as per the
Arbitration Award dated 12.06.2003.
5.(i) Briefly stated, the facts are thus: The respondent issued a
tender notification on 02.09.2000 inviting offers for the purchase of
rice stocks. The claimant’s offer was accepted on 15.09.2000, and
they were asked to remit Rs.1,11,70,000/- by 20.09.2000. The
contract was entered into by the parties on 25.09.2000 for the sale
of 100% broken rice, 25% broken rice, and parboiled rice, with a
default penalty clause at Rs. 1,000/- per Metric Tonne (for short,
‘MT’). On 04.10.2000, the claimant sought part payment of Rs.5
lakhs out of the required deposit, stating that the material available
for lifting was less than notified, but asserted that a demand draft for
Rs. 9 lakhs is ready and would be presented upon delivery.
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5(ii) Thereafter, on 13.10.2000, a delivery order for 690 MT of
100% broken white rice was issued by the respondent, and the
claimant paid Rs. 7 lakhs for that quantity. As per the surveyor’s
report, 269.780 MT out of 690 MT was delivered to the claimant up
to 03.11.2000, and no stock of 100% broken rice was available in
the godown.
5(iii) On 07.11.2000, a delivery order for 635 MT of 25% broken
raw rice was issued, and the surveyor’s report stated that 320.300
MT out of 635 MT was delivered until 20.11.2000, with no stock
available.
5(iv) Two delivery orders for 520 MT of 20% broken parboiled rice
and a delivery order for 95,000 Polypropylene (PP) Bags were
issued on 27.11.2000. However, on the same day, the claimant
addressed a letter to the respondent stating that against a deposit of
Rs. 24,79,506/-, goods worth only Rs. 12,42,508/- had been
supplied and requested to carry forward the balance for subsequent
orders. Meanwhile, on 27.10.2000, the respondent asked the
claimant to lift the stock by 31.10.2000, failing which they would be
liable to pay godown rent. However, on 01.12.2000, the respondent
claimed that only part of the PP bags were received delivery and
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requested for clearance of the stock, otherwise godown rent would
be charged.
5(v) The claimant contested that the stocks were of unacceptable
standard and refused to receive and pay the godown rent. The
respondent replied that as the tender and sale were on an ‘as is and
where is basis’ and limited to the quantity available in the godown,
they denied liability and reiterated that rent would be payable until
lifting of stocks.
5(vi) The claimant issued a registered notice for breach of contract
and compensation. Thereafter, the goods were referred to ICRISAT
and IGSMRI to ascertain fitness of the stock. Based on the report of
IGSMRI, the respondent requested the claimant to lift 70% of the fit
stock on 03.09.2001.
5(vii) Whereafter, the claimant contended that by 02.12.2000, only
145.150 MT had been delivered, and the rest was unfit, as such,
they were not liable to pay godown rent. The claimant offered to lift
70% of the parboiled rice stock if segregated and certified to be fit
for animal feed, and also to take industrial-grade goods at Rs. 100/-
per MT. However, this proposal was rejected by the respondent.
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Nonetheless, on 25.09.2001, a delivery order for 70% of the
parboiled rice stock was issued and also effected.
5(viii) In this backdrop, the claimant demanded a refund of
Rs.9,33,834/-, the value of the short-delivered goods, along with
godown rent and the earnest deposit, totaling Rs.15,63,660/-. The
respondent paid Rs. 1,81,950/- as the balance due via demand
draft. Further, a debit note was issued towards sales tax and
godown rent. In reply, the claimant issued a legal notice for
damages of Rs. 43,50,600/-. Whereupon, the arbitration clause was
invoked and the Arbitral Tribunal was constituted.
6. The Tribunal had considered the issues as to the commitment
of the respondent to deliver the notified quantities and the quantum
of compensation, the obligation of the respondent to refund the
amounts withheld, and to determine the liability to pay interest and
costs.
7. The Tribunal held that the respondent is accountable to
deliver the quantity promised in each delivery order and that there
was a breach in delivering the promised quantity. Nonetheless, the
claim for reimbursement of the amount settled for breach of contract
was dismissed.
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8(i) Basing its decision on the penalties stipulated in the contract
for the shortage in supply of 100% broken rice, 20% broken rice,
and parboiled rice, and by assuming a profit rate of 10% for the
shortages, the Tribunal awarded Rs. 4,20,220/-, Rs. 3,14,740/-, and
Rs. 2,01,640/-, respectively. For the rice at 201.64 MT,
compensation of Rs. 2,01,640/- was awarded, and for the PP Bags,
counting the profit at 10% of the market price, i.e., Rs. 0.98 per bag,
Rs. 26,264/- was awarded, totaling Rs.9,62,864/-.
8(ii) As to godown rent, the Tribunal held that the respondent had
retained Rs. 8,10,000/- at Rs. 90,000/- per month from January to
September 2001. In addition, the claimant deposited Rs.1,80,000/-
for two months to ensure prompt deliveries. Considering the
correspondence and the allowance of five days for taking delivery,
the claimant was held entitled to
Rs.1,43,310.80 ps. from the deposited amount. Further, as there
was no delay on the part of the claimant, the respondent’s
invocation of clause 7 towards godown rent from January to
September 2001 was held unjust and directed to return the withheld
amount of Rs.8,10,000/-, making the entitlement of claimant to Rs.
9,43,310/-.
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8(iii) Further, regarding the debit of Rs.1,18,845.80 towards sales
tax, on the ground that the purchase and sale of the commodity in
the domestic market resulted in the respondent losing exemption,
and the acceptance letter specified the applicability of sales tax, the
claimant was argued to be liable to reimburse the sales tax paid by
the respondent. However, observing that the acceptance letter did
not cover this specific situation and applied only to the transaction
between the respondent and the claimant, and that there was no
condition for reimbursement in the contract, the Tribunal held that
the debited sales tax of Rs.1,18,845.80 had to be refunded to the
claimant.
8(iv) In addition, considering the amounts withheld by the
respondent towards godown rent and sales tax, the Tribunal
observed that interest was payable from 12.10.2001 at 18% per
annum for 18 months, which amounted to Rs.2,86,682/-.
Accordingly, a sum of Rs. 23,11,701/- was awarded to the claimant,
with further direction that if this amount was not paid by 31.08.2003,
it would carry further interest at 18% per annum compounded at
quarterly intervals from 01.06.2003 until realization.
9. Discontented by the Award, the respondent preferred a
petition under Section 34 of the Arbitration and Conciliation Act,
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1996 (for short, ‘the Act’) before the XIV Additional Chief Judge, City
Civil Court, Hyderabad. In the impugned order, the Court considered
whether the respondent/STC had committed any breach of contract,
was liable to pay damages, was liable to refund the rent paid by the
claimant, and was liable to refund the sales tax recovered from the
claimant. While considering these issues, the Court observed that
the Arbitrator was not justified in rejecting the contentions raised by
the respondent and overlooking the sentence in the acceptance
letter, wherein it has been specified that the quantities were
approximate and deliveries would be made on an actual accounting
basis, and the fact that the claimant requested cancellation of
delivery order No. 7 without any initial contention as to shortage of
materials or even supply of the delivery order. Further, in the
subsequent correspondence, neither the shortage nor the claim for
damage was put forward, all these aspects evidencing that the
claimant himself had cancelled the agreement. Further, relying on
the authority of M/s. Rajindra Kumar v. Smt. Vijaya Rani (AIR 1981
SC 2010), the Court observed that the claim for damage could not
be entertained. Additionally observed that, the claimant had
inspected the stock, participated in the tender, pointed out a shortfall
in quantity, availed payment in installments, and the claim for
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damages was made at a later stage. That apart, the Arbitrator erred
in awarding Rs. 1,000/- per MT against the consistent judgments of
the Hon’ble Supreme Court, which suggest awarding 10 to 15% of
the value of the goods. Furthermore, noted that the Arbitrator had
failed to see the documents. Regarding the payment of rent, the
Court below held that the claimant voluntarily paid the rent for
November and December 2000, evidencing acceptance of liability.
However, as there was a dispute regarding the quality of the
supplied rice, the claimant was not liable to pay rent from January
2001. Hence, the order for returning Rs. 8,10,000/- was accepted,
and the reasons given by the Arbitrator for the refund of Rs.
1,18,845.85 ps. towards sales tax were upheld. That apart, the
Court observed that awarding future interest with quarterly rests was
unjustified and converted the direction to pay compound interest
with quarterly rests to simple interest.
10. Dissatisfied by this order, the claimant preferred
C.MA.No.1586 of 2008, and the respondent preferred C.M.A.No.412
of 2006.
11. Learned counsel for the claimant contended that the Court
below erred in denying the damages and compound interest where
the respondent failed to pay the amounts by the given date. It was
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pleaded that the Court below erred in considering the proceedings
under Section 34 of the Act as an appeal to interfere with the
reasoned findings of the Arbitrator based on the materials on record.
Further, the damages were properly ascertained by the Arbitrator
based on the market price, and in the absence of contrary materials,
recasting the damages granted in the award was improper.
Furthermore, contended that in regard to awarding damages the
authority relied upon by the Court below was in a different context,
whereas the damages were considered in the Award in tune with
Section 73 of the Contract Act. The claimant also argued that the
sentence in the correspondence referred to by the Court below had
not been properly appreciated and that the acceptance was for the
price, not the quantity. Therefore, each delivery order constituted a
contract and the respondent was obliged to deliver the quantity
mentioned therein. The Court below had erroneously taken
irrelevant correspondence to reverse the findings of the Arbitrator.
Thus, the claimant prayed for setting aside the impugned order and
restoring the award.
12. On this aspect, the claimant cited the following authorities: (a)
Patel Engineering Ltd. v. North Eastern Electric Power Corporation
Ltd. – (2020) 7 SCC 167, (b) Delhi Airport Metro Express Private
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Limited v. Delhi Metro Rail Corporation Limited – (2022) 1 SCC 131,
and (c) the judgment dated 26.08.2022 in Commercial Court Appeal
Nos. 33 of 2019 and batch of this Court, and pleaded that for
intervention under Sections 34 and 37 of the Act, there must be a
patent illegality on the face of the Award, and reappreciation of
evidence is not permitted even on the ground of patent illegality.
Further, the Court can either allow the application or remit it back for
fresh consideration but cannot alter or modify the award passed by
the Arbitrator.
13. Per contra, the learned counsel for the respondent contested
that the Court below should have appreciated the observation of the
Arbitrator that each delivery order constitutes a contract and obliges
the respondent to deliver the quantity given in the delivery order. As
such, the finding that the respondent obligation to deliver the quality
and quantity was flawed and contrary to the facts of the matter. The
Court below should have held that as the rents for November and
December 2000 were accepted and voluntarily paid by the claimant,
this also amounted to acceptance of liability until September 2001,
and the delay in taking delivery by raising objections as to the
quality of the stock available meant that the claimant should have
been held liable for the payment of rent during that period. Thus, the
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order of refund of rent by the Arbitrator and its confirmation by the
Court below were improper and liable to be set aside. Further, the
Court should have observed that the respondent is a public sector
undertaking and, as such, not the first purchaser, and the goods
sold to the respondent in the local market would make the
respondent the first purchaser; therefore, the direction for the refund
of sales tax is unsustainable. Thus, the respondent prayed for
intervention by setting aside the relevant findings in the impugned
order and setting aside the Award.
14. We have carefully considered the submissions of the learned
counsel and gone through the materials on record.
15. The facts as to the tender notification, acceptance of the
claimant’s offer, entering into the agreement, issuance of delivery
orders by the respondents, payments made by the claimant, the
quantum of stock made available by the respondent, and the
variance in the quantity shown in the delivery order and the actual
stock made available for lifting are not in dispute. Likewise, the
claimant making payments to the extent of the stock made available
and forwarding the samples for ICRISAT and IGSMRI to assess the
quality, and the correspondence between the respondent and the
claimant based on the report are also in agreement.
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16. In this position, it is pertinent to note that the question
considered by the Arbitrator and the Court below was whether there
was a breach of contract by the respondent regarding the non-
supply of the stock stated in the delivery order, and the consequent
prayer for a refund of amounts and the payment of interest and
costs.
17(a) As noted earlier, the Arbitrator held that the respondent No. 1
was obliged to provide the quantity as per the delivery order and
could not evade this obligation by referring to the ‘as is and where is
basis’ clause. The request for payments in installments could not be
read as a waiver by the claimant regarding the receipt of the goods.
The deficit in the delivery order amounted to a breach of contract,
and therefore, the claimant was entitled to damages as per the
penalty clause in the contract. Thus, the Arbitrator awarded
damages of Rs.9,62,864/-.
17(b) However, the Court below, by interpreting the condition that
the right to vary the quantity offered for sale in the tender and the
offer for sale was limited to the actual quantity available at the
godowns, held that the Arbitrator erred in holding the respondent
obligation to deliver the quantity mentioned in the delivery order.
The Court further observed that the correspondence evidenced the
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claimant’s knowledge about the lesser stock than offered in the
delivery order, and the claimant had the advantage of payment in
installments and even asked for the cancellation of Delivery Order
No. 7. These aspects demonstrated a repudiation of the agreement
by the claimant himself. Further, as the claimant had not pleaded for
damages anywhere in the correspondence, the Court reversed the
findings of the Arbitrator.
18(a) Regarding the rent for the godown, the Arbitrator, having
considered the deposit of the claimed rent for the months of
November and December, the respondent’s statement in rejoinder,
and the allowance of five days granted for delivery, allowed the
refund of Rs.1,43,310.80 ps.
18(b) The Court opined that the claimant had accepted liability by
making the deposit and concluded that the amount ought not to
have been refunded, thus accepting the portion of the Award
concerning the amounts of rent.
19(a) The other factor in dispute is the awarded interest. The
Tribunal had awarded 18% interest on the amount withheld for
18 months, i.e., up to May 2003. If the respondent failed to clear the
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dues by 31.08.2003, the Tribunal directed compounding of the
interest at quarterly intervals from 01.06.2003 until payment.
19(b) The Court below interfered with the imposition of compound
interest on the amounts if unpaid by 31.08.2003.
20. Regarding the refunding of sales tax, the Court below
accepted the reasoning and finding of the Arbitrator.
21. A careful reading of the intervention of the Court below with
the Award reveals that it was based on a consideration of the
materials, leading to certain conclusions by assigning its own
reasoning.
22. In this context, the scope of intervention by the Court under
Section 34 of the Act needs alteration.
23. For better appreciation, Section 34 of the Act is extracted
hereunder:
34. Application for setting aside arbitral award.
(1)Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and sub-section (3).
(2)An arbitral award may be set aside by the Court only if
(a)the party making the application [establishes on the basis of
the record of the arbitral tribunal that:] [Substituted ‘furnishes
proof that’ by Act No. 33 of 2019, dated 9.8.2019.]
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(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 arbitral 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:
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only that part of
the arbitral award which contains decisions on matters not
submitted to arbitration may be set aside; or
(v)the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of
this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b)the Court finds that-
(i)the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force, or
(ii)the arbitral award is in conflict with the public policy of India.
[Explanation 1. [Substituted by Act No. 3 of 2016 dated
31.12.2015.] – For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i)the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii)it is in conflict with the most basic notions of morality or
justice.
Explanation 2. – For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy of
Indian law shall not entail a review on the merits of the dispute.]
(2A)[ An arbitral award arising out of arbitration’s other than
international commercial arbitration’s, may also be set aside by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award: Provided that an
award shall not be set aside merely on the ground of an
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erroneous application of the law or by reappreciation of
evidence.] [Inserted by Act No. 3 of 2016 dated 31.12.2015.]
(3)An application for setting aside may not be made after three
months have elapsed from the date on which the party making
that application had received the arbitral award or, if a request
had been made under section 33, from the date on which that
request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within
the said period of three months it may entertain the application
within a further period of thirty days, but not thereafter.
(4)On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion
of arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
(5)[ An application under this section shall be filed by a party
only after issuing a prior notice to the other party and such
application shall be accompanied by an affidavit by the applicant
endorsing compliance with the said requirement.
(6)An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from
the date on which the notice referred to in sub-section (5) is
served upon the other party.] [Inserted by Act No. 3 of
2016 dated 31.12.2015.]”
24. Section 34 of the Act provides for an application by a party to
the proceedings for setting aside an arbitral award on the grounds
that the party was under some incapacity, or the arbitration
agreement is not valid under the law, or the party making the
application was not given proper notice of the appointment of an
arbitrator, or the arbitral award deals with a dispute not
contemplated within the terms of the submission to arbitration or
beyond its scope.
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25. Nonetheless, the proviso clarifies that if the decisions on the
matters submitted to arbitration can be separated from those not so
submitted; only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set aside.
Alternatively, the award can be set aside if the composition of the
Arbitral Tribunal or the arbitral procedure was not in accordance with
the agreement of the parties, or if the Court finds that the subject
matter was not capable of settlement under the law, or if the arbitral
award is in conflict with the public policy of India. It has been
clarified under sub-section 2(a) that an arbitral award other than one
arising from international commercial arbitration can be set aside if
the Court finds that the award is vitiated by patent illegality
appearing on the face of the award. However, it is also clear that the
award shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciating the evidence.
26. Thus, the provision explicates that intervention by the Court
for setting aside the award occurs in three facets:
(a) firstly, by the party establishing incapacity or invalid
agreement under law or not giving proper notice on
appointment of Arbitrator or the arbitral proceedings or the
arbitral award transgresses the dispute or not falling within the
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submission to arbitration;
(b) secondly, if the Court finds that the dispute is not capable of
settlement by arbitration under the law or the award is conflict
with the public policy of India;
(c) thirdly, affected by fraud or corruption or was in violation of
Section 75 or Section 81 or the fundamental policy of India;
and if the award is in conflict with the most notions of morality
or justice.
27. It has been specified that testing for contravention of
fundamental policy shall not entail a review on the merits of the
dispute, and it has been cautioned that the award shall not be set
aside merely on the ground of an erroneous application of law or by
reappreciation of evidence. Therefore, within the afore-noted limited
scope, the Court can interfere with the award under Section 34 of
the Act.
28. Significantly, before the Court below, the respondent did not
plead any incapacity, invalidity of the arbitration agreement, or lack
of service of notice or appointment of arbitrator, or that the award
dealt with a dispute not contemplated through arbitration. That
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apart, in the impugned order, the Court has not held that the dispute
was not capable of settlement by arbitration under law or that the
arbitral award is in conflict with the public policy of India.
29. In this position, the aspect for consideration by the Court
below would be whether the Award is vitiated by patent illegality
appearing on the face of the record.
30. Regarding the consideration of the challenge of patent
illegality in a domestic award, the Hon’ble Supreme Court in Delhi
Airport Metro Express Private Limited (supra) held as follows in para
Nos. 29 to 31:
“29. A perusal of the aforesaid claims shows that calculation for
interest for the delayed payment of Termination Payment has
been done in accordance with Article 29.8 of the Concession
Agreement i.e. SBI Prime Lending Rate + 2% and not generic
Prime Lending Rate + 2% as alleged and the rates of SBI PLR
have been taken for the period 07.08.2013 to 10.09.2021. The
plea of judgment debtor that interest has to be calculated
keeping in mind the various notifications issued by RBI
changing the basis from PLR to BLR and then to MCLR cannot
be permitted to be raised in execution proceedings. Moreover,
the Hon‟ble Supreme Court in its judgment dated 09.09.2021
has categorically held that the interest component is not
required to be interfered with.
30. Further, the plea whether the decree holder has a right to
claim interest over interest till the date of the payment in terms
of arbitral award in question or not, the impugned arbitral award
holds that the decree holder shall be entitled to the interest
from the date requisite stamp duty is paid by it. In the present
case, the requisite stamp duty is said to have been made good
by the decree holder on 12.05.2017. Meaning thereby, the
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CMAs_412_2006&1586_2008interest on the awarded amount shall commence from
12.05.2017 till the date of realization. There is no observation in
the award that interest, if not paid, shall be added in the
principal amount for future interest. Therefore, the claim of
decree holder that the outstanding interest has to be added in
the principal amount cannot be accepted.
During pendency of these proceedings, the judgment debtor
had also made payment of Rs.678 crores and Rs.1,000 crores
i.e. Rs.1678.42 crores. Even on the day orders in the present
petition were reserved, learned senior counsel for judgment
debtor had undertaken that the amount of Rs.600crores shall
be deposited in the ESCROW account. The judgment debtor
has raised the contention that the payments made by the
judgment debtor should have been adjusted from the due
amount on the date of payment can not be accepted. The
Constitution Bench of Hon‟ble Supreme Court in Gurpreet
Singh Vs. Union of India, (2006) 8 SCC 45 has held that the
payments made by the judgment debtor to decree holder has to
be appropriated first towards the interest and costs and then
towards the principal amount. Also, the Hon‟ble Supreme Court
in Bharat Heavy Electricals Ltd. Vs. R.S. Avtar Singh (2013) 1
SCC 243 has held that if the payment made by the judgment-
debtor falls short of the decreetal amount, the decree-holder
will be entitled to apply the general rule of appropriation by
appropriating the amount deposited towards the interest, then
towards costs and finally towards the principal amount due
under the decree and observed as under:-
“31. From what has been stated in the said decision, the
following principles emerge:
31.1. The general rule of appropriation towards a decretal
amount was that such an amount was to be adjusted strictly in
accordance with the directions contained in the decree and in
the absence of such directions adjustments be made firstly
towards payment of interest and costs and thereafter towards
payment of the principal amount subject, of course, to any
agreement between the parties.
31.2. The legislative intent in enacting sub-rules (4) and (5) is
a clear pointer that interest should cease to run on the deposit
made by the judgment-debtor and notice given or on the
amount being tendered outside the court in the manner
provided in Order 21 Rule 1(1)(b).
22 PSK,J & NTR,J
CMAs_412_2006&1586_200831.3. If the payment made by the judgment-debtor falls short of
the decreed amount, the decree-holder will be entitled to apply
the general rule of appropriation by appropriating the amount
deposited towards the interest, then towards costs and finally
towards the principal amount due under the decree.
31.4. Thereafter, no further interest would run on the sum
appropriated towards the principal. In other words if a part of
the principal amount has been paid along with interest due
thereon as on the date of issuance of notice of deposit interest
on that part of the principal sum will cease to run thereafter.
31.5. In cases where there is a shortfall in deposit of the
principal amount, the decree-holder would be entitled to adjust
interest and costs first and the balance towards the principal
and beyond that the decree-holder cannot seek to reopen the
entire transaction and proceed to recalculate the interest on the
whole of the principal amount and seek for reappropriation.”
31. In light of the above principles, if the facts and the impugned
order are carefully considered as to whether there was a situation
for exercising the jurisdiction under Section 34 of the Act, we are of
the considered view that the Court below has reappreciated the
evidence and interfered with the award without there being a
conclusion as to patent illegality apparent on the face of the record.
It has to be noted here that the patent illegality must be of such a
nature that it goes to the root of the matter and cannot be a mere
error of fact or law while reaching the conclusion by the Arbitrator.
32. In this factual and legal position and in the absence of any
contention that the Award was passed upon an erroneous legal
position in deciding the contractual dispute or in the absence of any
23 PSK,J & NTR,J
CMAs_412_2006&1586_2008
factor on record evidencing that the Arbitrator had proceeded
illegally, it shall be held that the Court below has transgressed the
jurisdiction vested under Section 34 of the Act and determined the
issues as if in appeal or revision. Therefore, the impugned order is
unsustainable and liable to be set aside. In effect, the Arbitral Award
dated 12.06.2003 of the Arbitrator shall be restored. Ordered
accordingly.
33. In the result, C.M.A.No.412 of 2006 is dismissed and
C.M.A.No.1586 of 2008 is allowed. No order as to costs.
As a sequel, pending miscellaneous petitions, if any, stand
closed.
_______________
P. SAM KOSHY, J
_______________
N.TUKARAMJI, J
Date:16.04.2025
ccm
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