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Haresh Advani Of Mumbai vs Suraj Jagtiani on 24 April, 2015

JUDGMENT :-

FACTS
. By this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short
"the said Arbitration Act), the petitioner seeks to impugn the arbitral award dated 22 nd March 2014
allowing some of the claims made by the respondent. Some of the relevant facts for the purpose of
deciding this petition are as under :

2. The petitioner herein was the original respondent in arbitral proceedings whereas the respondent herein
was the original claimant. M/s.Regency Hotels Pvt. Ltd. was the owner of a plot of land at Village Sahar,
Talukar Andheri. In the year 1995, the issued capital of M/s.Regency Hotels Pvt. Ltd. was 24,500 shares
of Rs.100/- each i.e. Rs.24,50,000/- of which 11,025 shares (45%) were held by the petitioner, 11,025
shares (45%) was held by the respondent and remaining 2,350 shares (10%) was held by one Gul
Kripalani.

3. By an Agreement dated 28th July 1996, the said three shareholders agreed to sell 50% of their
respective shareholding in the said company to one Cherish Investments Pvt. Ltd. The said agreement
with the said Cherish Investments Pvt. Ltd. was subsequently terminated by the shareholders of the said
M/s.Regency Hotels Pvt. Ltd. (for short 'the said company').

4. On 6th July 1998, the petitioner and the respondent entered into an agreement for the sale of 11,025
shares (45%). In the said agreement, the respondent agreed to sell his entire shareholding in the said
company for consideration of Rs.5.8 crores payable in installments till 31st May 1999. Under the said
agreement dated 6th July 1998, under clause 4.1.1, it was provided that in the event of failure or
negligence on the part of the petitioner to pay the consideration in accordance with clause 3, the
respondent was entitled to terminate the said share sale agreement (SSA) and forfeit the amount paid by
the petitioner subject to maximum of Rs.1,20,00,000/-. Under clause 5 of the agreement, the parties
appointed Mr. Mahesh Jethmalani as the Escrow Holder and agreed to deposit a copy of SSA along with
shares and transfer forms duly executed by the respondent in favour of the petitioner and also a ppn 3
arbp-846.14(j).doc power of attorney in favour of Escrow Holder authorising him to execute fresh transfer
forms in favour of the petitioner on completion.

5. By a letter dated 6th July 1998 addressed to the petitioner, the respondent recorded further
understanding between the parties in connection with the SSA. It was agreed that the respondent would
not exercise any voting rights in respect of the said shares during the subsistence of SSA and would
execute a power of attorney in favour of the petitioner authorising him to attend the meetings of the
shareholders of the said company on behalf of the respondent and to vote in respect of the said shares in
such manner as he deemed fit and proper.

6. On 6th July 1998, the parties entered into a supplementary agreement inter alia recording that the
petitioner was aware of the Cherish agreement and had agreed to purchase the said shareholding of the
respondent in the said company subject to benefit and burden of the Cherish agreement.

7. On 6th July 1998, the parties addressed a letter to Escrow Holder Mr. Mahesh Jethmalani informing
him of his appointment as the Escrow Holder as well as the terms of the escrow and depositing the
documents mentioned in the SSA along with duly executed transfer forms and the power of attorney
executed by the respondent.

8. It is the case of the respondent that during the period between 6th July 1998 and 12th January 1999, the
petitioner paid to the respondent only the first 2 installments payable under the said SSA along with
interest on account of delayed payments of the said ppn 4 arbp-846.14(j).doc installments. On 12th
January 1999, the parties entered into a supplementary agreement inter alia rescheduling the outstanding
payments to be made by the petitioner to the respondent under the said SSA. The petitioner acknowledged
that he had defaulted in making payments of the amounts under the said SSA to the respondent and
agreed that the balance sale consideration including interest amounting to Rs.2,71,90,000/- payable under
the SSA would be paid by the petitioner to the respondent in the manner stipulated therein. Certain
consequential modifications to the said SSA were recorded therein.

9. On 15th September 1999, the respondent terminated the said SSA. The petitioner through his
advocate's letter dated 13 th October 1999 replied to the letter of termination dated 15 th September 1999.
The respondent through his advocate's letter dated 26th October 1999 replied to the said letter dated 13th
October 1999.

10. It is the case of the respondent that on 15 th November 2000, the respondent entered into an
agreement with one M/s. Accumulate Investments Pvt. Ltd. (for short 'the said Accumulate'). Under the
said agreement for sale and transfer of shares, the respondent purported to sell to the said Accumulate
1225 shares of the said company constituting 5% of its paid up share capital at the rate of Rs.2,040/- per
share, aggregating to Rs.25,00,000/-. The respondent addressed a letter to the said Accumulate enclosing
a post dated cheque for Rs.25,00,000/- in favour of Accumulate towards repayment of the loan amount of
Rs.25,00,000/- and two other post dated cheques for Rs.2,25,000/- and Rs.1,50,000/- in favour of
Accumulate towards interest on the said loan. The respondent executed a Demand Promissory Note in
favour of the ppn 5 arbp-846.14(j).doc said Accumulate in the sum of Rs.25,00,000/-. The respondent
also executed an undertaking in favour of the Accumulate to honour the said cheques for the sum of
Rs.25,00,000/-. The respondent also executed a Personal Guarantee in favour of the Accumulate
guaranteeing repayment of the said loan of Rs.25,00,000/- along with interest. The respondent
acknowledged the receipt of two cheques for Rs.15,00,000/- and Rs.10,00,000/- respectively as and by
way of loan.
11. During the period between 12th January 1999 and 5th October 2001, the petitioner paid further
amounts aggregating to Rs.79,27,250/- pursuant to the supplementary agreement dated 12 th January
1999. Thus, the petitioner paid a total sum of Rs.2,87,27,250/-

to the respondent under the said SSA inclusive of interest on delayed payments. It was the case of the
respondent that an amount of Rs.3,07,90,250/- was still outstanding and due and payable by the petitioner
to the respondent under the SSA inclusive of interest towards the purchase of the respondent's
shareholding in the said company.

12. On 5th October 2001, the parties entered into an agreement whereby the respondent agreed to treat the
said amount of Rs.2,87,27,250/- paid by the petitioner to the respondent under the said SSA as the sale
consideration towards the purchase of 8563 shares constituting approximately 35% of the paid up share
capital of the said company and to transfer the said shares to the petitioner. The parties agreed that they
would issue suitable instructions to the Escrow Holder Mr.Mahesh Jethmalani to hand over the said 8563
shares of the respondent to the New Escrow Holder M/s. Crawford Bayley & Co. who would hold the
same in escrow. The parties further agreed that the parties would instruct the New Escrow Holder to hand
over the said shares along with the transfer forms to the petitioner.

13. On 6th October 2001, the parties entered into an agreement whereby the respondent agreed to sell to
the petitioner his remaining 2462 shares of the said company at the rate of Rs.12,506/- per share
aggregating to Rs.3,07,90,250/- on the terms and conditions set out therein. Under the said agreement, the
respondent was given an option to acquire the shares of the said company on the gross saleable area i.e.
approximately 8.725% of gross ig saleable area of the said land or constituting 8.725% of gross salable
area without payment of development charges and net of all expenses or approximately 17,450 sq.ft. of
gross salable area of land or constituting 17.45% of gross salable area with payment of Rs.2,500/- per
sq.ft. towards development charges to be made within 30 days of exercise of the option. Under the said
agreement dated 6th October 2001, the parties agreed that the said 2462 shares along with transfer form in
respect thereof shall be kept deposited with the New Escrow Holder M/s. Crawford Bayley & Co.

and the same shall be handed over to the petitioner after execution of the agreement, if so required by the
petitioner in writing. Parties further agreed that as a security for the petitioner complying with his
obligations under the said agreement, the petitioner would deposit with the New Escrow Holder 6193
shares of the said company constituting 25.1% of the issued and paid up share capital of the said company
to be held in escrow in terms of clause 5 of the said agreement.

14. In the month of October 2001, the parties executed various undated documents relating to the
agreements dated 5th and 6th October ppn 7 arbp-846.14(j).doc 2001. On or about 15th October 2001, the
said company M/s.Regency Hotels Pvt. Ltd. and Golden Angel Hotel and Construction Limited entered
into an agreement whereby the said company and the said Golden Angel Hotel and Construction Limited
agreed to develop the said property of the said M/s.Regency Hotels Pvt. Ltd. on the terms and conditions
set out therein.
15. During the period between 6 th October 2001 and 7th November 2001, the petitioner secured
possession of the entire 11025 shares of the respondent in the said company M/s.Regency Hotels Pvt.

Ltd. from New Escrow Holder M/s. Crawford Bayley & Co. On 7 th November 2001, the said 11025
shares of the respondent in the said company were transferred in the name of the petitioner.

16. On 12th January 2002, the said Accumulate addressed a letter to the respondent regarding repayment
of the loan of Rs.25,00,000/-

taken by the respondent from the said Accumulate. In the said letter, the said Accumulate referred to the
said loan as well as the documents executed by the respondent in favour of the Accumulate towards
repayment of the said loan with interest. The said Accumulate informed the respondent that they would be
presenting the cheques within the next 15 days and if the same were dishonoured, it would seek relief
from the appropriate authority.

17. By a letter dated dated 12th January, 2002, the said M/s.Accumulate forwarded a copy of the
agreement for sale and transfer of shares dated 15th November, 2000 held by the petitioner and the
respondent to M/s.Regency Hotels Pvt. Ltd. It was alleged by the said ppn 8 arbp-846.14(j).doc
M/s.Accumulate in the said letter that the respondent had agreed to sell 1225 fully paid up equity shares
of the said company to the said M/s.Accumulate for a consideration free from all encumbrances, charges
and lien at the rate of Rs.2040/- per share in total aggregating to Rs.25 lacs only. The said
M/s.Accumulate requested the said M/s.Regency Hotels Pvt. Ltd. to issue necessary shares in the name of
M/s.Accumulate from the shareholding to the respondent.

18. In the month of February, 2002 the petitioner and the respondent entered into a writing "Letter
Agreement" duly signed by both the parties. It was recorded that all the capitalized terms therein shall
have a meaning set out in the agreement dated 6th October, 2001 entered into between the parties. By the
said writing, the parties agreed that the new date of digging would be 5th February, 2002 and accordingly
the respondent would be entitled to exercise the option set out in the agreement on or before 31st January,
2002 or within 90 days from the date of digging which was later by a written intimation in that behalf to
the petitioner. It was clarified that the said agreement would to the extent stated therein stood amended
and shall form integral part of the agreement dated 6th October, 2001.

19. On 2nd May, 2002, the parties entered into another writing "Later of Agreement". Under the said
writing, the parties agreed that the date of digging was further revised to 15th September, 2002. It was
agreed that the respondent shall be entitled to exercise the option set out in the agreement on or before
31st January, 2002 or within 90 days of the date of digging whichever was later by written intimation in
that behalf to the ppn 9 arbp-846.14(j).doc petitioner. The agreement dated 6th October, 2001 stood
amended to the extent stated in the said Letter Agreement which was agreed to be formed as a integral
part of the agreement dated 6th October, 2001.

20. On or about 30th November, 2002, the parties entered supplemental agreement thereby agreeing to
vary the terms of the agreement dated 6th October, 2001. It was agreed that notwithstanding anything to
the contrary contained in the agreement dated 6 th October, 2001, it had been agreed between the parties
that the respondent shall opt to acquire from the petitioner through M/s.Regency Hotels Pvt. Ltd.

8.725% of the gross saleable area of the development referred to in clause 4.1(ii) of the said agreement. It
was further agreed that in consideration of such option, the respondent thereby waived all rights to receive
a sum of Rs.3,07,90,250/- from the petitioner under clause 3.2 of the said agreement. The petitioner
thereby confirmed that he as principle shareholder of the said M/s.Regency Hotels Pvt. Ltd. would cause
the said M/s.Regency Hotels Pvt. Ltd. to transfer to the respondent or his nominee the said property. The
respondent herein undertook to pay the said M/s.Regency Hotels Pvt. Ltd. proportionate TDR charges
incurred.

21. By a letter dated 30th November, 2002 sent by the parties jointly to Mr.Haresh M. Jagtiani, who was
then appointed as an arbitrator informed that those parties were parties to the arbitration. The respondent
had opted for space as per the agreement referred to under the said letter and that amount of space would
be given by M/s.Regency Hotels Pvt. Ltd. to the respondent or his nominee. The method / modalities of
such allotment of space would be worked out in due course between the ppn 10 arbp-846.14(j).doc
parties. In the first week of December, 2002, the respondent addressed a letter to the escrow holder
M/s.Crawford Bayley & Co. forwarding a copy of the supplemental agreement dated 30th November,
2002 and informing that they may proceed with their commitment as stipulated in the agreement dated 6th
October, 2001.

Paragraphs 21 to 23 of the said judgment of Bombay High Court in case of Supreme Court in case of
Angel Infin Pvt. Ltd. (supra) read thus :-

"21. It is clear from the perusal of sub-section 7 of Section 31 quoted above that the provisions operate
unless there is an agreement to the contrary between the parties. Absence of agreement between the
parties for charging of interest on interest will not prevent Section 31(7) of the Arbitration Act to operate.
To oust the operation of Section 31(7) of the Arbitration Act, a positive agreement to the contrary to what
is contained in Section 31(7) will have to be pointed out. It is nobody's case that there is a positive
agreement between the parties providing that interest shall not be charged on the amount of interest and
therefore, the powers conferred by Section 31(7) of the Arbitration Act on the Arbitrator were available to
the sole arbitrator who made the award. The learned Counsel appearing for the Petitioners relies on the
provisions of Section 3 of the Interest Act to claim that ppn 67 arbp-846.14(j).doc awarding interest on
interest by the learned arbitrator is contrary to the provisions of Section 3(3)(c) of the Interest Act.
Section 3 of the Interest Act reads as under:-

"3. Power of court to allow interest.-

(1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for
interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow
interest to the person entitled to the debt or damages or to the person making such claim, as the case may
be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is
to say,-

(a) If the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then,
from the date when the debt is payable to the date of institution of the proceedings;

(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a
written notice given by the person entitled or the person making the claim to the person liable that interest
will be claimed, to the date of institution of the proceedings;

Provided that where the amount of the debt or damages has been repaid before the institution of the
proceedings interest shall not be allowed under this section for the period after such repayment.

(2) Where, in any such proceedings as are mentioned in sub-section (1)-

(a) judgment, order or award is given for a sum which, apart from interest on damages, exceeds four
thousand rupees, and

(b) the sum represents or includes damages in respect of personal injuries to the plaintiff or any other ppn
68 arbp-846.14(j).doc person, or in respect of a person's death, then, the power conferred by that sub-
section shall be exercised so as to include in that sum interest on those damages or on such part of them as
the court considers appropriate for the whole or part of the period from the date mentioned in the notice to
the date of institution of the proceedings, unless the court is satisfied that there are special reasons why no
interest should be given in respect of those damages.

(3) Nothing in this section,-

(a) shall apply in relation to-

(i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or

(ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement;

(b) shall affect-

(i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as
defined in the Negotiable Instruments Act, 1881 (26 of 1881); or

(ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of
1908);

(c) shall empower the court to award interest upon interest."

(b) is granted on the "sum" directed to be paid by an arbitral award wherein the "sum" is nothing more
than what is arrived at under clause (a).

ppn 77 arbp-846.14(j).doc
32. Therefore, in my view, the expression "grant of interest on interest" while exercising the power under
Section 31(7) of the Act does not arise and, therefore, the Arbitral Tribunal is well empow- ered to grant
interest even in the absence of clause in the contract for grant of interest.

33. My aforesaid interpretation of Section 31(7) of the Act is based on three golden rules of interpretation
as explained by Jus- tice G.P. Singh in Principles of Statutory Interpretation (13th Edn., 2012) where the
learned author has said that while interpreting any statute, language of the provision should be read as it is
and the in- tention of the legislature should be gathered primarily from the lan- guage used in the
provision meaning thereby that attention should be paid to what has been said as also to what has not been
said; second, in selecting out of different interpretations "the court will adopt that which is just,
reasonable, and sensible rather than that which is none of those things"; and third, when the words of the
statute are clear, plain or unambiguous i.e. they are reasonably sus-

ceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of the
consequence (see pp. 50, 64 and

132). I have kept these principles in mind while interpreting Section 31(7) of the Act."

JUDGMENT

"a) Section 31(7) of the Arbitration and Conciliation Act, 1996 deals with the power of the arbitrator to
award interest at such rate as it deems reasonable on the whole or any part of the money in 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 however subject to the agreement as regards the rate of interest on unpaid sums between
the parties.

b) Judgment of Supreme Court under the Arbitration Act, 1940 holding that the arbitrator had a discretion
to award interest during pendente lite period inspite of any bar against interest contained in the contract
between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act,
1996.

ppn 78 arbp-846.14(j).doc

c) The bar against award on interest would operate not only during the pre-reference period but also
during the pendente lite period. Bar in the agreement would not operate for the future interest.

d) Under section 31(7) (a) an award for payment of money may be inclusive on interest and on sum of the
principal amount plus interest may be directed to be paid by the arbitral tribunal for the pre-award period.

e) The arbitral tribunal is empowered to grant interest even in the absence of clause in the contract for
grant of interest. The arbitral tribunal has power to grant interest on interest under section 31(7) (b).
(f) Under section 31(7) it does not contain any prohibition like one contained under section 3 of the
Interest Act and empowers the arbitrator to award interest on the entire sum for which the award is made
which may include the amount of interest.

(g) Power of the arbitrator under section 31(7) is not restricted to award interest on the principal only.

(h) Section 3(3) of the Interest Act will not operate in view of section 31(7) of the Arbitration and
Conciliation Act, 1996.

(i) Under section 31(7), the arbitrator has power to award interest on damages prior to the date of award,
even if no notice under section 3(b) of the Interest Act, 1978 is issued by the claimant."

145. In my view there is thus no substance in the submission of the learned senior counsel for the
petitioner that the arbitral tribunal could not have awarded any interest on the claim for
compensation/damage upto the date of award. In my view the respondent was not required to issue any
notice under the provisions of Interest Act, 1978 for making the claim for interest on damages. The
arbitral tribunal is empowered to award interest on damages from the due date till the date of award and
even to award future interest even if no notice under the provisions of Interest Act, 1978 is issued by the
claimant. In my view, since the arbitral tribunal has been granted such power by the legislature under
section ppn 79 arbp-846.14(j).doc 31(7) of the Arbitration and Conciliation Act, 1996, the claimant is not
required to comply with the provisions of Interest Act, 1978 for the purpose of claiming interest for the
past period on the compensation/ damages.

146. It is submitted by the learned senior counsel for the respondent that under section 31(7) of the
Arbitration and Conciliation Act, 1996 the arbitral tribunal has power to award interest on interest from
the date of cause of action till the date of payment at such rate as the arbitral tribunal may deem fit.
Learned senior counsel distinguishes judgments relied upon by the learned senior counsel for the
petitioner on the ground that each of those judgments were delivered under the provisions of Arbitration
Act, 1940 and not under the provisions of Arbitration and Conciliation Act, 1996. In my view the
judgments relied upon by the respondent were delivered after construing the power of the arbitral tribunal
under section 31(7) of the Arbitration and Conciliation Act, 1996 and it is held that the said power under
section 31(7) of the Arbitration and Conciliation Act, 1996 are different than the power of the arbitral
tribunal under the provisions of Arbitration Act, 1940. In my view the judgments delivered under the
provisions of the Arbitration Act, 1940 on the powers of the arbitrator cannot be applied to the matter
under the provisions of the Arbitration and Conciliation Act, 1996.

147. Insofar as quantification of the claim for compensation of Rs.3,38,00,000/- awarded by the arbitral
tribunal in favour of the respondent is concerned, since the learned senior counsel for the petitioner has
not urged any submission, that part of the award allowing ppn 80 arbp-846.14(j).doc the claim for
compensation and more particularly in paragraphs 43 to 46 is confirmed. Be that as it may, the arbitral
tribunal has considered the pleadings and evidence while allowing the said claim and has rendered a
finding of fact which in my view is not perverse and thus no interference is warranted with such finding
of fact and the amount awarded by the arbitral tribunal.

148. In my view, there is no merit in any of the submission made by the learned senior counsel for the
petitioner. Petition is devoid of merits. I, therefore, pass the following order :-
(a)

(b) Arbitration Petition No.846 of 2014 is dismissed. There shall be no order as to costs.

R.D. DHANUKA, J.

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