IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14 .03.2011 CORAM THE HONOURABLE MRS.JUSTICE R.BANUMATHI AND THE HONOURABLE MR.JUSTICE V.PERIYA KARUPPIAH O.S.A.No.46 of 2011 M.Devasenapathy ..Appellant. Vs. 1. M/s. S.G.S.India Pvt.Ltd., rep. By its General Manager, Raji Christopher Having registered Office At No.4B A.S.Marg, vikhroli (West) Mumbai 400 083 2. M/s. S.G.S.India Pvt. Ltd., Branch Office at No.1/509A Old Mahabalipuram Road, Thoraipakkam, Chennai 600 079 3. Mr.Justice S.S.Subramani, Arbitrator “Lakshmi” E 104-11/2 23rd Cross Street, Besant Nagar, Chennai – 600 090 ..Respondents Appeal filed under Order XXXVI Rule 1 of O.S.Rules r/w clause 15 of the Letters Patent of Madras High Court Original side Rules against the fair and decreetal order made in Arb.O.P.No.195 of 2009 dated 6.1.2010 For Appellant : Mrs.Auxilia Peter For Respondents: Mr.Kalyan Jabakh for M/s Surana & Surana for R1 & R2 https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T (The judgement of the Court was delivered by V.PERIYA KARUPPIAH.,J) This appeal is directed against the order passed by the learned single Judge made in Arbitration O.P.No.195/2009 dated 6.1.2010. 2. The gist of the case is as follows: The appellant herein is the owner of the building and land. He entered into an agreement of lease with the first respondent herein initially for a period of three years. The agreement provided for putting up additional building by the lessee/first respondent . In terms of the agreement, the first respondent had made payment to the appellant's father periodically. The lease agreement was made in the year 1992 and it was followed by further memorandum of agreement entered into more than once. In terms of the memorandum of agreement entered into, a sum of Rs.50,50,000/- was given by the first respondent and the appellant entered into lease agreement for 30 years commencing from 5.2.1995 and all the title deeds were handed over to the first respondent. An additional amount of Rs.5,00,000/- was also paid to the appellant. By letter dated 2.1.1997, the appellant acknowledged the outstanding liability of a sum of Rs.54,79,883.70 (Ex.C12). This was followed once again by a confirmation given by the first respondent herein on 03.03.1997. By letter dated 02.04.1997, the appellant acknowledged outstanding liability of Rs.62,36,040.25. The amount due and payable as on 31.03.2003 to the first respondent went upto Rs.1,02,19,215.25. While the matter stood thus, the appellant appeared before the banks for loans, who insisted the appellant for getting title deeds, apart from fresh lease agreement that was entered into with the first respondent herein. Accordingly, the appellant entered into an rental agreement on 22.12.2003 with the first respondent, whereby, they are acknowledging that the loan amount shall be treated as a security to the extent of Rs.97,00,000/-. In terms of the agreement entered into, the State Bank of India made out a Demand Draft to the tune of Rs.77,00,000/- in the name of the first respondent, on the first respondent handing over the title deeds to the State Bank of India. The agreement specified that a sum of Rs.97,00,000/- is due and payable by the landlord/appellant to the tenant/first respondent and that the first respondent shall pay a rent of Rs.1,66,000/- per month. The agreement dated 15.3.2003 specified that the balance amount of Rs.20,00,000/-, after adjusting Rs.77,00,000/- shall be returned by the landlord/appellant as interest free deposit that no set off or counter claim would be allowed or claimed by the appellant when the amount was repaid. In the event of the failure to pay, the said amount would carry interest at 5% over and above the Bank rates. It was also stipulated therein that the period of lease was seven https://hcservices.ecourts.gov.in/hcservices/ years and if the tenant continued to be in occupation till 31st day of December 2013, the repayment of the loan from the bank shall be completed with the payment of rent by the first respondent to the said State Bank of India for the month of December 2010. It is agreed to between the parties that the first respondent had received a sum of Rs.77,00,000/- from the bank by way of repayment of the loan. While the matter stood thus, when the first respondent intimated the termination of the agreement and sought for payment of amount due and payable to the tune of Rs.22,29,392/- with interest from the date of claim till realization, the dispute arose between the parties to go before the sole Arbitrator. By award dated 31.1.2009, the learned Arbitrator granted the claim to the first respondent herein by holding that the first respondent is entitled to the amount of Rs.31,88,032/-, with interest at 9% on the principal amount of Rs.22,29,392/- from the date of the claim till realization. Aggrieved by the said award, the appellant herein has filed the Original Petition under Section 34(2) of the Arbitration and Conciliation Act. After hearing both sides, the learned Single Judge has dismissed the Original Petition finding no merits in the O.P that attracts any of the grounds under Section 34(2) of the Arbitration and Conciliation Act,1996. Hence, this appeal before this Court. 3. Heard, Mrs.Auxilia Peter, learned counsel for the appellant and Mr.Kalyan Jabakh, learned counsel appearing for M/s.Surana and Surana for the first and second respondents. There is no appearance for the third respondent. 4. Learned counsel for the appellant would submit in her arguments that the property bearing Door No.17 Old Door No.21 New Street, Kottur , Chennai - 85 absolutely belonged to the father of the appellant and his father and the first respondent entered an agreement on 2.5.1992 in respect of the said property for a period of 3 years and with an option to renew it for six years. She would further submit that it was also agreed that the father of the appellant shall construct in first floor and a portion in second floor as per the approved plan, to suit the occupation of the first respondent and the first respondent agreed to pay the rent at Rs.5 lakhs and the same would be given in instalments. She would also submit that the parties have entered into further agreements on 25.9.1993, 8.2.1993, 12.5.1994 and 25.9.1994 in respect of the same property and in accordance with the said agreements, the agreement for renewal of lease was extended. She would further submit that the father of the appellant Mr.B.Madhavan died leaving his wife and the appellant to succeed the property. She would further submit that the money advanced to the father of the appellant was demanded by the first respondent and the first respondent forced the appellant to take a bank loan for clearing the outstanding sum payable to the first respondent and the appellant and his aged mother conceded their demands and approached ICICI Bank to procure the loan and for https://hcservices.ecourts.gov.in/hcservices/ that purpose, the appellant and his mother executed a rental agreement and supplemental rent agreement on 22.12.2003 and those agreements were meant only for the purpose of Bank loan and not to take effect as rental agreements. According to the said arrangement, the first respondent had received a sum of Rs.77,00,000/- from the bank on the execution of the rental agreement. She would also submit that there is a reservation clause that the earlier agreements would continue to exist in respect of the clauses which are not mentioned in the rental agreements dated 22.12.2003 and the inclusion of the reservation clause would go to show that these agreements are sham and nominal. 5. While these agreements are in force, the first respondent served a termination notice on 24.3.2006 and in pursuance of the said notice, the first respondent vacated the premises but however, he has left damages caused to the property while he was in occupation. She would also submit that the said damages caused would amount to Rs.52 lakhs. However, the learned Single Judge did not consider that the arbitrator had not ordered to pay the damages to the tune of Rs.8 lakhs as asked for by the appellant. She would also submit that the appellant also suffered damage at Rs.3,55,000/- for the payment of due amount to the Electricity Board on the power consumed by the first respondent. When the lease agreement dated 22.12.2003 are sham and nominal, created for the purpose of obtaining bank loan, the amount mentioned in the lease agreements are only nominal and they have not been intended to act upon. The finding of the Arbitrator to the effect that the appellant is liable to pay a sum of Rs.22,29,392/- with interest at 18% accrued to a total sum of Rs.31,88,032/- could not be arrived at since those agreements are not enforceable in law. She would also submit that the award of interest at the rate of 18% and thereafter, at 9% on the principal amount are not at all sustainable and therefore, the learned Single Judge ought to have set aside the award passed by the Arbitrator. She would further submit in her arguments that the Arbitrator was not in good health and therefore, whenever the appellant wants to proceed with the case, he would not be present by saying that he was taking treatment for his ailment. Therefore, sufficient opportunity was also not given to the appellant to state his case. 6. Learned counsel for the appellant would draw the attention of the Court to the judgment of the Hon’ble Apex Court reported in A.I.R. 1967 SC 1162 (R.B.Seth Jessaram Fatehchand vs.Om Narain Tankha & another) to the proposition that the amount denoting a debt cannot be considered as a security deposit. In the aforesaid circumstances, she would request the Court that the order passed by the learned Single Judge confirming the award passed by the arbitrator may be set aside. https://hcservices.ecourts.gov.in/hcservices/ 7.Learned counsel for the first and second respondents would submit in his argument that the parties have entered into various agreements as put forth by the appellant in the year 1992 and the further agreements in the year 1993-94. All those agreements were reduced into writing. Therefore, both the parties are bound by the terms and conditions. He would further submit that the agreement entered into between the appellant and the first respondent on 22.12.2003 are true and genuine agreement with an intention to give effect to in between the parties. He would further submit that all the previous agreements entered into between the parties have merged with the said agreements dated 22.12.2003 and the reservation clause would go to show that in the absence of any stipulation regarding the terms of lease, the earlier agreements should be referred to and the said reservation would go to show that the agreement dated 22.12.2003 shall be the final agreement entered in between the parties. He would further submit in his arguments that the supplemental agreement executed on the same day would also go to show that the earlier agreement entered into between the parties has been acted upon. He would further submit that every reason submitted by the learned counsel for the appellant that the said agreement was intended to obtain Bank loan would itself show that the agreement entered into between the parties had been acted upon by obtaining a bank loan for the payment of dues payable to the first respondent by the appellant and therefore, the appellant cannot say that the said agreement was only sham and nominal. He would further submit that the Arbitrator has given sufficient opportunity to the appellant for the conduct of the case and he was quite alright and the pronouncement of the Award made by him would depict that the Arbitrator was in a sound health at the time conducting the arbitration as well as during the pronouncement of the award. He would further submit that the appellant was certainly under the liability to repay the amount either in the form of security deposit or the outstanding sum payable by the appellant to the first respondent with interest as already agreed in between the parties and therefore, the Arbitrator was right in coming to the conclusion that the sum of Rs.22,29,392/- with accrued interest at 18% for a sum of Rs.31,88,032/- with subsequent interest at 9% is perfectly alright. 8. We have given anxious thoughts to the arguments advanced on either side. The undisputed case in between the parties would be that the appellant was the son of one Madhavan who entered into an agreement with the first respondent in respect of leasing of the property belonged to him and entered into various agreements dated 02.05.1992 followed by the agreements dated 25.09.1993, 08.12.1993, 12.05.1994 and 25.09.1994. Thereafter, they have also entered into an agreement namely, Memorandum of Understanding on 25.09.1994 to continue the lease agreement for 24 years for a rent of Rs.7/- per square feet per month. However, subsequently they have entered into another rental agreement dated 22.12.2003 for a period of 10 years https://hcservices.ecourts.gov.in/hcservices/ which would end by December 2013. A supplemental agreement was also entered on the same day in between both the parties. It is further agreed that by producing the rental agreement before ICICI Bank, a sum of Rs.77 lakhs was paid to the first respondent towards his outstanding payable by the appellant by virtue of the earlier agreements and it has been fixed that the balance outstanding money was only to an extent of Rs.20 lakhs which will be retained by the landlord as security deposit. It could also be seen that the said deposit kept by the landlord shall carry 5% interest over the prime bank rate per annum. Apart from that, a sum of Rs.1 lakh was stated to have been retained by the landlord until the entire security deposit lying with the landlord is adjusted against the repayment of security deposit. Therefore, it can be seen from the agreement reached in between the parties dated 22.12.2003 that a sum of Rs.21 lakhs are to be retained by the appellant and it has to be refunded to the first respondent at the time when he vacates the property. However, it was contended by the learned counsel for the appellant that the said agreement dated 22.12.2003 is a sham and nominal agreement. However, it has been considered by the learned Arbitrator as well as the learned Single Judge that it cannot be done so because they were acted upon. No doubt it is true that the said agreement was executed by the appellant for the purpose of obtaining the bank loan also. In the said agreement, it has been categorically mentioned about the settlement of money towards the existing outstanding money payable to the first respondent. Accordingly, it was settled and the bank itself has given a pay order for a sum of Rs.77 lakhs to the first respondent and it had been agreed that the balance amount would be Rs.20 lakhs + Rs.1 lakh. In the said circumstances, it cannot be stated that it is a sham and nominal document. Apart from that, a supplemental agreement has also been executed in between the same parties on the same day confirming the execution of the earlier agreement dated 22.12.2003. Apart from that, the first respondent has issued three months notice for vacating the premises as per the clause mentioned in Clause 28 of the agreement. However, the Arbitration clause incorporated in the said agreement has been enforced and the appellant had also participated in the arbitration and it was not questioned by the appellant. Therefore, we could see that the terms and stipulations mentioned in the agreement dated 22.12.2003 had been acted upon and it cannot be assailed as sham and nominal lease agreement. Arbitrator observed that during the examination of Appellant he admitted all the agreements and its contents and that the only defence taken by the Appellant was that his father was ill and out of pressure from the Respondents, they have to sign the same. Arbitrator observed that "burden of proof is on the Respondent to substantiate that the Claimants are not entitled to the amount claimed and the agreements cannot be enforced". The said findings of Arbitrator is not open to challenge. https://hcservices.ecourts.gov.in/hcservices/ 9. As rightly submitted by the learned counsel for the first and second respondents, the earlier agreements have been merged with the agreement entered into between the parties on 22.12.2003. Therefore, the appellant cannot plead that the terms and conditions of the earlier agreement would apply to the facts and circumstances of the case cannot be sustained. The reservation of applying the conditions of earlier agreements was only to an extent of absence of any stipulation in the agreement dated 22.12.2003. In such contingencies, these stipulations alone would be carried over to agreements and the said reservation will not give effect to all the terms and conditions of the earlier agreements. Therefore, the conditions which are mentioned in the agreement dated 22.12.2003 will prevail over the earlier agreements reached in between the parties and it has been agreed in between the parties regarding the payments to be made to the first respondent by the appellant and therefore, the figures or amounts mentioned in the present agreement dated 22.12.2003 would alone sustain. 10. Learned Arbitrator had come to the conclusion by relying upon the figures mentioned in the lease agreement dated 22.12.2003. The decision of the Arbitrator who is the chosen Judge of the parties is normally final on facts and should not be lightly interfered with. 11. The arguments regarding the illness of the learned Arbitrator will not in any way vitiate the Award passed by the learned Arbitrator because if really the Arbitrator was always ill and no chance or opportunity was given to the parties, he could not have pronounced the award. Apart from that, he had framed various points to be decided and had discussed in detail and have come to a conclusion and prepared the award and pronounced it. Therefore, the arguments advanced by the learned counsel for the appellant that the Arbitrator was ill and could not properly conduct the proceedings cannot hold any water. The learned Single Judge rightly observed that the criticism levelled against the arbitrator is totally uncalled for. 12. Further, the damages claimed by the appellant was not supported by any document for the purpose of considering the same by the Arbitrator. However, it was stated before this Court that there is a separate suit filed by the appellant for the payment of damages and it is pending before this Court on an application filed by the first and second respondents for the rejection of the plaint itself. In the said circumstances, the deviation of the Arbitrator in not touching the damages said to have been sustained by the appellant would not vitiate the award. It is for the Civil Court which had entertained the suit, to go into the question or as per the directions given by the Court the parties have to act. In the said circumstances, the only point to be seen by this Court is whether the https://hcservices.ecourts.gov.in/hcservices/ interest calculated by the Arbitrator and approved by the learned Single Judge is correct in accordance with law. 13. According to the agreement reached in between the parties dated 22.12.2003 the interest shall be paid for the security deposit was at 5% over the prime bank rate. The respondent had claimed interest at the rate of 18 percent per annum on Rs.22,29,392/- and made a claim of Rs.31,88,032/- with subsequent interest at 18% p.a. In the judgment of the Hon’ble Apex Court reported in 2010 (3) SCC 690 (State of Haryana and others Vs S.L.Arora and Company) it is held as follows: "Thus it is clear that Section 31(7) merely authorises the Arbitral Tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. It also provides that if the award is silent about interest from the date of award till the date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date f award till the date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the award." 14. The said judgment will go to show that whenever there is an agreement in between the parties towards the payment of interest, the said agreement will prevail and in the absence of any such agreement, the Arbitrator has absolute discretion to grant interest for pre- award period as well as for the post award period. In the light of the aforesaid judgment, when we approach the present case, we could see that the agreement regarding payment of interest is being governed by Clause 15(b) of the present agreement which runs as follows: "In any event, for any reason whatsoever, the Tenant is unable to recover any part of the said amount of Rs.20,00,000/- the unrecovered portion shall carry interest at the rate of 5% over and above the prime banking rate per annum." 15. As per the terms of agreement between the parties, interest is payable at the rate of 5 percent over and above the then prevailing R.B.I. rate of interest. There are no evidence/materials to show the then prevailing R.B.I. rate of interest. In the previous agreements, parties have agreed that the rate of interest shall be https://hcservices.ecourts.gov.in/hcservices/ at 16 percent per annum. In so far as the claim of Rs.22,29,392/-, the respondent had claimed interest at the rate of 18% p.a. and thus made a claim for a sum of Rs.31,88,032/-. The learned arbitrator passed the award for the claim amount of Rs.31,88,032/- thus awarding interest at the rate of 18% p.a. for the pre-reference period. 16. Section 31(7)(a) provides that the Arbitral Tribunal may award interest at such rate as it deems reasonable on the whole or any part of the money, 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 i.e,. pre-award period. Now under Arbitration Act, 1996, the interest bearing period is a single continuous period i.e., the date on which the case of action arose and the date of payment. Considering the powers of the arbitrator to award interest under 1996 Act, in McDermott International Inc. v. Burn Standard Co. Ltd.,( (2006) 11 SCC 181, the Supreme Court held as under: "154. The power of the arbitrator to award interest for pre-award period, interest pendente lite and interest post-award period is not in dispute. Section 31(7)(a) provides that the Arbitral Tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which award is made i.e. pre-award period. This, however, is subject to the agreement as regards the rate of interest on unpaid sums between the parties. The question as to whether interest would be paid on the whole or part of the amount or whether it should be awarded in the pre-award period would depend upon the facts and circumstances of each case. The Arbitral Tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest should be awarded; (ii) whether interest should be awarded on the whole or part of the award money; and (iii) whether interest should be awarded for the whole or any part of the pre-award period. 155. The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as also for the interim. By reason