- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. ARBITRATION PETITION NO.408 OF 2006 ... M/s.Angel Infin Pvt.Ltd. ...Petitioners v/s. M/s.Echjay Industries Ltd. ...Respondents ... Mr.H.Thakkar, Sr.Advocate with Mr.Umesh Shetty and Ms.Yamini Chandran i/b M/s Umesh Shetty & Co. for the Petitioners. Mr.D.J.Khambatta, Sr.Advocate with Mr.J.P.Sen and Ms.Sita Kapadia i/b Federal & Rashmikant for the Respondents. ... CORAM: D.K.DESHMUKH, J. - 2 - DATED: 17TH JANUARY,2007 JUDGMENT: 1. Petition has been filed under Section 34 of the Arbitration & Conciliation Act challenging the award dated 16-6-2006 made by the learned sole arbitrator partly allowing the claim made by the Respondents. The Respondents were the claimants before the arbitrator and the Petitioners were the Respondents. It was the claimants’ case before the learned arbitrator that they had advanced loan of Rs.1.5 crore to the Petitioners in two branches of Rs.50 lakh and Rs.1 crore under an agreement contained in two documents dated 6th April, 1998 and dated 29th May, 1998. While the document dated 6th April, 1998 provided for interest at the rate of 30% p.a. The agreement dated 29th May, 1998 provided for payment of interest at the rate of 27% p.a. In fact the Respondents claimed interest only at the rate of 27% p.a. on the entire loan of Rs.1.5 crore before the learned arbitrator. The loan advanced initially for a period of three months was to stand automatically extended for a further period of one month in each case, unless the Respondents give a notice to the - 3 - Petitioners requiring them to pay the said loan on expiry of the notice period. 2. The Petitioners did not repay the said amount within the period stipulated in the said documents nor did they make any payment towards interest due thereunder. It was the Respondents’ case before the learned arbitrator that thereafter in a meeting held in September, 1998, the Petitioners sought deferment of the loan and interest and promised to make lump sum payments which they requested be appropriated first towards principal and then towards interest and that the Respondents agreed to this. 3. Subsequently, the Petitioners repaid the principal amount of Rs.1.5 crore during the period from 8th February, 1999 to 15th February, 2000. No payments were however made by the Petitioners during the said period or thereafter towards the interest due. By their letter dated 27th March, 2000 the Respondents raised a debit note of even date on the Petitioners debiting their account to the extent of Rs.50,85,985/- being the interest payable at the rate of 27% p.a. upto that date. The Petitioners did not make payment of interest demanded by the Respondent. - 4 - The dispute thus arose between the parties in relation to the liability of the Petitioners to pay interest. By letter dated 12th December, 2002 the Respondents invoked the arbitration clause contained in the loan documents and the disputes between the parties were referred to Mr.Jitendra Shah, the named arbitrator in the Arbitration Clause. 4. The said arbitrator made the award dated 6-2-2003 in favour of the Respondents. It was challenged by the Petitioners in Arbitration Petition No.240 of 2003 before this court. By order dated 15th July, 2003 the said award was set aside by consent of the parties and the disputes between the parties were referred to Hon’ble Mr.Justice A.B. Palkar (Retd.). The said order provided that the date of reference would be the date on which the matter was first referred to the Arbitrator whose award was set aside i.e. 12th December, 2002. 5. The Respondents thereafter filed the statement of claim for an amount of Rs.1,06,53,871/- and further interest. The Petitioners disputed their liability to pay the amount claimed by the Respondents. In the reply filed by the Petitioners three defences were - 5 - raised, (i) because of an oral agreement reached between the parties, the Respondents had waived their claim to interest; (ii) that the claim was almost entirely barred by law of limitation; (iii) that the claim was in part in the nature of interest upon interest and therefore that claim cannot be awarded. 6. The Respondents/claimants examined their Managing Director as the witness in support of their claim. The Petitioners did not lead any oral evidence. 7. The learned arbitrator after considering the material on record made the award. The learned arbitrator partially allowed the Respondents’ claim to the extent of Rs.37,44,492/- and granted further interest thereon at the rate of 21% p.a. from 15-2-2000 till the date of the Award and further interest at the rate of 18% p.a. till the payment or realisation. The learned arbitrator also awarded the costs to the Respondents. The learned arbitrator held that two documents dated 6th April, 1998 and 29th May, 1998 constitute separate causes of action and that the Respondents’ claim for interest under the first agreement dated 6th April, 1998 was barred by limitation. He further held in respect of the - 6 - amount of Rs.1 crore advanced under the document dated 29th May, 1998 that the Respondents’ claim for interest due thereon was within limitation in as much as, time in respect thereof had been extended by part payment made by the Petitioners towards their debts, the last such payment having been made by cheque on 15-2-2000. The interest to which the Respondent was entitled was quantified at Rs.37,44,492/- upto 15th February, 2000 calculated on reducing balance basis at the agreed rate of simple interest at 27% per annum. Further simple interest was awarded thereon from 15-2-2000 at the rate of 21% p.a. till the date of the award and at the rate of 18% p.a. from the date of the Award till realisation. The Award proceeds on the basis that the learned arbitrator would have been entitled even for these periods to award interest at the agreed rate i.e. 27%, but was, in exercise of his discretion awarding interest at reduced rates. It is this award which is challenged in the present petition. 8. The Petitioners have challenged the award principally on two grounds, (i) that the interest accrued prior to 12-12-1999 is barred by the law of limitation and the Article of the Limitation Act - 7 - applicable is Article 25; (ii) According to the Petitioners under the provisions of Section 3 of Interest Act, no court or tribunal can grant interest on interest and Section 31(7) of the Arbitration Act cannot override the substantive provisions of Section 3 of the Interest Act. 9. The learned Counsel appearing for the Petitioners submits that it is agreed between the parties that 12-12-2002 is the date of commencement of the arbitration and that is the relevant date for the purposes of computation of limitation. It is also agreed between the parties and recorded by the learned Arbitrator that Article 25 of the Limitation Act is the article applicable to the facts of the case. The said Article reads as under: 25. For money payable for Three years When the Interest upon money due interest From the Defendant becomes to the Plaintiff. due. The agreement provides that the loan shall be for a period of three months and shall be returned at the end of one quarter. The loan shall be automatically - 8 - extended for a further period of one month and thereafter similar further period of one month till certain events happen, which events have not happened. It is also provided in the agreement that the loan shall carry interest at the rate of 27% per annum payable at the end of first quarter and thereafter at the end of each month. . It is submitted by the Petitioners that the entire loan has been admittedly repaid by instalments between 10-6-1999 and 16-2-2000 as set out in the Statement of claim. It is also admitted that no interest whatsoever has been paid. It is also admitted that the last instalment of principal amount has been paid on 16-2-2000. In view of the Article 25 of the Limitation Act, interest on loan of Rs.1.00 crore advanced on 29-5-1998 became payable at the end of one quarter, i.e. on 29-8-1998 and thereafter at the end of every month, i.e. on 29-9-1999, on 29-10-1999, on 29-11-1999, on 29-12-1999 and so on, on 29th of every succeeding month. Since the arbitration has commenced on 12-12-2002, all interest accrued and due prior to 13-12-1999 has become barred by limitation. Only interest which accrued from 13-12-1999 to 15-2-2000 is within limitation. After - 9 - 15-2-2000, no interest could become payable because the entire loan has been repaid. The Respondents did claim, falsely and without any basis, interest from 16-2-2000 to 31-12-2003 but they could not sustain it and the learned Arbitrator has rejected that part of the claim. According to the Petitioners, only a sum of Rs.1,13,177/- being the interest that is accrued from 13-12-1999 to 15-2-2000 is within limitation. No more amounts could have been claimed or awarded on account of interest. . It is next submitted by the learned Counsel for the Petitioners that the learned Arbitrator having accepted the position that it is Article 25 of the Limitation Act, which applies to the facts of the case, has fallen in grave and serious error in upholding the contention on behalf of the Respondents. The learned Arbitrator has held that under Section 19 of the Limitation Act, the period for recovery of loan gets extended because of repayment in writing signed by or on behalf of the debtor and that the extension would apply not only to the principal amount but also to the interest then due. The learned Arbitrator therefore concluded that the interest on the loan of 29th May, 1998 is within - 10 - limitation because the last repayment of the principal was made by cheque dated 15-2-2000. According to the learned Arbitrator, the limitation period gets extended by three years from 15-2-2000 to 14-2-2003 and the arbitration having commenced on 12-12-2002, the recovery of interest on the said second loan is completely within the period of limitation. The learned arbitrator further went ahead and held that the extension of period of limitation as per law would apply not only to principal sum of the loan but even to the interest due thereon on the date when the period gets extended. According to the learned Arbitrator even if the entire repayment of the principal sum is made, the extension of limitation would apply if it is in accordance with Section 19 of the Limitation Act to the balance then due, which may be only the interest. . The aforesaid legal propositions laid down by the learned Arbitrator in the impugned award are not only erroneous but contrary to the statutory law contained in the Limitation Act, 1963. 10. The learned Counsel for the Petitioners further submits that for the purpose of extending the period - 11 - of limitation, the part payment should be on account of a debt. The word debt is not defined in the Act but as observed by the Hon’ble Supreme Court in paragraph 22 of their Judgment in the case of Kesoram Industries v/s. The Commissioner of Wealth Tax, reported in AIR 1966, SC page 1370, the expression debt may take colour from the provisions of the concerned Act. The relevant portion of paragraph 22 reads as under:- "We have briefly noticed the judgments cited at the Bar. There is no conflict of the definition of the word "debt". All the decisions agree that the meaning of expression "debt" may take colour from the provisions of the concerned Act. It may have different shades of meaning." . Applying the above observations of the Apex Court, one has to look to Section 19 of the Act and read the expression "debt" appearing therein along with the articles in the Schedule to the Limitation Act. The Articles provide for different periods of limitation for different types of debts. They also provide different dates from which the period of limitation begins to run. A glance at the said Schedule would - 12 - show that there are large variety of debts as for example, for Seamen’s Wages, for price of Goods sold and supplied, for price of Lodging, for hire of Animals or Vehicles or price of Trees or growing Crops, for price of work done, for money lent under an agreement, for money lent without an agreement, for money received by the Defendants for Plaintiffs use, for interest on monies lent, for amounts due under Bills of Exchange, Promissory Notes etc. This will show that Article 25 refers to only the debt of interest, while Article 19 refers to the debt of loan. Since there are various types of debts provided under the schedule with different periods of limitation and different dates from which the limitation begins to run, the Parliament in section 19 of the said Limitation Act, 1963 has advisedly used the generic expression "debt". This debt may be of one type or another type, but the payment on account of one type of debt cannot extend the period of limitation for another type of debt. Debt could be either for principal loan amount or it could be for interest. The part payment of debt for principal loan amount cannot extend the period of limitation for the debt of interest. The plain meaning of the expression "debt" does not include the amount of loan - 13 - and the amount of interest both, more so, when the Articles in the Schedule to the Limitation Act provide for various types of debt and different dates of commencement. The entire argument of the Respondents upheld by the learned Arbitrator is based on this wrong and erroneous interpretation of the provisions of Section 19 of the Limitation Act, and the same cannot be upheld. 11. It is submitted by the Petitioners that as far as the present case is concerned, the argument provides for different periods for the repayment of loan and for payment of interest. The observations of the learned Arbitrator in para 41 of the Award that the extension of period of limitation would apply not only to the principal sum but also the interest due thereon goes contrary to the literal meanings of the words "loan" and "interest". The attempt on the part of the learned Arbitrator to interpret Section 19 of the Limitation Act in the manner he has done, is also contrary to law laid down by the Apex Court in the latest Judgment delivered on 6th December, 2006 in the case of Raghunath Rai Bareja v/s. Punjab National Bank that where statutory provision is plain and unambiguous, the - 14 - Court shall not interpret it in a different manner. Where the language of the statute is unambiguous, the question of pressing into service any rules of interpretation other than the literal rule is not permissible. It is only where the provision of the statute is ambiguous, the Court can depart from a literal or strict construction. In the above case, the Apex Court has referred to catana of cases decided earlier and made it amply clear that the rules of interpretation other than the literal rule would come into play only if there is any doubt with regard to the express language used or if the plain meaning would lead to an absurdity. Where the words are unequivocal, there is no scope for importing any rule of interpretation. . In view of the authoritative of the pronouncements of the Apex Court from time to time which are summarised in the latest Judgment referred to hereinabove, the attempt on the part of the Respondents to go into the history of Section 19 and to refer to the Report of the Select Committee for the amendments in the earlier law are not justified. Similarly, the reasoning of the learned Arbitrator as set out in paragraphs 39, 40 and 41 of his Award is - 15 - also contrary to law, as laid down by the Apex Court and cannot be sustained. 12. The interpretation and reasoning, if accepted would lead to some absurd results as under:- (a) Articles 25, which provides for limitation for interest becomes totally superfluous and redundant. If part payment of principal can extend the period of limitation for claim of interest, then where is the need for a separate and independent Article for interest like Article 25? Why would the Parliament have thought of an independent Article for interest at all? No difficulty would at all arise if Article 25 is deleted. Is such interpretation justified? No. It cannot be assumed that the Parliament has committed a mistake or has passed the law, which is redundant. (b) Article 25 provides that the limitation for interest would begin to run from the time when interest becomes due. However, the learned Arbitrator has calculated and awarded interest from 29-5-1998 i.e. the date when loan was advanced. This is long before even the first interest became - 16 - due, which is at the end of first quarter i.e. 29-8-1998 and subsequent interest became due still later at the end of each subsequent month. This would also amount to substituting the words in a Statute i.e. column 3 of Article 25 of Limitation Act, 1963, which is not permissible in law. (c) Though Article 19 provides limitation only for loan, the learned Arbitrator has taken it to mean loan and interest both. This amount to doing violation to the language of the Statute. (d) The learned Arbitrator has chosen to ignore the fact that there is no article, which provides for limitation for "Debt". He has however first taken "debt" to mean and include the principal amount of loan with interest, applied Article 19 of the Schedule and pressed into service the provisions of Section 19 of the Limitation Act. The result is interest transforms itself, by some magic, first into principal amount attracting Article 19 and then getting the benefit of extension under Section 19 of the Limitation Act. 13. The learned Counsel for the Petitioners submits - 17 - that it may not be inappropriate to point out that under Section 34 of the Arbitration, 1996, the illegal part of the Award cannot be severed from legal part of the Award. Therefore, the part of the Award for the amount which is within limitation i.e., interest accrued between 13-12-1999 and 15-2-2000 amounting to Rs.1,13,177/- only cannot be separated and severed from the part of the Award for amounts which are beyond limitation, i.e. interest accrued between 29-5-1998 and 12-12-1999. Therefore, the entire Award is liable to be set aside. 14. The learned Counsel for the Respondents, on the other hand, submits that the expression "debt" in Section 19 ought to be construed to include both principal and interest arising out of the same transaction and that payment towards either would extend limitation qua both. It is submitted that this construction is in accord both with the plain and ordinary meaning of the Section in general and the word "debt" in particular. The Hon’ble Supreme Court, while considering the expression "debt", has held that while the expression may have shades of meaning, the following definition is "unanimously accepted": "A debt is a sum of money which is now - 18 - payable or will become payable in future by reason of a present obligation debitum in praesenti, solvendum in futuro". So defined, the expression is clearly broad enough to include both principal and interest arising out of the same transaction. . The learned Counsel further submits that the principal amount and the interest amount cannot be termed as separate debts. Taken to its logical conclusion, such a contention would mean that each installment of interest is a separate debt. In other words, one loan would be divided into numerous separate debts. Thus, a part payment towards one installment of interest would not extend limitation for any other installment even of interest. This would lead to an absurd result. . If as set out hereinabove, principal and interest arising out of the same transaction constitutes a single "debt", then payment towards either would extend limitation for both under Section 19 of the Limitation Act. The Hon’ble Delhi High Court has in fact so held in its judgment in Rajesh Kumari v/s. Prem Chand Jain. - 19 - . In the submission of the learned Counsel for the Respondents, the fact that the cause of action for recovery of a loan and the interest accrued thereupon are independent, and the starting points for limitation to recover the two amounts are different, does not in any way affect this position. Article 21 of the Limitation Act provides that for money lent under an Agreement that it shall be payable on demand, the period of limitation shall be three years from when the loan is made. Article 25 provides in respect of an action for interest that the period of limitation shall be three years from when the interest becomes due. There is, however, nothing untoward in Section 19 subsuming both causes of action being subsumed in the expression "debt" and providing for a common fresh period of limitation being computed from the time when part payment is made. While Articles 21 and 25 provide for the starting points of limitation for the recovery of a loan payable on demand and interest respectively, part payment of either would be payment towards the debt (which has been construed to include both principal and interest) which would then furnish a fresh period of limitation (3 years in both cases) from the date of such payment. This would be evident - 20 - from a plain reading of Section 19 which provides that "where payment on account of a debt... is made before the expiration of the prescribed period", then "a fresh period of limitation shall be computed from the time when the payment was made." Section 2(j) defines both "prescribed period" and "period of limitation". "Prescribed period" has been defined to mean "the period of limitation computed in accordance with the provisions of this Act" while "period of limitation" has been defined as "the period of limitation prescribed for any suit, appeal or application by the Schedule." The "period of limitation" is set out in Column 2 of the Schedule to the Limitation Act. Column 3 of the Schedule sets out the time from which the period begins to run. Section 19 provides that, in the case of a part payment, these periods of limitation will all be computed from a common starting point viz. from the time when the part payment was made. If a payment is made either towards principal or interest within the "prescribed period" for both, then such payment being a payment towards a "debt" would furnish a fresh period of limitation (3 years as evident from the second column titled "period of limitation" of Articles 21 and 25) in respect of both principal and - 21 - interest. Such an interpretation does not "defeat" the provisions of Column 3 of the Schedule- indeed it is in consonance with the legislative intent reposed in Section 19 that in the case of part payments, there will be a common starting point. . The requirement of Section 19 that the part payment be made "before the expiration of the prescribed period...." is only a recognition of the well settled principle that once time has expired, the case of action cannot be revived by a subsequent happening such as a part payment after the prescribed period of limitation has expired. 15. The learned Counsel for the Respondents further submits that the language of Section 19 is virtually identical in terms to the language of Section 20 of the Limitation Act, 1908 as amended in 1942. Prior to its amendment in 1942, Section 20 made a clear distinction between payments made towards principal and payments made towards interest and the effect of both. The Report of Select Committee was presented to