OMP NO.351/2003 Page No.1 REPORTABLE * IN THE HIGH COURT OF DELHI AT NEW DELHI + O.M.P. NO. 351 OF 2003 % Date of Decision : September 10th , 2008. M/S. NALINI SINGH ASSOCIATES ....Petitioner. Through Mr. A.J. Bhambani, Ms.Ranjita and Ms.Lakshita, Advocates. VERSUS M/S. PRIME TIME – IP MEDIA SERVICES LTD. .... Respondent. Through Mr.Shridhar Y.Chitale and Mr.Shankar N., Advocates CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not ? YES 3. Whether the judgment should be reported in the Digest ? YES SANJIV KHANNA, J: 1. The present Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act, for short) is filed by M/s.Nalini Singh Associates (hereinafter referred to as the OMP NO.351/2003 Page No.2 Objector, for short) challenging the interim Award dated 31st May, 2003. 2. The Objector is engaged in production of news and current affairs related television programmes and had entered into a business relationship with M/s.Prime Time-IP Media Services Limited (hereinafter referred to as the respondent, for short). By Memorandum of Understanding dated 1st November, 1996, the respondent was appointed as an exclusive agent for sale of advertisement time also known as „free commercial time‟ for news based programme titled Aankhon Dekhi on Doordarshan channel. Subsequently, the respondent was also appointed as an exclusive agent for selling advertisements or free commercial time for the news programme called Dopahar Aankhon Dekhi. 3. The Memorandum of Understanding dated 1st November, 1996 contained an arbitration clause. The Objector invoked the said arbitration clause and in consequence thereof, Mr. Justice Avadh Behari Rohtagi (retd), former Judge of this Court was appointed as the sole Arbitrator. 4. The Objector had made a claim of Rs.1,96,47,954/- against the respondent on account of minimum guarantee charges for the period between 2000 and 30th April, 2001. 5. The respondent, on the other hand, had submitted that w.e.f. 2000 they found it difficult to sell air time on the two programmes and payment of minimum guarantee amount became commercially OMP NO.351/2003 Page No.3 unviable. It was stated that the respondent was suffering loss of Rs.16 lakhs per month and the commercial prospects of the programmes were bleak. There was settlement in terms of the letters dated 15th March 2001, 16th March 2001 and 9th May 2001 and Rs. 26.81 lacs was payable towards minimum guarantee charges. The Memorandum of Understanding had a termination clause and by notice dated 24th April, 2001, the respondent gave two weeks time to terminate the agreement for marketing of the two programmes. 6. It is an admitted case that letter dated 15th March, 2001 was written by the respondent to the Objector and states that there was a protracted correspondence of commercial viability of the two programmes. It also records that there was a meeting and mutual agreement was arrived at on 14th March, 2001. The letter thereafter purports to record, the mutual agreement. As per the said letter, the respondent was to pay Rs.50 lakhs to the Objector in case the programmes were given PSB status by Doordarshan w.e.f. 4th September, 2000 and in case PSB status was not granted, the respondent would be liable to pay Rs.26.81 lakhs to the Objector. 7. Letter dated 16th March, 2001 is addressed by the Chartered Accountant of the Objector to the respondent. It records that the sum offered was a small portion of Rs.105 lakhs that was due. It was stated that the Objector expects that the amount would be revised to a reasonable figure keeping in view totality of the OMP NO.351/2003 Page No.4 situation. It was further stated that in view of continued business relationship and spirit of discussion and coordination, the Objector expects the respondent to offer a more reasonable amount and better terms and conditions. It was also pointed out that the Objector was under grave financial burden which was causing mental pressure and agony to the proprietor. 8. After exchange of these two letters dated 15th March, 2001 and 16th March, 2001, for about two months the matter continued to fester though there was exchange of correspondence between the parties. On 24th April, 2001 the respondent wrote a letter stating, inter alia, that in spite of their best efforts and due to prevalent Doordarshan policies and market conditions, they were not in a position to continue with marketing of the two television programmes. Accordingly, the respondent gave two weeks notice to terminate the agreement for marketing of the two programmes. The letter further states that the respondent would like to discuss payment flow schedule keeping in view the letter dated 16th March, 2001 written by the respondent. This letter was acknowledged by the Objector in their letter dated 8th May, 2001. In this letter the Objector recalled the efforts put in by them in increasing production capacity specially in view of the new election related programmes which were shot in West Bengal and other States. In this letter it is also mentioned by the Objector as under:- OMP NO.351/2003 Page No.5 “In the mean time we are available to settle all matters concerning the total amount/compensation payable by you towards the period relating to the payment/terms and date of payment for the same.” 9. In response the respondent wrote a letter dated 8th May, 2001 in which it was stated as under:- “Dear Nalini, This is in response to your letter dated today, asking us to extend the notice period by another 3 days. The matters concerning the total amount/compensation payable to you was confirmed vide our letter dated 15th March‟01 and your confirmation vide letter dated 16th March‟01. This reflects the amount payable as per our mutual discussions and agreement. Please acknowledge and accept this letter and we will as per your request extend the notice period by 3 days.” 10. Thereafter on 9th May, 2001, the Objector wrote a letter to the respondent which is reproduced below:- “Dear Mr. Rai, Thank you for providing a fax copy of your letter dated 15.3.2001 which arrived in my office 5-minutes ago. Despite our best efforts to convince you of our inability to bear such heavy losses, you have kindly decided to stand by your terms contained in your letter of 15.3.‟01 (and our letter dated 16.3.‟01). I accept the terms stated in your letter dated 15.3.‟01 and our letter dated 16.3.‟01, and request you to continue with the programme. Kindly schedule a meeting to discuss the cash OMP NO.351/2003 Page No.6 flow to our organization which has been rendered bankrupt due to starvation of funds. We cannot survive another day without funds owed to us for the period 27th July 2000 onward.” 11. Learned arbitrator after examining the correspondence in form of the three letters came to the conclusion that the letter dated 9th May, 2001 records a binding settlement between the parties and as per the said settlement, the Objector is entitled to Rs.26.81 lakhs from the respondent and nothing more. The said finding is purely factual. Learned Arbitrator has examined the question of intention of the parties and on consideration thereof has decided the said aspects in favour of the respondent. 12. The findings given by the learned Arbitrator are as under:- 1) The third letter dated 9th May, 2001 addressed by the Objector to the respondent constitutes an Agreement between the parties and settles their claim and disputes in respect of minimum guarantee charges upto the period 1st March, 2001. He has observed and held that the intention of the parties was to square up and settle their claims by the said correspondence i.e. letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001. OMP NO.351/2003 Page No.7 2) The petitioner cannot rely upon the original memorandum of understanding and base her claim upon the said memorandum in view of the binding settlement in letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001. 3) The binding settlement in terms of the three letters did not have a penal clause so as to make the respondent liable to pay any penal sum other than the amounts specified in the letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001. There is no penalty clause in the binding settlement. The settlement was final and binding and the petitioner cannot rely upon and base her claim upon the original memorandum of settlement. 4) The Objector has accepted part performance of the mutual settlement by encashing the two cheques dated 11th May, 2001 and 28th May, 2001 both for Rs.6,71,250/- on 30th July, 2001 after month of June had expired. The said cheques were paid pursuant to the settlement and the two cheques and settlement were inseparable. The Objector having accepted part payment cannot wriggle out and claim that there was no settlement. OMP NO.351/2003 Page No.8 5) It was further observed that time of payment in terms of the three letters was not essence of contract. Even if third and fourth installments were paid belatedly, the settlement did not fall through, so as to resurrect and permit the Objector to raise original claim on the basis of the Memorandum of Understanding. Further the respondent was ready and willing to pay the third and the fourth installments though belatedly. The Objector, however, was trying to ignore the said settlement and wriggle out of the same. The Objector can be compensated by way of interest on the delay in payment and payment of interest @ 18% p.a. of Rs.13,38,250/- between the period July 2001 and 31st March, 2003 of Rs.3,81,401/- plus cost of Rs.2 lakhs would be just and adequate. 6) Depending upon programmes‟ commercial viability, the minimum guarantee was increased from Rs.35,000/- per episode in 1996 first to Rs.42,000/-- 48,000/- in 1997 and then to Rs.52,000/- on 30th March, 1998 but was reduced to Rs.35,000/- w.e.f. 8th September, 1998. The commercial viability of the programmes had come down subsequently. OMP NO.351/2003 Page No.9 Ultimately the agreement between the parties was terminated. 13. Learned counsel for the Objector has impugned the said Award on the following grounds:- (i) Learned Arbitrator has misinterpreted the letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001 and there was no concluded contract. (ii) The respondent had failed to abide by the terms and conditions mentioned in the three letters dated 15th March, 2001, 16th March,2001 and 9th May, 2001 as payments of third and fourth installments (total Rs.13,42,250/-) were not made in the month of June 2001 and therefore the Objector is entitled to the original minimum guarantee amount specified under the Memorandum of Understanding. (iii) The alleged contract of one time settlement of Rs.26.81 lakhs is vitiated on the ground of force and coercion as it is inconceivable that a party who had a claim of Rs.1.96 crore founded on a written contract would agree to a full and final settlement of her claims on payment of Rs.26.81 lakhs only. (iv) Principle of accord and satisfaction is not applicable as the so called settlement was without consideration in OMP NO.351/2003 Page No.10 form of additional benefit or possibility of additional benefit. Reliance in this regard was placed in the case of D&C. Builders Ltd versus Rees reported in 1965 (3) All.ER 837 and decision of the Calcutta High Court in New Standard Bank Ltd versus Prabodh Chandra Chakraborty reported in AIR 1942 Cal. 87. Reference was also made to paragraphs 7 and 9 of the judgment of the Supreme Court in United Bank of India versus Ram Das Mahadev Prasad reported in (2004) 1 SCC 252. 14. Scope of review under Section 34 of the Act is limited and not as wide as that of an Appellate Court. This Court cannot reappraise and re-examine finding of facts laid and found by the learned Arbitrator. Learned Arbitrator in paras 23 and 25 of the impugned Award has referred to and quoted the three letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001. It is trite law that a the scope of judicial intervention in an award is limited. (Refer M/S Associated Construction versus Pawanhans Helicopters Pvt. Ltd. reported in (2008) AIR SCW 4893). The arbitrator in the instant case has made findings of fact, to the effect that the letters dated 15th March, 2001, 16th March, 2001 and 9th May, 2001 resulted in novation of the earlier contract, the learned arbitrator has also noted that there was no clause in the said new contract that OMP NO.351/2003 Page No.11 would result in the revival of the earlier contract. His decision is based on facts, intention and conduct of the parties. The Court cannot go into the merits and demerits of the factual findings by the arbitrator, unless the findings are perverse. Even in case of interpretation of contractual clauses, there is limited scope and ground to interfere. In the case of McDermott International Inc. v. Burn Standard Co. Ltd., reported in (2006) 11 SCC 181; the Supreme dealt with issue of the arbitartor‟s power of interpreting the terms of the contract, the Court referred to the decision in the earlier cases of Pure Helium (P) Ltd. versus Oil & Natural Gas Commission reported in (2003 8 SCC 593 and D. D Sharma versus Union of India reported in (2004) 5 SCC 325 and it was held that that the interpretation of a contract is a matter for the arbitrator to determine even if the said act gives rise to the determination of a question of law. The Court held as under: 112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of OMP NO.351/2003 Page No.12 law. (See Pure Helium India (P) Ltd. v. ONGC and D.D. Sharma v. Union of India.) 15. Faced with this factual and legal position the learned counsel for the Objector drew my attention to para 75 of the decision of the Supreme Court in the case of Oil & Natural Gas Corporation Limited versus Saw Pipes Ltd. reported in (2003) 5 SCC 705 and submitted that the Award in question suffers from patent illegality. In this regard, reference was also made to paragraphs 14 and 31 of the said judgment and it was submitted that illegality which goes to the root of the matter would vitiate and make an Award contrary to public policy. It was further stated that when reference is made to an arbitrator and the arbitrator on the face of it misconstrues and erroneously misinterprets terms of a contract, or wrongly applies principles of law, he commits patent illegality. Reliance was placed on paragraph 56 in the case of O.N.G.C. (supra) wherein it was held that if an award is erroneous on the face of record with regard to the proposition of law or its application, Courts have jurisdiction to set aside an award under Section 34 of the Act. 16. In this connection, learned counsel for the Objector had also referred to the decision of the Court of Appeal in the case of D&C. Builders Ltd. (supra) and Calcutta High Court P.C. Chakraborty (supra). Relying upon these decisions it was submitted that Principle of Accord and Satisfaction as applicable to an executed contract had been wrongly understood and applied by OMP NO.351/2003 Page No.13 the learned Arbitrator. It was submitted that accord and satisfaction in an executed contract; requires additional benefit or legal possibility of an additional benefit to the creditor to have a valid agreement. Original consideration is not sufficient to have accord and satisfaction. An agreement by a creditor to accept a smaller sum in lieu of ascertained amount without any additional or new benefit or possibility thereof is nudum pactum. It is only when there is new or additional benefit that the subsequent agreement will be valid and will satisfy requirement of law. An agreement to be binding in law should have good and valuable consideration. Part payment of money under the original contract is not a valuable consideration. For accord and satisfaction, there should be a new contract and the said contract should be supported by a new and valuable consideration or at least possibility thereof. 17. The principal contention of the Objector overlooks the distinction between the technical law of accord and satisfaction in England and the statutory provisions of the Indian Contract Act, 1872, namely, Sections 62 and 63. In India in a given case, accord and satisfaction may be based upon a mutual agreement or by unilateral act and acceptance by the promissee. In both cases, courts will have to examine whether conditions mentioned in Sections 62 and 63 of the Contract Act are satisfied. It may also be noted that the words “accord and satisfaction” have not been specifically used in the two Sections and as these are statutory OMP NO.351/2003 Page No.14 provisions, on each occasion, the Court or the arbitrator will have to examine whether the statutory requirements of the two Sections are satisfied. 18. In India, law of contract is a codified law and the provisions of the said Act govern and apply. Section 62 and 63 of the Contract Act read as under:- 62. Effect of novation, rescission and alteration of contract.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. 63. Promisee may dispense with or remit performance of promise.—Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. 19. Section 62 of the Contract Act allows novation, rescission, modification and alteration of an earlier contract with a new agreement or even alteration of an earlier agreement. It gives rights to parties to put a contract to an end or terminate it. Under the new agreement or upon amendment of an earlier contract, prior rights of the parties are extinguished and new rights and obligations come into existence. Original contract is discharged or modified and substituted by the new obligations under the new contract or as a result of amendment. Unless the new contract is void or unenforceable or the amended terms are unenforceable, a party cannot revert back to the original contract. Original contract can get OMP NO.351/2003 Page No.15 revived in two cases : firstly, when the new contract is unenforceable or void and secondly, when the terms of novation itself provide that original contract can be revived and the said clause becomes applicable. In case these two conditions are not satisfied, the original contract gets obliterated or wiped out. It dies and cannot confer any cause of action. Section 62 is based upon the principle that a contract is the outcome of a mutual agreement and it is equally open to the parties to mutually agree to bring the said contract to an end, enter into a new contract or modify the earlier contract. Contractual obligations can be modified by mutual consent. Parties can vary the terms of the contract and absolve a party from the original obligations. Once Section 62 of the Contract Act applies, parties are bound by the terms and conditions mentioned in the second contract or the amended terms and not by the first contract. Breach of the subsequent contract will not revive the original contract, unless intention of the parties is to the contrary. The question is of intention of the parties, when they enter into second contract or modify earlier terms. 20. Section 62 of the Contract Act does not require additional or new consideration or possibility thereof by any party, to be a valid and enforceable contract. Discharge of the original contract is regarded as consideration in the new contract. Release from the past consideration is a good consideration to enter into a new contract. No further consideration is required. Privy Council way OMP NO.351/2003 Page No.16 back in 1943 in Gauri Dutt Ganesh Lal versus Madho Prasad reported in AIR 1943 PC 147 has held that novation constitutes good consideration for the fresh/new contract and a compromise between a creditor and a debtor operates as satisfaction of debts and affords an answer to an action of the creditor based on original liability. 21. Some Courts have drawn a distinction between executed and executary contracts for application of Section 62 of the Act. However, majority of the courts and the Law Commission have favoured the approach that Section 62 of the Contract Act will apply to both executed and executory contracts. I may have gone into this question in greater depth and detail but I find that the said issue was not specifically raised before the learned Arbitrator. The Objector did not draw any distinction between the executed and executory contract and raise the contention that Section 62 of the Contract Act did not apply. The Objector cannot be permitted and allowed to raise this plea in oral arguments under Section 34 of the Act. 22. Section 63 of the Contract Act applies when a creditor or a promisee by his unilateral act discharges or partly discharges the promisor. Unlike Section 62 of the Act which requires mutual agreement between both the parties, Section 63 of the Act applies in case of unilateral act of the promisee. A promisee is at liberty to OMP NO.351/2003 Page No.17 accept part performance or condone non performance, if he is satisfied. It requires and implies intention on the part of the promissee to discharge the promisor in spite of his failure to meet his obligations or part obligations. 23. In view of the above reasoning, reliance placed by the Objector on the decision of the D&C. Builders Pvt. Ltd. (supra) is held to be misplaced. It is also held that the said decision does not apply and is not good law in India. 24. In the case of New Standard Bank of India (supra) cited by the Objector, the Calcutta High Court has referred to the wide difference between the English law and Section 63 of the Contract Act and it was noticed that the said provision does not refer to any agreement and valuable consideration. Relying upon the judgment of the Privy Council in the case of Chunna Mal Ram Nath versus Mool Chand Ram Bhagat reported in AIR 1928 PC 99, the Court applied Section 63 read with Sections 41 and 43 of the Contract Act and held that the payment made in the said case had resulted in “accord and satisfaction” and therefore the entire liability of the debtors was discharged. In this case, the Calcutta High Court had also noticed difference of opinion on interpretation of Section 62 of the Contract Act and whether the said section applies to executory contracts or executed contracts where there is a breach of the original contract. 1888 judgment of the Calcutta High Court in the case of Manohar OMP NO.351/2003 Page No.18 versus Thakur Dass reported in (1888) 15 Cal. 319 was referred to and it was noticed that one of the judges of the Madras High Court in the case of Ramihba Gavathar versus Somasiambalam reported in AIR 1916 Mad. 832 had dissented from