Madras High Court
N.Jayamurugan vs M/S.Saravana Global Holdings Ltd on 30 October, 2024
Author: M.Sundar
Bench: M.Sundar
O.S.A.(CAD).No.142 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 14.10.2024
Pronounced on 30.10.2024
CORAM
THE HONOURABLE MR.JUSTICE M.SUNDAR
and
THE HONOURABLE MRS.JUSTICE K.GOVINDARAJAN THILAKAVADI
O.S.A.(CAD).No.142 of 2023
N.Jayamurugan ... Appellant
Vs.
M/s.Saravana Global Holdings Ltd.
(Formerly known as Saravana Foundations Ltd.,)
No.15, New Giri Road, T.Nagar,
Chennai-600 017.
... Respondent
Original Side Appeal filed under Order XXXVI Rule 9 of the
Original Side Rules read with Clause 15 of the Letters Patent and Section
37 of the Arbitration and Conciliation Act, 1996 read with Section 13 of
the Commercial Courts Act, 2015 praying to set aside the judgment and
decree dated 21.07.2023 made in O.P.No.595 of 2019 and to allow the
appeal as prayed for.
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O.S.A.(CAD).No.142 of 2023
For Appellant : Mr.AR.L.Sundaresan, Senior Counsel
for Mr.AR.Karthik Lakshmanan,
For Respondent : Mr.K.V.Babu
for Mr.Sashidhar Sivakumar
JUDGMENT
K.GOVINDARAJAN THILAKAVADI,J.
This is an Appeal under Section 37 of the Arbitration and
Conciliation Act, 1996, (hereinafter ‘the Act’) against the order dated
21.07.2023 passed by the learned Single Judge of this Court in
O.P.No.595 of 2019, whereby the application preferred by the respondent
herein under Section 34 of the Act for setting aside the award dated
20.02.2019 of the Sole Arbitrator was allowed.
2.The claimant before the Arbitral Tribunal is the appellant
and the respondent herein is the counter claimant before the Arbitral
Tribunal.
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3.The present dispute arises out of a Memorandum of
Understanding dated 18.05.2006 entered between the appellant and
respondent for purchasing immovable properties measuring about 200
acres at Moosivakkam Village, Kancheepuram. As per the terms of
agreement the appellant paid a sum of Rs.50,00,000/- as advance and
thereafter, made payments on various dates to the respondent for the said
purpose. Since the respondent failed to comply with the terms of
agreement, the appellant initiated Arbitral proceeding for the following
reliefs:
A. Directing the respondent to pay the sum of Rs.5,33,76,000/-
(Rupees Five Crores Thirty Three Lakhs Seventy Six Thousand only)
B. Award interest at the rate of 24% per annum compounded
annually from 01.04.2007 till the date of realization.
C. Directing the respondent to pay the compensation at
Rs.1,00,000/-(Rupees One Lakh only) per acre of shortfall as envisaged
under the MOU dated 18.05.2006.
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4.The respondent herein resisted the claim as barred by
limitation and sought for counter claim in the statement of the defence.
The same is extracted as hereunder:
(i) Dismiss the claim filed by the claimant as time barred or
otherwise;
(ii) Direct the claimant to pay a sum of Rs.1,42,89,000/-
(Rupees One Crore Forty Two Lakhs Eighty Nine Thousand only) or
such other sum as determined by this Hon’ble Tribunal to the respondent
along with interest at 24% per annum from the due date till date of
payment.
5.The Learned Arbitrator framed 9 issues. The Appellant had
examined himself as C.W.1 and on behalf of the Respondent, Mr. Padam
Challani was examined as R.W.1. On the side of the Appellant, 17
documents were marked as Exhibits C.1 to C.17 and on the side of the
Respondent, 21 documents were marked as Exhibits R1 to R21.
6.The Sole Arbitrator after hearing the respective parties
pronounced the award dated 20.02.2019 directing the respondent to pay
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a sum of Rs.6,48,35,500/- with interest at the rate of 9% per annum from
27.04.2012 till the date of award and in the event of the said amount not
being paid within a period of two months from the date of award, the
respondent was directed to pay interest at the rate of 18% per annum on
the sum of Rs.6,48,35,500/- from the date of award till the date of
realization.
7.Under the Arbitral award 20.02.2019, the learned Arbitrator
has decided the issue of limitation in favour of the appellant on the
following premises.
(1) That the nature of the transaction between the parties is one
of continuing accounts and was with reference to running accounts
between the parties and not a loan or a concluded transaction of any debt,
which alone will be governed by Section 18 of Limitation Act,1963, as
both parties are bound by mutual accounting.
(2) The claim is not barred by limitation and that it would be
covered under Section 25(3) of the Indian Contract Act, 1872.
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8.Aggrieved against the award dated 20.02.2019 of the learned
Sole Arbitrator, the respondent herein preferred an application under
Section 34 of the Act before the Commercial Division of this Court, which
was registered as O.P.No.595 of 2019.
9.The proceedings under Section 34 of Arbitration and
Conciliation Act of 1996 was initiated assailing the Arbitral award dated
20.02.2019 broadly on two grounds, namely:
1.The claims are ex facie time barred; and
2.The learned Arbitral Tribunal has exceeded the scope of its
reference as well as the MOU and allowed the claim.
10.The said petition in O.P.No.595 of 2019 on contest came to
be allowed on 21.07.2023.
11. The learned Single Judge in the order dated 21.07.2023 in
O.P.No.595 of 2019 has set aside the Arbitral award. The relevant
portion of the impugned order is reproduced as under:
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43. By an absolutely perverse finding and
without there being any evidence to prove that there
was a promise to pay a time barred debt by the
petitioner in accordance with Section 25 (3) of the
Indian Contract Act, the arbitrator has passed the
impugned award against the petitioner which has to be
necessarily set aside by this Court. Apart from
determining the amount payable towards refund of the
unutilized sums of money, allegedly retained by the
petitioner which was meant for purchase of properties
for and on behalf of the respondent, the arbitrator has
also passed an erroneous award for compensation at
the rate of Rs.1,00,000/- per acre for the alleged 187
acres of land not procured by the petitioner for and on
behalf of the respondent without any iota of evidence
and that too when the alleged promise to pay in Exs.C6
to C8 admittedly does not cover the said claim.
44. For the foregoing reasons, the Arbitral
award dated 20.02.2019 passed by the sole arbitrator
in O.P.No.752 of 2016 has to be set aside by this Court
and the petition will have to be allowed”
12.Questioning the order dated 21.07.2023 passed by the
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O.S.A.(CAD).No.142 of 2023learned Single Judge of this Court, the present appeal has been preferred.
13.Mr.AR.L.Sundaresan, learned Senior Counsel
instructed/assisted by Mr.AR.Karthik Lakshmanan, learned counsel for
the claimant/Appellant sought to argue that the award passed by the sole
Arbitrator on 20.02.2019, needs no interference as the scope under
Section 34 of the Act is limited and it cannot in any manner whatsoever
be akin to the Appellate Jurisdiction against the orders of the Trial
Courts. He submits that in view of the language employed in Section 34
of the Act, the respondent has to draw its case within the parameters
earmarked under Section 34 of the Act and the respondent cannot insist
the Court to rehear and reappreciate the facts.
14.Thus, it was urged that, the learned Arbitrator has passed
the award on a detailed scrutiny of facts, appreciating the evidence and in
the context of the contemporary legal situation, which is not in
contravention to the settled position of law or the principles of
interpretation/appreciation of evidence. Therefore, the challenge to the
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O.S.A.(CAD).No.142 of 2023Arbitral award is impermissible and there is no ground to state that the
award is against the public policy of Indian law or the award suffers
patent illegality. Therefore, the award requires no interference.
15.Countering the said submissions, Mr.K.V.Babu, learned
counsel for the respondent submitted that the learned Arbitrator has
completely misread the documents available on record and travelled
beyond the scope of reference. The claims are ex facie time barred and
would not be covered under Section 25 (3) of the Indian Contract Act. It
is thus urged that in view of Sections 34 (2-A) and 34 (2) (b) (ii) of the
Arbitration and Conciliation Act, 1996 the award is vitiated by ”patent
illegality” appearing on the face of the award based upon no evidence or
perverse finding. It is further submitted that the findings rendered by the
learned Arbitrator that the claim of the appellant would be covered under
Section 25 (3) of the Contract Act and that the claim is not barred by
limitation is in contravention of the public policy of the Indian law.
16.Therefore, it is argued that findings of an Arbitrator which
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O.S.A.(CAD).No.142 of 2023would be perverse and liable to be set aside, the ambit of interference
with respect to the award under Sub Section 2-A of Section 34 and Sub
Section 2 (b)(ii) of Section 34 is wide enough once patent illegality and
in conflict with public policy of India is writ large. Hence, the order
passed by the learned Single Judge in O.P.No.595 of 2019 needs no
interference.
17.We have heard learned counsel for the parties and perused
the records carefully.
18.In view of the arguments advanced by the rival parties the
following issues falls for consideration:
1.Whether Section 25 (3) of the Contract Act
will have no operation in the instant case to save the
claimant from the statute of limitation?
2.Whether the alleged promise under Ex.C.8
will amount to novation of contract?
3.Whether the Arbitral Tribunal committed
patent illegality by travelling beyond the scope of
reference and the Arbitral award suffers patent
illegality?
4.Whether it is permissible for a Court to
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O.S.A.(CAD).No.142 of 2023examine the correctness of the findings of the Arbitral
Tribunal under Section 34 of the Act of 1996?
5.Whether this appeal can be allowed or not?
19.Before delving into the tenability of the arguments of the
rival parties it would be apposite to have a quick survey of the scope,
ambit and the parameters under which the appeal under Section 37 of the
Act, is to be decided.
20.To begin with it would be appropriate to quote the
provisions contained under Sections 34 and 37 of the Arbitration and
Conciliation Act in extenso:
“34. Application for setting aside arbitral
award (1) Recourse to a Court against an
arbitral award may be made only by an
application for setting aside such award
in accordance with sub-section (2) and
sub-section (3).
(2) An arbitral award may be set aside by
the Court only if
(a) the party making the application 1
[establishes on the basis of the record of
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the arbitral tribunal that]-
(1) a party was under some incapacity, or
(ii) the arbitration agreement is not valid
under the law to which the parties have
subjected it or, failing any indication
thereon, under the law for the time being
in force, or
(iii) the party making the application was
not given proper notice of the
appointment of an arbitrator or of the
arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a
dispute not contemplated by or not falling
within the terms of the submission to
arbitration, or it contains decisions on
matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated
from those not so submitted, only that
part of the arbitral award which contains
decisions on matters not submitted to12/46
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(v) the composition of the arbitral
tribunal or the arbitral procedure was not
in accordance with the agreement of the
parties, unless such agreement was in
conflict with a provision of this Part from
which the parties cannot derogate, or,
failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not
capable of settlement by arbitration under
the law for the time being in force, or
(ii) the arbitral award is in conflict with
the public policy of India.
Explanation 1. For the avoidance of any
doubt, it is clarified that an award is in
conflict with the public policy of India,
only if.-
(i) the making of the award was induced
or affected by fraud or corruption or was
in violation of section 75 or section 81;
or
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(ii) it is in contravention with the
fundamental policy of Indian law, or
(iii) it is in conflict with the most basic
notions of morality or justice.
Explanation 2 – For the avoidance of
doubt, the test as to whether there is a
contravention with the fundamental policy
of Indian law shall not entail a review on
the merits of the dispute.
(2A) An arbitral award arising out of
arbitrations other than international
commercial arbitrations, may also be set
aside by the Court, if the Court finds that
the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set
aside merely on the ground of an
erroneous application of the law or by re-
appreciation of evidence.
(3) An application for setting aside may
not be made after three months have
elapsed from the date on which the party
making that application had received the14/46
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O.S.A.(CAD).No.142 of 2023arbitral award or, if a request had been
made under section 33, from the date on
which that request had been disposed of
by the arbitral tribunal:
Provided that if the Court is satisfied that
the applicant was prevented by sufficient
cause from making the application within
the said period of three months it may
entertain the application within a further
period of thirty days, but not thereafter.
(4) On receipt of an application under sub-
section (1), the Court may, where it is
appropriate and it is so requested by a
party, adjourn the proceedings for a period
of time determined by it in order to give the
arbitral tribunal an opportunity to resume
the arbitral proceedings or to take such
other action as in the opinion of arbitral
tribunal will eliminate the grounds for
setting aside the Arbitral award.
(5) An application under this section shall
be filed by a party only after issuing a prior
notice to the other party and such
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application shall be accompanied by an
affidavit by the applicant endorsing
compliance with the said requirement
(6) An application under this section shall
be disposed of expeditiously, and in any
event, within a period of one year from the
date on which the notice referred to in sub-
section (5) is served upon the other party”
“37. Appealable orders-(1)
[Notwithstanding anything contained in any
other line for the time being in force, an
appeal] shall lie from the following orders
(and from no others) to the Court
authorised by law to hear appeals from
original decrees of the Court passing the
order, namely:-
(a) refusing to refer the parties to
arbitration under section 8;
(b) granting or refusing to grant any
measure under section 9;
(c) setting aside or refusing to set aside an
arbitral award under section 34.
(2) Appeal shall also lie to a Court from an
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(a) accepting the plea referred to in sub-
section (2) or sub-section (3) of section 16;
or
(b) granting or refusing to grant an interim
measure under section 17.
(3) No second appeal shall lie from an order
passed in appeal under this section, but
nothing in this section shall affect or
takeaway any right to appeal to the Supreme
Court.”
Based on the submissions and provisions of law, the issues for
determination are dealt with.
Issues No.1 to 5
21.Since the Issues No.1 to 5 are interwoven, thus, they are
being decided compositely. Hereinafter the appellant is referred to as
claimant and the respondent herein is referred to as respondent for the
sake of convenience.
22.In order to address the said issues it would be appropriate to
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O.S.A.(CAD).No.142 of 2023
briefly set out the case of the parties as apparent from the record. The
claimant in his claim petition had pleaded that the respondent having
received a huge sum of money from the claimant for purchasing lands for
the claimant, committed breach of trust and failed to repay the money
entrusted to him. As such the respondent is liable to pay a sum of
Rs.5,33,76,000/- with interest and also a sum of Rs.1,00,000/- as
compensation. The same is resisted by the respondent in the statement of
defence stating that the claim made by the claimant is time barred and
also made a counter claim for a sum of Rs.1,42,89,000/- together with
interest at 24% per annum.
23.The learned Senior Counsel for the claimant submits that, a
perusal of Exs.C.6, C.7 & C.8 would reveal that the claim made by the
claimant is well within the period of limitation as per Section 25 (3) of the
Indian Contract Act.
24.On the other hand, the learned counsel for the respondent
would contend that, the claims are hopelessly barred by time and Section
25(3) will not be attracted to revive the alleged claims made by the
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claimant. He would further contend that under Ex.C8 there is no express
promise to pay. According to Section 25 (3) of the Contract Act, the
promise must be made in writing and Section 9 of the Indian Contract Act
states that, where proposal or acceptance of any promise is made in
words, the promise is said to be expressed. But if it is made otherwise
than in words, the promise is implied. Therefore, on a conjoint reading of
Section 25 (3) along with Section 9 of the Contract Act, a promise to pay
must be expressed. Unless the promise is made in writing signed by the
person or by his duly appointed agent, Section 25 (3) of the Contract Act
will have no operation. His further submission is that, even assuming that
Section 25 (3) would be attracted, the arbitration Clause under the MOU
cannot be invoked to adjudicate the claim under Section 25 (3) of the
Contract Act, as alleged promise to pay either under Ex.C.7 or Ex.C.8
will amount to a fresh promise, creating a fresh liability in respect of an
existing debt. Hence, the express promise under Section 25 (3) is a fresh
contract, enforcible independently which amounts to novation of original
contract and not arbitrable under the MOU. The learned Arbitrator
erroneously rendered a finding that the transaction between the parties is
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that of accounts, which was continuing one and further the said accounts
were running, continuous and mutual in nature. But from Exs.C.2 and
C.4 it is evident that the transaction was unilateral in nature. His further
contention is that in an application under Section 34 of the Act, the
question of limitation can be decided.
25.To support his contention, the learned counsel for the
respondent has relied upon the following judgments:
1. Ethirajulu Naidu Vs.ChinnikrishnanChettiyar reported in
[AIR 1975 Mad 333],
2.Kotak Mahindra Bank Ltd. V. Kew Precision Parts Private
Limited reported in (2022) 9 SCC 364
3.K.M.Suresh Babu V. Sundaram Finance Limited reported
[AIR 2020 Mad 249].
26.Essentially, the dispute is two fold:
Firstly, whether the claims made by the claimant would be
covered under Section 25 (3) of the Indian Contract Act.
Secondly, whether the acknowledgement/promise to pay is
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O.S.A.(CAD).No.142 of 2023clearly established.
27.The claimant has relied upon the following documents in
support of his contention that his claim before the Arbitrator is within the
period of limitation as per the provisions of Section 25 (3) of the Indian
Contract Act.
a.Letter dated 26.02.2015 (Ex.C.6) issued by the respondent to
the claimant/appellant to provide confirmation of balance in the
claimant/appellant’s books of account.
b. Confirmation of balance letter dated (Ex.C.7) issued by the
claimant/appellant to the respondent, the receipt of which is
acknowledged by an employee of the respondent.
c. Letter issued by the respondent to the claimant/appellant
dated 05.03.2015 (Ex.C.8) requesting for a copy of the notice issued by
the claimant/appellant in respect of his dues recoverable from the
respondent as on 31.03.2008 for settlement.
28.The Arbitral Tribunal while passing the award on
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20.03.2019 came to the conclusion that, the transaction between the
parties is one of continuing accounts and not a concluded transaction;
that the Claims would be covered under Section 25 (3) of the Contract
Act and that only in a concluded transaction of any debt, Section 18 of
Limitation Act, 1963, comes into play.
29.The relevant portion of the Arbitral award is extracted as
under:
25. The following judgment relied upon
by the Claimant have to be kept in mind before
analyzing the facts which bring out the distinction
between acknowledgement of a debt and a promise
to pay which can be either specific or implied. The
following observations in the judgment of Delhi
High Court bring out the distinction between the
two:
1. State Bank of India -v-
Kanniaha Lal in RSA 248 of 2015 dated
2.5.2016.
“24: No doubt there is
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O.S.A.(CAD).No.142 of 2023distinction between an acknowledgement
under Section 18 of the Limitation Act
and a promise under Section 25(3) of
Indian Contract Act in as much as
though both have the effect of fresh
lease of space to the creditor to sue the
debtor, but for an acknowledgement
under Section 18 of the Limitation Act
should be applicable, the same must be
made on or before the date of expiry of
the period of limitation, whereas such a
condition is non existent so far as
promise under Section 25(3) of Indian
Contract Act is concerned. A promise
under Clause 3 of Section 25 of the
Indian Contract Act even made after the
expiry of the period of limitation would
be applicable and would cause revival of
the claim, notwithstanding the
limitation. Under Section 25(3) of the
Contract Act, a promise in writing to pay
in whole or in part, a time barred debt is
not void.
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25. For ascertaining whether
the nature of the aforesaid letter (Ex.
PW2/2 and Ex. PW2/3) are of ‘promise
to pay’ it would be necessary to examine
the definition of the word promise under
Section 2(b) of the Indian Contract Act.
26. Section 2(b) of Indian Contract Act
reads as under: (b) when the person to
whom a proposal is made signifies his
assent thereto the proposal is said to be
accepted. proposal, when accepted,
becomes a promise’.
27. Section 9 of the Indian Contract Act
provides that if the proposal of
acceptance is made in word, the
promise is said to be expressed but
under other circumstances it remains
an implied promise.
‘9. Promises, express and implied in so
far as the proposal or acceptance of24/46
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O.S.A.(CAD).No.142 of 2023any promise is made in words, the
promise is said to be express. In so far
as such proposal or acceptance is made
otherwise than in word, the promise is
said to be implied.’
28. Thus implied promise is not
unknown under Indian Contract Act.”
26. As early as in the year 1934, the
Privy Council had occasion to deal with this issue
in AIR 1934 (PC) 147 – Bishan Chand Giridharilal
and held that the appellants were entitled to
recover the amount under Section 25(3) of the
Contract Act.
27. During the same year the Privy
Council while dealing with the case of Siqueira -v-
Noronha – AIR 1934(EC)144 had occasion to deal
with a similar contention and after making a
distinction between ‘acknowledgement’ as would
arise under Section 25(3) of the Contract Act, on
facts it was made clear that it was a plain case of
promise made to pay the balance and cannot be
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O.S.A.(CAD).No.142 of 2023
stated that there was no promise to pay. This
judgment would be relevant mainly for the purpose
of concluding that the principle of limitation varies
between acknowledgement under Section 18 of the
Limitation Act in contrast with promise’ under
Section 25(3) of the Contract Act.
3) AIR 1929(Lahore) 263 – Kalian Chand
Thularam -v- Dayarum Amirtial. In this case what
is the requirement of ‘accounts stated’ has been
considered. Art 64 of Limitation Act has been
referred to which is as follows:
“For money payable to the plaintiff for
money found to be due from the defendant to the
plaintiff on accounts stated by them”.
4) AIR 1953(SC) 225 – Hiralal and
others -v- Badkulal and others. In this case the
Supreme Court approved the judgment of Lahore
High Court mentioned above and held that the
acknowledgement which forms the basis of the suit
was made in the ledger of the plaintiff in which the
mutual account has been entered and the suit was
not based merely on this acknowledgement, but
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was based on mutual dealing on the accounts with
them and was thus clearly maintainable. The
Supreme Court did not stop with those
observations alone. A judgment of Allahabad High
Court (AIR 1935-All 129)) which was cited for the
contra proposition that even if an
acknowledgement implied a promise to pay, it
cannot be made the basis of a suit and be treated
as giving right to a fresh cause of action, the
Supreme Court held that the said judgment did not
lay down good law.
5) To the same effect is the judgment of
Bombay High Court in R. Kumar and Co. -v-
Chemicals Unlimited – AIR 2001(Bom) 216.
28. Therefore on analysis of the above
judgments, the principle of limitation in the context
of Section 18 of the Limitation Act and that of
25(3) of the Indian Contract Act are distinct and
different. I had already pointed out that none of
the judgments relied upon by the learned counsel
for the Respondent have taken a view that
notwithstanding Section 25 (3) of the Indian
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O.S.A.(CAD).No.142 of 2023
Contract Act, Section 18 of the Limitation Act
would prevail.”
30. Thus, the learned Arbitrator referring to the above
judgments concluded that the principle of acknowledgement under
Section 18 of the Limitation Act and ”promise” under Section 25 (3) of
the Contract Act are different. Further, the learned Arbitrator on careful
consideration of the oral evidence of C.W.1 and Exs.C.3, C.6, C.7 & C.8
held that the claim of the claimant is not barred by limitation. The learned
Arbitrator has given cogent reasons and categorically held that the claim
would be covered by Section 25 (3) of the Contract Act 1872 and that
there is clear acknowledgement of debt and promise to pay.
31.The relevant portion of the Arbitral award is reproduced as
under:
31. The above features disclose that the
Respondent was always giving out and treating
Rajasekar as their representative and cannot wriggle
out of it now. Even while filing the claim statement,
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O.S.A.(CAD).No.142 of 2023and in para 11 of the claim statement, the Claimant
has specifically contended that the balance was duly
confirmed by the Respondent on 26.2.2015. While
dealing with the said averment the Respondent has
not specifically denied the same in para 24 of the
defence statement. The said averment by the
Claimant is a very crucial one. In para 4 of the
defence statement the Respondent has only taken the
stand that a letter dated 26.2.2015 was served on an
employee of the Respondent and that acknowledging
a time barred debt will not revive the claim. The
Respondent has not denied the actual endorsement
made in Ex. C7. Rajasekar may be only an employee
but he has been representing the Respondent and
the Respondent did nothing to disown his
endorsement immediately thereafter, except for
stating so after the legal notices had been sent that
he is only an employee and that the
acknowledgement was with reference to time barred
debt and hence cannot revive the time barred debt.
The fact that the endorsement was within the
knowledge of the Respondent cannot be and is not
denied by the Respondent and hence the fact that
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Rajasekar was only an employee cannot out do the
entire sequence of events and the facts well known to
the Respondent.
31. (5) RW1 who is the Director of the Respondent’s
company admits having received Ex. C9 legal notice
on behalf of the Claimant. In answer to Q.No.54 he
would state that no reply was given but were
discussed orally. There can be nothing to be
discussed orally if the claim was barred by
limitation. In answer to Q.No.63 as to whether he
had given any statement of accounts to the Claimant,
the witness would state that for the first two years it
was written in a note book, but after I.T. raid it was
not continued and that for the last 8 years everything
was discussed only orally. These statements
undoubtedly amount to admission was that the entire
transaction what with reference to running accounts
between the parties and not a matter of loan or a
concluded transaction of any debt which alone will
be governed by Section 18 of Limitation Act.
34.Therefore for all the aforesaid reasons,
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it is very clear that (1) this is a case which would be
covered under Section 25(3) of the Contract Act and
(2) that the acknowledgement/ promise to pay is
clearly established. Hence the claim is not barred by
limitation. Issue No.1 is answered accordingly.”
32.Whether such findings rendered by the learned Arbitrator is
patently illegal and in conflict of public policy under Indian law. Before
proceeding further a reference shall be made to the provisions of Section
25 (3) of the Indian Contract Act.
Section 25 (3)of the Indian Contract Act reads as under:
”25.Agreement without consideration, void, unless
it is in writing and registered, or is a promise to
compensate for something done, or is a promise to
pay a debt barred by limitation law. An agreement
made without consideration is void, unless-
(3) it is a promise, made in writing and
signed by the person to be charged
therewith, or by his agent generally or
specially authorized in that behalf, to pay31/46
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O.S.A.(CAD).No.142 of 2023wholly or in part a debt of which the
creditor might have enforced creditor
payment but for the law for the limitation
of suits.”
33.Therefore, in order to invoke the provisions of Section 25(3)
of the Indian Contract Act, the following conditions must be satisfied:
(i) It must refer to a debt of which the creditor but for the
period of limitation, might have enforced creditor payment;
(ii) There must be a distinct promise to pay wholly or in part
such debt;
(iii) The promise must be in writing signed by the person or by
his duly appointed agent.
34.Under Section 25(3) a debtor can enter into an agreement in
writing to pay the whole or part of a debt, which the creditor might have
enforced but for the law of limitation, and suit can lie on a written
promise to pay the barred debt as it is a valid contract. The reason for
this provision is that the debt is not extinguished; only the remedy gets
barred by passage of time, and this provision does not revive a dead right
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but merely resuscitates the remedy to enforce the right, which already
exists.
35.For ascertaining whether the nature of the aforesaid
documents marked as Exs.C.6 to C.8 are of a ”promise to pay”, it would
be necessary to examine the defenition of the word promise under Section
2(b) of the Indian Contract Act, which reads as follows:
“(b) When the person to whom the proposal is
made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when
accepted, becomes a promise;”
36.Section 9 of the Indian Contract Act provides that if the
proposal of acceptance is made in words, the promise is said to be
express but under other circumstances it remains an implied promise.
Section 9 reads as follows:
“9. Promises, express and implied.–In so far
as the proposal or acceptance of any promise
is made in words, the promise is said to be
express. In so far as such proposal or
acceptance is made otherwise than in words,
the promise is said to be implied.”
37.Thus implied promise is not unknown under the
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Indian Contract Act.
38.Therefore, the word ‘promise’ defined in Sections 2(b)
besides 9 of the Indian Contract Act are kept in mind, an admission could
be ‘express’ or ‘implied’, ‘promise’ covered by Section 25 (3) of the Indian
Contract Act need not be ‘express’. If the legislature had intended that
such promise should be an ‘express promise’ only, it would have indicated
so but the word ‘express’ is not found in Section 25(3) of the Indian
Contract Act. So it would not be proper to read so and restrict the scope
of Section 25(3) of the Indian Contract Act to express ‘promise’ only.
39.Therefore a conjoint reading of Sections 25(3), 2(b) and 9
of the Indian Contract Act, would show that a promise to pay need not
be express and can be implied or inferred as well. Any acknowledgement
of liability is necessarily an admission of the fact that the maker owes
money to the creditor. The only corollary of such an acknowledgement is
that the same is payable and that the person making the
acknowledgement would pay such amount or else there would be no
requirement of making any such acknowledgement. For judging the
nature and quality of the acknowledgement as to whether it is a promise
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in future, the whole of the acknowledgement and the surrounding
circumstances have to be taken into consideration. Referring to the
aforesaid Exhibits C.6 to C.8, the learned Arbitrator has categorically
observed that the contents of the aforesaid documents are nothing short
of an acknowledgement of the dues as also a promise to pay. The learned
Arbitrator has passed the award on a detailed scrutiny of facts
appreciating the evidence and in the context of the contemporary legal
situation which is not obnoxious to the settled position of law or the
principles of interpretation/appreciation of evidence.
40. The next point for consideration is that whether the promise
under Ex.C.8, amounts to novation of contract. The learned Senior
Counsel for the claimant would contend that the plea of novation was
never raised before the learned Arbitrator and therefore, it is
impermissible to raise the same in an application under Section 34 of the
Act. There is no quarrel to the proposition of law that a legal issue going
into the root of the matter can be raised for the very first time in the
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appellate proceedings. However, the question is dependent upon the facts
of a particular case. Here, we find that the said principle would not apply
to the case on hand for the following reasons:
”Novation of Contract” refers to the legal
process of replacing an existing contract with a new one,
essentially substituting one party or the terms of the
original agreement with new ones, while Section 25 (3) of
the ”Indian Contract Act, 1872” is a provision that
allows a promise to pay a debt that would be considered
time barred under the Limitation Act to be enforceable if
it made in writing and signed by the debtor; essentially,
it creates an exception to the general rule that
agreements without consideration are void, specifically
for situations involving time barred debts. Section 62 of
the Indian Contract Act, recognizes novation, stating that
if parties agree to substitute, cancel, or amend a
contract, the original contract need not be performed.
The basic requirement of Section 62 of the Contract Act
was discussed by the Hon’ble Supreme Court in the case
of Lata Construction & Ors. Vs. Dr.Rameshchandra
Ramniklal Shah reported in (2000) 1 SCC 596, novation
requires complete substitute of new contract in place of36/46
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O.S.A.(CAD).No.142 of 2023new contract and only under the condition that the
original contract is not fulfilled. The new replacement
contract will cancel or completely modify the terms of the
original contract. In the case of Juggilal Kamlapat V.
NV Internationale reported in AIR 1955 Cal 65 the
Court observed that for novation to take effect,
modification to the Contract must go to the root of the
original contract and change its essential character”In the present case, neither the terms of original contract was
cancelled nor modified. The promise under Ex.C.8 only resuscitates the
remedy to enforce the right, which already existed under the original
contract. Therefore, the contention of the learned counsel for the
respondent that the promise under Ex.C.8 amounts to novation of
contract and that the Arbitration Clause under the MOU cannot be
invoked is unsustainable.
41.For the reasons discussed above, the views taken by the
learned Single Judge on the question of limitation and novation of
contract cannot be accepted.
42.The learned Arbitrator in the award dated 20.02.2019
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observed that the documents relied upon by the claimant/appellant would
be covered under Section 25 (3) of the Contract Act and that the
acknowledgement/promise to pay is clearly established. Thus, there is no
inherent infirmity committed by the learned Arbitrator in allowing the
claim petition of the claimant/appellant. It is settled law that even
otherwise the award is not open to challenge on the ground that the
Arbitral Tribunal has reached a wrong conclusion. The Hon’ble Apex
Court in the case of Ssangyong Engineering & Construction Vs.
National Highways Authority of India reported in AIR 2019 SC 5041
observed that the Courts could not substitute its view over that of the
arbitrators and that it is not permissible for a Court to examine the
correctness of the findings of the Arbitral Tribunal, as if it were sitting in
appeal over the findings. It was further held that each Arbitrator is
legitimately entitled to take the view which he holds correct.
43.Section 34 of the Act was deliberately engrafted and
couched in a particular manner bearing in mind the fact that there should
be limited intervention of Courts in Arbitral proceedings especially after
the proceedings have been concluded and the award has been pronounced
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by the Arbitral Tribunal.
44.Notably, the yardsticks and the parameters under which
intervention by the courts of law in the proceedings against the award
stands bracketed in Section 34 of the Act which obviously starts with
caveat that the Arbitral award may only be set aside by the Court if the
party making the application establishes on the basis of the record of the
Arbitral Tribunal:
(i) was under some incapacity;
(ii)the Arbitral agreement is not valid under
the law for the time being in force;
(iii) a party making the application was not
given proper notice of appointment of
arbitrator or he was unable to present his
case;
(iv) the Arbitral award deals with a dispute
not contemplated or not falling within the
terms of the submission of the arbitrator;
(v) the composition of the Arbitral Tribunal
or the Arbitral procedure was not in
accordance with the agreement of the parties
unless such agreement was in conflict with
the provisions;
(vi) the subject matter of dispute is not
capable of settlement by arbitration under
law for the time being in force;
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(vii) the Arbitral award is in conflict with the
public policy of India..
45.Nonetheless, while assailing the order passed under Section
34 of the Act either setting aside the award or upholding the award an
appeal is provided under Section 37 of the Act, however, the contours of
the proceedings under Section 37 also is limited to the scope and the
ambit of challenge under Section 34 of the Act.
46.The aforesaid proposition of law stands culled out in
umpteen number of decisions of the Hon’ble Apex Court, also in the case
of Associate Builders (supra), Ssangyong Engineering & Construction
Co. Ltd. (supra), Sal Udyog Private Limited (supra), PSA Sical
Terminals Pvt. Ltd. (supra), Batliboi Environmental Engineers Vs.
Hindustan Petroleum Corporation Limited & Another AIR (2024)
SCC 375. The Apex Court in the case of Ssangyong Engineering &
Construction Co. Ltd. Vs. National Highways Authority of India
(NHAI) (AIR 2019 SC 5041) has held that the additional ground made
available for setting aside a domestic arbitral award under Sub-section
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(2A), added by the Amendment Act, 2015, to Section 34, refers to such
illegality as goes to the root of the matter but which does not amount to
mere erroneous application of the law. For the sake of clarity, the Court
has held that the contravention of a statute not linked to public policy or
public interest, which is not subsumed within the fundamental policy of
Indian law cannot be brought in by the backdoor when it comes to setting
aside an award on the ground of patent illegality. It is clear from the
amendment of 2015 that re-appreciation of evidence, which is what an
Appellate Court is permitted to do, is not permitted under the ground of
patent illegality appearing on the face of the award.
47.In the present case, a judicial appreciation of the Arbitral
award goes to show that the learned Arbitrator has properly appreciated
the facts of the case and has done a due analysis of the evidence led by
the parties and has rendered his findings after due consideration,
application of mind and on the touchstone of the law.
48.The learned Arbitrator has drawn inferences and
conclusions after the factual appreciation in the light of the legal
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principles. The views of the learned Sole Arbitrator cannot be found fault
with only for the reason that some other views can emerge by
appreciating the same set of facts and evidence, until and unless it is
shown that such a view is totally obnoxious and unsupported by the
sound legal principles.
49.The Section 34 Court cannot substitute its own views or the
views of the parties in place of the view taken by the learned Arbitral
Tribunal, if the view taken by the learned Arbitrator is not in conflict with
the settled legal position. There is nothing to suggest that the findings and
conclusions rendered by the learned Arbitrator are per se perverse, illegal
or non-sustainable. There is no ground to state that the award suffers
”patent illegality” and the award is against the public policy of Indian
Law.
50.By the amendment of 2015, Explanation as appearing in
clause (b) in sub-section (2) of Section 34 of the said Act has been
substituted by the new Explanations and Sub-Section 2-A has been
inserted in Section 34 of the said Act. Amended clause (b) (ii) of Section
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34 (2) reads as follow:
“(ii) the arbitral award is in conflict with the
public policy of India.
Explanation 1.-For the avoidance of any doubt, it
is clarified that an award is in conflict with the
public policy of India, only if,-
(i) the making of the award was induced or
affected by fraud or corruption or was in violation
of section 75 or section 81; or
(ii) it is in contravention with the fundamental
policy of Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.-For the avoidance of doubt, the
test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a
review on the merits of the dispute.”
Newly inserted sub-Section 2A read as follow;
“(2A) An arbitral award arising out of
arbitrations other than international commercial
arbitrations, may also be set aside by the Court if
the Court finds that the award is vitiated by patent
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illegality appearing on the face of the award.
Provided that an award shall not be set aside
merely on the ground of an erroneous application
of the law or by reappreciating evidence.”
51.Viewing the case from four corners of law, we are of the
firm opinion that the respondent herein has miserably failed to show any
patent illegality in the Arbitral award warranting interference by the
learned Single Judge under Section 34 application. More so, when the
scope of interference under Section 34 is limited and within the contours
of the ground specified under Section 34 of the Act. To put it otherwise,
the award is not required to be set aside on the ground of mere erroneous
application of law or by reappreciation of the evidence until and unless it
suffers from patent illegality. We find the award is based on pleadings
and available documents on record and that the award is a reasoned one
and it is clearly a plausible view taking into account each and every
aspect of the matter.
52.Resultantly, the appeal is allowed. The order passed by the
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learned Single Judge in O.P.No.595 of 2019 is set aside. No costs.
[M.S.J.,] [K.G.T.J.,]
30.10.2024
vsn
Index:Yes/No
Neutral Citation: Yes/No
Speaking/Non-speaking order
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M.SUNDAR, J.,
and
K.GOVINDARAJAN THILAKAVADI, J.
vsn
O.S.A.(CAD).No.142 of 2023
30.10.2024
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