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GRANT OF INTEREST IN LIGHT OF SPECIFIC BAR CONTAINED IN CONTRACT – WHETHER PERMISSIBLE?

Posted on March 16, 2024March 16, 2024 by conventuslawoffices

The Hon’ble High Court of Delhi recently, in Rites Ltd. Versus Ahluwalia Contract (India) Ltd. & Anr. [OMP (COMM.) 56 of 2019], was concerned with the grant of interest by the Arbitrator on delayed payments, while the contract expressly provided against the grant of interest on account of delayed payments.

The Claimant in the present case had raised a final bill on 20.02.2013. The said bill was certified by the Respondent on 19.07.2014 for a certain amount out of which the Claimant was only paid some of the amount. The Claimant, on account of partial and belated payment, claimed recovery of the balance principal amount of the bill and interest for delayed payment, both on the unpaid amount and the amount already paid. The Respondent, who was the Petitioner before the Hon’ble Court, was specifically aggrieved by the grant of Claim no. 3 in favor of the Claimant, i.e., grant of interest from 21.08.2013 until the date of actual payment, on the outstanding due.

Clause 9 of the Contract specifically provided that the Contractor would not be entitled to any compensation or claims or damages by way of interest in case of delayed payment. The Dispute Resolution Clause contained in Clause 25 of the Contract also specifically excluded the grant of interest in case the award is for payment of money, from the ambit of Arbitrator’s powers. While the Petitioner argued against the grant of interest specifying the particular clauses of the Contract barring the award of interest, placing reliance upon the judgments of the Hon’ble Supreme Court in Garg Builders vs. BHEL [(2022) 11 SCC 697] and Union of India vs. Manraj Enterprises [(2022) 2 SCC 331],which expressly held that interest cannot be awarded by an arbitrator when the contract explicitly provided against the same, the Respondent strongly argued that the interest has been granted by the Ld. Arbitrator as “compensation” for delayed payment.

Discussing the law settled by the Hon’ble Supreme Court in Garg Builders (supra), the Hon’ble High Court observed that the Hon’ble Apex Court in Garg Builders (supra) dealt with a contractual provision that excluded payment of interest on earnest money deposit, security deposit, or any monies due to the contractor. The Ld. Arbitrator had awarded interest, which was set aside by the Hon’ble High Court. The Supreme Court had upheld the decision of the Hon’ble High Court observing that “The provisions of the 1996 Act give paramount importance to the contract entered into between the parties and categorically restrict the power of an arbitrator to award pre-reference and pendente lite interest when the parties themselves have agreed to the contrary.”

The Hon’ble Supreme Court also discussed Section 31(7)(a) of the 1996 Act, which specifically deals with the arbitrator’s power to grant interest, which reads as:-

“31. (7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.”

The opening words of Section 31(7)(a) “Unless otherwise agreed by the parties….” make it evident that the power to grant interest is subject to the agreement entered between the parties, and if the parties by way of an agreement have made a categorical provision against an award of interest (pre-reference or pendente-lite or both), the Arbitrator would be bound by such agreement and would further be barred from giving any relief to the contrary. In addition to this, the inclusion of the word “may” makes the payment of interest discretionary and when read together with the phrase “Unless otherwise agreed by the parties…..”, it can easily be concluded that the Arbitrator would be bound by the contractual terms and the limitations imposed thereunder. Thus, the Arbitration Act, by introducing Section 31(7)(a), has clarified the position w.r.t. the binding nature of the contractual terms, which extends not only to the parties but also to the Arbitrator adjudicating the disputes between the parties.

The Hon’ble Single Judge of Delhi High Court also discussed the law laid down in Manraj Enterprises (supra), which relied upon the judgment rendered in Garg Builders (supra) and Union of India vs. Bright Power Projects (India) Ltd. [(2015) 9 SCC 695]. In Bright Power projects, a three-judge bench of the Hon’ble Apex Court had categorically held that if the parties by express agreement exclude the provision of interest, it will bind the parties as well as the Arbitral Tribunal and the parties cannot later claim interest before any forum.

The Hon’ble High Court, thus, after duly discussing the law settled by the Hon’ble Supreme Court, concluded that since the contractual provisions in the instant case expressly barred the award of interest, as such the Arbitrator Tribunal could not have digressed beyond those terms and awarded interest. To sum up, the Hon’ble Court upheld the supremacy of the terms of the contract and the principle that an Arbitrator is bound by the terms and conditions of a contract and cannot give what has been expressly barred under a contract.

Streamlining Execution Proceedings with Affidavit Reforms and Procedural Guidelines : Delhi High Court

Posted on January 11, 2024 by conventuslawoffices

The Delhi High Court has established comprehensive templates for the affidavit of assets and income of judgment-debtors to be submitted at the commencement of execution proceedings. In its decision dated August 5, 2020, the Court also issued detailed directives for the Executing Court, emphasizing that this approach aims to minimize delays and facilitate the prompt resolution of execution proceedings.

Concerning the affidavits of assets and income, the High Court underscored the need for special attention to the execution of decrees and awards. It expressed concern that prolonged delays in execution proceedings could hinder decree-holders from enjoying the benefits of the decrees or awards. The Court highlighted that Form 16A of Appendix E under Order XXI Rule 41(2) of the Code of Civil Procedure does not provide a comprehensive means to ascertain all the assets, income, expenditure, and liabilities of the judgment-debtor.

In a modification to its previous judgment dated December 5, 2019, the Court appended revised formats for the affidavit of assets and income of the judgment-debtor, as well as for proprietorship firms, partnership firms, HUFs, companies, trusts who are judgment-debtors. This modification, executed under Sections 30 and 151 and Order XXI Rule 41 of the Code of Civil Procedure, alongside Sections 106 and 165 of the Indian Evidence Act and Article 227 of the Constitution of India, applies to pending execution cases.

The Court specified that in pending execution cases where the judgment-debtor has not filed the affidavit of assets and income, the Executing Court must instruct the judgment-debtor to comply with the terms outlined in the judgment.

Guidelines

The judgment in the case of Bhandari Engineers & Builders Pvt. Ltd. v. Maharia Raj Joint Venture & Ors. not only introduced the revised affidavit formats but also detailed the procedures for the Executing Court. The Court directed the Executing Court to:

shall direct the judgment-debtor, at the first instance i.e. first date of filing, to file the affidavit of assets on the date of cause of action, date of the decree/award as well as on the date of the swearing of the affidavit. Oral prayer/application of the decree-holder for issuance of such direction shall be sufficient;
to restrain the judgment-debtor from discharging any financial liability, other than the liabilities of Banks/financial institutions, without the permission of the Executing Court;
to ensure presence of judgement-debtor before the Court initially by issuing bailable warrants and thereafter, by issuing non-bailable warrants as per law;
to consider detention of the judgment-debtor in civil prison, in case the latter defaults to file affidavit within stipulated time;
can direct the Directors/Promoters (other than independent/non-executive and nominee directors) of the judgment-debtor company to disclose their personal assets and income, in case any ground for lifting of the corporate veil of a judgment-debtor company is made out as per law;
grant reasonable time to the judgment-debtor to remove the defects/deficiencies and simultaneously act on the information available in the deficient affidavit as per law;
may order investigation by a government agency including a forensic audit, cost of which shall be borne by the decree-holder;
shall ensure the compliance of Sections 60 to 64 and Order XXI Rules 41 to 57 of the Code of Civil Procedure with respect to the attachment of properties in execution of decrees;
pass appropriate order of restitution to reimburse the loss suffered by the decree-holder on account of delay and obstruction in the execution proceedings caused by the judgment-debtor;
may impose real costs equal to the deprivation suffered by the rightful person, and also order prosecution.

The High Court emphasized that these directives and guidelines are applicable to all execution proceedings, including those under Section 36 of the Arbitration and Conciliation Act, before Motor Accident Claims Tribunals, before SDMs empowered to execute decree/award as arrears of land revenue, before Debt Recovery Tribunals, and under the Consumer Protection Act.

Landmark Supreme Court Ruling on Admissibility of Electronic Evidence

Posted on January 4, 2024January 6, 2024 by conventuslawoffices

Overview:

A recent verdict by a three-judge bench of the Supreme Court has clarified the crucial requirement of a certificate under Section 65B(4) of the Indian Evidence Act, 1872, as a prerequisite for admitting electronic records in evidence. The decision resolves a discrepancy arising from conflicting judgments, offering clear guidance on the admissibility of electronic evidence under the Evidence Act.

Admissibility Criteria:
Section 65B(1) outlines that information in electronic records becomes admissible as a document if certain conditions in Section 65B(2) are met. Notably, Section 65B(4) mandates the production of a certificate identifying the electronic record and detailing its production. The Supreme Court emphasized that this certificate is mandatory for admissibility.

Judicial Evolution:
The ruling overturns previous decisions deviating from the Anvar P.V. v. P.K. Basheer judgment, establishing Section 65B as a comprehensive code for admissibility of electronic evidence. The Court clarified that Section 65B prevails over Sections 63 and 65, with the certificate under Section 65B(4) being an essential requirement.

Supreme Court’s Clarifications:
The Supreme Court reaffirmed the mandatory nature of Section 65B(4) and clarified that Anvar’s last sentence needs a nuanced reading. The Court also addressed practical scenarios, noting that oral evidence cannot replace the Section 65B(4) certificate. It outlined a process for obtaining the certificate when the person or authority refuses, ensuring fair access to electronic evidence.

Future Directions:
In addition to its legal implications, the verdict includes general directions to cellular companies and internet service providers for maintaining records. The Court highlighted the need for rules under the Information Technology Act, 2000, ensuring data retention, chain of custody, and preservation of metadata during trials and appeals.

Commentary:
This landmark decision provides clarity on the conditions for admitting electronic evidence, resolving inconsistencies and setting a precedent for future cases. The Supreme Court’s directives on data retention guidelines are welcomed for enhancing the efficiency of criminal and investigative proceedings. The decision also acknowledges equitable considerations when parties make reasonable efforts to obtain Section 65B(4) certificates. Furthermore, the Court’s reflection on international practices may influence potential amendments to the Evidence Act in the future.

General Law vs. Special Law: Understanding Time Limits for Filing Written Statements

Posted on June 21, 2023January 4, 2024 by conventuslawoffices

In the legal realm, laws can be broadly categorized as either general or special. General laws have widespread applicability, laying down a set of rules applicable in various situations. On the other hand, special laws pertain to specific subjects and contain provisions distinct from general laws. The Supreme Court of India has consistently emphasized that, in the clash between a special law and a general law, the special law shall prevail.

In this context, we focus on two provisions: Order VIII Rule 1 of the Code of Civil Procedure, 1908 (CPC) and Rule 4 of Chapter 7 of the Delhi High Court (Original Side) Rules 2018 (High Court Rules). It’s important to note that the CPC serves as a general procedural law, while the High Court Rules are special provisions framed by the Delhi High Court to regulate its own procedure concerning ordinary original civil jurisdiction.

Both Order VIII Rule 1 of the CPC and Rule 4 of the High Court Rules address the timeframe within which a written statement must be filed in response to a plaintiff’s complaint. However, when it comes to extending the period for filing the written statement beyond 30 days, the interpretation of these provisions differs.

Under the legislative framework, Order VIII Rule 1 of the CPC states that the written statement must be filed within 30 days from the date of service of summons. It further allows for an extension of time, as stated in the first proviso of the rule:

“Provided that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the same on such other day, as may be specified by the Court, for reasons to be recorded in writing, but which shall not be later than ninety days from the date of service of summons.”

Similarly, Rule 4 of Chapter 7 of the High Court Rules mandates that the written statement must be filed within 30 days from the date of service of summons. It also provides for an extension of time for filing the written statement by the defendant. The relevant provision states:

“If the Court is satisfied that the defendant was prevented by sufficient cause for exceptional and unavoidable reasons in filing the written statement within 30 days, it may extend the time for filing the same by a further period not exceeding 90 days, but not thereafter.”

Both provisions allow the court to grant an extension of time for the defendant to file the written statement. The CPC provides for a total of 90 days, while the High Court Rules provide for a total of 120 days. The conflict arises when determining which time limits apply to suits pending before Delhi courts, and whether the court has the authority to grant an extension beyond the prescribed time period of 90 or 120 days.

The discretionary or mandatory nature of these time periods has been a topic of debate. If the time period is considered discretionary, the court can extend the deadline for filing the written statement for any additional period it deems necessary. However, if the time period is deemed mandatory, the court cannot exceed the maximum period specified in the relevant provision.

Order VIII Rule 1 of the CPC employs the phrase ‘shall not be later than ninety days,’ while Rule 4 of the High Court Rules uses the phrase ‘but not thereafter.’ The latter explicitly restricts extensions beyond 90 days, which is not mentioned in Order VIII Rule 1 of the CPC.

The interpretation of Order VIII Rule 1 of the CPC has been examined in various court cases. In Kailash vs. Nankhu and Salem Advocate Bar Association, Tamil Nadu v. Union of India, the Supreme Court interpreted the phrase ‘shall not be later than ninety days’ and held that it doesn’t curtail the court’s power to extend the period for filing the written statement beyond 90 days. A similar view was adopted in Bharat Kalra vs. Raj Kishan Chabra, where the court allowed the filing of a written statement delayed by 193 days. Therefore, Order VIII Rule 1 of the CPC has been deemed discretionary, granting the court the discretion to extend the time period for filing the written statement beyond 90 days if deemed necessary.

In the case of Gautam Gambhir vs. M/s Jai Ambey Traders & Ors., the Delhi High Court analyzed the applicability and interpretation of both Order VIII Rule 1 of the CPC and Rule 4 of the High Court Rules. The court held that the High Court Rules, being validly framed, should be considered part of the Delhi High Court Act. It drew inspiration from the Supreme Court’s ruling in Chief Forest Conservator (Wildlife) & Ors. v. Nisar Khan, which established that validly framed rules should be treated as part of the Act. The court further stated that the Delhi High Court Act, being a special law, takes precedence over the CPC and even the Commercial Courts Act. Accordingly, the court concluded that the CPC, being a general law, cannot supersede the Delhi High Court Act and the rules framed under it, as they constitute a special law. This conclusion aligned with the Supreme Court’s ruling in Iridium India Telecom Ltd vs. Motorola Inc., stating that High Court rules prevail over the provisions of the CPC, even if they contradict each other.

Having established the applicability of the High Court Rules, the court in Gautam Gambhir (supra) delved into the provisions of Rule 4 of the High Court Rules. The court identified the phrase ‘but not thereafter’ as the crux of the controversy. Holding that Rule 4 of the High Court Rules is mandatory in nature, the court emphasized that the court cannot grant condonation of delay beyond the 120-day period specified in the rule.

In conclusion, the legal position regarding the time limit for filing a written statement in Delhi suits is clear. According to the High Court Rules, the court may extend the time for filing the written statement for a maximum of 120 days. This aligns with the time limit provided by the Commercial Courts Act. Thus, regardless of whether a suit falls under the Commercial Courts Act or pertains to an ordinary suit, the maximum time limit for filing a written statement is 120 days. Under no circumstances can the court grant an extension beyond this 120-day period.

This is the established law for all suits governed by the Delhi High Court Rules. However, for suits not governed by these rules but rather by the CPC, the courts retain the discretion to extend the time for filing the written statement beyond the 90-day period as they see fit.