Jay Polychem (India) Ltd & Ors. vs S.E.

Investment Ltd on 7 May, 2018

Delhi High Court

Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 07.05.2018

O.M.P. (COMM) 273/2016 & I.A. Nos. 6346/2016 & 2751/2017

JAY POLYCHEM (INDIA) LTD & ORS. .....Petitioners

Versus

S.E. INVESTMENT LTD ..... Respondent

Advocates who appeared in this case:
For the Petitioner : Mr P.P. Malhotra, Senior Advocate
with Mr Shubhendu Kaushik.
For the Respondent : Mr P. Nagesh and Mr Dhruv Gupta.

CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU

JUDGMENT

VIBHU BAKHRU, J

1. The petitioners have filed the present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereafter the Act), inter alia, impugning the arbitral award dated 31.07.2015
(hereafter the impugned award) delivered by the Arbitral Tribunal constituted by a sole arbitrator,
Justice S.B. Sinha, a former Judge of the Supreme Court of India (hereafter the Arbitral Tribunal).
The impugned award was rendered in the context of disputes that had arisen between the
petitioners and the respondent with respect to the Loan Agreements dated 29.08.2011 (hereafter the
Loan Agreements).

2. The present petition was filed on 31.10.2015. However, the said petition was neither signed on
behalf of the petitioners nor supported by signed and attested affidavits. In addition to the above,
the petition was also defective on several other grounds and, thus, was returned on 31.11.2015. It is
relevant to note that the petition was filed just before the expiry of the period of three months
available in terms of Section 34(3) of the Act, for filing a petition under Section 34 of the Act.

3. The petition was thereafter refiled on 23.12.2015. This was not only beyond the period of three
months as prescribed under Section 34(3) of the Act but also beyond the further period of 30 days,
which could be condoned by the Court in terms of proviso to Section 34(3) of the Act. Although,
Section 34(3) of the Act is not applicable for any delay in refiling - as held by the Supreme Court in
Northern Railway v. M/s Pioneer Publicity Corp. Pvt. Ltd: (2017) 11 SCC 234 as well as by a Division
Bench of this Court in Delhi Development Authority v. Durga Construction Co.: 2013 (139) DRJ 133
- but what was filed by the petitioners on 31.10.2015 could not be considered as a petition at all in
view of the defects noticed above.

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 Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018

4. In Ashok Kumar Parmar v. B.D.C. Sankiila & Ors: 1995 RLR 85, this Court had, in the context of
Rules 1 & 2 of Chapter IV of the Delhi High Court (Original Side) Rules, 1967, observed as under:

"If the defects are of such character as would render a plaint, a non-plaint in the eye
of law, then the date of presentation would be the date of re-filing after removal of
defects. If the defects are formal or ancillary in nature not effecting the validity of the
plaint, the date of presentation would be the date of original presentation for the
purpose of calculating the limitation for filing the suit."

5. The aforesaid view would also be applicable in case of a petition under Section 34 of the Act. In
Delhi Development Authority v. Durga Construction Co (supra), a Division Bench of this Court had
observed as under:

"..in certain cases where the petitions or applications filed by a party are so hopelessly
inadequate and insufficient or contain defects which are fundamental to the
institution of the proceedings, then in such cases the filing done by the party would
be considered non est and of no consequence. In such cases, the party cannot be
given the benefit of the initial filing and the date on which the defects are cured,
would have to be considered as the date of the initial filing."

6. Clearly, a Statement, which is neither signed nor supported by an affidavit cannot be considered
as an application under Section 34 of the Act. Thus, the petition filed on 31.10.2015 was non-est. In
this view, the present petition is not maintainable, as it has been filed beyond the prescribed period
of three months and also beyond the further period of thirty days within which this Court could
entertain the petition on petitioners establishing that it was prevented from sufficient cause from
presenting the petition within the period prescribed.

7. The Supreme Court in the case of Union of India v. Popular Construction: (2001) 8 SCC 470 has
held that the time limit prescribed under Section 34(3) of the Act to challenge an award is not
extendable by the Court under Section 5 of the Limitation Act, 1963 in view of the express language
of Section 34(3) of the Act. The petition is, thus, not maintainable because as on 23.12.2015, the
maximum time available within which the petition could be entertained by this Court - that is three
months and a further period of 30 days - had expired.

8. Even if it is assumed that what was filed on 03.11.2015 by the petitioners could qualify as a
petition under Section 34 of the Act, it is seen that the delay in refiling is unreasonable. As observed
above, the petition was refiled on 23.12.2015; however, all the defects were not removed. The said
petition was not accompanied by a Statement of Truth and all the objections as pointed out earlier
had not been removed. Thus, the filing was marked as defective and returned on 02.01.2016. It was
refiled on 10.03.2016 and was returned on 14.03.2016 as it continued to be defective. Thereafter, the
petitioners refiled the petition on 30.03.2016, which was returned on 31.03.2016 after scrutiny. The
petition was refiled on 18.04.2016 (which was also beyond the period of extension granted) and was
returned on 19.04.2016. It was next filed on 27.04.2016 but in view of the defects, was returned on
the same date. The petition was again refiled on 05.05.2016 and 06.05.2016 and on both the

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 Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018

occasions was returned as defective. It was finally filed on 16.05.2016; that is, after about six and a
half months after it was initially filed.

9. The petitioners have filed an application (I.A. No.6346/2016), inter alia, praying that the delay of
132 days in refiling the petition be condoned. The only explanation provided for delay in refiling is
that the clerk of the counsel for the petitioners had stopped coming to office and had switched off his
mobile phone. The learned counsel for the petitioner made efforts to search the file but could not
find the same. However, one day, after about two months, the said clerk switched on his mobile
phone and it is only upon his mobile being activated that enquiries were made from him and the file
could be traced out. The said explanation cannot be accepted. Plainly, waiting helplessly for two
months for the clerk to switch on his mobile can hardly be accepted as a sufficient cause preventing
the petitioners from refiling the petition. Further, the application is also bereft of any particulars:
who was the clerk? When did he go missing? When did he switch on his mobile phone? And, when
was the file traced?

10. The explanation provided also appears to be untrue. This is so because the petitioner did refile
the petition on 23.12.2015, that is, after approximately seven weeks of the initial filing. As noticed
above, it was refiled successively on several occasions thereafter. Thus, the clerk of the petitioners
counsel being incommunicado for about two months cannot explain the period of over six and a half
months that it took for the petitioners to finally file a defect free petition. The explanation that the
file could not be traced out also cannot be believed, as the petition was refiled on several occasions
as indicated above.

11. In Delhi Development Authority v. Durga Construction Co (supra), a Division Bench of this Court
had held that this Court would have jurisdiction to condone the delay in refiling even if the period
extends beyond the time specified in Section 34(3) of the Act;

however, this jurisdiction is not to be exercised liberally in view of the legislative intent to ensure
expeditious conclusion of the proceedings.

12. The petitioners have relied on the decision of the Supreme Court in Northern Railway v. M/s
Pioneer Publicity Corp. Pvt. Ltd (supra). In that case, the Supreme Court observed as under:

"We find that said Section has no Application in re- filing the Petition but only
applies to the initial filing of the objections Under Section 34 of the Act. It was
submitted on behalf of the Respondent that Rule 5(3) of the Delhi High Court Rules
states that if the Memorandum of Appeal is filed and particular time is granted by the
Deputy Registrar, it shall be considered as fresh institution. If this Rule is strictly
applied in this case, it would mean that any re-filing beyond 7 days would be a fresh
institution. However, it is a matter of record that 5 extensions were given beyond 7
days. Undoubtedly, at the end of the extensions, it would amount to re-filing."

13. Thus, in cases where repetitive extensions are granted, it may not be apposite to strictly apply
Rule 5(3) of Delhi High Court (Original Side) Rules, 1967 in relation to refiling of a petition under

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 Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018

Section 34 of the Act; however, in this case, the refiling has been beyond the time as specified by the
registry. However, even if it is accepted that Rule 5 of Delhi High Court (Original Side) Rules, 1967 is
inapplicable, in view of the legislative intent of Section 34(3) of the Act, inordinate delays in refiling
cannot be accepted, more so, when there is no reasonable explanation for the delay and the Court is
not persuaded that the petitioners were prevented from refiling despite due diligence. It is relevant
to note that in Northern Railway v. M/s Pioneer Publicity Corp. Pvt. Ltd (supra), the Supreme Court
had accepted the explanation provided for the delay re-filing the petition.

14. In view of the above, I.A. No. 6346/2016 is rejected. In this view, it is not necessary to examine
the merits laid by the petitioners to the impugned award; however, for the sake of completeness, this
Court considers it apposite to consider that as well.

15. Briefly stated, the relevant facts necessary to address the controversy are as under:-

16. Petitioner nos. 1 and 2 are companies registered under the Companies Act, 1956. Petitioner nos.
3 and 4 are directors of Petitioner nos. 1 and 2. The respondent (SEIL) is a Non-Banking Finance
Company and is, inter alia, engaged in the business of lending finance to borrowers.

17. SEIL granted a loan of 20,00,00,000/- to petitioner no. 1 (JPIL) and the parties entered into
Loan Agreements - all dated 29.08.2011 - being LD 2639, LD 2640, LD 2641, LD 2642 and LD 2643
for sum of 6 crores, 5 crores, 4 crores, 3 crores and 2 crores respectively. The repayment obligations
of JPIL were guaranteed by petitioner nos. 2 to 4, inter alia, by entering into separate agreements of
guarantees.

18. The said loan carried interest at the rate of 10.75% per annum (flat) or 23.59% per annum
(annualized), which was to be repaid in twenty four monthly installments commencing from
30.08.2011.

19. SEIL disbursed a sum of 18,56,44,000/- after deducting amount of 1,21,50,000/- on account of
first Equated Monthly Installment (EMI) and 22,06,000/- on account of processing charge. Out of
the above amount of 6,00,00,000/- was disbursed on 30.08.2011 and the balance 12,56,44,000/-
was disbursed on 01.09.2011.

20. On 30.08.2011, JPIL remitted a sum of 5,00,00,000/- to SEIL by RTGS. SEIL claims that the
said amount was paid as a Cash Collateral carrying an interest at the rate of 9% per annum;
however, JPIL disputes the same and claims that the same was in part repayment of the loan
disbursed.

21. JPIL paid seven EMIs but failed to pay further monthly installments due from 30.03.2012. Since
JPIL defaulted in payment of the installments as agreed, SEIL imposed a late fee at the rate of 2 per
thousand per day, which was increased to 6 per thousand per day in terms of Clause 7 of the Loan
Agreements.

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 Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018

22. JPIL had also issued cheques in favour of the petitioner, but all the cheques were returned
dishonored. Thereafter, SEIL initiated criminal proceedings against JPIL under Section 138 of the
Negotiable Instruments Act, 1881.

23. On default of repayment of the loan amount, SEIL issued a notice dated 04.02.2013 invoking the
agreements of guarantee executed by petitioner nos. 2, 3 & 4. Thereafter, on 07.02.2013, SEIL
issued a winding up notice to JPIL.

24. On 11.02.2013, the petitioners responded to SEILs notice dated 04.02.2013 stating that an
amount of 5 crores forming part of the loan amount had been remitted to SEIL.

25. SEIL filed its Statement of Claims, inter alia, claiming sum of 40,80,10,376/- on account of the
installments due and 15,00,000/- towards cost of legal expenses along with pendente lite and future
interest on sum of 40,80,10,376/- and 15,00,000/- at the rate of 6 per thousand per day as late fee.

26. The petitioners filed the Statement of Defence contesting the claims made by SEIL. The
petitioners, inter alia, claimed that the high rate of interest reflected in the Loan Agreements was
contrary to the Usurious Loans Act, 1918.

27. The principal issues before the Arbitral Tribunal related to the enforceability of the contract as
the petitioners claimed that the contract was not enforceable in terms of the various statutes
including Usurious Loans Act, 1918 and Punjab Relief of Indebtedness Act, 1934. It was also claimed
that the late fee charged in terms of Clause 7 of the Loan Agreements that entitled SEIL to levy a late
fee charge of 2 per thousand per day, which could be increased to 6 per thousand per day, was in the
nature of penalty and is not enforceable. The Arbitral Tribunal was also called upon to decide
whether the sum of 5 crores paid by JPIL at the outset was a cash collateral bearing the interest at
the rate of 9% or whether the same amounted to repayment of the loan advanced by SEIL.

28. The Arbitral Tribunal after considering the material and evidence placed on record concluded
that the Loan Agreements were enforceable and JPIL was liable to pay the amounts borrowed in
terms of the Loan Agreements. However, the Arbitral Tribunal held that the loan advanced by SEIL
was only to the extent of 15 crores and not 20 crores as claimed by SEIL. It accepted JPILs plea that
the sum of 5 crores remitted on 30.08.2011 was to be construed as repayment of the loan and
adjusted from the amount of loan disbursed to JPIL. The Arbitral Tribunal held that in fact, SEIL
had only advanced a sum of 15 crores out of which it had recovered the first installment of
1,21,50,000/- and the processing charges of 22,06,000/- in advance.

29. Insofar as late payment charges are concerned, the Arbitral Tribunal held that the same were
punitive in nature and, thus, could not be recovered. After accounting for the amounts recovered,
the Arbitral Tribunal made an award against the petitioners for the balance amount. The Arbitral
Tribunal also awarded pendente lite interest at the rate of 15% per annum on the amounts so
awarded. In addition, the Arbitral Tribunal awarded future interest at the rate of 18% per annum.

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 Jay Polychem (India) Ltd & Ors. vs S.E. Investment Ltd on 7 May, 2018

30. Mr Malhotra, the learned Senior Counsel appearing for the petitioners has sought to assail the
award, essentially, on three grounds. First, he submitted that the relationship between the parties
was very friendly and, therefore, JPIL had accepted the loan on a friendly basis but SEIL had played
a fraud in getting several documents executed, which did not bear out the true transaction between
the parties. Second, he submitted that the rate of interest accepted by the learned arbitrator was far
in excess as agreed to under the Loan Agreements. He submitted that the Loan Agreements
expressly provided that the rate of interest would be 10.75% per annum but the Arbitral Tribunal
had accepted the same to be equivalent to 23.59% per annum. Lastly, he submitted that the
transaction would be hit by the Usurious Loan Act, 1918.

31. This Court is of the view that none of the contentions are merited. Copies of the Loan
Agreements have not been annexed with the petition. However, copies of the same are available on
the records of the petition filed by SEIL under Section 34 of the Act, being OMP (Comm) No.
12/2016, challenging the impugned award. Clause 1 of the Loan Agreements, which are identically
worded expressly provides that "The said loan shall carry interest at the flat rate of 10.75 % per
annum or such modified rates as indicated by the Company....". The words "flat rate" are important.
The interest rate of 10.75% per annum is applicable on the loan amount for the entire term of the
loan without taking into account the installments paid during the term of the loan. The installments
payable - seven of which were also paid - were also computed on the aforesaid basis. The Arbitral
Tribunal had examined the same and concluded that the flat rate of interest of 10.75% per annum
would work out to 23.59% on the reducing balance referred to by the learned arbitrator as "23.59%
per annum (annualized)".

32. The contention that the loan was a friendly loan is also unmerited as, admittedly, the petitioners
had executed several documents for documenting the transactions as is noticed in paragraph 42 of
the impugned award. The documents clearly evidence that the transaction was a commercial
transaction.

33. The Arbitral Tribunal had, after examining the documents and evidence on record observed that,
"there are enough direct as well as circumstantial evidence to show that the Respondents have
entered into the said agreements knowing fully well the contents thereof.." This Court finds no
infirmity with the aforesaid conclusion. And, in any view, this finding cannot be influenced with as it
does not offend any of the grounds as set out in Section 34(2) of the Act.

34. The contention that the transaction is hit by the Usurious Loan Act, 1918 is also unmerited. The
said contention was rejected by the Arbitral Tribunal and, in the opinion of this Court, rightly so. In
Morgan Securities and Credits Pvt. Ltd. v. Morepan Laboratories Ltd. & Anr : 132 (2006) DLT 588,
this Court had held that the Usurious Loan Act, 1918 does not include reference to an arbitral award.

35. In view of the above, the petition is dismissed on account of delay as well as on merits. The
pending applications are also disposed of. The parties are left to bear their own costs.

VIBHU BAKHRU, J MAY 07, 2018 dr

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