(SUPREME COURT OF INDIA) in Leela Hotels Ltd. Versus Housing and Urban Development Corporation Ltd. (2011) 12 SCALE 573
18. It was next submitted by the learned ASG that analogy of a post-decretal payment cannot be applied to an Arbitration Award under the 1996 Act for the simple reason that the Arbitration Award under the 1996 Act does not attain the status or character of a Decree within the meaning of the Code of Code of Civil Procedure. It is to be executed “as if it were a Decree”, which means that it is not a Decree.
19. It was thirdly urged by the learned ASG that assuming that the Award could be treated as a Decree and the second payment is a post-decretal payment, even then the said payment will have to be treated as appropriation towards the principal sum, since Leela Hotels had been duly intimated of the nature of the deposit and by way of an implied contract, Leela Hotels had appropriated the said sum towards the principal.
20. The learned ASG referred to the decision of this Court in NALCO v. Presteel and Fabrication Pvt. Ltd., (2004) 1 SCC 540, wherein it had been held that there is no question of any Decree being honoured pursuant to the passing of an Award and unlike a judgment within the meaning of the Code of Civil Procedure Code, an Award remains unenforceable during the period available for challenging the Award, and, thereafter, till such time as the Petition under Section 34 is disposed of by the appropriate Court. Reference was also made to the decision of this Court in (1) Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322, wherein it was explained that the Arbitrator is not a Court and accordingly an arbitration is not an adjudication and an Award is not a Decree, (2) Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd. (2006) 12 SCC 642 and (3) West Bengal Essential Commodities Supply Corporation v. Swadesh Agro Farming and Storage Pvt. Ltd. and Anr., (1999) 8 SCC 315, where similar views have been expressed. Reference was also made to the decision of the Privy Council in the case of Rai Bahadur Seth Nemichand v. Seth Radha Kishen AIR 1922 PC 26, wherein it was, inter alia, held that a creditor to whom principal and interest are owed is entitled to appropriate any indefinite payment which he gets from a debtor towards the payment of interest. However, a debtor might in making a payment stipulate that it was to be applied only towards the principal. If such a stipulation was made, the creditor was at liberty to refuse the payment on such terms, but then he would have to give back the money or the cheque by which the money was offered. If the amount was accepted then the creditor would be bound by the appropriation as proposed by the debtor.
21. As to the decision of this Court in Smithaben’s case (supra), the learned ASG submitted that the payment was unilaterally made out of Court by the debtor with a covering letter, which was immediately responded to by the Decree-holder who made it clear that he had appropriated the amount towards interest alone. This Court, therefore, held that the creditor was not bound by the appropriation so made by the debtor. The learned ASG submitted that in the instant case the Respondent had tendered a sum of ` 89.78 crores in Court as payment towards the principal amount and the same had been accepted by Leela Hotels without objection and accordingly the decision in Smithaben’s case (supra) would have no application to the facts of this case. The learned ASG submitted that there being little or no substance in the Appeal, the same was liable to be dismissed with costs.
22. of the two issues involved in this matter, it appears that the issue relating to charging of compound interest did not survive since the parties had agreed that no compound interest would be payable in terms of the Award. In fact, although such an assertion had been made by the learned ASG, the same was not seriously opposed by Mr. Desai who had taken the stand that this was not a case of compound interest, but a case of calculating simple interest on the amount as remained unpaid. Mr. Desai also accepted the position that after the Award had been passed by the learned Arbitrator, Leela Hotels had calculated the interest on the basis of yearly rests, but had subsequently given up its claim of compound interest and limited its claim to simple interest after appropriating the amount received from HUDCO, first towards interest and then towards the principal in accordance with the decision in Smithaben’s case (supra).
23. Consequently, the only issue which remains for decision is whether the amounts deposited and/or paid by HUDCO to M/s Leela Hotels in terms of the Award of the learned Arbitrator, was first to be appropriated towards payment of the interest due on the principal sum or whether the same was to be appropriated against the principal sum itself.
25. As indicated hereinbefore, the submissions made by the learned ASG on behalf of HUDCO was based on the proposition as contained in Sections 59 and 60 of the Indian Contract Act, 1872, on account of the stipulation recorded on behalf of HUDCO that the amount of ` 89.78 crores was being tendered towards the principal sum, to which there was no objection from the Appellant and, accordingly, it must be held that that since the amount had been received without demur, such payment fell within the provisions of Section 59 of the aforesaid Act. In fact, the Division Bench of the High Court proceeded to consider such payment and acceptance to be a voluntary acceptance by the Appellant of the aforesaid amount as appropriation towards the principal as it made good business sense to accept the same and to utilise the same in spite of waiting for something indefinite in the future. Such a submission, though legal and correct, is not supported by the materials on record.
26. Admittedly, there was no agreement between the parties as to how the amounts to be paid in terms of the Award were to be appropriated by the Appellant. Accordingly, in terms of the well settled principle that in such cases it was for the creditor to appropriate such payment firstly against the interest payable, would, in our view, be squarely attracted to the facts of this case. As was laid down by the Privy Council in Meka Venkatadri Appa Rao Bahadur Zamindar Garu and Ors. v. Raja Parthasarathy Appa Rao Bahadur Zamindar Garu AIR 1922 PC 233, and later reiterated in Rai Bahadur Seth Nemichand’s case (supra), when monies are received without a definite appropriation on the one side or the other, the rule which is well established in ordinary cases is that in those circumstances, the money is first applied in payment of interest and when that is satisfied, in payment of the capital. In the latter case, the said principal was restated and it was indicated that a creditor to whom principal and interest are owed is entitled to appropriate any indefinite payment which he gets from a debtor to the payment of interest. It was also indicated that a debtor might in making a payment stipulate that it was to be applied only towards the principal. If he did so, the creditor was at liberty to refuse payment on such terms, but then he would have to give back the money or the cheque by which the money is proffered and if the same is accepted, the creditor would then be bound by the appropriation as proposed by the debtor.
27. In the instant case, a unilateral assertion had been made by HUDCO as the debtor that the sum of ` 89.78 crores was being tendered as payment towards the principal amount and that there was, therefore, no other amounts due and payable to the creditor Leela Hotels Ltd. The principle as laid down in the two aforesaid decisions, and as subsequently followed in Smithaben’s case (supra) will not apply in the facts of the instant case, since the amount as deposited was accepted by the Appellant without prejudice to its rights and contentions in the appeal. Since the amount had been accepted on protest, the principle laid down in Rai Bahadur Seth Nemichand’s case (supra) will have no application.
28. The philosophy behind the principle set out in Meka Venkatadri’s case (supra) and as reiterated in Rai Bahadur Seth Nemichand’s case (supra) and also in Smithaben’s case (supra) and then consistently followed by this Court, is that a debtor cannot be allowed to take advantage of his default to deny to the creditor the amount to which he would be entitled on account of such default, by way of elimination of the principal amount due itself, unless, of course, the provisions of Section 59 of the Indian Contract Act, 1872, were attracted or there was a separate agreement between the parties in that regard. That is not so in the instant case and, accordingly, the creditor cannot be denied its dues on a unilateral stipulation that the amount of ` 89.78 crores was being deposited as against the principal sum due in terms of the Award. Since the said amount was accepted by the Appellant on protest, it would be entitled to appropriate the same against the interest which was due and payable till that date on the principal amount, as has been asserted by it.
29. In our view, the Division Bench of the Delhi High Court erred in presuming that the said amount had been accepted by the Appellant on account of good business sense in view of the uncertainty of the final outcome of the case. In our view, the Division Bench of the High Court should have proceeded on the basis of the principles of law as laid down by this Court in Smithaben’s case (supra), keeping in mind the earlier decisions of the Privy Council in both Meka Venkatadri’s case (supra) and Rai Bahadur Seth Nemichand’s case (supra) in interfering with the judgment of the learned Single Judge. The Division Bench seems to have erroneously taken the presence of the Learned Counsel for the Appellant, when the aforesaid undertaking of the Respondent was recorded, in coming to the conclusion that since no objection had been raised with regard to the said deposit, it must be presumed that it had the consent of the Appellant and hence was covered by the provisions of Sections 59 and 60 of the Indian Contract Act, 1872.
30. Regarding the question as to whether the Award of the learned Arbitrator tantamounts to a Decree or not, the language used in Section 36 of the Arbitration and Conciliation Act, 1996, makes it very clear that such an Award has to be enforced under the Code of Civil Procedure in the same manner as it were a Decree of the Court. The said language leaves no room for doubt as to the manner in which the Award of the learned Arbitrator was to be accepted.
