M Rameshraju, E.Godavari Dist Vs M/S Shriram City Union Fin. Ltd., E.Godavari Dist & 2 Others

Aggrieved by an order dated 28.03.2016 in AAOP No.36 of 2014, on the file of the Court of District Judge, Rajahmundry, confirming the Award dated 24.08.2013, the present Appeal is preferred.

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The appellant, who is the 2^nd respondent before the learned Arbitrator filed the said petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the Act”).

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The brief facts as culled out from the material on record may be narrated for better appreciation of the matter.

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The 2^nd respondent herein approached the 1^st respondent-claimant viz., M/s. Sriram City Union Finance Ltd., Rajahmundry and obtained personal loan of Rs.1,00,000/-. The appellant herein stood as guarantor and as per loan agreement, the 2^nd respondent-borrower agreed to repay the loan with interest at the rate of 24% per annum in 24 monthly installments at Rs.6,170/- p.m. He repaid the loan partially, therefore, the 1^st respondent-claimant got issued a legal notice dated 29.12.2012, invoked the arbitration clause and raised a claim before the 3^rd respondent-Arbitrator for an amount of Rs.1,13,509/- with interest at the rate of 18% p.a., on Rs.1,07,230/- from the date of the petition, till realization. Learned Arbitrator issued notices to the 2^nd respondent as also the appellant. They failed to appear before the Arbitrator and

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ultimately after examining the oral an documentary evidence adduced by the claimant, the learned Arbitrator passed an Award for Rs.1,13,509/with interest at the rate of 18% p.a., on Rs.1,07,230/- as prayed for.

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Aggrieved by the said Award, the appellant filed an application under Section 34 of the Act, inter alia, contending that the Award dated 24.08.2013 is liable to be set aside on various grounds. The learned District Judge after considering the matter, dismissed the said appeal.

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Learned counsel for the appellant, inter alia, contended that the order under challenge confirming the Award of the 3^rd respondentArbitrator is wholly unsustainable in law, that the learned District Court failed to appreciate the several contentions advanced on behalf of the appellant in a correct perspective. It is his contention that the learned District Court was not right in coming to a conclusion that the grounds raised will not fall within the purview of Section 34 of the Act. He submits that learned District Judge failed to appreciate that officials of the 1^st respondent colluded with the 2^nd respondent and that E.P.No.105 of 2014 was filed by obtaining an Award behind the back of the appellant. Further that awarding of interest at the rate of 18% on the claim amount by the learned Arbitrator, as confirmed in the OP by the learned District Court is not sustainable in law. He submits that the loan agreement pertains to a personal loan, not for commercial purpose and therefore the learned District Court ought to have at least reduced the interest as awarded by

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the learned Arbitrator. Contending that the order under challenge is not sustainable, he urges for allowing the appeal.

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Learned counsel for the 1^st respondent on the other hand, inter alia, contended that the appellant herein even after receipt of a notice issued by the learned Arbitrator, remained ex parte for the reasons best known to him. Even the 2^nd respondent-borrower also did not choose to appear before the learned arbitrator. Be that as it may. He submits that the learned Arbitrator has examined the Divisional Executive and GPA holder of the 1^st respondent-claimant as PW 1 and relevant documentary evidence was marked as Exs.A1 to A8. He submits that after considering evidence on record, the learned Arbitrator had passed an Award by granting interest at the rate of 18% though the 1^st respondent-claimant is entitled to interest at the rate of 24% p.a. He submits that the Award of the learned Arbitrator is well considered and supported by the material on record. Therefore, the learned District Court had rightly not interfered with the same as no case is made out for interference under Section 34 of the Act. He also contends that the interference by the appellant Court under Section 37 of the Act is very limited and the case on hand is not an exception. Making the said submissions, learned counsel seeks dismissal of the Appeal.

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Considered the submissions made and perused the material on record. On an appreciation of the rival contentions the only point that

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arises for adjudication by this Court is “Whether the order under challenge warrants interference, in the facts and circumstances of the case?”

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Before dealing with the point under consideration, it may be appropriate to mention that before passing an Award by the 3^rd respondent-Arbitrator, notices were issued to the appellant and the 2^nd respondent-borrower. Therefore, it is not a case where the Award was passed without their knowledge. No reasons are forthcoming as to why they did not choose to appear before the learned Arbitrator after receipt of notice. Be that as it may. In the O.P., it is, inter alia, contended that the Award dated 24.08.2013 is against the public policy of India and there is no consensus between the appellant and the 1^st respondent-claimant to refer the matter to the Arbitrator. However, it may be pertinent to mention that it is not the case of the appellant that the loan agreement to which the appellant stood as guarantor does not contain any arbitration clause. Apart from the said contentions, it would also appear that the appellant had taken a plea that the officials of the 1^st respondent colluded with the 2^nd respondent and obtained the Award behind his back and further that the signatures of the appellant were obtained on blank printed, stamped and unstamped papers and were misused by the 1^st respondent-claimant and the 2^nd respondent. But the said contention has no significance or legal efficacy as the appellant had not adduced any evidence to

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substantiate the same before the learned Arbitrator by participating in the Award enquiry. Be that as it may.

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The learned District Judge by considering the matter under Section 34 of the Act recorded a categorical finding that no grounds exist to arrive at a conclusion that the Award is in conflict with the public policy of India. Though the learned counsel sought to impress that the order of the learned District Court confirming the Award is not sustainable, this Court see no ground to record any finding that the Award is contrary to the terms of the agreement, public policy of India or the order of the learned District Court is perverse. In National Highways Authority of India v Hindustan Construction Company Limited¹ while referring to a catena of legal precedents, the Hon’ble Supreme Court of India reiterated that the jurisdiction of the Court under Section 34 of the Act is narrow and the jurisdiction of the Appellate Court under Section 37 of the Act is more narrower. It is profitable to reproduce the relevant paras, which reads thus:

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“11. This Court laid down the law regarding the scope of interference in a petition under Section 34 of the Arbitration Act in MMTC Ltd. v. Vedanta Ltd. [ MMTC Ltd. v. Vedanta Ltd. , (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] Para 11 reads thus : (SCC pp. 166-67)

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“ 11 . As far as Section 34 is concerned, the position is wellsettled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the

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1 (2024) 6 SCC 809

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amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the “fundamental policy of Indian law” would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [ Associated Provincial Picture Houses v. Wednesbury Corpn. , (1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent illegality” itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract .”

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(emphasis supplied)

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12. This Court, in UHL Power Co. Ltd. v. State of H.P. [ UHL Power Co. Ltd. v. State of H.P. , (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401] held that the jurisdiction of the Court under Section 34 is relatively narrow and the jurisdiction of the appellate court under Section 37 of the Arbitration Act is all the more circumscribed.”

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It is also settled position of law that if the arbitral tribunal takes a particular view on the interpretation of the contract by considering the material on record, the Court under Section 34 of the Act does not sit in Appeal over the finding of the Arbitrator (See: Kwality Manufacturing Corporation v Central Warehousing Corporation² ) . Therefore, in the light of the legal position, this Court see no perversity or illegality in the order passed by the learned District Court warranting interference by this Court.

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So far as the contention with regard to interest is concerned, the appellant having stood as guarantor to the loan agreement with open eyes cannot turn around and contend that the interest charged on the

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2 (2009) 5 SCc 142

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loan transaction is highly excessive or that the transaction is not commercial. It is also not the case of the appellant that the loan agreement does not provide for payment of interest, much less the rate at which it was claimed. The Award of interest by the learned Arbitrator Awarded at the rate of 18% per annum was not interfered with by the learned District Court, and this Corut see no reason to interfere with the same on the ground that the same is excessive as contended by the learned counsel for the appellant. In fact, as noted earlier loan agreement provides for payment of interest at the rate of 24% p.a.

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In the light of the aforegoing discussion the order under challenge calls for no interference and accordingly, the Appeal is dismissed. No order as to costs.

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