Page 20 - Banking Finance March 2019

LEGAL UPDATE

LEGAL

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Director absolved in Award of interest in arbitration conditional
If the General Conditions of Contract in Construction Works prohibits demand of
cheque case
interest, arbitrators do not get jurisdiction to award
The director of a company who signs interest, the Supreme Court held in its judgment in
a cheque Jaiprakash Associates Vs Tehri Hydro Development
w h i c h Corporation. The contracting company was given a
b ou n ces project, but disputes arose over certain claims. They
would not were referred to arbitration by a three-member
be liable if panel. It gave an award largely in favour of Jaiprakash and also granted interest
the company is not arraigned as an on the dues. Then the jurisdiction of the arbitral panel to grant interest when
accused, the Supreme Court reiter- the General Conditions barred it became another point of conflict.
ated in its judgment in Himanshu vs
B Shivamurthy. In the case, the The matter was taken to the Delhi High Court, which held that relevant clauses
payee filed a complaint against the categorically provided that no interest would be payable to the contractor on
signatory of the bounced cheque the money due to him. No interest was payable as Clauses 50 and 51 of the
General Conditions barred arbitrators from granting interest, though they
under Section 138 of the Negotiable
Instruments Act. claimed the power. The appeal of the company was rejected by the Supreme
Court. The precedents cited by the firm were under the Arbitration Act of 1940,
The magistrate issued summons to the judgment explained, and the new Arbitration and Conciliation Act as inter-
the signatory, who was a director of preted by the Supreme Court has changed the law.
Lakshmi Cement and Ceramics Indus-
tries Ltd. He moved the Karnataka Banks liable for unauthorised withdrawals from cus-
High Court for quashing the summons.
The high court refused to do so. So he tomer accounts: Kerala High Court
appealed to the Supreme Court. The Kerala High Court has held that banks cannot be exonerated from liability
He argued that the cheque was not for loss caused to a customer on account of
issued in his personal capacity and unauthorised withdrawals made from his/her account,
the complaint was not maintainable merely on the ground that the customer did not respond
as it was not instituted against the promptly to the SMS alert given by the bank.
company and its directors. The no- The court observed that a bank has a duty to its cus-
tice, according to the Act, was also tomers to take necessary steps to prevent unauthorised withdrawals from their
not served on the company. The accounts.
court agreed and allowed the ap- As a corollary, if a customer suffered a loss on account of transactions not
peal.
authorised by him, the bank was liable to the customer for the loss.

20 | 2019 | MARCH | BANKING FINANCE