Page 19 - Banking Finance November 2021

LEGAL UPDATE

ing La Fin Financial Services Pvt Ltd to vided that no interest shall be payable The court held that the chairman, di-
pay the amount within 2 weeks to by the respondent on, inter alia, any rectors, and other key managerial per-
Multi Commodity Exchange of India Ltd moneys due to the contractor. Disputes sonnel of a company cannot be auto-
(MCX). Failure to pay will carry a 9 per arose amongst the parties with respect matically held vicariously liable for the
cent interest on the amount, he di- to the aforesaid contract and subse- offences committed by a company un-
rected. quently, Garg Builders filed a petition less specific allegations and averments
under Section 11 of the Arbitration against them are made with respect to
The financial services company has
and Conciliation Act, 1996 before the their individual role.
filed a special leave petition against the
High Court order before the Supreme High Court of Delhi. The appellant in the case stated that
Court. The SC is scheduled to hear it. The High Court appointed the sole ar- he is the absolute owner and in posses-
The HC was hearing an interim appli- bitrator to adjudicate upon the dis- sion and enjoyment of certain immov-
cation by La Fin which sought orders putes. The appellant in the claim peti- able properties which were adjoining
against MCX on the ground that the tion, apart from claiming various the Mangalore-Bajpe Old Airport
Exchange exceeded a 120-day deadline amounts, claimed pre-reference, pen- Road. The properties had valuable
for filing its written statement in re- dente lite and future interest at the trees on them and was surrounded by
sponse to a 'commercial suit' it had rate of 24 per cent per annum on the a stone wall as a boundary.
instituted under the 'Commercial value of the award. The arbitrator The appellant's case is that Mangalore
Courts Act'. It noted that the suit upon hearing both parties concluded Special Economic Zone Ltd and its con-
against MCX was initially filed as a that there is no prohibition in the con- tracts, sub contractors and labourers
'regular suit', which has no deadline. tract on payment of interest for pre- had conspired with common intention
reference period, pendente lite and
The submissions by the company are to lay the pipeline beneath the
future period.
"flawed" & "manifestly unjust," said appellant's properties without any law-
the HC, adding, "There was here an Therefore, the arbitrator awarded ful authority and right, trespassed over
pendente lite and future interest at the
initial fault on the part of the plaintiff the properties and demolished the
itself in wrongly instituting the suit as rate of 10 per cent per annum to Garg compound wall, when he (the appel-
a regular suit." Builders on the award amount from lant was not in town). Some 100 trees,
the date of filing the claim petition to worth Rs. 27 lakh, were destroyed, he
No pedente lite interest the date of realisation of the award said.
amount. Aggrieved by the award ren-
In a recent case, Garg Builders Vs dered by the arbitrator, BHEL chal- The Supreme Court noted that there
Bharat Heavy Electricals Ltd, the ques- lenged the award under Section 34 of were no specific allegations made
tion before the Supreme Court was the Arbitration Act before the High against the directors and managerial
whether interest could be levied dur- Court on various grounds, inter alia, on personnel amongst the accused. The
ing the pendency of a litigation (pen- the ground that the arbitrator being a Apex Court clarified that nowhere had
dente lite interest), when the parties creature of the arbitration agreement the appellant made the allegation that
had agreed in the contract to not have travelled beyond the terms of the con- at the command and directions of di-
any interests awarded. tract in awarding pendente lite inter- rectors.
The question was whether the con- est on the award amount as the same The Apex Court referred to the deci-
tract itself was ultra vires the (Section was expressly barred in terms of the sion in Sunil Bharti Mittal Vs Central
28 of the) Contract Act. The arbitrator contract. Bureau of Investigation for circum-
had awarded the interest; the Su- stances when a director/ person in
preme Court struck it down, saying No sadism charge of the affairs of the company
that the arbitrator could not award In a recent case, Ravindranatha Bajpe can also be prosecuted when a com-
the interest when it was contractually pany is an accused person. It was held
Vs Mangalore Special Economic Zone
barred by the contract. that vicarious liability of the directors
Ltd, the Supreme Court of India held
The parties entered into a contract in that a director of a company could not cannot be imputed automatically, in
2009 which, inter alia, contained the be "vicariously" held liable for criminal absence of any statutory provision to
interest-barring clause. The clause pro- offences of a company. this effect.

BANKING FINANCE | NOVEMBER | 2021 | 19