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TMI Blog2015 (11) TMI 1751X X X X Extracts X X X X X X X X Extracts X X X X ..... the principal amounts by one person clearly leads to dishonesty on his part as such person wrongly benefits from the moneys illegally/wrongfully retained by him - In today's date and age to say that moneys can be retained for years and years and decades is clearly immoral and has to be held against public policy otherwise there will be gross injustice to the existence of the commercial world which cannot survive without payment of moneys in time. The four Sub-clauses of sub-Section (2) of Section 4 of the Interest Act do not restrict immorality to instances of sexual immorality as the only immorality, and hence in today's age and date the expression 'immoral' will have to be interpreted to include immorality arising in commercial transactions especially because a whiff of the same surely exists in the first Sub-clause (a) of sub-Section (2) of Section 4 of the Interest Act, 1978 which deals with payment of interest on a deposit, and deposit of moneys is generally and ordinarily a commercial transaction - Once Section 5 of the Interest Act, again with a non obstante clause, allows overriding effect and power of Section 34 CPC for grant of pendente lite interest, clearly, the post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any arbitration proceedings by an award, petitioner because of Clause 16(2) of the GCC cannot be called upon to pay interest for the pre-reference/present period or the post reference period including pendente lite period and till passing of the Award/decree. 2. Counsel for the petitioner places reliance upon, the below mentioned judgments of the Supreme Court and one judgment of the Full Bench of this Court, to argue that the Supreme Court has held that Clause 16(2) of the GCC is a valid clause thereby disentitling a contractor for payment of interest although the award is in favour of the contractor. In all the judgments relied upon on behalf of the petitioner, the same deal either with Clause 16(2) of the GCC or to contractual clauses in other contracts which are similar/more or less identical to the subject Clause 16(2) of the GCC. These judgments of the Supreme Court and Full Bench judgment of this Court are as under:-- (i) Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat Others, (2010) 8 SCC 767; (ii) Sayeed Ahmed Co. v. State of U.P. and Ors., (2009) 12 SCC 26; (iii) Union of India v. Saraswat Trading Agency and Others, (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd laid down a ratio as to what would happen if the clause in question itself is invalid and void because of Section 23 of the Indian Contract Act, 1872. It is argued on behalf of the respondent that once the clause in question goes as being violative of Section 23 of the Indian Contract Act, 1872, then, the respondent is entitled to payment of pre-reference and post-reference interest till the passing of the Award and the ratios of the judgments of the Supreme Court (as also the decision of the Full Bench of this Court) as relied upon by the petitioner will in such a situation not stand in the way of the respondent being granted pre-reference and post-reference interest till the date of the Award. 4(i). I note that the respondent was granted interest by the Arbitrator by the impugned Award dated 11.2.2002 and therefore there was no need for the respondent prior to the decision of this petition to have questioned Clause 16(2) of the GCC as being hit by/being violative of Section 23 of the Indian Contract Act, 1872 for holding the said clause to be invalid and void. Since the issue is a purely legal issue, and since the petitioner places reliance solely upon Clause 16(2) of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract in question as also Section 23 of the Indian Contract Act, 1872, and which read as under:-- Clauses 16(1) and 16(2) (1) Earnest money and security deposit: The earnest money deposited by the Contractor with his tender will be retained by the Railway as part of security for the due and faithful fulfilment of the contract by the contractor. The balance to make up this security deposit which will be 10 percent of the total value of the contract, unless otherwise specified in the special conditions, if any, may be deposited by the contractor in cash or in the form of Government Securities or may be recovered by percentage deduction from the contractors on account bills, provided also that in case of a defaulting contractor the railway may retain any amount due for payment to the contractor on the pending on account bills so that the amount or amounts so retained may not exceed 10% of the total value of the contract. (2) Interest on Amounts: No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but Government Securities deposited in terms of sub-clause (1) of this clause will be repaya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity which may be dispensed with without infringing any public right or public policy. Where there is no express prohibition against contracting out of it, it is necessary to consider whether the Act is one which is intended to deal with private rights only or whether it is an Act which is intended as a matter of public policy.... 19. The doctrine of public policy may be summarized thus: Public policy or the policy of the law is an illusive concept; it has been described as 'untrustworthy guide', 'variable quality', 'uncertain one', 'unruly house', etc.; the primary duty of a Court of a law is to enforce a promise which the parties have made and to uphold the sanctity of contract which form the basis of society, but in certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy;... but the doctrine is extended not only to harmful cases but also to harmful tendencies. This doctrine of public policy is only a branch of common law, and just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserving that no other case was brought to the notice of the Supreme Court before deciding of Gherulal's case (supra) that the expression 'immorality' has been held in any other precedent as immorality other than sexual immorality. It bears note that this judgment passed is of 1959 vintage. 11. In my opinion, the ratio of Gherulal's case (supra) has to be really read in a holistic manner that what is immorality will necessarily depend upon time and age. What may not be immoral at one point of time may become immoral at another point of time and age. It is for this reason that the Supreme Court in Gherulal's case (supra) clearly has observed that to such fluid concept of 'immorality' no universal standard can be laid down. Thus the question is at a time now in the year 2015 that should this Court hold that when there is illegal/wrongful withholding of principal amounts by a person, such withholding of money continues beyond even a reasonable point of time still can such action be said to be moral and not immoral, i.e., is it not immoral to hold on to moneys of another without payment of interest although the period of wrongful/illegal retention of moni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licy. Delay of decades, and sometimes generational delay before litigations achieve finality, is such a long period that there results clear cut travesty of justice to the aggrieved person; as demonstrated from examples given immediately hereinafter. In sum and substance what is being observed by this Court is that holding on to principal amounts beyond the particular point of time when it was actually payable, in the guise of defences raised during pendency of litigations by simply arguing that since defences were raised for non-payment of awarded amount and which are only decided when an award is passed, hence there is entitlement to not pay interest on the principal amount on the ground that a contractual clause supports so, the same will clearly permit dishonesty. Immorality arises as defences on merits take decades to decide in a substantial number of cases. It is the long period of time of illegally/wrongfully holding on to the principal amounts of monies which makes the holding on to moneys without paying interest as immoral. Therefore, in today's date and age to say that moneys can be retained for years and years and decades is clearly immoral and has to be held against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt or an arbitrator holding that a contractual clause entitles due amounts to be paid without interest thereon, there is clearly a very grave injustice on account of amounts being illegally withheld by the person and not paying on time the same to the person who was entitled to the same because when a person receives his moneys after a huge delay in fact he gets just a small percentage than what he actually should have received. (ii) In addition to the example given above which shows that over a period of time actually a person ends up receiving much lesser than what the person actually should have received, there is the additional fact that whatever moneys which may come to the hands of a person after many years and decades will also be along with fall in the value of money i.e., purchasing power of money due to inflation. Also depreciation of the Rupee is a well known fact. (iii) It is further to be also noted that if a person does not receive his moneys on time, then, for the purpose of running of his business enterprise he will necessarily have to borrow moneys from someone and for which borrowing of moneys he will have to pay interest. This rate of interest definitely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xx 3. Power of court to allow Interest.--(1) In any proceeding for the recovery of any debt or damage or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say;- (a) If the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings; (b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed to the date of institution of the proceedings: Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings, interest shall not be allowed under this section for the period after such repayment. (2) Where in any such proceedings as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained or retained by fraud, from the date of the cause of action; (d) where the claim is for dower or maintenance, from the date of the cause of action. 5. Section 34 of the Code of Civil Procedure, 1908 to apply.--Nothing in this Act shall affect the provisions of section 34 of the Code of Civil Procedure, 1908 (5 of 1908). (underlining added) 16. No doubt, Section 3(3)(a)(ii) of the Interest Act does allow parties to enter into an agreement for non-payment of interest, however, the later Section 4 begins with a non obstante clause thereby overriding the language of Section 3 including the bar contained in Section 3(3)(a)(ii). The entire substratum of Section 4 of the Interest Act is immorality and nothing else, though the words 'moral' or 'immoral' are not specifically used in the said provision. Even an ordinary reading of Section 4 of the Interest Act leaves no manner of doubt that where unreasonableness of action comes in, Section 4 of the Interest Act will step in to allow payment of interest notwithstanding the provision of Section 3(3)(a)(ii) thereof. The various Sub-clauses of sub-Section (2) of Section 4 of the Interest Act by their very natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because there is such a contractual clause in favour of the petitioner. Putting it in other words, the four Sub-clauses of sub-Section (2) of Section 4 of the Interest Act do not restrict immorality to instances of sexual immorality as the only immorality, and hence in today's age and date the expression 'immoral' will have to be interpreted to include immorality arising in commercial transactions especially because a whiff of the same surely exists in the first Sub-clause (a) of sub-Section (2) of Section 4 of the Interest Act, 1978 which deals with payment of interest on a deposit, and deposit of moneys is generally and ordinarily a commercial transaction. 18. Also, it bears note that a lot of water has flown under the bridge since Gherulal's case (supra) decision in 1959 because commerce and business are the life blood of existence of most nations today, including our country. It is commerce and business which provides a huge overriding percentage of employment and the Gross National Product of this country. Surely, commerce and business cannot survive if principal amounts are held on for a long period of time without there being an obligation to pay inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as there is no bar upon this Court to decide the same or that there is any stay of the proceedings in the present petition and I am deciding the case on the basis which is not pending before the Supreme Court and only because of which the issue of interest was not decided. For the sake of convenience the said paras 8 to 10 of the Judgment dated 19.3.2008 are reproduced below:-- 8. The learned counsel appearing on behalf of the petitioner has lastly argued on the point of interest awarded by the learned arbitrators in favour of the respondent. Mr. Pathak the learned counsel appearing on behalf of the petitioner has relied upon Clause 16(2) of the General Conditions of Contract and also the provisions of Section 31(7) of the Arbitration and Conciliation Act, 1996 in support of his contention that since there was a prohibitory clause in the contract between the parties against award of interest, the learned arbitrators went wrong in awarding interest contrary to the terms of the contract between the parties. In this regard, it would be relevant to refer to Clause 16(2) of the General Conditions of Contract and the same is reproduced here-in-below:-- INTEREST OF AMOUNTS No i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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