MFA No. 1160 of 1999 & Cross Objection No. 86 of 2011 (Steel & Industrial Forgings Ltd. v. India Forge & Drop Stampings Ltd.)

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **& THE HONOURABLE MRS. JUSTICE SHIRCY V.** **MONDAY, THE 15TH DAY OF JANUARY 2018 / 25TH POUSHA, 1939** **MFA.No. 1160 of 1999** **(AGAINST THE JUDGMENT DATED 24-03-1999 IN OP 22/1993 of I-ADDL.SUB COURT, THRISSUR)** ## **APPELLANT/PETITIONER** **M/S.STEEL & INDUSTRIAL FORGINGS LTD., ATHANI P.O., TRICHUR REPRESENTED BY ITS MANAGING DIRECTOR, P.C. RAVI VARMA RAJA.** **BY ADVS.SRI.R.D.SHENOY (SR.) SRI.LEGITH T.KOTTAKKAL SRI.S.VINOD BHAT** ## **RESPONDENTS/RESPONDENTS:** **1. M/S.INDIA FORGE & DROP STAMPINGS LTD., 103-A/ABHIRAMAPURAM, IV-STREET, MADRAS - 600 018.** **2. SRI. V.P. GOPALAN NAMBIAR, PUTHIYEDATH HOUSE, THODANNUR, BADAGARA - 678 108.** ## **R1 BY ADVS. SRI.JOSEPH MARKOSE (SR.)** **SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.TOM THOMAS (KAKKUZHIYIL) SRI.ABRAHAM JOSEPH MARKOS SRI.ABRAHAM VARGHESE THARAKAN** **THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 15-01-2018, ALONG WITH CROSS OBJECTION No.86/2011 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **AMG** ## **C.K. ABDUL REHIM, J. & SHIRCY V., J.** ------------------------------------------------- ## **M.F.A. No. 1160 OF 1999 & Cross Objection No. 86 OF 2011** ------------------------------------------------- DATED THIS THE 15[th] DAY OF JANUARY, 2018 ## **J U D G M E N T** ## Abdul Rehim, J: The above Miscellaneous First Appeal may be one of the oldest cases in its category pending disposal before this court. The appeal and the cross objection arose from the judgment of the Subordinate Judge's Court, Thrissur in OP.No.22/1993 (Arbitration OP), dt: 24.3.1999. The appellant herein is the petitioner before the court below, who challenged the award passed by the Umpire, the 2[nd] respondent herein. The said original petition was filed under Section 30 of the Arbitration Act, 1940 (hereinafter referred to as the 'Act' for short). By the judgment impugned, the court below found that there exists no grounds to set aside the award and consequently dismissed the original petition. The court below had pronounced the judgment in accordance with the award, in terms of section **MFA No.1160/1999 & CO No.86/2011** -2- 17 of the Act. The cross objection filed by the 1[st] respondent (claimant before the Umpire) was also dismissed by the court below. 2. A brief narration of the facts and history of the dispute is required for a better appreciation. An agreement (Ext.A1) was executed between the appellant and the 1[st] respondent on 26.9.1981 with respect to hiring/leasing of a “10 Ton Air Drop Hammer” together with all its fittings and necessary spares, which was more particularly described in Annexure-A appended to the said agreement (hereinafter referred to as “the hammer” for short). By virtue of the terms contained in Ext.A1, the 1[st] respondent had agreed to deliver the hammer at the plant site of the appellant and to install and commission the same as early as possible, consistent with the object of the appellant to start production by the 1[st] quarter in the year 1982. The 1[st] respondent had agreed to provide warranty with respect to any manufacturing defects of the hammer for a period of 12 months from the date of its commissioning. It was agreed upon that the appellant will pay a sum of Rs.27,00,000/- as **MFA No.1160/1999 & CO No.86/2011** -3- interest free security deposit, which will be repayable on the return of the hammer. The appellant had also agreed to pay lease charges on every year, for the total period of 7 years, at different rates as stipulated in the agreement, counted from the date of despatch of last consignment of the hammer, which was agreed to be paid in advance on the first day of every year. Inter alia it was agreed upon that, the appellant will have an option to purchase the hammer on payment of Rs.27,00,000/-, at the end of the lease period, which can be adjusted out of the security deposit. It was also made clear that the 1[st] respondent will have the right to sell or otherwise dispose of the hammer, only if the appellant declines in writing to purchase the same. As per the agreement, if there occurs any failure on the part of the 1[st] respondent in despatching the hammer in full for any reason whatsoever, the respondent will refund the entire amount along with interest at 14% p.a., within 7 days of demand made by the appellant. On the contrary, the agreement also provided that, the respondent will be entitled to remove the hammer at the cost of the appellant in case there is any **MFA No.1160/1999 & CO No.86/2011** -4- default on the part of the appellant to make payment of the lease charges, after giving due notice to the appellant. In such an event, the respondent will be entitled to adjust the actual amount of arrears of lease charges together with any expenses incurred, out of the security deposit and balance if any shall be returned to the appellant. The agreement inter alia provided liberty to the appellant to terminate the lease by giving one month's registered notice to the respondent, in case there is failure on the part of the respondent to fulfill partly or in whole any of the objections in clause 2,3,4,5,16 and 19 of the agreement, without the obligation to make any payment . 3. The records of the case would indicate that, commissioning of the hammer was delayed due to some or other reasons. On analysing the materials available on record, the Umpire had arrived at a conclusion that the commissioning of the hammer was effected only on 23.8.1984. So also it was held by the Umpire that, the date of completion of despatch of the hammer was on 20.10.1981. It is evident that the appellant defaulted payment of the **MFA No.1160/1999 & CO No.86/2011** -5- lease charges, in contravention of the stipulations contained in the agreement and the respondent had issued notice intimating their intention to take back the hammer, which was objected to by the appellant. The respondent thereupon had filed a civil suit, O.S.No.1140/1986, before the court below, seeking permanent prohibitory injunction against the appellant from causing any kind of obstruction to dismantling and removal of the hammer from the site. The proceedings in the said suit was stayed by the court below under section 34 of the Act and the parties were directed to refer the dispute for arbitration. The respondent filed an application before the court below seeking reference of the dispute for arbitration and as agreed upon by both the parties, the court below had appointed the Arbitrators. But the Arbitrators were unable to pass an agreed award and therefore nominated the Umpire, who was requested to pass an award on the dispute. Accordingly the Umpire (the 2[nd] respondent herein) passed the impugned award, on 20.3.1992. **MFA No.1160/1999 & CO No.86/2011** -6- 4. Initially the respondent had approached the sub court seeking direction to the Umpire to file the award along with the records, as contemplated under section 14(2) of the Act, by filing AOP.No. 77/1992. In the meanwhile the appellant had filed AOP.No.22/1993 seeking to set aside the award, under sections 30 and 33 of the Act. The learned Sub Judge considered OS.No.1140/1986, AOP.77/1992 and AOP.22/1993 together, along with another OP which arose out of a different award and passed a composite judgment, which is impugned in the present appeal. 5. Heard; Sri. R.D.Shenoy, learned senior counsel appearing on behalf of the appellant and Sri.Joseph Markos, learned senior counsel appearing for the 1[st] respondent. 6. Learned senior counsel for the appellant contended that the dismissal of the application filed seeking to set aside the award was illegal, erroneous and unsustainable, mainly on five grounds. It was pointed out that the claim before the Arbitrators mainly included among other; (i) arrears of lease charges due with respect to the entire period of the lease (ii) interest on delayed payment of **MFA No.1160/1999 & CO No.86/2011** -7- the lease charges and (iii) claim for return of the hammer. According to the appellant, there occurred an error apparent on the face of the award in allowing interest on delayed payment with respect to the period prior to the date of commissioning of the hammer. It is the contention that, when the Umpire had specifically arrived at a conclusion regarding the actual date of commissioning, he ought to have found that the commissioning was delayed only due to failure on the part of the 1[st] respondent in discharging their obligations under the agreement. Hence, awarding of interest on delayed payments for the period prior to the date of commissioning, is an apparent error which is explicit on the face of the materials available. Therefore it was contended that, the court below ought to have set aside the award to the extent it ordered payment of interest on the delayed payments of lease charges, for the period prior to the date of commissioning of the hammer. 7. The second contention was that, the Umpire had omitted to give credit to an amount of Rs.2,00,000/- paid by the appellant during the pendency of OS No.1140/1986, on **MFA No.1160/1999 & CO No.86/2011** -8- the appropriate due date of such payment. This also, according to the appellant, is an error apparent on the face of the award, which need to be corrected in exercise of the power vested under Section 30 of the Act. The third contention raised is that, the Umpire went ex-facie wrong in awarding interest at an exorbitant rate, which will work out in 17.3%. It is pointed out that, since the contract does not contemplates payment of interest on belated payments of lease charges, the Umpire ought to have considered applicability of the provisions contained the the Interest Act, 1978 and ought to have awarded interest only at the 'current rate of interest'. This also, according to the appellant, will come within the purview of an error apparent on the face of the materials available on record, which will fall within the scope of the grounds provided under Section 30 of the Act. 8. It is the further contention of the appellant that, the finding of the Umpire to the effect that the appellant had not validly and properly exercised the option to purchase the hammer and that they were not entitled to retain the hammer and is liable to return the same to the 1[st] **MFA No.1160/1999 & CO No.86/2011** -9- respondent, is totally unsustainable and is against the materials available on record. Hence it was contended that the dismissal of A.O.P. 22/1993 declining to exercise the power vested under Section 30 of the Act, was illegal, erroneous and unjustifiable. 9. Before considering the above said contentions on its merits, it will be beneficial to examine the scope and ambit of the grounds enumerated under Section 30 of the Act. Eventhough a formal contention was seen raised before the court below that the Umpire had misconducted, the appellant could not substantiate anything to that effect. The only ground which is relevant for consideration is the one coming within sub-section (c) of Section 30; as to whether the award was improperly procured or is otherwise invalid. Learned senior counsel for the appellant had placed much emphasis on a legal precedent of the hon'ble Supreme Court, in **M/s. Sudarsan Trading Company V. The Govt. of Kerala and another (AIR 1989 SC 890)** . It was held therein that in the absence of the Arbitrator/Umpire making any reasons for the award, it is not open to the court to ## **MFA No.1160/1999 & CO No.86/2011** -10- interfere with the award. It was also held that the reasonableness of the reasons if any given, cannot be challenged. So also it was held that, the appraisement of evidence done by the Arbitrator is never a matter open for consideration by the court. The observation is that, if the parties have selected a forum of their own, that forum must be conceded of having power of appraisement of the evidence. The Arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not be for the court to take up on itself the task of being a judge on the evidence available before the Arbitrator. The hon'ble apex court made reference to an earlier decision of that court in **M/s. Alopy Parshad and Sons Ltd. V. Union of India (AIR 1960 SC 588)** . There the court held that, the award is liable to be set aside because of an error apparent on the face of record, when the reasons given for the decision are based upon a legal proposition which is erroneous. But it is cautioned that, the award is not liable to be set aside on the ground of an error on the face of the award, even if the answer to a question involves an erroneous decision on the **MFA No.1160/1999 & CO No.86/2011** -11- point of law. The decision further proceeds to observe that, an award which ignores the express of the contract is bad. Ultimately it was observed that, an award may be set aside on the basis of an error on the face of the record, but an award is not invalid merely because by a process of inference and arguments it may be demonstrated that the Arbitrator had committed some mistake in arriving at his conclusions. The dictum contained in the decisions cited above can be summed up as; an award can be set aside when it ignores the express terms of the contract or when there occurred an error on the face of record based on the materials available, which is ex-facie explicitly evident, without the exercise of any arguments or demonstration or by a process of inference. We need to evaluate the contentions enumerated herein above based on the above said principles governing the jurisdiction of the court below under Section 30 of the Act. 10. Before going into the merits of those contentions raised by the appellant, we may observe that, we could not shut our eyes to the prolonged history of the dispute in **MFA No.1160/1999 & CO No.86/2011** -12- question, which started in the year 1986, more than three decades back. First among the cases filed before the court below was OS No.1140/1986, started in the year 1986. Despite the court making reference for arbitration, the Arbitrators cannot agree upon a decision and the matter was referred for decision of the Umpire. The Umpire had taken the decision only in the year 1992, which was subjected to challenge before the court below in the year 1993. The verdict of the court below was still delayed till 1999. Even the present appeal before this court was instituted in the year 1999, but kept pending till the year 2018. We take note of the fact that the appellant is a company which is fully owned by the State Government. Indefinite continuance of the litigation since an inordinate long period, running into more than 3 decades, might have definitely caused substantial prejudices and heavy financial loss to both the parties. Putting a quitus to the entire issue, at least at this highly belated stage, would be greatly beneficial to do substantial/complete justice, in order to protect the interest of all concerned. Therefore we are persuaded to look into the **MFA No.1160/1999 & CO No.86/2011** -13- matter on an equitable perspective also, in an attempt to ensure substantial justice, which will enable to put a quitus to the long pending dispute. We will now proceed to discuss the merits on each of the contentions, bearing in mind the above said aspects. 11. At the first instance, we may deal with the disputed issue on the rate of interest. It is the contention of the appellant that the Umpire had directed payment of interest at a higher rate of 17.3%, without taking into consideration of the provisions contained in the Interest Act, 1978. Payment of interest was ordered based on the finding that there occurred delay in payment of the lease charges. As per the terms of the agreement, the appellant had undertaken to pay the yearly lease charges, starting from the date of despatch of the last consignment, in advance, on the first day of each year. There is no clause incorporated in the agreement with respect to payment of interest on delayed payment of lease charges. The Umpire, while directing payment of the arrears of lease charges, allowed interest at a rate as claimed in Annexure-I attached to the **MFA No.1160/1999 & CO No.86/2011** -14- claim statement filed by the 1[st] respondent. Learned senior counsel for the appellant had drawn our attention to Section 3 of the Interest Act, 1978 which provides that, in any proceedings for recovery of any debt or damages when interest is claimed, the court can 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. The term 'current rate of interest' is defined under Section 2(b) of the Interest Act as the highest of the maximum rates at which interest may be paid on different classes of deposit, by different classes of scheduled banks, in accordance with the directions of the Reserve Bank of India. Therefore the contention is that, at the most the Umpire could allowed interest only at the 'current rate of interest' as defined under the Interest Act. 12. Learned senior counsel appearing for the 1[st] respondent had confronted the above said arguments by drawing our attention to clause 16 of the agreement, wherein an obligation is cast upon the 1[st] respondent to return the amount of security deposit along with interest at **MFA No.1160/1999 & CO No.86/2011** -15- the rate of 14% per annum, in case of failure in despatching the hammer in term of the agreement. It is the contention of the 1[st] respondent that the Umpire might have taken note of the said clause in the agreement, while fixing the rate of interest payable by the appellant. But learned senior counsel for the appellant had pointed out that, even the claim of the 1[st] respondent before the Umpire was to direct payment of the arrears of lease charges along with interest only at the “lending rate”. It is pointed out that the appellant had produced Ext.A115, which is a circular issued by the Bank of Baroda to its Branches, which would indicate about enhancement of the 'lending rate of interest', introduced with effect from 08.10.1991. It is further pointed out that, going by the 'lending rate' indicated in Ext.A115, interest cannot be ordered at the rate of 17.3%. Relying on Ext.A115 itself it is pointed out that the rate of interest on the term deposits, which was prevailing prior to the increase indicated in Ext.A115, was only at 10%. 13. Learned senior counsel appearing for the 1[st] respondent had pointed out a decision of the hon'ble ## **MFA No.1160/1999 & CO No.86/2011** -16- Supreme Court in **Uttar Pradesh Co-operative Federation Ltd. v. Three Circles [2009(10)SCC 374].** It is mentioned therein that, the 'current rate of interest' as stipulated in the Interest Act, 1978 need to be fixed at 15%. Referring to a decision of the hon'ble Supreme Court in **Bhagavathi Oxygen Ltd. v. Hindusthan Corporation Ltd** . **[AIR 2005 SC 2071]** it is pointed out that, the Arbitrator has got power to grant interest for the prereference period, provided there is no prohibition in the arbitration agreement, excluding the jurisdiction to grant the interest. The Forum of Arbitration created by consent of the parties is substituted for the conventional civil courts. It is therefore an unavoidable necessity that the parties be deemed to have agreed by implication that the Arbitrator would have power to award interest in the same way and in the same manner as a court. It is the contention of the respondent that, awarding of interest at a rate equal to the obligation cast upon the respondent under the agreement, was fully justified. According to the respondent, the reasonableness of the rate of interest awarded by the **MFA No.1160/1999 & CO No.86/2011** -17- Umpire, is not a matter which can be looked into by the court while exercising powers under Section 30 of the Act. 14. While considering the above said rival contentions, we take note of the fact that, there exists a manifest error in awarding interest on delayed payments of lease charges at a rate as claimed by the 1[st] respondent. The Umpire had omitted to notice that the agreement does not provide for payment of interest on delayed payments of lease charges and therefore the rate of interest which can be awarded is governed by provisions of the Interest Act. Going by provisions of the Interest Act, the maximum rate at which payment of interest can be ordered is the 'current rate of interest', which is the maximum rate payable on deposits by banks. We are of the opinion that the impugned award would become improper and invalid because of the error apparent on the face of it granting interest at a rate as claimed by the 1[st] respondent. We think it appropriate to interfere with the award in this context by invoking powers vested under Section 30 of the Act. **MFA No.1160/1999 & CO No.86/2011** -18- 15. Now the question to be decided is as to what exactly is the 'current rate of interest'. Ext.A115 will give a clear indication that the Reserve Bank of India had fixed the rate of interest payable on term deposits by the scheduled and commercial banks with effect from 09.10.1991. It is evident that the rate of interest on the term deposits was increased by 1% to 2%, and the maximum rate payable on term deposits of three years and above is revised to 13% per annum. But it is to be noted that the arrears had fallen due prior to the revision brought into effect on 9.10.1991. Therefore the maximum rate of interest on term deposits, which existed prior to 9.10.1991, need to be taken as 11% (13-2). Therefore we are inclined to modify the award to the extent of fixing the rate of interest payable on delayed payments of lease charges, at 11%. 16. The next issue contested is regarding noncrediting of an amount of Rs.2 lakhs paid during pendency of O.S.No.1140/1986, on its appropriate date of payment. On a perusal of the impugned award it is evident that the Umpire directed payment of amounts as enumerated in Annexure-I **MFA No.1160/1999 & CO No.86/2011** -19- appended along with the claim statement filed by the 1[st] respondent. Evidently, the above said amount of Rs.2 lakhs was seen deducted from the total amount due calculated therein. Contention of the appellant is that the amount of Rs.2 lakhs need to be credited on 12.1.1987, against the dues outstanding as on that date. This also is an apparent error on the face of the records. Since the Umpire had directed payment of interest on belated payments of lease charges, all payments made by the appellant ought to have given credit on the appropriate dates of such payments. We are of the considered opinion that the award need to be interfered and modified appropriately on this aspect. 17. The next point arising for consideration is with respect to the period for which payment of interest can be ordered on belated payments of lease charges. Learned senior counsel appearing for the appellant contended that, when the Umpire had found that the date of commissioning of the hammer was only on 23.8.1994, payment of interest ought to have been restricted from that date onwards, and not from any prior date. The basis for such an argument is **MFA No.1160/1999 & CO No.86/2011** -20- that, clause 3 of the agreement provides that the 1[st] respondent is responsible for installation and commissioning of the hammer as early as possible. In the said clause it is provided that the parties have agreed that the installation and commissioning of the hammer will be consistent with the objective of starting production in the plant by the 1[st] quarter of the year 1982. According to the appellant, the commissioning was delayed till 01.04.1985. The Umpire had found that the date of commissioning was only on 23.08.1984. Contention is that, even if the appellant is to be found liable to pay interest on delayed payments of lease charges, that can only be from the date of commissioning of the hammer, because the appellant was prevented from starting production due to the delayed commissioning, which is attributable only against the respondent. Therefore it is contended that the calculations reflected in Annexure A-I statement should not have been accepted by the Umpire. 18. Contentions in this regard was controverted by learned senior counsel appearing for the 1[st] respondent by specifically pointing out that, the agreement to pay yearly **MFA No.1160/1999 & CO No.86/2011** -21- lease charge on the first day of each year, counted from the date of completion of despatch of the hammer, was an independent obligation cast upon the appellant, not in any manner related or dependent upon the performance of any other obligations covered under the contract. Hence it is pointed out that, whenever the appellant had defaulted payment of the lease charges on the respective due dates in any of the years, the appellant should be held liable for payment of the interest. In this regard it is pointed out that, the scope of interference on the conclusions contained in the award is totally beyond the powers vested under Section 30 of the Act. Learned senior counsel for the respondent had drawn our attention to a decision of the hon'ble Supreme Court in **State of U.P. v. Allied Constructions [A.I.R.2004 SC 586].** It is held therein that, even in a case where the award contains reasons, interference therewith would still be not available within the jurisdiction of the court, unless the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of records would not imply a closer **MFA No.1160/1999 & CO No.86/2011** -22- scrutiny into the merits of the documents or materials on record. Once it is found that the view of the Arbitrator is a plausible one, the court will refrain itself from interfering. Further it is argued on behalf of the 1[st] respondent that, the above said dispute relating to the date of applicability of interest on belated payments of lease charges, was never raised by the appellant before the Arbitrator or before the Sub Court. It is contended that, a point which was not at all agitated before the Arbitrator cannot be raised as a ground to set aside the award. In this regard reliance placed on a decision of the hon'ble Supreme Court in **Hareesh Chandra & Company v. State of U.P.[(2016) 9 SCC 478].** It is held that, an objection neither raised before the Arbitrator nor before the court, but raised for the first time before the High Court, should not be entertained. The court can set aside a reasoned award only when the reasons ascribed by the Arbitrator are perverse to the extent that no man with ordinary prudence could take such a view or when there is an error apparent on the face of the record or when the award is based on a wrong proposition of law. **MFA No.1160/1999 & CO No.86/2011** -23- 19. While appreciating the above said contentions, we take note of the fact that the obligation to pay the lease charges on an yearly basis, is a specific obligation cast upon the appellant by virtue of clause 10 of the agreement, which is not at all dependent upon the despatch or commissioning of the hammer. Evidently the appellant was paying the lease charges during the first four years on the respective due dates, irrespective of the fact that the commissioning was delayed till 1984. Therefore, it cannot be contended that the delayed payment of lease charges was due to noncommissioning of the plant; nor such delayed payment was justifiable because of the delay occurred in commissioning of the plant. Learned senior counsel for the appellant contended that, since the agreement does not provide for payment of interest on belated or defaulted payments of lease charges, payment of interest even if to be allowed, can only be to recompensate the loss or damages, if any caused to the 1[st] respondent. Since the 1[st] respondent had committed default in performing their obligation with respect to installation and commissioning of the hammer, it **MFA No.1160/1999 & CO No.86/2011** -24- cannot be contended that they are entitled for recompensating any loss or damages. But, as already observed, there occurred clear default on the part of the appellant in performing the obligation undertaken under clause 10 of the agreement. Further, we notice that, the issue in this regard was not raised specifically before the Arbitrator or before the court below. Apart from that, we are not in a position to hold that, awarding of interest from the respective due dates of defaults committed in payment of the lease charges, is a finding which is totally unreasonable or perverse. It cannot be said that there occurred any error which is apparent on the face of any materials on record. Hence we find no reason for interference with the award under Section 30 of the Act. Therefore the above aspect is found against the appellant. 20. Lastly, point to be decided is with respect to the exercise of the option for purchase of the hammer. From the award it is evident that the 1[st] respondent had issued a letter (Ext.A29) on 17.3.1986 terminating the lease and exercising their option to take back the hammer. Evidently, exercise of **MFA No.1160/1999 & CO No.86/2011** -25- the said option is under Clause 18 of the agreement, which provides that, when there is default on the part of the appellant to make payment of the lease charges even after repeated requests and after giving due notice, the 1[st] respondent will be entitled to remove the hammer and to realise the expenses from the appellant by adjusting it out of the deposit amount. Despite such an option exercised by the 1[st] respondent in the year 1986, the appellant retained possession of the hammer. According to the appellant, they have already exercised the option to purchase the hammer by issuing Ext.A103 notice, on 18.11.1987. Presumably, exercise of such an option can be related to Clause 17 of the agreement, which provides the right of the appellant to purchase the hammer, at the end of the lease period, by adjusting its value against the security deposit. It is pertinent to note that, the 1[st] respondent gets a right to sell or otherwise dispose of the hammer, only if the appellant declines in writing to purchase the machinery. Going by findings of the Umpire, the date of completion of despatch of the hammer was on 21.10.1981. Accordingly it was found **MFA No.1160/1999 & CO No.86/2011** -26- that the date of expiry of the lease period was only on 21.10.1988. The option exercised by both the parties, about which mention is made as above, were at a point of time prior to the date of expiry of the lease period. Under such circumstances, the question to be considered is as to whether the finding of the Umpire that the appellant had not validly and properly exercised the option to purchase the hammer and therefore they are not entitled to retain the hammer, is valid and justifiable or not. It is to be noticed that, the Arbitrator has not arrived at any specific conclusion that the lease in question was terminated at any point of time, even though it is stated that the respondent had issued a notice to that effect. It is a fact that even at the time of conclusion of the arbitration, the hammer was remaining in the possession of the appellant and was continued under their usage. When the Umpire had directed payment of the defaulted lease charges along with interest, it can only be construed that the terms of the agreement of lease will come to an end only on effecting such payment. As long as the premature termination intimated at the instance of the 1[st] ## **MFA No.1160/1999 & CO No.86/2011** -27- respondent was not upheld or ratified, it cannot be held that the respondent is entitled for re-possession of the hammer, especially when a direction was issued to the appellant to make payment of the arrears along with interest. At the same time, we are of the opinion that, the option alleged to have been exercised by the appellant for purchase of the hammer, before expiry of the lease period, when the lease charges was in default, cannot be sustained as a valid exercise of the option. 21. We are of the opinion that the finding rendered by the Umpire that the possession of the hammer by the appellant is invalid, cannot be sustained, especially when the security deposit was available with the respondent for appropriation against value of the hammer. We are of the considered opinion that, this is a matter which will amount to an error apparent on the face of the record. We think it appropriate to modify the findings in this regard, to the extent of providing opportunity to the appellant to exercise the option as contemplated under clause 17, after settlement of the dues in accordance with the directions contained in **MFA No.1160/1999 & CO No.86/2011** -28- the award, subject to any modifications to be made. 22. At this stage, this court had considered the question of remitting the matter to the court below for quantifying the amount based on the above said findings. But learned senior counsel appearing on either side had undertaken to furnish computation statements based on the above findings, so that the award can be modified appropriately by this court itself. Therefore we deferred pronouncement of the operative portion of the judgment, for facilitating the parties to submit computation statements. Hence the case was adjourned for further consideration. 1 st day of February 2018 23. As undertaken, a statement showing details of calculation with respect to the amounts due, based on the findings contained herein above, was filed by the appellant. Learned senior counsel appearing for the 1[st] respondent had conceded about the correctness of the calculations in the said statement and it is accepted as true and correct. Accordingly the above appeal and cross objection are hereby ## **MFA No.1160/1999 & CO No.86/2011** -29- allowed in part. The award passed by the Umpire, dated 20[th] March 1992, as well as the decree dated 24-03-1999 passed by the Sub Court, Thrissur is modified on the following terms. 24. It is pointed out by learned senior counsel for the respondent that, there is a mistake crept in the common judgment impugned herein, in its operative portion. While passing the decree in A.O.P No.22/1993, it was mistakenly shown as a decree passed in IA No.1722/1991 in A.O.P No.107/1990. The case A.O.P No.107/1990 was arising from another arbitration and the decree ought to have been passed in A.O.P No.22/1993. However, based on the findings mentioned hereinabove, we are inclined to pass a fresh decree in accordance with the modifications proposed in the award. Accordingly the award of the Umpire dated 20-031992 is hereby modified and a decree based on the modified award is passed on the following terms; (i). The appellant/respondent before the arbitrator is hereby held liable for payment of a total amount of Rs.22,37,134.03, which is rounded to Rs.22,37,134/-, to the **MFA No.1160/1999 & CO No.86/2011** -30- 1[st] respondent/claimant, in accordance with the statement of worksheet filed by the appellant, which will form part of this judgment, marked as Annexure-I, along with future interest @ 12% per annum from the date of the original decree (24-03-1999) till realization. The said amount shall be paid either directly to the respondent/claimant and in case of any refusal to accept the same, it shall be deposited before the Subordinate Judge's Court, Thrissur in OP No.22/1993. That court will be entitled to pass appropriate orders on such deposit if any made, in terms of this judgment and decree. (ii). The appellant will be entitled to exercise the option contemplated under clause 17 of the agreement on settlement of payment as directed above, on or before 31[st] May 2018. On settlement of the payment as directed, within the time as stipulated above, the appellant will be entitled to own and possess the hammer, in lieu of the amount of security deposit paid by them to the respondent at the time of entering into the agreement, which amount the respondent will be entitled to adjust as value of the hammer. **MFA No.1160/1999 & CO No.86/2011** -31- (iii) On failure to make payment of the amounts as directed above, the appellant will be liable to return the hammer and the 1[st] respondent will be entitled to re-possess the same on payment of balance if any due after adjusting the security deposit of Rs.27,00,000/- against the decretal amounts, by enforcing the award as decreed above. Both the parties will suffer their respective cost. Sd/- ## **C.K. ABDUL REHIM, JUDGE** . Sd/- **SHIRCY V., JUDGE** . **Pmn/AMG/Ks/Smm/AMG** True copy P.A. to Judge