Amendment Allowed by Delhi HC in the Statement of Defense in the Case of Equitable Set-Off

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In the case of Lt. Col. H. S. Bedi Retired and Anr. v STCI Finance Limited, Mr. Justice V. Kameshwar Rao, observed that rejection, if done, the substantive rights of the petitioners will be decided and the petitioners cannot in the future, claim any relief as petitioners have sought for in form of an amendment. Accordingly, the Court allowed the petition for incorporating amendments subject to Rs. 1,00,000/- payment to the respondent. 

Brief Facts of the Case

The Petitioners in his submission stated that there were 2 loan accounts of M/s. Cedar Infonet Pvt. Ltd. (Cedar) and M/s. Sukhmani Technologies Pvt. Ltd. (Sukhmani), which companies are family-owned and promoted by petitioner no. 1, before the learned Arbitrator. Loan extended by STCI was Rs. 50 Crore each in favor of Cedar and Sukhmani accounts (loan secured by 40,09,000 total pledged shares of M/s Tulip Telecom Limited (TTL)), same was invoked by the respondent, the value of shares at the time of invocation from both accounts was Rs.76,72,28,880/-. 

Rs.10,97,11,034/- and Rs. 6,52,88,416/-, was deposited regularly in both accounts. Despite invoking above mentioned share, its credit was not given in the case of both the accounts, instead, the respondent represented that both accounts were under default and to prevent them from being declared as NonPerforming Assets (NPA).

The plea regarding equitable set-off of the petitioner, regarding Rs.15 Crores of loan advanced by the respondent in the two loan accounts, that there were no outstanding dues in the account of Cedar and Sukhmani. That apart, petitioners are seeking an adjustment of Rs.15 Crores, which was taken as a loan from the respondent and returned on the same day to the respondent as was received by the petitioners. 

The application filed ( u/o 6, R.17 of CPC) by the petitioners for amendment of the Statement of Defence was rejected by the learned Arbitrator. Hence, the Present petition was filed u/s 34 of the Arbitration & Conciliation Act, 1996 against the order (according to the petitioner herein is an interim award) dated 17.10.2020.  

Arguments Before the Court

Learned counsel for the petitioners, the conclusion of the learned Arbitrator that the amendments sought in the SOD should have been allowed, u/s 23 (3) of the Act of 1996, Act provides for amendment of the claim or the defense during the course of arbitral proceedings and relied on f K.K. Scaria v. N Mohandas and others OP(C) No. 54 of 2015 (O), Cinevistaas Ltd. v. Prasar Bharti, 2019 SCC OnLine Del 7071., State of Bihar v. Modern Tent House and Another, (2017) 8 SCC 567, Baldev Singh v. Manohar Singh, (2006) 6 SCC 498. He also submitted that the law with respect to equitable set-off was settled, as the parties claiming are same, are also guarantors against the account of Cedar and Sukhmani, and the loan was forced on petitioners for both accounts so that the accounts are not declared as Non-performing Assets. He then relied on Jitendra Kumar Khan v. Peerless General Finance, (2013) 8 SCC 769, Peerless General Finance v. Jitendra Kumar Khan, MANU/WB/0261/2004. 

Learned counsel for the respondent, contested the maintainability of the petition, as the order passed by the learned Arbitrator does not amount to interim/partial award and same cannot be challenged by way of a petition u/s 34, submitted that learned Arbitrator has rightly dismissed the application, there is no illegality, petitioners were aware of the facts and their rights, and chose to purposely not to file set off in the SOD and relied upon following cases Container Corporation of India Ltd. v. Texmaco Ltd., 2019 SCC OnLine Del 1594; Shyam Telecom Ltd. v. Icomm Ltd., 2010 (116) DRJ 456; Rhiti Sports Management Pvt. Ltd. v. Power Play Sports & Events Ltd., 2018 SCC OnLine Del 8678; ONGC Petro Additions Ltd. v. Tecnimont S.P.A & Ors., 2019 (5) Arbitration Law Reporter 305 (Delhi), Indian Farmers Fertilizers Cooperative Ltd. v. Bhadra Products (2018) 2 SCC 534

Court’s Observation

The court relied on the counter submission by the Counsel petitioner for the submission of counsel for the respondent, stating that the impugned order is only a procedural order and not an interim award and cannot be maintained u/s 34 of the Act of 1996. The court was satisfied with the Counsel for petitioner submission and put reliance on Cinevistaas Ltd. (supra), stating that the impugned date was in the form of an interim award, hence the petition was maintainable. 

In Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8, SC laid down principles while determining what kind of orders are challengeable. In the case of Cinevistaas Ltd. (supra), Coordinate Bench held that correction and amendment are to be permitted as long as the disputes fall broadly within the reference.

In the State of Bihar (supra) and Baldev Singh (supra), the SC allowed the amendment, Similarly, in Jitendra Kumar Khan (supra), SC upheld the order of the Division Bench (Calcutta HC) for allowing respondent’s appeal for the amendment to the written statement, which challenged the order of the learned single judge.

Court’s Decision

The Court observed that if the rejection is done the case in hand, the substantive rights of the petitioners will be decided, the petitioners cannot in future, claim relief as they sought for in form of an amendment. But the Court refrained from commenting on whether the case does or does not have all the ingredients of equitable set-off, so as to be allowed to be incorporated in the SOD. Accordingly, allowed the petition for incorporating amendments subject to Rs. 1,00,000/- payment to the respondent. The amended SOD is to be filed within 10 days from the passing of this order.

Click here to view the original judgment


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