Supreme Court Decides on Interest Payment in Settlement Agreement Dispute: State Trading Corporation of India Ltd. vs. Global Steel Holding Limited & Ors. (2018)

Date of the Judgment: 6th December 2018

Citation: 2018 INSC 1067

Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

Can the Supreme Court determine the interest payable on a settlement agreement when the principal amount has already been paid? The Supreme Court of India addressed this question in a dispute between the State Trading Corporation of India Ltd. (STC) and Global Steel Holding Limited & Ors. The core issue revolved around the payment of interest on dues under a settlement agreement, after the principal amount had been cleared. This judgment, delivered by a bench of Justices Abhay Manohar Sapre and Indu Malhotra, provides clarity on the Court’s power to resolve such disputes even when the primary issues have been settled. Justice Abhay Manohar Sapre authored the judgment.

Case Background

On April 4, 2005, a tripartite agreement was established between the State Trading Corporation of India Ltd. (STC), a government-owned corporation, M/s Global Steel Holding Ltd. (GSHL), incorporated in the Isle of Man Channel Islands, and M/s Global Steel Philippines Inc. (GSPI), incorporated in the Philippines. This agreement concerned the purchase and sale of HR Coils and CR Coils. Disputes arose regarding non-payment of dues to STC, leading the parties to conciliation proceedings.

A Settlement Agreement was reached on November 15, 2011, under Section 73 of the Arbitration and Conciliation Act, 1996. GSHL and GSPI agreed to pay US$ 355,818,019.29 with 13.25% interest by May 11, 2012. However, they failed to fully comply, leading to a Further Settlement Agreement on May 17, 2012. This agreement required payment of US$ 347,737,209.68, including 13.50% interest, by November 10, 2012. Mr. Pramod Mittal, Chairman of GSHL and GSPI, provided a personal guarantee for these payments.

Despite these agreements, GSHL and GSPI did not meet their obligations. Consequently, STC filed an Execution Petition in the Delhi High Court on August 30, 2014, seeking to enforce the settlement agreements and recover the outstanding amounts.

Timeline

Course of Proceedings

The Delhi High Court dismissed the Execution Petition filed by STC on March 9, 2015, citing a lack of jurisdiction because none of the judgment debtors were located within its jurisdiction. The High Court noted that the registered offices of GSHL and GSPI were outside India. The court allowed STC to approach the appropriate court for enforcement of the Settlement Award. Aggrieved by this order, STC filed a Special Leave Petition before the Supreme Court.

During the pendency of the Special Leave Petition, the Supreme Court directed the respondents to make payments to STC. The respondents paid approximately Rs. 1610 crores, thereby discharging their principal liability under the settlement agreements. The remaining issue was the interest payable from November 10, 2012.

Legal Framework

The case primarily involves the interpretation and application of Section 73 of the Arbitration and Conciliation Act, 1996, which deals with settlement agreements reached during conciliation proceedings. The section states:

“When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations. If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement agreement. If the parties request, the conciliator shall draw up, or assist the parties in drawing up, the settlement agreement. When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.”

The case also touches upon the enforcement of such settlement agreements and the jurisdiction of courts to execute them, as well as the court’s power to award interest on outstanding amounts.

Arguments

Arguments of the Appellant (STC):

• The appellant argued that the Delhi High Court had jurisdiction to entertain the Execution Petition.
• STC contended that the respondents were liable to pay the outstanding dues as per the settlement agreements.
• The appellant sought the court’s intervention to ensure the complete discharge of liabilities, including interest.

Arguments of the Respondents (GSHL, GSPI, and Pramod Mittal):

• The respondents initially argued that the Delhi High Court lacked jurisdiction.
• They contended that they had made substantial payments towards the principal amount.
• The respondents requested the Court to consider their payments and resolve the issue of interest to bring an end to the litigation.

Submissions by both parties:

Both the senior counsels requested the Supreme Court to exercise its powers under Articles 136 and 142 of the Constitution to determine the interest payable and bring a final resolution to the matter.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues in a traditional sense. However, the core issue before the court was:

• What is the appropriate interest rate and amount payable on the outstanding dues under the settlement agreements, given that the principal amount has been substantially paid?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court did not explicitly cite specific cases or legal provisions in its judgment to determine the interest rate. The decision was based on the Court’s inherent powers under Articles 136 and 142 of the Constitution to ensure complete justice and resolve the dispute.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court did not rely on any specific authorities in this judgment. The decision was made based on the facts of the case and the Court’s inherent powers to do complete justice.

The Supreme Court, exercising its powers under Articles 136 and 142 of the Constitution, directed the following:

• The Demand Drafts for Rs. 800 crores furnished by the respondents were to be handed over to STC.
• A lump sum amount of Rs. 600 crores was to be paid by the respondents to STC towards full and final satisfaction of the interest amount, calculated at 8% per annum from November 10, 2012.
• The amount of Rs. 600 crores was to be paid within 12 weeks from the date of the order (December 6, 2018).
• Upon payment of the said amount by February 28, 2019, all claims arising out of the settlement agreements would stand finally settled, and all pending proceedings would be closed.
• Failure to pay the interest amount by the deadline would amount to contempt of the Court’s order.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to bring a final resolution to the long-standing dispute between the parties. The Court took into account the fact that the principal amount had already been paid, and the only remaining issue was the payment of interest. The Court also considered the request by both the parties to determine the interest payable and bring a quietus to the litigation. The Court’s decision to award interest at 8% per annum was a balanced approach, considering the commercial nature of the transaction and the need to ensure that the decree holder was adequately compensated for the delay in payment. The Court also emphasized the need to avoid further litigation and bring a final closure to the matter.

Fact:Law Ratio

The Court’s reasoning was a mix of factual considerations (the payments already made, the parties’ willingness to settle) and legal considerations (the Court’s powers under Articles 136 and 142). The factual elements weighed slightly more in the Court’s decision-making process.

Logical Reasoning:

The Court considered the fact that the principal amount had already been paid and the parties had requested the court to determine the interest payable. The Court then determined the interest rate and directed the payment of a lump sum amount to bring a final closure to the dispute. The Court’s reasoning was based on the need to ensure complete justice and avoid further litigation.

The Court did not consider any alternative interpretations of the settlement agreements. The decision was based on the facts of the case and the Court’s inherent powers to do complete justice.

The Court’s decision was explained in clear, accessible language, focusing on the need to bring a final resolution to the dispute and ensure that the decree holder was adequately compensated for the delay in payment.

The reasons for the decision were:

• The principal amount had been substantially paid.
• Both parties requested the Court to determine the interest payable.
• The Court exercised its powers under Articles 136 and 142 of the Constitution to ensure complete justice.
• The Court wanted to bring a final resolution to the long-standing dispute.

The Court did not have any dissenting opinions. The judgment was delivered by a bench of two judges, Justices Abhay Manohar Sapre and Indu Malhotra.

The Court’s reasoning was based on the facts of the case and the need to ensure that the decree holder was adequately compensated for the delay in payment. The Court also emphasized the need to avoid further litigation and bring a final closure to the matter.

The decision could have implications for future cases involving the enforcement of settlement agreements and the determination of interest payable on outstanding dues. The judgment clarifies the Supreme Court’s power to resolve such disputes even when the primary issues have been settled.

Key Takeaways

• The Supreme Court can determine interest payable on settlement agreements even if the principal amount has been paid.
• The Court can exercise its powers under Articles 136 and 142 of the Constitution to ensure complete justice and resolve disputes.
• Parties should ensure full compliance with settlement agreements to avoid further litigation and interest payments.
• The Court may award interest at a rate it deems appropriate based on the facts of the case.

Directions

The Supreme Court directed that:

• The Demand Drafts for Rs. 800 crores be handed over to STC.
• A lump sum amount of Rs. 600 crores be paid by the respondents to STC towards full and final satisfaction of the interest amount, calculated at 8% per annum from November 10, 2012.
• The amount of Rs. 600 crores be paid within 12 weeks from the date of the order (December 6, 2018).
• Upon payment of the said amount by February 28, 2019, all claims arising out of the settlement agreements would stand finally settled, and all pending proceedings would be closed.
• Failure to pay the interest amount by the deadline would amount to contempt of the Court’s order.

Development of Law

The ratio decidendi of this case is that the Supreme Court has the power to determine the interest payable on outstanding dues under a settlement agreement, even if the principal amount has been paid. This decision reinforces the Court’s commitment to ensuring complete justice and resolving disputes effectively. There is no change in the previous position of law. The judgment clarifies the Supreme Court’s power to resolve such disputes even when the primary issues have been settled.

Conclusion

In the case of State Trading Corporation of India Ltd. vs. M/s Global Steel Holding Limited & Ors., the Supreme Court addressed the issue of interest payment on outstanding dues under a settlement agreement. The Court directed the respondents to pay a lump sum amount of Rs. 600 crores towards full and final satisfaction of the interest amount, calculated at 8% per annum from November 10, 2012. This decision brought a final resolution to the long-standing dispute and emphasized the Court’s power to ensure complete justice. The judgment clarifies the Supreme Court’s power to resolve such disputes even when the primary issues have been settled.