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Claim No: CFI 022/2020

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

IDBI BANK LIMITED

Claimant

and

(1) AMIRA C FOODS INTERNATIONAL
(2) MR KARAN A CHANANA

Defendants

ORDER OF JUSTICE SIR RICHARD FIELD

RULING ON THE COMPUTATION OF CONTRACTUAL INTEREST DUE TO BE PAID BY THE DEFENDANT TO THE CLAIMANT FOLLOWING THE JUDGMENT ISSUED ON 30 NOVEMBER 2020 IN FAVOUR OF THE CLAIMANT FOR THE PRINCIPAL SUM OF USD 6,421,224.71 AND CONTRACTUAL INTEREST THEREON FROM 1 JULY 2018 TO THE DATE OF THIS RULING

1. The parties were directed in the Judgment issued on 30 November 2020 (the “Judgment”) to agree the contractual interest due on the principal sum awarded to the Claimant (USD 6,421,224.71), but no such agreement has been reached. It therefore falls to the Court to decide what contractual interest is due to date and will continue to accrue pending payment of the principal sum awarded.

2. Putting on one side for the moment the question whether compound interest can be lawfully claimed, I find that the contractual rate of interest on the principal sum is as follows.

3. By clause 8.1 (a) (ii) of the Facilities Agreement, the Defendants were contractually obliged to pay interest on all outstanding sums under the Overdraft Facility on the last day of each month, at a rate that was the aggregate of (a) the Margin (i.e. 5% p.a.) and the Reference Rate (i.e. the London Interbank Offered Rate (LIBOR) for USD for the period of six months).

4. It was also provided in Clause 13.1 (c) (vii) of the Facilities Agreement that additional interest of 2% would be charged above the rate charged under clause 8.1 following a failure by the Defendant to submit a Stock and Receivables Statement (“SRS”) on a quarterly basis.

5. It was agreed by the First Defendant (the “Borrower”) and the Claimant, by way of a sanction letter dated 8 March 2016 supplementing the Facilities Agreement (the “Sanction Letter”) that:

“in the event of default in payment of interest on the financial assistance and all other monies on respective due dates, such defaulted amount shall carry interest/further interest at the rate of interest as mentioned under rate of interest/interest reset above, computed from the respective due dates and shall become payable upon the footing of compound interest with monthly rests”. [Emphasis supplied]

6. Further, in a letter from the Claimant to the First Defendant dated 1 May 2018, the Claimant stated:

“We hereby call upon you and demand from you to pay IDBI Bank at DIFC Branch, Dubai, immediately from the date thereof (sic), the aforesaid sums aggregating US$ 2,319,025.34 (US Dollar Two Million Three Hundred Nineteen Thousand Twenty Five and Thirty-Four Cents only) as per Annexure-1 together and further interest thereon with effect from May 01, 2018 to IDBI Bank at the contractual rates upon the footing of compound interest and other charges, until payment forward/realization […]”

7. Following the service by the Claimant on the Defendants of the Sanction Letter, the interest rate for sums outstanding under the Overdraft Facility increased to 6% p.a. plus LIBOR for USD for the period of six months, with a minimum rate of 6.5% p.a., plus an additional 2% p.a. if the First Defendant failed to submit its SRS on a quarterly basis.

8. The First Defendant failed to submit a SRS for Q4 December 2017. Accordingly, following this failure, interest on the Overdraft Facility was payable at the rate of 6%, plus the LIBOR for USD for the period of six months, with a minimum rate of 6.5%, plus an additional 2% p.a.

9. I reject the submission advanced by the Defendants that the Claimant is estopped from claiming the additional 2% on the separate grounds that: (i) there was a practice that the 1st Defendant was allowed to file its SRS 60 days after the end of any quarter; and (ii) pursuant to the aforesaid practice, by the time the SRS for Q4 was due to be served, the Claimant was in breach of contract. My reasons are as follows. In a letter dated 1 May 2018, sent by the Claimant to the First Defendant, the Claimant demanded payment of the sum due and noted that the 1st Defendant’s non-compliance with the obligation to serve a SRS was an Event of Default. Following receipt of this letter, the First Defendant did not challenge the allegation of breach of the Facilities Agreement at the time, or at any time in the first set of DIFC proceedings brought by the First Defendant against the Claimant. In addition, as the Claimant submits, the one instance of late filing of the SRS due in December 2017 does not establish a variation of the contract or the estoppel claimed by the Defendants.

10. I also reject the Defendants’ submission that no calculation of the interest due on the judgment debt was required to be undertaken pending their application for permission to appeal the order made in the Judgment and such calculation is still not required in light of the grant of permission pursuant to that application. I say this because no stay of execution has been granted pending appeal, and even if such a stay had been granted, the calculation of interest as provided for in the 30 November 2020 judgment is not execution on the judgment but a step towards establishing what the liability of the Defendants is to the Claimant under the Judgment.

11. In addition, I reject the Defendants’ submission that, in computing the contractual interest due on the judgment sum, the Court should take into account the lower rate of interest (2.75% p.a.) that the Defendants say the First Defendant is being charged by another Dubai-based bank under a similar type of agreement as the Facilities Agreement in this case.

The compound interest issue

12. The Facilities Agreement is expressed to be governed by UAE law and the Defendants cite a number of decisions of the Courts of Abu Dhabi in which it has been held that compound interest is forbidden under the Islamic Shariah and on the ground that it is contrary to public policy. These decisions include: (i) the judgment of the Abu Dhabi Court of Cassation No. 26/18; (ii) the judgment in the Federal Supreme Court Case No 44/12 (dated 19 June 1990); (iii) the judgment in the Union Supreme Court Case No. 337 of 17.

13. In reply, the Claimant submits that there is a reasonably well-known difference between how the Dubai and Abu Dhabi onshore courts approach compound interest as a matter of UAE law with compound interest being generally permitted by the onshore courts in Dubai and but not being generally permitted by the onshore courts in Abu Dhabi.

14. The Claimant draws the Court’s attention to the following reported cases decided by the onshore Dubai Courts:

15. The Claimant also submits that there are numerous other English language Lexis Nexis summary reports of Dubai Court of Cassation judgements where contractually agreed compound interest has been approved, for example: (i) Judgment 200/2003 dated 30 June 2003 (which held compound interest was not considered to be a violation of the law); (ii) Judgment 334/2019 dated 5 May 2019 and judgment 292/2020 dated 10 June 2020 (in which it was held that interest should be calculated on a compound basis until the date the account was closed).

16. I accept the Claimant’s submission that the Court should adopt the approach to compound interest taken by the onshore Dubai courts because: (i) the First Defendant and the Claimant are based in Dubai and have submitted to the jurisdiction of the DIFC Courts; (ii) there is nothing about this case that has any connection to Abu Dhabi; and (iii) the Facilities Agreement provided that:

“This Agreement shall be governed by, and construed in accordance with, the laws of UAE. The Borrower agrees, for the benefit of the Bank, that any legal action or proceedings arising out of or in connection with this Agreement against it or any of its assets may be brought in the Courts of Dubai, UAE.”

17. Accordingly, I hold that the Claimant is entitled to compound interest as provided for under the Facilities Agreement by way of the Sanction Letter and the Claimant’s Letter dated 1 May 2018 served on the First Defendant.

The calculation of contractual interest to 16 May 2021, the date of this Ruling, and the daily rate of interest that continues to accrue until payment.

18. The quantum of contractual interest (including compound interest) payable to the Claimant from 1 July 2018 under the Facilities Agreement has been calculated by PriceWaterhouseCoopers (“PWC”), the Claimant’s expert accountants. PWC’s calculation of the contractual interest due as at the date of the Judgment is USD 1,750,279.14. I accept this computation.

19. In the first set of proceedings the Claimant counterclaimed for the same principal debt and interest that is claimed in these Part 8 proceedings. I am told and accept that the contractual interest calculation methodology used by PWC in the current proceedings (CFI-022-2020) is identical to that used in the first set of proceedings (CFI-027-2018) and PWC’s interest calculation statement was provided to the parties in the first set of proceedings shortly before the opening of the trial on 29 July 2019 and in the second set of proceedings shortly before the start thereof on 12 October 2020.

20. In these circumstances I propose to adopt the following calculations made by PWC:

Issued by:
Ayesha Bin Kalban
Deputy Registrar
Date of issue: 16 May 2021
Time: 3pm