Bombay High Court
M/S Pandi Devi Oil Private Limited vs Shakti International Pvt Ltd on 13 July, 2017
Bench: Naresh H. Patil
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pdp
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL APPELLATE DIVISION
COMMERCIAL APPEAL NO. 73 OF 2017
IN
ARBITRATION PETITION NO. 999 OF 2016
M/s. Pandi Devi Oil Private Limited
having its registered office at
Old Thirubuvanai Road,
Thirubhuvanai, Pondicherry,
Pondicherry - 605 107. .. Appellant
Versus
M/s. Shakti International Pvt. Ltd.
A company incorporated under the
Companies Act, 1956 and having their
Registered Office at 303B, Alpha,
Main Street, Hiranandani Business Park,
Powai, Mumbai - 400 076. .. Respondent
Mr. Pradeep Rajagopal a/w Drishti Shah i/by Rekha Rajagopal for
appellant.
Mr. Rohan Cama i/by Abhishek Adke for respondent.
CORAM: NARESH H. PATIL &
SMT. BHARATI H. DANGRE JJ.
RESERVED ON : JUNE 14, 2017
PRONOUNCED ON : JULY 13, 2017
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JUDGMENT [ Per Naresh H. Patil, J.] :
1. Admit. Heard finally by consent of parties.
2. The appellant herein - M/s. Pandi Devi Oil Private Limited
filed a petition under Section 34 of the Arbitration and Conciliation Act,
1996 (for short the Act of 1996), challenging an award dated 18/3/2015
passed in terms of consent terms signed between the parties to the
arbitration. The consent terms were executed by and between the parties
on 18/3/2015. The Board of Directors resolved on 16/3/2015 to execute,
sign and file consent terms and place the same before the Arbitrator and
seek an award in terms of the consent terms. The consent terms are placed
before us, annexed at Annexure "A". The appellant is a private limited
company incorporated under the provisions of the Companies Act, 1956
and carried on business of importing Palm Oil. The respondent - company
is also incorporated under the provisions of the Companies Act, 1956,
engaged in the business of importing Edible Oil and other allied business.
3. The appellant herein submitted that the appellant need not go
into the facts of the case as the challenge in the appeal is confined to
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consent terms filed before the Arbitrator. In other words, the appellant did
not raise any challenge on the merits of the case. The appellant raised
questions of law as under :-
(A) Where in the facts and circumstances of the case in law,
can the Appellant withdraw the Consent Terms filed
before the Learned Arbitrator at any time.
(B) Whether in the facts and circumstances of the case, is it
correct for the Arbitrator to terminate the Arbitral
proceedings when admittedly so, the Arbitral Award
was not delivered to the Appellate under Section 31(5)
of the Arbitration and Conciliation Act, 1996 (herein
after called the Said Act).
(C) Whether in the facts and circumstances of the case, is it
correct in law for the Learned Arbitrator to declare as
Functus Officio after terminating the Arbitral
Proceedings.
4. The appellant submits that in the consent terms, the appellant
gave figure of Rs.5.25 crores as payable to the respondent herein - the
original claimant, as against the figure of Rs.1.75 crores, the original claim.
The appellant entered into a Memorandum of Understanding (MOU) on
19/3/2015. In the Procedural Order Sheet No. 21 dated 18/3/2015, the
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Arbitrator recorded that in view of the consent terms, the arbitral
proceedings stood terminated. The appellant sought advise of Chartered
Accountant where he was advised that filing of consent terms was
unwarranted. The discussion continued till the month of July, 2015, when
the consent terms came to be withdrawn. The appellant took opinion of
legal experts and after taking such advise / opinion, the appellant was
convinced that the consent terms need to be withdrawn and accordingly the
same was done on 29/7/2015, which was much before the actual delivery
of the award on 3/8/2015. On 30/7/2015, the Arbitrator recorded in the
Procedural Order Sheet that in the light of the consent terms, the Tribunal
had become functus officio. The award was not communicated to the
appellant.
5. By an order dated 17/2/2017, the leaned Single Judge
(Coram: S. J. Kathawalla,J.) dismissed the petition filed by the appellant
under Section 34 of the Act of 1996.
6. Mr. Rajagopal, learned counsel appearing for the appellant,
submitted that the appeal is required to be considered by invoking powers
of this court conferred under Section 34(2)(b) of the Act of 1996. The
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learned counsel submits that in the facts and considering the merits of the
case, it would be appropriate that this court would interfere, if it finds that
it is a fit case for invoking its jurisdiction under Section 34(2)(b)(i).
Learned counsel sought to distinguish the principles governing the exercise
of jurisdiction by the courts entertaining application under Section 34 (2)
and 34(2)(b). Under Section 34(2)(b), the Court would invoke jurisdiction
if it finds that interference is required under two contingencies prescribed
under Section 34(2)(b)(i) and (ii). The court would be entitled to take
notice suo motu of the facts. The learned counsel fairly made a statement
that the appellant is not pressing the ground of coercion in submitting the
consent terms. The counsel referred to the Division Bench judgment of
the Kerala High Court in the case of Mohammed Mamdouth Matwally
Ghali vs. Kerala Automobiles Ltd. [2011 SCC OnLine Ker 4168].
7. Mr. Cama, learned counsel appearing for the respondent had
raised a preliminary objection before the learned Single Judge that the
grounds for challenge taken in the Arbitration Petition did not fall within
the scope of Section 34 of the Act of 1996. The counsel further submitted
that the court may interfere in cases falling under Section 34(2)(b)(i) in the
rarest of rare cases while exercising suo motu power. It was submitted that
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the appellant failed to raise such a ground seeking interference of the court
invoking power under Section 34(2)(b) before the learned Single Judge.
Having not raised this ground either in the Arbitration Petition or during
the argument, it is not open to the appellant to raise the same for the first
time in the appeal before the Division Bench. In the alternative, the
counsel submitted that in case Section 34(2)(b)(i) applies, this is not the
case, where the dispute is not capable of settlement by arbitration. The
counsel referred to judgment of the Supreme Court in the case of Booz
Allen and Hamilton vs. SBI Home Finance Ltd. And ors. [AIR 2011 SC
2507], in which case six categories of cases of disputes were referred as not
capable of settlement by arbitration by adding mortgage suits to these
categories. The appellant itself brought issue of RBI guidelines within the
ambit of arbitration and asked the Arbitrator to adjudicate thereupon. The
issue of RBI guidelines is not an issue of lack of jurisdiction or one which
would render the dispute incapable of settlement in arbitration. The
counsel submitted that the new ground sought to be raised first time in the
appeal cannot be permitted to be raised after lapse of period under Section
34(3). Even if permitted to be raised, the same ought to have been raised
before the court as prescribed under Section 34 and could not be raised for
the first time in appeal under Section 37. The appellant is challenging the
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consent award when there is no determination or adjudication of any
matter. Thus, the scope of challenge is limited. As the appellant had given
up the only ground that could ostensibly have been argued to consider the
challenge i.e. coercion, the appeal ought to be dismissed. Learned counsel
places reliance on the following judgments :
(a) State of Maharashtra vs. Hindustan Construction
Company Ltd. [(2010) 4 SCC 518].
(b) Booz Allen and Hamilton vs. SBI Home Finance Ltd.
And ors. [AIR 2011 SC 2507].
(b) Vastu Invest & Holdings Pvt. Ltd., Mumbai vs. Gujarat
Lease Financing Ltd., Mumbai [2001 Mh.L.J. 565].
8. We have perused the record and the judgments cited (Supra).
The provisions of Section 34(2)(b) reads asunder :-
"34. Application for setting aside arbitral award. - (1)
...........
(2) An arbitral award may be set aside by the Court only if-
(a) ................
(b) the Court finds that -
(i) the subject matter of the dispute is not
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capable of settlement by arbitration under
the law for the time being in force, or
(ii) the arbitral award is in conflict with the
public policy of India.
[Explanation 1.- For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy of
India, only if, -
(i) the making of the award was induced or
affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental
policy of Indian Law; or
(iii) it is in conflict with the most basic notions
of morality or justice]
[Explanation 2. - For the avoidance of doubt, the test as
to whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits of
the dispute.].
[(2A) An arbitral award arising out of arbitrations other
than international commercial arbitrations, may also be set
aside by the Court, if the Court finds that the award is vitiated
by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on
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the ground of an erroneous application of the law or by
reappreciation of evidence.]
The definition of "Court" as prescribed under Section 2(e) of
the Act of 1996 reads as under :-
2. Amendment of section 2. - In the Arbitration and
Conciliation Act, 1996 (26 of 1996) (hereinafter referred to as
the principal Act), in section 2 -
(I) in sub-section (1),-
(A) for clause (e), the following clause shall be
substituted, namely: -
(e) "Court" means -
(i) in the case of an arbitration other than
international commercial arbitration,
the principal Civil Court of original
jurisdiction in a district, and includes
the High Court in exercise of its
ordinary original civil jurisdiction,
having jurisdiction to decide the
questions forming the subject-matter of
the arbitration if the same had been the
subject-matter of a suit, but does not
include any Civil Court of a grade
inferior to such principal Civil Court, or
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any Court of Small Causes;
(ii) in the case of international arbitration,
the High Court in exercise of its
ordinary original civil jurisdiction,
having jurisdiction to decide the
questions forming the subject-matter of
the arbitration if the same had been the
subject-matter of a suit, and in other
cases, a High Court having jurisdiction
to hear appeals from decrees of courts
subordinate to that High Court;
9. During the course of hearing, learned counsel Mr. Rajagopal
appearing for the appellant highlighted the only ground for consideration of
this court which relates to the application of the provisions of Section 34(2)
(b). Much emphasis was laid by the learned counsel on the terms "the
Court finds that" occurring in Section 34(2)(b).
10. In the case of Mohammed Mamdouth Matwally Ghali (Supra),
the Division Bench of Kerala High Court observed in para 34 as under :-
"34. If the court finds that the award is vitiated by gross
perversity and consequently patent illegality, the court should
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not hesitate to invoke the power under Sec. 34(2)(b)(ii). We
are in agreement that such an approach is necessary to
maintain the purity and credibility of the process of arbitration
to which the Indian law gives great emphasis as can be seen
from Sec. 89 of the amended C.P.C."
In the case of State of Maharashtra vs. Hindustan Construction
Company Limited (Supra), the Apex Court considered the scope of
provisions of Order 6 Rules 17 and 18, and Order 41 Rules 2 and 3 of CPC
and principles allowing amendment in the context of provisions of Sections
34 and 37 of the Act of 1996. Paras 31 and 32 of the said judgment read as
under :-
"31. L. J. Leach & Co. Ltd. And Pirgonda Hongonda Patil,
seem to enshrine clearly that courts would, as a rule, decline to
allow amendments, if a fresh claim on the proposed
amendments would be barred by limitation on the date of
application but that would be a factor for consideration in
exercise of the discretion as to whether leave to amend should
be granted but that does not affect the power of the court to
order it, if that is required in the interest of justice. There is
no reason why the same rule should not be applied when the
court is called upon to consider the application for amendment
of grounds in the application for setting aside the arbitral
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award or the amendment of the grounds in appeal under
Section 37 of the 1996 Act.
32. It is true that, the Division Bench of the Bombay High
Court in Vastu Invest & Holdings (P) Ltd. held that
independent ground of challenge to the arbitral award cannot
be entertained after the period of three months plus the grace
period of thirty days as provided in the proviso to sub-section
(3) of Section 34, but, in our view, by "an independent
ground" the Division Bench meant a ground amounting to a
fresh application for setting aside an arbitral award. The
dictum in the aforesaid decision was not intended to lay
down an absolute rule that in no case an amendment in the
application for setting aside the arbitral award can be made
after expiry of period of limitation provided therein.
In the case of Vastu Invest & Holdings Pvt. Ltd., Mumbai vs.
Gujarat Lease Financing Ltd., Mumbai (Supra), the Division Bench of this
court in paras 14 and 15 observed as under :-
"14. The law has been well settled even under the Arbitration
Act, 1940, that a ground not initially raised in the petition to
challenge the award could not be permitted to be subsequently
raised by an amendment, if the application for amendment
itself was beyond the period of limitation fixed for filing of the
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petition, challenging the award.
15. We may point out that under the 1940 Act, the limitation
for bringing a petition to challenge an award was prescribed by
the Limitation Act, subject to the provisions of the Limitation
Act and the power of condonation of delay contained therein.
The 1996 Act has radically altered the situation. We cannot
lose sight of the fact that the 1996 Act is intended to
consolidate and amend the law relating to domestic arbitration,
international commercial arbitration and enforcement of
foreign arbitral awards as also to define the law, inter alia, as
indicated in the preamble. Consequently, the Act has
permitted very limited scope of challenge to an arbitral award.
Section 34(1) provides that an arbitral award may be
challenged only by an application for setting aside such award
in accordance with sub-sections (2) and (3). Sub-sections (2)
and (3) of section 34 provide that an arbitral award may be set
aside only on the grounds narrated in sub-section (2). Finally,
sub-section (3) provides that such an application for setting
aside an award may not be made after three months have
elapsed from the date on which the party making that
application had received the arbitral award, or if a request had
been made under section 33, from the date on which the said
request had been disposed of by the arbitral tribunal. Thus,
there is extremely narrow power of condonation of delay
vested in the Court by the proviso. The proviso empowers the
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Court, if satisfied that the applicant was prevented by
sufficient cause from making the application within the period
of three months, to entertain the application within a further
period of 30 days but not thereafter."
In the case of Booz Allen and Hamilton Inc. vs. SBI Home
Finance Ltd. and ors. (Supra), in para 22, the Supreme Court observed as
under :
"22. Arbitral tribunals are private for a chosen voluntarily by
the parties to the dispute, to adjudicate their disputes in place
of courts and tribunals which are public fora constituted
under the laws of the country. Every civil or commercial
dispute, either contractual or non-contractual, which can be
decided by a court, is in principle capable of being
adjudicated and resolved by arbitration unless the jurisdiction
of arbitral tribunals is excluded either expressly or by
necessary implication. Adjudication of certain categories of
proceedings are reserved by the Legislature exclusively for
public fora as a matter of public policy. Certain other
categories of cases, though not expressly reserved for
adjudication by a public fora (courts and Tribunals), may be
necessary implication stand excluded from the purview of
private fora . Consequently, where the cause / dispute is
inarbitrable, the court where a suit is pending, will refuse to
refer the parties to arbitration, under Section 8 of the Act,
even if the parties might have agreed upon arbitration as the
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forum for settlement of such disputes. The well recognized
examples of non-arbitrable disputes are : (i) disputes relating
to rights and liabilities which give rise to or arise out of
criminal offences; (ii) matrimonial disputes relating to
divorce, judicial separation, restitution of conjugal rights,
child custody; (iii) guardianship matters; (iv) insolvency and
winding up matters; (v) testamentary matters (grant of
probate, letters of administration and succession certificate);
and (vi) eviction or tenancy matters governed by special
statutes where the tenant enjoys statutory protection against
eviction and only the specified courts are conferred
jurisdiction to grant eviction or decide the disputes."
11. Taking into consideration the principles set down in the
aforesaid judgments, we will have to consider the plea raised by the learned
counsel appearing for the contesting parties. The record shows that after
the consent terms were filed, the Arbitrator passed the order in Procedural
Order Sheet No. 20 on 18/3/2015, which reads as under :
"1. Award has been passed in terms of Consent Terms dated
18th March, 2015.
2. In view of the Consent Terms the Arbitral proceedings
stands terminated.
3. In terms of the Procedural Order Sheet No.19, each of
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the parties were directed to deposit an amount of Rs.2,40,000/-
each and thereafter the Sitting on 5th March, 2015 which was
adjourned at the request of the parties.
4. Each of the parties has to deposit their share of the costs
of that date.
In the light of that each of the parties to deposit an amount of
Rs.3,00,000/-."
The Procedural Order Sheet No. 22 dated 17/4/2015 reads as
under :
" In the instant case, Consent Terms have been signed and
submitted to me. Claimants have paid their share of costs.
Respondents till date have failed to deposit their costs.
Respondent to kindly deposit the costs within 7 days, failing
which the matter will be placed afresh for further directions,
after hearing the Claimants."
12. Thereafter it seems that the respondent sought for extensions.
By an order dated 30/7/2015 in Procedural Order Sheet No. 25, the tribunal
observed that as there were arrears in costs payable to the Tribunal by the
parties, the Award was not communicated in terms of Section 38 of the
Act of 1996. In so far as the letter received from the respondent
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thereafter, the Tribunal had become functus officio. The respondent was
granted liberty to move an application, which would be dealt with in
accordance with law.
13. The learned Single Judge, while appreciating the submissions
of the learned counsel, observed in the order that the consent terms
nowhere referred to any MOU. A reading of the consent terms shows that
the payment terms therein were not conditional or contingent upon
compliance with any terms of the MOU. The consent terms, according to
the impugned award, were not contingent upon the compliance with the
MOU. The learned Single Judge further observed that even the resolution
dated 16/3/2015 passed by the Board of Directors of the petitioner,
authorizing filing of consent terms and passing of award in terms thereof,
makes no reference to the MOU, which came to be executed subsequently.
14. The submissions of the learned counsel appearing for the
appellant for invoking the power of this court under Section 34(2)(b)(i) will
have to be considered in the light of the merits of the case and the plea
raised by the parties before the court. In the facts, we do not find that the
appellant could establish any such ground before this court causing
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interference by this court by invoking provisions of Section 34(2)(b) of the
Act of 1996. We do not find that the award is not capable of settlement by
arbitration under the law for the time being in force. We do not find any
error in the orders passed by the Arbitrator in the Procedural Sheets.
Belated plea raised by the appellant in respect of existence of MOU and a
conditional compliance of award are not sustainable pleas. We do not
notice any error or perversity in the view adopted by the learned Single
Judge for dismissing the Arbitration Petition. There is no merit in this
appeal.
15. The Appeal is accordingly dismissed.
(SMT. BHARATI H. DANGRE,J.) (NARESH H. PATIL,J.)
