Bombay High Court
Palmview Overseas Ltd vs Ravi Arya on 2 May, 2023
Bench: K.R. Shriram, Rajesh S. Patil
2023:BHC-OS:3790-DB 1/38 COMAPL-36947-22.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL APPEAL (L) NO.36947 OF 2022
IN
COMMERCIAL ARBITRATION PETITION (L) NO.25151 OF 2022
WITH
INTERIM APPLICATION (L) NO.38727 OF 2022
Palmview Investments Overseas Limited )
Portcullis Trustnet (BVI) Ltd. )
Portcullis Trustnet Chambers, P.O.Box 3444 )
Road Town, Tortola, British Virgin Islands ) ..Appellant
Vs.
1. Ravi Arya, Adult Indian Inhabitant )
Residing at 6, Satlej Terrace, 6 Walkeshwar )
Road, Mumbai 400 006 )
2. Nakul Arya, Adult Indian Inhabitant )
Residing at 6, Satlej Terrace, 6 Walkeshwar )
Road, Mumbai 400 006 )
3. Sushma Arya, Adult Indian Inhabitant)
Residing at 6, Satlej Terrace, 6 Walkeshwar )
Road, Mumbai 400 006 )
4. Varun Arya, Adult Indian Inhabitant )
Residing at 6, Satlej Terrace, 6 Walkeshwar )
Road, Mumbai 400 006 )
5. Ravi Arya, HUF )
6, Satlej Terrace, 6 Walkeshwar Road, )
Mumbai 400 006 )
6. Arya Iron & Steel Co. Pvt. Ltd. )
Having registered office at )
51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
7. Pawan Arya, Adult Indian Inhabitant )
at 51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
8. Puneet Arya, Adult Indian Inhabitant )
at 51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
9. Poonam Arya, Adult Indian Inhabitant )
at 51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
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10. Trupti Arya, Adult Indian Inhabitant )
at 51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
11. Pawan Arya, HUF )
at 51-53A Mittal court "A" Wing )
Nariman Point, Mumbai 400 021 )
12. MP Recycling Pvt Ltd. )
having its registered office at )
43, Ramwadi, Kalbadevi Road, )
Mumbai 400 002 )
13. Arya Ship Breaking Co. Pvt Ltd. )
having its registered office at )
43, Ramwadi, Kalbadevi Road, )
Mumbai 400 002 ) ..Respondents
------
Mr. Kevic Setalvad, Senior Advocate a/w Mr.. Vijay K Singh, Mr. Vinay J
Bhanushali, Mr. Abhiraj Rao, Ms Shreya Arur, Mr. Sanmit Vaze and Mr. Jehan
Lalkaka for Appellant / Applicant.
Mr. Haresh Jagtiani, Senior Advocate a/w Mr. Suprabh Jain, Mr. Pushpvijay Kanoji
and Ms Jahnavi Vora i/b Mr. Mohd Shariq for Respondent Nos 1 and 2.
Mr. Sharan Jagtiani, Senior Advocate a/w Mr. Priyank Kapadia and Ms Apurva
Manwani i/b Mr. Yakshay Chheda for Respondent Nos 3 to 5.
Mr. Sameer Bindra i/b Khaitan & Co for Respondent No 6.
Ms Chandni Dewani i/b Vashi and Vashi for Respondent Nos 7 to 11.
----
WITH
COMMERCIAL APPEAL (L) NO.37275 OF 2022
IN
COMMERCIAL ARBITRATION PETITION (L) NO.25249 OF 2022
WITH
INTERIM APPLICATION (L) NO.38730 OF 2022
Mr Vijay K Singh a/w Mr Vinay J Bhanushali, Mr Abhiraj Rao,Ms Shreya Arur, Mr
SanmitVaze and Mr Jehan Lalkaka for Appellant /Applicant
Mr Sharan Jagtiani, Senior Advocate a/w Mr Priyank Kapadia and Ms Apurva
Manwani i/b Mr Yakshay Chheda for Respondent Nos 1 to 3
Mr Haresh Jagtiani, Senior Advocate a/w Mr Suprabh Jain, Mr Pushpvijay Kanoji
and Ms Jahnavi Vora i/b Mr Mohd Shariq for Respondent Nos 4 and 5
Ms Chandni Dewani i/b Vashi and Vashi for Respondent Nos 7 to 11
CORAM : K.R. SHRIRAM &
RAJESH S. PATIL JJ
RESERVED ON : 16th MARCH 2023
PRONOUNCED ON : 2nd MAY 2023
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JUDGMENT (PER K.R.SHRIRAM J.) :
1 This appeal has been filed under Section 37 of the Arbitration and
Conciliation Act 1996 (the Arbitration Act), impugning an order dated
1st November 2022 passed by a Learned Single Judge of this court in an
arbitration petition filed under Section 34 of the Arbitration Act. The
Learned Single Judge set aside the award dated 16 th June 2022 passed by
the Arbitral Tribunal in international commercial arbitration proceedings on
separate applications filed by respondent nos.1 and 2 and respondent nos.3
and 5 under Section 31(6) read with Section 32 of the Arbitration Act that
the person who signed the notice invoking arbitration and signed the
statement of claim on behalf of Claimant, i.e., appellant herein had no valid
authority to do so, nevertheless granted liberty to cure the defect.
2 The facts in brief are as under:
Respondent no.6-Arya Iron & Steel Co. Pvt. Ltd., is a company
registered in Mumbai under the provisions of Companies Act 1956.
Appellant and other respondents are shareholders of respondent no.6.
Respondent no.6 is, inter alia, engaged in the business of manufacturing and
selling of iron and steel products.
3 Appellant is a company incorporated under the relevant laws of
British Virgin Islands (BVI). Appellant is an investment company.
Respondent nos.1 to 5 (RA Group) and 7 to 11 (PA Group) together with
respondent nos.12 and 13 are promoters of respondent no.6. It is appellant's
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case that in view of a Shareholder's Agreement dated 25 th March 2009,
appellant holds 49% shares in respondent no.6 and the balance is held by
respondent nos.1 to 5 (RA Group) and 7 to 13 (PA Group). Respondent
nos.12 and 13 are closely owned and controlled by RA Group and PA
Group, i.e., respondent nos.1 to 5 and 7 to 11, respectively.
4 It is appellant's case that it was asked by other respondents to join as
shareholder and to infuse funds in respondent no.6. Appellant and
respondents entered into a Shareholder's Agreement as well as Share
Purchase and Share Subscription Agreement all dated 25 th March 2009.
Appellant invested about Rs.80 crores in respondent no.6. Appellant was
made 49% shareholder and the remaining 51% was with respondent nos.1
to 5 (PA Group) and 7 to 11 (RA Group). It is appellant's case that as per
the Shareholders' Agreement, it had nominated one Sunil Jain as nominee
director on the board of respondent no.6 and the said Sunil Jain had even
attended certain board meetings. Disputes arose between appellant and
respondents, i.e., between shareholders of respondent no.6. Consequently,
appellant invoked arbitration proceedings on 30 th April 2018 in terms of the
Shareholders' Agreement dated 25th March 2009. The Arbitral Tribunal
comprising of three members, namely, Hon'ble Mr. Justice C. K. Thakker
(Retd.) as Presiding Arbitrator, Hon'ble Mr. Justice Deepak Verma (Retd.)
and Hon'ble Mr. Justice Mohit Shah (Retd.)was constituted. Later on,
Hon'ble Mr. Justice C. K. Thakker (Retd.) resigned and he was substituted
by Hon'ble Mr. Justice A. K. Sikri (Retd.).
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5 Right from the beginning, there were objections raised by RA Group,
i.e, respondent nos.1 to 5 on the constitution of the Arbitral Tribunal or on
the impartiality of the Arbitral Tribunal, etc. All these objections were
rejected. In fact on the constitution of the Arbitral Tribunal, the Tribunal's
order was challenged in the Bombay High Court before a Single Judge, who
dismissed the same. The intra court appeal was also dismissed by the
Division Bench and the SLP filed also came to be dismissed.
6 Thereafter, pleadings were filed by the parties and the matter
proceeded to recording of evidence. Before the evidence was recorded,
points of dispute was also framed. Evidence of appellant was being recorded
and appellant filed witness affidavit of two persons. Sunil Jain, who was the
nominee Director of appellant in respondent no.6, appeared as CW-1 and
was cross-examined by all respondents. His testimony was completed and
he had been discharged from the proceedings as witness. Second witness
was one Gagan Preet Singh as CW-2, whose cross-examination is yet to be
concluded. CW-1 had appeared as a fact witness and CW-2, a Chartered
Accountant, is produced as an expert witness. After completion of cross-
examination of CW-1 and before the cross-examination of CW-2 could
commence, an application under Section 31(6) read with Section 32 of the
Arbitration Act was filed by respondent nos.1 and 2 on 20 th December 2021
(the said application). Reply was filed by appellant. A similar application
was filed by respondent no.3 and respondent no.5. It was the case of
applicant in the said applications that CW-1 - Sunil Jain, who signed and
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verified the statement of claim did not have a valid / requisite authority to
invoke arbitration and/or institute the present claim on behalf of appellant
and/or to sign and verify the pleadings and to depose on behalf of appellant
as the said authority does not emanate from the resolution dated 16 th July
2018 on which, Sunil Jain relied upon. The said resolution was not a valid
document in the eyes of law. According to applicant of the said application,
authorization by the invalid document, namely the resolution in favour of
Sunil Jain, goes to the root of the matter. Whether the resolution is a proper
and valid resolution under the laws of BVI is a matter of Foreign Law and
such aspect in Foreign Law is required to be proved as a question of fact that
too by an expert in Foreign Law, as required under Section 45 of the Indian
Evidence Act. Appellant having failed to prove that the resolution was a
valid resolution under the laws of BVI, the Arbitral Tribunal was asked to
pass award / interim award and declare that the claim was presented
without authority; that the notice invoking arbitration dated 30th April 2018
was without authority and hence the Arbitral Tribunal should dismiss the
claim with cost. Naturally appellant opposed the application and submitted
that even if it is found that the authorization of Sunil Jain was not a valid
authorization, appellant was ready and willing to rectify the defect. Of
course, this was also opposed by respondent nos.1 and 2, and 3 and 5, (the
RA Group), in as much as according to these respondents there is no
averment at all in the statement of claim that the resolution was validly
passed under BVI laws and the resolution produced was impermissible and
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cannot be read in evidence as it did not meet with the requirements of
Section 44 of the Indian Evidence Act. In order to say that the resolution is
valid as per BVI laws, appellant will have to produce an expert, which
opportunity appellant has already lost. Moreover, it would be on the
assumption that the resolution is valid under BVI laws, which presumption
would be improper as there are no pleadings that the resolution is valid
under the BVI laws. Therefore, granting such opportunity to appellant
would mean showing indulgence to a disentitled party.
7 The Arbitral Tribunal by its award dated 16 th June 2022, allowed the
application of RA Group by holding that there were no averments that the
resolution authorising Sunil Jain was passed as per BVI laws and as no
evidence was led to prove that the said resolution was in accordance with
the BVI laws, the resolution was invalid. The Tribunal also held that even
under the provisions of the Companies Act, 2013, the resolution could not
be accepted and, therefore, the resolution was invalid. While holding so,
the Arbitral Tribunal observed that even though appellant has not proved
the resolution dated 16th July 2018 on the strength of which Sunil Jain had
signed and verified the statement of claim is a valid document under law, a
further question is required to be decided, i.e., whether non production of
valid authorization as irregular and is curable. The Arbitral Tribunal went
ahead and decided the question and held that after considering the various
submissions made including the judgments cited, the claim should not be
dismissed for technical reasons as, whether the claim was signed and
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verified by a competent person does not go to the root of the matter. In
other words, the Arbitral Tribunal held that the defect was curable.
Paragraphs 77 and 78 of the Arbitral Tribunal's order dated 16 th June 2016
read as under:
"77. The dicta of the aforesaid pronouncements is that such a
defect is curable. That apart, as noticed above in the present
case, there was no specific denial about the passing of the
Resolution by these Applicants / Respondents in their respective
defence statements and no specific question was raised by the
respondents that the resolution was not valid under the BVI
Laws or Indian Laws. Because of this reason, no specific Issue
was framed either. Therefore, there was no occasion for the
Claimant to lead any evidence on this aspect. This is yet another
reason that the Claimant should be given a chance to show that
Mr. Sunil Jain is vested with necessary authority to institute the
present Arbitration proceedings and has also been authorised to
sign and verify the statement of claim and to depose in the
matter. Non granting of such an opportunity would cause
prejudice to the Claimant and would amount to miscarriage of
justice to the Claimant.
78. The claimant can do so either by proving that the Resolution
dated 16.07.2018 placed on record is a valid Resolution under
BVI laws or by filing fresh Resolution, as this irregularity is
ratifiable as well. The Tribunal grants two weeks' time to the
Claimant to respond as to which option the Claimant would like
to exercise so that further directions are issued by the Tribunal in
this behalf."
8 Aggrieved by this liberty granted by the Arbitral Tribunal to rectify the
defect, two separate petitions under Section 34 of the Arbitration Act were
filed by respondent nos.1, 2, 3 and 5. Both the petitions were heard
together and by a common order and judgment pronounced on
1st November 2022, Learned Single Judge of this court held that the
impugned orders / interim award would be in contravention of the public
policy of India and fundamental Policy of Indian Law. According to the
Learned Single Judge, it was impossible for the Arbitral Tribunal to permit
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ratification of the resolution /rectifying the defect. It is that order, i.e.,
impugned in this appeal.
Appellant did not challenge the findings of the Arbitral Tribunal,
since, as submitted by Mr. Setalvad, appellant was anyways given a chance
to rectify the defect.
Other than Mr. Setalvad, Mr. Sharan Jagtiani and Mr. Haresh Jagtiani,
none of the other counsel made any submissions.
9 Mr. Setalvad submitted as under:
(a) The defect in the board resolution is a procedural defect and is
curable.
(b) The Arbitral Tribunal has held that there was defect in the board
resolution but has also held that such a defect was curable and accordingly
gave appellant the opportunity to prove that the board resolution was valid
under BVI laws or file a fresh resolution. These directions were passed by
considering and keeping with the settled position in law as laid down by the
Apex Court and various High Courts including this court.
(c) The suit filed by a company with defective board resolution or even
without any board resolution at all is not fatal. It is procedural in nature
and is curable defect. A substantive right should not be allowed to be
defeated on account of a procedural irregularity which can be cured at any
time, as held in United Bank of India Vs. Naresh Kumar 1, Sheth builders Vs.
Michael Gabriel2, Pragya Electronics Pvt Ltd. Vs. Cosmo Ferrites Ltd. 3,
1. 1996 (6 )SCC 660
2. 2020 SCC Online Bom 9042
3. 2021 SCC Online Del 3428
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Western India Theaters Ltd. Vs. Ishwarbhai Somabhai Patel4, Sangat Printers
Pvt Ltd. Vs. Wimpy International Ltd.5, Alcon Electronics Pvt Ltd. Vs. Celem
S. A.6, National Ability SA Vs. Tinna Oil & Chemicals Ltd. 7 and Welding Rods
Pvt Ltd. Vs. Indo Borax and Chemicals Ltd.8
(d) In Sheth Builders (Supra) and Alcon Electronics (Supra), there was no
board resolution at all when suits were instituted. Yet the court held that
such a defect is merely a procedural irregularity which can be cured.
Appellant could not be worse-off than in cases where there was no board
resolution at all.
(e) In United Bank of India (supra) the court has held that in addition to
and dehors Order 29 Rule 1 of the Code of Civil Procedure Code (CPC), a
company can authorise any person to sign the plaint on its behalf and that
would be considered sufficient compliance with Order 6 Rule 14 of the CPC.
Further, in United Bank of India (Supra) and Pragya Electronics
(Supra) nowhere it is mentioned that the signatories were persons falling
under Order 29 Rule 1 of the CPC.
(f) The Learned Single Judge by distinguishing the judgments relied
upon by appellant on the grounds that none of them involved arbitration
proceedings is patently wrong. In Pragya Electronics (supra) where United
Bank of India (supra) and Sangat Printers (supra) was followed, was a case
invoking arbitration proceedings.
4. AIR 1959 Bom 386 (DB)
5. 2012 SCC Online Del 299
6. 2015 (1) MhLJ 852
7. 2008 (105) DRJ 446
8. 2001 SCC Online Guj 269 (DB)
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(g) It is totally irrelevant that the other matters did not involve arbitration
proceedings. This is because the law laid down in the judgments cited above
is that the defect is procedural in nature and is curable and it would apply
equally to arbitration proceedings.
(h) The signing and verification of the statement of claim was a matter of
procedure. The same was governed by Indian Law. Matter of procedure
should always be governed by law of the country, where the court / tribunal
is situated. It is not in the realm of substantive law. This has been the
consistent position of Indian Law as held in All India Reporter Vs.
Ramchandra Dhondo Datar9, Cement Co. Ltd. Vs. Abdul Hessein Essaji10,
Ganpati Nana Powar Vs. Jivanabai Kom Subanna11, Netram Dadaram
Palliwal Vs. Bhagwan Wallaji Kunbi12 , and Vatech Global Co. Vs. Unicorn
Denmart Ltd.13
(i) It is settled position in law that all matters of procedure such as
signing and verification are governed by the domestic law of the country,
where the court is situated - Lex Fori (Dicey, Morris and Collins on the
Conflict of Law14). There is a presumption of proper verification and
execution of statement of claim.
(j) As per Section 85 read with Section 57(6) of the Indian Evidence Act,
signing and verification of plaint / statement of claim does not require
evidence to prove the same as courts will take judicial notice of such
9. 1959 SCC Online Bom 152
10. ILR 1937 Bom 85
11. ILR (1923) 47 Bom 227
12. 1940 SCC Online MP 49
13. 2022 SCC Online DEL 2349
14. 16th Ed., Chapter 4, Pages 121, 131-32
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signature / verification as was held in Joyce Cecilia Romalia De Souza Vs
Carl J M De Souza15, Zhejiang Medicines & Health Products Import and
Export Co. Vs. Devashi Impex16, National and Grindlays Bank Vs M/s World
Science News17 and Jugraj Singh Vs Jaswant Singh18.
(k) Even if signing / verification of the statement of claim was not
procedural law but of substantive law and, therefore, BVI Law's were
applicable, then the onus would be on respondents to lead evidence to
prove the Foreign Law. The onus of proving Foreign Law as a fact always
lies upon the party relying upon it. Absent the Foreign Law being
impleaded by the person objecting, the court will apply Indian Law as held
in Malaysian International Trading Corporation Vs Mega Safe Deposit
Vaults19, Rhodia Limited Vs. Neon Laboratories 20 and Dicey, Morris and
Collins on The Conflict of Laws21
(l) The impugned award is not in contravention of public policy of India
and fundamental policy of Indian Law.
(m) The Arbitral Tribunal has rightly followed the binding judgments. The
order of the Arbitral Tribunal is clearly not contrary to the most basic
notions of justice such as would shock the conscience of the court. Notably,
the ground of patent illegality is not available in the present case, as
appellant is a foreign entity, as per the provisions of Section 34(2-A read
with Section 2(1)(f)(ii) of the Arbitration Act and Vijay Karia Vs. Prysmian
15. 2022 SCC Online Bom 421
16. 2016 SCC Online Bom 10041
17. ILR (1976) DEL 559
18. 1970 2 SCC 386 (3J)
19. 2006 SCC Online Bom 92
20. 2004 SCC Online Bom 1125
21. 16th Ed. Chapter 3, Page 103
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Cavi E Sistemi SRL22 and Ssangyong Engineering and Construction Co. Ltd.
Vs. NHAI23
(n) Providing an opportunity to appellant to rectify its board resolution,
can hardly be said to be against public policy. On the contrary, the order of
Arbitral Tribunal is in keeping with the fundamental policy of Indian Law. If
the Arbitral Tribunal had not permitted, then it would have been contrary to
public law.
(o) The Arbitral Tribunal's order is not an interim award and not
amenable to challenge under Section 34 of the Arbitration Act because the
order is not a judicial determination of any of the issues framed by the
Arbitral Tribunal. It does not decide any legal rights or liabilities of the
parties under the shareholders agreement dated 25th March 2009.
(p) The question of illegality and/or validity of the board resolution was
not even an issue since there was no denial in the statement of defence.
The order was merely a procedural order passed under Section 19 of the
Arbitration Act pursuant to an application under Section 31 read with
Section 32 of the Arbitration Act.
(q) As there was no denial qua the passing of the resolution in the
respective statements of defence, no specific issue was framed on this aspect
and hence there was no occasion for appellant to lead evidence on the point
of the validity of the resolution. It is in this background the Arbitral
Tribunal provided that appellant should be given an opportunity to show
22. (2020) 11 SCC 1
23. (2019) 15 scc 131
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that Sunil Jain possessed the necessary authority to sign the pleadings and
depose as witness.
(r) As held in Sanshin Chemicals Industry Vs. Oriental Carbons &
Chemicals Ltd.24, Harinarayan G Bajaj Vs. sharedeal Financial Consultants
Pvt Ltd.25, Deepak Mitra Vs. District Judge, Allahabad26, Punj Lloyd Ltd Vs
Oil and Natural Gas Corporation Ltd.27 and Ranjiv Kumar Vs. Sanjiv Kumar 28
an Interim award is in the nature of preliminary decree. For an order to be
an interim award, it must have finally decided a claim, part of a claim and/
or counter claim which forms subject matter of the arbitral proceedings.
The rights and/or liabilities under the contract must have been judicially
determined. As that has not been done in this case, an order of this nature
passed by the Arbitral Tribunal can hardly be said to be an interim award.
The Delhi High Court in Future Coupons Pvt. Ltd. Vs. Amazon.com NV
Investment Holdings LLC29 held that interlocutory orders passed in arbitral
proceedings are immune from challenge and party must wait till the final
award and only then can he vent his grievances, both against the
interlocutory order as well as the final award.
(s) The judgment of the Apex Court in Indian Farmers Cooperative Ltd.
(IFFCO) Vs. Bhadra Products30 has been wrongly relied upon by the Learned
Single Judge because the said judgment was totally inapplicable for the
facts and circumstances of the case at hand.
24. 2001(3) SCC 341
25. 2003 Mh LJ 598
26. AIR 2000 All 609
27. 2016 SCC Online Bom 3749
28. AIR 2018 Cal 130 (DB)
29. 2022/DHC/005024
30. 2018 (2) SCC 534
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(t) Reliance of respondents on Maharashtra State Electricity Distribution
Company Ltd. (MSEDCL) Vs. Godrej and Boyce Manufacturing Co. Ltd .31 is
completely misplaced. That was a case where one party to a joint venture
invoked arbitration without any authority from the other party to the joint
venture.
(u) The Learned Single Judge's finding that the Arbitral Tribunal has
exercised jurisdiction in equity by permitting appellant to rectify the board
resolution under Section 28(2) of the Arbitration Act, is incorrect. Apart
from making a bald statement, the Learned Single Judge has not given any
reason or explanation as to how the Arbitral Tribunal has exercised
equitable jurisdiction.
(v) Section 28 of the Arbitration Act is not applicable since it provides
Rules applicable to substance of dispute. The order passed by the Arbitral
Tribunal had no connection with the substance of the dispute. It was merely
a procedural order. It gave appellant an opportunity to rectify the defect as
was mandated by law. Permitting a party to cure a procedural defect as held
in various judgments is the norm. The Arbitral Tribunal has not acted
contrary to the law nor had disregarded the law. It has in fact applied the
correct principles.
(w) The Arbitral Tribunal has not exercised any equitable jurisdiction.
The Arbitral Tribunal has only applied the law when a document is filed by
a company without the board resolution or a defective board resolution, it is
31. 2019 SCC Online Bom 3920
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a procedural defect which is not fatal and must be permitted to be cured.
10 Mr. Sharan Jagtiani submitted as under:
(a) On maintainability of petition under Section 34 of the Arbitration Act,
as held by the Apex Court in IFFCO (Supra), a final decision on "any matter"
or issue which arises between the parties to arbitration is an interim award,
which can be independently and separately challenged under Section 34 of
the Arbitration Act. The Apex Court in IFFCO (supra) has held that language
of Section 31(6) of the Arbitration Act is advisedly wide in nature; that an
interim award may be made on "any matter" with respect to which Arbitral
Tribunal makes a final award. The expression "matter" is wide in nature
and subsumes issues at which the parties are in dispute.
(b) The facts and issues that arise in MSEDCL (supra) are almost identical
to that of the present matter. Reliance by appellant on Harinarayan G. Bajaj
(Supra), Sanshin Chemical Industry (Supra), Punj Lloyd Ltd.(Supra),
Deepak Mitra (Supra), Ranjiv Kumar & Anr. (Supra), advocating a narrower
construction of what constitutes an interim award is misplaced. The nature
of orders passed in these judgments cited by appellant are entirely distinct
from the impugned order. Similarly appellant's reliance on Future Coupons
Pvt Ltd.(Supra), is also misconceived because in Future Coupons (Supra)
the application before the Arbitral Tribunal was only under Section 33(2)(c)
of the Arbitration Act and not for an interim award under Section 31(6)
read with Section 2(c) of the Arbitration Act.
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(c) The Arbitral Tribunal's findings are in favour of respondents on
matters of pleading, matters of evidence and position of Indian Law under
the Indian Companies Act, 2013. The Arbitral Tribunal having categorically
found in favour of respondents that appellant has not proved the board
resolution dated 16th July 2018 on the strength of which, Sunil Jain had
signed and verified the statement of claim as a valid document under law,
nevertheless, wrongfully allowed appellant to cure the invalidity. The
Arbitral Tribunal's reasoning was since the defect is curable and since there
was no specific denial of the passing of the board resolution in the
respondents' statement of defence and no specific question was raised on
this aspect - no issue was framed or in the absence of issue being framed,
there was no occasion for appellant to lead evidence in this aspect. For those
reasons, appellant should be given an opportunity to show that Sunil Jain is
authorized to sign and verify the statement of claim and depose on behalf of
appellant, was flawed.
(d) To the extent, the Arbitral Award permits appellant to cure the
invalidity of the board resolution, is in conflict with the public policy of
India and is liable to be set aside. This is because it negates and reverses the
finality of findings in favour of respondents confirming subject matter of the
interim award thus giving appellant a clean slate to re-agitate disputed
matters of substance arising in the arbitration.
(e) Once it has been held on appreciation of pleadings and evidence led
in this regard that Sunil Jain lacks the requisite authority to sign and verify
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the statement of claim, the issue stood determined. The Arbitral Tribunal's
jurisdiction to consider this issue ends on such determination. The Arbitral
Tribunal cannot extend its jurisdiction by permitting appellant to cure the
invalidity of Sunil Jain's authority and thereby retain the jurisdiction to once
again determine his authority to sign and verify the statement of claim.
(f) If the party is allowed to lead evidence once it has chosen not to do
so, no litigation will ever end. Such course of action would also militate
against the fundamental policy of Indian Law which tries to attain finality to
arbitral awards.
(g) If authority to a person to institute legal proceedings was given at a
board meeting held on a particular date and it is established after trial, that
the meeting was held, in a manner unknown to law, or that in fact no such
meeting was held on the date stated by plaintiff, the court would not allow
plaintiff to undo the effect of that finding by once again holding a meeting
to issue such authority. Such opportunities erodes the binding finality of
awards. There is fundamental and inherent contradiction in the interim
award in as much as, on the one hand the Arbitral Tribunal holds that
pleadings regarding the validity of the board resolution are required to be
made by appellant in the statement of claim itself since appellant would not
know what position respondents may take in the statement of claim in this
regard. Such pleadings are entirely absent. The Arbitral Tribunal rejects
appellant's submission that the lack of specific denial of the board resolution
in respondents' statement of defence amounts to admission of its validity.
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The Arbitral Tribunal noticed that PA group in the reference has denied the
existence and validity of the board resolution and, therefore, appellant was
put to notice of its burden to prove the same.
In a departure from this reasoning, however, an opportunity is given
by the Arbitral Tribunal to appellant to cure the invalidity of the board
resolution is premised on the reasoning that there is no specific denial of the
validity of the board resolution by respondents in their statements of
defence due to which no specific issue was framed and as such no evidence
was led by appellant in this regard. Therefore, by giving an opportunity to
cure the defect, the Arbitral Tribunal has given not one but two options,
when no such opportunity was sought by appellant.
(h) Appellant never even made an application to the Arbitral Tribunal to
allow it to cure the validity for Sunil Jain's authorization to sign and verify
the statement of claim. Still an opportunity was given.
(i) The Arbitral Tribunal has exercised jurisdiction in equity ( Ex Aequo
Etbono/ Amiable Compositeur) which is not permitted under Section 28 of
the Arbitration Act. This was not a case where the Arbitral Tribunal
exercised power in law available to it on a matter of mere procedure. It was
entirely a matter of substance decided in accordance with substantive law.
The opportunity to cure the defect in the board resolution by the options in
paragraph 77 of the award are demonstrably an exercise of power in equity.
The Arbitral Tribunal holds that if it does not grant appellant an opportunity
to cure the invalidity of Sunil Jain's authority, it would cause prejudice to
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appellant and that would amount to miscarriage of justice to appellant.
This is a clear exercise of equitable jurisdiction under Section 28(2) of the
Arbitration Act, where it was not available to the Arbitral Tribunal. The
observations in Interocean Shipping India Pvt Ltd. Vs. ONGC32 are apposite
even to the present case. None of the judgments relied upon by appellant
even remotely apply.
(j) In the circumstances, the appeal has to be dismissed.
11 Mr. Haresh Jagtiani, in addition to adopting the submissions of Mr.
Sharan Jagtiani, submitted as under:
(a) The Arbitral Tribunal having held that the resolution based on which
Sunil Jain signed the pleadings was illegal on the basis of the substantive
law applicable in India, which is the applicable law governing the
arbitration, could not have given the liberty to cure the defect.
(b) Sunil Jain was the only fact witness deposing on behalf of appellant
and the resolution relied upon by him having been held as not proved, the
resolution becomes inadmissible in evidence and no part of the award can
be based upon an inadmissible document under the Indian Evidence Act
1872. The issue is purely one of substance and not procedure which is
incapable of being cured in the manner in which it is sought to be by the
Arbitral Tribunal.
(c) The resolution has been passed by appellant which is a BVI registered
company whose sole director is Execorp, a corporate entity whose place of
32. 2022 SCC Online Bom 1699
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registration is unknown. Applying the test of Indian Law, such a company
like appellant will not be recognized as a legal entity given that Section 149
of the Companies Act 2013 only permits a natural person to be a director
and not another artificial entity. This also has been held by the Arbitral
Tribunal against appellant and by this yardstick as well the resolution has
been declared to be invalid. It is on a pure question of substance that this
finding has been arrived at.
(d) Paragraphs 77 and 78 of the award are at odds with the rest of the
findings in the award. The liberty given in paragraph 78 to file a fresh
resolution can only be explained or justified on principles of equity and
good conscience. Section 28 (2) of the Arbitration Act does not permit this
unless parties have agreed under the contract that the Arbitral Tribunal can
fall back on equity.
(e) The Arbitral Tribunal is a creature of contract between two parties
intending to resolve their dispute by arbitrators of their choice and Section
28(2) of the Arbitration Act proscribes the Arbitral Tribunal from exercising
equitable jurisdiction except, if expressly agreed by contract of parties
referring the resolution of their dispute to arbitration.
(f) Since the parties had not agreed to the Arbitral Tribunal applying
principles of equity, the Arbitral Tribunal could not have given the
opportunity to appellant to cure the defect.
12 Though elaborate submissions were made, the issues at hand are :-
(a) Whether petition filed by respondent nos.1 to 4 under Section 34 of
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the Arbitration Act was maintainable ?
(b) Whether, (i) Arbitral Tribunal having found in favour of respondents
in holding that Sunil Jain was neither a Secretary nor a Director nor other
principal officer of appellant and the board resolution dated 16 th July 2018,
on the strength of which Sunil Jain has signed and verified the statement of
claim, is not a valid document under law, could the Arbitral Tribunal say
that the defect was curable or ratifiable? and (ii) for the reasons mentioned
in paragraph 77 of the award, appellant should be given a chance to show
that Sunil Jain is vested with necessary authority to institute the present
arbitration proceedings and also has been authorised to sign and verify the
statement of claim and to depose in the matter or in the alternative file a
fresh resolution ?
(c) Whether Section 28 of the Arbitration Act would be applicable in as
much as, granting an opportunity to rectify the defect is an exercise of
powers under Section 28(2) of the Arbitration Act which parties have not
expressly authorised the Arbitral Tribunal to do so.
Our answers are as under:
Issue (a):-
13 On the issue of the maintainability of petition under Section 34 of the
Arbitration Act, we would hold that the petition was maintainable. The
Apex Court in IFFCO (supra) has held that the words "any matter" used in
Section 31(6) of the Arbitration Act is very wide in nature and that an
interim award may be made on "any matter" with respect to which the
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Arbitral Tribunal may make a final Arbitral Award. The expression "matter"
is wide in nature and subsumes issues at which the parties herein are in
dispute. Paragraph 8 of IFFCO reads as under:
"8. The language of Section 31(6) is advisedly wide in nature. A
reading of the said sub-section makes it clear that the jurisdiction to
make an interim arbitral award is left to the good sense of the arbitral
tribunal, and that it extends to "any matter" with respect to which it
may make a final arbitral award. The expression "matter" is wide in
nature, and subsumes issues at which the parties are in dispute. It is
clear, therefore, that any point of dispute between the parties which
has to be answered by the arbitral tribunal can be the subject matter of
an interim arbitral award. However, it is important to add a note of
caution. In an appropriate case, the issue of more than one award may
be necessitated on the facts of that case. However, by dealing with the
matter in a piecemeal fashion, what must be borne in mind is that the
resolution of the dispute as a whole will be delayed and parties will be
put to additional expense. The arbitral tribunal should, therefore,
consider whether there is any real advantage in delivering interim
awards or in proceeding with the matter as a whole and delivering one
final award, bearing in mind the avoidance of delay and additional
expense. Ultimately, a fair means for resolution of all disputes should
be uppermost in the mind of the arbitral tribunal."
The Supreme Court was considering whether a decision on limitation
is an interim award which can be independently and separately challenged
under Section 34 of the Arbitration Act. Paragraph 30 of IFFCO (supra)
reads as under:
"30. In our view, therefore, it is clear that the award dated 23 rd July,
2015 is an interim award, which being an arbitral award, can be
challenged separately and independently under Section 34 of the
Arbitration Act. We are of the view that such an award, which does
not relate to the arbitral tribunal's own jurisdiction under Section 16,
does not have to follow the drill of Section 16(5) and (6) of the Act.
Having said this, we are of the view that Parliament may consider
amending Section 34 of the Act so as to consolidate all interim
awards together with the final arbitral award, so that one challenge
under Section 34 can be made after delivery of the final arbitral
award. Piecemeal challenges like piecemeal awards lead to
unnecessary delay and additional expense."
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14 The facts and issues which arose in MSEDCL (Supra) are almost
similar to that of the present matter. In MSEDCL (supra), the respondent in
the arbitration challenged the claimant's authority to file a claim on behalf a
joint venture. The respondent filed a formal application for issuance of an
interim award under Section 31(6) of the Arbitration Act dismissing the
claim. The tribunal rejected this application. The Learned Single Judge of
this court allowed the petition filed by MSEDCL under Section 34 of the
Arbitration Act and dismissed the claim. The Court held that the claimant's
JV partner- Electropath had not authorized the filing of the claim. The
Learned Single Judge found that Electropath did not give any express
authority in favour of the claimant to refer the dispute to arbitration arising
out of the business relating to the joint venture, and the claimant could not
legally represent Electropath as lead member of the said joint venture in
absence of any express authority on behalf of the Electropath.
Significantly, the court held that the arbitrator ought to have held that the
statement of claim filed by the claimant in its individual capacity was not
maintainable and ought to have allowed the said application filed by the
Respondents under section 31(6) of the Arbitration Act and ought to have
dismissed the claims made by the claimant. Consequently, this Court
allowed the petition under Section 34 of the Arbitration Act and allowed the
application filed by MSEDCL under Section 31(6) of the Arbitration Act and
ordered dismissal of the claim.
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15 Both these judgments, i.e. IFFCO (supra) and MSEDCL (supra) relied
on by Respondents is subsequent in time vis-à-vis the judgments cited by
appellant.
16 Advocating a narrower construction of what constitutes an interim
award appellant relied on various judgments, i.e., Harinarayan G. Bajaj
(supra), Sanshin Chemical Industry (supra), Punj Llyod Ltd. (supra)
Deepak Mitra (supra), Ranjiv Kumar (supra), to submit that an 'interim
award' is limited to orders which finally decide any part of the claim or
counterclaim between the parties or an order which results in dismissal of
the reference. The nature of orders passed in the judgments cited by
appellant are entirely distinct from the Order dated 16th June 2022.
17 Appellant's reliance on the judgment of Free Coupons Pvt Ltd. (supra)
on this aspect is not correct. In that case the order of the Arbitral Tribunal
was challenged, and the Hon'ble Delhi High Court did not entertain the
challenge under Section 34 of the Arbitration Act.
The main distinction that appellant misses is that in Future Coupons
Pvt Ltd. (supra) the application before the Arbitral Tribunal was only under
Section 32(2)(c) of the Arbitration Act and not for an Interim Award under
Section 31(6) read with Section 2(c) of the Arbitration Act. In that case, the
question was whether order of Competition Commission of India dated 17 th
December 2022 and order of the National Company Law Tribunal admitting
an application against Future FRL would prevent the arbitration from
proceeding. It was on the basis of these two other orders in two completely
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different proceedings and their alleged effect on the arbitration that the
petitioner filed its application under Section 32(2)(c) of the Arbitration Act
seeking a determination that the continuation of the arbitration proceedings
has become unnecessary or impossible. It is in this context that the findings
of the Delhi High Court came to be rendered by holding that had the
application been allowed and the arbitration reference terminated, perhaps
a remedy would have been available under Article 227 of the Constitution of
India but that since the application was dismissed by the Arbitral Tribunal,
no remedy would lie against the interlocutory order of the Tribunal under
Section 34 of the Arbitration Act. Section 31(6) of the Arbitration Act and
the very concept of an Interim Award being under challenge did not arise in
that case.
18 In our view, IFFCO (supra) and MSEDCL (supra) are authorities for
the proposition that an order or decision is an interim award if it finally
decides an issue or 'matter' between the parties on which the tribunal can
make a final award, including an order determining whether the claimant is
authorised to file the claim. As such, the Impugned Order dated 16 June
2022 is an Interim Award within the meaning of Section 2(1)(c) read with
Section 31(6) of the Arbitration Act.
Issue (b) and Issue (c)
19 The issue as to whether the Arbitral Tribunal could have given an
opportunity to cure the irregularity or whether there was a bar under
Section 28(2) of the Arbitration Act have to be considered together and can
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be answered thus:
It is appellant's case that the lack of authority or defective authority of
Sunil Jain is a procedural defect and is curable; it was a case, where the
Arbitral Tribunal exercised powers in law available to it on a matter of mere
procedure; it was not a matter of substance decided in accordance with
substantive law. In our view, the Arbitral Tribunal did not decide any matter
of substance in accordance with substantive law. Having said that, the
Arbitral Tribunal, as laid down in Nahar Industrial Enterprises Ltd Vs.
Hongkong and Shanghai Banking Corporation33 by the Apex Court, can
travel beyond the CPC and the only fetter that is put on its powers is to
observe the principles of natural justice. Paragraph 98(n) of Nahar
Industrial Enterprises Ltd. (Supra) reads as under:
"98(n) It is not bound by the procedure laid down under the Code. It
may however be noticed in this regard that just because the Tribunal is
not bound by the Code, it does not mean that it would not have
jurisdiction to exercise beyond the Code of Civil Procedure. Rather, the
Tribunal can travel beyond the Code of Civil Procedure and the only
fetter that is put on its powers is to observe the principles of natural
justice."
(emphasis supplied)
20 As held by the Apex Court in Srei Infrastructure Finance Ltd. Vs. Tuff
Drilling (P) Ltd.34 Section 19 cannot be read to mean that the arbitral
tribunal is incapacitated in drawing sustenance from any provisions laid
down under the CPC. Just because the Arbitral Tribunal is not bound by the
CPC, it does not mean that it would not have jurisdiction to exercise powers
of a court as contained in the CPC.
33. (2009) 8 SCC 646
34. (2018) 11 SCC 470
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Section 19 of the Arbitration Act, for ease of reference, reads as
under:
"Determination of rules of procedure.--
(1) The arbitral tribunal shall not be bound by the Code of Civil
Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of
1872).
(2) Subject to this Part, the parties are free to agree on the procedure
to be followed by the arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral
tribunal may, subject to this Part, conduct the proceedings in the
manner it considers appropriate. The power of the arbitral tribunal
under sub-section (3) includes the power to determine the
admissibility, relevance, materiality and weight of any evidence."
Paragraph 26 of Srei Infrastructure Finance Ltd.(supra) reads:
26. There cannot be a dispute that the power exercised by the arbitral
tribunal is a quasi-judicial. In view of the provisions of the 1996 Act,
which confers various statutory powers and obligations on the arbitral
tribunal, we do not find any such distinction between the statutory
tribunal constituted under the statutory provisions or Constitution in
so far as the power of procedural review is concerned. We have
already noticed that Section 19 provides that arbitral tribunal shall
not be bound by the rules of procedure as contained in Civil
Procedure Code. Section 19 cannot be read to mean that arbitral
tribunal is incapacitated in drawing sustenance from any provisions of
Code of Civil Procedure. This was clearly laid down in Nahar
Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking
Corporation, (2009) 8 SCC 646. In Paragraph 98(n), following was
stated:-
"(n) It is not bound by the procedure laid down under the Code. It
may however be noticed in this regard that just because the Tribunal
is not bound by the Code, it does not mean that it would not have
jurisdiction to exercise powers of a court as contained in the Code.
"Rather, the Tribunal can travel beyond the Code of Civil Procedure
and the only fetter that is put on its powers is to observe the
principles of natural justice."
(emphasis supplied)
21 In Oil & Natural Gas Corporation Ltd. Vs. Interocean Shipping (India)
Pvt Ltd.35 learned single Judge of this court held that though the Arbitral
Tribunal is not bound by the Evidence Act and Civil Procedure Code, the
35. 2017 Scc Online Bom 1032
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principles thereof will still apply. Paragraph 48 of Oil Natural Gas
Corporation Ltd. (Supra) reads as under:
"48. This Court has already held in catena of the decisions that though
under Section 19 of the Arbitration and Conciliation Act, 1996, the
arbitral tribunal was not bound by the Code of Civil Procedure, 1908,
Indian Evidence Act, 1872, the arbitral tribunal is still bound by the
principles of Indian Evidence Act, Code of Civil Procedure, 1908 and
also the principles of natural justice. In my view, the impugned award
on this issue shows clear perversity and patent illegality."
22 In United Bank of India (supra) the Apex Court has held that letter of
authority of an individual, who had signed the pleadings on behalf of the
company can be cured by the company subsequently. The court held that
where suits are instituted or defended on behalf of a public corporation,
public interest should not be permitted to be defeated on a mere
technicality. Though appellant is not a public corporation, a litigant's
interest should not be permitted to be defeated on a mere technicality.
Procedural defects which do not go to the root of the matter should not be
permitted to defeat a just cause. There is sufficient power in the Courts,
under the Code of Civil Procedure, to ensure that injustice is not done to any
party who has a just case. As far as possible a substantive right should not
be allowed to be defeated on account of a procedural irregularity which is
curable. The court also held that in the absence of a person expressly
authorised to sign the pleadings on behalf of the company, for example by
the Board of Directors passing a resolution to that effect or by a power of
attorney being executed in favour of any individual, the company can ratify
the said action of it's officer in signing the pleadings. Such ratification can
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be express or implied. Paragraphs 8, 9, 10, 11 and 13 of United Bank of
India (supra) read as under:
8. In this appeal, therefore, the only question which arises for
consideration is whether the plaint was duly signed and verified by a
competent person.
9. In cases like the present where suits are instituted or defended on
behalf of a public corporation, public interest should not be permitted
to be defeated on a mere technicality. Procedural defects which do not
go to the root of the matter should not be permitted to defeat a just
cause. There is sufficient power in the Courts, under the Code of Civil
Procedure, to ensure that injustice is not done to any party who has a
just case. As far as possible a substantive right should not be allowed
to be defeated on account of a procedural irregularity which is
curable.
10. It cannot be disputed that a company like the appellant can sue
and be sued in its own name. Under Order 6 Rule 14 of the Code of
Civil Procedure a pleading is required to be signed by the party and its
pleader, if any. As a company is a juristic entity it is obvious that some
person has to sign the pleadings on behalf of the company. Order 29
Rule 1 of the Code of Civil Procedure, therefore, provides that in a
suit by against a corporation the Secretary or any Director or other
Principal officer of the corporation who is able to depose to the facts
of the case might sign and verify on behalf of the company. Reading
Order 6 Rule 14 together with Order 29 Rule 1 of the Code of Civil
Procedure it would appear that even in the absence of any formal
letter of authority or power of attorney having been executed a
person referred to in Rule 1 of Order 29 can, by virtue of the office
which he holds, sign and verify the pleadings on behalf of the
corporation. In addition thereto and de hors Order 29 Rule 1 of the
Code of Civil Procedure, as a company is a juristic entity, it can duly
authorise any person to sign the plaint or the written statement on its
behalf and this would be regarded as sufficient compliance with the
provisions of Order 6 Rule 14 of the Code of Civil Procedure. A person
may be expressly authorised to sign the pleadings on behalf of the
company, for example by the Board of Directors passing a resolution
to that effect or by a power of attorney being executed in favour of
any individual. In absence thereof and in cases where pleadings have
been signed by one of it's officers a Corporation can ratify the said
action of it's officer in signing the pleadings. Such ratification can be
express or implied. The Court can, on the basis of the evidence on
record, and after taking all the circumstances of the case, specially
with regard to the conduct of the trial, come to the conclusion that
the corporation had ratified the act of signing of the pleading by it's
officer.
11. The courts below could have held that Sh. L.K. Rohatgi must have
been empowered to sign the plaint on behalf of the appellant. In the
alternative it would have been legitimate to hold that the manner in
which the suit was conducted showed that the appellant bank must
have ratified the action of Sh. L.K. Rohatgi in signing the plaint. If, for
any reason whatsoever, the courts below were still unable to come to
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this conclusion, then either of the appellate courts ought to have
exercised their jurisdiction under Order 41 Rule 27 (1) (b) of the
Code of Civil Procedure and should have directed a proper power of
attorney to be produced or they could have ordered Sh. L.K. Rohatgi
or any other competent person to be examined as a witness in order
to prove ratification or the authority of Sh. L.K. Rohatgi to sign the
plaint. Such a power should be exercised by a court in order to ensure
that injustice is not done by rejection of a genuine claim.
12. ********************
13. The court had to be satisfied that Sh. L.K. Rohatgi could sign the
plaint on behalf of the appellant. The suit had been filed in the name
of the appellant company; full amount of court fee had been paid by
the appellant bank; documentary as well as oral evidence had been
led on behalf of the appellant and the trial of the suit before the Sub
Judge, Ambala, had continued for about two years. It is difficult, in
these circumstances, even to presume that the suit had been filed and
tried without the appellant having authorised the institution of the
same. The only reasonable conclusion which we can come to is that
Sh. L.K. Rohatgi must have been authorised to sign the plaint and, in
any case, it must be held that the appellant had ratified the action of
Sh. L.K. Rohatgi in signing the plaint and thereafter it continued with
the suit.
23 In the impugned order, the Learned Single Judge has accepted that
this is the position in law but states that none of the cases relied upon by
appellant apply to the arbitral proceedings. According to the Learned Single
Judge, the cases relied upon by appellant either arose out of the order
passed by the Civil Court, which unlike an Arbitral Tribunal is a Court of
plenary jurisdiction or in respect of filing of winding up petition. According
to the Learned Single Judge, the Arbitral Tribunal unlike a Court of plenary
jurisdiction is a creature of contract governed by the agreement between the
parties and cannot act in equity, in the absence of an express authorisation
by the parties. As we will observe later Section 28 of the Arbitration Act is
not applicable.
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In fact, as noted earlier, the Apex Court in Srei Infrastructure Finance
Ltd. (supra) relying on Nahar Industrial Enterprises (supra) has held that
Section 19 cannot be read to mean that the arbitral tribunal is incapacitated
in drawing sustenance from any provisions laid down under the CPC. Just
because the Arbitral Tribunal is not bound by the code, it does not mean
that it would not have jurisdiction to exercise powers of a court as contained
in the CPC. Rather, the Arbitral Tribunal can travel beyond CPC and the
only fetter that is put on its powers is to observe the principles of natural
justice. The Apex Court in Jugraj Singh (supra) has held that once it is
ratified, the ratification is thrown back to the date of the act done and the
agent is put in the same position as if he had authority to do the act at the
time the act was done by him. Therefore, in our view, the decision of the
Arbitral Tribunal to permit appellant to cure the defect is perfectly justified.
24 Section 28 of the Arbitration Act deals with the question, which law
or rules the Arbitral Tribunal shall apply to the substance of the dispute. The
expression "substance of the dispute" could have reference only to the
merits of the case. We draw support for this view from Justice R.S.
Bachawat's Law of Arbitration and Conciliation36 (Bachawat), where it reads
as under:
"UNCITRAL Report on Adoption of Model Law
Paragraph (1) [Corresponding to Ss. 19(1) and (2)]
Two suggestions of divergent significance were made with respect to
paragraph (1). One suggestion was to make clear in the Model Law that
the freedom of the parties to agree on the procedure should be a
36. Sixth Edition Volume-I (Sections 1-34) - Pg. 1407/1506
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continuing one throughout the arbitral proceedings. The other suggestion
was to permit the parties to determine rules of procedure after the
arbitrators had accepted their duties to the extent the arbitrators agreed
(Para 171].
Neither suggestion was adopted. Although the provision as it now stood
implied that the parties had a continuing right to change the procedure,
the arbitrators could not in fact be forced to accept changes in the
procedure because they could resign if they did not wish to carry out new
procedures agreed to by the parties. It was noted that the time-frame
allowed for changing the procedures to be followed could be settled
between the parties and the arbitrators [Para 172]
Paragraph (2) [Corresponding to Ss. 19(3) and (4)]
An observation was made that, since in some legal systems a question of
admissibility, relevance, materiality and weight of evidence would be
considered to be a matter of substantive law, the question arose as to the
relationship between the second sentence of paragraph (2) and Art. 28.
[Para 173].
It was understood that the objective of paragraph (2) was to recognize a
discretion of the arbitral tribunal which would not be affected by the
choice of law applicable to the substance of the dispute (Para 174).
The Commission adopted paragraph (2) [Para 175]
UNCITRAL Model Law
Section 28 (except clause (a) of sub-section 1) corresponds to Article 28 of
the UNCITRAL Model Law.
*************************************
Analytical Commentary on UNCITRAL Draft Model Law
Article 28. Rules applicable to substance of dispute
(1) The arbitral tribunal shall decide the dispute in accordance with such
rules of law as are chosen by the parties as applicable to the substance of
the dispute. Any designation of the law or legal system of a given State
shall be construed, unless otherwise expressed, as directly referring to the
substantive law of that State and not to its conflict of laws rules.
(2) Failing any designation by the parties, the arbitral tribunal shall apply
the law determined by the conflict of laws rules which it considers
applicable.
(3) The arbitral tribunal shall decide ex aequo et bono or as amiable
compositeur only if the parties have expressly authorized it to do so.
(4) In all cases, the arbitral tribunal shall decide in accordance with the
terms of the contract and shall take into account the usages of the trade
applicable to the transaction.
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Commentary
1. Article 28 deals with the question which law or rules the arbitral
tribunal shall apply to the substance of the dispute. This question, which
should be distinguished from the issue of the law applicable to the arbitral
procedure or the arbitration agreement is often dealt with in conventions
and national laws devoted to private international law or conflict of laws.
However, it is sometimes covered by national laws on arbitration and often
by arbitration conventions and arbitration rules."
(emphasis supplied)
During the hearing we had suggested to the counsel to also consider
the UNCITRAL reports.
25 The issue at hand was not substance of the dispute. The substance of
the dispute is the dispute and differences between the parties on account of
shareholding in respondent no.6, which according to appellant was misused
by PA group that gave them future dominance over respondent no.6. Even
if, for a moment we stretch to hold that the Arbitral Tribunal has exercised
jurisdiction in equity by allowing appellant to cure the irregularity, still it
will not be hit by the provisions of Section 28(2) of the Arbitration Act
because Section 28 of the Arbitration Act deals with the question which law
or rules the Arbitral Tribunal shall apply to the substance of the dispute,
would mean the merits of the case. The object of Sections 19(3) and 19(4)
of the Arbitration Act is to recognize the discretion of the Arbitral Tribunal
on matters that do not relate to the substance of the dispute, whereas,
Section 28 of the Arbitration Act deals with substance of the dispute in
contradistinction to the law applicable to the procedure.
Pages 1570/1571 in Bachawat says:
According to Article 28(3), the parties may authorize the arbitral
tribunal to decide the dispute ex aequo et bono or as amiables
compositeurs. This type of arbitration is currently not known or used in
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all legal systems and there exists no uniform understanding as regards
the precise scope of the power of the arbitral tribunal. When parties
anticipate an uncertainty in this respect, they may wish to provide a
clarification in the arbitration agreement by a more specific
authorization to the arbitral tribunal. Paragraph (4) makes clear that in
all cases, i.e., including an arbitration ex aequo et bono, the arbitral
tribunal must decide in accordance with the terms of the contract and
shall take into account the usages of trade applicable to the transaction
[Para 36]
This also indicates that Section 28 applies only to the substance of the
dispute, that is, the transaction that is under dispute and not procedural
issues as in the case at hand.
Section 28(2) provides the arbitral tribunal shall decide ex aequo et
bono or as amiable compositeur only if the parties have expressly
authorised it to do so. If the arbitrators are appointed as amiable
compositerus, they are exempt from the obligations of hearing the parties
and their respective proofs, or establish default against them and decide
according to the rule of law. These are clauses used in transactions where
the parties are contracting for a long relationship, in which the maintenance
of commercial trust between the parties is reasonably assured. These are
clauses where the arbitrator is freed from any duty to respect the rule of
law when deciding upon the merits of the dispute. The Arbitrator can
ignore technicalities and strict constructions and need not conform in the
ordinary legal procedures when conducting the reference.
In the case at hand the arbitral tribunal has not ignored the technical
objections raised by RA Group. It has infact conformed to the law laid down
by the Apex Court and various High Courts and has respected the rule of
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law while deciding the objection raised by the RA Group.
Therefore, to say the Arbitral Tribunal by holding that appellant
should be able to correct on irregularity, cannot be stated to have acted as
"amiable compositeurs" or "ex aequo et bono". The Arbitral Tribunal has
acted according to law and applied principles of natural justice.
26 The Arbitral Tribunal in our view, had not acted contrary to the law or
disregarded the law but has applied the correct position in law. The Arbitral
Tribunal has applied the principles of Order 29 Rule 4 read with Order 6
Rule 14 of the CPC and as noted earlier, there was no fetter in the Arbitral
Tribunal in doing so. The Arbitral Tribunal has acted in accordance with the
fundamental policy and Indian Law and granted appellant its right to cure
the defect. At the cost of repetition, the Arbitral Tribunal, as held in catena
of judgments, has held that when a proceeding is filed by company with
defective board resolution or even without any board resolution at all, is not
fatal and must be permitted to be cured. Procedural defect which do not go
to the root of the matter should not be permitted to defeat a just cause.
There is sufficient power in the Arbitral Tribunal to ensure that injustice is
not done to any party who has a just case. As far as possible a substantive
right should not be allowed to be defeated on account of a procedural
irregularity which is curable. If we take away that power then no arbitrator
will have power to ensure injustice is not done. This is the law and it is this
law which had been applied by the Arbitral Tribunal.
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The Claim has been filed by a company incorporated in BVI, which
holds 49% shares in Respondent No. 6 together with RA Group and PA
Group. Appellant has participated in the arbitral proceedings since 2018.
The relationship between the parties goes as far back as 25 th March 2009
when the share purchase agreement was entered into. It is in these
circumstances, it is difficult even to presume that the claim has been filed
and arbitral proceedings pursued without appellant having authorised the
institution of the same. The only reasonable conclusion which we can come
to is Sunil Jain must have been authorised to institute arbitration and sign
the Claim Statement, etc. but did not have a valid document to prove that.
We cannot say Sunil Jain was an impostor, as alleged by Mr. Haresh Jagtiani
repeatedly during his submissions. In his cross examination by Counsel for
Respondent No. 6, Sunil Jain has deposed that he has attended many
meetings of Respondent No. 6 after his appointment as Director of
Respondent No. 6 in January 2010. The substance of the dispute is for the
control of Respondent No. 6 between Appellant and the RA Group / PA
Group. Despite that RA Group has raised such objections.
Infact Mr. Haresh Jagtiani himself has admitted while cross examining
Sunil Jain that Sunil Jain was the nominee Director of Appellant in
Respondent No. 6. Question no. 113 and Question no. 114 and answers
thereto read as under:
"Q.113. Please confirm that you were present at most of the board
meetings of respondent no.1 company and have participated in the
deliberations in your capacity as a nominee director of the claimant.
Ans. I have attended many Board Meetings of Respondent No.1
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company.
Q.114. In your capacity as a Nominee Director by the Claimant, you
must have been given instructions as to the interest of the Claimant
that you were expected to protect an further. Is that correct ?
Ans. As per SHA, that is correct."
27 In the circumstances, the Learned Single Judge was not correct in
interfering with the award under Section 34 of the Arbitration Act.
We set aside the impugned order and judgment of the Learned Single
Judge and restore the award of the Arbitral Tribunal.
28 The appeal is allowed on the above terms and costs to be cost in the
arbitral proceedings. Consequently, interim application (l) no.38727 of 2022
also stands disposed.
29 The Arbitral Tribunal shall endeavour to fix the date for proceeding
with the arbitral proceedings at its earliest convenience.
30 Our findings above will squarely apply to Commercial Appeal (L)
No.37275 of 2022, which was also filed impugning the same order and
judgment dated 1st November 2022. Consequently, Commercial Appeal (L)
No.37275 of 2022 and interim application (l) No.38730 of 2022 also stand
disposed.
31 Mr. Sharan Jagtiani prays for stay of the judgment. Stay refused.
(RAJESH S PATIL, J.) (K.R. SHRIRAM, J.)
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