Calcutta High Court
Shamlal Jotwani & Anr vs Veena Jotwani on 30 March, 2023
IN THE HIGH COURT AT CALCUTTA
(Ordinary Original Civil Jurisdiction)
ORIGINAL SIDE
Present:
The Hon'ble Justice Krishna Rao
AP 472 of 2009
Shamlal Jotwani & Anr.
Versus
Veena Jotwani
Mr. Aniruddha Mitra
Mr. T. K. Sen
Mr. Anirban Ghosh
.....For the petitioner
Mr. Anubhav Sinha
Ms. Reshmi Hossain
Ms. Farhana Khatun
Ms. Soumita Mukherjee
.....For the respondent
Heard on : 27.06.2022, 30.06.2022, 13.07.2022, 02.08.2022,
24.08.2022, 05.12.2022, 16.01.2023 & 13.02.2023
Judgment on : 30.03.2023
2
Krishna Rao, J.:
This is an application under Section 34 of the Arbitration and
Conciliation Act, 1996 challenging the Award passed by the learned Sole
Arbitrator dated 27th May, 2009 wherein and where under the Learned
Arbitrator awarded an amount of Rs. 17,01,080/- along with interest at the
rate of 10% per annum from one month after the date of award till the
payment of the awarded amount.
BRIEF FACT OF THE CASE IS AS FOLLOWS :
Premchand Jotwani and Dharamdas Jotwani, were the sons of Late
Sugnichand Jotwani. Ginchand Jotwani was the son of Premchand Jotwani.
The respondent Smt. Veena Jotwani is the wife of Ginchand Jotwani. The
petitioner no. 1 Shamlal Jotwani is the younger son of Late Dharamdas
Jotwani. The petitioner No. 2 is the daughter-in-law of Dharamdas Jotwani
(Wife of Harilal Jotwani) and the petitioner no. 3 is the wife of Late
Dharamdas Jotwani. A partnership Deed was executed on 21st October,
1965 for the purpose of carrying out their business namely Bambino at 40E,
Free School Street, Calcutta between the following partners with following
shares :
i. Ginchand Jotwani (Husband of respondent/claimant)....
40%
ii. Harilal Jotwani (Husband of the petitioner No. 2) .... 20%
iii. Shamlal Jotwani (Petitioner No.1) .... 20%
iv. Lajwanti Jotwant (Petitioner No.3) .... 20%
3
In the year 1966, the partnership firm opens a second shop room at
47/2, Gariahat Road, Calcutta. In the year 1982, the partnership firm was
dissolved and a new partnership was re-constituted on 1st July, 1982 under
which shares of the partners with regard to business of Bambino at Free
School Street was divided in the following manner:
i. Veena Jotwani (Respondent) .... 40%
ii. Shamlal Jotwani (Petitioner No.1) .... 20%
iii. Rachna Jotwani (Petitioner No.2) .... 20%
iv. Lajwant Jotwani (Petitioner No.3,
Now deceased) .... 20%
As regard the partnership business of Bambino Gariahat was
concerned, the shares of the partners were divided in the following manners:
i. Ginchand Jotwani (Husband of respondent) .... 40%
ii. Kajal Jotwani (Wife of petitioner no.1) .... 20%
iii. Harilal Jotwani (Husband of petitioner no.2) .... 20%
iv. Petitioner no. 3 .... 20%
The business of Bambino, Free School Street was essentially carried
on by the petitioner No. 1 being the sole male partner. The other partners
were entitled to participate in the business, none of the other partners took
any active part in the day today carrying on business of Bambino, Free
School Street. The showroom of Bambino Free School Street was taken on
rent by Smt. Lajwanti Jotwani (since deceased) and was paying the monthly
4
rent in respect of the said premises. Smt. Lajwanti Jotwani allowed the
partnership firm to carry on the business from the said premises and
accordingly, the business of Bombino had been carried out from the said
premises. It was the internal arrangement between the parties that the
occupational charges for the said premises shall be paid by the partnership
firm directly to the landlord. About early eighties, the firm has also taken
the premises No.15, Free School Street on rent for the purpose of godown
and the rent of the godown was paid by the partnership firm till December
1995.
As per the case of the petitioners that in the year 1995, the roof of the
show room situated in the building at 40E, Free School Street was collapsed
and the landlord "Calcutta Muslim Orphanage" issued a letter on 9th
October, 1995 along with reminder to the Lajwanti Jotwani to vacate the
said premises and accordingly in terms of the decision taken at the meeting
of the partners held on 24th August, 1997, the tenancy of the premises was
surrendered but inspite of service of notice, the respondent Veena Jotwani
did not attend the meeting. The entire stock of the show room was sold to
Gariahat shop at "no profit no loss basis" and the entire furniture and
fixtures were also sent to Bombino Garahiat Road shop on proper receipt.
It is the further case of the petitioners that the landlord of the godown
had expressed his intention to the petitioner No. 1 to sell the said godown
and accordingly the partners have called for a meeting on 30th October,
1995 after issuance of Notice dated 15th October, 1995. The respondent has
not attended the meeting. In the meeting, it was decided that as none of the
5
partners have sufficient funds to purchase the said godown, accordingly the
petitioner no.1 will purchase the same in his personal capacity. As per
decision, the petitioner No.1 had purchased the said godown by way of
registered indenture dated 20th December, 1995. On 16th December, 1999,
the petitioner no.1 had sold the said godown to one Asta Lavista Internet.
As per the case of the respondent that in the year 1998, the
respondent came to know that the petitioner no.1 in collusion and
connivance with the petitioner no. 2 and petitioner no. 3 (now deceased) had
disposed of entire assets and property of Bombino Free School Street
including the business without the knowledge of the respondent. As the
respondent raised dispute with regard to the partnership business and has
prayed for appointment of Arbitrator to adjudicate the dispute between the
parties. Initially both the parties have appointed their arbitrators but
arbitrators have not proceeded with the arbitration proceedings and finally
as per the Order of the Hon'ble High Court Learned Arbitrator was
appointed.
On 27th May, 2009, the learned Arbitrator has published an award
which is impugned in the present proceeding.
SUBMISSIONS ON BEHALF OF THE PETITIONER :
Mr. Aniruddha Mitra, learned Advocate representing the petitioners
submits that the Award is in conflict with public policy of India as it is
contravention with the provisions of Section 15 of the West Bengal Premises
Tenancy Act, 1956. He further submits that the learned Sole Arbitrator did
6
not consider the vital documents in arriving at the decision, which makes
the award perverse.
Mr. Mitra submits that the amount awarded is based on no evidence
and without any reasons and thus the Award is patent illegal. He further
submits that the learned Arbitrator has taken into consideration of
irrelevant materials.
Mr. Mitra submits that the learned arbitrator has relied upon two
valuation reports dated 25th June, 2007 of Mr. D.G. Chakraborty wherein
the said valuer has submitted his report on the basis of the earlier report
submitted by the Valuer Shri Supratim Chakladar but has ignored vide two
letters dated 9th September, 2002, Shri Supratim Chakladar has withdrawn
his reports.
Mr. Mitra submits that in the awards itself, the Arbitrator in its
finding recorded that "even though it is not possible to determine the exact
amount received by the respondent on account of surrendering two
tenancies of show room and godown at Free School Street for want of any
direct evidence but considering the report of valuer who was also examined
and cross examined by the parties at length and his report appears to be
correct and reasonable".
Mr. Mitra submits that the learned Arbitrator had also recorded that
"in the absence of clinching evidence about the value of stock-in-trade etc
and the consideration received by the respondents in surrendering the two
tenancies it will be just and proper to award Rs.7 lacs only being the
7
aggregate of Rs. 5 lacs in the 40% share of the claimant on account of
consideration."
Mr. Mitra submits that the finding of the learned Arbitrator that the
tenancy of the shop room, which is a partnership property is contrary to the
documents on record.
Mr. Miitra submits that the quantification of awarded amount of Rs. 7
Lacs is based on no evidence and the same was made in arbitrary manner.
He further submits that the Arbitrator has ignored the vital fact that the
annual account of the firm of the year 1996 to 1997 were signed by the
respondent without raising any objection. The annual account for the year
1997-1998 was also received by the respondent and no-objection was
raised.
Mr. Mitra submits that the entire finding of the arbitrator shocks the
conscience of this Court and the learned Arbitrator has acted in
contravention of the provisions of the Arbitration and Conciliation Act, 1996.
Mr. Mitra relied upon the Judgment reported in the case of Associate
Builders -vs- Delhi Development Authority (2015) 3 SCC 49 which reads
as follows :
"19. When it came to construing the expression "the public
policy of India" contained in Section 34(2)(b)(ii) of the
Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes
Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held: (SCC pp.
727-28 & 744-45, paras 31 & 74)
"31. Therefore, in our view, the phrase 'public policy of
India' used in Section 34 in context is required to be given a
wider meaning. It can be stated that the concept of public
policy connotes some matter which concerns public good
8
and the public interest. What is for public good or in public
interest or what would be injurious or harmful to the public
good or public interest has varied from time to time.
However, the award which is, on the face of it, patently in
violation of statutory provisions cannot be said to be in
public interest. Such award/judgment/decision is likely to
adversely affect the administration of justice. Hence, in our
view in addition to narrower meaning given to the term
'public policy' in Renusagar case [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is
required to be held that the award could be set aside if it is
patently illegal. The result would be--award could be set
aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award is
against the public policy. Award could also be set aside if it
is so unfair and unreasonable that it shocks the conscience
of the court. Such award is opposed to public policy and is
required to be adjudged void.
***
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award
under Section 34(2) of the Act if the party making the
application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under
the law to which the parties have subjected it or,
failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not
given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal
was not in accordance with the agreement of the
parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordance with Part I of
the Act,
(ii) if the arbitral procedure was not in accordance
with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in
accordance with Part I of the Act.
However, exception for setting aside the award on the ground
of composition of Arbitral Tribunal or illegality of arbitral
procedure is that the agreement should not be in conflict with
the provisions of Part I of the Act from which parties cannot
derogate.
(c) If the award passed by the Arbitral Tribunal is in
contravention of the provisions of the Act or any other
substantive law governing the parties or is against the terms
of the contract.
(3) The award could be set aside if it is against the
public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside
mainly on the grounds:
(i) there is specific stipulation in the agreement
that the time and date of delivery of the goods was
of the essence of the contract;
(ii) in case of failure to deliver the goods within
the period fixed for such delivery in the schedule,
ONGC was entitled to recover from the contractor
liquidated damages as agreed;
(iii) it was also explicitly understood that the
agreed liquidated damages were genuine pre-
estimate of damages;
(iv) on the request of the respondent to extend the
time-limit for supply of goods, ONGC informed
specifically that time was extended but stipulated
liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of
goods were to be recovered by paying authorities
from the bills for payment of cost of material supplied
by the contractor;
(vi) there is nothing on record to suggest that
stipulation for recovering liquidated damages was by
way of penalty or that the said sum was in any way
unreasonable;
(vii) in certain contracts, it is impossible to assess
the damages or prove the same. Such situation is
taken care of by Sections 73 and 74 of the Contract
Act and in the present case by specific terms of the
contract."
Mr. Mitra relied upon the Judgment reported in the case of
Ssangyong Engineering and Construction Co. Ltd. -vs- NHAI (2019) 15
SCC 131 which reads as follows :
"41. What is important to note is that a decision
which is perverse, as understood in paras 31 and 32
of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no
longer being a ground for challenge under "public policy
of India", would certainly amount to a patent illegality
appearing on the face of the award. Thus, a finding
based on no evidence at all or an award which ignores
vital evidence in arriving at its decision would be
perverse and liable to be set aside on the ground of
patent illegality. Additionally, a finding based on
documents taken behind the back of the parties by the
arbitrator would also qualify as a decision based on no
evidence inasmuch as such decision is not based on
evidence led by the parties, and therefore, would also
have to be characterised as perverse."
Mr. Mitra relied upon the Judgment reported in the case of PSA
SICAL Terminals Pvt. Ltd. - vs- Board of Trustees 2021 SCC OnLine SC
508 which read as follows :
"43. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the court is
not expected to act as an appellate court and reappreciate the
evidence. The scope of interference would be limited to
grounds provided under Section 34 of the Arbitration Act. The
interference would be so warranted when the award is in
violation of "public policy of India", which has been held to
mean "the fundamental policy of Indian law". A judicial
intervention on account of interfering on the merits of the
award would not be permissible. However, the principles of
natural justice as contained in Section 18 and 34(2)(a)(iii) of
the Arbitration Act would continue to be the grounds of
challenge of an award. The ground for interference on the
basis that the award is in conflict with justice or morality is
now to be understood as a conflict with the "most basic
notions of morality or justice". It is only such arbitral awards
that shock the conscience of the court, that can be set aside on
the said ground. An award would be set aside on the ground
of patent illegality appearing on the face of the award and as
such, which goes to the roots of the matter. However, an
illegality with regard to a mere erroneous application of law
would not be a ground for interference. Equally, reappreciation
of evidence would not be permissible on the ground of patent
illegality appearing on the face of the award.
44. A decision which is perverse, though would not be a
ground for challenge under "public policy of India", would
certainly amount to a patent illegality appearing on the face of
the award. However, a finding based on no evidence at all or
an award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on the
ground of patent illegality.
45. To understand the test of perversity, it will also be
appropriate to refer to paragraph 31 and 32 from the judgment
of this Court in Associate Builders (supra), which read thus:
"31. The third juristic principle is that a decision which
is perverse or so irrational that no reasonable person
would have arrived at the same is important and requires
some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such
decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312],
it was held : (SCC p. 317, para 7)
"7. ... It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant material or
by taking into consideration irrelevant material or if the
finding so outrageously defies logic as to suffer from the
vice of irrationality incurring the blame of being
perverse, then, the finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC
10 : 1999 SCC (L&S) 429], it was held : (SCC p. 14, para
10)
"10. A broad distinction has, therefore, to be
maintained between the decisions which are perverse
and those which are not. If a decision is arrived at on no
evidence or evidence which is thoroughly unreliable and
no reasonable person would act upon it, the order
would be perverse. But if there is some evidence on
record which is acceptable and which could be relied
upon, howsoever compendious it may be, the
conclusions would not be treated as perverse and the
findings would not be interfered with."
SUBMISSIONS ON BEHALF OF RESPONDET :
Mr. Anubhav Sinha, learned advocate representing the respondent
submits that the petitioner has taken the ground of Section 15 of the West
Bengal Premises Tenancy Act, 1956 for the first time during argument but
the petitioner has neither taken the said ground before the Arbitrator nor
has taken in the application under Section 34 of the Arbitration and
Conciliation Act, 1996. He submits that the amount of relinquishing the
tenancy is received in the form of compensation and it is to be treated as
capital gain under Section 45 of the Income Tax Act, 1961. Capital gains
come under the category of "income" and tax need to be paid for the said
amount.
Mr. Sinha submits that Section 56 of the Income Tax Act, 1956
provides for the chargeability of income of every kind which is not to be
excluded from the total income under the Act, only if it is not chargeable to
income tax under any of the heads specified in Section 14 items A to E. He
submits that there is no dispute that a tenancy right is a capital asset, the
surrender of which would attract Section 45 so that the value received
would be a capital receipt and assessable if at all only under item E of
Section 14. He submits that since the surrender of tenancy is liable to be
taxed, it is hence not illegal to receive a consideration from the said
surrender.
Mr. Sinha relied upon the Judgment reported in the case of
Commissioner of Income Tax, Mumbai & Ors. -vs- D.P. Sandu Bros.
Chembur (P) Ltd. & Ors. (AIR 2005 SC 796)/ (2005) 2 SCC 584 which
read as follows :
"12. We agree. A tenancy right is acquired with reference
to a particular date. It is also possible that it may be acquired
at a cost. It is ultimately a question of fact. In A.R.
Krishnamurthy v. CIT [(1989) 1 SCC 754 : 1989 SCC (Tax)
202 : (1989) 176 ITR 417] this Court held that it cannot be
said conceptually that there is no cost of acquisition of the
grant of the lease. It held that the cost of acquisition of
leasehold rights can be determined. In the present case,
however, the Department's stand before the High Court was
that the cost of acquisition of the tenancy was incapable of
being ascertained. In view of the stand taken by the
Department before the High Court, we uphold the decision of
the High Court on this issue.
13. Were it not for the inability to compute the cost of
acquisition under Section 48, there is, as we have said, no
doubt that a monthly tenancy or leasehold right is a capital
asset and that the amount received on its surrender was a
capital receipt. But because we have held that Section 45
cannot be applied, it is not open to the Department to impose
tax on such capital receipt by the assessee under any other
section. This Court, as early as in 1957 had, in United
Commercial Bank Ltd. v. CIT [(1957) 32 ITR 688 : 1958 SCR
79] held that the heads of income provided for in the sections
of the Income Tax Act, 1922 are mutually exclusive and where
any item of income falls specifically under one head, it has to
be charged under that head and no other. In other words,
income derived from different sources falling under a specific
head has to be computed for the purposes of taxation in the
manner provided by the appropriate section and no other. It
has been further held by this Court in East India Housing and
Land Development Trust Ltd. v. CIT [(1961) 42 ITR 49 (SC)]
that if the income from a source falls within a specific head,
the fact that it may indirectly be covered by another head will
not make the income taxable under the latter head. (See
also CIT v. Chugandas and Co. [(1965) 55 ITR 17 : (1964) 8
SCR 332] )
14. Section 14 of the Income Tax Act, 1961 as it stood at
the relevant time similarly provided that "all income shall, for
the purposes of charge of income tax and computation of total
income, be classified under the following [six] heads of
income", namely:
(A) Salaries;
(B) Interest on securities;
(C) Income from house property;
(D) Profits and gains of business or profession;
(E) Capital gains;
(F) Income from other sources unless otherwise provided
in the Act.
15. Section 56 provides for the chargeability of income of
every kind which has not to be excluded from the total income
under the Act, only if it is not chargeable to income tax under
any of the heads specified in Section 14 Items (A) to (E).
Therefore, if the income is included under any one of the
heads, it cannot be brought to tax under the residuary
provisions of Section 56.
16. There is no dispute that a tenancy right is a capital
asset the surrender of which would attract Section 45 so that
the value received would be a capital receipt and assessable if
at all only under Item (E) of Section 14. That being so, it
cannot be treated as a casual or non-recurring receipt under
Section 10(3) and be subjected to tax under Section 56. The
argument of the appellant that even if the income cannot be
chargeable under Section 45, because of the inapplicability of
the computation provided under Section 48, it could still
impose tax under the residuary head is thus unacceptable. If
the income cannot be taxed under Section 45, it cannot be
taxed at all. [See S.G. Mercantile Corpn. (P)
Ltd. v. CIT [(1972) 1 SCC 465 : (1972) 83 ITR 700] .]"
The Arbitration Award being challenged on the ground that it lies in
contravention with the West Bengal Premises Tenancy Act 1956 does not
hold substance and is inapplicable in the instant case.
That the auspices of the Waqf Acts apply to the Free School Street
property in question that has been maliciously and surreptitiously
surrendered by the Petitioners and hence it cannot be hit with the provisions
of the West Bengal Premises Tenancy Act.
The allegation that the Arbitration Award is based on no evidence and
violates Wednesbury's principles of reasonableness is unfounded,
unjustified, wholly incorrect and malafide.
Clear misrepresentation of reason by Petitioners behind surrendering
tenancy under the false pretext of a Notice issued by landlord (Calcutta
Muslim Orphanage) in October 1995 and using that as subterfuge to
surreptitiously surrender tenancy in the year 1997 by keeping Respondent
in the dark.
The allegation of the Petitioners with regards to the valuation report
having no basis is wholly unjustified.
The contention of the valuer not being examined in the Arbitral
proceedings is wholly incorrect and been put through as an afterthought,
hence the contention cannot be considered as it is being deployed to mislead
the Court.
Arbitration Award passed by the Ld. Arbitrator is not in conflict with
Public Policy of India.
The Arbitration Award passed by the Ld. Arbitrator is not in violation
of the principles of natural justice.
The Ld. Arbitrator has provided full opportunity to the Petitioners to
present their case before passing the Award and thus there arises no
question as to the independence and impartiality of the Ld. Arbitrator.
The Ld. Arbitrator after giving due consideration to all facts,
documentary evidences and arguments, both written and oral as presented
before him had passed a reasoned award and as such the Ld. Arbitrator has
not failed to appreciate the factual basis and legal principles and has not
committed any error of law on the face of it by mis-appreciating the legal
principles.
It is not open for the Petitioners to seek re-appreciation of facts and
evidence in the instant challenge under Section 34 of the Arbitration and
Conciliation Act, 1996.
The Counsel for the respondent relied upon the following judgments:
i. (2011)10 SCC 573 (M/s Msk Projects (I) (Jv) Ltd. -vs-
State of Rajasthan & Anr.).
ii. AIR 2005 SC 796 (Commissioner of Income Tax
Mumbai & Ors. v. D.P. Sandu Bros. Chembur (P) Ltd.
& Ors.).
iii. (1985) 4 SCC (Dharangadhra Chemical Works vs.
Dharangadhra Municipality & Anr.).
iv. (2018) SCC OnLine Cal 8390 (Syed Masoon Ali vs. Abu
Naim Siddique & Anr.).
v. (2019) 15 SCC 131 (Ssangyong Engineering vs. NHA).
vi. (2015) 3 SCC 49 (Associate Builders vs. Delhi
Development Authority).
vii. (2018) SCC OnLine Del 12918 (Wishwa Mittar Bajaj
and Sons vs. Shipra Estate Ltd. and Jaikishan Estates
Developers (P) Ltd.).
viii. 2019 SCC OnLine Del 9345 (Shwetadri Speciality
Papers Pvt. Ltd. vs. National Research Development
Corp.).
ix. 2020 SCC OnLine Del 1392 (Steel Authority of India
vs. Primetals Technologies).
x. 2022 SCC OnLine SC 19 (UHL Power Company vs.
State of Himachal Pradesh).
xi. (2019) 4 SCC 163 (MMTC Limited vs. Vedanta
Limited).
xii. (2015) 5 SCC 739 (Swan Gold Mining Ltd. vs.
Hindustan Copper Ltd.).
xiii. Punjab State Civil Supplies Corporation Ltd. & Anr. vs.
M/s Ramesh Kumar and Company & Ors. (Civil Appeal
No. 6832 of 2021).
xiv. 2019 SCC OnLine Del (Rites Ltd. vs. Subrata Kumar).
xv. Haryana Tourism Limited vs. M/s Kandhari Beverages
Limited (Civil Appeal No. 266 of 2022)."
CLAIM FILED BY THE RESPONDENT BEFORE THE ARBITRATOR:
Respondent being the claimant before the learned sole arbitrator has filed
the following claim :
"31. Apart from being entitled to return of the capital in
the firm which as per the balance sheet as 31st March,
1997 stood at Rs. 1,66,080/- until 29th December 1997,
the claimant had received a total sum of Rs. 65,000/-
on diverse dates and interest thereon and to account for
and pay her share of 40% of profits of the firm, the
claimant is also entitled to 40 % of the consideration
received or reasonably expected to have been received
by the respondents in respect of the surrender or the
said show-room and godown of the firm and the
alleging sale of its fixed and movable assets of the firm.
As such the claimant is entitled to an award against
respondents for a sum of Rs. 18,94,854.00 as per the
following particulars-
(a) Capital of the Rs. 1,01,080.00
claimant in the firm
as on 29.12.1997
(b) Interest on Rs. 56,888.00
capital @ 18% p a
(c) 40 % share of the Rs. 17,36,886.00
proceeds received
and/or reasonably
expected to have
been received by the
respondents against
surrender of the
tenancy of the show-
room and godown
and alleged sale of
the fixed and
moveable assets of
the firm.
Total Rs. 18,94,854.00
32. In this context it is relevant to state that at all
material times interest has been paid by the firm of
capital to its partners @ 18 % p a."
FINDING OF THE LEARNED ARBITRATOR IS AS FOLLOWS:
"15. From the rival submission of the parties and from
the documents placed on record, as well as the evidence
led before this Tribunal, it appears that the assets of the
Free School Street branch of Bambino have been
siphoned off to the Gariahat branch. It cannot be
conceived how any prudent person will "sell" goods
after goods, without consideration Equally important is
to note that the person, at the helm of affairs in both
benches at the relevant point of time, was the
Respondent no. 1, the sole male partner. Therefore, if
there was a chance, that the payment towards sale
consideration may not be forthcoming, such an
eventuality was definitely within the knowledge of the
respondent no. 1, if not of all the respondents.
16. It is equally clear that the defence of the
respondents that the claimant was apprised of the
situation and the position/status of the assets of the
FSST branch is only a bogey. None of the respondents
ever informed the claimant of any decision to dispose off
the business and assets of Bambino FSST or sought her
consent or approval to do so. The alleged notice of
meeting wherein the decision to surrender the tenancy
in the name of Lajwanti, closure of partnership business
and for transferring the tenancy of the godwon at Free
School Street in the name of Respondent No. 1 had not
been served. Such notice has been manufactured for the
purpose of the record in favour of the respondents.
The respondents did not disclose to the claimant
either the purpose for which the tenancy was
surrendered and the business was closed and stock in
trade and furniture etc were disposed off or the
consideration received on account of such disposal. The
claimant wrote to the respondents requesting them to
furnish the up-to-date position of the said business. In
reply to such request, by a letter dated 16 June, 1998
the respondent no. 1 wrote to the claimant referring to
an alleged "last" joint discussion and decision. The
letter was, however, silent as to when such discussion
and decision were taken by the partners jointly. More
importantly, such a massive business decision, if taken
with consent of the claimant, ought to have been
recorded and/or reduced to writing, as it tantamounted
to a paradigm shift in the assets and rights of the
partners. The sequence of events and the manner in
which the respondents have progressed ahead, leaving
behind the claimant high and dry, would definitely
suggest to this Tribunal that the acts and omissions of
the respondents, more particularly, the Respondent no.
1 was aimed at defrauding the claimant. The business
of partnership was reduced to a surreptitious
proprietorship of the respondent no. 1, to the complete
detriment of the claimant.
17. If the siphoning out of the valuable assets of the
FSST branch was not enough to suggest that the
claimant was being systematically defrauded by the
respondents, the surrendering of the tenancy, (allegedly
for a steep consideration) being premises no 40/E, Free
School Street, Kolkata - 700 016, a property in the heart
of the commercial centre of Kolkata, without any
categorical consent from the claimant, drives home the
point to hilt. Although the tenancy of Free School Street
show room was in the name of Lajwanti Jotwani, it is
clear from the evidence that it was the partnership
property and the rentals were paid out of the
partnership funds. The claimant was the single largest
holder having 40 % share in the partnership business.
No cogent reasons have been forwarded, much less any
evidence brought on record to show as to what was the
compelling necessity in surrendering the tenancy, which
in itself was a valuable asset of the partnership. It is an
admitted position that despite the notice of the landlord
indicating deteriorating condition of the building where
in the ship of Bambino FSTT was located was given in
1992, the business was carried on for a number of
years. Even after surrender of the tenancy, a new show
room is functioning. The tribunal has no hesitation in
finding that Free School Street is a very important
commercial hub and the tenancy for the shop room and
the godown at Free School Street were very valuable.
The tribunal is also of the view that the valuable
tenancies could not be surrendered on mere request of
the landlord unless there had been an underhand
dealing between Lajwanti and or the other respondents
for a heavy consideration. The tribunal accepts the
report of the valuer filed by the claimant as reasonably
correct. The tribunal also records its finding that
transferring the tenancy of the godown at Free School
Street in favour of respondent no. 1 who was actually
managing the partnership business was highly
reprehensible and points to highly motivated act on the
part of responded no. 1 in collusion with other
respondents to defraud the claimant by violating well
accepted basic ethics and mortality expected from a
partner in a partnership business. The preponderance of
probability, which is the standard of proof required in
determining an issue as in the present one, is
overwhelmingly in favour of the case raised by the
claimant herein.
18. That leaves the Tribunal on the question of what
could be the quantifiable damages which the claimant
may be entitled to from the respondents.
19. The claimant has prayed for an award of Rs.
18,94,854 being [a] aggregate sum of Rs. 1,01,080.00
being her share of capital in the partnership business
as on 29.12.1997 [b] interest on the said capital at the
rate of 18% p.a. being Rs. 50,888.00 and [c] 40 % share
of the claimant in the partnership business of Bambino
FSTT on account of proceeds received or reasonably
expected to have been received by the respondents for
surrendering two tenancies or show room and godown
at Free School Street where partnership business of
Bambino FSTT had been carried together with
claimant's share in partnership business in the sale
proceeds of stock in trade, furniture, fixture etc
amounting to Rs. 17,36,886.00. The claimant has also
prayed for pendentilite interest at 18% per annum on
the said sum of Rs. 18,94,854.00.
20. Even though it is not possible to determine the
exact amount received by the respondents on account of
surrendering two tenancies of show room and godown
at Free School Street for want of any direct evidence but
considering the report of the valuer who was also
examined and cross examined by the parties at length
and his report appears to be correct and reasonable to
the tribunal and considering the fact that the said
tenancies were at one of the most prime business and
commercial hubs in the city of Kolkata where a very
high premium or salami was reasonably expected and
also considering the fact that the stock-in-trade,
furniture and fixture of a going concern for several years
which had been sold and sale proceeds had been
appropriated by the respondents, the claim for a sum of
Rs. 17,36,886.00 made by the claimant does not appear
to be unjustified, but in the opinion of the tribunal in the
absence of clinching evidence about the value of stock-
in-trade etc and the consideration received by the
respondents in surrendering the said two tenancies, it
will be just and proper to award a sum of Rs. 7 lacs
only being the aggregate of Rs. 5 lacs in the 40% share
of the claimant on account of consideration reasonably
expected to have been received in surrendering the said
two tenancies and 40% share of the claimant on account
of consideration reasonably expected to have been
received in surrendering the said two tenancies and
40% share of the claimant in the sale proceeds on
account of sale of stock-in-trade etc of Bambino FSTT
and appropriated by the respondents amounting to Rs.
2 lacs. Besides the said amount, the claimant is also
entitled for an award of Rs. 1,01,080.00 being her
share of capital in the business.
21. The claimant has also made prayer for
pendentitle interest at the rate of 18% per annum. Such
claim of 18% interest per annum does not appear to be
unjust and or unreasonable in commercial dealings but
considering the facts and circumstances of the case and
keeping in mind the fact that the claimant was deprived
of her share in the business capital of the firm and other
amounts indicated above for long years since closure of
partnership business, the tribunal finds that justice will
be met in pendentilite interest is confined to Rs. 7 lacs
Rupees seven lacs only].
22. The claimant is also entitled to reasonable cost of
arbitration case. Considering long drawn contest of the
arbitration case, the tribunal finds that the claimant is
entitled to a sum of Rs. 2 lacs on account of cost in the
arbitration including arbitrator's remuneration, cost of
counsel and other incidental cost.
23. Therefore, the tribunal makes an award of Rs.
17,01,080.00 [Rupees seventeen lacs one thousand and
eighty only] for all the above mentioned items in favour
of the claimant and against the respondents both
severally and jointly.
24. The tribunal also makes an award in favour of
the claimant and against the respondents jointly and
severally interest at 10% per annum on the said
answered sum of Rs. 17,01,080.00. Such interest will
run from one month after the date of award till the
awarded sum is paid, [one month being given as time to
make payment of the awarded sum.
25. Save as aforesaid, there will be no other cost in
this arbitration case."
DECISION WITH REASONS :
The 1940 Act, has grounds like "misconduct of arbitrator", "invalidity
of arbitrational proceedings" and "award other-wise invalid" were wide,
sweeping and open ended which used to give an extensive power to the
courts to set aside an award. These expressions were usually interpreted
widely by the courts and the awards were most often set aside-especially on
the basis of "misconduct" inter alia apparent error of law in the award.
Thus, the aim of arbitration which is to reduce the burden of the courts was
not being achieved. Rather, due to the number of opportunities in the hand
of the litigants to ask the court for intervention regarding the award-the
burden was increasing on the courts.
To make the arbitration proceedings effective and binding on the
parties who choose for arbitrational proceedings, it was imperative to
structure a new Act to fill in the loopholes of the 1940 Act. The 1996 Act
was thus brought into the picture which tried to fill in the gaps of the
previous law of arbitration in the country. The need of an arbitrational
system favoring nation was to reduce the workload of the courts and give
certainty and finality to the arbitration proceedings and the awards thereon.
Thus, the 1996 Act under S. 34 lays down restrictive grounds of interference
of the courts with the arbitral awards.
Section 34 introduces itself by saying that the grounds mentioned
thereunder are the "only" grounds on which an arbitral award may be set
aside. However, apart from the grounds mentioned under S. 34, the Act also
provides for other grounds as under S. 13, S. 16, S. 75 and S. 81 on the
basis of which the award can be set aside.
Section 13 provides for challenge under S. 34 on the ground of lack of
independence or impartiality or lack of qualification of the arbitrator
regarding the arbitration proceedings.
Section 16 authorizes an arbitration tribunal to rule its own
jurisdiction and pass an award. However, an aggrieved party can challenge
it under S. 34 to set aside the award.
Section 75 and Section 81 are provided in the explanation of Section
34(2)(b)(ii) which explains the ambit of public policy. Under Section 75, the
conciliation agreement and proceedings need to be confidential and if the
same is breached, there lies a challenge to an award passed from such
conciliation proceeding under Section 34. Under Section 81 if an award is
based on the admission of evidence which are not to be considered on a
conciliation proceeding, such an award can attract the challenge under S.
34.
Section 5 of the 1996 Act provides that notwithstanding anything
contained in any other law for the time being enforce, in matters governed
by Part 1, no judicial authority is to intervene, except where so provided in
the said part.
Section 34, read in conjunction with Section 5 makes it clear that an
arbitral award that is governed by Part 1 of the 1996 Act, can only be set
aside on grounds mentioned in Section 34(2) and (3) and not otherwise.
None of the grounds contained in Sub-section 2(a) of Section 34
permit the Court to adjudicate the merits of the decision rendered by an
arbitral award.
The grounds given under S. 34(2)(a) are crisp and precise and lay the
law as it is without the inclusion of any open-ended expression which
otherwise would have given the courts an opportunity to widen their scope
of interference with the arbitral awards. The only open-ended expression
which can be and has been of concern is the ground of public policy of
India. It has been under many cases defined as an unruly horse thus giving
the interpretation that it can never be defined or be a certain thing.
However, for the purpose of achieving the aim of the new Act, the Act of
1996-the legislature while drafting the Act limited the scope of public policy
in its explanation restricted it to:-
a) Fraud
b) Corruption
c) S. 75 or S. 81 (confidentiality breach or admissibility of
evidence)
The scope of public policy was, however, widened after Supreme Court
in its decision of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.
reported in 2003 (5) SCC 705 interpreted it to include "patent illegality" in
its definition. The case mentioned that the term public policy can be
construed and understood in a narrow or with a wider meaning and then
went ahead to say that it should not have a limited meaning-thus, included
the term "patent illegality" within the scope of public policy. "Patent
Illegality" as explained by the Saw Pipes Case meant any error of law on the
face of award, however, it did mention that the error which would be taken
into consideration should not be trivial in nature. Lord Mansfield in Holman
v. Johnson stated that the principle of public policy is ex dolo malo non
oritur actio. No Court of law will lend its aid to a man who founds his cause
of action upon an immoral or illegal act. The rule has been further
illustrated by Russel by stating that grounds of public policy on which an
award may be set aside include: (1) that its effect is to enforce an illegal
contract; (2) that the arbitrator, for instance manifested obvious bias too late
for an application for his removal to be effective before he made his award.
In its decision in Oil and Natural Gas Corpn. Ltd. (supra), the
Supreme Court has elaborated the concept of public policy at great length.
The concept was extended to permit challenge to an arbitral award which is
based on an irregularity of a kind which has caused substantial injustice. It
is stated:-
"Therefore, in our view, the phrase 'public policy of India' used in S. 34
in context is required to be given a wider meaning. It can be stated that
the concept of public policy connotes some matter which concerns
public good and the public interest. What is for public good or in public
interest or what would be injurious or harmful to the public good or
public interest has varied from time to time. However, the award which
is, on the face of it, patently in violation of statutory provisions cannot
be said to be in public interest. Such award/judgment/decision is
likely to adversely affect the administration of justice. Hence, in our
view in addition to narrower meaning given to the term 'public policy in
Renusagar's case, it is required to be held that the award could be set
aside if it is patently illegal. Result would be award could be set aside
if it is contrary to:-
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) Justice or morality, or
(d) In addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of
trivial nature it cannot be held that award is against the public policy.
Award could also be set aside if it is so unfair and unreasonable that it
shocks the conscience of the Court. Such award is opposed to public policy
and is required to be adjudged void.
The expression "public policy" or "opposed to public policy" is not
defined either in the Arbitration and Conciliation Act, 1996 or in the
Contract Act, 1872. The reason is that these expressions are incapable of
precise definition. The concept has to be taken to connote larger public
interest on public good. Broadly speaking it would mean policy of law and,
therefore, whatever tends to obstruct justice or violate a statute, whatever is
against good morals is against public policy.
Public policy means the principles and standards regarded by the
legislature or by the Court as being of fundamental concern to the state and
the whole of the society. The notion of public policy is not static. Ideas on
what is good for the public or what is in public interest, keeps changing with
time. The enforcement of an award is to be refused as being contrary to
public policy if it is contrary to the fundamental policy of Indian law,
country's interests, and its sense of justice and morality. The case in which
this point was raised did not involve any such violation, nor any other
ground for setting aside could be proved.
The words "public policy" are not to be confined to the Explanation
appended to the provision. That would be a very narrow construction of the
provision."
In the case reported in (2006) 11 SCC 181 (Centrotrade Minerals &
Metals Inc. -vs- Hindustan Copper Ltd.), the Supreme Court has
interpreted public policy to include patent illegality and such patent
illegality must go to the root of the matter. It should be unfair and
unreasonable so as to shock the conscience of the Court. The pleadings of
the parties and he materials on record are required to be considered to lay
the Court if the award is against public good on public interest.
The law laid down by the Supreme Court in Saw Pipes (supra) has led
many other courts to interpret the law to include any error of law to be hit
by S. 34 including the subsequent decisions of the Hon'ble Supreme Court,
for instance, in the case of Delhi Development Authority v. R.S. Sharma
reported in 2008 (13) SCC 80, the Hon'ble Supreme Court summarized the
law thus:-
"From the above decisions, the following principles emerge:
(a) An Award, which is
(i) Contrary to substantive provisions of law; or
(ii) The provisions of the Arbitration and Conciliation Act,
1996;
or (iii) Against the terms of the respective contract; or
(iv) Patently illegal, or
(v) Prejudicial to the rights of the parties, is open to
interference by the Court under S. 34(2) of the Act.
(b) Award could be set aside if it is contrary to:
(i) Fundamental policy of Indian Law; or
(ii) The interest of India; or
(iii) Justice or morality;
(iv) The Award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the Court;
(v) It is open to the Court to consider whether the Award is
against the specific terms of contract and if so, interfere with
it on the ground that it is patently illegal and opposed to the
public policy of India."
In ONGC Ltd. Vs. Garware Shipping Corporation Ltd. reported at
reported in 2007 (13) SCC 434, it was held that under Section 34 of the
Act, an award can be set aside on the ground that it is erroneous in law.
The Supreme Court in the case of McDermott International Inc. -vs-
Barun Standard Co. Ltd. reported in (2006) 11 SCC 181 has commented
on the scope of the powers of the arbitrator to interpret terms of the
contract, and the permissible interference by the courts on the assessment
of the arbitrator. It was held:-
"It is trite that the terms of the contract can be express or implied.
The conduct of the parties would also be a relevant factor in the
matter of construction of a contract. The construction of the
contract agreement, is within the jurisdiction of the arbitrators
having regard to the wide nature, scope and ambit of the
arbitration agreement and they cannot, be said to have
misdirected themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be
taken into consideration for the purpose of construction of a
contract. Interpretation of a contract is a matter for the arbitrator
to determine, even if it gives rise to determination of a question of
law.
The 1996 Act makes the provision for the supervisory role of
courts, for the review of the arbitral award only to ensure
fairness. Intervention of the Court is envisaged in few
circumstances only, like, in case of fraud or bias by the arbitrator,
violation of natural justice, etc. The court cannot correct the errors
of the arbitrators. It can only quash the award leaving the parties
free to begin the arbitration again if it is desired. So, the scheme of
the provision aims at keeping the supervisory role of the court at
minimum level and this can be justified as parties to the
agreement make a conscious decision to exclude the court's
jurisdiction by opting for arbitration as they prefer the expediency
and finality offered by it."
The Court will not judge the reasonableness of a particular
interpretation accorded by the arbitrator to the terms of the contract. Even
an error in interpretation, unless patently illegal, will only amount to an
error within the jurisdiction of the arbitrator.
In the case of Bharat Coking Coal Ltd. -vs- L.K. Ahuja reported in
(2004) 5 SCC 109, the Hon'ble Supreme Court observed as follows:-
"11. There are limitations upon the scope of interference in awards
passed by an arbitrator. When the arbitrator has applied his mind
to the pleadings, the evidence adduced before him and the terms of
the contract, there is no scope for the court to reappraise the matter
as if this were an appeal and even if two views are possible, the
view taken by the arbitrator would prevail. So long as an award
made by an arbitrator can be said to be one by a reasonable
person no interference is called for. However, in cases where an
arbitrator exceeds the terms of agreement or passes an award in
the absence of any evidence, which is apparent on the face of the
award, the same could be set aside."
In the case of KV Mohd. Zakir vs. Regional Sports Centre
reported at AIR 2009 SC (Supp) 2517, it held that the courts should not
interfere unless reasons given are outrageous in their defiance of logic or if
the arbitrator has acted beyond his/her jurisdiction.
In the case of P.R. Shah Shares & Stock Brothers v. M/s. B.H.H.
Securities (P) Ltd. reported at 2012 (1) SCC 594, it states that a court
does not sit in appeal over the award of an arbitral tribunal by re-assessing
or re-approaching the evidence. An award can be challenged only on the
grounds mentioned in S. 34(2) of the Act.
In the case of Steel Authority of India Ltd. v. Salzgitter
Mannesmann; OMP No. 736 of 2009, decided on 18th April, 2012 (Delhi
HC) it refused to set aside the award in view of court's limited and restricted
powers for judicial intervention as under S. 34 of the Act. The court relied
upon the judgment in P.R. Shah Shares (supra) and held that the court
cannot sit in appeal over the award of the tribunal by re-assessing and re-
evaluating the evidence.
In a fairly recent decision of Associate Builders Vs. Delhi
Development Authority reported at (2015) 3 SCC 49, the Hon'ble
Supreme Court had the occasion to re-consider the grounds on which an
award can be challenged under Section 34 of the Arbitration and
Conciliation Act, 1996. In dealing with the grounds on which an award can
be challenged, the Hon'ble Supreme Court has noticed the distinction
between Section 34(2)(a) and Section 34(2)(b)(ii) and held that it is only when
arbitral award is in conflict with Public Policy of India as per Section
34(2)(b)(ii) that merits of an arbitral award are to be looked into under
certain specified circumstances it includes if it is in conflict with Public
Policy of India. The Hon'ble Supreme Court has subdivided Public Policy of
India in four separate and distinct sub-heads, namely:-
i) Fundamental Policy of Indian Law;
ii) Interest of India;
iii) Justice or Morality; and
iv) Patent Illegality.
Fundamental Policy of Indian Law was again subdivided in four
heads, namely, i) Compliance with statutes and judicial precedents; ii) Need
of judicial approach; iii) Natural justice compliance; iv) Wednesbury
reasonableness.
Patent Illegality principle was subdivided in three heads, namely, i)
Contravention of substantive law of India; ii) Contravention of Arbitration
and Conciliation Act, 1996; iii) Contravention of the terms of the contract.
The Hon'ble Supreme Court in Associate Builders (supra) had taken
into consideration the object and reason for introduction of the 1996 Act
and observed that the said Act was enacted to replace the 1940 Arbitration
Act in order to provide for an arbitral procedure which is fair, efficient and
capable of meeting the needs of arbitration and also to provide that the
Tribunal gives reasons for an arbitral award; to ensure that the Tribunal
remains within the limits of its jurisdiction; and to minimize the supervisory
roles of courts in the arbitral process. The Fundamental Policy of Indian Law
requires compliance with statutes meaning thereby that an award which is
patently in violation of statutory provisions is in conflict with Public interest
and would be regarded as being contrary to the Fundamental Policy of
Indian Law. Furthermore, the binding effect of the judgment of a superior
Court if disregarded would be equally violative of the Fundamental Policy of
Indian Law. The arbitral tribunal being vested with the power to determine
the rights and obligations of the parties is required to show fidelity to
judicial approach meaning thereby that they cannot act in an arbitrary,
capricious or whimsical manner. Judicial approach demands that a decision
should be fair, reasonable and objective and not actuated by any extraneous
considerations. Equal important and indeed fundamental was that the
arbitral tribunal is required to follow the principles of natural justice. Audi
alteram partem principle is Fundamental to the Policy of Indian Law and is
also contained in Sections 18 and 34(2)(ii) of the Arbitration and
Conciliation Act. The juristic principle of wednesbury reasonableness also
forms part of the Fundamental Policy of Indian Law and a decision which is
perverse or so irrational that a reasonable person conversant with the facts
would not have arrived at the same conclusion is part of the Fundamental
Policy of Indian Law and on the ground of which an award can be
challenged. It is settled law that where a finding is based on no evidence or
an arbitral tribunal takes into account something irrelevant to the decision
which it arrives at or includes vital evidence in arriving at its decision. Such
decision would necessarily be perverse and on those grounds, an award can
be set aside. This later decision of the Hon'ble Supreme Court has
reaffirmed its faith in Saw Pipes Ltd. (supra) with a word of caution that
when a Court is applying the public policy test to an arbitration award, it
does not act as a Court of appeal and consequently errors of fact cannot be
corrected. A possible view by the arbitrator on facts has necessarily to pass
muster as the arbitrator is the ultimate master of the quantity and quality of
evidence to be relied upon when he delivers his arbitral award. Thus, an
award based on little evidence or on evidence which does not measure up in
quality to a trained legal mind would not be held to be invalid on this score.
Once it is found that the arbitrators approach is not arbitrary or capricious,
and then he is the last word on facts.
An award can be said to be against justice or morality only when it
shocks the conscience of the Court. The instance of it can be whether the
Tribunal awards a sum without any acceptable reason or justification. The
concept of Patent Illegality was considered by reference to the explanation
under Section 34(2)(b)(ii) of the 1996 Act which states that an award is said
to be in conflict with Public Policy of Indian Law if the making of the award
is induced or affected by fraud or corruption. Patent Illegality would include
a contravention of the substantive law of India or if an award is based in
contravention of Arbitration and Conciliation Act, 1996-for example, if an
arbitrator failed to give any reason for an award in contravention of Section
31(3) of the 1996 Act and in all cases whether the Tribunal failed to decide
in accordance with the terms of the contract which in effect would be really
a contravention of Section 28(3) of the Arbitration and Conciliation Act. The
Hon'ble Supreme Court, however, entered a caveat by stating that an
arbitral tribunal must decide in accordance with the terms of the contract
but if an arbitrator construes a term of the contract in a reasonable manner,
it would not mean that the award can be set aside on this ground.
Construction of the terms of the contract is primarily for an arbitrator to
decide unless the arbitrator construes the contract in such a way that it
could be said to be something that no fair minded or reasonable person
would do, of course, the arbitrator cannot wander outside the contract and
deals with the matters not forming the subject matter or allotted to him as
in that case he would commit jurisdictional error. The said judgment also
recognized and reaffirmed the settled law that where a cause or matters in
differences are referred of an arbitrator, whether layer or layman, he is
constituted the sole and final judge of all questions of law and of fact
obviously with the limited grounds of interference as alluded to above.
As observed by the Supreme Court in Associate Builders (supra), the
1996 Act was enacted to provide for an arbitral procedure, which is fair,
efficient and capable of meeting the needs of arbitration, to provide that the
Arbitral Tribunal gives reasons for an arbitral award, to ensure that the
Arbitral Tribunal remains within the limits of its jurisdiction and to
minimize the supervisory role of Courts.
The merits of an award might only be looked into under certain
specified circumstances, when an award is found to be in conflict with the
public policy of India, as held by the Supreme Court in Associate Builders
(supra).
An award might be set aside as patently illegal, provided the illegality
goes to the root of the award. If the illegality is of a trivial nature it cannot be
said that the award is against public policy. This proposition was reaffirmed
by the Supreme Court in Hindustan Zinc Ltd. Vs. Friends Coal
Carbonization reported at (2006) 4 SCC 445.
In ONGC Vs. Saw Pipes Ltd. (supra), the Supreme Court held that an
award could also be set aside, if it was so unfair and unreasonable, that it
shocked the conscience of the Court.
In Associate Builders (supra), the Supreme Court held that it must
be clearly understood that when a Court is applying 'public policy' test to an
arbitral award, it does not act as a Court of appeal and consequently the
errors of fact cannot be corrected. A possible view by the arbitrator on facts
has necessarily to be accepted as the arbitrator is the ultimate master of the
quantity and quality of evidence to be relied upon, when he delivers his
arbitral award. Thus, an award based on little evidence or no evidence,
which does not measure up in quality to a trained legal mind would not be
held to be invalid on this score. Once it is found that the arbitrators'
approach is not arbitrary or capricious then he is the last word on facts.
Patent illegality may render an award to be in conflict with the public
policy of India. Under the explanation to Section 34(2)(b) an award may be
said to be in conflict with the public policy of India if the making of the
award was induced or affected by fraud or corruption.
In the case of Indu Engineering & Textiles Ltd. Vs. Delhi
Development Authority reported at (2001) 5 SCC 691, the Supreme
Court held that the Arbitrator being a Judge appointed by the parties, the
award passed by him is not to be interfered with lightly. When the view
taken by the arbitrator was a possible or a plausible one, on his analysis of
evidence and interpretation of contractual and/or statutory provisions and
did not suffer from any manifest error, it was not open to the Court to
interfere with the award.
Even though the judgment in Indu Engineering & Textiles Ltd.
(supra) was rendered in the context of an application under Section 30 of
the Arbitration Act 1940, for setting aside of an award, the same principle
would apply to an application for setting aside an award, under Section 34
of the 1996 Act.
In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran
reported at (2012) 5 SCC 306, the Supreme Court held that when a clause
in a contract was capable of two interpretations and the view taken by the
arbitrator was clearly a possible if not a plausible one, it was not possible to
say that the arbitrator had travelled outside his jurisdiction, or that the view
taken by him was against the terms of contract. That being the position,
Court could not interfere with the award and substitute its view in place of
the interpretation accepted by the arbitrator.
In Sumitomo Heavy Industries Ltd. v. ONGC Ltd. reported at (2010)
11 SCC 296, the Supreme Court held:
"43. ... The umpire has considered the fact situation and placed a
construction on the clauses of the agreement which according to
him was the correct one. One may at the highest say that one
would have preferred another construction of Clause 17.3 but that
cannot make the award in any way perverse. Nor can one
substitute one's own view in such a situation, in place of the one
taken by the umpire, which would amount to sitting in appeal. As
held by this Court in Kwality Mfg. Corpn. v. Central Warehousing
Corpn. the Court while considering challenge to arbitral award
does not sit in appeal over the findings and decision of the
arbitrator, which is what the High Court has practically done in
this matter. The umpire is legitimately entitled to take the view
which he holds to be the correct one after considering the material
before him and after interpreting the provisions of the agreement. If
he does so, the decision of the umpire has to be accepted as final
and binding."
The Arbitrator is a Judge chosen by the parties and his decision is
final. It is well-settled that the Court is precluded from reappraising the
evidence. Even in a case where the award contains reasons, the interference
therewith would still be not available within the jurisdiction of the Court
unless, of course, the reasons are totally perverse or the judgment is based
on a wrong proposition of law or the arbitrator exceeds the terms of the
agreement or passes an award in absence of any evidence. An error
apparent on the face of records would not imply closer scrutiny of the merits
of documents and materials on record. Once it is found that the view of the
arbitrator is plausible one, the Court will refrain itself from interfering. The
said proposition can be found in Bharat Coking Coal (supra) and in State of
U.P. Vs. Allied Constructions reported at (2003) 7 SCC 396 and followed in
subsequent decisions.
As regard the submission of Mr. Aniruddha Mitra Learned Counsel for
the petitioner that the Award is in contravention with the West Bengal
Premises Tenancy Act, 1956 is concern, the petitioner has urged the said
issue before this court at the first time. The petitioner has neither raised the
said issue before the arbitrator nor any ground is taken in the application
under Section 34 of the Arbitration Act, 1996. This Court is of the view that
in absence of proper grounds, the Court cannot decide the legality of the
award other then the ground mention in the application.
As regard the Award passed by the Sole Arbitrator based on no
evidence this Court finds that both the parties have adduced their evidence
and the Learned Arbitrator has considered the evidences and the documents
relied by the parties. The Arbitrator has recorded that :
"No cogent reasons have been forwarded, much
less any evidence brought on record to show as to what
was the compelling necessity in surrendering the
tenancy, which is itself was a valuable asset of the
partnership. It is an admitted position that despite the
notice of the landlord indicating deteriorating condition
of the building where in the shop of Bambino FSTT was
located was given in 1992, the business was carried on
for a number of years. Even after surrender of the
tenancy, a new show room is functioning. The tribunal
has no hesitation in finding that Free School Street is a
very important commercial hub and the tenancy for the
shop room and the godown at Free School Street were
very valuable. The tribunal is also of the view that the
valuable tenancies could not be surrendered on mere
request of the landlord unless there had been an
underhand dealing between Lajwanti and or the other
respondents for a heavy consideration."
As regard the valuation report, the Arbitrator had accepted the report
and while accepting the report, the Arbitrator recorded the reasons that
considering the report of the valuer who was also examined and cross
examined by the parties at length and his report appears to be corrected and
reasonable. The Arbitrator has properly assigned reasons in para 20 of the
award as recorded above.
On scrutiny of the award, this Court finds that the petitioners have
actively participated in the arbitration proceeding and have submitted all
the documents and have examined witnesses and also cross examined the
witness of the respondent.
The Arbitrator held that in the absence of clinching evidence about the
stock-in-trade etc. and the consideration received by the respondents in
surrendering the two tenancies, it will be just and proper to award sum of
Rs. 7 lacs only being the aggregate of Rs. 5 lacs in the 40% share of the
claimant. It is the admitted case of the petitioner that the respondent was
having share of 40% in the said business and the petitioner has not
produced any evidence to show that the respondent has consented for
surrender or had the knowledge of such surrender.
CONCLUSION :
In view of the above, this Court finds that there is no infirmity in the
Award passed by the learned sole Arbitrator dated 27th May, 2007 and does
not require any interference.
Accordingly, AP No. 472 of 2009 is thus dismissed.
Parties shall be entitled to act on the basis of a server copy of the
Judgment placed on the official website of the Court.
Urgent Xerox certified photocopies of this Judgment, if applied for, be
given to the parties upon compliance of the requisite formalities.
(Krishna Rao, J.)
