P.D. Khanna vs Ashwani Khanna
2008 Latest Caselaw 1211 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI


        FAO (OS) Nos. 159-160/2002 & CM Nos. 5908/08, 4994/08

                                Reserved on: July 10, 2008
                                Date of decision: August 1, 2008


        P.D. KHANNA & ORS.                       ..... Appellants
                      Through: Mr. Sandeep Sethi, Sr. Advocate
                      with Mr. Vikram Nandrajog, Advocate (for
                      Group A)
                      Mr.Shantnu Rastogi and Mr.Animesh Sham,
                      Advocates for Group B

                       versus

        ASHWANI KHANNA & ORS.                 ..... Respondents
                    Through: Mr. Jay Savla, Advocate for
                    Group D.
                    Mr. Sanjeev Anand, Advocate
                    for Group E.

        CORAM:
        HON'BLE THE CHIEF JUSTICE
        HON'BLE DR. JUSTICE S. MURALIDHAR

        1.      Whether Reporters of local papers may be
                 allowed to see the judgment?            Yes
        2.      To be referred to the Reporter or not?   Yes
        3.      Whether the judgment should be reported Yes
                in Digest?

                                JUDGMENT

Dr. S. MURALIDHAR, J.

1. These appeals are directed against the judgment dated 15th March

2002 passed by the learned Single Judge dismissing OMP Nos. 71 and

93 of 1999 filed by the Appellants challenging an Award dated 1 st

January 1999.

2. The background to the filing of the present appeal are that an

arbitration agreement dated 4th September 1996 was entered into by

the members of the "Khanna Family" whereby the disputes

concerning distribution of the properties amongst them were referred

for arbitration by a Sole Arbitrator Mr. Navinpal Singh Bhandari.

There are five groups in the Khanna family. Group A is headed by

Mr. P.D. Khanna, Group B by Mr. L.R. Khanna, Group C by Mr. Y.P.

Khanna, Group-D is represented by Mr. Ashwani Khanna son of late

Mr. O.P. Khanna and Group E by Mr. P.P. Khanna. The disputes

related to the distribution of 17 different immoveable properties as

well as the assets of the businesses run by the different groups. The

incidental issues concerning the liabilities of the businesses of the

different groups were referred for arbitration. It was stated in the

arbitration agreement that the immovable properties standing in the

individual names of any of the parties would be treated as belonging

equally to all the brothers or their family members and would be

included in the family hotchpotch along with all other assets.

3. As regards the scope of the reference, it was agreed that:

"it shall be for the arbitrator to divide/bifurcate and to allocate with/without possession and settle the rights/ownership and otherwise of each of these properties which deciding all the controversies. They shall be competent to decide the respective share of each party in these and also to see as to what were which of the party is entitled to have in any one of these properties of otherwise to take into consideration the value of the properties while giving consideration to whole of the aspect."

It was further agreed as under:

"We all hereby appoint Mr. Navinpal Singh Bhandari, resident of R-25, Greater Kailash Part-1, as Sole Arbitrator to settle all our above mentioned matters. It is further

agreed that the award given by Mr. Navinpal Singh shall be final and binding on all properties the decision will not be challengeable in court of law. It is further agreed that during the course of arbitration, Sh. Navinpal shall be receiver of the above mentioned properties."

4. During the pendency of the proceedings before the Sole Arbitrator,

a family settlement was entered into between the groups on 9 th May

1997. In terms of the family settlement each of the groups was given

a combination of one residential and one industrial plot at the

minimum. Some of the groups were given an extra plot in exchange of

some other plot. For instance, Group A was given the residential

property at C-17, Kalkaji Extension an industrial plot at 22, Okhla

Industrial Estate, a property at 28, Community Centre, East of

Kailash, (subject top clearing the liabilities of M/s. A V Industries

owed to the State Bank of India) and another at B-258, Okhla

Industrial Area, Phase-I. By way of exchange, Group-A was to

surrender the property at 212, Okhla Industrial Estate which was to go

to Group B. The settlement also set out the manner in which other

groups were to surrender the properties in their respective possession

in lieu of what was allotted to them under the settlement.

5. In terms of the settlement it was further agreed that left over

properties would be sold in cash in the first instance to someone

within the family. Alternatively it would be sold in the market and the

money collected would remain in the custody of the Sole Arbitrator

who shall first clear off all the liabilities pertaining to all the

properties arising out of their personal and business transactions in

order to clear the debts and redeem the mortgage, if any, and recover

the title deed in order to facilitate the smooth transfer and exchange of

properties between the parties. The Sole Arbitrator was given a

General Power of Attorney („GPA‟) for, inter alia, engaging the

services of an Advocate for terminating the lease of M/s. A.V.

Industries with M/s. National Fertilizers Ltd. in relation to the

property at 28, Community Centre, East of Kailash and getting it

vacated either through a compromise or through other appropriate

legal proceedings. The settlement finally recorded that:

"That the parties hereto shall confirm, abide and implement and no party hereto shall challenge and/or question this family settlement/agreement to be made a part of the award of the Sole Arbitrator as well as to be a rule of the Court if necessary."

Simultaneously, a GPA was executed on 9th May 1997 in favour of

Mr. Navinpal Singh Bhandari.

6. The subsequent events are the bone of contention between the

parties. While the Groups A and B, the Appellants herein, contend

that the arbitration proceedings could not continue after the

settlement, the contesting groups (D and E) maintain that the disputes

did not get fully resolved at that stage. According to them, the issue of

valuation of the properties remained to be settled and this explained

the following proceedings dated 8th June 1997 recorded by Mr.

Navinpal Singh Bhandari and signed by all the parties:

"Present:

All present agreed that the price/valuation of the properties allocated in combination of residential and industrial, acceptable to all as

per family settlement, is left to the discretion of the arbitrator and is ascertainment thereof shall and is acceptable/accepted. Agreed also that the price/valuation will not be required to be disclosed prior to the award, and shall form part of the award in consequence of the family settlement already signed and assisted by Mr. Jagdish Sahni."

"All are directed to put up their respective claims from pool and/or one another with evidence, if any. Next meeting/hearing shall be duly brought to the notice of the heads of the group A,B,C,D and E.

                            Arun Khanna                sd/-
                            Y.P. Khanna                sd/-
                            Vinod Khanna               sd/-
                            P.D.Khanna                 sd/-
                            Ajit Khanna                sd/-
                            Ashish Khanna              sd/-
                            Prem Khanna                sd/-"

7. The appellants object to the authenticity of the above proceedings

stating that the words "and assisted by Mr. Jagdish Sahni" were added

by way of interpolation since at this stage Mr. Jagdish Sahni was not

even in the picture. The appellants belonging to Group A also dispute

their signatures. Be that as it may, it appears that after 8th June 1997

Mr. Navinpal Singh Bhandari continued to hold proceedings till the

parties entered into the further agreement referring the disputes to the

arbitration of Mr. Jagdish Sahni. The Appellants belonging to Group

A did not participate in any of the proceedings subsequent to 8 th June

1997.

8. As far as the subsequent agreement dated 25th July 1998, it is not in

dispute that Mr. Jagdish Sahni, to whom the disputes were referred,

did not conduct any proceedings. Significantly, the said agreement

makes no reference whatsoever to the earlier reference to Mr.

Navinpal Singh Bhandari or to the family settlement dated 9 th May

1997. The circumstances under which the subsequent reference of the

disputes was made to Sahri Sahni remains unclear. Mr. Sahni appears

to have come into the picture at the stage of Mr. Bhandari undertaking

the task of valuation of the properties.

9. The Award dated 1st January 1999 was signed both by Mr.

Navinpal Singh Bhandari as well as Mr. Jagdish Sahni. At the foot of

the Award both Mr. Bhandari and Mr. Sahni have appended their

signatures in the following manner:

"I, Navin P.S. Bhandari s/o Mr. Swarn SInghji r/o R-25, Greater Kailash-I, New Delhi do hereby append my signatures and verify this award made by me on this 31st day of December 1998 announce the same on 1st January 1999 and place before the representatives of the Group A to E in presence of Mr. Jagdish Sahni, MLA (Punjab) for their acceptance and signatures therefor on the index of this Award.

Sd/-

(Navin P.S. Bhandari)

I, Jagidsh Sahni, also appointed as Arbitrator, have read the contents of this Award dated 31.12.1998, announced in my presence at Conference Hall, South Delhi Club, Greater Kailash-I, New Delhi on 1.1.1999 and accepted by all heads of the Group A,B,C,D and E, who accordingly signed their acceptance in my presence. I agree and confirm with this Award made by Mr. Navin Pal Singh Bhandari.

Sd/-

(Jagdish Sahni)"

Mr. Jagdish Sahni has also signed on each of the annexures as well as

the cover page of the Award.

10. Group A filed OMP No. 93 of 1999 in this Court under Section 34

of the Arbitration & Conciliation Act, 1996 („Act‟) objecting to the

Award, inter alia, on the following grounds:

"(i) It deals with disputes not contemplated by and not falling within the terms of submission to the Arbitrator. It contains decisions on matters beyond the scope of the submission to arbitration;

(ii) the arbitral procedure was not in accordance with the agreement between the parties and the Arbitration & Conciliation Act, 1996 and particularly Part-I thereof.

(iii) the arbitral award is in conflict with the public policy"

11. It needs to be noticed that even before the Award was made, a

petition being OMP No. 206 of 1998 was filed by Group D in this

Court under Section 9 of the Act seeking an interim relief to the effect

that Sole Arbitrator Mr. Bhandari should be appointed as Receiver of

the property at C-28, Community Centre, East of Kailash. When this

petition was first heard on 14th September 1998, the Arbitrator

appeared through counsel and an order was passed appointing him as

Receiver. Subsequently, a detailed order was passed by the learned

Single Judge of this Court on 4th June 2001 vacating the earlier order

and putting Group A in possession of the said property subject to

terms. Group A have remained in possession of C-28 Community

Centre East of Kailash since then.

12. The other set of Appellants Group B filed a separate OMP No. 71

of 1999 assailing the Award more or less on the similar grounds as

Group A.

13. In the impugned order, the learned Single Judge accepted the

contention of Groups C, D and E that notwithstanding the family

settlement, the dispute concerning the valuation of the properties

remained to be resolved. The learned Single Judge thereafter

proceeded to identify the issues arising for determination as under:

"a) Whether the authority of Sh. N.P.S. Bhandari, arbitrator appointed by the first arbitration agreement stood superseded after agreement dated 25th July, 1998 was signed by the parties appointing Mr. Jagdish Sahni as the arbitrator? If the answer to the aforesaid question is in the negative, then

b) Whether the award of the arbitrator is liable to be set aside as against public policy?

While deciding this question, following aspects need to be determined.

i) Whether the arbitrator did not give proper notice of hearings after May, 1997 and interpolated certain minutes?

ii) Whether Sh. Bhandari acted in a biased manner?"

14. On the first issue the learned Single Judge observed that

"complete picture and whole truth is not projected by the parties" and

that "the agreement dated 25th June 1998 is shrouded in mystery."

Consequently it was held: "The only inference which is capable of

being drawn in such circumstances is that by entering into such an

agreement, it was never intended by the parties that the mandate of

Mr.Bhandari would be terminated." On the issue whether the Award

was opposed to public policy the learned Single Judge concluded:

"Thus the scope of challenge to an award under the new Act is extremely limited. Furthermore, as already pointed out above, award has been substantially acted upon and even during the proceedings before this court, various orders were passed from time to time in the interim

applications filed by the parties seeking various directions for payment of the amounts to various creditors etc. At this stage, it would not be appropriate to unsettle these things."

15. Mr. Sandeep Sethi, the learned Senior Counsel, appearing for

Group A, first submitted that the Award was on the face of it vitiated

in law since it had been signed by two arbitrators although the

reference to disputes was made to a sole arbitrator. Referring to

Section 10 of the Act he submitted that an Award by an even number

of arbitrators was per se invalid. Referring to the minutes of the

meeting of 8th June 1997, he submits that they were interpolated by

the sole Arbitrator and further that the signatures of the members of

Group A therein were forged. He submits that although the learned

Single Judge framed an issue whether there was an interpolation of

the record, the impugned judgment did not deal with it.

16. On merits Mr.Sethi submitted that the Award is patently

unreasonable, and shocking to judicial conscience, in so far as it deals

with the rights and entitlements of Group A. It is pointed out that

Group A had already paid the bank a sum of Rs. 35 lakhs for

redemption of the mortgage in relation to the property at C-28

Community Centre, East of Kailash. Further Group A had also

deposited Rs. 15 lakhs in this Court in terms of Clause 9 of the

Award. However, in terms of Clause 9 of the Award, if Group A

failed to pay the Arbitrator the sum of Rs. 1,34,07,000/- less Rs. 15

lakhs within 90 days from the date of the Award, the said property

would revert to the family pool to be offered to any other group

against payment for exchange value or put to the sale. Of the amount

recovered in this process Group A was to be paid Rs. 1,15,93,000/-

from which interest at 18 per cent per annum on Rs. 1,34,07,000/-

from the date of the award till the date of the realization of the money

was to be deducted. Rs. 15 lakhs already paid by the appellant was to

be forfeited. No mention was made as to whether the sum of Rs. 35

lakhs already paid to the bank would be refunded to Group A.

Further, in terms of Clause 18 of the Award the constructive

possession of all immovable properties in Schedules I and II and the

physical possession of C-28 Community Centre, East of Kailash was

to remain with the Sole Arbitrator along with the proceeds from the

sale of plot of Vasant Vihar till implementation of this award in toto.

Further he points out that the Award did not state how the sum of Rs.

1,34,07,000/- paid to the Arbitrator would be distributed among the

groups. Apart from the fact that by the above process Group A would

get nothing under the Award, it would end up paying a huge sum.

This was contrary to the family settlement which was never intended

by the parties to be dislodged. Therefore the Award was plainly

unreasonable as far as it dealt with Group A. The bias of the

Arbitrator was evident. Also, the above clauses showed that the

Arbitrator had acted contrary to the terms of reference by retaining the

control over the monies and properties and that this was never

intended when the parties entered into the settlement. Without

prejudice to these contentions, Mr. Sethi submitted that Group A was

willing to deposit in this Court the sum of Rs.84,07,000 (i.e.

Rs1,34,07,000 minus Rs.15,00,000 minus Rs.35,00,000) subject to the

property at C-28 Community Centre, East of Kailash being transferred

to Group A and the money deposited being distributed among the

Groups pro rata.

17. Appearing for Group B, Mr. S.Rastogi, learned counsel tendered

the affidavit of Mr. Vinod Khanna, who represented that group

wherein it was stated that Group B has discharged a substantial

amount of the liability in terms of the Award and this is without

prejudice to its objections to the Award. It is stated that of the total

liability of Rs.36.04 lakhs, Group D has made a total payment of

Rs.35,00,866.

18. Appearing for the Group E, Mr. Sanjeev Anand, the learned

counsel submits that the impugned judgment of the learned Single

Judge, does not call for any interference. According to him, the

settlement was never really acted upon and as the minutes of the

proceedings of 8th June 1997 show, the parties had agreed before the

sole arbitrator that the properly should be got valued. This led to the

parties approaching Mr. Sahni for that purpose. He urged that the

appeal should be dismissed and the property earmarked to the share of

the appellants should revert to the family pool and be disposed of in

terms of the Award.

19. Appearing for Group D, Mr. Jay Savla, the learned Advocate

points out that a substantial portion of the Award has already been

implemented and, therefore, it would not be in the interests of justice

now to set the clock back. On the question of award being signed by

the two arbitrators, he points out that this ground was never raised

before the learned Single Judge or even in the memorandum of

grounds of the present appeal. He places reliance upon the judgment

of the Supreme Court in Narayan Prasad Lohia v. Nikunj Lohia

2002 (3) SCC 572 to submit that the Award need not be set aside only

on this ground particularly since it has been substantially implemented

and does not suffer from any infirmity. On instructions from his

clients, Mr. Savla submits that they would have no objection if Group

A is permitted to retain the property at C-28, Community Centre, East

of Kailash subject to their paying the sum as determined by the

Arbitrator together with interest at 18% per annum.

20. During the course of the hearing of this appeal, when it transpired

that Groups B, C and D would have no objection to Group A retaining

the property at C-28, Community Centre, East of Kailash subject to

making payment in terms of the Award, the Court sought the response

of Group E whether they too would agree to such a course. On

instructions from his clients, Mr. Sanjeev Anand submitted that Group

E were unwilling since according to them present value of the

property in question had increased several-fold. The Court therefore

proceeds to deal with the submissions of counsel for the parties.

21. There are two broad issues that arise for determination in this

appeal. One concerns the signing of the Award by two Arbitrators

and the other the objections to it on merits. As regards the first issue,

counsel for the respondents are right in their contention that no

specific ground that the Award could not have been signed in terms of

Section 10 of the Act by two Arbitrators when the reference was made

to a Sole Arbitrator was raised by the appellants before the learned

Single Judge either in the OMP or even during arguments. There is no

such ground raised in the memorandum of the present appeal as well.

Therefore this Court is not inclined to entertain this objection. Further,

this Court finds force in the submission of the learned counsel

appearing for Group D. on the strength of the judgment of the

Supreme Court in Narayan Prasad Lohia, that it would not be in the

interests of justice to set aside the award only on this ground since it

has been substantially acted upon by the parties.

22. After examining the records and the pleadings, this Court is

inclined to concur with the learned Single Judge that the

circumstances under which the parties entered into the subsequent

agreement dated 25th June 1998 referring the disputes to Mr. Sahni is

not clear at all. It is an admitted position that Mr. Sahni never

conducted any proceedings. On the other hand, Mr. Bhandari appears

to have continued to hold proceedings even after the family

settlement. The proceedings of 8th June, 1997 appears to have signed

by all the parties. Although Mr. Sethi sought to dispute the signatures

of the members of Group A as recorded in the minutes, we do not find

merit in the objection. Accordingly we are not inclined to interfere

with the Award only on the ground that it has been signed by an even

number of persons. Also, in the circumstances, it is not possible to

accept the case of the appellants that the intention was not to continue

with Mr. Bhandari as Arbitrator.

23. However, as regards the objection raised by the appellants to the

Award on merits, this Court finds that Clause 9 of the Award, is on

the face of it patently unreasonable and irrational in so far as it deals

with the rights and entitlement of Group A. There are several reasons

why this Court finds that parts of Clause 9 read with Clause 18 appear

to „shock the judicial conscience‟. First, the intention of the parties in

continuing the proceedings before Mr. Bhandari died not mean that

the family settlement was abandoned altogether. While the valuation

of the properties was an exercise remaining to be undertaken, the

essential agreement as regards the identity if the properties allocated

to each of the groups appears to have attained finality. In other words,

it was not the intention of the parties to deprive any of the groups of

the properties already allocated to each of them in terms of the family

settlement.

24. To the extent that Clause 9 requires a certain amount to be paid by

Groups A and D, this Court does not propose to interfere with the

Award. However, there was no question of payment of such monies

being made to the Arbitrator as indicated in Clause 9, without any

further stipulation that such money will be distributed pro rata among

the groups. Therefore the direction that the money will be paid to the

Arbitrator is plainly unsustainable in law. Secondly, Clause 9 does not

account for the payments already made and those to be made by

Group A to the bank. Thirdly, the cash payment by Group A of Rs. 15

lakhs in terms of Clause 9 could not have been ordered to be forfeited

in the event of their not paying the sum of Rs. 1.34 crores. Such a

stipulation is plainly unreasonable and unacceptable. If after the sale

of the property, interest at 18% per annum on Rs. 1.34 crores has to be

deducted, Group A will not only get nothing but would have ended

paying sums which were non-refundable. This read together with

Clause 18 which deprived Group A of possession of the property

falling to their share undoubtedly renders the above portion of the

Award vis-à-vis Group A unsustainable in law. We are therefore

unable to agree with the learned Single Judge that the arrangement

brought about by the learned Arbitrator was a fair resolution of

disputes as far as Group A was concerned or that there was no loss

caused to Group A.

25. At the same time, this Court is conscious that the Award has been

substantially worked out by the parties. In fact Group B also appears

to have complied with the Award substantially. This Court therefore

considers it to be interests of justice to partially modify Clause 9 and

Clause 18 of the Award in so far it concerns the property at C-28,

Community Centre, East of Kailash which has fallen to the share of

Group A. It is directed that within a period of eight weeks from today,

Group A will deposit in this Court the balance sum of Rs. 84,07,000/-,

(i.e., Rs. 1,34,07,000/- minus Rs. 50 lakhs) together with the simple

interest at 18 per cent per annum from the expiry of 90 days after the

date of the Award till the date of payment. Upon this payment being

made by Group A the property at C-28, Community Centre, East of

Kailash will be transferred to Group A. The direction contained in

Clause 18 that constructive possession of the property would remain

with the Arbitrator till the entire amount is worked out is hereby set

aside. The possession of the aforementioned property will, subject to

Group A abiding by the above direction, remain with Group A. The

authorities concerned will act on the certified copy of this order to

effect the necessary changes in the records. The rest of the Award is

not being interfered with and will be worked out in terms thereof in

accordance with law. It will be open to the parties to institute

appropriate proceedings to ensure that their respective pro rata shares

of the monies deposited in this Court are made available to each of the

groups.

26. The appeals accordingly stand disposed of with no orders as to

costs.

S. MURALIDHAR, J.

CHIEF JUSTICE

AUGUST 01, 2008 rk/ak