S. Harinder Singh vs S. Nirmal Singh & Ors.
2012 Latest Caselaw 5315 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                      Judgment reserved on: 16.08.2012

%                                     Judgment delivered on: 06.09.2012

+      FAO(OS) No. 134/2008

       S. HARINDER SINGH                                 ..... Appellant
                     Through:         Ms. Geeta Luthra, Senior Advocate
                                      with Mr. Ravi Sikri & Mr. Jatin
                                      Sehgal, Advocates.
                       versus

       S. NIRMAL SINGH & ORS.                           ..... Respondents
                     Through:         Mr. V.P. Singh, Senior Advocate with
                                      Mr. Sunil Narula, Advocate for the
                                      respondents No. 1 & 2.

       CORAM:
       HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
       HON'BLE MR. JUSTICE VIPIN SANGHI

                                JUDGMENT

VIPIN SANGHI, J.

1. The appellant has filed the present appeal under Section 37(1)(b) of

the Arbitration and Conciliation Act, 1996 (for short „The Act‟) to challenge

the order dated 29.02.2008 passed in OMP No.261/2003, whereby the

learned Single Judge of this Court has allowed the objections under Section

34 of the Act in respect of the award made by the Arbitrator Mr. Haji

Ayamuddin on 04.04.2003, and consequently set aside the award made in

favour of the appellant.

2. The learned Single Judge has returned the finding that an arbitration

agreement existed between the parties to refer their dispute with regard to

distribution of US$ 5,50,000/- to arbitration of a sole Arbitrator and not to

two Arbitrators, as contended by the respondent. However, the learned

Single Judge held that the arbitration agreement was void as it provided that

the Arbitrator would arbitrate all financial matters only with the consent of

the appellant, who was the main contender in the dispute. The learned

Single Judge held that if the Arbitrator‟s decision is to be made with the

consent of one of the parties to the dispute, then such an agreement cannot

be considered to be an arbitration agreement. The learned Single Judge also

held that the Arbitrator had made an award in the absence of the parties who

were effected thereby. In substance, it was held that the award had been

made in breach of principles of natural justice.

3. The learned Single Judge also ruled on the scope of the arbitration

agreement. According to the appellant, the scope of the arbitration

agreement encompassed all the properties dealt with by the learned

Arbitrator in the impugned award as, according to the appellant, they were

purchased from out of the funds remitted from Afghanistan to India, or out

of businesses set up by capital funds provided by, or remitted from

Afghanistan. While, according to the respondents, the scope of the

arbitration agreement was merely limited to distribution of the amount of

US$ 5,50,000/- which was the sale proceeds realized upon the sale of house

at Wazir Akbar Khan, Kabul, Afghanistan, upon the taking of accounts. The

learned Single Judge held that the scope of the arbitration agreement was

confined to distribution of US$ 5,50,000/- and nothing more.

4. Before us the appellant does not dispute the fact that the arbitration

proceedings held by Mr. Haji Ayamuddin, Sole Arbitrator, were not in

accordance with the Act, and there is no dispute that the impugned award

cannot be sustained on that account. However, it is contended by the

appellant that the learned Single Judge has erred in concluding that the

arbitration agreement provided that the award could be made only with the

consent of the appellant and on that account the arbitration agreement was

void. The other submission of the appellant is that the scope of the

arbitration agreement encompassed not only the distribution of the amount

of US$ 5,50,000/- from the sale of house at Wazir Akbar Khan, Kabul,

Afghanistan, but also the distribution of various other properties and assets

on which the parties laid their claim.

5. In the light of the aforesaid, the first issue that arises for our

consideration is, whether the arbitration agreement, on a proper

interpretation thereof, provided that the award could be made only with the

consent of the appellant so as to make it void. The second issue that arise

for consideration, in case the first is held in favour of the appellant is, as to

what is the scope of the arbitration agreement, i.e. whether it covers the

aspect of distribution of the amount of US$ 5,50,000/- only, as aforesaid, or

whether it also includes the aspect of distribution of the other properties and

assets between the parties.

6. We may note that during the course of hearing, Mr. V.P. Singh,

learned senior counsel for the respondents repeatedly and categorically

stated on instructions that the respondents were agreeable to reference of the

dispute with regard to the distribution of the amount of US$ 5,50,000/- to

arbitration. In fact, no argument was raised before us by the respondents to

support the view taken by the learned Single Judge that the arbitration

agreement between the parties was void for the reasons recorded

hereinabove. Pertinently, this was not even taken as a ground in the

objection petition under Section 34 of the Act filed by the respondents. It

was not their understanding of the agreement that the Arbitrator could make

the award only with the consent of the appellant. In any event, we consider

it appropriate to independently examine the said issue as, according to the

appellant, the interpretation of the arbitration agreement adopted by the

learned Single Judge is incorrect.

7. The learned Single Judge notes in the impugned order itself that the

original arbitration agreement was drawn up in Persian. The same was

translated, inter alia, by the Ministry of Justice State Affairs Department,

Transitional Islamic State of Afghanistan and it is that translation which has

been relied upon by this Court even while passing the earlier order dated

10.11.2009. We reproduce hereinbelow the said translation of the agreement

dated 29.08.2002, which reads as follows:

"By this letter, we, each one of us, Nirmal Singh, Harinder Singh, Kirat Singh all sons of Amar Singh agree in regard to the money from the sale of Wazir Akbar Khan House the value of which is five hundred fifty thousand US Dollars until the arbitration/settlement of accounts be kept in the custody of the following:

1. With Harinder Singh three hundred thousand US Dollars

2. With Kirat Singh two hundred fifty thousand US Dollars. The expenses of sale deed based on documentary proof, be borne by Kirat Singh, with the consent of all the three parties,

from the amount lying in his custody. The sale of this house is subject to the compliance/execution of the terms and conditions embodied in this document. This agreement is being signed by all the parties thereto as consent document. Haji Ayamuddin has undertaken the responsibility to arbitrate all the financial matters with the participation of S. Attar Singh which be done after the consent of Harinder Singh who is the main subject of the matters and after all settlements the money kept in the custody be handed over to the rightful parties. S. Harinder Singh and S. Kirat Singh have agreed not to use these amounts for any personal use, which be lying in their custody until next 45 days till such account matters be adjudicated upon and arbitration awarded by Haji Ayamuddin with the help of S. Attar Singh within 45 days. In case all such matters, accounts are not arbitrated within 45 days still the money would remain with them in their custody only. The time for final arbitration award would be extended by Haji Ayamuddin anu with the cooperation/consent of S. Attar Singh. Amount of US$ three hundred thousand be transferred in the account of S. Harinder Singh within 15 days. We all parties honestly abide ourselves by all consents. And again in the presence of two witnesses and in the court, before the judge we give our consent truthfully and honestly abide by our consents."

(Emphasis supplied)

8. We may, at this stage, analyse the arbitration agreement between the

parties. While doing so, we have to be mindful of the fact that the

agreement was initially drawn up in Persian language and was subsequently

translated. Consequently the syntex of the various sentences contained in

the arbitration agreement has to be correctly appreciated and understood.

Some provision has to be made for the structure or formation of the

sentences. Since they were not originally written in English language by the

parties, they cannot be literally read or construed. Their substance, rather

than form, has to be focused upon. The relevant part of the aforesaid

agreement, which has weighed in the mind of the learned Single Judge while

reaching his aforesaid conclusion has been printed in bold hereinabove. The

manner in which the learned Single Judge has interpreted the aforesaid

sentence is that the award/Arbitrator‟s decision is to be with the consent of

the appellant. With due respect, we cannot agree with this interpretation.

What was clearly meant by the parties is that the arbitration itself would be

undertaken after the consent of the appellant, and not that the award would

be made with the consent of the appellant or any other party. It goes without

saying that an arbitration between two or more parties can proceed only with

the consent of all the parties, and not otherwise. That consent is contained in

the arbitration agreement. If the interpretation given by the learned Single

Judge were to be accepted, it would also mean that the arbitration could take

place only after the settlements of the money kept in the custody has taken

place, and handed over to the parties, as even this aspect forms part of the

same sentence. Obviously, that interpretation cannot be adopted as,

undisputedly, the settlement of the money kept in custody was required to be

done through arbitration and the rightful party had to be determined through

the process of arbitration. It is one thing to say that the arbitration would

take place after consent of the parties to the agreement is obtained, and

another thing to say that the arbitration award shall be made only after

obtaining consent of one of the parties. In our view, in the present case, all

that was agreed was that the arbitration shall take place after the consent of

the appellant had been obtained, and it did not mean that the arbitration

award would be made only after the consent of the appellant had been

obtained. It is clear to us that this was not the manner in which the parties

understood the agreement. Pertinently, the award impugned before the

learned Single Judge was not made after obtaining the consent of the

appellant. There is authority to support the proposition that the endeavour of

the Court while interpreting an arbitration agreement should be to uphold the

arbitration agreement, and if more than one interpretations of the agreement

are possible, the one which is reasonable and sustains the agreement should

be adopted and the interpretation which would destroy the arbitration

agreement should be eschewed. In this regard, we may refer to the decisions

in reported as Hymayun Reza Chaudhary and Another Vs. Harendra Nath

Das & Others, AIR 1945 Pat 447; Onex Corporation Vs. Ball Corporation

and Ball Packaging Products Holdings, Inc. and Ball Packaging Products

Canada, Inc., 1994 CanLII 7537 (ON SC); and Greenfield Ethanol Inc. Vs.

Suncor Energy Products Inc., 2007 Can LII 33118 (ON SC). We may

also refer to the following extract from the American decision reported as

Universal Marine Insurance Company Ltd. Vs. Beacon Insurance

Company, 588 F.Supp. 735:

"5. The interpretation of the scope of an arbitration clause is governed by two guiding legal principles. One, as there is a strong federal policy favoring arbitration as evidenced by the Arbitration Act, "any doubt concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S.1, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983). Two, an order to arbitrate a particular grievance should not be denied unless it may be said with "positive assurance" that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Bell Canada v. ITT, 563 F.Supp. 636, 640 (S.D.N.Y.1983); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH. 585 F.2d 39, 45 (3d Cir.1978); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960) (dealing with Labor Management Relations Act, 29 U.S.C. 301)."

9. The written submissions tendered in Court on behalf of respondents

No. 1 & 2 are also germane. In these written submissions, the respondents

in para 1 of the written submissions stated as follows:

"The respondents herein had submitted before the learned Single Judge that the consent of letter/document Annexure R-1

(Page 188) is not an arbitration agreement and in case the Hon'ble Court concludes it to be an arbitration agreement, then it refers for arbitration of a defined dispute relating to disbursement of US$ 5,50,000/- being the sale proceeds of Wazir Akbar Khan House at Kabul. The learned Single Judge found that the document dated 29.8.2002 is an arbitration agreement but categorically found that the dispute referred to arbitration was limited to US$ 5,50,000 which was received as sale consideration and was to be distributed amongst the three brothers. This finding is recorded in para 12 of the impugned judgement at page 57. When the matter came up for admission, the respondents herein had categorically stated that they are agreeable to fresh arbitration on this limited question and not with regard to any other alleged dispute between the parties. This position was stated by the counsel for the respondent before this Hon'ble Bench also." (Emphasis supplied)

10. Consequently, we are of the view that the finding of the learned

Single Judge that the arbitration agreement dated 29.08.2002 was void is not

sustainable and the same is, accordingly, set aside.

11. Turning to the second issue, we find that the finding of the learned

single Judge regarding the scope of arbitration agreement, that it was only

the distribution of the amount of US$ 5,50,000/- and not the division and

distribution of the other properties was founded upon incomplete materials

and did not take into account all the facts, circumstances, and submissions of

the parties. Consequently, the same cannot be sustained. In para 12 of the

impugned judgment, the learned single Judge observes that the bone of

contention at the time of entering into the arbitration agreement was the US$

5,50,000 received as sale consideration, and the distribution of the same

amongst the brothers. The learned single Judge also observed that the

family members in whose names the various properties stood were not made

parties to the agreement or the arbitration proceedings. After noting the

submissions of the appellant to the effect that most of the business was under

his control and the entire seed money for the business in Delhi being run by

S.Nirmal Singh, respondent no.1 or by S.Kirit Singh, respondent no.2, was

provided by him, and that S.Nirmal Singh had transferred the entire money

in the names of his kith and kin by gift or otherwise, the learned single

Judge observes that the appellant had only asked for statement of account

and had not laid claim over any specific property held by S. Nirmal Singh or

his family members. The learned single Judge holds that the Arbitrator had

travelled beyond the terms of the arbitration agreement as he had not been

assigned the work of distribution of property of different family members

amongst the three brothers. The said mandate was neither given, nor could

have been given to the Arbitrator as it was not the case of the appellant that

the said properties were HUF properties or joint family properties. In fact

the properties stood in the names of individuals in different parts of India.

The learned single Judge also invoked the provisions of the Benami

Transactions (Prohibition) Act, 1988 to hold that the appellant could not

claim that the various properties held in the names of the family members of

the respondents, in fact belonged jointly to all the parties.

12. We have already observed regarding the approach to be adopted in

construing the arbitration agreement. We now proceed to examine the

agreement to determine the second issue i.e. with regard to its scope. The

opening words of the agreement begin by providing that the amount of US$

5,50,000/-, until settlement through arbitration be kept in a particular way. It

then states that S.Kirat Singh has agreed to bear the expenses of the sale

deed. To us it appears that this sale deed is that of the house at Wazir Akbar

Khan, Kabul, Afghanistan. The expenses were to be evidenced by

documentary proof to be produced by the parties and was to be defrayed

from the amount lying in his custody i.e. US$ 5,50,000. So far as the core of

this arbitration agreement is concerned, it provides that Haji Ayamuddin has

undertaken the responsibility to arbitrate "all the financial matters". It also

provides that "after all settlements the money kept in custody be handed over

to the rightful parties".

13. To throw light on what is meant by "all the financial matters", the

appellant has referred to the history of earlier arbitration proceedings

undertaken between the parties and to submit that it was the understanding

of all the parties that the various properties acquired by them either in their

name or in the names of their family members would fall within the scope of

arbitration proceedings.

14. This background may now be noted. The appellant and respondents 1

and 2 are real brothers, all sons of late S.Amar Singh who lived and died in

Kabul in the year 1967. He carried on the joint family business. His assets

were distributed in accordance with his Will. The appellant‟s case was that

while S.Nirmal Singh failed in his textile business and suffered losses, S.

Kirat Singh was only 16 years of age in 1968 when he was sent to India for

education. He remained in India till 1974-75. Thereafter he came back to

Kabul and joined the business of the appellant. Respondent No.1 S. Nirmal

Singh on the other hand kept shuttling between India and Kabul during the

period 1968-1973 and from 1974 onwards he remained in India. The

appellant claimed that from 1968 onwards he had been sending money to

respondent no.1 S. Nirmal Singh in India which was used for purchase of

properties in the names of various family members. The appellant claimed

that respondent no.1 was acting on behalf of the family members as their

attorney. In 1979 when the situation in Afghanistan became unsecure, the

appellant came back to India. At that stage disputes arose between the

parties since, according to the appellant, the respondents failed to account

for the monies sent from Kabul and the assets purchased therefrom. The

appellant states that this led to the appointment of S. Balwant Singh as an

Arbitrator. S. Balwant Singh was an old family friend. Two arbitration

agreements are stated to have been executed between the appellant and

respondent no.1 on the one hand, and the appellant and respondent no.2 on

the other hand. These two agreements read as follows:

A. "I, S. Balwant Singh Khalsa, S/o. S. Ram Singh Madan, today have accepted being arbitrator in the financial matters between Kirat Singh Grover and Harinder Singh Grover relating to Kabul and abroad. Nirmal Singh Grover is representing Kirat Singh and Avtar Singh Grover is representing Harinder Singh. Both these representatives will consider and will decide within my final decision authority.

According to business norms to the safety of three parties i.e. Harinder Singh, Nirmal Singh and Kirat Singh, I will execute their disclaim documents in favour of one another.

18.01.2011 Sd/-

Balwant Singh

Above written is accepted by me Sd/-

Balwant Singh"

B. "I, Balwant Singh Khalsa, S/o. S. Ram Singh Madan, guarantee to arbitrate and decide all financial matters between S. Nirmal Singh Grover, S/o Late S. Amar Singh and S.

Harinder Singh Grover S/o Late S. Amar Singh.

I will arbitrate all financial matters as per the business norms and will make the parties to hand over the due amounts of each other before getting final disclaim letters from both the parties.

In this arbitration and financial settlements, I will take note of S. Nirmal Singh's income tax liabilities. The division of movable and immovable assets will be done according to business norms. If the bank account details are not clear from the account details which are presently available here, then I will clear the same to Nirmal Singh at the end.

Above writing is confirmed.

       Sd/-                   Sd/-                   Sd/-
       Nirmal Singh           Balwant Singh          Harinder Singh
                              05.02.2001

       Sd/-                    Sd/-
       Avtar Singh             Kirat Singh
       As witness              As witness

       Sd/-              Sd/-            Sd/-                  Sd/-
       Nirmal Singh      Avtar Singh     Balwant Singh         Harinder Singh

       Sd/-
       Kirat Singh"

15. The aforesaid show that the first so-called agreement between the

appellant and S. Kirat Singh (stated to be represented through S. Nirmal

Singh) on the one hand, and the appellant (represented through Avtar Singh

Grover) on the other hand, bears the signatures of only the so-called

Arbitrator S. Balwant Singh Khalsa and, therefore, cannot be considered to

be an arbitration agreement. The second agreement, to arbitrate disputes

between S. Nirmal Singh and S. Harinder Singh, has been signed by the

parties to the said agreement and thus constitutes an arbitration agreement.

However, what is of relevance for our purpose is to note that this arbitration

agreement was to "decide all financial matters" between the parties. The

agreement also talks about "the division of movable and immovable assets"

according to business norms. This agreement was not limited to mere

distribution of the amount of the US$ 5,50,000/- and was much wider in its

scope.

16. The appellant has placed on record, what he claims to be the claim

filed by respondent No. 1/S. Nirmal Singh before Balwant Singh as

Annexure A-4. The claim filed by respondent No. 2 has been filed as

Annexure A-6. The submission of the appellant is that a perusal of these

claims of respondents No. 1 & 2 filed before Balwant Singh shows that,

according to the understanding of all the parties, the various properties

purchased by them were the subject matter of arbitration. Respondent No. 1

in his statement of claim made the following statements, which are relied

upon by the appellant:

(i) ..... ..... ..... Then Kirat Singh in 1968 went to Amritsar for studies. After that we continued purchasing properties in Amritsar. Its funds came from Kabul. ..... ..... .....

(ii) ..... ..... ..... In 1974 Harinder Singh made programme to buy properties and took out 2-1/4 amounts from Kabul as compared to amount he sent to Nirmal Singh. During this course of time we continued buying/selling properties here. I gave them back 5.75 to 6 and 10/11 was left with me. During this course of time regarding settlements so many times discussions were done with Harinder Singh. Whenever regarding accounts references were made then Harinder Singh did not turn up for almost year. ..... ..... .....

(iii) Out of Kabul money properties purchased and sol here. Out of that 5.75 was given. Balance properties to be divided in the same share allocation..... ..... .....

17. Similarly, respondent No. 2 in his statement of claim made the

following statements, which are also relied upon by the appellant:

(i) ..... ..... ..... In 1974 month of May, I (Kirat Singh) came back to Kabul. I started working without any agreement. This was my understanding that the capital which was 10.cr in 1974

belonged to all 3 brothers together. We were working together, Harinder Singh being in Kabul. ..... .....

(ii) In 1978, Harinder Singh went to Delhi, in which time we had approx.30, out of which 20 went out/India and 10 remained balance (in Kabul).

(iii) From 1978 to 1982 and 1983, during these 5 years upto 12/13 was sent to India, out of which for Home 50/dollars and 8/75 lacs hundi.

18. The appellant also relies upon the letter stated to have been written by

S. Kirit Singh and signed by S. Nirmal Singh dated 09.07.2001 to the then

Arbitrator Balwant Singh. In this letter, the respondents, inter alia, stated

that "In 1969 when came to India, properties purchased from funds sent

from Kabul are given in separate detail chart."

19. Reference is also made to the letter dated 27.07.2001 sent by

respondent No. 1 to the Arbitrator, wherein he, inter alia stated that

"..... ..... ..... As already given you notes so many times, whatever decision has been made among us on the basis of that whatever properties were purchased in India from the funds of Kabul whatsoever are sold out from them and whatsoever balance is remaining is in your note. From the sold properties 90 was given to S.Harinder Singh. Whatsoever balance was there out of the sale of Zenith and Padam Singh, the details is also given to you. Our decision is only on the properties purchased from the Kabul funds, sale out of them and balance properties remaining. ..... ..... ....."

20. S. Balwant Singh made his award on 10.05.2002. This award was not

acceptable to respondents No. 1 & 2. It is at that stage that respondent No. 3

was appointed as the Arbitrator.

21. In the light of the aforesaid background, the submission of the

appellant is that, as there was an arbitration agreement between the parties

for settlement of disputes qua the properties purchased from funds

transmitted from Kabul, and for settlement of accounts, there was no

occasion for the appellant to agree to arbitration by respondent No. 3 only

with regard to the distribution of the sale proceeds of the Kabul property of

US$ 5,50,000/-. The submission is that the scope of the arbitration

agreement dated 29.08.2002 is not only clear from the language used therein

but also from the background in which the said arbitration agreement came

to be executed between the parties.

22. The jurisdiction of Arbitral Tribunal extends to the determination, by

the Tribunal, of its jurisdiction. It is for the concerned party to raise a plea

before the Arbitral Tribunal that it does not have jurisdiction to determine

the disputes between the parties, or any particular dispute between the

parties. A plea that the Arbitral Tribunal is exceeding the scope of its

authority is required to be raised as soon as the matter alleged to be beyond

the scope of its authority is raised during the arbitral proceedings. Section

16(5) of the Act clearly provides that the Arbitral Tribunal shall decide on

the plea, inter alia, with regard to the scope of its authority and where the

Tribunal rejects a plea or objection to the jurisdiction of the Tribunal, the

Tribunal shall continue the arbitral proceedings and make an arbitral award.

23. A perusal of the impugned judgment shows that the learned Single

Judge has not considered the scope of the arbitration agreement in the light

of the aforesaid background of facts and averments. There is no

determination of the issue whether the appellants reliance of the earlier

arbitration agreement(s) is valid or of the consequence of the stand alleged

to have been taken before Balwant Singh by respondent nos. 1 and 2. No

doubt, the learned Single Judge has based his decision on various other

considerations mentioned in para 11 above, but it is clear that the aforesaid

background has not been taken into the consideration of the issue by the

learned Single Judge.

24. Since we are of the view that there is a binding arbitration agreement

in existence between the parties and, even according to the respondents, said

arbitration agreement relates to, at least, the aspect of distribution of the sale

proceeds of the Kabul property, i.e. US$ 5,50,000/-, we are inclined to leave

the issue with regard to the scope of the arbitration agreement open for the

decision of the Arbitral Tribunal in case the respondents choose to raise the

issue of jurisdiction of the Tribunal, or scope of its authority, by reference to

Section 16 of the Act. It shall be for the Tribunal to determine the scope of

its jurisdiction after considering the documents and evidence placed before it

by the parties and after hearing their respective submissions. We are,

therefore, not going into this issue in any further detail. We, accordingly,

allow the present appeal and set aside the impugned judgment.

25. The amount equivalent to US$ 3,00,000/- deposited by the

respondents in terms of the order dated 12.01.2009 is directed to be released

to the appellant in terms of the agreement of the parties dated 29.08.2002,

which shall be held by the appellant subject to the arbitration award that may

be passed by the learned Arbitrator.

26. The appeal stands disposed of in the aforesaid terms leaving the

parties to bear their respective costs.

(VIPIN SANGHI) JUDGE

(SANJAY KISHAN KAUL) JUDGE SEPTEMBER 06, 2012 AS/BSR