Delhi High Court
Arun Kapur vs Vikram Kapur And Ors. on 25 January, 2002
Equivalent citations: 2002IAD(DELHI)742, 96(2002)DLT757, 2002(61)DRJ495, [2003]44SCL47(DELHI), AIR 2002 DELHI 420, (2002) 1 ARBILR 640 (2002) 96 DLT 757, (2002) 96 DLT 757
Author: R.C. Jain
Bench: R.C. Jain
JUDGMENT R.C. Jain, J.
1. These two appeals purportedly under Section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act) purportedly because that is the precise question which this Court is called upon to answer, have been filed by the above named appellant against the orders/directions/findings/observations dated 19.8.2001 and 10.9.2000 made by the sole arbitrator Mr. Justice A.M. Ahmadi (former Chief Justice of India) in pending arbitral proceedings in relation to certain disputes which have arisen between the parties. As an objection has been raised about the very maintainability of these appeals before this Court at the very outset, the counsel for the parties have been heard at length on this question and therefore this order is confined to the question of maintainability of the appeal under the said provision of law.
2. Before coming to the real controversy between the parties, it is necessary to refer to the background leading to the orders/findings of the sole arbitrator which are sought to be assailed in these appeals. Disputes having arisen between the parties, the parties entered into a Memorandum of Understanding (hereinafter referred to as the MOU) dated 8th January, 1999 which, inter alia, stipulated that in case of difference of opinion on any matter and if a settlement is not arrived at, the matter will be referred to the arbitration by Hon'ble Mr. Justice A.M. Ahmadi (former Chief Justice of India) as the sole arbitrator. Pursuant to the said MOU, the arbitral proceedings commenced before the sole arbitrator.
3. During the course of the proceedings, an application dated 7.4.2001 under Section 17 of the Act was moved on behalf of the respondents Vikram Kapur and Rajiv Kapur for a direction on the appellant herein to disclose the share holding structure and the composition of the Board of Directors of Limrose and for restraining the said Company through the appellants from dealing with or in any way encumbering, selling, alienating, parting, mortgaging or otherwise dealing with the shares of Atlas Cycles Industries Ltd. held by Limrose.
4. At the 25th hearing held on 12th May, 2001 before the Sole Arbitrator, Mr. O.P. Khaitan, counsel for the respondents referred to his note dated 8th May, 2001 wherein several concerns arising out of the statutory auditors papers have been raised. The learned Arbitrator after going through the record of the Malapur Unit in support of the allegations and on the basis of the same, the held the view that the discrepancies pointed out by Mr. Khaitan, prima facie, called for an explanation by the appellant Mr. Arun Kapur who was In-charge of the Malanpur Unit during the relevant period. A request was also made on behalf of the respondents that an expert may be appointed to look into those aspects and submit his report to the arbitrator. On the request of the counsel for the appellant, the learned Arbitrator deferred the circulation of the minutes of the Meeting for three days. On 14th May, 2001, the sole arbitrator received a fax message from the appellant stating that he had no objection if an independent expert from the firm of M/s. Ernst & Young was appointed to scrutinise the accounts in respect of which the respondent's counsel had circulated notes based on the report of the statutory auditors. As it was not objected to from the side of the respondents, the arbitrator appointed representative of M/s. Ernst & Young to look into the accounts sheets supplied by the statutory auditor and the notes filed by the counsel of the respondents and directed them to submit the report within a month. Each group was asked to deposit a sum of Rs. 15,000/- with M/s. Ernst & Young as initial payment, subject to paying their charges when the report was submitted. The arbitrator also directed that the representatives will evolve his/her own procedure and were free to discuss the matter singally or jointly with the members of the Malanpur family as he/she may feel necessary but will take independent view and will not be guided by any group of the two groups.
5. To carry out the assignment/review as directed by the sole arbitrator, M/s. Ernst & Young appointed S/Shri Manoj Gupta, Prashant Shekhar and Rahul Singh of M/s. S.R. Batliboi & Company visited the Malanpur Unit between 28th May to 2nd June 2001. The work plan was, however, supervised and reviewed by Shri Jayesh Desai (Director of Ernst & Young), who submitted the report dated 13th June, 2001 to the sole arbitrator. On 15th June, 2001, the sole arbitrator forwarded a copy of the said report to the appellant for his perusal and comments, if any, by 23rd June, 2001. It appears that the appellant offered his comments/objections to the said report by fax on 20.6.2001, but a hard copy thereof was furnished to counsel for the respondent only at the time of 29th hearing held on 10th July, 2001. The same were forwarded to M/s. Ernst & Young for their remarks. It appears that the subsequent hearings scheduled for 17th July, 2001 and 21st July, 2001, 27th July, 2001 and 1st August, 2001 could not take place for one or the other reason.
6. At the 30th hearing held on 9th August, 2001, an application dated 8.8.2001 was filed on behalf of the appellant praying for modification of orders dated 12.4.2001, 24.4.2001, 12.5.2001 and 26.7.2001 and for sine die adjournments of the proceedings. During the course of the said hearing, another application was moved on behalf of the appellant to examine Shri Jayesh Desai of M/s. Ernst & Young who forwarded the report and S/shri Prashant Shekhar and Rahul Singh who assisted Shri Manoj Gupta in the task undertaken by him, the said application was heard and disposed of by the learned sole Arbitrator with the following order/observation :-
"At the end an application was given by Counsel for Shri Arun Kapur to examine Shri Jayesh Desai who forwarded the report and Shri Prashant Sekhar and Shri Rahul Singh who assisted Shri Manoj Gupta in the task undertaken by him at the request of M/s Ernst & Young. Not a single question was put to Shri Manoj Gupta in relation to the role of Shri Jayesh Desai. All that was urged in support of the application was that he had observed on p.4 of the report that the work was planned, supervised and reviewed by him. However, it is abundantly clear that the entire exercise of investigation and review of accounting system, etc. was undertaken by Shri Manoj Gupta and his assistant. Therefore, I see no need to call Shri Jayesh Desai for questioning since Shri Manoj Gupta who is the sole architect of the report is questioned. So also I see no point in calling at those who merely assisted Shri Manoj gupta in collection and collation of the date. It would unnecessarily protract the proceedings. It must be remembered that M/s Ernst & Young were appointed by consent of all concerned to resolve the doubt in regard to siphoning of money. Since Shri Arun Kapur had levelled allegations against the statutory auditors, he was given an option to name an independent auditor and he had communicated the name of M/s Ernst & Young, vide his fax dated 1.5.2001. He must have known that Shri Manoj Gupta was looking into the accounts and had visited Malanpur on 28th May, 2001. He raised no objection until the report was admitted. I have, therefore, not the least hesitation in spurning the request made in this behalf by counsel for Shri Arun Kapur."
The above order/observation is the subject matter of FAO 449/2001.
7. Subsequently in the meeting held on 10th September, 2001 a controversy was raised from the said of the appellant that the work assigned to M/s. Ernst & Young was in fact not carried out by the staffers of the said concern but by a different concern, M/s. Batliboi & Company. The said question was answered by the sole arbitrator with the following finding/observation :-
"The hearing on the Report of Ernst & Young was taken up on 19th August, 2001. The Report at page 4 states that Ernst & Young had appointed Manoj Gupta, Prashant Shekhar and Rahul Singh of S.R. Batliboi & Co., who were experience in such specialized review processes, to carry out the review. Mr. Sundram desired to question Jayesh Desai under whose supervision the review was undertaken but since there was no advance notice the said Jayesh Desai was not present. Manoj Gupta was present and he was questioned at length and his examination was recorded in question and answer form. The trend of questioning was to question the report on the ground that the expert appointed by consent was Ernst & Young and of Batliboi & Co. It appears from his examination that S.R. Batliboi & Co. is the representative of Ernst & Young Pvt. Ltd. in India and they both are part of Ernst & Young International. He has stated that S.R. Batliboi & Co. are registered as representative of Ernst & Young International with the Institute of Chartered Accountants Since Manoj Gupta is a partner in S.R. Batliboi & Co. a Chartered Accountant fir, which is a representative of Ernst and Young International, the parent body, I do not see what objection there could be to him and his team mates carrying out the review entrusted to them by Ernst & Young. In fact even on earlier occasions Manoj Gupta did not represent Ernst & Young at the hearing vide minutes dated 18th May, 2001. On that day there was some discussion for a lump sum settlement instead of an investigation by a representative of Ernst & Young but he discussion did not yield any result whereupon the representative of Ernst & Young who was present (Manoj Gupta) was asked to expedite the process. No objection was raised by Arun Kapur or his counsel at that time. The object comes only after the report indicates him. No objections was raised even after Manoj gupta and his team had visited Malanpur on May, 2001."
The above finding/observation is the subject matter of FAO 450/2001.
8. I have heard Shri A.Sundram, senior advocate on behalf of the appellant and Shri Prag Tripathi, senior advocate on behalf of the respondents and have given my thoughtful consideration to their respective submissions. The for most objection put forward from the said of the respondent is about the maintainability of these appeals under Section 37 of the Act. This objection is based on the submission that none of the above referred orders can be said to be an order granting or refusing to grant an interim measure under Section 17 of the Act. Chapter IX of the Act deals with the appeals and Section 37 with the appealable orders and it reads as under:-
37. Appealable orders -(1) An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order, namely:-
(a) granting or refusing to grant any measure under Section 9;
(b) setting aside or refusing to set aside an arbitral award under Section 34.
(2) An appeal shall also lie to a court from an order of the arbitral tribunal-
(a) accepting the plea referred to in Sub-section 92) or Sub-section (3) of Section 16;
(b) granting or refusing to grant an interim measure under Section 17.
Section 17 of the Act is a part of Chapter IV about the jurisdiction of arbitral tribunals and is couched in the following terms:-
"17. Interim measures ordered by arbitral tribunal -(i) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute.
(2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under Sub-section (1)."
9. The answer to the question whether these appeals are maintainable or not under Section 37 of the Act will solely depended on the answer to the question whether the order/findings of the sole arbitrator dated 19.8.2001 and 10.9.2001 are the orders made under Section 17(1) of the Act. In order to show that these orders are appealable orders under Section 37 of the Act, the learned counsel for the appellant has extensively referred to various proceedings taken up before the sole arbitrator and more especially those commencing with an application dated 7th April, 2001 filed on behalf of the respondents Vikram Kapur and Rajiv Kapur under the provisions of Section 17 of the Act seeking certain directions in relation to the Board of Directors and affairs of Limrose. This was followed by another application dated 9.4.2001 by the above named respondents praying to the arbitrator to give directions for the removal of appellant Arun Kapur from the membership of the JMC and in the alternative to pass an order directing that the strength of the JMC be enhanced to six members comprising of two members from each one of the family. Reference has also been made to an application on behalf of the appellant Arun Kapur under Section 17 of the Act praying for a direction to ensure full cooperation and to provide all records for an independent verification of records and assets of M/s. Atlas Cycle Industries Ltd., Milton Cycle Industries Ltd. and Roamer Engineering Works Pvt. Ltd. Reference was also made to certain subsequent applications dated 24.2.2001 and 13.10.2001 made on behalf of the respondent Vikram Kapur and Rajiv Kapur praying the sole arbitrator to pass such directions in the matter. According to the learned counsel for the appellant all these applications are under Section 17 of the Act.
10. Learned counsel for the appellant has then referred to the proceedings of the sole arbitrators pertaining to 23rd hearing held on 5th May, 2000, 24th hearing held on 9th May, 2001, 25th hearing held on 18th May, 2001, 27th hearing held on 12th June, 2001, 29th hearing held on 10th July, 2001, 30th hearing held on 9th August, 2001, 31st hearing held on 19th August, 2001 and that of the 33rd hearing held on 10th September, 2001 in order to show that the orders/findings which a came to be made on 19.8.2001 and 10.9.2001 are nothing but are orders of interim measure of protection made by the arbitral tribunal under Section 17(1) of the At. As against this, the contention of learned counsel for the respondents is that the said orders are procedural orders made by the arbitral tribunal under Section 19 read with Section 26 of the Act and by no stretch of imagination they can be termed orders made under Section 17(1) of the Act. Section 26 of the Act relating to the appointment of an expert by arbitral tribunal is also relevant in this context and it provides as under:-
"26. Expert appointment by arbitral tribunal -(1) Unless otherwise agreed by the parties, the arbitral tribunal may-
(a) appoint one or more experts to report to it no specific issues to be determined by the arbitral tribunal, and
(b) require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.
(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or oral report, participate in an oral hearing where the parties have the opportunely to put questions to him and to present expert witnesses in order to testify on the points at issued.
(3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report.
11. Learned counsel for the appellant has further argued that the findings of the sole arbitrator rejecting the objections of the appellant in respect of the report dated 13.6.2001 being that of Ernst & Young, for appointment of whom, the appellant had agreed and holding that it was the report of the Ernst & Young, is an erroneous finding which goes to the root of the matter and has the effect of almost deciding the fate of arbitral reference pending before the arbitrator. Similarly, it is argued that the finding of the sole arbitrator holding that on the spot review carried out by the team headed by Shri Manoj Gupta of M/s. Batliboi & Co is in fact a review carried out by the representation of M/s. Ernst & Young is also contrary to the factual and legal position. Further that declining the request of the appellant for examination of Jayesh Desai of M/s. Ernst & Young, author of the report dated 13.6.2001 has greatly prejudiced the appellant. According to him, all these findings and orders are liable to be set aside on the following grounds:-
(A) Although the appellant had given his consent for appointment of M/s. Ernst & Young for the purpose of carrying out the review to clear certain concerns/doubts raised from the side of the respondent in their note dated 8th May, 2001 concerning the accounts of Malanpur Unit, but the sole arbitrator of his own had misread the said consent of the appellant as for appointment of an expert or representatives of M/s. Ernst & Young.
(B) The sole arbitrator relying upon the statement of Shri Manoj Gupta had wrongly concluded that M/s. Batliboi & Co. are registered representative of Ernst & Young International in India with the Institute of Chartered Accountant and M/s. Batliboi & Co, and Chartered Accountant Firm, is the representative of Ernst & Young International, the parent body is, therefore, deemed to be the representative of M/s. Ernst & Young.
12. It is not necessary to go into the question of correctness or otherwise of the said orders/findings at this stage. The said question can only be considered if this Court comes to conclusion that the orders/findings of the sole arbitrator under appeal are orders made under Section 17 of the Act and are appealable ones under Section 37 of the Act. This question has to be examined keeping in view the scheme and object of the Act and certain provisions of the 1940 Act. Section 5 of the 1996 Act reads as under:-
"5. Extent of judicial intervention. --Notwithstanding anything contained in any other law for the time being in force, in mattes governed by this Part, no judicial authority shall intervene except where so provided in this part."
It is, therefore menifest that one of the main object of the Act is to minimise the supervisory role of the Courts in the arbitral process. This has been so held in the case of United India Insurance Co.Ltd. v. M/s. Kumar Texturisers and Anr. in the following words:-
"It is therefore clear that a Court can intervene only in the event of a remedy is provided under the Act. The Arbitration and Conciliation Act, 1996 which hereinafter shall be referred to as the Act of 1996, has repealed as Arbitration Act, 1940 and the Foreign Award Act, 1961 as also another legislation. One of the main objects of the Act is to minimise the supervisory role of Courts in the arbitral process. The question which has arisen, therefore,e will have to be decided by considering Section 5 and the object for which the Act of 1996 has been enacted."
"The Court can intervene also on an application under Section 14(2) of the Act of 1996. In other words, a conjoint reading of Section 5 Section 34, Section 37 and Section 14(2) of the Act of 1996 will show that the Court can intervene only in cases covered by Section 14, Section 34 and Section 37."
13. The provisions of Section 37 take generally the form of Section 39 of the 1940 Act, but they are materially different from the said provision and it must be with a view to minimise the supervisory role of the Court in arbitral process which is inconsonance with the spirit of the Act as contained in Section 5. Sub-section 1(a) & (b) of Section 37 provide for appeals against the order of Courts granting or refusing to grant interim measures under Section 9 and setting aside or refusing to set aside an award under Section 34. Sub-section 1 emphasise that appeal shall not lie against any other orders. This is a major departure from the 1940 Act whereas Sub-section 1 provides for an appeal from court orders specified therein, Sub-section (2) provides for an appeal to the Court from an order of an arbitral tribunal (a) accepting the plea referred to in Sub-section (2) or Sub-section (3) of Section 16; and
(b) granting and refusing to grant interim measure under Section 17. The words "and from no other orders" appearing in Sub-section 1 of Section 37 are analogous to the provisions of Section 39 of the Arbitration Act, 1940 and came to be interpreted by a Full Bench of this Court in the case of Union of India v. A.S. Dhupar, and Hon'ble Supreme Court in the case of Mahindra Supply Company v. ABC. and the Supreme Court held that these words qualify the expression, "an appeal shall lie from the following orders", would qualify Section 39(2) as well, therefore, by the same analogy the expression "and from no others' used in Section 37(1) of the Act. A conjoint reading of Section 5and Section 37 makes it abundantly clear that the only orders against which appeals would lie are the orders specifically mentioned in Section 37(1) in case of original decrees passed by a Court and Section 37(2) in respect of orders passed by an arbitral tribunal. The contention of the learned counsel for the appellant that the qualifying words used in Sub-section 1 being absent in Sub-section (2) of Section 37 and therefore an appeal can also life from an order of the arbitral tribunal even if the said order is strictly not one falling under Clause (a) or
(b) has no merits and is liable to rejection because it goes against the very spirit and object of the Act. If this contention of the appellant is accepted, it would mean that an appeal would lie from each and every order of the arbitral tribunal which has even the slightest effect of causing prejudice to one or the other party. This Court is of the clear opinion that a Court will be competent to entertain the appeals from an order of the arbitral tribunal falling under Clause (a) or Clause (b) of Sub-section 2 of Section 37 of the Act and from no others.
14. Now coming back to the question if the two orders or any one of them which are subject matter of these appeals can be said to be orders which can qualify for being termed as orders relating to an "interim measure of protection". Learned counsel for the appellant has strenuously urged that as the impugned orders came to be passed during the course of the proceedings which were initiated on the application of the respondents under Section 17 and also the application made on behalf of the appellant, are necessarily orders of interim measure of protection made under Section 17. His next submission is that the orders are final at least on the question of the validity of the purported report of Ernst & Young and are highly prejudicial to the interest of the appellants and amount to almost deciding the said interim measure of protection. According to him the appellants cannot be asked to wait for the making of further orders relating to interim measure of protection by the Arbitrator. On the other hand, counsel for the respondent has urged that the impugned orders cannot be called to be orders relating to an interim measure of protection by any stretch of imagination.
15. On a consideration of the respective contentions put forth on behalf of the parties and having gone through the various proceedings before the sole arbitrator, this Court is of the considered view that neither the order/finding dated 19.8.2001 nor the order/finding dated 10.9.2001 can even remotely be said as order passed under Section 17 of the Act. At best the sole arbitrator has made certain observation which will show that he is still open to consider the objections raised on behalf of the appellant. Even if for the same of arguments it is assumed that the observations findings of the sole arbitrator are final and prejudicial to the interest of the appellants and may have a bearing on the orders which might be passed in the proceedings under Section 17 of the Act, this Court is of the view that by itself is no ground to entertain the appeal. It might be open to the appellant to challenge the said findings/observations of the sole arbitrator if an order of interim measure as contemplated by Section 17 of the Act basing on the said observations/findings is made by the sole arbitrator at some future date. The appellant has rushed to this Court under certain misapprehension about the orders of interim measure which might be passed by the sole arbitrator. The appellant cannot be allowed to short-circuit the proceedings before arbitral tribunal by approaching this Court with appeals against certain orders/observations which do not lie under the provisions of the Act. If appeals against such arbitral findings/observation are entertained, it would be contrary to the scheme and objects of the Act and will frustrate the very object of the legislation where the emphasise is on minimising the judicial intervention.
16. Thus having considered the matter in its entirety and for the foregoing reasons, this Court has no hesitation in holding that none of the appeals are against the arbitral order granting or refusing to grant any interim measure under Section 17 and therefore the present appeals under Section 37 before this Court are wholly misconceived and not maintainable. The appeals stand accordingly dismissed with costs of Rs. 10,000/- in each appeal to be deposited with the Delhi State Legal Authority within a period of four weeks. Interim orders dated 19.9.2001 are hereby vacated.