Gujarat High Court
Neeraj Kumarpal Shah vs Manbhupinder Singh Atwal on 5 July, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 23 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2021
In R/PETN. UNDER ARBITRATION ACT NO. 23 of 2023
With
R/PETN. UNDER ARBITRATION ACT NO. 24 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2021
In R/PETN. UNDER ARBITRATION ACT NO. 24 of 2023
With
R/PETN. UNDER ARBITRATION ACT NO. 110 of 2022
With
CIVIL APPLICATION (FOR DIRECTION) NO. 1 of 2022
In R/PETN. UNDER ARBITRATION ACT NO. 110 of 2022
With
CIVIL APPLICATION (FOR DIRECTION) NO. 1 of 2023
In R/PETN. UNDER ARBITRATION ACT NO. 110 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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NEERAJ KUMARPAL SHAH
Versus
MANBHUPINDER SINGH ATWAL
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Appearance:
Arbitration Petition No.23 of 2023:
Learned Senior Advocate Mr. Saurabh N.
Soparkar with learned advocate Mr. Bhadrish
Raju with learned advocate Mr.Karan Shah with
learned advocate Mr. Ajit Nair with learned
advocate Mr. Himanshu C. Desai for the
petitioners.
Arbitration Petition No.24 of 2023:
Learned advocate Mr. Masoom K. Shah with
learned advocate Mr. Jay Shah with learned
advocate Mr. Dhruvin Dossani with learned
advocate Mr. Parth Thummar for the
petitioners.
Arbitration Petition No.110 of 2022:
Learned Senior Advocate Mr. Kamal Trivedi with
learned advocate Mr. Parth Contractor and
learned Senior Advocate Mr. Shalin Mehta with
with learned advocate Mr. Pranav Vyas with
learned advocate Mr. Pranjal Buch with learned
advocate Mr. Manhan Singh Saini for the
respective parties.
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 05/07/2024
ORAL JUDGMENT
Heard learned Senior Advocate Mr. Saurabh N. Soparkar with learned advocate Page 2 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Mr. Bhadrish Raju with learned advocate Mr.Karan Shah with learned advocate Mr. Ajit Nair with learned advocate Mr. Himanshu C. Desai in Arbitration Petition No.23 of 2023 and in the counter petitions.
Heard learned advocate Mr. Masoom K. Shah with learned advocate Mr. Jay Shah with learned advocate Mr. Dhruvin Dossani with learned advocate Mr. Parth Thummar in Arbitration Petition No.24 of 2023 and in counter petitions.
Heard learned Senior Advocate Mr. Kamal Trivedi with learned advocate Mr. Parth Contractor and learned Senior Advocate Mr. Shalin Mehta with with learned advocate Mr. Pranav Vyas with learned advocate Mr. Pranjal Buch with Page 3 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined learned advocate Mr. Manhan Singh Saini in Arbitration Petition No.110 of 2022 and in counter petitions.
INDEX
Sr. PARTICULARS PARAGRAPH
No. NOS.
1 Introduction 01 to 15
2 Chronology of Events 16 to 17
3 Arbitration proceedings 18 to 84
4 Points of determination/Issues 1.1 to 1.50
I - Jurisdiction of the
Arbitration Tribunal
1) Whether the Tribunal could have continued the arbitration proceedings under section 29A of the Arbitration and Conciliation Act, 1996 or not?
2) Whether the Arbitration 2.1 to 2.37 Tribunal could have continued with the arbitration proceedings after the re-
determination of fees payable by the parties which is opposed by the respondent nos. 1 and 2 being in violation of principle of party autonomy?
3) Whether the Tribunal could 3.1 to 3.16 have denied the respondent no.1 and 2 to lead evidence and Page 4 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined file counter claims in violation of principle of natural justice?
4) Whether the provisions of 4.1 to 4.18 sections 12 and 13 of the Arbitration and Conciliation Act, 1996 are violated in arbitration proceedings?
5) Whether the Arbitration 5.1 to 5.17 Tribunal would have assumed the jurisdiction to proceed with the arbitration involving allegation of fraud and forgery which are subject matter of criminal investigation?
II Merits
6(i) Whether the Tribunal
6.1 to 6.18
was right in holding that
respondent no.1 made
misrepresentation to the
claimant from December 2014 to February, 2016 and minutes of the meeting dated 18th July, 2015 was forged by respondent no.1?
6(ii) Whether the Tribunal was right in holding that respondent no.1 was guilty of misappropriation of sum of Rs. 22.19 Crore from bank account of respondent no.4-C2R LLP and liable to pay the same to respondent no.4-C2R LLP with Page 5 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined interest at the rate of 12% p.a.?
7) Whether the Tribunal was 7.1 to 7.36 right in awarding amount of Rs. 84 Crore towards damages and loss of profit together with interest at the rate of 12% p.a.?
8) Whether the Tribunal was 8.1 to 8.18 right in awarding costs, fees and expenses as per Appendix-A to Appendix-G totalling to Rs.14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 payable to the claimant?
III Scope of Section 34 9.1 to 9.32
9) Whether any interference is called for in the impugned arbitration award under section 34 of the Arbitration and Conciliation Act, 1996?
5 Order 85Introduction :
1. These petitions are originally filed Page 6 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined as First Appeals under section 13(1) of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (For short "the Commercial Courts Act") read with section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Act") challenging the award dated 16.04.2021 passed by the Arbitral Tribunal (For short "the Tribunal") comprising of Mr. Dato' Anantham Kasinather, Presiding Arbitrator, Mr. Andre Yeap and late Hon'ble Mr. Justice G.T. Nanavati as members-
coarbitrators in arbitration proceedings between the petitioners original defendants - respondents and the respondent- original claimant.
2. These petitions were listed by the Registry before the Division Bench having Page 7 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Roster of Commercial Division of the High Court. While the matter was heard on 12.10.2022 by the Division Bench, one of the members recused from the matter.
Thereafter the matter was placed before another Division Bench and on 18.10.2022, another member also recused from the matter. Thereafter, the matter was placed on 21.10.2022 before the another Division Bench, where also one of the member recused from the matter. When the matter was placed in vacation before the specially constituted Division Bench on 27.10.2022, learned advocate for the petitioners were not present and time was sought.
3. It is also pertinent to note that Arbitration Petition No.110/2022 is filed by the original claimant under section 36 Page 8 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the Act for execution of the arbitral award dated 16.04.2021 in an international commercial arbitration as the claimant was a Non Resident Indian. Therefore, the execution petition is filed before this Court.
4. The chronology of events which have taken place between the parties is narrated in detail here in below, however, the sequence of events of the present proceedings is narrated in brief here in below:
5. When the Arbitration Petition No.110/2022 came up for hearing before the learned Single Judge of this Court, it was pointed out that the respondents in Arbitration Petition No.110 of 2022 have also preferred First Appeals challenging Page 9 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the arbitral award under section 34 of the Act before this Court and the same were listed before the Division Bench. This Court therefore, on 7.11.2022 directed the Registry to list the First Appeals along with Arbitration Petition No. 110 of 2022.
Thereafter the matter was adjourned from time to time at the request of learned advocates for the respondents-defendants.
6. On 15.02.2023, the Registry was directed to change the nomenclature of First Appeal No.3240/2022 and First Appeal No.3950/2022 to that of arbitration petition as both the appeals were filed under section 34 of the Act. Accordingly, the nomenclature was changed and the matters were placed along with Arbitration Petition No.110 of 2022 renumbered as Arbitration Petition No.23/2023 (Old Page 10 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Number being First Appeal No.3240/2022) and Arbitration Petition No.24 of 2023 (Old Number being First Appeal No. 3950/2022).
7. These petitions were specially assigned to this court by the Hon'ble Acting Chief Justice in March,2023 at the request of the parties after hearing qua preliminary issue was concluded by the learned advocates for the parties on 23rd February,2023. These matters were heard from time to time till 1.05.2023 on various dates and on 01.05.2023, the matters were reserved for judgment by passing the following order:
"Heard learned Senior Advocate Mr. Saurabh Soparkar with learned advocate Mr. Karan Shah for the petitioners in Arbitration Petition No.23/2023, learned advocate Mr. Page 11 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Masoom Shah with learned advocate Mr. Parth Thammar for the petitioners in Arbitration Petition No.24/2023 and learned Senior Advocate Mr. Kamal Trivedi with learned Senior Advocate Mr. Shalin Mehta with learned advocate Mr. Parth Contractor with learned advocate Mr. Pranav Vyas with learned advocate Mr. Manhar Singh Saini with learned advocate Mr. Vinay Bairagra with learned advocate Mr. Pranjal Buch for the petitioner in Arbitration Petition No.110/2022 and for respondents in Arbitration Petition Nos.23/2023 and 24/2023.
Arguments are concluded. The parties are at liberty to file short notes, if they wish to do so. Reserved for judgment."
8. Thereafter due to paucity of time, judgment could not be delivered for reasonable time, and therefore, on 08.02.2024, the matters were released.
9. Thereafter the matters were listed before another coordinate Bench where it was ordered as not before the Bench.
Page 12 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Meanwhile it appears that the original claimant approached the Hon'ble Supreme Court by filing Special Leave Petition(Civil) No.7669-7670 of 2024 challenging the order dated 08.02.2024.
The Hon'ble Supreme Court by order dated 08.04.2024 remanded the matter back to this Court to decide the same.
10. Pursuant to the aforesaid order dated 08.04.2024, a note was filed before the Registry on 24.04.2024 by learned advocate Mr. Karan Shah to place the matter before this Court.
11. On perusal of records, it appears that before the above proceedings took place, a note was also filed by learned advocate Mr. Karan Shah on 12.02.2024 before the Page 13 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Registry to place the matter before this Court, however, that note was not considered and filed by the Registry after obtaining the orders from the Hon'ble the Chief Justice. It is pertinent to note that in the said note, it was stated by learned advocate Mr. Karan Shah that when Civil Application (For Direction) No. 1 of 2023 in Arbitration Petition No.110/2022 came to be listed on 09.02.2024 before this Court wherein learned Counsel for the respondent in Arbitration Petition No.110/2022 and petitioners in Arbitration Petition No.23/2022 had requested that the matter was extensively heard by this Bench and hence to reconsider the earlier order of releasing the matters and keep the order reserved for judgment. However, such statement made in the note dated 12.2.2024 Page 14 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined is not true and correct as no such request was made either by learned advocate Mr. Karan Shah who has stated so in the said note nor the advocate for the petitioner in Arbitration Petition No.110 of 2022 had made such request. Thus the advocates have misrepresented in the note filed before the Registry.
12. On 9.2.2024 when Civil Application No.1 of 2023 was listed before this Court only it was mentioned that as the main matters are released, no order is required to be passed in the civil application for directions and accordingly the matter was adjourned to be placed before the appropriate Court.
13. Be that as it may, after the aforesaid order passed by Hon'ble Supreme Court, the Page 15 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Registry has listed the matter before this Court on 03.05.2024 and following order was passed in Civil Application NO. 1 of 2023 in Arbitration Petition NO. 110 of 2022 directing the respondents therein to file an affidavit disclosing the list of properties of movable or immovable properties for satisfying the arbitration award within a period of two weeks as there was a direction by the Hon'ble Supreme Court to pass appropriate order under section 36 of the Act:
"1. Learned Senior Advocate Mr.S.N.Soparkar appearing for the respondent has tendered the preliminary affidavit-in-reply on behalf of the respondent in Civil Application No. 1 of 2023 in Civil Application No. 1 of 2022 in Arbitration Petition No. 110 of 2022. The same is ordered to be taken on record.
2. Referring to the orders passed by the authority under the Prevention of Money Laundering Act, 2002 and the order dated 20th Page 16 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined October, 2023 passed by this Court in Special Civil Application No.18654 of 2023, learned Senior Advocate Mr. Soparkar has made statement at bar as under:-
"That by virtue of 3rd proviso below Sub section (1) of Section 5 of the Prevention of Money Laundering Act read with Order dated 20th October, 2023 passed by this Hon'ble Court, according to respondent- Shri Neeraj Kumarpal Shah, the attachement order passed by the Prevention of Money Laundering Act continues to be in force."
3. Learned Senior Advocate Mr. Kamal Trivedi appearing for the petitioner in Arbitration Petition No. 110 of 2022 has submitted that as one of the property of the another judgement debtor is situated at Mumbai, the petitioner has filed Interim Application No.1390 of 2022 in Commercial Execution Application No. 23308 of 2021 wherein, the Hon'ble Bombay High Court has directed the judgement debtor to file an affidavit on oath disclosing all his assets movable as well as immovable.
3.1 It was further submitted that as per provisions of Rule 41 read with Rule 11, 12A, 13 of Order 21 the Code of Civil Procedure, 1908 Page 17 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined [for short "the CPC"], this Court can direct the judgement debtor to disclose on oath, the movable and immovable properties so that it can be decided whether such property is required to be attached during the pendency of the execution petition or not.
Rule 41(1) of Order 21 of the Code reads as under :
"41. Examination of judgment- debtor as to his property. -- (1) Where a decree is for the payment of money the decree-holder may apply to the Court for an order that -- (a) the judgment-debtor, or
(b) any officer thereof, or (c) any other person. be orally examined as to whether any or what debts are owing to the judgment debtor and whether the judgment-
debtor has any and what other property or means of satisfying the decree; and the Court may make an order for the attendance and examination of such judgmentdebtor, or officer or other person and for the production of any books or documents."
4. On the other hand, Mr. S.N.Soparkar, learned Sr.Advocate for the respondent has submitted as under :-
"That there is no provision of law Page 18 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined under which the judgement debtor can be called upon to make disclosure about his assets and that too without there being credible ground for the alleged fear of dissipation of the property, to make disclosure of his assets."
5. Considering the above submissions and looking to the manner in which, the matter has proceeded before this Court, the respondent is directed to file an affidavit disclosing the list of properties movable or immovable properties for satisfying the arbitration award which is decreed for which this petition is filed, within a period of two weeks from today.
6. Civil Applications along with Arbitration Petition No.110 of 2022 is kept for further orders on receipt of the aforesaid affidavit."
14. Arbitration Petition No.110 of 2022 is therefore, kept pending subject to filing of the affidavit by the original respondents therein. The matters were thereafter listed for dictation of Page 19 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined judgment and order in Arbitration Petition No. 23 and 24 of 2023.
15. For the sake of convenience, Neeraj Kumarpal Shah, petitioner of Arbitration Petition No. 23 of 2023 shall be referred to as "the respondent no.1", Manbhupinder Sing Atwal, respondent of Arbitration Petition No.23 of 2023 shall be referred to as "the claimant", Kamal Sevaram Jadhvani, petitioner of Arbitration Petition No.24 of 2023 and respondent no.2 in Arbitration Petition No.23 of 2023 shall be referred to as "the respondent no.2", Dinesh Shivanna respondent no.3 in Arbitration Petition Nos.23 and 24 of 2023 shall be referred to as "the respondent no.3" and C2R Project LLP, respondent no.4 in Arbitration Petition Nos.23 and 24 of 2023 shall be referred to as "respondent Page 20 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined no.4-C2R LLP" as described by the Tribunal.
CHRONOLOGY OF EVENTS
16. The facts emerging from the record giving rise to theses petitions under sections 34 and 36 of the Act can be summarised as under:
17. This section of the order is only confined to the recording the time-line of the events giving rise to the disputes between the parties so as to adjudicate upon the issues which are raised by respondent nos.1 and 2 in the arbitration petitions filed under section 34 of the Act challenging the arbitral award dated 16.04.2021 passed by the Tribunal (for short "the arbitral award") and to decide the Arbitration Petition no. 110/2022 for Page 21 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined execution of the same.
(i) The claimant is a Non-Resident Indian based in Oman and a retired officer of the Indian army.
(ii) In 2011, the claimant established a Defense Advisory and Consultancy company in the name of MSA Global LLC (MSA Global) which is engaged in managing security electronics on the Oman border, Military Communications Systems and Vehicle Based Weapon systems as stated in paragraph no. 1.1 at page 7 of the Statement of Claim (For short "SOC").
(iii) It is the case of the claimant that when he visited Ahmedabad in December 2014, he was introduced to respondent no.1. Pursuant to that meeting, it was Page 22 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined decided to work together including participating in Indian defense technology company by the name of Kinetex Solutions Private Limited (as stated in paragraph no.39 of the SOC, Pargraph III, page-3).
(iv) According to the claimant, respondent no.1 represented to the claimant that he was running a successful business empire worth Rs. 20,000 Crore including LLP which was valued at Rs. 100 Crore. The business plan proposed by respondent no.1 was the claimant's capital contribution which would be used for developing infrastructure on land which land would be procured by and brought into LLP by respondent no.1 and respondent no.2. According to the claimant, respondent no.1 represented that respondent no.1 and respondent no.2 have Page 23 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined already invested in Indian defense technology company in the name of Kinetix Solutions Pvt. Ltd.
(v) On 30th December, 2014, the claimant sent email to respondent no.1 as a fall out of the meeting along with the details and profile of his company MSA Global LLC.
(vi) In January, 2015, according to the claimant, further discussions were held with respondent no.1 as regards the advancement of their common business interests, leading to a further meeting on 9th February, 2015 wherein according to the claimant, it was represented by respondent no.1 that all regulatory approvals with respect to the investments being made by the claimant will be put in Page 24 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined place by the respondents and respondent no.1 would be offering 20% stake in his Rs. 100 Crore company at par to the claimant for about Rs.20-25 Crore.
(vii) It is also the case of the claimant that respondent nos.1 to 3 were informed by the claimants about the upcoming defense exhibition in Abu Dhabi being the International Defence Exhibition ("IDEX") which was to take place from 22nd to 26th February, 2015 and the claimant agreed to take respondent nos. 2 and 3 to Abu Dhabhi for IDEX.
(viii) The claimant also sent an email on 09.02.2015 to respondent no.1 providing his Director Identification Number (DIN) followed by Whatsapp messages between 14th to 16th February, 2015.
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(ix) On 10th February, 2015 a Limited Liability Partnership (LLP) agreement was executed forming respondent no.4-C2R LLP providing for various clauses which will be referred later on and relevant clauses i.e clause 8 - capital contribution, clause 19 - obligation of partner, clause 22 - change in partners relied upon by the Tribunal shall be referred later on in the order during the analysis and discussion so that same may not be repeated time and again.
(x) It appears that between 09.02.2015 and 28.02.2015, various e-mails were exchanged between the parties with regard to the residential status as NRI of the claimant and to obtain DIN number of the claimant which is required for the purpose Page 26 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of registration of LLP.
(xi) The claimant took respondent nos.2 and 3 to Abu Dabhi to attend the IDEX as promised by him during the meeting held on 09.02.2015. Thereafter, the meeting was held on 27.02.2015 between the claimant, respondent nos.1 to 3 at Ahmedabad to formally induct the claimant into respondent no.4-C2R LLP. In the said meeting, an addendum to the LLP Agreement dated 10.02.2015 was executed where the claimant agreed to acquire 20% stake in respondent no.4-C2R LLP for a contribution of Rs. 45 Crore. It is the case of the claimant that respondent no.1 represented that such increase in stake was necessary since the respondent no.4-C2R LLP would be undertaking capital intensive activities for development of infrastructure.
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(xii) Accordingly, share of the claimant in Profit and Loss Account of each partner was determined as 20%, respondent no.1- 40%, respondent no.2 and 3 - 20% each. The claimant according to the agreement between the parties on 27.02.2015 transferred his shares of Rs.45 Crore to respondent no.4-C2R LLP as under:
SR DATE AMOUNT RS.
NO.
(1) 8 March 2015 5,00,00,000/-
(2) 25 March 2015 5,00,00,000/-
(3) 6 April 2015 5,00,00,000/-
(4) 6 April 2015 2,50,00,000/-
(5) 13 April 2015 2,50,00,000/-
(6) 25 May 2015 5,00,00,000/-
(7) 2 July 2015 2,50,00,000/-
(8) 6 July 2015 2,50,00,000/-
(9) 31 August 2015 2,50,00,000/-
(10) 21 September 2015 5,00,00,000/-
(11) 11 February 2016 7,50,00,000/-
(xiii) From March 2015 to February 2016,
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during the period when the claimant
transferred the aforesaid amount in the bank account of respondent no.4-C2R LLP, the following events have taken place as per the claim statement filed by the claimant and recorded by the Tribunal:
"60. On 31 March 2015, a meeting of partners of C2R was held which was attended by the Claimant and Respondent Nos. 1 to 3. In the said meeting, Respondent No. 1 was authorised to "negotiate with landlord to purchase the land of 71 acre at Ambli Gam and at Bhangadh at Delhi Mumbai Industrial Corridor." The parties further approved the purchase of a brand called URASATTVA from a firm, Rising Tradelink Limited, which was owned by Respondent No.1. At the said time, Respondent No. 1 had indicated that the brand would be purchased at a token amount, and no quantum had been specified. [(Claimant's Documents, Volume C-1 Pages 463 to 464) (SOC, paragraph 3.8, page 24) (SOC, paragraph 3.39, page 62)]
61. On 1 May 2015, the second meeting of the partners of C2R took place where the Respondent Page 29 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined No. 1 was authorised to finalise and expedite the process of taking over of 45% stake in Kinetix. Respondent No. 1 represented that this investment would be made from the capital contribution of the Claimant as a temporary arrangement, while Respondent No. 1 was in the process of procuring the land for the LLP. [(Claimant's Documents, Volume C-1 Pages 465 to
467) (SOC, paragraph 3.11, page
27)] 62. In May 2015, Respondent No. 1 took the Claimant to Dholera to show the tentative areas where land was proposed to be acquired for the LLP, but did not identify any specific land parcel, and did not show any document pertaining to the title of the said lands.
(SOC, paragraph 3.41(c), page 69)
63. On 11 June 2015, a discussion was held between the partners of C2R to designate the work to be done by each partner towards the business of C2R. In furtherance of the same, Col. Jugraj Goraya, who was the then General Manager of C2R, circulated an email to all the partners detailing the division of the work and the projects to be undertaken. [(Claimant's Documents, Volume C-2 Pages 884 to 895) (SOC, paragraph 3.30, page-45)) Page 30 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
64. Based on the prospective business of C2R, Col. Jugraj Goraya had further prepared a brochure of the business opportunities of C2R as well as a presentation to be circulated amongst prospective clients. (Claimant's Documents, Volume C-2 Pages 896 to 937). As per the brochure, C2R's projects were to focus on 5 sectors:
(1) Defense/Aerospace (2) UAV Systems/Drones (3) E-governance/software development (4) Eco-friendly/ low income housing portable shelters (5) Renewable energy
65. On 7 October 2015, the third meeting of the partners of C2R took place where it was decided that Respondent No. 1 was authorised to operate the bank account of C2R, as well as utilise the net-banking and mobile banking facilities in relation to the account. (Claimant's Documents, Volume C-1 Pages 467 to 469).
66. Around April 2016, Respondent No. 1 suggested that the Page 31 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined shareholding pattern of C2R be amended so that the majority is held by Respondent No. 1 and the Claimant. (SOC, para 3.40(d), page
65)
67. Following the aforesaid suggestion, Respondent No. 1 informed the Claimant, by an email dated 26 April 2016, that the change in shareholding was being objected to by the ROC on the ground that it was not in terms of the capital contribution. (Claimant's Documents, Volume C-2 Page 702)
68. In the communications between the parties, the chartered accountant of Respondent No. 1, by an email dated 28 April 2016 (Claimant's Documents, Volume C-2 Page 713), suggested that the following response could be given to the ROC:
"LLP has already invested sizeable sum in one of company namely Kinetix Solutions Pvt. Ltd and which is an associate company of the said LLP by having 45% equity stake. Now, the said company is in need of Rs. 7.5 crare sum for a specific project which has very good ROI (Return on Investment) hence LLP is on verge to invest required funds.Page 32 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined In this investment, Mr. Neeraj Shah (promoter) can only be able to invest Rs. 2.45 crore within 45 days and whereas Mr. Manbhupinder Singh Atwal (additional designated partner) will bring Rs. 5.35 crores as of now within 45 days, rest two partners unable to bring any funds. This will satisfy the current need. Therefore, LLP will offer only 32.5% hike of equity to Mr. N.K. Shah and major 85% hike of equity to Mr. M.S. Atwal from current/existing profit-sharing ratio and other two partners ratio will subsequently decrease. We certify and ensure your good office to align the sharing ratio in the following manner which shall resolve the query raised by your good office.
N.K. Shah: 53% M.S. Atwal: 37% Kamal Jadhwani: 3% Dinesh Shivanna: 7%
69. The Claimant agreed to the said response. However, the Claimant by his email dated 28 April 2016 stated that he would not be able to contribute any such amount into C2R since he did not have any more funds to bring into Page 33 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the LLP. (Claimant's Documents, Volume Claimant-2 Pages 711)
70. In September 2016, the Claimant received positive enquiries from CBC, one of the entities he was negotiating with, who indicated that the Indian Government had introduced certain regulatory changes which had eased the process of importing and manufacturing arms and ammunition in India. (Affidavit Evidence of the Claimant, para 172)
71. In order to assess the situation regarding the land available, on 16 September 2016, the Claimant, along with his associate, Col. R.K. Singh, visited Gujarat in order to examine the exact status of the site in Dholera. During the visit Respondent No. 1 identified scattered parcels of land as the portion, which was being acquired for C2R, but did not produce any title documents for the same. When the Claimant enquired as to how a manufacturing industry could be set up in scattered parcels, Respondent No. 1 stated that a single piece of land would be allotted to C2R against such scattered parcels once the Final Plan of Dholera was approved by the appropriate authority. (SOC, para 3.41(h), page 71."
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(xiv) It appears that thereafter on 18.05.2016, second addendum to the LLP Agreement between the parties was signed, whereby the profit sharing ratio of the LLP was revised whereby claimant was having 37% share, respondent no.1 was having 53% share, respondent no.2 was having 3% share and respondent no.3 was having 7% share.
(xv) It appears that the claimant for the first time sought bank details of respondent no.4-C2R LLP after May, 2016 on 6.10.2016 and on perusal of the bank statement provided by respondent no.1 along with the copies of Memorandum of Understanding executed by him for the purchase of land for respondent no.4-C2R LLP, the claimant sought further details Page 35 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined from respondent no.1 on 18.10.2016 along with the accounts. However, respondent no.1 did not provide such statement till 23rd October, 2016 as stated by the claimant who has relied upon the document at page 482 to 523 of Volume C-2 filed by the claimant before the Tribunal. Several emails were exchanged between the parties on 23rd and 24th October, 2016 wherein the claimant raised query to respondent no.2 as to why his contribution in respondent no.4-C2R LLP which he has represented to be Rs. 60 Crore was non existent which was replied by respondent no.1 stating that his money has been contributed towards land of which only Rs. 4 Crore had been paid through bank entries while the rest has been paid in cash after withdrawing from his account(claimants documents Page 36 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined volume C2 page 517).
(xvi) On revelation of the above facts, the claimant called an urgent meeting on 25.10.2016 with respondent nos. 2 and 3 who are other partners in respondent no.4- C2R LLP. It is the case of the claimant that respondents nos. 2 and 3 denied having any knowledge regarding the operation of funds by respondent no.1 as they had never any access to the operation of bank accounts of the respondent no.4 -
C2R LLP.
(xvii) The claimant and respondent nos.2 and 3 therefore, considering the conduct of respondent no.1 in managing the funds provided by the claimant in respondent no.4-C2R LLP unanimously decided to expel respondent no.1 as partner from respondent Page 37 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined no.4-C2R LLP due to breach of LLP agreement and misappropriation of funds of LLP and the following resolutions were passed:
"1) Resolution to freeze and suspend the bank account of C2R at Kotak Mahindra Bank, Prahaladnagar Branch, Ahmedabad. (Page 451) (2) Resolution appointing G.K. Choksi and Co. as auditors to conduct a detailed special audit Of the accounts of C2R. (Page 452) (3) Resolution appointing Mr. Mihil Lakhia as the advocate of C2R to represent C2R in legal proceedings. (Page 453) (4) Resolution inducting Mr. Ranjan Kumar Singh and Mr. Angad Atwal as designated Partners of C2R. (Page 455) (5) Resolution for opening a current account with SBI, Ahmedabad in the name of C2R.
(Page 457) (6) Resolution amending the profit-sharing ratio of C2R (Page
458) as under:
(a) Claimant: 85% Page 38 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
(b) Respondent No. 2: 5%
(c) Respondent No. 3: 5%
(d) Ranjan Kumar Singh: 2.5%
(e) Angad Atwal: 2.5% (7) Resolution for entering into a term sheet with Mr. Suresh Bhatia for the purpose of sale of stake in Kinetix. (Page 460) (8) Resolution authorising Respondent No. 3 to sign the term sheet for proposed transfer of stake in Kinetix. (Page 461) (9) Resolution authorising Respondent No. 2 to file Caveat in legal proceedings in Gujarat (Page
462)."
(xviii) On 26 October 2016, a new LLP agreement was executed between the Claimant, Respondent Nos. 2 and 3, and the two new partners of C2R, Mr. Ranjan Kumar Singh and Mr. Angad Atwal were admitted.
The profit-sharing ratio was in terms of the resolution dated 25 October 2016.
Page 39 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (xix) On 27 October 2016, Kotak Mahindra Bank confirmed that the account of C2R had been frozen.
(xx) On 5th November 2016, the Claimant received a letter from Kotak Mahindra Bank seeking clarification regarding the allegations raised by Respondent No. 1 in a letter dated 28 October 2016 addressed to the bank. In the said letter, Respondent No. 1 claimed to be the 'Managing Designated Partner and the sole majority shareholder in C2R.
Respondent No. 1 threatened legal action against Kotak Mahindra Bank in case the accounts of respondent no.4-C2R LLP were not re-opened.
(xxi) On 20 November, respondent no.4- Page 40 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined C2R LLP, through its counsel, responded to the letter sent by Kotak Mahindra Bank stating that Respondent No. 1 had been expelled from C2R due to his fraudulent conduct, and further informed the bank regarding the new shareholding of the partnership.
(xxii) On 11th November 2016, C2R received a letter from the ROC with respect to certain complaints made by Respondent No. 1 against C2R. The said letter referred to two letters dated 29 October 2016 and 11 November 2016 as per which Respondent No. 1 claimed to be a partner of C2R. He further requested the ROC to not take on record any filings from C2R.
(xxiii) On 20th November 2016, C2R, through its counsel, responded to the Page 41 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined ROC's letter dated 11 November 2016 negating the allegation of Respondent No. 1 and further stating that Respondent No. 1 had been expelled from C2R due to breach of the LLP Agreement and fraud played by him.
ARBITRATION PROCEEDINGS 18. On 8th November 2016, Respondent No. 1 filed a petition under Section 9 of the Act before the City Civil Court of Ahmedabad being CMA 111/2016 seeking an injunction against C2R and its partners from acting on the resolutions dated 26 October 2016.
19. After the Claimant filed his objections to the Section 9 Petition, Respondent No. 1, by way of his rejoinder, Page 42 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined attempted to introduce a new document, alleging it to be the minutes of a meeting dated 18 July 2015 of the partners of C2R.
These minutes had not been filed by Respondent No. 1 with his Section 9 Petition and found no mention in the entire Section 9 Petition. The said minutes of the meeting dated 18 July 2015 appeared to ratify every action of Respondent No. 1, including the MOUs entered into by him for the purchase of the land.
20. On the filing of the purported minutes of the meeting dated 18 July 2015, Respondent No. 2 and 3 filed an Affidavit dated 20 November 2016 denying the Minutes of the meeting dated 18 July 2015 and categorically alleging that it was a forged and fabricated document.
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21. However, during the pendency of the said Petition, the Respondent No. 2 attempted to resile from his earlier affidavit and the stand taken by him.
Respondent No. 2 further attempted to claim that he had signed all the resolutions dated 25 October 2016, as well as the letters sent through C2R thereafter through a misconception.
22. On 29 December 2016, the Section 9Petition filed by Respondent No. 1 (i.e. the Respondent No. 1 was the Applicant in CMA 111/2016) was dismissed.
23. Respondent No. 1 preferred an appeal against the Judgment dated 29th December 2016, which was dismissed by this Court on 4th May 2017 affirming the findings of the Page 44 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Learned District Judge.
24. Respondent No. 1 preferred a special leave petition before the Hon'ble Supreme Court against the aforesaid Judgement which was also dismissed by Order dated 15 September 2017.
25. During the proceedings filed by respondent no.1 under section 9 of the Act, the claimant and respondent no.3 collectively invoked arbitration against respondent no.1 on 10.11.2016 as per arbitration clause no. 35 of LLP Agreement and appointed Hon'ble Mr. Justice J.M. Panchal(retired) as their arbitrator. In response, respondent no.1 appointed Hon'ble Mr. Justice Mohit Shah(retired) as co-arbitrator on 5.12.2016.
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26. On or around 16.01.2017, Hon'ble Mr. Justice Mohit Shah, nominee of respondent no.1, recused himself from the Arbitral Tribunal. The claimant therefore, on 17.01.2017 called upon respondent no.1 to appoint another co-arbitrator on his behalf. Respondent no.1 appointed late Hon'ble Mr. Justice G.T. Nanavati (retired) as co-arbitrator in place of Hon'ble Mr. Justice Mohit Shah on 16.02.2017.
27. As Hon'ble Mr. Justice J.M. Panchal and late Hon'ble Mr. Justice G.T. Nanavati were unable to agree on the appointment of a Presiding Arbitrator within the stipulated time period of 30 days as required as per clause 35 of the LLP agreement, the claimant filed application under section 11 of the Act before the Page 46 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Hon'ble Supreme Court of India by an international arbitration. The Hon'ble Supreme Court of India passed the order dated 24.07.2017 in Arbitration Petition No. 14/2017 as under:
"1) Heard the learned Senior Counsel appearing for the parties.
2) This petition has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996. One of the points of controversy that has come up before us is whether the present matter is a case of an International Commercial Arbitration in view of the fact that the petitioner is stated to be habitually resident in Oman, and would therefore, fall within sub-clause (i) of Section 2(f) of the Act.
3) Shri Gopal Shankar Narain, learned counsel on behalf of Respondent No.3, has correctly brought to our notice a certificate issued by the Sultanate of Oman of 2017 stating that the petitioner has been a habitual resident of Oman at least since 2012. This being the case, the present matter is undoubtedly a case of an International Page 47 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Commercial Arbitration.
4) Given the fact that the arbitration clause between the parties requires the appointment of three Arbitrators, and given the fact that Respondent No.1 has appointed Hon'ble Mr. Justice G.T. Nanavati to be their Arbitrator and Respondent Nos. 2 and 3 along with the petitioner have appointed Hon'ble Mr. Justice J.M. Panchal, we appoint Hon'ble Mr. Justice C.K. Thakker, former Judge of this Court, to be the Chairman of the three-Member panel to adjudicate all disputes between the parties.
5) The petition is disposed of in the aforesaid terms."
28. Accordingly, Hon'ble Mr. Justice C.K. Thakker (retired) was appointed as the Presiding Arbitrator and the Arbitral Tribunal was constituted. The Hon'ble Supreme Court has also held that the proceedings between the parties to be an international commercial arbitration for appointment of the Presiding Officer by the Hon'ble Supreme Court under section Page 48 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 11(6) of the Act.
29. The Tribunal held its first meeting on 29.08.2017 and passed the order with regard to time schedule for filing claim statement, reply, counter claim, if any.
The Tribunal also decided about the fees to be paid by the parties. Further meetings of the Tribunal were held on 3rd October,2017 15th October,2017 22nd October,2017 and 25th October, 2017 and arguments on the application filed by the claimant under section 17 of the Act were heard and the matter was reserved for pronouncement of order in section 17 application.
30. The Presiding Arbitrator Hon'ble Mr. Justice C.K. Thakker(retired) vide email dated 11.11.2017 communicated to the co-
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31. After the resignation of Hon'ble Mr. Justice C.K. Thakker(retired), as co-
arbitrators were unable to agree upon the new Presiding Arbitrator, claimant approached again to the Hon'ble Supreme Court of India. The Hon'ble Supreme Court by order dated 04.12.2017 appointed Hon'ble Mr. Justice M.B. Shah (retired Supreme Court Judge) as a Presiding Arbitrator.
32. Arbitral Tribunal therefore, comprised of Hon'ble Mr. Justice M.B. Shah (retired) as the Presiding Arbitrator along with Hon'ble Mr. Justice G.T. Nanavati (retired) and Hon'ble Mr. Justice Page 50 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined J.M. Panchal (retired) with effect from 04.12.2017.
33. The claimant filed application levelling allegations against the Tribunal and therefore, Hon'ble Mr. Justice J.M. Panchal (retired) and Hon'ble Mr. Justice M.B. Shah (retired) resigned from the Tribunal in November, 2018.
34. Therefore, practically there were no members of the Tribunal with effect from 11.11.2017 onwards after resignation of Hon'ble Mr. Justice C.K. Thakker(retired).
35. The claimant thereafter appointed Mr. Andre Yeap, Senior Counsel from Singapore as a member - co-arbitrator on November, 2018 and Mr. Andre Yeap and late Hon'ble Mr. Justice G.T. Nanavati Page 51 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (retired) jointly appointed late Mr. Vinayak Pradhan from Malaysia as Presiding Arbitrator on 24.01.2019. Therefore, the Arbitral Tribunal was having full coram with effect from 24.01.2019 comprising of late Mr. Vinayak Pradhan as the Presiding Arbitrator along with Hon'ble Mr. Justice G.T. Nanavati (retired) and Mr. Andre Yeap Senior Counsel as members - co-
arbitrators.
36. Respondent no.2 also filed an application declaring expiry of the mandate of arbitration proceedings under Section 29A of the Act.
37. Learned advocate Mr.Gursharan H. Virk appearing on behalf of respondent no.1 sent email dated 05.03.2019 addressed to all concern including the arbitrators Page 52 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined under the instructions of respondent no.1 in reply to the email dated 05.03.2019 addressed by Shri Kirit Singh Nagra dsklegal, advocate for the claimant referring to the earlier trails of emails of 01.02.2019 of respondent no.1, email dated 24.01.2019 of Presiding Arbitrator Mr. Pradhan, letter dated 26.12.2018 of the claimant to respondent no.1, email dated 31.12.2018 of respondent no.1 to claimant, email dated 2.01.2019 of Hon'ble Mr. Justice G.T. Nanavati to co-arbitrator and parties in reply to the email dated 31.12.2018, email dated 09.01.2019 from claimant to respondent no.1, email dated 9.1.2019 from respondent no.1 to claimant and ultimately, learned advocate for respondent no.1 requested the Tribunal to convene a preliminary arbitral meeting at Page 53 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the earliest subject to convenience of the arbitrators as respondent no.1 desired to press for urgent hearing and disposal of the application under section 17 of the Act. Request made by learned advocate for the respondent no.1 in email dated 05.03.2019 reads as under:
"Respectfully, therefore, the issue of arbitral fees stands settled in terms above. The Respondent no.1 must be permitted to agitate, to the fullest extent of the law, its counter claims against the claimant and the claimant may be directed, if deemed fit by the Hon'ble Tribunal to discharge the cost implication in relation thereto.
I am instructed by my client to pray that the Hon'ble Tribunal be pleased to convene a preliminary arbitral meeting at the earliest, subject to the convenience of the Hon'ble Arbitrators, since the Respondent no.1 desires to press for urgent hearing and disposal of its application under section 17 of the Arbitration and Conciliation Act, 1996."Page 54 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
38. Thereafter on 08.05.2019, learned advocate Mr. Virk for respondent no.1 sent an email in reference to email dated 26.04.2019 received from Presiding Arbitrator calling upon the respondents to submit the counter claim, if any. Learned advocate Mr. Virk raised objection with regard to the fees determined by the Tribunal which was ordered to be paid by respondent no.1 and after referring to above email, it was stated as under:
"Since day one, my client has made it abundantly clear that he is incapable of making payment of such exorbitant fees; and if the adjudication of my client's case is conditional upon payment of fees as above, then the cost of litigation is going to make it impossible for my client to defend his case. Never has my client shrugged from the payment of fees; and my client has always indicated his readiness to make payment of fees of Rs.50000 per-hearing, i.e. the fees which was being discharged to the Hon'ble Tribunal Page 55 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined presided by Hon'ble Justice Shri C.K. Thakker and subsequently, the Hon'ble Tribunal presided by Hon'ble Justice Shri M.B. Shah, both, former Hon'ble Judges of the Hon'ble Supreme Court of India.
The background of the constitution of this new Tribunal, presided by Hon'ble Shri Pradhan is the disbanding of the earlier Hon'ble Tribunal on account of the conduct of the Claimant. This, therefore, cannot become the reason to burden my client with abnormal arbitral fees which are incapable of being discharged.
On behalf of the Respondent No. 1, therefore, it is urged that the Hon'ble Tribunal be pleased to reconsider the directives of the e-mail dated 26.04.2019 in light of the present e-mail, and further be pleased to permit the Respondent No. 1 to agitate and proceed with his counter claims (already filed), since, the issue of costs of arbitration can always be factored in the award, in terms of Section 31A of the Arbitration and Conciliation Act, 1996."
39. By email dated 23.05.2019, late Shri Vinayak P. Pradhan, Presiding Arbitrator, at the relevant time informed the parties Page 56 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined that 24th January 2019 email had set out the basis of charges considering ICC Schedule as an upper limit and therefore, it was communicated by the lawyer of the claimant that average fees could not exceed the ICC Schedule and only conflict was in relation to the amount of the deposit required. It was further informed that by email dated 5th February, 2019, it was merely stated that the Tribunal is prepared to consider the application of ICC's scale of fees and expenses and the Tribunal has decided to stay with 24th January 2019 scale of charges and deposits. It was informed to the respondents that if the respondents do not meet their obligation of payment, they would be prohibited from pursuing their counterclaims unless they paid their share Page 57 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the deposit.
40. Learned advocate Mr. Virk for the respondent by email dated 06.06.2019 reiterated that respondent no.1 has already expressed his readiness to pay the arbitration fees decided by the Tribunal consisting of Hon'ble Mr. Justice Shri C.K. Thakker (retired), Hon'ble Mr. Justice M.B. Shah (retired), Hon'ble Mr. Justice J.M. Panchal (retired) and Hon'ble Mr. Justice G.T. Nanavati. It was informed that it would be highly unusual and unfair to burden respondent no.1 with a massive fee quantum and it would make it impossible for respondent no.1 to participate in the arbitration proceedings.
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41. By email dated 15.08.2019 late Shri Vinayak Pradhan informed the parties about the directions and orders issued by the Tribunal as under:
"The Tribunal issues the following directions and orders.
Fees.
1. The terms of each member of the Tribunal for agreeing to act as arbitrators are as follows:
The Parties are to pay each member of the Tribunal the sum of SGD 50,000 prior to the constitution of the Tribunal.
(ii) In addition, for work done the parties are to pay SGD 1,200 an hour.
(iii)For meetings and hearings which are fixed for the whole day the Parties are to pay each member of the Tribunal SGD 6,500 a day.
Travelling time will be charged at SGD 600 per hour.
(iv) For items (ii) and (iii) above, the Parties are to pay prior to the constitution of the Tribunal, to each member of the Page 59 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal, a further sum of SGD 50,000 as a deposit to be drawn down against bills to be rendered from time to time. If the sum drawn down reduces the deposit remaining to SGD 18,000, the Parties will top up each deposit to SGD 50,000 within 10 days of being given notice to do so. This will continue until the arbitration award is delivered.
(v) Further, the Parties are to pay each member of the Tribunal's expenses to be calculated in accordance with the SIAC's practice at the time the expenses are incurred. A separate sum of SGD 10,000 is to be paid to each member of the Tribunal as an advance deposit for expenses. This may need to be topped up as the arbitration progresses with payment of the sum required to be made within 10 days of notice to do so.
(vi) The payments listed above are to be made by each set of Parties by the time stated. Once the time for payment is past, if one Party does not pay its share of the deposit, the other Party may do so, on terms that these become recoverable costs from the non- paying Party in any event. All Parties are notwithstanding these arrangements jointly and severally Page 60 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined liable for the Tribunal's fees and expenses.
(vii) In the event that any payment is not made on time, the Tribunal may suspend the arbitration in whole or in part or terminate it.
(viii) In the event that any Party does not make its payment of its share of the deposit on time, the Tribunal will stay that Party's claim
(ix)Upon the payments stated in paras. 3(i), (iv) and (v) being made, the Tribunal shall be constituted and will enter into the reference to arbitration and commence work.
In this connection, please note that the Tribunal has not been properly constituted and entered into the reference as yet. This will happen when the deposits are paid or a Party has paid its share with the other Party's claim being suspended for non payment.
(xi) The payments are to reach the respective arbitrators' bank accounts by 6 September 2019.
Schedule. The Arbitration will proceed from where it left off Page 61 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined with the completion of the cross- examination of Claimant's witness No. 5. The parties are to notify the Tribunal by 6 September2019 as to who the other witnesses will be.
There does not appear to be any need for any further preliminary meeting and the first tranche of the hearings will be held in Singapore from 16 to 18 October 2019, 28 and 29 October 2019 and 7 to 15 November 2019 with the exception of 13 November 2019. I will forward Mr.Yeap's and my banking details. The Parties already have Justice Nanavatis.
The Claimant is to arrange for the hearing facilities at Maxwell Chambers, Singapore with the initial costs to be borne equally by both parties. The hearing times will be 9.30 a.m. to 4.30 p.m. Transcripts The transcripts are to be taken by livenote or other equivalent processes for immediate view and same day provision of transcripts. Again, the Claimant is to arrange for this on terms that the initially costs are shared by the Parties.
The Tribunal looks forward to the cooperation of the Parties to Page 62 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined conclude this arbitration expeditiously and in a courteous and co-operative manner.
Best regards, Vinayak Pradhan"
42. In response to the above directions and orders issued by the Tribunal, learned advocate Mr. Virk for the respondent by email dated 15.08.2019 at 15:12 hours again reiterated that the fees proposed to be charged by the Tribunal is more than 15-20 times fees which was being charged by the Tribunals presided by Former Hon'ble Judges of the Hon'ble Supreme Court of India. It was further stated as under :
"1. The Respondent No.1 - Neeraj K. Shah does not agree with the exorbitant fees directed to be paid to the Hon'ble Tribunal and cannot afford said high fees.
2. For the first time, today - vide the trailing email of the Page 63 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Hon'ble Presiding Arbitrator Shri Pradhan, it is conveyed that meetings of the matter would take place at Singapore on the dates mentioned in the said email. The Respondent No. 1 - Neeraj K. Shah strongly objects to the said unilateral change in venue of hearings of the matter, which, in terms of the Agreement between the parties is to take place at Ahmedabad, Gujarat, India.On behalf of the Respondent No. 1
it is respectfully submitted that it is not known as to how, why and when the Hon'ble Tribunal suddenly chose to move the matter from Ahmedabad to Singapore without consulting the parties and it is further submitted that my client is not in a position to afford the exorbitant costs associated with conducting the arbitration in Singapore."
43. By email dated 19.08.2019 late Shri Vinayak Pradhan informed the parties that hearing will take place at Ahmedabad and it was further stated as under :
"It parties are to be note that the Tribunal has not been Page 64 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined constituted and will not be constituted until the deposits are paid. This does not appear to have been pointed out to the learned Judge."
44. Learned advocate for the claimant by email dated 20.08.2019 raised objection to the email dated 15.08.2019 of the respondent and agreed to pay the amount of fees as per the directions and order communicated by the Tribunal by email dated 15.08.2019 and also agreed to incur the cost for hearing scheduled on 16-18 October, 2019, 28-29 October, 2019 and 14- 15 November, 2019 with a prayer to protect the interest of the claimant qua the cost.
45. With regard to the email of the respondent, the following objections were raised:
4. The repetitive contentions in the emails of Sh. G.S. Virk Page 65 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined clearly indicate the conduct of the Respondent in not allowing the present arbitration proceedings to move forward. It is pertinent to note that in the Section 9 proceedings, which were being pursued by the Claimant before the Hon'ble High Court of Gujarat at Ahmedabad, the Respondent No. 1 and 2 had repeatedly raised an objection as to the maintainability of the Claimant's petition inter alia on the ground that the Arbitral Tribunal has already been constituted, and in view of the same, the Section 9 petition is not maintainable.
While the Section 9 petition was disposed of on grounds maintainability, the and Claimant is taking necessary steps to assail the said Judgment dated 21st June, 2019, the Respondent is repeatedly attempting to derail the arbitral process on frivolous grounds, as is evident from its emails. Such conduct of the Respondents ought to be viewed with utmost circumspection.
5. The Respondent's constant reliance upon the Judgment dated 21 June, 2019, and in particular, qua the alleged conduct of the Claimant is completely misplaced. It is to be noted that the Claimant has acted bona fide at all times to seek expeditious Page 66 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined disposal of its claims and reliefs before the Arbitration Tribunal. It is the Claimant's case that the Respondent No. 1 and 2 have constantly thwarted the Claimant's attempts to seek legal remedies, despite the Respondent Nos. 1 and 2 having only invested paltry sums of INR 225,000 and INR 125,000 respectively as against the Claimant's investment of INR 45 crores into the Respondent No. 4 LLP. Furthermore, having invested the only the aforesaid sums in the LLP, the Respondent Nos. 1 and 2 have raised frivolous counterclaims to the tune of about INR 80 crores and INR 46.2 crores respectively and are now stating their inability to pay the arbitral fee, and yet seek adjudication of such exaggerated and frivolous claims purportedly at the expense of the Claimant. The contents of the last paragraph of Sh. Virk's email, are therefore, nothing more than another attempt to mislead this Hon'ble Tribunal from the main issues for determination in the arbitration."
46. Thereafter there was exchange of email between the learned advocate of the Page 67 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimants and the respondents on 21.08.2019 and 30.08.2019.
47. By email dated 06.10.2019 late Shri Vinayak Pradhan presiding arbitrator of the Tribunal confirmed that all the Tribunal members who received the payment from the claimant has requested and since the Tribunal has been constituted, the matter to proceed as scheduled on 16 to 18 October, 2019.
48. Thereafter at the hearing of the Tribunal held on 07.11.2019 Tribunal suo motu raised issue of applicability of section 29A of the Act and after hearing the arguments of the parties on the said issue for two days decided that it had the mandate to continue with the arbitration proceedings and adjourned the matter on Page 68 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 19.11.2019 at the request of respondent no.1 subject to payment of cost by respondent no.1 approximately Rs. 1.9 Crore to have been incurred by the claimant vide order dated 23.12.2019 and next date was fixed by the Tribunal on 3.1.2020 as 13 to 18 February 2020.
49. It appears that before arbitration proceedings were to start on 13.02.2020, respondent no.1 approached this Court on 12.02.2020 by preferring Special Civil Application No.3913/2020 under Article 226 of the Constitution of India seeking relief inter-alia in the nature of issuance of writ of quo warranto to quash and terminate the mandate of the Tribunal and obtain stay on the arbitral proceedings.
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50. The order passed by this Court dated 12.02.2020 in Special Civil Application No. 3913/2020 reads as under:
"1. Learned Senior Advocate Mr.Soparkar for the petitioner and learned Senior Advocate Mr.N.D.Nanavaty for respondent No.2, who is supporting the petitioner, jointly submitted that the Arbitral Tribunal has lost its mandate and therefore, cannot proceed further with the arbitration. He drew attention of this Court to the order of the Apex Court dated 04.12.2027 in MA No.1482 of 2017 in Arbitration Petition No.14 of 2017 and particularly referred to the directions of the Apex Court in connection with Section 29A of the Arbitration and Conciliation Act that the arbitral proceedings will commence on and from the date on which the first sitting takes place. According to the petitioner, first date of arbitration was 01.02.2018 and therefore, as provided under Section 29A of the Arbitration and Conciliation Act, the award is to be made within a period of 12 months and therefore, period of 12 months had expired on 31.01.2019.Page 70 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 1.1 Learned Senior Advocate for the petitioner referred to Section 29A(3) of the Act which provides for extension of period by consent of the parties by further period of not exceeding six months. That period was also over by 31.07.2019. It is the case of the petitioner that till such date, the Arbitral Tribunal was not constituted. For this, learned Senior Advocate for the petitioner drew attention of this Court to communication dated 21.01.2019 with regard to terms of each member of Tribunal and categoric mention in such communication by the Principal Arbitrator that upon payment stipulated in the very communication, the Tribunal shall be constituted and will enter into the reference of arbitration and commence work. He referred to various communications on behalf of the petitioner to the Principal Arbitrator about inability of the petitioner to accept the fee structure of arbitration. It is submitted that an application under Section 9 was filed by the petitioner before this Court being MCA No.90 of 2019, which came to be disposed of on the basis that the Arbitral Tribunal is constituted. Despite this, it was consistent stand of the respondent, including respondent Page 71 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined No.5 that the Arbitral Tribunal is not constituted. He drew attention of this Court to various such communications, where stand of the respondent, including that of respondent No.5 is that the Arbitral Tribunal is not constituted. It is submitted that it was only on 06.10.2019, a communication was issued by respondent No.5 that the Tribunal is constituted.
1.2 It is therefore submitted that the date on which the Arbitral Tribunal was constituted even as per respondent No.5, the Arbitral Tribunal had expired the mandate contemplated under Section 29A of the Act and therefore, the arbitration proceedings are without jurisdiction.
1.3 It is submitted that change of arbitration fees from Rs.50,000/- per arbitrator to exorbitant fees as described by the new Arbitration President and that too without consultation and consent of the petitioner is forcing the petitioner to participate in the arbitration proceedings where the Arbitrators have predecided to reject the counter claim of the petitioner. In communication dated 26.04.2019 has communicated that there will be no counter-claim and only defence can be raised by the Page 72 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined respondent to claimant's claims and this stand is only because the petitioner is unable to pay to foot cost of newly constituted Arbitral Tribunal.
2. Learned Senior Advocate Mr.Shalin Mehta for respondent No.1 submitted that though caveat is filed, the same is not reflected. He therefore, prays to be heard on behalf of respondent No.1.
2.1 His submissions is on preliminary points, i.e. (a) the subject will lie before before the Commercial Division of this Court under Section 10 of the Commercial Courts and and (b) this writ is not maintainable in view of Section 16 read with Section 34 of the Arbitration and Conciliation Act.
2.2 It is submitted that the petition is ill-timed. Tomorrow, second tranche of arbitration sitting is to commence. All concerned have flew down to Ahmedabad, incurring very heavy expenditure and that too at the cost of respondent No.1 alone as the petitioner has not contributed a single farthing.
2.3 It is submitted that conduct and communications from the Page 73 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined petitioner would indicate that he has really and in fact, participated in the arbitral proceedings, but probably fearing an outcome against him, has filed the petition. The Court was cursorily taken through compilation provided and attention was drawn to certain e-mail communications to substantiate participation of the petitioner in arbitral proceedings.
2.4 It is submitted that the petitioner has prayed for writ of quo warranto, which essentially would not lie against an Arbitral Tribunal as the same is not any public body.
3. For the purpose of understanding the controversy, it may be necessary to refer and reproduce relevant portion of pleadings and documents. Order dated 04.12.2017 passed by the Apex Court in MA No.1482 of 2017 reads as under:-
"By our Order dated 24.07.2017, we appointed Hon'ble Mr.Justice C.K.Thakker, former Judge of this Court, to be the presiding Arbitrator. Justice Thakker has since stated that it would not be possible for him to take up the assignment.Page 74 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined In this view of the matter, we now appoint Hon'ble Mr.Justice M.B.Shah, former Judge of this Court to be the Chairman of the Arbitarl Tribunal.
Considering the fact that Justice Thakker was unable to accept the assignment, the period within which the award is to be delivered under Section 29A of the Arbitration and Conciliation Act will commence on and from the date on which the first sitting takes place."
4. In communication dated 28.11.2016 addressed on behalf of respondent No.1 to the then existing Arbitral Tribunal, it is stated as under:-
"31. In view of the above circumstances and since this Hon'ble Tribunal will not be in a position to complete the present arbitration proceedings within the specified period of twelve months under the Act, there exists no reason for the Claimant to give his consent for an extension of the time period for existing Tribunal. The Claimant therefore wishes to place on record that this Hon'ble Tribunal has failed to dispense justice in a fair and timely manner. Further, the Claimant does not give his consent Page 75 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined for any extension of the time period for this Hon'ble Tribunal as contemplated under Section 29A(3) of the Act or otherwise.
35. In view of the above said, the Claimant urges the Hon'ble Presiding Arbitrator to consider the aforesaid submissions on behalf of the Claimant and withdraw from the present arbitration proceedings as the Presiding Arbitrator."
4.1 The aforesaid is the categoric stand of respondent No.1 to an ongoing arbitration proceedings under the order of the Apex Court. 4.2 The relevant portion of the response by the Presiding Arbitrator Hon'ble Mr.Justice M.B.Shah, former Judge, Supreme Court of India dated 01.12.2018 reads as under:-
"2. It appears that it might be your habit to make such baseless statements and allegations to get the Order in your client's favour. Be sure that such baseless statements and allegations would not count much before the Tribunal consisting of three retired Judges of the Honourable Supreme Court. It is, therefore, quite possible that because of such behaviour, Ex. Presiding Arbitrator Mr.Justice C.K.Thakker (Former Page 76 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Judge, Supreme Court of India) was required to withdraw his consent to continue as Presiding Arbitrator. This led the Honourable Supreme Court to appoint the undersigned to be the Presiding Arbitrator vide Order dated 04th December, 2017....
But before Order could be passed, on various grounds, the matter was adjourned and that is not required to be narrated here. However, that can be verified by referring to various minutes, orders and e- mails sent by this Tribunal. However, the oral evidence of the Claimant's four witnesses was recorded at length during the meetings held from 27th to 31st August, 2018; 05th, 29th & 30th October, 2018. Recording of the oral evidence of the Claimant's fifth witness was partly recorded on 30th October, 2019 which was to be continued on 16th December, 2018.
It is to be highlighted that the Order Prepared below the application filed by the Claimant under Section 17 of the Act is ready and is approved by the learned Co-Arbitrator, Justice Nanavati. Copy of the said Order was also delivered to Justice Panchal's residence on 29th November, 2018 at about 08:30 PM.Page 77 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined However, on the same day, at 10:15 PM, Brother Justice Panchal arranged to e-mail resignation letter which was addressed to me with a copy to all and he withdrew from the Tribunal with immediate effect. Further, he has stated in the resignation letter that, "I have received and gone through the letter dated 28/11/2018 addressed by the Claimant's Counsel to the Arbitral Tribunal. IN paragraph 31 of the said letter, the Claimant has shown disinclination for an extension of time to make award. Allegations are against the whole Tribunal."
4.3 In the letter dated 29.11.2018 addressed by the Co-Arbitrator Hon'ble Mr.Justice J.M.Panchal, former Judge, Supreme Court of India to the Presiding Arbitrator Hon'ble Mr.Justice M.B.Shah, former Judge, Supreme Court of India, it is stated as under:-
"I have received and gone through the letter dated 28/11/2018 addressed by the Claimant's Counsel to the Arbitral Tribunal. In paragraph 31 of the said letter, the claimant has shown disinclination for an extension of time to make award. Allegations are against the whole Tribunal.
The record would demonstrate that Page 78 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined respondent No.1 and respondent No.2 have delayed the matter at every juncture. Despite best efforts, the Tribunal has not been able to decide claimant's application filed u/s 17 of Act of 1996. There is no likelihood of main matter being disposed of within stipulated period. These proceedings are hotly contested and are only likely to get more intense and taxing in the days to come.
In view of the above, I hereby tender my resignation and withdraw from the Tribunal with immediate effect."
5. The issue of roster raised by learned Senior Advocate for the respondent pertains to Section 10(1) of the Commercial Courts Act, which provides that in an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 have to be filed in High Court and to be heard and disposed of by Commercial Division. Prima facie, when the contention before the Court to invoke Article 226 is on the basis of jurisdiction, to proceed with the Arbitral Tribunal after lapse of mandate, the Page 79 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined contentions which are raised on basis of Section 29A of the Arbitration and Conciliation Act to invoke Article 226 cannot be said to be an application under Section 29A before the Arbitral Tribunal or petition before this Court to be an application arising out of the Arbitration and Conciliation Act.
6. To counter the submission of alternative remedy provided under the Arbitration and Conciliation Act in terms of Section 16 read with Section 34, reliance is placed by learned Senior Advocate for the petitioner to a judgment of this Court in case of HEIRS OF LEGAL OF SIDHRAJSINHJI PRAGRAJSINHJI & ORS. Vs. BENGAL CYNOSURE DEVELOPMENT PRIVATE LIMITED & ORS., reported in 2019(3) GLH, 406 wherein, it was held that in gross facts, the Court can exercise powers under Article 226.
7. Since the notice is being issued for the respondents to respond, the issue of writ of co warranto raised by respondent No.1 is kept open.
8. The issue that goes to the root of the matter is jurisdictional issue. The Arbitral Tribunal, whose mandate stands extinguished Page 80 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined by operation of Section 29A whether can be permitted to arbitrate, especially in given facts and circumstances of the case. As observed in the presiding paragraphs, the Arbitral Tribunal constituted upon the orders of the Apex Court. Reference will have to be made to the terms and conditions which were stipulated by the new Presiding Arbitrator in his communication dated 24.01.2019, which are as under:-
"(i) The parties are to pay each member of the Tribunal sum of SGD (Singapore Dollars) 50,000 prior to the constitution of the Tribunal.
(ii) In addition, for work done the parties are to pay SGD 1,200 an hour.
(iii) For meetings and hearing which are fixed for the whole day the Parties are to pay each member of the Tribunal SGD 6,500 a day.
Travelling time will be charged at SDG 600 per hour.
(iv) Four items (ii) and (iii) above, the Parties are to pay prior to the constitution of the Tribunal, to each member of the Tribunal, a further sum of SGD 50,000 as a deposit to be drawn down against bills to be rendered Page 81 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined from time to time. If the sum drawn down reduces the deposit remaining to SGD 18,000, the Parties will top up each deposit to SGD 50,000/- within 10 days of being given notice to do so. This will continue until the arbitration award is delivered.
(v) Further, the Parties are to pay each member of the Tribunal's expenses to be calculated in accordance with the SIAC's practice at the time the expenses are incurred. A separate sum of SGD 10,000 is to be paid to each member of the Tribunal as an advance deposit for expenses. This may need to be topped up as the arbitration progresses with payment of the sum required to be made within 10 days of notice to do so.
Upon the payments sated in paras. 3(i), (iv) and (v) being made, the Tribunal shall be constituted and will enter into the reference to arbitration and commence work."
8.1 These fees were objected by the petitioner another party to arbitration, especially with regard to exorbitant cost as against the cost stipulated by the previous Arbitral Tribunal. The new Presiding Arbitrator in communications dated 15.08.2019 Page 82 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined and 19.08.2019 has stated as under:-
Communication dated 15.08.2019 "(vii) In the event that any payment is not made on time, the Tribunal may suspend the arbitration in whole or in part or terminate it.
(viii) In the event that any Party does not make its payment of its share of the deposit on time, the Tribunal will stay that Party's claim.
(ix) Upon the payments sated in paras. 3(i), (iv) and (v) being made, the Tribunal shall be constituted and will enter into the reference to arbitration and commence work.
(x) In this connection, please note that the Tribunal has not been properly constituted and entered into the reference as yet.
This will happen when the deposits are paid or a Party has paid its share with the other Party's claim suspended for non payment.
(xi) The payments are to reach the respective arbitrators' bank accounts by 6 September 2016."
Communication dated 19.08.2019 Page 83 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "The Tribunal has taken cognizance of Mr.Gursharan Virk's email and reconsidered its directions and directs as follows:
The Hearings will take place in Ahmedabad and not in Singapore. All other directions except for the references to Maxwell Chambers and Singapore stand.
It Parties are to be note that the Tribunal has not been constituted and will not be constituted until the deposits are paid. This does not appear to have been pointed out to the learned Judge."
9. It was for the first time by communication dated 06.10.2019 the Presiding Arbitrator of the newly constituted Arbitral Tribunal conveyed about constitution of the Tribunal. Considering the order of the Apex Court and mandate of Section 29A, prima facie period of one year had lapsed on 31.01.2019. Even if consent of the parties is to be presumed (which is not the fact in this case), the extended period of six months had also lapsed and there is no order of the Court which has extended the period of mandate. In that eventuality, prima facie, mandate of the Arbitral Tribunal stood terminated.
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10. In the facts of this case, as reproduced in the presiding paras, the stand of respondent No.1 was against extension of period for Arbitral Tribunal beyond period of one year and the and making 'U' turn in extending the mandate period on its own creating Arbitral Tribunal beyond period of mandate and then in hot haste to conduct arbitration proceedings, the reasons are not far to imagine.
11. A simple fact of ascertaining date on which the arbitration started, there is no clarity, prima facie leading this Court to believe the contention of the learned Senior Advocate for the petitioner that international arbitration is foisted upon the petitioner with a forgone conclusion of resisting the claim of the petitioner on his inability to pay the somewhat exorbitant arbitration costs, little remains to arbitrate. The manner in which arbitration is proceeding, the outcome is also not far to imagine. In background of the peculiar facts of the case, the Court finds that the petitioner has made a ground to interfere.
12. The shifting stand of the newly appointed Presiding Page 85 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Arbitrator is evident even from the communication as late as of 15.01.2020, wherein the Presiding Arbitrator communicates that the issue relating to Section 29A will be dealt with by the Tribunal in its final award. At the same time, in communication dated 07.02.2020, the Presiding Arbitrator informs the parties that, "All the other matters raised by Mr.Sarkar have been dealt with by the Tribunal in its previous Order(s).
Notwithstanding this, the Tribunal reiterates that the Parties will be notified of the date the Tribunal entered into reference on 13 February 2020".
13. This, in the opinion of the Curt, creates doubt about the jurisdiction of the Tribunal to arbitrate beyond the period during which mandate is operational. Prima facie, no amount concession or participation of the petitioner in the arbitration proceedings can confer jurisdiction and similarly, no amount of expenditure incurred in the present arbitration proceedings can also confer jurisdiction.
14. NOTICE returnable on 26.02.2020. In the meantime, respondent No.5 shall not undertake proceedings further with the arbitral process /hearings, particularly scheduled from Page 86 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 13.02.2020 onwards."
51. Against the above order dated 12.02.2020 claimant immediately filed SLP(C) Diary No.5800/2020 before the Apex Court. The Hon'ble Supreme Court passed the following order on 14.02.2020 :
"UPON hearing the counsel the Court made the following O R D E R Issue notice.
Having heard learned senior counsel for both sides at great length, we pass the following order, which is not on the merits of the dispute:
1. The Arbitral Tribunal may continue with the hearing that is being fixed from 13th to 18th February, 2020. It may resume the hearing from tomorrow.
2. The Arbitral Tribunal will, for the time being, confine itself to taking evidence and hearing the parties.
3. The Gujarat High Court is requested to take up the matter on 26.02.2020. All parties assure us Page 87 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined that they will not take any adjournment on that date. The High Court will endeavour to complete the hearing as soon as is practically possible and deliver judgment.
This order substitutes the order that has been passed on 12.02.2020.
To come up on 16.03.2020."
52. Pursuant to the above order dated 14.02.2020 passed by the Hon'ble Supreme Court in the SLP preferred by the claimant challenging the order dated 12.02.2020, hearing before the Tribunal took place from 15th February to 18th February, 2020 wherein cross examination of witnesses (1) Col. R.K. Singh (retd.) (2) Mr. Ashok Kashyap and (3) Mr. V.C. Misra was conducted.
53. Presiding Arbitrator late Mr. Vinayak Pradhan unfortunately expired on Page 88 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 08.03.2020. Therefore, again coram of Tribunal with effect from 08.03.2020 was fractured.
54. This Court by order dated 11.03.2020 dismissed the Writ Petition No.3913/2020 along with another Special Civil Application No.4441/2020 seeking identical reliefs filed by the respondent no.2 holding that the petition cannot be entertained under Article 226 of the Constitution of India during the pendency of the arbitral proceedings.
55. Thereafter on 09.09.2020 late Hon'ble Mr. Justice G.T. Nanavati(retired) and Mr. Andre Yeap jointly appointed Mr. K. Anantham as the Presiding Arbitrator and the arbitration proceedings were conducted Page 89 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined by the reconstituted Tribunal.
56. The 4th Arbitral Tribunal conducted the arbitration proceedings on 9th and 11th 2020 and December 10,11,17,18 and 19, 2020.
57. Respondent nos. 1 and 2 had preferred SLP (C)Nos. 14869/2020 and 14900/2020 challenging the judgment dated 11th March, 2020 passed by this Court. The Hon'ble Supreme Court by order dated 18.12.2020 disposed of the SLP by following pronouncement:
"We find no ground to interfere with the impugned order(s) passed by the High Court. The Special Leave Petitions are, accordingly, dismissed. Pending interlocutory application(s), if any, is/are disposed of."
58. In paragraph no.44 of the Award, the Page 90 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal has dealt with exclusion of evidence of respondent nos. 1 and 2. The decision was taken by the Tribunal to exclude respondent nos.1 and 2 from filing their evidence and those of their witnesses after affording several opportunities to file their evidence. The Tribunal has set out in detail, as outlined in the submission of the claimant, that several opportunities were afforded to the respondent nos. 1 and 2 and of their repeated failures to meet the deadlines to file their evidence including in some cases self-imposed deadlines.
Respondent no.1 filed written application to tender evidence whereas respondent no.2 made oral application which was refused by the Tribunal by a reasoned order dated 18.12.2020 in respect of respondent no.1 Page 91 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined and oral order in case of respondent no.2.
Order dated 18.12.2020 reads as under:
"1. We have heard the Advocates appearing on the application filed by Respondent 1, seeking leave of this Tribunal to lead evidence on behalf of Respondent 1 in these proceedings. The application is supported by the Affidavit of Respondent 1. The application was opposed by the Claimants, Respondent 3 and Respondent 4 but supported by Respondent 2.
2. In essence, the Affidavit purports to provide reasons as to why Respondent 1 has not been able to comply with the earlier directions ordered by this Tribunal for him to file his Affidavit evidence.
3. Respondent 1 advanced several reasons in seeking leave of this Tribunal, with the principal reasons being:-
i)the existence of parallel proceedings initiated by the parties at various stages of the adjudication process;
ii)an alleged contrary stance taken by the Tribunal in an Page 92 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined exchange of four (4) communications with the parties between 15/7/2019 and 11/11/2019;
iii)the need for Respondent 1 to engage new Counsel and the ensuing delay arising in efforts to instruct new Counsel; and
iv)finally, the recent illness suffered by Respondent 1.
4 On the morning of 10/12/2020, this Tribunal received oral submissions in support and in opposition to this application. Mr. S Jayasimha, on behalf of Respondent 1, presented Item (i) of paragraph 3 above in this manner. Since the Supreme Court of India would be deliberating on whether the mandate of this Tribunal, which was then led by the late Mr. Vinayak Pradhan as Presiding Arbitrator, had expired at the material time, the Respondent's right to file an Affidavit containing his evidence ought to be preserved, if that right existed at that time, especially, if there is no further prejudice being caused to any party.
5. Counsel for the Claimant helpfully produced an Aide-Memoire Page 93 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined on the commencement of oral arguments containing the history of the earlier proceedings in relation to the manner in which this Tribunal has dealt with earlier submissions by Respondent 1 for an extension for time to file his Affidavit. The history of the earlier proceedings relevant to Item (i) of paragraph 3 above is as follows:
a) The Tribunal in its directions to the parties dated 20 October 2019 had stated as follows: "The Tribunal notes that Respondent No.1 and Respondent No.2 have failed to file any affidavits of evidence in chief for themselves or any of their witnesses.
Accordingly, the Tribunal considers and takes it that: .... (2) Respondent No. 1 and Respondent No. 2 have elected not to give evidence themselves and have also elected not to call any witnesses to give evidence on their behalf. As such, unless otherwise directed by the Tribunal, the arbitration is to continue and to proceed on this basis.
b)The Tribunal further directed that if Respondent 1 and or Respondent 2 wished to change its position on the giving of Page 94 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined evidence, it had to make its written application to the Tribunal on or before 25 November 2019 and on the basis of the conditions imposed therein. The reason for the written undertakings required by the Tribunal is as clearly stated in its email: namely that the late filing by the 13 and 2nd Respondents could potentially lead to a longer hearing with more evidence having to be considered by the Tribunal which in turn would impact on the time of delivery of the Award.
c)Mr. Virk, then Counsel for Respondent 1, in his email of 28 October 2019 responded to the Tribunal stating inter alia as follows: "I am instructed to state that the Respondent No. 1 will move appropriate application for extension of time to file affidavits of evidence of its witnesses on 07.11.2019." However, on 7 November 2019, Mr. Virk did not move such as application on behalf of his client.
d)Respondent 1 also did not submit any written application by the stipulated date of 25 November 2019 and to avail himself of the opportunity to file his evidence.
Page 95 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined e) On 28 November 2019 the Tribunal again allowed an
extension of time to file the evidence of Respondent 1 and Respondent 2, attaching similar conditions as those previously attached. The date stipulated was 5 December 2019.
Respondent 1 and Respondent 2 yet again failed to submit a written application by the stipulated date of 5 December 2019 and to avail themselves of the opportunity to file their evidence.
(F) In its directions dated 15 January 2020, the previous Tribunal had concluded as follows:
A The Tribunal found that Respondent 1 and Respondent 2 have been afforded many extensions of time to file in their evidence without any conditions attached by the previous Tribunal. Despite this, they had not availed themselves of it.
B The Tribunal in its email of 20 October 2019 noted that Respondent 1 and Respondent 2 had failed to file any affidavits of evidence in chief for themselves or of any of their witnesses and accordingly the Tribunal considered and took it that they had elected not to give evidence themselves and had also elected not to call any witnesses to give evidence on their behalf.
Page 96 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined C The 2 further extensions granted by the Tribunal vide its directions dated 20 October 2019 and 28 November 2019 were subject to conditions which were fair and reasonable as the 1st and 2nd Respondents' had failed to file their evidence within the stipulated time frame specified by the earlier Tribunal and the numerous time extensions given to them, all of which had been unconditional.
D Taking into account these circumstances, the Tribunal found no merit in Mr Virk's contentions as regards the imposition by the Tribunal of conditions in granting the extensions) when the time for the filing of the evidence of Respondent 1 and Respondent 2 had already expired.
E The final date stipulated by the Tribunal ie, 5 December 2019, for filing any written application having passed, the Tribunal declared that Respondent 1 and Respondent 2 had waived their right to file any affidavit in lieu of their evidence in chief or that of its witnesses', along with copies of their supporting documents. Their right to file such evidence was declared closed and the arbitration shall proceed on this basis.
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g) There are 2 aspects which are particularly relevant to the outcome of this application. First, it was not all clear what and which "parallel proceedings"
Mr Jayasimha was referring to. At no point in time were "parallel proceedings "previously raised by Respondent 1 as a reason to seek an extension of time for the filing of his evidence. Indeed, Respondent 1's application to the Gujarat High Court for a stay of the arbitration proceedings was filed just prior to the arbitration hearing in Gujarat scheduled for 13 to 18 Feb 2020, which was well after Respondent 1 had failed to comply with its own offer to file its application by 7 November 2019, after the final stipulated date of 5 December 2020 for Respondent 1 to file its application in relation to the filing of his evidence and after the previous Tribunal's directions dated 15 January 2020 declaring Respondent 1's election to not give evidence and the closure of his right to give evidence in these proceedings.
h)Secondly, there been no change of circumstances to warrant the Tribunal departing from the previous directions dated 15 January 2020. Indeed, given that the status of the proceedings now is more advanced than it was in 15 Page 98 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined January 2020, compelling reasons reasons was required to be furnished by Respondent 1 as to why he had failed to file his affidavit of evidence in chief in accordance with the timelines previously directed, as well as why he failed to avail himself of the applications as allowed in the previous Tribunal's directions dated 20 October 2019 and 28 November 2019, and to also demonstrate why he should now be allowed to give evidence when he had previously elected by his conduct to not give evidence.
i) The Tribunal did not consider Items (ii) to (iv) of paragraph 3 as it did not consider the issues raised therein to be credible or based on adequate grounds to allow this application."
6 Accordingly, in the light of the long history of failures on the part of Respondent 1 to act on the many earlier opportunities to file his Affidavit evidence; his failure to file his application to introduce such evidence by 5 December 2019; this being the first time that Respondent 1 has raised "parallel proceedings" as having precluded him from filing his Affidavit earlier, which the Tribunal does not accept as a justifiable or adequate reason;
Page 99 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Tribunal's own interpretation of the Supreme Court Order, as regards its jurisdiction to continue with this Arbitration and which interpretation has already been made known to the parties, the Tribunal finds no merit in this application and consequently rejects Respondent 1's application for leave to introduce his affidavit evidence with costs to be paid by Respondent 1 to the Claimant in any event."
59. In the aforesaid order, Tribunal has taken into consideration the time provided to the respondent no.1 and 2 from October 2019 for adducing the evidence which was the 5th opportunity. Prior thereto respondent nos. 1 and 2 sought time to lead evidence on 4 occasions. Firstly, on 02.02.2018 when Tribunal granted time as under:
"14. If the parties want to lead evidence by way of evidence, the parties shall file Affidavit-in- lieu of Examination-in-chief of the witnesses along with copies of supporting documents on or before Page 100 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 15th March 2018."
60. Thereafter, extension of time for four weeks was sought on 07.04.2018 by respondent no.1 for filing examination in chief of respondent no.1 and his witness which was allowed by the Tribunal as per the following order:
"2. Application for extension of time for filing Examination-in- chief of the Respondent No.1 and his witnesses.
Notwithstanding objections from the Claimant, the Tribunal granted the extension with this justification.
However, in the interest of justice, the aforesaid application required to be allowed... Hence it is directed that the parties shall file Affidavit-in lieu of Examination-in-chief of the witnesses on or before 10th May, 2018 with copies of supporting documents....."
61. Thereafter second extension was sought on 10.05.2018 for further 45 days by Page 101 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined counsel for respondent no.1 for filing affidavit in lieu of examination in chief of respondent no.1.
62. It appears that the Tribunal thereafter granted extension on 27.08.2018 and 31.08.2018 by recording consolidated minutes that respondent nos. 1 and 2 have still not filed required affidavit and directed for the same to be filed on or before 25.09.2018. Tribunal recorded minutes as under:
"5... However, remaining Respondents have still not filed such Affidavit/s of their witnesses. Hence, it is directed that the parties who are yet to file such Affidavits of their witnesses shall file the same without any further delay, i.e. on or before 25th September 2018, failing which, it would be presumed that they have waived their right to file the same."Page 102 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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63. During the aforesaid date, the claimant was cross examined by the counsel for respondent no.1 which lasted for five days.
64. Thereafter the Tribunal granted 4th extension on 2.11.2018 directing respondent no.1 and 2 to file affidavit on or before 20.12.2018 by observing as under:
"6. Secondly, with regard to merits, it is directed that -
(ii) The Respondent No. 1 shall also file Affidavit/s in-lieu of Examination-in-chief of his witness/s on or before 20th December 2018. Copy thereof shall be provided to the Claimant and Respondent Nos. 2, 3 & 4 in advance."
65. By 2.11.2018, one expert witness led by the claimant and two fact witnesses were also cross examined by counsel for Page 103 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined respondent no.1 on 5th October, 2018, 20th October, 2018 and 30th October, 2018 and another witness of the claimant Col R.K. Singh (retd.) was also partly cross examined on 30th October, 2018.
66. Thereafter, time was granted by the Tribunal to respondent nos. 1 and 2 to file their evidence by 25th October, 2019 by observing as under:
"The Tribunal notes that whilst Respondent No.3 has filed the Affidavit of Evidence-in Chief of Mr. Dinesh Shivanna, Respondent Nos. 1 and 2 have failed to file any Affidavits of Evidence-in-chief for themselves or any of their witnesses.
Accordingly, the Tribunal considers and takes it that:
1.Only Respondent No.3 is offering evidence, as stated in the Affidavit of Evidence-
in-chief of Mr. Dinesh
Shivanna;
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2.Respondent Nos. 1 and 2 have elected not to give evidence themselves and have also elected not to call any witnesses to give evidence on their behalf. As such, unless otherwise directed by the Tribunal, the Arbitration is to continue and to proceed on this basis;
3.The Tribunal also directs that in the event that Respondent Nos. 1 and 2 wish to change its position on the giving of evidence, it has to make its written application to the Tribunal on or before Friday, 25 November 2019 supported by way of Affidavit(s) setting out in detail the full reasons for its failure to comply with each of the previous directions for the filing of Affidavits of Evidence-in-
chief and also explaining fully why it should now be allowed to adduce any evidence by way of Affidavits of Evidence-in chief for itself and or its witnesses, with drafts of such Affidavits of Evidence-in-chief to be attached together with any such application. The Tribunal considers the aforesaid timeline to be more than fair and reasonable having regards Page 105 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined to the conduct of the parties to the Arbitration thus far;
4.Given that the filing of any Affidavits of Evidence-in- chief by Respondent No.1 and or Respondent No.2 may potentially lead to a longer hearing with more evidence to be considered by the Tribunal which may in turn impact the timing of the delivery of the Award by the Tribunal, the Tribunal will only consider any aforesaid application by Respondent No.1 and or Respondent No. 2 for the filing of Affidavits of Evidence-in-chief, if such applications are accompanied by written undertakings from both Respondent No.1 and Respondent No.2 that they are agreeable to an extension of time for the delivery of the Award by the Tribunal of up to 9 months from the date of either the last oral hearing or submissions by the parties or their last written submissions, whichever is later,"
67. The Tribunal thereafter granted 6th opportunity to respondent no.1 to file Page 106 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined evidence on 7.11.2019 by preferring an application for extension of time to file affidavit of evidence of witnesses.
However, no such application was filed by respondent no.1. Tribunal thereafter granted seventh opportunity on 28.11.2019 to file evidence by 5th December, 2019 and thereafter order dated 18.12.2020 was passed. The Tribunal closed the right of respondent nos. 1 and 2 to file evidence formally on 15.01.2020 after recording all the opportunities granted to respondent nos. 1 and 2.
68. Respondent no.1 filed an application on 10.12.2020 which was replied by the claimant on 11.12.2020. The Tribunal disposed of application by order dated 18.12.2020 as quoted here in above.
Respondent no.1 also filed application on Page 107 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
10.12.2020 for recalling the claimants and Col. Jugraj Goraya (Retd.) for further cross examination and for summoning Mr. Angad Atwal for cross examination. The Tribunal dismissed all the applications by a separate reasoned order each dated 08.12.2020 respectively.
69. Tribunal has decided the following issues:
1) Whether the claimant was induced to execute the Addendum dated 27th February, 2015 and invest Rs.45 Crore into C2R due to the fraudulent misrepresentation of respondent nos. 1 and 2?
70. To decide the above issue, Tribunal has framed the following sub-issues:
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(a) Whether representations attributed to Respondent nos. 1 and 2 were made in period December 2014 to February 2015?
71. The Tribunal after considering the submissions of claimant and the respondent no.1 and 2 arrived at following conclusion in para 103 of the arbitral award:
"103. Accordingly, in the face of the above reasoning, it is the conclusion of the Tribunal that the Claimant's version of the meetings held between December 2014 and February 2015, including the representations attributed to Respondent No.1 represents the true version of the background facts. In this respect, the Tribunal rejects the claim of Respondent No. 2 that there was very little interaction between them and the Claimant before 27/2/15 and the claim of Respondent No.1., that it was the Claimant who volunteered to join the LLP."
(b) Whether the representations made by respondent nos 1 and 2 in the Page 109 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined period from December 2014 to February 2015 were fraudulent?
72. After considering the law on fraudulent misrepresentation and submissions made on behalf of the claimant together with oral evidence on record and response of respondent nos. 1 and 2, the Tribunal recorded the findings and arrived at following conclusion in para no.136 of the arbitral award:
"136. Conclusions on whether the representations were fradulent
(a) The Tribunal is satisfied on a balance of probabilities that the representations made by Respondent No.1 in the period December 2014 to February 2015, set out in paragraph 105 of this Award, are fraudulent based on the findings, set out above;
b) The Tribunal is satisfied that the Claimant was induced by these fraudulent misrepresentations to execute the Addendum of 27 February 2015 and thereby become a Page 110 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined partner, based on the findings set out in paragraph 134 above;
(c) The Tribunal concludes that the exception in Section 19 of the Indian Contracts Act does not preclude the Claimant from succeeding in his claim for fraudulent misrepresentation against Respondent No.1, notwithstanding, his failure to conduct a due diligence of C2R, as Respondent No.1 is guilty of active misrepresentation. The Tribunal in coming to this conclusion is following the decision of the Supreme Court of India in the of decision Avitel Post Studioz Ltd's HSBC PI Holdings (Mauritius) Ltd, 2020 SCC On Line SC 656, and
(d) The Tribunal is not persuaded that Respondent No.2 is guilty of active fraudulent misrepresentation. In the Tribunal's view Respondent No.2 was not present in the meetings prior the meeting of 27 February 2015 and was probably silent, when Respondent No.1 actively made the fraudulent misrepresentations.
attributed to him at the meeting of 27 February 2015. Accordingly, the Tribunal concludes that Respondent No.2 is not guilty of fraudulent misrepresentation."
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73. Tribunal thereafter framed the following issue:
Whether there was misappropriation of funds by respondent nos. 1 and 2?
74. The Tribunal after considering the submissions made on behalf of the claimants for misappropriation of funds by respondent no.1 and restitution and damage for the same to prove that the respondent no.1 has siphoned off the funds of respondent no.4-C2R LLP and that money transferred by respondent no.1 was not used for purchase of land and that minutes of meeting dated 18.07.2015 is forged on the basis of oral and documentary evidence as well as response of respondent no.1 and 2 for the claim of misappropriation Page 112 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal recorded the findings and arrived at following conclusion in para 191 of the arbitral award:
"Conclusion:
191. On the issue of misappropriation of the sum of Rs.22.19 crores by Respondent Nos. 1 and 2, the Tribunal's conclusions are as follows:
1.Respondent No.1 is guilty of misappropriating the sum of Rs. 22.19 crores from the accounts of C2R;
2.The withdrawal and utilization of the sum of Rs.22.19 crores by Respondent No.1 from the account of C2R was without the knowledge and approval of the remaining partners and in breach of the LLP Agreement;
3.That Respondent No.1 make restitution of the sum of Rs.22.19 crores
4.misappropriated by him from the account of CR, (Respondent No.4), by repaying the aforesaid sum to Respondent No.4.Page 113 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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5.Respondent No.2 is not guilty of misappropriating the funds of C2R;
6.Respondent Nos. 1 and 2 did not contribute any monies towards the capital of C2R nor did he purchase the land for CR as required of him by the resolution of 31 March 2015.
7.The resolution of 18 July 2015 is a forgery."
75. Tribunal after arriving at conclusion regarding the aforesaid issues on merits has dealt with the following jurisdictional objections raised by respondent nos.1 and 2 as follows in para 192 of the arbitral award:
"Before the Tribunal proceeds to deal with the Reliefs sought by the claimant, the Tribunal proposes to deal with the several jurisdictional objections raised by respondent nos. 1 and 2. The objections are as follows:Page 114 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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(2)The allegedly exorbitant expenses imposed by this Hon'ble Tribunal are not based on the consent of both parties;
(3) The unreasonable conditions imposed on Respondent Nos. 1 and 2 for the filing of their evidence, and the rejection of their respective counter claims on account of delay, breaches the principles of natural justice and is against the due process of law and (4) The allegations which have been made in the Statement of Claim involve aspects of fraud, including forgery, which are subject to criminal investigation by law enforcement authorities. As such, the present disputes are not amenable to arbitration proceedings, as per the settled position of law in India. (Booz Allen & Hamilton v SBI Home Finance Ltd (2011) 5 SC 532)"
76. Tribunal arrived at following findings on above objections raised by respondent no. 1 and 2 :
Page 115 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "Findings of Tribunal on the duration of the mandate of the Tribunal
196. The Tribunal is satisfied that it has the mandate to complete this arbitration notwithstanding the lapse of 12 months since the commencement of this Arbitration. The Tribunal is satisfied that the reasons provided in its order of 18/12/20 upholding its mandate to complete this Arbitration is the correct order since it is consistent with the decision of the Delhi High Court in the case ONGC Petro Additions Limited v. Fernas Construction Co. Inc The Tribunal finds nothing in the Judgment of the Court to justify limiting its applicability to the peculiar facts of the case, as submitted by Counsel for Respondent No.1. The authority of M/S Suryadev Alloys and Powers Pvt Ltd v. M/s. Shri Govindaraja Textiles Pvt Ltd cited by Counsel for Respondent No.1 is not relevant as the case did not involve an international arbitration."
xxx "Finding of Tribunal on issue of Exorbitant fees of the Tribunal
199. The Tribunal is satisfied that Respondent Nos.1 and 2 have not been denied due process due to their alleged inability to pay Page 116 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fees. The fact of the matter is that Respondent Nos.1 and 2 were both given ample opportunities to file their witness statements, were represented by counsel, allowed to cross-examine all witnesses and granted postponement of the November hearing dates to suit their convenience and that of their Counsel at various stages of this arbitration. Respondent Nos.1 and 2 enjoyed all of these rights, notwithstanding, failing to bear any part of the expenses of the Tribunal since the appointment of the late Mr. Pradhan and in the case of Respondent No.1 not paying the costs ordered against him for the adjournment of the hearing dates, The Tribunal also notes that the similar objection raised by Respondent Nos. 1 and 2 before the Hon'ble Supreme Court at the hearing held on 18/12/20 did not find any favour with the court.
Accordingly, the Tribunal
dismisses the second
jurisdictional objection." xxx "Findings of the TRibunal
204. It is the finding of the Tribunal that the case of Booz Allen is clearly not applicable to the facts of this Arbitration. As regards Ayyasamy's case, the pronouncements of the Hon'ble Supreme Court in the case of Page 117 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Avitel Post Studio cited above are relevant and worth quoting:
"4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the plea of fraud as opposed to "simple allegations".
Two working tests laid down in para 25 are:
(1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain."
"After these judgments, it is clear that "serious allegations of fraud" arises only if either of the two tests laid down are satisfied, and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the Page 118 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain." (see paragraph 14 of.the Judgment of the Court in the case of Avitel Post Studioz Limited and Others Versus HSBC, Pi Holdings Limited [2020] 6 ML 544.)
205. The Tribunal's finding is that the Claimant's claim in this arbitration does not include "serious allegations of fraud" of the nature described by the Hon'ble Supreme Court in the above passage so as to bar the Claimant from pursuing its claim in this Arbitration. Accordingly, since this arbitration involves a civil dispute, the objection that the Claimant's claim is not arbitrable is rejected."
77. Thereafter Tribunal recorded the disagreement between the members of the Tribunal with regard to clause 34(A) and 34(B) of the LLP agreement dated Page 119 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 10.02.2015 as under:
"INTERPRETATION OF CLAUSES 34(A) AND 34(B)
206. A point of disagreement (not raised by Respondent No.1 in his pleadings or through the Submission of his Counsel) between the Members of this Arbitral Tribunal relates to the interpretation of Clause 34(A) and Clause 34(B) of the LLP Agreement of 10th February, 2015. These Clauses read as follows:
"34. LIMITATION OF LIABILITY/INDEMNIFICATION: (A) LIMITED LIABILITY :
Except as expressly provided herein, neither partner will be liable to the other partner or the LLP with respect to any subject matter of this agreement under any contract, negligence, strict liability or other legal or equitable theory for (i) any special, indirect, incidental, consequential or punitive damages or lost profits or (ii) cost of procurement of substitute goods or services.
(B) INDEMNIFICATION BETWEEN THE PARTNERS:
Neither partner shall indemnify the other partner or LLP or its respective officers, directors, Page 120 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined employees and its respective successors, heirs and assigns ("indemnities") for any loss, claim, damage, liability or action except to the extent resulting from its respective gross negligence or willful wrongdoing. This paragraph does not limit either partner's other remedies available to its under the laws."
207. The view of Justice Nanavati is that Clause 34(A) of the LLP Agreement of 10 February 2015 provides a complete defence to Respondent Nos.1 and 2 against any claim for damages for loss of profits and consequential losses, generally. In Justice Nanavati's view the exemption against liability contained therein, avails Respondent Nos.1 and 2 and constitutes a total defence against all the claims of the Claimant, save the claim of Respondent No.4, for the return of its misappropriated funds. The majority view is that the Claimant is entitled to damages suffered by him arising from the fraudulent representations made by Respondent No.1 which had the effect of inducing him to execute the Addendum and by extension, become a party to the LLP Agreement of 10 February 2015. The majority view Page 121 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined is premised on the reasoning that Clause 34A does not operate to limit or exempt partners liability inter-se, where the partner/s against whom the claim is made are guilty of willful wrongdoing, as is the case with Respondent No. 1.
This reasoning is based on the literal interpretation of the words "willful wrong-doing" in Clause 34(B).
208. Accordingly, the majority view is that Clause 34(4) does not operate to exempt Respondent Nos.1 and 2 from liability against claims by the Claimant since to cheat your partner of his investment by fraudulent misrepresentation is more grave than gross-negligence and is the worst and most deplorable form of willful wrongdoing. On a proper holistic reading, Clause 34(A) and Clause 34(B) were never intended to exclude liability for gross negligence or willful wrongdoing. To suggest that the parties had intended to exclude liability for gross negligence and willful wrongdoing, which includes fraud and fraudulent misrepresentation, would be tantamount to giving an unconditional license for any investor to be completely victimized with civil impunity, which no reasonable businessman would have done."
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78. Tribunal has thereafter framed the following issues with regard to claim of the claimants:
i) Return of 22.19 Crore to respondent no.4-C2R LLP.
79. With regard to above issue, the Tribunal arrived at following conclusion in para 219 of the award:
"CONCLUSION
219. That Respondent No. 1 is liable to pay the sum of Rs 22.19 crores to the LLP, i.e., Respondent No.4, together with interest of 12% p.a. from 11/2/16 till the date of payment. The Tribunal considers 11/2/16 to be the appropriate date since this was the date when the last tranche of the Claimant's investment was credited into the account of Respondent No.4. The Tribunal is of the view that the award of interest should 12% p.a. Page 123 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
ii) claim for loss of return on investment and loss of profits.
80. With regard to above issue, the Tribunal arrived at the following conclusion:
"CONCLUSION
231. The Tribunal is not persuaded that the Claimant is entitled to both heads of damages, i.e., damages for loss of investment and damages for consequential losses for loss of opportunity. In the view of the Tribunal, the damages for loss of opportunity are based on the premise that but for the breach of contract on the part of Respondent No.1, the Claimant's contribution towards the capital of C2R together with the promised capital contributions of Respondent Nos. 1 and 2 would have resulted in C2R making the quantum of profits projected by the Claimant's expert witness. Since the Claimant's investment can only be "parked" in one entity, at any one time, the Tribunal is of the view that it cannot award damages for loss of return on investment, since the damages assessed by the expert is on the assumption that Page 124 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Claimant's investment is available to C2R in the period 27 February 2015 to 31 March 2015 (see paragraph 12.77 of the expert's report at page 113.)"
iii) Whether the claimant is entitled to damages of Rs.84 Crore for loss of profits?
81. With regard to the above issue, conclusion by the majority of the members of the Tribunal is as under:
"CONCLUSION 259 The Tribunal accepts the methodology and the application of the methodology to the facts of this case adopted by the Claimant's expert witness Mr. Ellis and concludes that the Claimant is entitled to be awarded the sum of Rs.84 Crores as damages for loss of profits and loss of opportunity.
260. The Tribunal rejects the Claimant's claim of Rs.12 crores for loss of return on investment as in the Tribunal's view, this claim can only be relevant in the Page 125 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined alternative scenario as outlined by the expert in paragraph 13.15 of his affidavit report."
iv) Return of all documents in possession of respondent no.1.
82. With regard to above issue, findings of the Tribunal are as under:
"Findings of Tribunal
265. It is the Tribunal's finding that following his expulsion from C2R, Respondent No. 1 is obliged in law to return all the documents of Respondent No. 4 currently in his possession to Respondent No.
4. Accordingly, since by his own admission, the documents of Respondent No. 4 are still in his possession, then, in the absence of any interim order restraining this Tribunal from making any order for the return of the documents, the Tribunal's view is that it has the jurisdiction to require Respondent No. 1 to return all the documents back to Respondent No. 4 pursuant to Prayer D of paragraph 26 of the Statement of Defence of Respondent No.4."Page 126 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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83. Tribunal thereafter dealt with the issue of awarding costs. Tribunal after considering the various heads of costs passed the formal final award by majority and awarded the following to the claimant :
"AWARDS A. AWARDS to the Claimant and Respondent No.4 and Orders Respondent No.1 to pay to C2R, the Respondent No.4, the sum of INR 22.19 crores together with interest at 12% per annum from 12 March to the date of payment, forthwith.
B. AWARDS to the Claimant and Orders Respondent No.1 to pay damages in the amount of INR 84 crores to the Claimant, forthwith.
C. AWARDS to the Claimant and Orders Respondent No.1 to pay interest at 12% per annum on the sum of INR 84 crores from 25th September, 2017 till the date of payment, forthwith.
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indemnity basis in favour of the Claimant, Respondent No.3 and Respondent No.4, to be paid by Respondent No.1 and Respondent No.2 jointly and severally forthwith;
E. In relation to the aforesaid costs at Paragraph Dabove, Awards to the Claimant and Orders Respondent No.1 and Respondent No.2 to jointly and severally pay forthwith to the Claimant, the following amounts:
(1) the full legal cost and expenses incurred by the Claimant in relation to the Arbitration and related court proceedings, including the legal costs and expenses of the legal teams of the Claimant, Respondent No.3 and Respondent No.4, the fees and expenses of the Tribunal, the fees incurred by EPQ Global, all of which have been borne by the Claimant, amounting to a) INR 14,27,33,429.65 and b) SGD 984,454.87, as set out in Appendix A of the Written Submissions on behalf of the Claimant dated 7 January 2021 (and as revised by the Tribunal) and a copy of which is attached hereto marked as "Appendix A" for easy reference, and which includes:Page 128 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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i) the sum of INR 1,12,79,291.25 and SGD 229,683 ordered to be paid pursuant to the Order dated 23 December 2019;
ii) the fees and expenses of the Tribunal already paid by the Claimant as of the date of this Award;
iii) the costs and expenses incurred by Respondent No.3 and Respondent No.4 as of 7 January 2021 which have been borne by the Claimant."
84. Late Hon'ble Mr. Justice G.T. Nanavati (retired) has passed the dissenting final award with regard to cost of Rs. 84 Crore as damages for loss of opportunity, however agreed with the conclusion arrived at by the majority of the members of the Tribunal that respondent no.1 is guilty of misappropriation of Rs. 22.19 Crore from the account of respondent no.4-C2R LLP and also agreed with conclusion reached by the Page 129 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined majority that claimant is not entitled for damages and/or loss of investment and also with rejection of claim of Rs. 12 Crore on return of investment.
Points for determination/Issues:
Considering the above findings of the Tribunal, the following points for determination arises from the arbitral award:
I - Jurisdiction of the Arbitration Tribunal
1) Whether the Tribunal could have continued the arbitration proceedings under section 29A of the Arbitration and Conciliation Act, 1996 or not?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner-
Page 130 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined respondent no.1:
1.1) Learned Senior Advocate Mr. S.N. Soparkar for the respondent no. 1 submitted that the provisions of section 29A of the Act is mandatory and therefore, the Arbitration Tribunal has become functuos officio with effect from 01.02.2018 and therefore, it cannot be said to be pending arbitration in the eyes of law because 12 months as per the order of Hon'ble Supreme Court got over on 31.01.2019. Reliance was placed on order dated 4.12.2017 in MA No. 1482 of 2017 in Arbitration Petition No.14 of 2017 where Hon'ble Mr. Justice M.B. Shah (retired)was appointed as Chairman of the Arbitral Tribunal as Hon'ble Mr. Justice C.K. Thakker (retired)had resigned and it was further held that the period within which Page 131 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the award is to be delivered under section 29A of the Arbitration and Conciliation Act will commence on and from the date on which the first sitting takes place and therefore, first meeting took place on 01.02.2018.
1.2) It was further submitted that Hon'ble Mr. Justice J.M. Panchal (retired) resigned on 29.11.2018 and Hon'ble Mr. Justice M.B.Shah (retired) resigned on 01.12.2018 and late Mr. Vinayak Pradhan gave consent to be the Presiding Arbitrator on 24.01.2019. It was also pointed out in email dated 24.01.2019 that the Tribunal shall be constituted and will enter into a reference through Arbitration and commence work only upon payment of fees as stated in mail. It was therefore, submitted that it cannot be said that Page 132 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitration was pending under section 29A of the Act after 1.02.2019.
1.3) It was submitted that the provisions of section 29A of the Act is mandatory and its effect is automatic by operation of law and the amendment of section 29A of the Act only applies to pending arbitration as held by the Hon'ble Supreme Court in case of Tata Sons(P) Ltd.
(Formerly Tata sons Ltd.) v. Siva Industries and Holdings Ltd. and others reported in 2023 SCC OnLine SC 23 reported in 2023 SCC OnLine SC 23, wherein it is held as under:
"23 The first respondent has not entered appearance in these proceedings. The second respondent, who is contesting the proceedings as a guarantor, has urged that the amendment of Section 29A by Act 33 of 2019 would not lead to the conclusion Page 133 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined that an international commercial arbitration lies outside the purview of the provision. The second respondent has submitted that reading the provisions of Section 29A in the manner in which the applicant seeks to read them would result in a situation where there would be no timeline under the statute for an international commercial arbitration. Where an international commercial arbitration is governed by the Rules of an arbitral institution, such rules would structure the conduct of the arbitration. The second respondent has submitted that it was not the intention of the legislature that in a case which is not governed by an arbitral institution, the court would have no control over the time taken in the course of the arbitral proceedings leaving the matter entirely within the discretion of the arbitral forum in a situation such as the present, where the arbitral proceeding is governed by Indian Law and has a seat within the country.
xxx 34 The 2019 Amendment Act does not contain any provision equivalent to Section 26 of Act 3 of 2016 evincing a legislative intent Page 134 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined making the application of the amended provision prospective. The amended provisions of Section 29A, in terms of which the arbitral tribunal has to endeavour to dispose of the proceedings in an international commercial arbitration as expeditiously as possible within a period of twelve months from the completion of the pleadings are remedial in nature. The amended provision has excepted international commercial arbitrations from the mandate of the twelve- month timeline which governs domestic arbitrations. The amendment is intended to meet the criticism over the timeline in its application to international commercial arbitrations. The amendment is remedial in that it carves out international commercial arbitrations from the rigour of the timeline of six months. This lies within the domain of the arbitrator and is outside the purview of judicial intervention. The removal of the mandatory time limit for making an arbitral award in the case of an international commercial arbitration does not confer any rights or liabilities on any party. Since Thirumalai Chemicals Ltd v. Union of India (2011) 6 SCC 739 Jose Da Costa and Anr. v. Bascora Sadasiva Sinai Narcornim, (1976) 2 SCC 917; Gurbachan Singh Page 135 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined v. Satpal Singh (1990) 1 SCC 445;
Rajendra Kumar v. Kalyan (D) by Lrs, (2000) 8 SCC 99 Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602 Section 29A(1), as amended, is remedial in nature, it should be applicable to all pending arbitral proceedings as on the effective date i.e., 30 August 2019."
1.4) Learned Senior Advocate Mr. Soparkar submitted that reference to ONGC Petro Additions reported in 2020 SCC OnLine Del 2582 of the Delhi High Court by the Tribunal is not correct. It was submitted that in paragraph 196 of the impugned award the Tribunal has erroneously considered the reasons provided in order dated 18.12.2020 upholding its mandate to complete the arbitration. Learned Senior Advocate Mr. Soparkar submitted that there is no order passed by the Tribunal on 18.12.2020 as referred by the Tribunal in paragraph 196 Page 136 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the impugned award.
1.5) He thereafter referred to the transcript of hearing of 8.11.2019 wherein after considering the arguments between the parties on applicability of section 29A of the Act for termination of the mandate of the Tribunal on completion of 12 months on 1.2.2019, the Tribunal declared as under:
"(2:43 pm) CHAIRMAN:
Gentlemen, thank you for your submissions, you have done that before and we must say we are very impressed by your diligence, your, as I said, your erudition and the manner in which you have presented your submissions.
14:44 It has not been an easy decision for us to take, but we have, in a sense, struggled our way around it and have come to the conclusion that we will proceed with the evidence."
1.6) Referring to the above transcript Page 137 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the meeting it was submitted that there is no order passed by the Tribunal for recording satisfaction and the reasons for upholding its mandate to complete the arbitration.
1.7) It was submitted that reference was placed by the Tribunal on the decision in case of ONGC Petro Additions (supra) to hold that order passed by the Tribunal which is not in existence is in consistence with the decision of Delhi High Court. It was further submitted that reliance placed on the decision in case of Tata Sons(P) Ltd. (supra) is also not correct as fallacy is that in the said case it is recorded in paragraph no.13 that moratorium began on 05.07.2019 which applied to the arbitration and it got over on 03.06.2022 and therefore, arbitration Page 138 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined was considered as pending when the amendment was brought in the statute on August 2019.
1.8) Reliance was placed on the following decisions to submit that section 29A of the Act is mandatory and therefore, Arbitral Tribunal has become functus officio on 1.2.2019:
a) State of Bihar and others v. Bihar Rajya Bhumi Vikas Bank Samiti reported in (2018) 9 SCC 472, wherein it is held as under:
"[22] However, according to Shri Tripathi, an application filed under Section 34 is a condition precedent, and if no prior notice is issued to the other party, without being accompanied by an affidavit by the applicant endorsing compliance with the said requirement, such application, being a non-starter, would have to be dismissed at the end of the 120 Page 139 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined days' period mentioned in Section 34(3). Apart from what has been stated by us hereinabove, even otherwise, on a plain reading of Section 34, this does not follow. Section 34(1) reads as under: "34. Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)."
What is conspicuous by its absence is any reference to sub-section (5). The only requirement in Section 34(1) is that an application for setting aside an award be in accordance with sub- sections (2) and (3). This, again, is an important pointer to the fact that even legislatively, subsection (5) is not a condition precedent, but a procedural provision which seeks to reduce the delay in deciding applications under Section 34. One other interesting thing needs to the noted - the same Amendment Act brought in a new Section 29A. This provision states as follows:
"29A. Time limit for arbitral award.- (1) The award shall be made within a period of twelve months from the date the arbitral Page 140 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined tribunal enters upon the reference.
Explanation.- For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.
(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.
(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:Page 141 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Provided that while extending the period under this subsection, if the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay."
[23] It will be seen from this provision that, unlike Section 34(5) and (6), if an Award is made beyond the stipulated or extended period contained in the Section, the consequence of the mandate of the Arbitrator being terminated is expressly provided. This provision is in stark contrast to Section 34(5) and (6) where, as has been stated hereinabove, if the period for deciding the application under Section 34 has elapsed, no consequence is provided. This is one more indicator that the same Amendment Act, when it provided time periods in different situations, did so intending different consequences."
b) Roop Singh Bhatty v. M/s. Shriram City Union Finance Limited of Telangana High Court (judgment dated 08.04.2022 in C.R.P. Page 142 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined No. 1354 of 2021 and allied matters), wherein it is held as under:
"14. The provision as it stood was in mandatory terms and leaves no scope to infer otherwise. The intention of the Parliament is made abundantly clear from the reading of Sub-sections (3) and (4). Subsection (3) enables parties by consent to extend the time by further period of six months. But it also makes it clear that it should not be extended beyond six months. According to sub-section (4), after the initial period of one year and extended period of six months, if extended by consent, the mandate of the arbitrator terminates. Thus, he becomes functus-officio after that period and, therefore, seizes to be an arbitrator. An arbitrator is a creature of the statute and has to work within the four corners of the Act.
17. The disputes raised in these two revisions were covered by unamended Section 29-A. From the dates and events of these two cases, it is apparent that the concerned arbitrators passed awards after one year of entering appearance. They became functus officio one year after entering appearance and were wholly incompetent to deal with the Page 143 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined disputes and pass awards. Thus, awards passed by the arbitrators are nullity and void ab initio. In law there do not exist awards and therefore question of enforcement of the awards do not arise. The execution Court grossly erred in not appreciating this aspect."
c) Union of India v. Advanced Polymer Technology and ors. (judgment dated 3.12.2018 passed in O.P.(ICA) No. 5 of 2018) of Kerala High Court, wherein it is held as under:
"17. However, in this case it is seen that the Arbitrator continued his sittings even after the expiry of the period on 08.08.2018 and passed interim orders. In the absence of any order granting enlargement of time, the Arbitrator did not have any authority to hold sittings or pass orders. Therefore, when he became functus officio on expiry of the extended period, sittings held after 08.08.2018 till enlargement of time is granted cannot have any validity."
1.9) It was submitted that the amended Page 144 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined provision providing a longer period of time cannot revive a dead remedy inasmuch as a vested right accrued under original section cannot be taken away by amendment retrospectively. In support of his submission reliance was made on the following decisions:
a) In case of T. Kaliamurthi and another v. Five Gori Thaikkal Wakf and others reported in (2008) 9 SCC 306, the Hon'ble Supreme Court held as under:
"40. In this background, let us now see whether this section has any retrospective effect. It is well settled that no statute shall be construed to have a retrospective operation until its language is such that would require such conclusion. The exception to this rule is enactments dealing with procedure. This would mean that the law of limitation, being a procedural law, is retrospective in operation in the sense that it will also apply to proceedings pending at Page 145 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the time of the enactment as also to proceedings commenced thereafter, notwithstanding that the cause of action may have arisen before the new provisions came into force. However, it must be noted that there is an important exception to this rule also. Where the right of suit is barred under the law of limitation in force before the new provision came into operation and a vested right has accrued to another, the new provision cannot revive the barred right or take away the accrued vested right."
b) New India Assurance Co. Ltd. v. Smt. Shanti Misra, Adult reported in (1975) 2 SCC 840, wherein Hon'ble Supreme Court has held as under:
"[7] In our opinion taking recourse to the proviso appended to sub-section (3) of Section l10A for excusing the delay made in the filing of the application between the date of the accident and the date of the constitution of the Tribunal is not correct. Section 5 of the Limitation Act, 1963 or the proviso to sub-section (3) of Section l10A of the Act are meant to condone the default of the party on the ground of sufficient Page 146 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined cause, But if a party is not able to file an application for no fault of his but because the Tribunal was not in existence, it will not be a case where it can be said that the "applicant was prevented by sufficient cause from making the application in time"
within the meaning of the proviso. The time taken between the date of the accident and the constitution of the Tribunal cannot be condoned under the proviso. Then, will the application be barred under sub- section (3) of Section l10A? Our answer is in the negative and for two reasons:
(1) Time for the purpose of filing the application under Section 110A did not start running before the constitution of the Tribunal. Time had started running for the filing of the suit but before it had expired the forum was changed. And for the purpose of the changed forum, time could not be deemed to have started running before a remedy of going to the new forum is made available.
(2) Even though by and large the law of limitation has been held to be a procedural law, there are exceptions to this principle.
Generally the law of limitation which is in vogue on the date of the commencement of the action governs it. But there are certain exceptions to this principle. The Page 147 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined new law of limitation providing a longer period cannot revive a dead remedy. Nor can it suddenly extinguish vested right of action by providing for a shorter period of limitation."
c) Tata Teleservices v. Union of India reported in 2016 SCC OnLine Guj 3889, wherein this Court held as under:
"13.00. In the backdrop of the above facts, few decisions of the Hon'ble Supreme Court on the point and more particularly, with respect to retrospective applicability of the provisions of the Act are required to be referred to and considered.
13.01. In the case of S.S. Gadgil (supra), the Hon'ble Supreme Court has observed and held that in absence of an express provision or clear implication, legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned, nor to authorize the Income Tax Officer to commence proceedings which before the new Act came into force had upon the expiry of the period provided, become barred. In the aforesaid Page 148 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined decision, the Hon'ble Supreme Court had an occasion to consider the question, as to, whether in case where the right to assess or reassess has lapsed on account of expiry of the period of limitation prescribed under the earlier statute, the Income Tax Officer can exercise his powers to assess or reassess under the amending statute which gives an expressly period of limitation and to that, the Hon'ble Supreme Court has noted decision of the Calcutta High Court in the case of Calcutta Discount HC-NIC Page 38 of 64 Created On Tue Mar 22 01:53:00 IST 2016 38 of 64 Company Ltd.
reported in 1953 (23) ITR 471 (AIR 1953 Calcutta 721) and consequently has held the notice issued relying on amended section invalid by further observing that section as amended not to be given greater retrospectivity than is expressly mentioned. In the aforesaid decision in the case of S.S. Gadgil (supra) in para 12 and 13, the Hon'ble Supreme Court has observed and held as under :
"12. In considering whether the amended statute applies, the question is one of interpretation i.e. to ascertain whether it was the intention of the Legislature to deprive a tax payer of the plea that action for assessment or re-Page 149 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined assessment could not be commenced, on the ground that before the amending Act became effective, it was barred. Therefore the view that even when the right to assess or reassess has lapsed on account of the expiry of the period of limitation prescribed under the earlier statute, the Income-tax Officer can exercise his powers to assess or re-assess under the amending statute which gives an extended period of limitation was not accepted in Calcutta Discount Company's case, 1953-23 ITR 471 :
(AIR 1953 Cal 721).
13. As we have already pointed out the right to commence a proceeding for assessment against the assessee as an agent of a non-
resident party under the Income- tax Act before it was amended, ended on March 31, 1956. It is true that under the amending Act by S.18 of the Finance Act, 1956, authority was conferred upon the Income-tax Officer to assess a person as an agent of a foreign party under S. 43 within two years from the end of the year of assessment. But authority of the Income-tax Officer under the Act before it was amended by the Finance Act of 1956 having already come to an end, the amending provision will not assist him to commence a proceeding even though at the date when he issued the Page 150 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined notice it is within the period provided by that amending Act. This will be so, notwithstanding the fact that there has been no determinable point of time between the expiry of the time provided under the old Act and the commencement of the amending Act. The legislature has given to S. 18 of the Finance Act 1956, only a limited retrospective operation i.e. up to April 1,1956, only. That provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned, nor to authorize the Income-tax Officer to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred."
13.02. A similar view has been taken by the Hon'ble Supreme Court in the case of J. P. Jani, Income Tax Officer, Circle IV, Ward-G, Ahmedabad and another, versus Induprasad Deveshanker Bhatt, reported in AIR 1969 S.C. 778 and while interpreting section 297(2)
(d)(ii) of the Income Tax Act, after considering the earlier decision of the Hon'ble Supreme Court in the case of S. S. Gadgil Page 151 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined versus Lal and Co., [1964-53 ITR 231 = AIR 1965 SC 171], the Hon'ble Supreme Court in para 5 and 6 has observed and held as under :-
"5. On behalf of the appellants Mr. Narasaraju stressed the argument that the High Court was in error in holding that the provisions of the new Act of 1961 were not applicable in cases where the time limit fixed in the old Act had expired before the coming into force of the new Act. It was contended that Section 297 (2) (d)
(ii) of the new Act was wide in its sweep and it took in all assessment years after the year ending on 31st March, 1940 irrespective of the question whether the right to reopen the assessment in respect of any such assessment years was barred or not under the old Act at the date when the new Act came into force.
According to Mr. Narasaraju the legislative intention was that once the new Act came into force, the question whether the assessment in respect of any assessment year after the year ending on 31st March, 1940 was liable to be reopened or not should be decided with reference to the provisions of the new Act. It was argued that the new Act authorized such assessment to be Page 152 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined reopened whatever might be the position in regard to the right to re-open such assessment under the old Act. In our opinion, the argument put forward by Mr. Narasaraju is not warranted. It is admitted in this case that the right of the Income Tax Officer to re-open the assessment for the year 1947-48 was barred under the old Act before the new Act came into force. In our opinion it is not permissible to construe Section 297 (2) (d) (ii) of the Act as reviving the right of the Income Tax Officer to re- open the assessment which was already barred under the old Act. The reason is that such a construction of Section 297 (2) (d) (ii) would be tantamount to giving of retrospective operation to that Section which is not warranted either by the express language of the Section or by necessary implication. The principle is based on the well-known rule of interpretation that unless the terms of the statute expressly so provide or unless there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by efflux of time. On behalf of the appellants reference was made to the opening Page 153 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined phrase "Where in respect of any assessment year after the year ending on the 31st day of March, 1940" occurring in S. 297 (2) (d)
(ii) of the new Act, but these general words cannot take in their sweep all assessment years subsequent to the year ending on 31st March, 1940 without regard to the question whether the right to re-open the assessment in respect of any assessment year was or was not barred under the repealed Act. We consider that the language of the new Section must be read as applicable only to those cases where the right of the Income Tax Officer to reopen the assessment was not barred under the repealed Section. In our view the new statute does not disclose in express terms or by necessary implication that there was a revival of the right of the Income Tax Officer to re-open an assessment which was already barred under the old Act. This view is borne out by the decision of this court in S. S. Gadgil v. Lal and Co., 1964-53 ITR 231= (AIR 1965 SC 171). In that case, a notice was issued against the assessee as an agent of a non- resident on 27th March, 1957 and that notice related to the assessment year 1954-55. Under clause Page 154 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
(iii) of the proviso to Section 34 (1) as it stood prior to its amendment by the Finance Act, 1956, a notice of assessment or reassessment could not be issued against a person deemed to be an agent of a non- resident after the expiry of one year from the end of the year of assessment. The right to commence a proceeding for assessment against the assessee as agent of a non-resident for the assessment year 1954- 55 therefore ended on 31st March, 1956 under the new Act before its amendment in 1956. This provision was, however, amended by the Finance Act, 1956 and under the amended provision the period of limitation was extended to two years from the end of the assessment year. The amendment was made on 8th September, 1958 but was given effect from 1st April, 1956. Since the time within which notice could be issued against a person deemed to be an agent of a non-resident was extended to two years from the end of the assessment year, it was contended on behalf of the Income Tax Officer that the notice issued by him was within the terms of the amended provision and was, therefore, a valid notice. Now the notice issued on 27th March, 1957 was clearly within a period of two years from the end of the assessment year 1954-55 and if the Page 155 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined amended provision applied, the notice would be a valid notice. It was, however, held by this Court that notice was not a valid notice inasmuch as the right of the Income Tax Officer to re-open the assessment of the assessee under the unamended provision became barred on 31st March 1956 and the amended provision did not operate against him so as to authorize the Income Tax Officer to commence proceedings for re-opening the assessment of the assessee in a case where before the amended provision came into force, the proceedings had become barred under the unamended provision. At page 240 of the Report (ITR) = (at p. 177 of AIR), Shah, J. speaking or the Court observed as follows:-
"As we have already pointed out, the right to commence a proceeding for assessment against the assessee as an agent of a non- resident party under the Income Tax Act before it was amended, ended on March 31, 1956. It is true that under the amending Act by Section 18 of the Finance Act, 1956, authority was conferred upon the Income Tax Officer to assess a person as an agent of a foreign party under Section 43 within two years from the end of the year of assessment. But authority of the Income Tax Officer under the Act Page 156 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined before it was amended by the Finance Act of 1956, having already come to an end the amending provision will not assist him to commence a proceeding even though at the date when he issued the notice it is within the period provided by that amending Act. This will be so, notwithstanding the fact that there has been no determinable point of time between the expiry of the time provided under the old Act and the commencement of the amending Act. The legislature has given to Section 18 of the Finance Act 1956, only a limited retrospective operation, i. e. up to April 1, 1956 only. That provision must be read subject to the rule that in the absence of an express provision or clear implication, the legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned, nor to authorize the Income Tax Officer to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred".
6. In our opinion, the principle of this decision applies in the present case and it must be held that on a proper construction of Section 297 (2) (d) (ii) of the new Act, the Income Tax Officer Page 157 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined cannot issue a notice under Section 148 in order to re-open the assessment of an assessee in a case where the right to re-open the assessment was barred under the old Act at the date when the new Act came into force. It follows therefore that the notices dated 13-11-1963 and 9-1-1964 issued by the Income Tax Officer, Ahmedabad were illegal and ultra vires and were rightly quashed by the Gujarat High Court by the grant of a writ."
13.03. In the case of New India Insurance Comnpany Ltd. versus Smt. Shanti Misra, Adult reported in (1975) 2 SCC 840, in para 7 the Hon'ble Supreme Court has observed and held as under :
"7. In our opinion taking recourse to the proviso appended to sub- section (3) of Section 110A for excusing the delay made in the filing of the application between the date of the accident and the date of the constitution of the Tribunal is not correct. Section 5 of the Limitation Act, 1963 or the proviso to sub-section (3) of Section l10A of the Act are meant to condone the default of the party on the ground of sufficient cause, But if a party is not able to file an application for no Page 158 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fault of his but because the Tribunal was not in existence, it will not be a case where it can be said that the "applicant was prevented by sufficient cause from making the application in time"
within the meaning of the proviso. The time taken between the date of the accident and the constitution of the Tribunal cannot be condoned under the proviso. Then, will the application be barred under sub- section (3) of Section 110A? Our answer is in the negative and for two reasons:
(1) Time for the purpose of filing the application under Section 110A did not start running before the constitution of the Tribunal. Time had started running for the filing of the suit but before it had expired the forum was changed. And for the purpose of the changed forum, time could not be deemed to have started running before a remedy of going to the new forum is made available.
(2) Even though by and large the law of limitation has been held to be a procedural law, there are exceptions to this principle.
Generally the law of limitation which is in vogue on the date of the commencement of the action governs it. But there are certain exceptions to this principle. The new law of limitation providing a longer period cannot revive a dead Page 159 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined remedy. Nor can it suddenly extinguish vested right of action by providing for a shorter period of limitation."
13.04. In the case of Thirumalai Chemicals Limited versus Union of India and Others reported in (2011) 6 SCC 739, while discussing the law of limitation, the Hon'ble Supreme Court in paragraph Nos.29 to 33 has observed and held as under :
"Law of Limitation
29. Law of limitation is generally regarded as procedural and its object is not to create any right but to prescribe periods within which legal proceedings be instituted for enforcement of rights which exist under substantive law. On expiry of the period of limitation, the right to sue comes to an end and if a particular right of action had become time barred under the earlier statute of limitation the right is not revived by the provision of the latest statute. Statutes of limitation are thus retrospective insofar as they apply to all legal proceedings brought after their operation for enforcing cause of action accrued earlier, but they are prospective in the sense that neither have the Page 160 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined effect of reviving the right of action which is already barred on the date of their coming into operation, nor do they have effect of extinguishing a right of action subsisting on that date. Bennion on Statutory Interpretation 5th Edn.(2008) Page 321 while dealing with retrospective operation of procedural provisions has stated that provisions laying down limitation periods fall into a special category and opined that although prima facie procedural, they are capable of effectively depriving persons of accrued rights and therefore they need be approached with caution.
30.Learned author in order to establish the above proposition referred to the decision of the Court of Appeal in The Ydun case [THE YDUN (1899) Probate Division at page 236 (The Court of Appeal) where the Court held that the amending legislation dealt with procedure only and therefore applied to all actions whether commenced before or after the passing of the Act and even in respect of previously accrued rights. The principle laid down in "The Ydun" was applied in The King v. Chandra Dharma (1905) 2 KB 335 and it was held that if a statute shortening the time within which proceedings can be taken is retrospective then it is Page 161 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined impossible to give good reason, why a statute extending the time within which proceedings be taken, should not be held to be retrospective.
31.The Judicial Committee of Privy Council in Yew Bon Tew v.
Kenderaan Bas Mara (1982) 3 All E.R. 833, opined that whether statute has retrospective effect, cannot in all cases safely be applied by classifying statute as procedural or substantive and pointed out in certain situation the Court would rule against a retrospective operation.
32.Limitation provisions therefore can be procedural in the context of one set of facts but substantive in the context of different set of facts because rights can accrue to both the parties. In such a situation, test is to see whether the statute, if applied retrospectively to a particular type of case, would impair existing rights and obligations. An accrued right to plead a time bar, which is acquired after the lapse of the statutory period, is nevertheless a right, even though it arises under an Act which is procedural and a right which is not to be taken away pleading retrospective operation unless a contrary intention is discernible from the statute. Therefore, unless the Page 162 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined language clearly manifests in express terms or by necessary implication, a contrary intention a statute divesting vested rights is to be construed as prospective.
33.A statute, merely procedural is to be construed as retrospective and a statute while procedural in nature affects vested rights adversely is to be construed as prospective. The manner of filing an appeal, under sub- section (2) of Section 19 of FEMA and the time within which such an appeal has to be preferred and the power conferred on the Tribunal to condone delay under the proviso to sub-section (2) of Section 19 are matters of procedure and act retrospectively, so as to cover causes of action which arose under FERA. "
13.05. At this stage, decision of the Judicial Committee of the Privy Council in the case of Yew Bon Tew also known as Yong Boon Tiew Versus Kenderran Bas Mara, reported in 1983 (1) A.C. 553 is required to be referred to and considered. In the aforesaid decision, Privy Council has observed and held as under :
"A statute of limitations may be described either as procedural or as substantive. For example, in English law, at the expiration of Page 163 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the period prescribed for any person to bring an action to recover land, the title of that person to the land is extinguished. Such a limitation therefore goes to the cause of action itself. In most cases however the English Limitation Act only takes away the remedies by action or by set-off; it goes only to the conduct of the suit; it leaves the claimant's right otherwise untouched in theory so that, in the case of a debt, if the statute-barred creditor has any means of enforcing his claim other than by action or set-off, the Act does not prevent his recovering by those means. In this sense, the 1948 Ordinance and the 1974 Act are procedural. Cf. Harris Vs. Quine (1869) L.R. 4 Q.B. 653 and Rodriguez Vs. Parker [1967] 1 Q.B. 116.
Apart from the provisions of the Interpretation Statutes, there is at common law a prima facie. Rule of construction that a statute should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used. A statute is retrospective if it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new Page 164 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined disability, in regard to events already past. There is however said to be an exception in the case of a statute which is purely procedural, because no person has a vested right in any particular course of procedure, but only a right to prosecute or defend a suit according to the rules for the conduct of an action for the time being prescribed.
But these expressions "retrospective" and "procedural"', though useful in a particular context, are equivocal and therefore can be misleading. A statute which is retrospective in relation to one aspect of a case (e.g. because it applies to a pre- statute cause of action) may at the same time be prospective in relation to another aspect of the same case (e.g. because it applies only to the post-statute commencement of proceedings to enforce that cause of action); and an Act which is procedural in one sense may in particular circumstances do far more than regulate the course of proceedings, because it may, on one interpretation revive or destroy the cause of action itself.
Whether a statute is to be Page 165 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
construed in a retrospective sense, and if so to what extent, depends, on the intention of the legislature as expressed in the wording of the statute, having regard to the normal canons of construction and to the relevant provisions of any interpretation statute.
From authorities cited, it is my considered judgment that whether the prospective or retrospective Rule of construction should apply depends on the nature of the new statute or amending statute. If it is purely a procedural statute and does not deal with substantive rights then the retrospective Rule of construction should apply. But where the statute deals with substantive rights, or deals with both procedural and substantive rights, then the prospective Rule of construction is applicable... From the authority laid down in 'The Ydun' I am of the View that the amending Act deals only in procedure. In the absence of any express provision to the contrary, the amending Act should, therefore, apply retrospectively.
The learned judge added that, if the Plaintiffs had begun their action before the 1974 Act came into force, the Defendants would Page 166 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined have escaped liability, thus taking the view that the Act, though retrospective in relation to a cause of action, was prospective in relation to an action to enforce that cause of action. Their Lordships mention the learned judge's comment only to illustrate the different senses in which a statute can be said to be retrospective or prospective.
The Defendants appealed. The
Federal Court adopted a more
flexible approach to the
"procedural" test: -
"The pertinent question for
determination is the nature of [the 1974 Act] - does it affect rights or procedure? An Act which makes alteration in procedure only is retrospective : see "The Ydun".
In our view there are no cases upon which differences of opinion may more readily be entertained, or which are more embarrassing to dispose of, than the cases where the court has to decide whether or not an amending statute affects procedure and consequently will operate retrospectively or affects substantive rights and therefore in the absence of a clear contrary intention, should not be read as acting retrospectively. The distinction between procedural Page 167 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined matters and substantive rights must often be of great fineness. Each case therefore must be looked at subjectively; there will inevitably be some matters that are classified as being concerned with substantive rights which at first sight must be considered procedural and vice versa."
The Federal Court developed this line of reasoning by referring to part of the judgment of Williams J. in Maxwell Vs. Murphy. The passage in the judgment of Williams J. (at page 277) which the Federal Court found of great assistance, as also have their Lordships, reads as follows : -
"Statutes of limitation are often classed as procedural statutes.
But it would be unwise to
attribute a prima facie
retrospective effect to all
statutes of limitation. Two
classes of case can be considered. existing statute of limitation may be altered by enlarging or abridging the time within which proceedings may be instituted. If the time is enlarged whilst a person is still within time under the existing law to institute a cause of action the statute might well be classed as procedural. Similarly if the time is abridged Page 168 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined whilst such person is still left with time within which to institute a cause of action, the abridgment might again be classed as procedural. But if the time is enlarged when a person is out of time to institute a cause of action so as to enable the action to be brought within the new time or is abridged so as to deprive him of time within which to institute it whilst he still has time to so, very different considerations could arise.
A cause of action which can be enforced is a very different thing to a cause of action the remedy for which is barred by lapse of time. Statutes which enable a person to enforce a cause of action which was then barred or provide a bar to an existing cause of action by abridging the time for its institution could hardly be described as merely procedural. They would affect substantive rights".
Whether a statute has a retrospective effect cannot in all cases safely be decided by classifying the statute as procedural or substantive. For example, in "The Ydun"
case the barque might have Page 169 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined grounded on 13 May instead of 13 September 1893 and the Act might have come into force on 5 December 1893 when it received the Royal Assent, instead of 27 days later. Had those been the facts the Act would, if its procedural character were the true criterion of its effect, have deprived the owners of their ability to pursue their cause of action on the day the Act reached the Statute Book. A Limitation Act which had such a decisive effect on an existing cause of action would not be "merely procedural" in any ordinary sense of that expression. Their Lordships assume (without expressing an opinion) that "The Ydun" case was, on its facts, correctly decided.
Their Lordships consider that the proper approach to the construction of the 1974 Act is not to decide what label to apply to it, procedural or otherwise but to see whether the statute, if applied retrospectively to a particular type of case, would impair existing rights and obligations. The Appellants assert that a Limitation Act does not impair existing rights because the cause of action remains, on the basis that all that is affected is the remedy. There is logic in the distinction on the particular facts of "The Ydun" case, because Page 170 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the right to sue remained, for a while, totally unimpaired. But in most cases the loss, as distinct from curtailment, of the right to sue is equivalent to the loss of the cause of action. The Public Authorities Protection Act can be regarded as procedural on the facts of "The Ydun" case, but a slight alteration to those facts would have made it substantive. A limitation act may therefore be procedural in the context of one set of facts, but substantive in the context of a different set of facts."
In the aforesaid decision, ultimately it is ruled that an accrued right to plead a time barred which is acquired after the lapse of the statutory period is in every sense a right even though it arises under an Act which is procedural. It is further observed and ruled that it is right which is not to be taken away by conferring on the statute a retrospective operation unless such a construction is unavoidable.
13.06. In the case of K.M. Sharma versus Income Tax Officer, Ward 13(7), New Delhi reported in 2002 (4) SCC 339, the Hon'ble Supreme Court in paragraph Nos.14 and 21 Page 171 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined has observed and held as under :
"14. Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to sub-section (1) of Section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub- section (1) of Section 150 which intends to lift embargo of period of limitation under Section 149 to enable Authorities to reopen assessments not only on the basis of Orders passed in proceedings under the IT Act but also on Order of a Court in any proceedings under any law has to be applied prospectively on or after 1-4- 1989 when the said amendment was Page 172 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined introduced to sub- section (1). The provision in sub-section (1) therefore can have only prospective operation to assessments, which have not become final due to expiry of period of limitation prescribed for assessment under Section 149 of the Act.
21. On a proper construction of the provisions of Section 150(1) and the effect of its operation from 1- 4-1989, we are clearly of the opinion that the provisions cannot be given retrospective effect prior to 1-4-1989 for assessments which have already become final due to bar of limitation prior to 1-4-1989. Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the Authorities to affect finality of tax assessments or to open up liabilities, which have become Page 173 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined barred by lapse of time. Our conclusion, therefore, is that sub-section (1) of Section 150, as amended with effect from 1-4-1989, does not enable the Authorities to reopen assessments, which have become final due to bar of limitation prior to 1-4-1989 and this position is applicable equally to reassessments proposed on the basis of Orders passed under the Act or under any other law."
13.07. In the case of Manan Corporation Vs. Assistant commissioner of Income-tax, reported in 356 ITR 44, the Division Bench of this court in para 28 and 30 has observed and held as under :-
"28. ... In the case of Commissioner of Income-Tax vs. Gold Coin Health Food P. Ltd. reported in 304 ITR 308, the Hon'ble Supreme Court of India has held as under :
In Zile Singh v. State of Haryana [2004] 8 SCC 1, it was observed as follows :
"13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the Page 174 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights, it is deemed to be prospective only - 'nova constitutio futuris forman imponere debet non praeteritis' -
a new law ought to regulate what is to follow, not the past. (See Principles of Statutory Interpretation by Justice G. P. Singh, 9th Edn., 2004 at page
438.) It is not necessary that an express provision be made to make a statute retrospective and the presumption against a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. (ibid., page 440).
14. The presumption against retrospective operation is not applicable to declaratory statutes... In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up Page 175 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined doubts as to the meaning of the previous Act. It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended... An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pages 468-69).
15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the Legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the Legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the Legislature had sufficiently expressed that intention giving the statute Page 176 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined retrospectively. Four factors are suggested as relevant : (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and
(iv) what it was the Legislature contemplated (page 388). The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right (page
392)."
"30. In the case of National Agricultural Co-operative Marketing Federation of India Ltd. and another, vs. Union of India and others reported in AIR 2003 SC 1329, the Hon'ble Supreme Court has held in paragraphs 15, 16 and 17 as under:
"15. The legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect, is not only subject to the question of competence but is also subject to the question of competence but is also subject to several judicially recognized limitations with some of which we are at present concerned. The first is the requirement that the words used must expressly provide or clearly imply retrospective Page 177 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined operation. The second is that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. The third is apposite where the legislation is introduced to overcome a judicial decision. Here the power cannot be used to subvert the decision without removing the statutory basis of the decision."
16. There is no fixed formula for the expression of legislative intent to give retrospectivity to an enactment."Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before.
Sometimes this is done by reenacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the reenacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which tax was collected and by legislative fiat makes the new meaning binding upon Courts. The Legislature may follow anyone method or all of them.
17. A validating clause coupled with a substantive statutory change is therefore only one of Page 178 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the methods to leave actions unsustainable under the unamended statute, undisturbed.
Consequently, the absence of a validating clause would not by itself affect the retrospective operation of the statutory provision, if such retrospectivity is otherwise apparent."
Identical question came to be considered by the Hon'ble Supreme Court in the case of K.M. Sharma (supra) and while considering the question whether the provisions of section 150(1) as amended from 1/4/1989 can be given retrospective effect prior to 1/4/1989 for assessments which have already become final due to bar of limitation prior to 1/4/1989, while holding that the said provision cannot be given retrospective effect prior to 1/4/1989 for assessments which have already become final due to bar of limitation prior to 1/4/1989, in paragraph Nos.14 and 21 the Hon'ble Supreme Court has observed and held as under :-
"14. Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give Page 179 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to sub-section (1) of Section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub- section (1) of Section 150 which intends to lift embargo of period of limitation under Section 149 to enable Authorities to reopen assessments not only on the basis of Orders passed in proceedings under the IT Act but also on Order of a Court in any proceedings under any law has to be applied prospectively on or after 1-4-
1989 when the said amendment was introduced to sub- section (1). The provision in sub-section (1) therefore can have only prospective operation to assessments, which have not become final due to expiry of period of limitation prescribed for assessment under Section 149 of Page 180 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Act.
21. On a proper construction of the provisions of Section 150(1) and the effect of its operation from 1- 4-1989, we are clearly of the opinion that the provisions cannot be given retrospective effect prior to 1-4-1989 for assessments which have already become final due to bar of limitation prior to 1-4-1989. Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the Authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion, therefore, is that sub-section (1) of Section 150, as amended with effect from 1-4-1989, does not enable the Authorities to reopen assessments, which have become final due to bar of limitation prior to 1-4-1989 and Page 181 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined this position is applicable equally to reassessments proposed on the basis of Orders passed under the Act or under any other law."
14.00. Now, so far as reliance placed upon the decisions of the Hon'ble Supreme Court in the case of Ahmedabad Manufacturing & Calico Printing Co. Ltd. (supra) as well as another decision of the Hon'ble Supreme Court in the case of Jyoti Traders (supra), by the learned counsel appearing on behalf of the revenue is concerned, on facts and considering the provisions which came to be considered by the Hon'ble Supreme Court in the aforesaid decisions, none of the aforesaid decisions shall be applicable to the facts of the case on hand.
In the case of Jyoti Traders (supra), the Hon'ble Supreme Court was considering the proviso to section 21 which specifically provided that assessment and reassessment may be made after expiration of the period aforesaid but not after the expiration of 8 years and from the end of such year. In the aforesaid proviso it expressly enabled assessment where period expires and it operates Page 182 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined upon expiry of limitation period. Therefore, the said decision shall not be applicable considering the wordings used in section 201 as amended by Finance Act, 2014, more particularly when it has been expressly provided and/or made prospective w.e.f. 1/4/2010.
14.01. Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Biswanath Jhujhunwala & Anr. (supra) by the learned counsel appearing on behalf of the revenue is concerned, considering the language used in the notification which felt for consideration by the Hon'ble Supreme Court and observations made by the Hon'ble Supreme Court in para 12 and 13 and considering the provisions of section 201 as amended by Finance Act, 2014 and the Statement and Object while amending section 201, as referred to hereinabove, the said decision shall not be applicable to the facts of the case on hand.
15.00. Considering the law laid down by the Hon'ble Supreme Court in the aforesaid decisions, to the facts of the case on hand and more particularly considering the fact that while amending section 201 by Finance Act, 2014, it has been Page 183 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined specifically mentioned that the same shall be applicable w.e.f. 1/10/2014 and even considering the fact that proceedings for F.Y. 2007-08 and 2008-09 had become time barred and/or for the aforesaid financial years, limitation under section 201(3)(i) of the Act had already expired on 31/3/2011 and 31/3/2012, respectively, much prior to the amendment in section 201 as amended by Finance Act, 2014 and therefore, as such a right has been accrued in favour of the assessee and considering the fact that wherever legislature wanted to give retrospective effect so specifically provided while amending section 201(3)
(ii) of the Act as was amended by Finance Act, 2012 with retrospective effect from 1/4/2010, it is to be held that section 201(3), as amended by Finance Act No.2 of 2014 shall not be applicable retrospectively and therefore, no order under section 201(i) of the Act can be passed for which limitation had already expired prior to amended section 201(3) as amended by Finance Act No.2 of 2014. Under the circumstances, the impugned notices / summonses cannot be sustained and the same deserve to be quashed and set aside and writ Page 184 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of prohibition, as prayed for, deserves to be granted."
1.10) It was further submitted that the contention of the claimant that new Tribunal is established on 24.01.2019 is also not correct in view of clarification of late Hon'ble Mr. Justice G.T. Nanavati (retired) on 4.12.2018 that the Arbitral Tribunal is not defunct and he continued to be part of the Arbitral Tribunal.
1.11) It was also submitted that claimant itself has stated on 28.11.2018 that it will not give extension of time to the Arbitrtal Tribunal.
1.12) Learned Senior Advocate Mr. Soparkar submitted that once the mandate is over as per section 29A of the Act, as it existed on 1.02.2019, the only remedy Page 185 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined available to the parties is to approach the Court for extension of time and it is not in dispute that none of the parties have gone to the Court for extension of time and as such, the mandate of the Tribunal cannot be extended.
1.13) It was further submitted that the contention raised on behalf of the claimant that whenever there is a new appointment of arbitrator there is a fresh Arbitral Tribunal and for the said fresh Arbitral Tribunal another 12 months' time is available is also contrary to the provisions of section 29A of the Act. It was pointed out that the Arbitral Tribunal has considered the evidence which was taken by the members of the Tribunal constituted earlier as if no new Tribunal has come into effect otherwise entire Page 186 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined evidence ought to have been taken afresh de novo.
1.14) It was submitted that the fact that 9 months' extension was sought by the Arbitral Tribunal clearly shows that all the reconstituted Tribunal are one original Tribunal and substitution of members of the Tribunal is provided under section 15 of the Act and therefore, the provisions of section 29A would be applicable to the Tribunal which has come into effect as per order passed by Hon'ble Supreme Court on 9.12.2017.
1.15) Learned Senior Advocate Mr. Soparkar in the alternative submitted that new Tribunal has come into existence on appointment of arbitrator then, fresh notice of invocation of arbitration has to Page 187 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined be given as per section 21 of the Act and the respondent ought to have been given right to appoint his nominee member under section 11(2) of the Act and both the nominee arbitrators have the power to appoint the Presiding Arbitrator as per section 11(4) of the Act. However, in facts of the case, none of the procedure is followed on appointment of arbitrator and therefore, it cannot be said that on appointment of arbitrator it becomes a new Arbitral Tribunal.
1.16) Learned Senior Advocate Mr. Soparkar submitted that reliance placed by the claimant on the order dated 04.12.2020 passed by the Supreme Court dismissing SLP against final order of the High Court refusing to entertain the writ petition and the order passed in IA no.11012/2021 Page 188 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined filed by the claimant seeking modification permitting the Arbitral Tribunal to pass award cannot be treated as acceptance of existence of the Tribunal by the Hon'ble Supreme Court. It was submitted that interim order was passed by the High Court in SCA No.3913 of 2020 preferred by the respondent nos. 1 and 2 on 12.02.2020 and the Hon'ble Supreme Court substituted the order on 14.02.2020 and permitted the Tribunal to go ahead with the hearing and evidence but not to pass award and thereafter when High Court rejected the writ petition which was upheld by Hon'ble Supreme Court by order dated 18.12.2020 then the interim order passed by the Hon'ble Supreme Court on 14.02.2020 by prohibiting the Arbitral Tribunal to pass award would have become infructuous.
Page 189 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined However, the claimant without disclosing that SLP (C) Diary No.5800 of 2020 has become infructuous filed IA No.11012 of 2021 seeking modification of order dated 14.02.2020 permitting the Arbitral Tribunal to pass award. Therefore, order dated 22.02.2021 passed in IA No.11012/2021 passed by the Hon'ble Supreme Court directing the Arbitral Tribunal to pass award cannot be relied upon so as to contend that the provisions of section 29A as it existed would not apply to the facts of the case. It was therefore, submitted that order dated 22.02.2021 passed in IA preferred by the claimant to seek modification of the order dated 14.02.2020 consequently seeking publication of award, cannot extend the mandate of the Tribunal which has come to Page 190 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined an end.
1.17) It was submitted that the Hon'ble Supreme Court has not passed the order in IA no.11012/2021 under Article 142 of the Constitution of India but it was an order in continuation of the order dated 14.02.2020 passed in SLP(C) Diary No. 5800/2020. It was further submitted that the contention of the claimant that until the award is delivered, the arbitration is to be treated as pending is also not correct because as per the provisions of section 29A(4), passing of an award within 12 months is mandatory and if the award is not passed declaring the arbitration is pending, then provisions of section 29A(4) would become redundant. It was therefore, submitted that entire arbitration proceedings are required to be quashed and Page 191 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined set aside only on the ground that the Arbitral Tribunal did not have any mandate to proceed with the arbitration proceedings.
1.18) Learned Senior Advocate Mr. Soparkar submitted that the Tribunal has committed an error in computation and imposition of the cost on the respondent nos.1 and 2, that there is difference between computation in subparagraph no.(P) to (U) of para no.272 and the final award made by the Tribunal. It was submitted that the Tribunal has also committed an error in awarding fees of the lawyers who did not appear before the Tribunal but appeared for claimant in other proceedings which could not have been considered by the Tribunal as per the provisions of section 31A of the Act. It was submitted Page 192 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined that the Tribunal has also committed an error in relying upon the minority opinion in Afcon's case and such reliance is contrary to decision of Supreme Court in case of Common Cause case reported in (2004) 5 SCC 222.
Submissions of learned advocate Mr. Masoom Shah for the petitioner-respondent no.2:
1.19) Learned advocate Mr. Masoom Shah adopted the submissions of learned Senior Advocate Mr. S.N. Sopakar and submitted that Arbitral Tribunal believed that it's mandate was over and further the finding of the Tribunal that the affidavit of evidence was not filed and delayed is incorrect, because Tribunal asked for consent of 9 months for extension and therefore, the affidavit of evidence was not filed because of arbitrary and Page 193 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined unreasonable demands of the Arbitral Tribunal which violates the principles of natural justice and is in violation of section 29A of the Act.
Submissions of claimant :
1.20) With regard to applicability of Section 29A of the Act, learned advocate for the claimant pointed out that an Arbitral Tribunal can be constituted in three ways under the Act i.e. (i) by parties mutually agreeing as provided under Section 11(2) and (3) of the Act or
(ii) by an order of the Court under Section 11(6) of the Act, or (iii) by an order of the Court under Section 29A(6) of the Act.
1.21) It was submitted that in first two eventualities, the mandate of such a Page 194 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal will be of 12 months from the date on which the arbitrators enter upon the Reference i.e. date of their appointment [prior to the amendment in Section 29A(1) w.e.f. 30.08.2019] or from the date of completion of pleadings [after 30.08.2019). It was submitted that under the aforesaid circumstances, in the event of the constitution of a fresh Arbitral Tribunal, a fresh mandate of 12 months would start.
1.22) It was further submitted that in 3rd eventuality, the said Tribunal would be deemed to be in continuation of the previously appointed Arbitral Tribunal as has been categorically provided by the legislature under sub-Section (7) of Section 29A of the Act. In the aforesaid eventuality, a fresh mandate of 12 months Page 195 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined would not start since it is deemed to be in continuation of earlier Tribunal.
1.23) Learned advocate for the claimant thereafter referring to the constitution of four Arbitral Tribunals under section 11 of the Act either by Court or mutual agreement between the parties submitted that none of the constitutions were made under Section 29A(6) of the Act, and therefore, the deeming provision, specifically provided under Section 29A(7) of the Act applicable to constitutions being made under that section only, cannot be made applicable to the constitutions of the Tribunal made under Section 11 of the Act. It was submitted that in view of the aforesaid four constitutions being under Section 11 of the Act, fresh mandate of 12 months would start upon each constitution.
Page 196 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 1.24) It was further submitted that even the learned Single Judge of this Court (Hon'ble Mr. Justice N.V. Anjaria) in a CAV Judgment dated 21.06.2019 rendered in MCA No.90 of 2019, as well as, the petitioners herein have considered the Arbitral Tribunal constituted on 24.01.2019, as a new Arbitral Tribunal and in fact, even the petitioners themselves have considered the Arbitral Tribunal having been newly constituted on different occasions and at no point of time, did they treat the same as being in continuation of a previous Arbitral Tribunal as is evident from email dated 28.10.2019 annexed with convenience compilation 2, page 76.
1.25) Learned advocate for the original Page 197 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant submitted that sub-section (1) of Section 29A came to be amended from 30.08.2019, which clarifies that period of 12 months would not be mandatory for International Commercial Arbitration and therefore, post-amendment, the time limit of 12 months as prescribed in Section 29A of the Act is applicable only to domestic arbitration. Further, since Section 29A(1), as amended, is remedial in nature, it applies to all pending arbitral proceedings as on the effective date ie., 30.08.2019.
1.26) It was submitted that in the present case, the arbitral proceedings before the Arbitral Tribunal constituted under Section 11(3) of the Act on 24.01.2019 with a fresh mandate and consisted of late Mr. Vinayak Pradhan, Page 198 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Hon'ble Mr. Justice G.T. Nanavati (retired) and Mr. Andre Yeap, were pending as on 30.08.2019, which were thereafter also pending before a new Arbitral Tribunal constituted on 09.09.2020, consisting of Hon'ble Mr. Justice Anantham Kasinather(retired), Hon'ble Mr. Justice G.T. Nanavati (retired) and Mr. Andre Yeap. Therefore, the mandate of the Arbitral Tribunal had not stood terminated and hence, the arbitral award passed is legal and valid.
1.27) It was submitted even while assuming without admitting that there was only one Arbitral Tribunal continuing all through out, whose mandate got over on 31.01.2019 (ie. 12 months from 01.02.2018), then in that case also, the arbitration proceedings would be treated Page 199 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined as 'pending' as on 30.08.2019 i.e. the date on which amendment in Section 29A(1) was made effective, since the said amendment is retrospective in nature, as held by the Hon'ble Supreme Court in the judgment in case of 'Tata Sons Pvt. Ltd.
vs. Siva Industries & Holdings Ltd, reported in 2023 SCC OnLine SC 23. It was submitted tht in the said judgment, the mandate of the Tribunal got over on 14.08.2019, being prior to the effective date, and despite that fact, it was held that in view of amended Section 29A(1) of the Act, the Arbitral Tribunal would be acting within his domain to continue the arbitration proceedings for its expeditious conclusion. It was submitted that in the present case the petitioners' object to the said interpretation on the Page 200 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined ground that it was owing to Section 14 of the Insolvency and Bankruptcy Code, 2016, that suspends the arbitration proceedings from 05.07.2019. However, the implication of the moratorium is provided under Section 60(6) of the IBC and hence, the said moratorium period had nothing to do with the pendency of the said proceedings in the said case, since all that has been provided by Section 60(6) of IBC is to exclude the period of moratorium for counting the limitation period for instituting any suit or application by or against the corporate debtor.
1.28) Thereafter, learned advocate for the claimant referred to the following observations of the Hon'ble Delhi High Court in case of ONGC Petro Additions reported in 2020 SCC OnLine Del 2582, as Page 201 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined approved by the Hon'ble Supreme Court as under:
"12. It is submitted by Mr. Dewan that the changes brought about in Section 29A will have retrospective effect from October 23, 2015, i.e., the date from which Section 29A was introduced into the Act, vide Amendment Act of 2015."
"26. In view of my above discussion, it must be held that the provisions of Section 29A(1) shall be applicable to all pending arbitrations seated in India as on August 30, 2019, and commenced after October 23, 2015.
1.29) Referring to above observations it was submitted that even if the aforesaid Arbitral Tribunal constituted on 24.01.2019 is not considered to be a new tribunal with a fresh mandate, then in that case also, the same having been constituted after 20.10.2015, would be covered by the amended Section 29A(1) of the Act.Page 202 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 1.30) Learned advocate for the claimant referring to the last order dated 22.02.2021 of the Hon'ble Supreme Court wherein it is observed that "... we clarify that these proceedings before us have now come to an end, as a result of which, the Arbitral Tribunal is free to go ahead with the final award" submitted that it is not legally permissible for anyone to overlook the last order dated 22.02.2021 of the Hon'ble Supreme Court.
1.31) It was therefore, submitted that the Award dated 16.04.2021, impugned in the present proceedings, cannot be said to be illegal, null and void on the ground that the Arbitral Tribunal had no mandate and jurisdiction to render the same and even otherwise, as per the provisions of Page 203 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Section 14 read with Section 29A of the Act, petitioners ought to have challenged the same before the 'Court', at the relevant point of time as specifically observed by this Court in its order dated 11.03.2020 passed in SCA No.3913 of 2020 which came to be upheld by the Hon'ble Supreme Court vide its order dated 18.12.2020 in SLP (C) No. 14900 of 2020.
1.32) It was submitted that despite the aforesaid observations, the petitioners did not avail of the said remedy provided under the Act and had continued to participate in the arbitration proceedings without any protest in that regard.
Therefore, at this stage, after rendition of the award, the Petitioners are estopped from raising the said ground in the present proceedings.Page 204 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 1.33) It was submitted that the alleged ground of the petitioners to the effect that the Arbitral Tribunal in the present case had no jurisdiction to render the Award in view of the expiry of the time limit as provided under Section 29A of the Act, and hence the same should be set aside, is not available in view of the fact that, Section 34 of the Act provides for setting aside awards on very limited grounds as contained in sub-sections (2) and (3) of Section 34, wherein the aforesaid ground is not provided.
1.34) It was submitted that the judgment relied upon by the petitioner in case of Jayesh H Pandya vs. Subhtex India Ltd.
reported in (2020) 17 SCC 383, would not be applicable to the facts of the present Page 205 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined case, because of multiple reasons namely
(i) In the said case, in para 8 of the judgment, it has been recorded that at the appropriate time, the Petitioner therein had filed Section 14 application seeking termination of mandate, which has not been made by the Petitioners herein; (ii) the judgment was not rendered within the limited scope of Section 34 of the Act and
(iii) that too, it was domestic arbitration.
Reasons and Findings:
1.35) Sub-section(1) of section 29A of the Act was substituted by Act 33 of 2019 with effect from 30.08.2019. Prior to amendment section 29A(1) of the Act reads as under:
"29A. Time limit for arbitral award-(1) The award shall be made within a period of twelve months Page 206 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined from the date the arbitral tribunal enters upon the reference.
Explanation. For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment."
1.36) After amendment with effect from 30.08.2019, section 29A(1) reads as under:
"29A. Time limit for arbitral award-(1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section(4) of section 23.
Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose off the matter within a period of twelve months from the date of completion of pleadings under sub- section (4) of section 23."Page 207 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 1.37) The Hon'ble Apex Court has examined pre and post 2019 amendment in section 29A in case of Tata Sons Pvt.
Ltd.v. Siva Industries & Holdings Ltd., reported in 2023 SCC OnLine Sc 23 as under:
"20 The provisions of Section 29A were introduced into the Arbitration Act with effect from 23 October 2015 by Act 3 of 2016
8. Section 29A was substituted by Act 33 of 20199 with effect from 30 August 2019. The provisions of Section 29A as originally inserted and as they stand after the amendment of 2019 are tabulated below:
SECTION 29-A PRE AND POST 2019 AMENDMENT POST 2015 AMENDMENT W.E.F POST 2019 AMENDMENT W.E.F 23.10.2015 30.08.2019 29A. (1) The award shall be made 29A. (1) The award in matters other within a period of twelve months from than international commercial the date the arbitral tribunal enters upon arbitration shall be made by the arbitral the reference. Explanation. -For the tribunal within a period of twelve months purpose of this sub-section, an arbitral from the date of completion of tribunal shall be deemed to have pleadings under sub-section (4) of entered upon the reference on the date section 23: Provided that the award in on which the arbitrator or all the the matter of international commercial arbitrators, as the case may be, have arbitration may be made as received notice, in writing, of their expeditiously as possible and appointment. endeavor may be made to dispose of Page 208 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (2) If the award is made within a period the matter within a period of twelve of six months from the date the arbitral months from the date of completion of tribunal enters upon the reference, the pleadings under sub-section (4) of arbitral tribunal shall be entitled to section 23.
receive such amount of additional fees (2) If the award is made within a period as the parties may agree. of six months from the date the arbitral (3) The parties may, by consent, extend tribunal enters upon the reference, the the period specified in subsection (1) for arbitral tribunal shall be entitled to making award for further period not receive such amount of additional fees exceeding six months. as the parties may agree. (4) If the award is not made within the (3) The parties may, by consent, extend period specified in sub-section (1) or the the period specified in sub-section (1) for extended period specified under sub- making award for further period not section (3), the mandate of the exceeding six months. arbitrator(s) shall terminate unless the (4) If the award is not made within the Court has, either prior to or after the period specified in sub-section (1) or the expiry of the period so specified, extended period specified under sub- extended the period. Provided that while section (3), the mandate of the extending the period under this sub- arbitrator(s) shall terminate unless the section, if the Court finds that the Court has, either prior to or after the proceedings have been delayed for the expiry of the period so specified, reasons attributable to the arbitral extended the period. Provided that while tribunal, then, it may order reduction of extending the period under this sub- fees of arbitrator(s) by not exceeding section, if the Court finds that the five per cent for each month of such proceedings have been delayed for the delay. reasons attributable to the arbitral (5) The extension of period referred to tribunal, then, it may order reduction of in sub-section (4) may be on the fees of arbitrator(s) by not exceeding five application of any of the parties and per cent for each month of such delay. may be granted only for sufficient cause Provided further that where an and on such terms and conditions as application under sub-section (5) is may be imposed by the Court. pending, the mandate of the arbitrator (6) While extending the period referred shall continue till the disposal of the said to in sub-section (4), it shall be open to application: Provided also that the the Court to substitute one or all of the arbitrator shall be given an opportunity of arbitrators and if one or all of the being heard before the fees is reduced. arbitrators are substituted, the arbitral (5) The extension of period referred to in proceedings shall continue from the subsection (4) may be on the application stage already reached and on the basis of any of the parties and may be granted of the evidence and material already on only for sufficient cause and on such record, and the arbitrator(s) appointed terms and conditions as may be imposed under this section shall be deemed to by the Court. have received the said evidence and (6) While extending the period referred to material. in sub-section (4), it shall be open to the (7) In the event of arbitrator(s) being Court to substitute one or all of the appointed under this section, the arbitral arbitrators and if one or all of the tribunal thus reconstituted shall be arbitrators are substituted, the arbitral Page 209 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined deemed to be in continuation of the proceedings shall continue from the previously appointed arbitral tribunal. stage already reached and on the basis (8) It shall be open to the Court to of the evidence and material already on impose actual or exemplary costs upon record, and the arbitrator(s) appointed any of the parties under this section. under this section shall be deemed to (9) An application filed under subsection have received the said evidence and (5) shall be disposed of by the Court as material. expeditiously as possible and (7) In the event of arbitrator(s) being endeavour shall be made to dispose of appointed under this section, the arbitral the matter within a period of sixty days tribunal thus reconstituted shall be from the date of service of notice on the deemed to be in continuation of the opposite party previously appointed arbitral tribunal.
(8) It shall be open to the Court to (emphasis supplied) impose actual or exemplary costs upon any of the parties under this section. (9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party"
(emphasis supplied) 1.38) Hon'ble Apex Court thereafter has analysed section 29A(1) prescribing time limit for arbitral award as under:
"24 The provisions of Section 29A, as originally introduced into the statute, 24 The provisions of Section 29A, as originally introduced into the statute, mandated that all awards shall be made within a period of twelve months from the date on which the arbitral tribunal enters upon the reference. The explanation Page 210 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined clarified when the arbitral tribunal would be deemed to have entered upon the reference, namely, the date on which the arbitrator has received written notice of the appointment. The mandatory nature of the provisions of Section 29A(1) and their application to all arbitrations conducted under the Act, domestic or international commercial, was evident from the use of the word "shall". In terms of Section 29A(4), in case the arbitral award was not rendered within the twelve or eighteen month period as the case may be, the mandate of the arbitrator(s) would stand terminated, unless on an application made by any of the parties, the court extended time on sufficient cause being shown.
25 After the amendment, Section 29A(1) stipulates that the award "in matters other than international commercial arbitration" shall be made by the arbitral tribunal within a period of twelve months from the date of the completion of the pleadings under Section 23(4). The expression "in matters other than an international commercial arbitration" makes it abundantly clear that the timeline of twelve months which is stipulated in the substantive part of Section Page 211 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 29A(1), as amended, does not apply to international commercial arbitrations. This is further reaffirmed in the proviso to Section 29A(1) which stipulates that the award in the matter of an international commercial arbitration "may be made as expeditiously as possible" and that an "endeavour may be made to dispose of the matter within a period of 12 months" from the date of the completion of pleadings. The expression "as expeditiously as possible" coupled with the expression "endeavour Section 23(4) of the Arbitration Act, as inserted by Act 33 of 2019, provides that "The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing of their appointment." may be made"
demonstrate that the intent of Parliament is that the period of twelve months for making the award is not mandatory in the case of an international commercial arbitration. In an international commercial arbitration, the arbitral tribunal is required to endeavour, that is, make an effort to render the arbitral award within a period of twelve months or in a timely manner. In a Page 212 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined domestic arbitration, Section 29A(1) stipulates a mandatory period of twelve months for the arbitrator to render the arbitral award. In contrast, the substantive part of Section 29A(1) clarifies that the period of twelve months would not be mandatory for an international commercial arbitration. Hence, post amendment, the time limit of twelve months as prescribed in Section 29A is applicable to only domestic arbitrations and the twelve-month period is only directory in nature for an international commercial arbitration.
26 Sub-section (3) of Section 29A empowers parties, by consent, to extend the period specified in sub-section (1) for making the award by a further period not exceeding six months. Thereafter, if the award is not made within the period which is specified in sub-section (1) or the extended period specified in sub-section (3), the mandate of the arbitrator shall terminate unless the court has extended the period either prior to or after the expiry of the period so specified. In other words, the timeline of twelve months for making the award (in matters other than international commercial arbitration), is Page 213 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined qualified by the consensual entrustment to the parties under sub-section (3) to extend the period by six months after which the court is empowered in terms of sub-section (4) to extend the period for making the award. The submission of the second respondent is that the provisions of sub-section (3) and sub-section (4) must also apply to an international commercial arbitration. This would merit close scrutiny. The legislature has not expressly excluded the applicability of sub-sections (3) and (4) of Section 29A to an international commercial arbitration. But, at the same time, it must be noticed that the rationale underlying sub-section (3) is to ensure that despite the stipulation of twelve months for the making of an arbitral award in the domestic context, parties may by consent agree to an extension of time by a further period of six months. Such an extension of six months is envisaged in the case of a domestic arbitration since there is a mandate that the award shall be made within a period of twelve months. A further extension has, however, been entrusted to the court in terms of sub-section (4) of Section 29A. However, insofar as an international commercial arbitration is concerned, the Page 214 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined statutory regime is clear by the substantive part of sub-section 1 of Section 29A in terms of which the timeline of twelve months for making an arbitral award is not applicable to it. In an international commercial arbitration, the legislature has only indicated that the award should be made as expeditiously as possible and that an endeavour may be made to dispose of the matter within a period of twelve months from the completion of pleadings.
27 The introduction of amended Section 29A finds its genesis in the report dated 30 July 2017 of the Committee chaired by Justice B N Srikrishna. The 'High Level Committee', as it is described, was set up to review the "institutionalization of (the) arbitration mechanism" in India. The report specifically elaborates upon the reason for the exclusion of international commercial arbitrations from the ambit of the mandatory timeline of twelve months stipulated in the context of a domestic arbitration. The report of the Committee records:
"In fact, one of the provisions of the ACA -- section 29A -- which was inserted by the 2015 Amendment Act, is perceived to have made Page 215 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitral institutions wary of arbitrations in India. Section 29A provides for strict timelines for completion of arbitration proceedings. This has been criticised as unduly restrictive of the conduct of arbitrations by arbitral institutions which provide for timelines for different stages of the arbitration proceedings."
"The Committee notes that international arbitral institutions have strongly criticised the setting of timelines for conducting international commercial arbitrations. These institutions are of the view that monitoring the conduct of the arbitral proceedings is best left to the arbitral institutions.
Institutions have their own machinery for case management and do not require monitoring by the court. With respect to domestic arbitrations, the general opinion of arbitrators is that the timelines fixed for conducting domestic arbitrations under section 29A should take effect post completion of pleadings."
28 The recommendations of the Committee are extracted below:
Page 216 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "1. A new sub-section may be inserted in section 29A limiting the applicability of the section to domestic arbitrations only.
International commercial arbitrations may be left outside the purview of the timelines provided in Section 29A.
2. Section 29A(1) may be amended such that the time in section 29A(1) starts to run post completion of pleadings.
Further, a time period of 6 months may be provided for submission of pleadings.
3. Section 29A(4) may be amended to provide that if an application under Section 29A(5) is filed before a court, the mandate of the arbitral tribunal continues till the application is disposed.
4. Section 29A(9) may be amended to add if the application is not disposed of within the period mentioned therein, it is deemed to be granted.
5. A new sub-section should be inserted in Section 29A providing that where the court seeks to reduce the fees of the Page 217 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitrator(s), sufficient opportunity should be given to such arbitrator(s) to be heard." (emphasis supplied) 29 The Committee indicated that international arbitration institutions had been critical of the setting up of timelines for conducting international arbitrations. International arbitral institutions with their own machinery for case management were of the view that they did not require the monitoring of timelines by the intervention of the court. The Committee also noted that in other jurisdictions, timelines for arbitral proceedings are usually agreed by the parties themselves in accordance with the nature and complexity of the dispute. The intervention of the court in the extension of timelines was criticized by arbitral institutions and eventually led to the formulation of the amended provisions of Section 29A which have expressly kept international commercial arbitrations outside the purview of the mandatory timelines provided in Section 29A. Hence, in terms of the amended provisions of Section 29A, arbitral tribunals in international commercial arbitrations are only expected to make an endeavor to complete the Page 218 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined proceedings within twelve months from the date of competition of pleadings and are not bound to abide by the time limit prescribed for domestic arbitrations.
30 Having clarified that the 2019 Amendment Act has excluded international commercial arbitrations from the statutorily prescribed mandatory time limits, the question arises whether the amended Section 29A would apply prospectively or retrospectively.
31 The provisions of Section 29A, as introduced by Act 3 of 2016, were prospective in nature by virtue of Section 26 of the 2015 Amendment Act. In terms of Section 26, Section 29A was introduced with effect from 23 October 2015 and applied to all arbitration proceedings that commenced on or after 23 October 2015. Section 26 of the 2015 Amendment Act read as follows:
"26. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in Page 219 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined relation to arbitral proceedings commenced on or after the date of commencement of this Act."
32 In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd,11 a two Judge Bench of this Court while dealing with the construction and applicability of Section 26 of the 2015 Amendment Act in relation to arbitration proceedings and / or legal proceedings in connection with such arbitration proceedings, inter alia, observed in a footnote that Section 29A was procedural in nature. However, this Court stated that Section 29A created new obligations in respect of a proceeding which had already commenced since it laid down a strict timeline for rendering an arbitral award for the first time in the framework of the Arbitration Act (emphasis supplied). This Court clarified:
"Section 29A of the Amendment Act provides for time limits within which an arbitral award is to be made. In Hitendra Vishnu Thakur v. State of Maharashtra (1994) 4 SCC 602 at 633, this Court stated:
"(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law.Page 220 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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(iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.
(v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication."
It is, inter alia, because timelines for the making of an arbitral award have been laid down for the first time in Section 29A of the (2018) 6 SCC 287 Amendment Act that parties were given the option to adopt such timelines which, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Act. This is, of course, only one example of why parties may otherwise agree and apply the new procedure laid down by the Amendment Act to arbitral proceedings that have commenced before it came into force."
Page 221 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 33 Procedural law establishes a mechanism for determining rights and liabilities of a party and a machinery for enforcing them. 12 Generally, procedural laws are presumed to be retrospective, unless there is a clear indication that such was not the intention of the legislature,13 or the procedural law imposes new obligations qua transactions already concluded or creates new rights or liabilities.
34 The 2019 Amendment Act does not contain any provision equivalent to Section 26 of Act 3 of 2016 evincing a legislative intent making the application of the amended provision prospective. The amended provisions of Section 29A, in terms of which the arbitral tribunal has to endeavour to dispose of the proceedings in an international commercial arbitration as expeditiously as possible within a period of twelve months from the completion of the pleadings are remedial in nature. The amended provision has excepted international commercial arbitrations from the mandate of the twelve- month timeline which governs domestic arbitrations. The amendment is intended to meet the criticism over the timeline in its Page 222 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined application to international commercial arbitrations. The amendment is remedial in that it carves out international commercial arbitrations from the rigour of the timeline of six months. This lies within the domain of the arbitrator and is outside the purview of judicial intervention. The removal of the mandatory time limit for making an arbitral award in the case of an international commercial arbitration does not confer any rights or liabilities on any party. Since Section 29A(1), as amended, is remedial in nature, it should be applicable to all pending arbitral proceedings as on the effective date i.e., 30 August 2019.
35 We may notice certain judgments of the High Courts on the provisions of Section 29A which have been adverted to during the course of oral submissions. Those decisions are:
i. A decision of a Single Judge of the High Court of Delhi dated 23 January 2020 in Shapoorji Pallonji & Co. Pvt. Ltd. Vs Jindal India Thermal Power Ltd.;
ii. A decision of a Single Judge of the Delhi High Court dated 21 July 2020 in ONGC Petro Additions Page 223 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Ltd. vs Ferns Construction Co. Inc.; and iii. The decision of the Chief Justice of the High Court of Judicature for Orissa at Cuttack dated 11 December 2020 in M/s SARA International Pvt. Ltd. Vs Southern Eastern Railways & Anr.
36 In Shapoorji Pallonji, the Delhi High Court had held that amended Section 29A(1) of the Arbitration and Conciliation Act, being procedural law, would apply to the pending arbitrations as on the date of the amendment.
However, a coordinate bench in MBL Infrastructures Ltd v. Rites Ltd.18 held that the amended Section 29A would be prospective in nature, without referring to the earlier order in Shapoorji Pallonji. Finally, the Delhi High Court in ONGC Petro Additions settled the controversy and reiterated the position of law as laid down in Shapoorji Pallonji. The Court, inter alia, stated that Section 29A(1) shall be applicable to all pending arbitrations seated in India as on August 30, 2019 and commenced after October 23, 2015, and there is no strict time line prescribed to the proceedings which are in nature of international commercial arbitration as defined under the Page 224 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Act, seated in India."
1.39) The Apex Court after analysing section 29A(1) post amendment has held that the amended section of the Act being procedural law as held by Delhi High Court in case of ONGC Petro Additions Ltd. v.
Ferns Construction Co. Inc (supra) shall be applicable to all the pending arbitration seated in India as on 30th August, 2019 and commenced after 23rd October, 2015 and there is no strict time line prescribed to the proceedings which are in the nature of international commercial arbitration as described under the Act seated in India.
1.40) Therefore, it is necessary to ascertain as to whether the arbitration proceedings between the parties can be Page 225 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined said to be pending as on 30th August, 2019 so as to apply the amended provisions of section 29A(1) of the Act.
1.41) The chronology of the events enumerated here in above demonstrates that the arbitration proceedings initiated by the claimant under section 11 of the Act pursuant to the order passed by the Hon'ble Supreme Court dated 24.07.2017 under section 11(6) of the Act has continued thereafter with change of arbitrators from time to time.
1.42) On 4.12.2017 Hon'ble Mr. Justice C.K. Thakker (retired) withdrew from the arbitration and Hon'ble Mr. Justice M.B. Shah (retired) was appointed as Presiding Arbitrator. On 29.11.2018, Hon'ble Mr. Justice J.M. Panchal (retired) Hon'ble Page 226 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Mr. Justice M.B. Shah (retired) withdrew from arbitration and thereafter, Mr. Andre Yeap, late Hon'ble Mr. Justice G.T. Nanavati (retired) appointed late Mr. Vinayak Pradhan as Presiding Arbitrator on 24.01.2019.
1.43) Thereafter, the arbitration proceedings were continued by both the parties as none of the parties has made any attempt to terminate the arbitration proceedings on completion of 12 months on 31.01.2019. Merely because members of the Arbitral Tribunal has changed from time to time, Arbitral Tribunal does not cease to exist. Even after 24.01.2019, when late Mr. Vinayak Pradhan was appointed as Presiding Officer, respondent nos. 1 and 2 through their advocate sent email dated 05.03.2019 to convene the preliminary Page 227 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined meeting for urgent hearing and disposal of the application under section 17 of the Act, thereafter on 08.05.2019, another email was sent by learned advocate for respondent no.1 raising objections with regard to the fees determined by the Tribunal which was ordered to be paid by respondent no.1.
1.44) By email dated 23.05.2019, late Mr. Vinayak Pradhan informed the parties that the fees have been determined considering the ICC Schedule as an upper limit.
1.45) Thereafter, learned advocate Mr. Gursharan H. Virk for respondent by email dated 06.06.2019 reiterated that respondent no.1 has expressed his Page 228 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined readiness to pay the arbitral fees determined by the Tribunal consisting of Hon'ble Mr. Justice C.K. Thakker(retired), Hon'ble Mr. Justice M.B. Shah (retired), Hon'ble Mr. Justice J.M. Panchal (retired)and late Hon'ble Mr. Justice G.T. Nanavati (retired) and has also expressed inability of respondent no.1 to participate in arbitration proceedings in view of the exorbitant fees determined by the Tribunal.
1.46) By email dated 15.08.2019, late Mr. Vinayak Pradhan informed the parties about directions and orders issued by the Tribunal and the same was replied by email dated 15.08.2019 by advocate of respondent no.1 expressing inability to pay the fees.
By email dated 19.08.2019, late Mr. Vinayak Pradhan informed the parties that Page 229 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined hearing will take place at Ahmedabad.
1.47) By email dated 20.08.2019, advocate for the claimant raised objections to the email dated 15.08.2019 and also agreed to incur cost for hearing scheduled for dates 16-18 October, 2019, 28-29 October, 2019 and 14-15 November, 2019.
1.48) From the above facts which are emerging from the record as the parties were continuing with arbitration proceedings till 30.08.2019, it cannot be said that arbitration proceedings were not pending when the amendment in section 29A(1) of the Act came into effect.
1.49) In view of above facts, decision Page 230 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined in case of Tata Sons Pvt. Ltd.(supra) relied upon by both the sides and objections raised by respondent nos. 1 and 2, it is held that Tribunal has rightly continued the proceedings as per the provisions of section 29A of the Act as amended with effect from 30.08.2019 as the time limit of 12 months would not apply to the international commercial arbitration after amendment of 2019 and consistent with amended provision of section 29A, Tribunal has rightly acted within its domain and jurisdiction to decide to continue the arbitration proceeding beyond what is originally stipulated as per unamended provision prior to 30.08.2019 and the contention raised on behalf of respondent nos. 1 and 2 (petitioner) that the Tribunal has lost mandate on Page 231 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined completion of 12 months on 1.2.2019 is without any basis.
1.50) In view of the foregoing reasons, reliance placed by both the sides on various judgments are not discussed, as on facts, it emerges that the arbitration proceedings were pending as on 30.08.2019 and therefore, the limitation of 12 months would not apply to the pending arbitration proceedings.
2) Whether the Arbitration Tribunal could have continued with the arbitration proceedings after the re-determination of fees payable by the parties which is opposed by the respondent nos. 1 and 2 being in violation of principle of party autonomy?
Page 232 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
2.1) Learned Senior Advocate Mr. Soparkar raised second issue with regard to jurisdiction of the Tribunal to fix the fees without the consent of both the parties. It was submitted that findings of the Tribunal on the issue of exorbitant fees is incorrect because respondent nos.1 and 2 has never denied to pay the fees fixed by the Tribunal headed by Hon'ble Mr. Justice M.B. Shah (retired) which was later on enhanced by the Presiding Arbitrator late Mr. Vinayak Pradhan and the agreement of the claimant to pay the fees on condition that counter claim filed by the respondent nos. 1 and 2 would not be decided and accordingly, the conditional payment of fees of the Page 233 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant unilaterally, the Tribunal could not have proceeded further with the proceedings. It was submitted that in paragraph no.199 of the impugned award, the Tribunal has recorded that due process of conducting the proceedings has not been under challenge is not correct. It was further pointed out that the Tribunal did not permit the respondent nos. 1 and 2 to file the counter claim and only permitted to proceed with the filing of witness statement and allowed to cross examine all the witnesses, also permitted postponement of hearing in November 2020 to suit the convenience of the counsel etc., cannot be said to be mandating any jurisdiction to the Tribunal to proceed with the arbitral proceedings in absence of the consent of fixing of enhanced fees of the Tribunal.
Page 234 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined It was submitted that the respondent nos.
1 and 2 have raised the objection for fixing of the fees by filing various applications and reference was made to various emails and correspondence between the advocate of the petitioners and the Tribunal to submit that Tribunal has never considered the objections raised by the respondent nos. 1 and 2 and only on the basis of unilateral consent given by the claimant to pay the fees including that of the respondent, the Tribunal proceeded with the hearing which is contrary to the principle of party autonomy.
2.2) Learned Senior Advocate Mr. S.N. Soparkar also referred to the observations of the Tribunal in paragraph no.199 of the Award as Supreme Court at the hearing held on 18.12.2020 did not find any favour with Page 235 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Court, is also misplaced because the Supreme Court has only affirmed the order of the High Court of not to entertain the writ petition and has not decided any other issue in order dated 18.12.2020.
2.3) It was submitted that Presiding Arbitrator late Mr. Vinayak Pradan and thereafter Mr. Anantham, Arbitral Tribunal had no power to modify the fees fixed by Hon'ble Mr. Justice M.B. Shah (retired), the then presiding arbitrator of the Tribunal. It was pointed out that on 3.10.2017, fees of Rs. 3 lakhs to each arbitrator as reading fees and Rs. 2 lakhs to each arbitrator as hearing fees per day were decided and fees of Rs.50,000/- for drafting etc. were decided for each arbitrator. Accordingly, respondent no.1 Neeraj and respondent no.2 Kamal were Page 236 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined required to be given Rs. 50,000/-
respectively for hearing. It was further pointed out that on 1.02.2018 also when the first hearing took place as per the order of Hon'ble Supreme Court on appointment of Hon'ble Mr. Justice M.B. Shah (retired) as Presiding Arbitrator, Tribunal continued fees of Rs. 2 lakhs per hearing payable to each arbitrator and accordingly, the respondent nos. 1 and 2 were required to be given Rs.50,000/- only to each of the arbitrator respectively.
2.4) It was submitted that late Mr. Vinayak Pradhan was appointed as Presiding Arbitrator by the remaining two arbitrators namely Hon'ble Mr. Justice G.T. Nanvaty (retired)and Andrea Yeap, he accepted the arbitration subject to payment of fees which was unilaterally Page 237 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined enhanced exorbitantly which was not affordable to the respondent nos. 1 and 2 and accordingly, the respondent nos. 1 and 2 objected such unilateral enhancement of the exorbitant fees vide emails dated 1.2.2019, 4.2.2019 and 8.2.2019.
2.5) Learned Senior Advocate Mr. Soparkar referred to the Convenience Compilation no.2 filed by the respondent nos. 1 and 2 in relation to exorbitant fees fixed by the Tribunal to point out that the respondent nos. 1 and 2 never agreed for such unilateral enhancement of the fees as compared to the fees fixed earlier for which the petitioners were always ready and willing to pay such fees.
It was therefore, submitted that such action of the Tribunal to unilaterally fix exorbitant fees of the Tribunal violates Page 238 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the basic feature of the Act which is party autonomy as if the party does not agree to the exorbitant fees by the Tribunal then arbitration cannot proceed with arbitral proceedings.
2.6) It was pointed out that as per email of late Mr. Vinayak Pradhan dated 23.05.2019, the arbitrators have decided to proceed with the reference only when the issue of fee was agreed to be paid by the claimant. However, the fact remains that the respondent nos. 1 and 2 never agreed for fees and in absence of any agreement between the parties, the proceedings could not have been continued, as the proceedings can go on only on the basis of party autonomy. It was therefore, submitted that entire arbitration proceedings are wholly invalid and without Page 239 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined jurisdiction and in conflict with public policy as Arbitral Tribunal has acted with bias and prejudice. Reliance was placed on the decision of Hon'ble Supreme Court in case of Afcons Gunanusa JV reported in 2022 SCC Online SC 1122.
2.7) It was further submitted that even the fees fixed by the Tribunal consisting of late Mr. Vinayak Pradan and Mr. Anantham as Presiding Arbitrator are contrary to section 15(4) of the Act which provides that all orders made prior to the replacement of the arbitrators are binding to the reconstituted Tribunal.
2.8) Learned Senior Advocate Mr. Soparkar pointed out that there was a waiver only for four months and High Court rejected the plea of the claimant on Page 240 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined principle of waiver for extension of time for completion of arbitral proceedings. It was submitted that in aforesaid decision Supreme Court held that coerced act of participation in arbitration cannot be termed as waiver. Therefore, the contention of the claimant that there is waiver on part of the respondent nos. 1 and 2 when respondent nos. 1 and 2 participated in the arbitral proceedings with regard to extension of limitation is misplaced inasmuch as it is apparent from the documents placed on record that participation of the respondent nos. 1 and 2 was under protest and objections were also filed by the respondent nos. 1 and 2 invoking principle of party autonomy as the respondent nos. 1 and 2 were not ready to pay exorbitant fees determined after Page 241 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the reconstitution of the Tribunal when late Mr. Vinayak Pradhan was appointed as Presiding Arbitrator.
Submissions of learned advocate Mr. Masoom Shah for the petitioner-respondent no.2:
2.9) Learned advocate Mr. Masoom Shah adopted the submissions of learned Senior Advocate Mr. S.N. Soparkar and further submitted that counter claims were not permitted due to non payment of fees and thereafter inspite of taking of fees from the claimant, the counter claim are not decided. It was further submitted that there was no claim against respondent no.4-C2R LLP for non payment of fees yet it's counter claim was not decided.
2.10) It was submitted that Arbitral Tribunal relies on order dated 14.02.2020 Page 242 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined passed by the Supreme Court but the Hon'ble Supreme Court itself has restrained the Tribunal from delivering the award and only permitted the Arbitral Tribunal to record evidence.
2.11) It was submitted that apart from what is stated above, there is improper conduct and selfish conduct for fixing the unilateral fixation of exorbitant fees for their own private determination, which is then taken from one party inspite of objection of the other party who didn't have capacity to pay exorbitant fees.
There is misuse of position of Statutory Tribunal.
2.12) It was further submitted that there was no case that respondent no.4-C2R LLP had not paid the arbitral fees and Page 243 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined C2R LLP through appellant Kamal Jadhwani filed its counter claim on 24.01.2018 and on 01.02.2018 though the Tribunal decided to deal with the counter claim, subsequently it appears that counterclaim of C2R LLP was not decided.
2.13) It was therefore, submitted that appropriate remedy against unilateral fixation or enhancement of fee by the Arbitral Tribunal is by way of application to the 'Court' either under Section 14 of the Act, seeking termination of mandate, as was done in case of ONGC Ltd. vs. Afcons reported in 2022 SCC OnLine SC 1222 or by way of an application under Section 39(3) of the Act before the 'Court', seeking fixation of reasonable fees.
Page 244 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Submissions of claimants:
2.14) It was further submitted that the the petitioners' contention that Arbitral Tribunal inherently lacked jurisdiction since the very appointment of arbitrators was a violation of party autonomy is entirely misplaced inasmuch as the Arbitral Tribunal was constituted initially and on three subsequent occasions in terms of the arbitration agreement read with section 11(6) and 11(2) of the Act and the constitution of each of the four Arbitral Tribunals is elaborated in para nos. 26 to 38 of the Award and there is no error in the constitution of the Arbitral Tribunal such that it could be assailed in petition filed under section 34 of the Act.Page 245 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 2.15) It was submitted that the petitioners did not file any application under Section 10 of the Act before the Arbitral Tribunal to state that the Tribunal does not have jurisdiction, and in the absence of any express application, are now precluded from raising any grounds that the Arbitral Tribunal did not have jurisdiction to adjudicate the disputes.
It was submitted that the attempt on part of the petitioners to contend that it raised a plea within the meaning of Section 16 does not meet the requisite standards set out under Section 16 and therefore does not merit consideration 2.16) It was submitted that the allegation that party autonomy was violated because the Arbitral Tribunal unilaterally fixed exorbitant fees is Page 246 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined misplaced as the petitioners have attempted to canvas that party autonomy is an unlimited right which is incorrect and party autonomy cannot be raised as a pretext for preventing the Arbitral Tribunal from adjudicating disputes which are espoused by one party against another.
2.17) Learned advocate for the claimant thereafter while dealing with party autonomy with respect to fixation or revision of Arbitrator's fees, without the consent of the parties submitted that in all there are 4 different Arbitral Tribunals, and therefore, the fees fixed by the first Arbitral Tribunal cannot be foisted upon the newly constituted Arbitral Tribunal and hence, different fees decided by third and fourth Arbitral Tribunal cannot be said to be the revised Page 247 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fees in place of the earlier one and in fact, the very allegation of 'exorbitant fees' were in fact raised before this Court as well as Hon'ble Supreme Court, which were eventually rejected. Thus, the challenge raised by the petitioners as regards 'exorbitant fees of the Arbitral Tribunal, stood finally concluded between the parties, leaving no scope for further decision on the said issue.
2.18) Referring to separate charts on arbitrator's fees and costs at Annexure I to the petition, it was submitted that the Respondent-Claimant has already demonstrated before this Court that the Arbitrator's fees were not exorbitant and in fact was lower that the international standards in the case of International Commercial Arbitration.
Page 248 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 2.19) With regard to the aspect of plea being taken by the petitioners by way of emails before the Arbitral Tribunal, it is submitted that the same is also totally misconceived inasmuch as, the same cannot be considered to be the plea being raised under Section 16 of the Act, in the absence of any formal application specifically filed before the Arbitral Tribunal and even otherwise, the grounds which are sought to be raised by the petitioners under Section 16 of the Act is as such not available and that, the same ought to have been made under Section 14 of the Act, which has also not been filed by the petitioners.
Reasons and Findings:
2.20) With regard to issue of exorbitant Page 249 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fees raised by respondent nos. 1 and 2 before the Tribunal, Tribunal has dealt with the said issue in para no. 199 of the Award as under:
"199. The Tribunal is satisfied that Respondent Nos. 1 and 2 have not been denied due process due to their alleged inability to pay fees. The fact of the matter is that Respondent Nos. 1 and 2 were both given ample opportunities to file their witness statements, were represented by counsel, allowed to cross-examine all witnesses and granted postponement of the November hearing dates to suit their convenience and that of their Counsel at various stages of this arbitration. Respondent Nos.1 and 2 enjoyed all of these rights, notwithstanding, failing to bear any part of the expenses of the Tribunal since the appointment of the late Mr. Pradhan and in the case of Respondent No.1 not paying the costs ordered against him for the adjournment of the hearing dates. The Tribunal also notes that the similar objection raised by Respondent Nos. 1 and 2 before the Hon'ble Supreme Court at the hearing held on 18/12/20 did not find any favour with the court.
Accordingly, the Tribunal
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undefined
dismisses the second
jurisdictional objection."
2.21) Respondent nos. 1 and 2 has raised the issue of exorbitant fees determined by the Tribunal comprising of late Mr. Vinayak Pradhan Presiding Officer, Mr. Andre Yeap and late Hon'ble Mr. Justice G.T. Nanavati(retired) members of the Tribunal who have occupied the office with effect from 24.01.2019, by showing inability to pay the fees determined by the Tribunal.
2.22) It is also not in dispute that the Tribunal consisting of Hon'ble Mr. Justice C.K. Thakker (retired), Hon'ble Mr. Justice M.B. Shah(retired), late Hon'ble Mr. Justice G.T. Nanavati(retired) and Hon'ble Mr. Justice J.M. Panchal (retired) had determined the fees much lesser than Page 251 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined what is determined by the Tribunal members who are part of the Tribunal from 24.01.2019 because other members except late Hon'ble Mr. Justice G.T. Nanavati(retired) who have recused themselves from the arbitration proceedings.
2.23) Relevant dates on the decision of issue of exorbitant fees alleged to have been taken by the Tribunal unilaterally as provided by the parties is as under:
Sr. Date Particulars
No.
1. 03.10.17 Order of the Arbitral Tribunal
presided by Justice C.K. Thakker stating the fees of the arbitral proceedings. (See Table) 2 01.02.18 Order of the Arbitral Tribunal presided by Justice M.B. Shah stating the fees of the arbitral proceedings. (See Table) 3 24.01.19 Vinayak Pradhan's Email:
20:26 a.Mr. Vinayak Pradhan gives consent to be Presiding Arbitrator.
b. A Schedule of fees to be paid by parties is also given. (Refer to Table) (Fees are 10 times more than previous fees charged by the Page 252 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal of CK Thakker J and MB Shah J. ) c.If the Payment is not done by one party, then other parties will make payment on behalf of a non-paying party.
d.If the payment is not made on time, Tribunal will suspend/terminate Tribunal.
4 01.02.19 Neerajbhai's Email:
а. I am not in a position to pay more than 50,000 per day. (as paid to earlier Tribunal of CK Thakker J and MB Shah J.) b. Not in a position to bear logistic and transportation expenses.
c. Request made to not accept the assignment.
d. No consent was given.
e. Preference for presiding arbitrator to be appointed by the SC.
Note: Thus the entire fee issue is created because Mr. Atwal (Claimant) forced MB Shah J. to resign by making uncharitable accusations regarding his health, memory etc.
5 04.02.19 Atwal (Nagra's) Email:
16:04 a.Claims that the Party can't agree or disagree to the appointment of the presiding arbitrator when the appointment is done by a co- arbitrator nominated by Neerajbhai.
(Note: objection was due to the charging of 10 times the fees) b. No justification for the lack of financial position.Page 253 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined c. Doubts the inability to pay fees.
d. Trust of the claimant eroded from MB Shah J.
e. The claimant seeks clarification on how much and when to pay the fees.
f. Evidence recorded earlier is part of the record and the newly constituted Tribunal will have the benefit of it.
6 04.02.19 Kamal Jadhwani's Email:
16:10 a.No consent b. Not in a position to afford excessive fees of the Tribunal. Old fees yet to be paid.
c. Mr. Atwal making baseless allegations against Tribunal (retired SC judges) just because the order is not in their favour.
d. Preference for presiding arbitrator to be appointed by the SC.
Note: Thus the entire fee issue is created because Mr. Atwal (Claimant) forced MB Shah J. to resign by making uncharitable accusations regarding his health, memory etc.
7 08.02.19 Gursharan Virk's (Nirajbhai) Email:
a.Two former arbitrators have resigned due to the conduct of the claimant. (This fact is never denied by the claimant) The resignation letter of MB Shah J. must be placed before SC.
8 25.02.19 Vinayak Pradhan's Email:
a. On the objection of fees, suggestions were made to apply the standards of ICC.
b. To the claimant's query, the Page 254 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined reference for parties to deposit should read, claimant forming one party and Mr. Neeraj and Mr. Kamal forming another party. The claimant's obligation will be 50%.
c. Arbitration continues from where it was let off.
9 05.03.19 Atwal (Nagra's) Email:
14.44 a. Claimant is willing to pay entire arbitral fees for his claims.
b. Claimant is not willing qua respondents claim and counterclaim and if respondents fail to pay, their counterclaim cannot be permitted to be adjudicated.
c. Claimant undertakes to pay a 50% deposit as per the schedule.
d. Claimant thanks the arbitral Tribunal for continuing the arbitration from where it was last dropped off.
10 05.03.19 Gursharan Virk's (Nirajbhai) Email:
15:46 a. Repeats the capacity to pay only Rs. 50,000 per day (email dated 01.02.19) b. The suggestion of the claimant to pay Neerajbhai's fees because he is not capable to pay should be rejected.
c. The suggestion is rejected and de hores the arbitration law.
d. Reference was made to the 31.12.18 email where Neerajbhai has requested that the presiding arbitrator be an Indian national, considering the vernacular nature of documents and heavy cost implications.
e. Justice GT Nanavati's email dated 02.01.19 which stated heavy cost Page 255 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined implications of non-indian arbitrator requires consideration.
f. Discharge of cost requested and prayed for urgent hearing of S. 17 Application.
11 26.03.19 Atwal (Nagra's) Email:
12:49 a. Allegations were made against GT Nanavati J. as he supported the draft S. 17 order prepared by MB Shah J.
b. Please issue instructions regarding the payment of arbitral fees.
12 26.04.19 Vinayak Pradhan's Email:
18.23 a. As the respondents don't intend to make payment of fees, the claimant is directed to make the payment of the full amount. (Para 1) b. Counter-claim of Neerajbhai not permitted due to non-payment of fees. (Para 2 & 3).
c. Previously notified fees are finalized. (Para 5) 13 04.05.19 Atwal (Nagra's) Email:
a. Claimant will be paying arbitral fees as per ICC Schedule and in tranches
14 08.05.19 Gursharan Virk's (Nirajbhai) Email:
a. Repeated that Nirajbhai can only pay Rs. 50,000.
b. The affront payment claimed is Rs. 2557000 per arbitrator.
c. Since day one it is informed - no capacity to pay exorbitant fees but ready to make Rs. 50,000 per hearing.
d. Permission was sought to proceed with the counterclaim since the cost Page 256 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined can always be decided under S. 31A at the end.
15 23.05.19 Vinayak Pradhan's Email:
a. In the 05.02.19 email, Tribunal merely stated to consider the ICC scale of fees.
b. Tribunal decided to continue with the fees stated in the 24.01.19 email.
c. Respondents are prohibited from pursuing counterclaims unless they make a deposit.
16 06.06.19 Gursharan Virk's (Nirajbhai) Email:
a. Contents of 05.03.19 email repeated.
b. Originally Vinayak Pradhan Tribunal had proposed if one party fails to make payment, the other party will be called upon to make payment (subject to award).
c. Repeated that Nirajbhai can only pay Rs. 50,000.
d. Unfair to burden Nirajbhai with exorbitant fees and request to reconsider the decision.
17 15.08.19 Vinayak Pradhan's Email:
9:30 a. Fees schedule decided.
b. If the Payment is not done by one party, then other parties will make payment on behalf of the non-paying party.
c. In the event payment is not made on time, Tribunal will suspend or terminate the arbitration.
d. If any party does not make its payment of its share, the Tribunal will stay that party's claim.
Page 257 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined e. The Tribunal is not yet constituted.
f. Hearing to be done in Singapore
18 15.08.19 Gursharan Virk's (Nirajbhai) Email:
15:12 a. Exorbitant fees 15 to 20 times.
b. Do not agree and cannot afford the exorbitant fees c. Objection to the change of venue from Ahmedabad to Singapore d. Repeated that Nirajbhai can only pay Rs. 50,000.
19 19.08.19 Vinayak Pradhan's Email:
a. Hearing at Ahmedabad b. Tribunal is not yet constituted and will be constituted upon deposit.
20 20.08.19 Atwal (Nagra's) Email :
a. The claimant will prove at the time of hearing that Neerajbhai has the capacity to make the payments.
21 21.08.19 Gursharan Virk's (Niraibhai) Email:
a. Repeated that Nirajbhai can only pay Rs. 50,000.
22 30.08.19 Atwal (Nagra's) Email :
a. Claimant has made payment of 1st tranches.
b. A request for a change of dates in light of Diwali
23 19.09.19 Vinayak Pradhan's Email:
a. Hearing at Ahmedabad b. Tribunal is not yet constituted and will be constituted upon deposit.
24 06.10.19 Vinayak Pradhan's Email:
Page 258 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined a. Payment received b. Tribunal is constituted
25 23.10.19 Gursharan Virk's (Nirajbhai) Email:
1. Respondent No. I participate in the Arbitration proceedings without prejudice to seek recourse in accordance with the law as regards the prohibition of the counterclaim as he cannot afford the fees b. Exorbitant Fees point repeated Repeated that Nirajbhai can only pay Rs. 50,000.
26 28.10.2019 Gursharan Virk's (Nirajbhai) Email:
a. Extension of time for filing Affidavit b. On 7.11.19 request is made to hear the issues of counterclaim, Arbitral fees payment etc. c. Respondent No. 1 participate in the Arbitration proceedings without prejudice to seek recourse in accordance with the law as regards the prohibition of the counterclaim as he cannot afford the fees
27 3.11.2019 Gursharan Virk's (Niraibhai) Email:
a. Reference made to an e-mail dated 24.1.19 (Vinayak Pradhans E-mail) laying down exorbitant fees & other conditions b. repeated that Nirajbhai can only pay Rs. 50,000.
c. The claimant is happy to pay exorbitant fees into crores to frustrate Neeraj and Kamalbhai with legal cost.
d. Request for an adjournment for hearings beyond the first session of 08.11.19 28 22.11.2019 Application for cost by Atwal.
Page 259 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 29 29.11.2019 Reply by Nirajbhai to Application of Atwal.
30 05.12.2019 Gursharan Virk's (Nirajbhai) Email:
a. Neerajbhai refuses to give consent for an extension of time and to submit evidence as he does not have money to afford it.
31 23.12.2019 Order of Costs on Nirajbhai by Arbitral Tribunal.
32 15.01.2020 Vinayak Pradhan's Email:
08:14 a.Refers to the application dated PM 07.11.19, 22.11.19 by Nirajbhai.
b. Refers to application 22.11.19 by Kamal Jadhwani.
c. Order of the Tribunal I. The fees of the Tribunal are in line with SIAC or ICC rule, hence not herculean or exorbitant. II The date of the constitution of the Tribunal is something that the parties should ask their counsel and not the Tribunal.
III The issue relating to S. 29A will be answered in the final award.
33 20.01.20 Gursharan Virk's (Nirajbhai) Email:
a. Exorbitant cost point reiterated. b. Without prejudice to his objections, ready to provide a venue and stenographer.
c. By not delivering reasoned order on the point of S. 29A, Tribunal has frustrated Appellant-Neeraj.
34 19.10.20 Atwal (Pranav Vyas) Email :
Neeraj and Kamal have not paid past arbitral fees.
35 23.10.20 Anantham's Email:
a. Niraj is directed to comply with Page 260 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined an order of cost dated 23.12.19. b. If one party doesn't pay his share then the other party will pay subject to recovery from the non- paying party.
2.24) From the above facts, it is apparent that respondent nos. 1 and 2 have never agreed for payment of fees determined by the Tribunal consisting of presiding Officer and members with effect from 24.01.2019 by charging fees which was more than 10 times than the fees fixed previously by the Tribunal.
2.25) Therefore, there being no agreement between the parties, the arbitration proceedings which can go only on basis of "party autonomy" would be invalid and without jurisdiction and in conflict with the public policy as the arbitrators could not have unilaterally Page 261 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined revised their fees and such a decision would not bind respondent no.1 and 2.
2.26) In case of Oil and Natural Gas Corporation v. Afcons Cunanusa JV reported in 2022 SCC Online SC 1122, the Hon'ble Supreme Court by majority decision on the issue of fees payable to arbitrator has held as under:
"(viii) Summary 68 Although there are jurisdictional differences, the following broad principles emerge from our discussion above:
(i) Typically, the fees payable to arbitrator(s) are determined through an agreement between the parties (of which the arbitrator(s) become aware of when they take up the assignment) or a separate agreement of the parties with the arbitrator(s). The arbitrator(s) then become bound by such contractually agreed fees;
and
(ii) Certain arbitration legislations give the Page 262 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitrator(s) effective power to determine their own fees, typically when there is an absence of agreement between the parties on the subject. However, such determination of fees is subject to review by the courts who can reduce the fees if they are not reasonable.
69. Thus, arbitrator(s) do not possess an absolute or unilateral power to determine their own fees.
Parties are involved in determining the fees of the arbitrator(s) in some form. It could be by: (i) determining the fees at the threshold in the arbitration agreement; or (ii) negotiating with the arbitrators when the dispute arises regarding the fees that are payable; or
(iii) by challenging the fees determined by the tribunal before a court.
C.2 Statutory scheme on payment of fees to arbitrators in India C.2.1 Party autonomy 70 Party autonomy is a cardinal principle of arbitration. The arbitration agreement constitutes the foundation of the arbitral process. The arbitral tribunal is required to conduct the arbitration according to the procedure agreed by the parties.
Page 263 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined The procedure may stipulate adherence to institutional rules or ad hoc rules or a combination of both. Redfern and Hunter on International Commercial Arbitration (supra) compares arbitration to a ship, highlighting the extent of control parties exercise over arbitral proceedings: ― In some respects, an international arbitration is like a ship. An arbitration may be said to be owned by the parties, just as a ship is owned by shipowners. But the ship is under the day-to-day command of the captain, to whom the owners hand control. The owners may dismiss the captain if they wish and hire a replacement, but there will always be someone on board who is in command (5) -- and, behind the captain, there will always be someone with ultimate control.
71. The leading treatise on international commercial arbitration further notes that the principle of party autonomy is entrenched in the international and national regimes on arbitration: ― Party autonomy is the guiding principle in determining the procedure to be followed in an international arbitration. It is a Page 264 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined principle that is endorsed not only in national laws, but also by international arbitral institutions worldwide, as well as by international instruments such as the New York Convention and the Model Law. The legislative history of the Model Law shows that the principle was adopted without opposition, (7) and Article 19(1) of the Model Law itself provides that: 'Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.' This principle follows Article 2 of the 1923 Geneva Protocol, which provides that [t]he arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties ...', and Article V(1)(d) of the New York Convention, under which recognition and enforcement of a foreign arbitral award may be refused if the arbitral procedure was not in accordance with the agreement of the parties'.
72 The Arbitration Act recognises the principle of party autonomy in various provisions. It allows the parties to derogate from the provisions of the Act on certain matters. Several provisions of the Arbitration Act explicitly embody the principle of party autonomy.
Page 265 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Section 2(6)107 of the Arbitration Act provides that parties have the freedom to authorise any person, including an arbitral institution, to determine the issue between them. Section 19(2)108 provides that the parties are free to choose the procedure to be followed for the conduct of arbitral proceedings. Section 11(2)109 provides that parties are free to decide on the procedure for the appointment of arbitrators. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, this Court observed that party autonomy is the ―brooding and guiding spirit of arbitration. In Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd111, this Court referred to party autonomy as the backbone of arbitration.
73 Having spelt out party autonomy as the cardinal principle of arbitration in India, in the sections which follow we analyse how provisions relating to the payment of fees to arbitrators have to be interpreted in light of this principle."
2.27 Hon'ble Apex Court thereafter, analysing Fourth Schedule and regulation of arbitrator's fees summarised as under:
Page 266 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "86. Based on the above discussion, we summarise the position as follows:
(i) In terms of the decision of this Court in Gayatri Jhansi Roadways Ltd (supra) and the cardinal principle of party autonomy, the Fourth Schedule is not mandatory and it is open to parties by their agreement to specify the fees payable to the arbitrator(s) or the modalities for determination of arbitrators' fees; and
(ii) Since most High Courts have not framed rules for determining arbitrators' fees, taking into consideration Fourth Schedule of the Arbitration Act, the Fourth Schedule is by itself not mandatory on court-appointed arbitrators in the absence of rules framed by the concerned High Court. Moreover, the Fourth Schedule is not applicable to international commercial arbitrations and arbitrations where the parties have agreed that the fees are to be determined in accordance with rules of arbitral institutions. The failure of many High Courts to notify the rules has led to a situation where the purpose of introducing the Fourth Schedule and sub-Section (14) to Section 11 has been rendered Page 267 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined nugatory, and the court-appointed arbitrator(s) are continuing to impose unilateral and arbitrary fees on parties. As we have discussed in Section C.2.1, such a unilateral fixation of fees goes against the principle of party autonomy which is central to the resolution of disputes through arbitration. Further, there is no enabling provision under the Arbitration Act empowering the arbitrator(s) to unilaterally issue a binding or enforceable order regarding their fees. This is discussed in Section C.2.3 of this judgement. Hence, this Court would be issuing certain directives for fixing of fees in ad hoc arbitrations where arbitrators are appointed by courts in Section C.2.4 of this judgement."
2.28) After analysing the provisions of section 31, 38 and 39 of the Act, the Apex Court held as under:
"124 We believe that the directives proposed by the amicus curiae, with suitable modifications, would be useful in structuring how these preliminary hearings are to be conducted. Exercising our powers conferred under Article 142 of the Page 268 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Constitution, we direct the adoption of the following guidelines for the conduct of ad hoc arbitrations in India: ―
1. Upon the constitution of the arbitral tribunal, the parties and the arbitral tribunal shall hold preliminary hearings with a maximum cap of four hearings amongst themselves to finalise the terms of reference (the ―Terms of Reference) of the arbitral tribunal. The arbitral tribunal must set out the components of its fee in the Terms of Reference which would serve as a tripartite agreement between the parties and the arbitral tribunal.
2. In cases where the arbitrator(s) are appointed by parties in the manner set out in the arbitration agreement, the fees payable to the arbitrators would be in accordance with the arbitration agreement. However, if the arbitral tribunal considers that the fee stipulated in the arbitration agreement is unacceptable, the fee proposed by the arbitral tribunal must be indicated with clarity in the course of the preliminary hearings in accordance with these directives. In the preliminary hearings, if all the parties and the arbitral tribunal agree to a Page 269 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined revised fee, then that fee would be payable to the arbitrator(s). However, if any of the parties raises an objection to the fee proposed by the arbitrator(s) and no consensus can be arrived at between such a party and the tribunal or a member of the tribunal, then the tribunal or the member of the tribunal should decline the assignment.
3. Once the Terms of Reference have been finalised and issued, it would not be open for the arbitral tribunal to vary either the fee fixed or the heads under which the fee may be charged.
4. The parties and the arbitral tribunal may make a carve out in the Terms of Reference during the preliminary hearings that the fee fixed therein may be revised upon completion of a specific number of sittings. The quantum of revision and the stage at which such revision would take place must be clearly specified. The parties and the arbitral tribunal may hold another meeting at the stage specified for revision to ascertain the additional number of sittings that may be required for the final adjudication of the dispute which number may then be incorporated in the Terms of Reference as an additional term.Page 270 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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5. In cases where the arbitrator(s) are appointed by the Court, the order of the Court should expressly stipulate the fee that arbitral tribunal would be entitled to charge. However, where the Court leaves this determination to the arbitral tribunal in its appointment order, the arbitral tribunal and the parties should agree upon the Terms of Reference as specified in the manner set out in draft practice direction (1) above.
6. There can be no unilateral deviation from the Terms of Reference. The Terms of Reference being a tripartite agreement between the parties and the arbitral tribunal, any amendments, revisions, additions or modifications may only be made to them with the consent of the parties.
7. All High Courts shall frame the rules governing arbitrators' fees for the purposes of Section 11(14) of the Arbitration and Conciliation Act, 1996.
8. The Fourth Schedule was lastly revised in the year 2016. The fee structure contained in the Fourth Schedule cannot be static and deserves to be revised Page 271 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined periodically. We, therefore, direct the Union of India to suitably modify the fee structure contained in the Fourth Schedule and continue to do so at least once in a period of three years."
2.29) From the above dictum of law, following conclusions and findings were recorded by the Apex Court :
"G Conclusion G.1 Findings 200 We answer the issues raised in this batch of cases in the following terms:
(i) Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.
However, the arbitral tribunal has the discretion to apportion the costs (including arbitrators' fee and expenses) between the parties Page 272 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators' fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2);
(ii) Since this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage, this Court has issued certain directives to govern proceedings in ad hoc arbitrations in Section C.2.4;
(iii)The term ―sum in dispute in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter- claim separately, and not Page 273 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined cumulatively. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth schedule has been made applicable to the ad hoc arbitration;
(iv)The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000; and
(v) This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule.
G.2 Directions 201 We issue the following directions in each of the cases before this Court:
(i) In respect of Arbitration Page 274 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Petition (Civil) No 5 of 2022, a fee schedule for the arbitrators was already prescribed in the LSTK contract. However, during the preliminary meeting on 25 November 2015, the arbitral tribunal observed that the fee schedule in the LSTK contract was unrealistic.
While Afcons agreed to revise the fees, ONGC expressed its disagreement. The tribunal directed ONGC to consider revising the fees. On 16 April 2016, the arbitral tribunal informed ONGC that it would no longer bargain on the amount of fees if ONGC was agreeable to the fee provided in the Fourth Schedule to the Arbitration Act, along with a reading fee of Rs 6 lakhs for each arbitrator. By its letter dated 22 April 2016, ONGC indicated that it was agreeable to revising the fees in terms of the Fourth Schedule. It only objected to the reading fee. Subsequently, the arbitral tribunal passed a procedural order dated 4 August 2016 directing the parties to deposit 25 per cent of the arbitrators' fee, which was recorded as Rs 30 lakhs. It seems a ceiling of Rs 30 lakhs was determined following the Fourth Schedule to the Arbitration Act. However, the arbitral tribunal then unilaterally decided to revise the fees and passed a procedural order fixing a fee of Page 275 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Rs 1.5 lakhs for each arbitrator for every sitting of a three-hour duration. The tribunal also indicated it may also charge a reading or conference fee, which would be decided at a later stage. By an order dated 25 July 2019, the arbitral tribunal adjusted its fees to Rs 1 lakh per sitting. Around 54 sittings have been held in terms of the arbitral tribunal's order dated 25 July 2019. In this background, it is evident that there was no consensus between the parties and the arbitrators regarding the fee that is to be paid to the members of the arbitral tribunal. Allowing the continuance of the arbitral tribunal would mean foisting a fee upon the parties and the arbitral tribunal to which they are not agreeable. In view of our directives in Section C.2.4 and the facts noted earlier, we exercise our powers under Article 142 of the Constitution of India and direct the constitution of a new arbitral tribunal in accordance with the arbitration agreement. For this purpose, Arbitration Petition (C) No. 5 of 2022 would be listed for directions before this Court on 21 September 2022. The above directions should not be construed as a finding on the conduct of the arbitration proceedings. These Page 276 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined directions are an attempt to ensure that the arbitral proceedings are conducted without rancour which may derail the proceedings. In consonance with our findings, the fee payable to the earlier arbitral tribunal would be the fee payable in terms of the Fourth Schedule of the Arbitration Act. Though the Fourth Schedule is per se not applicable to an international commercial arbitration, since ONGC had indicated (following the suggestion of the arbitral tribunal) that it would be agreeable to pay the fee payable in terms of Schedule, it cannot now take recourse to the arbitration agreement between the parties to pay a lesser fee. We further clarify that if the fee in excess of the amount payable under the Fourth Schedule has been paid to the members of the arbitral tribunal, such amount will not be recovered from them;
(ii) The civil appeal arising out of Special Leave Petition (Civil) No 13426 of 2021 is dismissed and the judgment of the Single Judge of the Delhi High Court dated 6 August 2021 is upheld;
(iii)The civil appeal arising out of Special Leave Petition (Civil) No 10358 of 2020 is allowed and Page 277 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the judgment of the Single Judge of the Delhi High Court dated 10 July 2020 is set aside; and
(iv) Miscellaneous Application Nos 1990-1991 of 2019 are dismissed."
2.30) Thus, in view of above decision of Hon'ble Apex Court on the principle of "party autonomy", Arbitral Tribunal in facts of the case could not have insisted upon respondent no.1 and 2 to pay the fees fixed by it apparently more than 10 times than what was fixed by the Arbitral Tribunal at the inception of the arbitral proceedings. Merely because members of the Tribunal have been replaced by the parties and two members are situated out of India, Tribunal could not have unilaterally increased the fees with the consent of the claimant only ignoring the repeated objections of respondent nos. 1 and 2.
Page 278 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 2.31) On perusal of the findings given by the Tribunal on the issue of exorbitant fees, it is clear that Tribunal has not addressed any of the issues raised by respondent nos. 1 and 2 and summarily findings are given by referring to order dated 18.12.2020 which is reproduced here in above. On perusal of the order dated 18.12.2020, it nowhere addresses the issue of exorbitant fees raised by the respondent no.1 and 2.
2.32) Therefore, as held by the Apex Court in case of Oil and Natural Gas Corporation v. Afcons Cunanusa JV(supra), Tribunal ought not to have proceeded with the arbitral proceedings only on consent of claimant to pay the fees by justifying the fees as per ICC standards which was Page 279 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined not acceptable to respondent nos.1 and 2.
Tribunal therefore, ought to have accorded greater deference to "party autonomy" when respondent no.1 and 2 have denied and refused to pay the fees as determined, then the Tribunal could not have recovered the fees from the claimant as it would amount to unilateral fixation of fees which goes against the principle of "party autonomy" which is central to the resolution of the dispute through arbitration, more particularly, when there is no enabling provision under the Act empowering the arbitrator to unilaterally issue a binding or enforceable order regarding their fees. Therefore, the order passed by the Tribunal compelling respondent nos. 1 and 2 to pay the fees determined by it is contrary to the Page 280 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined principle of "party autonomy".
2.33) The Hon'ble Supreme Court in case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services reported in (2016) 4 SCC 126 wherein it is stipulated that "party autonomy is the brooding and guiding spirit of arbitration" where as in case of Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. reported in (2017) 2 SCC 228, the Apex Court referred to "party autonomy" as backbone of arbitration.
2.34) In view of above settled legal position and considering the facts of the case, Tribunal would not have assumed jurisdiction to continue the arbitration proceedings.
Page 281 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 2.35) It is therefore, concluded that the Tribunal had no jurisdiction to continue the proceedings after the reconstituted Tribunal determined the charges of fees which is exorbitant and opposed by respondent nos. 1 and 2 being violative of principle of "party autonomy". Tribunal has therefore, lost the mandate to adjudicate the claim of the claimant. Tribunal could not have compelled respondent nos. 1 and 2 to continue with the arbitration proceedings by not deciding the application dated 20.2.2020 filed by respondent no.2 under sections 12 and 13 of the Act and by not permitting respondent nos.1 and 2 to lead evidence and file counter claim. Tribunal has also failed to adjudicate the counter claim filed by respondent nos.1 and 2 Page 282 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined inspite of receiving entire fees from claimant.
2.36) Thus it is apparent that the arbitrators have acted with bias and prejudice by unilaterally fixing the fees to which the claimant readily agreed but respondent nos. 1 and 2 objected the same which is obvious from the events which have taken place during the arbitration proceedings.
2.37) This issue is therefore, answered in favour of respondent no.1 and 2.
3) Whether the Tribunal could have denied the respondent no.1 and 2 to lead evidence and file counter claims in violation of principle of natural justice?
Page 283 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
3.1) Learned Senior Advocate Mr. Soparkar submitted that because of the following reasons, respondent no.2 Neeraj was unable to present his case properly resulting into violation of principles of natural justice:
"10.1.1 Email dated 08.11.2020 flagging health issue of R-1 (Heath related document see CC- 4@312) for hearing of the 4th Tribunal commencing from 09.11.2020. (Award-Para 43).
10.1.2 On 09.11.2020 Ms. Miraaj Shah (Daughter of R-1) appeared in arbitration on the ground of ill health of R-1 in Arbitration proceedings.
10.1.3 Pandemic was going on & the Supreme Court had stopped the period of limitation & the courts across the country were working in virtual mode for urgent matters. In spite of this, Arbitration was proceeded with haste & hurry & cross-examination was made to be Page 284 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined done in virtual mode & award came to be passed.
10.1.4 On 10.12.2020 Shreyas Jaysimha appeared as new advocate for R-1 in less than one month's time for cross examination and final hearing of bulkey records of 26K pages."
3.2) It was therefore, submitted that entire award in view of facts emerging from record is without jurisdiction as there is inherent lack of jurisdiction as the very appointment of arbitrator is in violation of "party autonomy" which goes to the root of the matter and the entire award is therefore, nullity. It was further submitted that in view of multiple applications, petitions, emails, oral and written submissions for defects of jurisdiction of the Tribunal under section 29A, unilateral decision of charging Page 285 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined exorbitant fees were placed before the Tribunal. The Tribunal therefore, in such applications of unilateral exorbitant fees in the issue of jurisdiction under section 29A of the Act can be considered under section 13 (leading to bias) or section 16 (inherent lack of jurisdiction for violation of party autonomy) and in either cases, the petitioner was required to challenge the said decision under section 34 of the Act only. Reliance was placed on the decision of Hon'ble Supreme Court in case of Waverly Jute Mills reported in (1963) 3 SCR 209.
3.3) Learned Senior Advocate Mr. Sopakar submitted that following clauses of section 34 of the Act would be attracted for setting aside the award :
"11.2.1 S. 34(2)(a)(iii) -Page 286 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Violation of natural justice for following reasons:
a. as consent of 9 months was sought for taking evidence on record.
b. Counter claim were not decided. Additionally, as claimant said so.
c. Dates were conveniently changed for Claimant but not for Petitioner-Neeraj.
d. Taking up the assignment by quoting exorbitant unilateral fees without consent of Petitioner- Neeraj & Petitioner Kamal.
e. That this Court called for the seal cover record, but only electronic drive submitted by the Ld. Arbitrators. Therein also entire record of s. 17 and other documents were missing.
11.2.2 S. 34(2)(b)(i) - Serious Fraud is outside the purview of arbitration.
11.2.3 S. 34(2)(b)(ii)- Public Policy of Indian Law:
a. Fundamental Policy of Indian Law i. violation of mandatory provisions including 29A Page 287 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined ii. violation of party autonomy for unilateral exorbitant fees b. Justice(Shocks the conscious of the Court) i. The individual violation as set out above as well as all the violations in sum of all of them together shocks the conscious of a reasonable man."
3.4) It was therefore, submitted that the decisions relied upon by the respondent would not be applicable as the case of the petitioner is argued within scope and ambit of section 34 of the Act.
3.5) Learned Senior Advocate Mr. Soparkar submitted that the Tribunal has also committed an error by continuing the proceedings after having received full fees from the claimant without adjudicating the counter claim filed by the respondent nos. 1 and 2 only because Page 288 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the said respondents did not pay the fees.
It was submitted that the fees fixed by the Tribunal was per hearing per day and not per claim. It was therefore, submitted that the Tribunal was bound to decide the counter claim filed by the respondent nos.1 and 2.
Submissions of claimant:
3.6) It was submitted that the objection raised by the petitioner that principles of natural justice were violated since consent was sought by the Arbitral Tribunal from the Petitioners to a nine-month extension for issuing the Award as a precondition for taking their evidence on record is also factually misleading and the Arbitral Award categorically records in paragraphs 44 to Page 289 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 47, the entire factual matrix which led to closure of the petitioners' right to lead evidence in the arbitration. It was therefore, submitted that petition deserves to be dismissed in limine.
3.7) With regard to non-consideration of the Counter-Claims, it was submitted by learned advocate for the claimant that the Act considers claims and counter-claims to be independent proceedings, since the latter is not contingent upon the former.
Reliance in this regard is placed on the observations made in para 168 by the Hon'ble Supreme Court in the aforesaid ONGC Judgment which reads as under:
"168 On our analysis of the statutory framework of the Arbitration Act and the CPC, related academic discourse and judicial pronouncements, the Page 290 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined following conclusions emerge:
(i) Claims and counter-claims are independent and distinct proceedings;
(ii) A counter-claim is not a defence to a claim and its outcome is not contingent on the outcome of the claim;
(iii)Counter-claims are independent claims which could have been raised in separate proceedings but are permitted to be raised in the same proceeding as a claim to avoid a multiplicity of proceedings; and
(iv)The dismissal of proceedings in relation to the original claim does not affect the proceedings in relation to the counter-claim."
3.8) It was submitted that in the present case, vide the arbitral award, the Arbitral Tribunal has adjudicated only the claims submitted by the respondent -
Claimant, and for doing so, enough opportunities were granted to the petitioners for countering the same, as well as their defence has also been taken Page 291 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined into consideration and merely because the Respondent Claimant deposited full fees, including the share of the petitioners in respect of their claim, the Arbitral Tribunal is not bound in law to adjudicate upon the Petitioners' Counter-Claim.
3.9) It was further submitted that in the present case, the fees of the Arbitral Tribunal was fixed on per hearing and per hour basis, and hence, as the Counter Claim filed by the petitioners were not adjudicated, neither any hearing fees or reading fees is being charged nor has been paid by any party and therefore, in absence of there being any payment for the adjudication of the Counter-Claim, there arises no question of considering the same.
Page 292 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 3.10) It was further submitted that it is a matter of record that, while the Original Claimant, the Respondent herein, had indicated his willingness to pay the entire arbitral fee in respect of his fees, he had expressed reservations in paying the petitioners' share of fee if all the claims and counterclaims were to be adjudicated as is evident from the email dated 05.03.2019 from the Counsel of the Respondent to the Presiding Arbitrator and the Counsel for the Petitioners marking all parties.
3.11) It was submitted that even the Arbitral Tribunal categorically stated that if the petitioner wished to raise any counterclaims, he would have to pay the required deposits which would be separately assessed and notified.
Page 293 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 3.12) It was therefore, submitted that the action of Arbitral Tribunal in not deciding counter claim of the petitioners can never be a ground to challenge the Award, which has adjudicated only upon the claim of the Respondent - Claimant, since claim and counter claim are independent of each other.
Reasons and Findings:
3.13) This issue pertains to not granting of opportunity of leading evidence by respondent nos. 1 and 2 and also rejection of respective counter claims by the Tribunal apparently for not paying fees unilaterally determined by the Tribunal and agreed by the claimant. The Tribunal could not have non-suited respondent nos.1 and 2 for non payment of Page 294 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fees by refusing to entertain the counter claim on accepting the fees from claimant on condition of not to adjudicate the counter claim which shows only bias on the part of the Tribunal. The Hon'ble Supreme Court in case of ONGC v. Afcons Gunanusa JV (supra) in para no. 123 quoted here in above has held that the disputes raised with regard to the fees payable to the Arbitral Tribunal must be settled between the Tribunal and the parties at the threshold during the course of preliminary hearing, failing which, the arbitrators who decline to accept the fees suggested by the parties are at liberty to decline the assignment.
3.14) In the facts of the case, it is apparent that the Arbitral Tribunal has fixed the fees as agreed by the claimant Page 295 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined only and thereby severe grievance is raised by respondent nos. 1 and 2 that the arbitrators have arm twisted by not permitting to lead evidence and rejecting the counter claims on the ground of not agreeing to pay the fees as determined by the reconstituted Tribunal with effect from 24.01.2019 has resulted into the apprehension canvassed by respondent nos.
1 and 2 of consequences bearing on substance of the dispute. Hon'ble Apex Court has in no uncertain terms held that if no consensus can be arrived at between the parties and Tribunal or members of the Tribunal should decline the assignment, whereas in the facts of the case Tribunal has continued with Arbitral proceedings ignoring the repeated objections raised by respondent nos. 1 and 2 with regard to the Page 296 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined exorbitant fees determined by the Tribunal. In such circumstances, Tribunal could not have rejected the counter claim of respondent nos.1 and 2 by agreeing to the conditions stipulated by the claimant.
3.15) Reliance placed on behalf of claimant on para no. 168 of the judgment in case of ONGC v/s. Afcons Gunanusa JV (supra) that claim and counter claims are independent, in the facts of the case, the fees fixed by the Tribunal was common for the entire proceedings and therefore, Tribunal could not have rejected the counter claims filed by respondent nos. 1 and 2 under the guise of enough opportunities being granted to the respondent nos. 1 and 2 to submit their evidence and counter claim. The Tribunal could not have continued with the Page 297 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitration proceedings on payment of fees by the claimant on condition of not to entertain the counter claim. Tribunal therefore, has literally arm-twisted respondent nos. 1 and 2 that if they want to raise any counter claim, they would have to deposit the required fees.
Therefore, the contention of the claimant that the action of Tribunal in not deciding the counter claims can never be a ground to challenge the award, is misplaced as the Tribunal ought to have permitted the respondent nos. 1 and 2 to raise counter claims and lead evidence while adjudicating the claims.
3.16) The issue is therefore, answered in favour of respondent nos.1 and 2 (petitioners).
Page 298 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
4) Whether the provisions of sections 12 and 13 of the Arbitration and Conciliation Act, 1996 are violated in arbitration proceedings?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
4.1) Learned Senior Advocate Mr. Soparkar submitted that the members of the Tribunal have violated the provisions of sections 12 and 13 of the Act inasmuch as mandatory disclosure under section 12(1) of the Act was not made. It was submitted that reliance placed by the claimant on the decisions is not applicable as section 12 and other provisions have been amended by the amendment made in the Act in the year 2015. The Tribunal therefore, was required to pass the order upon the Page 299 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined application filed under sections 12 and 13 by the respondent nos. 1 and 2 and reliance placed by the claimant on the transcript to show the decision, cannot be said to be a decision in eye of law in absence of any written order passed by the Tribunal deciding the application. It was pointed out that the reference made to the Supreme Court order in the transcript is also misplaced as the Hon'ble Supreme Court did not decide the issue with regard to jurisdiction of the Tribunal at any point of time. The discussion in transcript only refers to the submissions of the lawyers of the claimant on interpretation of the order of Hon'ble Supreme Court and not the order.
4.2) It was therefore, submitted that Supreme Court has only affirmed the Page 300 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined decision of High Court wherein High Court refused to entertain the writ. It was therefore, submitted that even otherwise the rejection of the application under sections 12, 13(4) and 13(5), the respondent nos. 1 and 2 has only recourse to section 34 of the Act as per the decision of Hon'ble Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited(Formerly Gas Authority of India Limited) reported in (2018) 12 SCC 471, wherein it is held as under:
"(13) After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become "ineligible" to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls Page 301 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground.
As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrator's independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section
13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the Page 302 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal."
4.3) Learned Senior Advocate Mr. Soparkar also pointed out that section 12(1) of the Act assumes significance as one of the arbitrators, Mr. Andre Yeap received fees in account of law firm unlike others and mandatory declaration Page 303 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined as provided under section 12(1) of the Act was not given and therefore, the entire arbitral proceedings have been jeopardised.
4.4) It was further submitted that the provisions of section 11,12,13,15,18,29A and 28(3) of the Act are non derogable provisions and are mandatory. Therefore, the principle of waiver would not apply to such provisions. Reliance was placed on decision in case of Jayesh H. Pandya reported in (2020) 17 SCC 383 wherein it is held that waiver is an intentional relinquishment of right. Respondent claimant could not have contended that there is waiver for the period of limitation for arbitration.
Page 304 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Submissions of learned advocate Mr. Masoom Shah for the petitioner-respondent no.2:
4.5) Learned advocate Mr. Masoom Shah further submitted that arbitration clause does not apply to ex-partners. It was submitted that Mr. Neeraj Shah was expelled from C2R LLP on 25.10.2016 and arbitration was invoked by the claimant based on old LLP agreement. It was submitted that clause 35 of the agreement deals only with the partners and the definition of the partners in the agreement does not contain ex-partner.
4.6) Learned advocate thereafter referring to various dates made his submission about novation of arbitration agreement. It was submitted that C2R LLP was formed on 10.02.2015. On 27.02.2015 through addendum, the claimant was Page 305 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined inducted in C2R LLP. The original LLP Agreement was novated on 26.10.2016 wherein Mr. Neeraj Shah was not a party to the new LLP agreement. Thereafter, on 10.11.2016, arbitration was invoked by the claimant based on old LLP agreement.
4.7) It was submitted that new LLP agreement had no arbitration clause and as on the date of invocation of the arbitration clause of the old LLP Agreement, the old LLP agreement itself was replaced by the new LLP agreement.
Reliance was placed on the decision in case of Young Achievers v. IMS Learning Resources Private Limited reported in (2013) 10 SCC 535, wherein it is held as under:
"4. Mr. Sai Krishna Rajgopal, learned counsel appearing for the respondent placing reliance on the Page 306 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined detailed counter affidavit filed on behalf of the respondent submitted that the arbitration clause in the agreements dated 01.04.2007 and 01.04.2010 cannot be invoked since both the above- mentioned agreements were superseded and abrogated by the new agreement dated 01.02.2011. Learned counsel also submitted that in the new agreement it was mutually decided by the parties that any violation of the respondent's trade mark IMS would entitle the respondent to take legal recourse against the appellant. Reference was made to clause 4 of the penultimate paragraph of the new agreement dated 01.02.2011. Learned counsel also submitted that Suit No. CS (OS) 2316 of 2011 was based on prior trade mark rights and not on the agreements dated 01.04.2007 and 01.04.2010. Further it was also pointed out that the new agreement dated 01.02.2011 records the mutual agreement between the parties that the appellant shall not be eligible to use -the trade mark IMS in any form and any breach thereof entitles respondent to seek legal recourse on violation of trade mark IMS.
5. We are of the view that survival of the arbitration clause, as sought by the appellant in the agreements dated 01.04.2007 Page 307 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined and 01.04.2010 has to be seen in the light of the terms and conditions of the new agreement dated 01.02.2011. An arbitration clause in an agreement cannot survive if the agreement containing arbitration clause has been superseded/novated by a later agreement. The agreement dated 01.04.2010 contained the following arbitration clause:
"20. Arbitration All disputes and questions whatsoever which may arise, either during the substance of this agreement or afterwards, between the parties shall be referred to the arbitration of trhe managing director of IMS Learning Resources Pvt. Ltd. Or his nominee and such arbitration shall be in the English language at Mumbai. The arbitration shall be governed by the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification or re-enactment thereof for the time being in force and award or awards of such arbitrator shall be binding on all the parties to the said dispute."
6. We have now to examine terms of the subsequent agreement titled "Exit paper" dated 01.02.2011. It is the common case of the parties that the Exit paper/agreement entered into -between the parties Page 308 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined does not contain any arbitration clause. It is useful to extract the relevant portion of the Exit paper, which is as follow:
"With reference to your mail/letter dated 1st February, 2011 on closing the center, from the aforesaid date with mutual consent we have agreed on the following:
"1. Enrolled students All enrolled students of IMS with you will be serviced by you with respect to their classes, workshops and conduct of test series, GD/PI and any other servicing required as per the product manual.
2. Premises IMS will reserve the first right of utilization to occupy the premises. In an eventuality of IMS exercising the right to use the premises, then IMS will reimburse the monthly rent for the corresponding months before changing the rental agreement onto IMS name.
3. Marketing From the above-mentioned date you are not eligible to do any marketing and promotional activities in the name of IMS.
4. Brand "From the above-mentioned date you Page 309 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined are not eligible to use IMS brand in any form.
5. Monthly claims The partner abides to deposit all the course fees collected for any of IMS programs till now as per the deposit policy of IMS. All monthly claims will be settled till 31st January, 2011 and the claims would be - released after the date of termination of the partner agreement.
6. Security Deposit The security deposit amount will be refunded back to you after the completion of servicing of all enrolled IMS students. In case of any due on partner to the company (unsettled fees, loan or advance for centre activities etc.), same amount will be deducted from the security deposit.
7. Non Compete Clause The partner has averred that neither he, nor his family members are directly or indirectly interested in any business in direct competition with that of IMS and the partner agrees and undertakes to ensure that neither he nor his family members shall be involved in or connected to any business in direct competition with that of IMS at any time during the currency of this agreement and for a further period Page 310 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of six months therafter.
8. Full and final settlement I/We accept all the above- mentioned points and confirm that upon receipt of the sum stated hereinafter in full and final settlement of all my/our claims, neither me/we nor any person claiming by or through me/us shall have any further claims against IMS whatsoever.
Any violation of points 1,3,4,5 &
7 from the partner's end will attract legal course of action and penalties from IMS ranging from forfeiture of the security deposit & pending claims.
I hereby accept above terms and conditions."
7. Exit paper would clearly indicate that it is a mutually agreed document containing comprehensive terms and conditions which -admittedly does not contain an arbitration clause. We are of the view that the High Court is right in taking the view that in the case on hand, is not a case involving assertion by the respondent of accord a satisfaction in respect of the earlier contracts dated 01.04.2007 and 01.04.2010. If that be so, it could have referred to arbitrator in terms of those two agreements going by the dictum in Union of India v. Kishorilal Gupta and Page 311 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Bros., 1959 AIR(SC) 1362. This Court in Kishorilal Gupta's case examined the question whether an arbitration clause can be invoked in the case of a dispute under a superseded contract. The principle laid down is that if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it. But where the dispute is whether such contract is void ab intio, the arbitration clause cannot operate on those disputes, for its operative force depends upon the existence of the contract and its validity. The various other observations were made by this Court in the above-mentioned judgment in respect of "settlement of disputes arising under the original contract, including the dispute as to the breach of the contract and its consequences". Principle laid down by the House of Lords in Heyman v. Darwins Limited, 1942 1 AllER 337 was also relied on by this Court for its conclusion. The Collective bargaining principle laid down by the US Supreme Court in Nolde Bros. case would not apply to the facts of the present case."
4.8) It was further submitted that in the present case arbitration has been Page 312 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined initiated against Mr. Neeraj Shah who is no longer bound by arbitration clause.
4.9) Learned advocate Mr. Masoom Shah further submitted that there was non disclosure by the arbitrators under section 12 of the Act which is mandatory.
It was submitted that unilateral determination of exorbitant fees despite objections by the appellants led to unilateral appointment of an arbitrator and non-disclosure under section 12 is fatal to their appointment and non-est in law. Reliance was placed on the decision in case of Ram Kumar v. Shriram Transport Finance Co. Ltd. reported in 2022 SCC Online Del 4268.
Submissions of claimant:
4.10) With regard to applications filed Page 313 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined under sections 12 and 13 of the Act, it was submitted that the petitioner Mr. Neeraj K. Shah had never filed any such application and on the contrary, the learned advocate appearing on his behalf, had categorically stated that he will not make any submissions under Sections 12 and 13 before the Arbitral Tribunal and insofar as the application dated 01.02.2020 of petitioner No.2 Mr. Kamal Jadhwani is concerned, there is a decision dated 19.12.2020 of Arbitral Tribunal. It was further submitted that these allegations related to unilateral fixation of fees or subsequent unilateral enhancement do not fall under Sections 12 and 13 of the Act, which encompasses only grounds relatable to the guidance provided by Fifth Schedule to the Act and Page 314 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined therefore, the applications of the petitioners under Sections 12 and 13 of the Act were incompetent and hence, no question arises for bringing in Section 34 of the Act in picture [as provided under Section 13(5) of Act), for challenging the Award in question on that ground.
4.11) With regard to objection of non-
filing of declaration under Section 12(5) of the Act, it was submitted that the declaration by the Arbitrator under Section 12(5) of the Act has been raised for the first time directly before this Court under Section 34 of the Act and was never raised before and in fact the petitioners, by their own conduct of not raising such objection at the appropriate time and more particularly, by participating in the arbitration Page 315 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined proceedings, have waived their respective rights of raising the said issue, as provided under Section 4 of the Act.
4.12) Learned advocate for the claimant submitted that the legislature has cautiously inserted the proviso only to sub-section(5) of section 12 and not to the entire section and hence, the provisions of Section 12(1) of the Act are derogable and non-compliance of the same, would not make the award illegal. Reliance was placed on the decision of Delhi High Court in case of NTPC vs. Wig Brothers reported in (2009) SCC OnLine Del 91 and in case of Narayan Lohia vs. Nikunj Lohia reported in (2002) 3 SCC 572.
Reasons and Findings:
4.13) Sections 12 and 13 of the Act Page 316 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined provides for grounds of challenge, appointment of arbitrator and procedure for the same. From the facts of the case, it is apparent that respondent no.1 never filed any application, whereas on application under sections 12 and 13 of the Act and application filed by respondent no.2, Tribunal has decided the same by order dated 18.12.2020. Moreover, contention of respondent no.2 raising allegations relating to unilateral fixation of fees and subsequent unilateral enhancement would not fall within sections 12 and 13 of the Act.
4.14) As per section 12, ground of challenge would only be as per 5th Schedule to the Act. Therefore, admittedly application filed by respondent no.2 under sections 12 and 13 of the Act was not Page 317 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined competent so as to invoke the provisions of section 34 of the Act as provided in section 13(5) of the Act for challenging the award in question on that ground.
4.15) Contention of the claimant that appropriate remedy against unilateral fixation of fees or enhancement of fees by the Arbitral Tribunal is by way of application to the "Court" under section 14 of the Act seeking termination of mandate as was done in case of Afcons Gunanusa JV (supra) under section 39(3) of the Act seeking fixation of reasonable fees, is misplaced inasmuch as, as per the principle of party autonomy laid down by Hon'ble Apex Court, Tribunal could not have proceeded with the arbitral proceedings.Page 318 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 4.16) With regard to issue of non filing of declaration under section 12(5) of the Act by the arbitrator, such issue has been raised for the first time before this Court under section 34 of the Act.
Respondent nos. 1 and 2 never raised such objection at the appropriate time and have also participated in the arbitration proceedings and as such, there was a waiver of their respective rights of raising such issue as provided under section 4 of the Act.
4.17) On perusal of section 12(1) read with section 12(5) of the Act, it is clear that same is non-derogable inasmuch as proviso has been inserted with effect from 23.10.2015 by Act 3 of 2016 only to sub-
section (5) and not to entire section 12.
Page 319 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Hence, provisions of section 12(1) of the Act are derogable and non-compliance of the same would not make the award illegal.
4.18) This issue is therefore, answered in favour of the claimant and against the respondent nos. 1 and 2.
5) Whether the Arbitration Tribunal would have assumed the jurisdiction to proceed with the arbitration involving allegation of fraud and forgery which are subject matter of criminal investigation?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
5.1) Learned Senior Advocate Mr. Soparkar submitted that Tribunal could not have adjudicated upon allegation of serious fraud in the arbitration Page 320 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined proceedings as inconsistent stand has been taken by the Tribunal to a question as to whether claimant was induced by the respondent no.2-Neeraj to execute an addendum to LLP Agreement through fraudulent misrepresentation by breaking the inquiry into two parts, firstly, that representations were made by the respondent no.2-Neeraj to induce the claimant to execute LLP agreement and invest Rs. 45 Crore and secondly, that these representations were fraudulent. It was submitted that in response to the challenge to very jurisdiction of the Tribunal to adjudicate issues of fraud and forgery, it has negated the challenge and held that it has jurisdiction and thus according to the Tribunal, it was not a fraud of that magnitude whereby the Page 321 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined jurisdiction of Tribunal is vitiated.
However, on the other hand, according to the Tribunal, for the purpose of jurisdiction, there is no fraud but for the purpose of returning findings against the respondent no.2- Neeraj there is fraud. It was therefore, submitted that Tribunal has adopted contrary stand to assume jurisdiction and thereafter to adjudicate upon the allegation of fraud.
5.2) It was submitted that the claimant has made the basis of the claim on the allegation of fraud for joining LLP, which permeates entire agreement and if the claim of the claimant which ultimately is accepted by the Tribunal that he was induced to enter into LLP agreement on account of "fraudulent misrepresentations"
made by the respondent no.2 Neeraj, then Page 322 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the entire LLP Agreement is vitiated by fraud and in that case even arbitration agreement contained in that LLP agreement is also vitiated by fraud and hence, the arbitration is nullity.
5.3) Reliance was placed on the decision of Hon'ble Supreme Court in case of Rashid Raza v. Sadaf Akhtar reported in (2019) 8 SCC 710 wherein it is held that if the allegations of fraud permeate the entire contract and include an arbitration clause, then the contract is rendered void and the dispute becomes non arbitrable.
5.4) It was also submitted that fraud cannot be adjudicated in arbitration proceedings as the claimant invoked arbitration against the respondent no.2 Page 323 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Neeraj on 10.11.2016 and thereafter on 16.11.2016 filed FIR against the respondent no.2 Neeraj alleging fraud and forgery in the resolution dated 18.07.2015. It was further pointed out that in charge-sheet that is subsequently filed by the police, forgery related charges are dropped but charges relating to fraud and cheating remained and therefore, as per the case of the claimant, this is a case of serious fraud and if it is a serious fraud, then it is out of the ambit of arbitration as it would require a full-fledged civil trial.
Reliance was placed on the decision of the Hon'ble Apex Court in case of A. Ayyasamy v. A. Paramasivam and others reported in (2016) 10 SCC 386, wherein it is held as under:
Page 324 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "(18) When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable.
However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan does not touch upon this aspect and said decision is rendered after finding that allegations of fraud were of serious nature."
5.5) Reliance was also placed in case of Vidya Drolia and others v. Durga Page 325 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Trading Corporation reported in (2021) 2 SCC 1, wherein it is held as under:
"[73] A recent judgment of this Court in Avitel Post Studioz Limited and Others v. HSBC PI Holdings (Mauritius) Limited, Civil Appeal No. 5145 of 2016 and connected matters, decided on 19.08.2020 has examined the law on invocation of 'fraud exception' in great detail and holds that N. Radhakrishnan as a precedent has no legs to stand on. We respectfully concur with the said view and also the observations made in paragraph 14 of the judgment in Avitel Post Studioz Limited, which quotes observations in Rashid Raza v. Sadaf Akhthar, 2019 8 SCC 710:
"4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/ fabrication in support of the plea of fraud as opposed to "simple allegations". Two working tests laid down in para 25 are: (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch Page 326 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined upon the internal affairs of the parties inter se having no implication in the public domain."
to observe in Avitel Post Studioz Limited:
"it is clear that serious allegations of fraud arise only if either of the two tests laid down are satisfied and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof but questions arising in the public law domain."
74.The judgment in Avitel Post Studioz Limited interprets Section 17 of the Contract Act to hold that Section 17 would apply if the Page 327 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined contract itself is obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud, and post-contract fraud and cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the remedy for damages would be available and not the remedy for treating the contract itself as void."
5.6) Learned Senior Advocate Mr. Soparkar submitted that reliance placed by the Tribunal decision of Apex Court in case of Avitel Post Studioz Ltd. reported in (2021) 4 SCC 713 is misplaced as Supreme Court in the said case came to a conclusion that there is no such fraud as would vitiate the arbitration clause as the arbitration clause was "extremely wide" whereas the arbitration clause in the present case is designed in a very narrow manner.
Page 328 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 5.7) Learned Senior Advocate Mr. Soparkar therefore, referred to arbitration clause in case of Avitel Post Studioz Ltd. (supra) and arbitration clause in the present case as under :
Arbitration clause in Arbitration clause in the Avitel Post present case "Any dispute, "All disputes & controversy or claim differences whatsoever arising out of or in which shall arise between connection with this the partners or between Agreement, regarding its the partners & the existence validity, personal representatives interpretation, breach of the deceased partner or termination.." relating to any matter or between partner & LLP whatsoever, touching the affairs of the LLP or the interpretation of this agreement shall be referred to a single arbitrator.
5.8) It was therefore, submitted that there is no case of forgery as main defence of the respondent no.2 Neeraj is that on 18.07.2015 all actions of withdrawal from LLP account are ratified by all the partners and hence there is no Page 329 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined misappropriation. It was also noted in the said resolution that LLP cannot purchase agricultural land and it requires respondent no.2-Neeraj for the same and the claimants had invested even after 18.07.2015 till February 2016.
5.9) It was submitted that the claimant filed the complaint claiming that said minutes of the meeting dated 18.07.2015 as forged and inspite of such claim, the claimant continued to invest Rs. 45 Crore till February 2015-2016 into LLP in 11 tranches. It was also pointed out that son of the claimant Angad Atwal, his close friend Shivam Vyas and closest associate cum friend and ex-army colleague Ex-Col Guraya and Ex-Col R.K. Singh were the part of LLP's employment and partner who have not disputed the minutes of the meeting Page 330 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined dated 18.07.2015 wherein it is recorded that claimant needed respondent no.2-
Neeraj as he is an agriculturist of Gujarat to acquire the land for the project.
5.10) Learned Senior Advocate Mr. Soparkar also referred to the FSL report wherein it is concluded that resolution dated 18.07.2015 of the LLP is not forged.
It was also pointed out that claimant challenged the said report and sought further investigation before this Court which has been granted. However, Supreme Court quashed the said direction issued by this Court by order dated 02.03.2020.
5.11) It was submitted that inspite of above facts, in award in para no. 191(6) it is held that the said resolution is Page 331 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined forged.
Reasons and Findings:
5.12) Tribunal has arrived at findings of fact in para no. 205 of the award that there is no serious allegation of fraud as under:
"205. The Tribunal's finding is that the Claimant's claim in this arbitration does not include "serious allegations of fraud" of the nature described by the Hon'ble Supreme Court in the above passage so as to bar the Claimant from pursuing its claim in this Arbitration. Accordingly, since this arbitration involves a civil dispute, the objection that the Claimant's claim is not arbitrable is rejected."
5.13) The Hon'ble Apex Court in the cases referred to here in above has held that only where serious allegations of fraud are involved then in that event only arbitration can be refused and not in Page 332 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined matter of simple allegations.
5.14) The issue of "serious allegations of fraud" is involved only if-
i) where arbitration clause or agreement itself does not exist between the parties against whom the breach is alleged and
ii) where allegations are made against State or its instrumentalities of arbitrary, fraudulent or mala fide conduct.
5.15) In facts of the case misrepresentation, diversion of funds alleged against respondent no.1 are all inter-parties without raising any questions in public law domain, which Page 333 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined would be arbitrable and would not jeopardise the jurisdiction to arbitrate the disputes under the provisions of the Act. Tribunal has arrived at finding that there is no serious allegation of fraud between the parties as per settled legal position.
5.16) The Tribunal in facts of the case after considering oral and documentary evidence has concluded that resolution dated 18.07.2015 is forgery and in view of such findings arrived at by the Tribunal, same cannot be assailed on merits by raising such preliminary objection of jurisdiction of the Tribunal giving finding as to forgery and misrepresentation committed by respondent no.1 with the claimant.
Page 334 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 5.17) Therefore, in view of settled legal position as stated here in above, issue is decided in favour of the claimant and against respondent nos.1 and 2.
II On merits 6(i) Whether the Tribunal was right in holding that respondent no.1 made misrepresentation to the claimant from December 2014 to February, 2016 and minutes of the meeting dated 18th July,
2015 was forged by respondent no.1?
6(ii) Whether the Tribunal was right in holding that respondent no.1 was guilty of misappropriation of sum of Rs. 22.19 Crore from bank account of respondent no.4-C2R LLP and liable to pay the same to Page 335 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined respondent no.4-C2R LLP with interest at the rate of 12% p.a.?
6.1) As both these issues are inter-
related, they have been dealt together Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
6.2) Learned Senior Advocate Mr. Soparkar submitted that the Tribunal has wrongly relied upon the decision of Bombay High Court in case of Ajay Mehra v.
Enercon GmbH and others reported in 2019 SCC OnLine Bom 1064 and decision of Delhi High Court in case of M/s. Prime Telesystem Limited v. Sasken Communication Technologies Ltd & Ors. reported in 2009 SCC OnLine Del 4138 to conclude that claimant can sue on behalf of the LLP. It Page 336 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined was submitted that in case of Ajay Mehra(supra), it was justified as Mehra's were 44% stakeholder in the LLP and there is no such parimateria fact in the present case. It was also pointed out that in case of M/s. Prime Telesystem Limited(supra), there is no similarity or applicability to the case on hand as M/s. Prime Telesystem Limited itself was the claimant before the Court. It was also submitted that para 4 of First Schedule of LLP read with sections 23(4) and 26 of the Act are wrongly relied as they are not applicable to the facts of the case. It was pointed out that Tribunal therefore, committed a grave error while concluding in paragraph no.218 of the Award to consider the loss suffered by LLP for passing the award in favour of the claimant and for alleged Page 337 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined loss suffered by LLP, claim has to be made by respondent no.4 LLP and claimant who is a partner of LLP would not have any right to make a claim of his share in the alleged loss of LLP. It was therefore, submitted that if the claim could have been made by respondent no.4 LLP, the same would not be maintainable in International Commercial Arbitration. It was therefore, submitted that Award in favour of the claimant is impermissible as the damages, if any, are suffered by Limited Liability Partnership- respondent no.4 and claimant could not have claimed his share for the alleged loss as LLP and its partners are independent entities and merely because claimant happens to be a 20% partner of LLP, in law 20% of the alleged damages suffered by LLP could not Page 338 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined be awarded to the claimant.
6.3) It was further submitted that once any partner brings funds into the pool of the partnership, then the same ceases to be his individual asset and becomes an asset of the partnership. It was therefore, submitted that if any misappropriation happens with such asset, only partnership firm would be aggrieved and individual partner could not have raised any grievance for loss, if any, suffered by the partnership firm by claiming such loss to the extent of partnership.
6.4) Learned Senior Advocate Mr. Soparkar therefore, contended that entire basis of the award is erroneous as respondent no.4 partnership firm has not Page 339 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined made any claim for alleged misappropriation or loss suffered by the partnership firm.
Submissions of claimant:
6.5) With regard to the contention of petitioner pertaining to Arbitral Tribunals finding as to the arbitrability of fraud, reliance was placed on the decision in case of Ameet Lalchand Shah v.
Rishabh Enterprises reported in (2018) 15 SCC 678, in case of Rashid Raza v. Sadaf Akhtar reported in (2019) 8 SCC 710 and in case of Avitel Post Studioz Ltd. v.
HSBC PI Holdings (Mauritius) Ltd. reported in (2021) 4 SCC 713 and submitted that that the Hon'ble Supreme Court has held that only where "serious allegations of fraud are involved, then in that event Page 340 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined only, the arbitration can be refused, and not in the matter of "simple allegations".
It was further submitted that the aspect of serious allegations of fraud is said to be involved only if two tests are satisfied. namely (i) where the arbitration clause or agreement itself doesn't exist in a clear case in which it is found that the party against whom breach is alleged, cannot be said to have entered into the agreement relating to arbitration at all; and (ii) where allegations are made against the State or its instrumentalities of arbitrary, fraudulent or mala fide conduct, arising from the contract itself, raising questions in public law domain and impersonation, false representations, diversion of funds, are all inter- parties Page 341 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined without raising any questions in public law domain, would be arbitrable and would not attract the "fraud exception".
6.6) It was further submitted that in the present case, neither of the aforesaid twin tests is satisfied and hence, the fraudulent aspects involved herein cannot be considered serious allegations of fraud and thus, the dispute involved herein is arbitrable and even otherwise, the findings arrived at in para 205 of the Award by the Arbitral Tribunal relating to non-involvement of any serious question of fraud in the present case, cannot be revisited under Section 34 of the Act, merely because another view could be possible.
6.7) It was further submitted that the Page 342 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined petitioners' allegation that the Arbitral Tribunal wrongly concluded that the resolution dated 18.07.2015 is a forgery, is not maintainable in a petitioner filed under Section 34 and is even otherwise fallacious and even otherwise, the Arbitral Tribunal has considered the evidence placed on record, inter alia including the reports of the handwriting experts led by the Respondent, cross examination of the said experts by the Petitioners' counsels and thereafter concluded that the resolution of 18.07.2015 was forged.
Reasons and findings :
6.8) Tribunal has considered the merits of the claim as to whether the representation made by respondent nos. 1 and 2 was in fact between period from Page 343 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined December 2014 till February, 2016 was a misrepresentation to extract money from the claimant and minutes of the meeting dated 18th July, 2015 was forged.
6.9) Tribunal after considering the legal proposition on what can be said to be fraudulent misrepresentation has come to the conclusion on the basis of documentary and oral evidence led by the claimant and after considering the cross examination of the witnesses of the claimant as per para nos.1.27 to 1.35 that representation made by respondent no.1 during the aforesaid period set out in para 105 of the award was fraudulent and the claimant was induced by such fraudulent misrepresentation to execute Addendum of 27th February, 2015 and thereby become a partner in the firm.Page 344 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 6.10) Tribunal relying upon the decision of the Hon'ble Supreme Court in case of Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. reported in (2021) 4 SCC 713 and came to the conclusion that exception in section 19 of the Indian Contracts Act does not preclude the claimant from succeeding in his claim for fraudulent misrepresentation against respondent no.1, notwithstanding his failure to conduct a due diligence of respondent no.4 LLP-C2R. Tribunal also found respondent no.2 as guilty of active fraudulent misrepresentation though he was not present in the meetings prior to the meeting of 27th February, 2015 and remained silent when respondent no.1 actively made the fraudulent misrepresentation but attributed to him at Page 345 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the meeting of 27th February, 2015. Thus the Tribunal has arrived at such findings on the basis of evidence before it and therefore, the same cannot be re-
appreciated on merits in this proceedings under section 34 of the Act.
6.11) Tribunal has after analysis of clause 21 of the LLP agreement together with documentary evidence in form of MOU dated 16.06.2015 as well as oral evidence of cross examination of Mr. Anil Brahmakshatria who supported his evidence of preparation of accounts with regard to transaction in February 2015 which reflects that there was cash withdrawal which commenced almost immediately following the receipt into the bank account of respondent no.4-C2R of first tranch of the investment made by the Page 346 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant of Rs. 5 Crore for which respondent no.1 only explained that such cash withdrawal was used for "uncertain expenses". Tribunal also took note of the fact that respondent no.1 did not file evidence to justify the expenses but counsel of the respondent no.1 did not examine Mr. Anil Brahmakshatria in any form of documentary evidence to explain what these uncertain expenses were.
Tribunal considering entire evidence came to the conclusion that respondent no.1 had been misappropriating funds of respondent no.4-C2R LLP solely for his personal gain.
6.12) Tribunal has also come to the conclusion that minutes of the meeting dated 18th July, 2015 is forged which ratifies the transactions of all withdrawal and transfer made by respondent Page 347 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined no.1 from the bank account as well as the agreement executed by him as no such meeting ever took place between the partners of C2R on 18th July, 2015.
6.13) Tribunal considered the factors in detail in para. 174 of the award by carefully and minutely examining the minutes placed on record together with cross examination of respondent no.3 by claimant who was confronted with document i.e. letter dated 22.07.2015 issued by KIADB to Kinetix Solution Private Lt. in respect of land allotted to Kinetix.
However, there was no cross examination of the claimant with respect to his categorical allegations that minutes dated 18.07.2015 were forged and fabricated.
6.14) Tribunal therefore, considering Page 348 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the circumstances and in absence of any proof tendered by respondent no.1 asserting that the purported minutes of the meeting dated 18.07.2015 are genuine, Tribunal rightly discarded the same from the evidence.
6.15) Tribunal has also considered in detail the testimony of two handwriting experts who have deposed that signature of the claimant and respondent no.3 in the alleged minutes of the meeting dated 18.07.2015 are forged. Tribunal has therefore, come to the conclusion after considering such documentary and oral evidence that minutes of the meeting dated 18.07.2015 is forged and fabricated document which has no evidentiary value and such fabricated minutes substantiates the case of the claimant regarding Page 349 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fraudulent conduct of respondent no.1.
Tribunal thereafter considering such evidence arrived at the findings in para no. 185 to 190 of the award and recorded the conclusions in para 191 of the award.
6.16) Tribunal has come to the conclusion that respondent no.1 is guilty of misappropriating the sum of Rs. 22.19 Crore from the account of respondent no.4- C2R and such sum was utilised without knowledge and approval of the remaining partners and in breach of LLP agreement by making false misrepresentation and forging the minutes of meeting dated 18th July, 2015. Tribunal also came to the conclusion that respondent no.2 is not guilty of misappropriating the funds of respondent no.4-C2R and therefore, respondent no.1 is required to restitute sum of Rs.22.19 Page 350 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Crore misappropriated by him from the account of respondent no.4-C2R by repaying the aforesaid sum to respondent no.4-C2R LLP.
6.17) Contention raised on behalf of the respondent no.1 that Tribunal could not have passed the award in favour of respondent no.4-C2R LLP by directing the respondent no.1 to pay the amount alleged to have misappropriated by him in view of above findings when respondent no.4-C2R LLP is not the claimant and there was no claim made by respondent no.4-C2R LLP to recover the sum alleged to have been misappropriated. It is true that respondent no.4-C2R LLP has not made any claim for recovery of the amount of misappropriation of fund of Rs. 22.19 Crore made by respondent no.1 however, Page 351 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant was having the majority share holding after respondent no.1 was expelled from LLP as stated in the facts of the case.
6.18) Tribunal therefore, was justified in passing the award in the claim petition filed by claimant by directing respondent no.1 to make good the amount of misappropriation of Rs. 22.19 Crore which is proved by the claimant to be paid by respondent no.1 to respondent no.4-C2R LLP along with interest at the rate of 12% per annum. The above findings of the Tribunal are not disturbed in view of limited scope of section 34 of the Act as no re-appreciation of evidence can be made while considering the challenge to the arbitral award as discussed in detail here in below while dealing with Issue No.III.
Page 352 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
7) Whether the Tribunal was right in awarding amount of Rs. 84 Crore towards damages and loss of profit together with interest at the rate of 12% p.a.?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
7.1) With regard to the award of damages of Rs.84 Crore by the impugned award, it was submitted that the Tribunal exceeded the jurisdiction for awarding the damages. It was submitted that under the agreement of Limited Liability Partnership as also under the provisions of Limited Liability Partnership Act, 2008 any award of damages for alleged loss of profit is impermissible. Reliance was placed on the clauses 34A and 34B of the LLP Agreement and submitted that the Tribunal exceeded Page 353 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined its jurisdiction and acted contrary to the provisions of section 28(3) of the Act.
Reliance was placed on the decision in case of South East Asia Marine Engineering and Construction Limited v. Oil India Limited reported in (2020) 5 SCC 164.
7.2) It was submitted that the view taken by the minority member of the Tribunal is correct and the view of the majority is illegal and is required to be set aside. It was also pointed out that for alleged loss suffered by LLP, claim ought to have been made by respondent no.4 LLP and claimant had no right to make such claim of his share in the alleged loss of LLP.
7.3) It was submitted that according to the claimant for alleged breach by Page 354 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined petitioner Neeraj, LLP suffered a loss of Rs. 23.70 Crore which was improved at the stage of examination in chief of the claimant to Rs.85.14 Crore as against that the Tribunal has accepted the finding of expert that loss suffered by LLP was Rs.
419.80 Crore. It was submitted that under these circumstances, award is manifestly perverse, contrary to justice and morality and is in conflict with the public policy.
7.4) It was pointed out that expert has reached the figure of Rs. 419.80 Crore by the hypothesis that if respondent no.4 LLP would have started a business, it would have established a factory and then it would have entered into a joint venture, in the joint venture, LLP would have 51% interest and that joint venture would have got Government contracts and due to the Page 355 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Government contracts, LLP would have got a lot of money and firm would have earned Rs.419.8 Crore.
7.5) Learned Senior Advocate Mr. Soparkar relied upon the testimony of expert Mr. Jonatham Ellis called in by the claimant and demonstrated that he had out blown and exaggerated the loss to 17 times from what is claimed by the claimant in the Statement of Claim and to around 5 times from what is allegedly mentioned by the claimant in his affidavit in lieu of examination in chief.
7.6) Learned Senior Advocate Mr. Soparkar referred to various estimates made by expert vis-a-vis claims made by the claimant in Statement of Claims and in affidavit as under:
Page 356 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Heads under Statement of Affidavit in Arbitral which the Claim [P-CC- lieu of Award @ 151 loss of 8@205] [Prayer Examination profit was Clause-(iv)] in Chief claimed by [CC-11@243] the claimant (Rs) (Rs) (Rs) A-Armoured 13 Crores(Page 30 Crores 233.9 Crores Vehicle 201) B-Ammunition 2 Crores (Page 35 Crores 65.6 Crores
202) C-UAV 3 Crores (Page 8.14 Crores 87.9 Crores
203) D-Shelter 4.2 Crores 10 Crores 27.5 Crores (Page 200) E-Night 1.2 Crores - -
Vision (Page 203)
Goggles
Total 23.7 Crores 85.14 Crores 414.9 Crores
7.7) Referring to above, it was
submitted that the Tribunal awarded an
amount of Rs. 84 Crore under the head of damages as against the claim of only Rs.
23.70 Crore or, at best, a claim of Rs.38.70 Crore was made without any amendment in the claim statement and therefore, the award qua damages is manifestly perverse and contrary to Page 357 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined justice and morality and is in conflict with the public policy. Reliance was placed on the decision in case of Associate Builders v. Delhi Development Authority reported in (2015) 3 SCC 49.
7.8) It was submitted that the Tribunal has awarded both the alleged future loss and alleged actual loss by arriving at figure of loss at Rs.419.80 Crore for alleged future loss at Rs.414.90 Crore and actual loss of Rs.4.9 Crore which is not permissible as held by the Hon'ble Supreme Court in case of Kanchan Udhoyg Limited reported in (2017) 8 SCC 237 as under:
"30. That leaves the question with regard to reliance loss and the expectation loss. Whether the two could be maintainable simultaneously or were mutually exclusive? In Pullock & Mulla, 14th Edition, Volume II, page 1174, the primary object for protection of expectation Page 358 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined interest, has been described as to put the innocent party in the position which he would have occupied had the contract been performed. The general aim of the law being to protect the innocent party's defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness. The purpose of protection of reliance interest is to put the plaintiff in the position in which he would have been if the contract had never been made. The loss may include expenses incurred in preparation by the innocent party's own performance, expenses incurred after the breach or even pre- contract expenditure but subject to remoteness. The following passage from the same is considered appropriate for extraction:
"No Recovery for Both, the Expectation Loss and the Reliance loss."
Although the rules as to damages seek to protect both the expectation and the reliance interests, the innocent party cannot ordinarily recover both expectation loss, viz., loss of profit, and reliance loss, viz., expenses incurred in reliance on the promise; that would involve double counting. He has to choose Page 359 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined between the two measures.
However, he cannot claim reliance losses to put himself in a better position that if the contract had been fully performed: else, the award of damages for reliance losses would confer a windfall on the plaintiff, and would increase the damages in proportion to the claimant's inefficiency in performance, rather than in proportion to the gravity of the breach, and probably of normal principles of causation. In such cases, therefore, the plaintiff can recover the loss on account of the wasted expenditure or outlay only to the extent of the expected gain; and the onus of proving lies on the party committing the breach to show that the reliance costs (or any part of them) would not have been recouped, and would still have been wasted, had the contract been performed." 31 In C & P Haulage , which considers Cullinane also, it has been observed as follows:
"The law of contract compensates a plaintiff for damages resulting from the defendant's breach; it does not compensate a plaintiff for damages resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses Page 360 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined he has incurred are losses flowing from entering into the contract, not losses flowing from the defendant's breach. In these circumstances, the true consequence of the defendant's breach is that the plaintiff is released from his obligation to complete the contract-or in other words, he is saved from incurring further losses. If the law of contract were to move from compensating for the consequences of breach to compensating for the consequences of entering into contracts, the law would run contrary to the normal expectations of the world of commerce. The burden of risk would be shifted from the plaintiff to the defendant. The defendant would become the insurer of the plaintiff's' enterprise. Moreover, the amount of damages would increase not in relation to the gravity or consequences of the breach but in relation to the inefficiency with which the plaintiff carried out the contract. The greater his expenses owing to inefficiency, the greater the damages."
32 In view of the conclusion, that the appellant was not entitled to any expectation loss towards anticipated profits, for reasons discussed, any grant of reliance loss would tantamount to giving a Page 361 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined benefit to it for what was essentially its own lapses. There are no allegations of any deficiency in the plant. Contrary to its claim of Rs.2.52 crores towards cost of the plant, the learned Single Judge awarded Rs.1.60 crores without any discussion for the basis of the same. Though the appellant had preferred a cross appeal, it did not press the same."
7.9) It was further submitted that this Court cannot modify the award partially and therefore, and therefore, the whole award needs to be set aside. Reliance was placed on the decision of Hon'ble Supreme Court in case of Project Director, National Highways NO.45 E and 220 National Highways Authority of India v. M. Hakeem and another reported in (2021) 9 SCC 1.
7.10) Learned Senior Advocate Mr. Soparkar therefore, submitted that award Page 362 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of Rs. 419.80 Crore as damages is made ex-
facie illegally relying on patently unreliable evidence. It was pointed out that reliance placed by the Tribunal on the decision of Hon'ble Supreme Court in case of Mc Dermott International Inc reported in (2006) 11 SCC 181 has no application inasmuch as it is a settled law that award of the arbitrator cannot be made for the purpose of profiteering and award is therefore, highly speculative and without any basis. Reliance was placed on the following decisions:
a) Messrs. Trojan & Company v. RM N.N. Nagappa Chettiar reported in AIR 1953 SC 235, wherein it is held as under:
b) Mannalal Jain v. State of Assam Page 363 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined reported in AIR 1962 SC 386.
c) Ssangyong Engg & Construction Co. Ltd.
v. NHAI reported in (2019) 15 SCC 131.
d) Associate Builders v. Delhi Development Authority reported in (2015) 3 SCC 49.
e) Kanchan Udhoyg Limited v. United Spirits Limited reported in (2017) 8 SCC
237. 7.11) Learned Senior Advocate Mr. Soparkar therefore, submitted that award in favour of the claimant was to the extent of 20% of the total loss suffered of Rs.419.80 Crore suffered by LLP respondent no.4 and therefore, award of Rs. 84 Crore being 20% share of the Page 364 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant in LLP is required to be set aside as such amount could not be awarded to the claimant.
Submissions of claimant:
7.12) With regard to the contention of the petitioner regarding locus-standi of the respondent-claimant for making the claim on behalf of the LLP, it was submitted that on perusal of the Statement of the Claim, it clearly appears that the entire dispute revolves around the dispute between the partners of the LLP and that the same was referred to Arbitration for resolution and the said disputes were mainly relating to the embezzlement of funds by the petitioners, leading to loss of profits/damages because of the conduct of the Petitioners. Thus, effectively, it Page 365 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined is the case falling within the term 'disputes between the partners' being the parties to the Arbitration.
7.13) It was further submitted that mere fact that at the behest of one of the Partners of the LLP, the embezzled amount has been claimed as well as granted by the Arbitral Tribunal, to be paid in the accounts of the LLP Firm, would not change the dispute between the parties, which would as such fall within the purview of Arbitration Clause of the LLP Agreement.
Therefore, the Respondent Claimant has the locus to seek the embezzled amount back in the LLP Account, where the Respondent -
Claimant is owning 85% of shareholding.
7.14) It was submitted that the petitioners are totally incorrect in Page 366 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined contending that it is the LLP which ought to have preferred the claim and if the LLP had initiated the arbitration proceedings, the same would have been considered as 'Domestic Arbitration' and not the 'International Commercial Arbitration' in view of the the fact that even if the LLP had initiated the proceedings, then in that case also, the Respondent-Claimant, being habitually resident in a country other than India, i.e., Oman, would have been joined as a party respondent in the said proceeding and thereby, the same would still have remained as 'International Commercial Arbitration' within the meaning of Section 2(1)(f) of the Act, which defines the term 'International Commercial Arbitration'.
7.15) With regard to the award of Page 367 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined damages/loss of profit to the tune of Rs.84 Crore by the Arbitral Tribunal it was submitted that the Hon'ble Supreme Court in para 69 of Ssanyong Engineering & Construction Co. Ltd. (supra), has categorically observed that it would be not possible to bring the grounds relatable to Section 28(3) of the Act within the four corners of Section 34(2)
(a)(iv) of the Act. Thus, the said submission relatable to award being beyond Clause 34(A) of the Agreement, which being strictly relatable to Section 28(3), and the alleged misinterpretation of the terms of contract, is impermissible to be raised in the present proceedings.
7.16) It was further submitted that the observations made by the Hon'ble Supreme Court in para 36 of its judgment in case Page 368 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the Associated Builders (supra) would also not be applicable to the facts of the present case for two reasons, namely (i) the said observations are applicable in case of domestic award passed in domestic arbitration; and (ii) the awarded sum should be without any acceptable reason or justification.
7.17) It was further submitted that the judgment rendered in the case of South East Asia Marine Engineering & Construction Ltd. vs. Oil India Limited, reported in (2020) 5 SCC 164, would not be applicable to the facts of the present case, because in the said case, it was the case of Domestic Commercial Arbitration, wherein interpretation of terms of Contract is permissible, which has been specifically denied in para 69 of Ssanyong Page 369 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (supra) and in fact, it is not the case that the Respondent Claimant has not claimed the said amount from the Arbitral Tribunal. On the contrary, before the Arbitral Tribunal, both the parties as well as the learned arbitrators have considered the claim of the Respondent to be to the tune of Rs.84 Crore. It was submitted that while submitting the claim and filing the affidavit-in-chief in para 243 thereof, the Respondent Claimant had categorically sought leave of the Arbitral Tribunal to further quantify the losses in terms of the analysis by experts.
7.18) It was further submitted that respondent Claimant examined its Expert Witness Mr. Jonathan Ellis, who in para 12.71 of his affidavit, after providing elaborate reasoning in earlier paragraphs, Page 370 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined stated in conclusion about the loss profit. It was submitted that for the purpose of arriving at the said figure of Rs.84 Crore as damages/loss of profits caused to the Respondent Claimant, the above-named witness had threadbare discussed all the aspects being responsible for causation of total damages/ loss of profits caused to the Respondent-Claimant being totally to the tune of Rs.84 Crore.
7.19) It was further submitted that the petitioners could have also presented their own expert witnesses to dislodge the testimony of the abovenamed Expert Witness of the Respondent Claimant or could have destroyed the testimony of the Respondent's Expert witness referred to above by effectively cross-examining him, Page 371 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined to demonstrate that the calculation for reaching the total figure of damages/loss of profits to the tune of Rs.84 Crore is factually incorrect. However, none of the aforesaid two courses of action was resorted to by the petitioners. Under the circumstances, in the absence of any contrary evidence in favour of the Petitioners in the matter of the aforesaid total damages/loss of profits, it was legal, proper and reasonable for the Arbitral Tribunal to reach the conclusion as aforesaid. Further, in paragraph 143 of the Award, the Arbitral Tribunal has noted all the efforts which were made by the Respondent for pursuing various projects for the LLP, including, the armoured vehicle project, ammunitions project, UAV project and the shelter project. The Page 372 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Arbitral Tribunal has also noted in paragraph 145 of the Award that the petitioners only defence against the loss of profits claimed, that he had no knowledge of any of these projects, was blatantly false and that he had been addressed in the emails circulated with respect to the aforesaid projects.
7.20) It was further submitted that it is the case of the petitioners that the report of Mr. Jonathan Ellis is entirely based on assumptions and projections and that, there is no independent inquiry on its part and that, the same cannot be used for awarding damages to the Respondent -
Claimant for which purpose petitioners have placed reliance on the judgment of the Hon'ble Supreme Court in the case of Kanchan Udhyog Limited vs. United Spirits Page 373 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Limited reported in (2017) 8 SCC 237, wherein the Appellant was claiming damages towards loss of anticipated profits as well as the actual loss i.e., cost towards installation plant. The Hon'ble Supreme Court held that the plea of loss of anticipated profits cannot be pressed in service only on the basis of the loan application submitted by the Appellant to West Bengal Industrial Development Corporation having been prepared on the basis of (i) WEBCON Report i.e. West Bengal Consultancy Ltd. and (ii) Report of one Dr. Baisya, a Technical Survey Manager of the Respondent, more particularly when, the said WEBCON Report and Dr. Baisya's Report were not proved and hence, held inadmissible in evidence nor was Dr. Baisya examined as a witness.
Page 374 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined It was submitted that it was under these circumstances, that it was held that unilaterally projected profitability, which is a mere assumption, cannot be the basis for assessment of damages. Further, the Hon'ble Supreme Court also denied the actual loss in favour of the Appellants on the ground that the same would be tantamount to giving a benefit to the Appellants for what was essentially its own lapses.
7.21) It was submitted that in the present case, the claim of the Respondent-
Claimant in respect of loss of anticipated profits was calculated at Rs.84 Crore through the Report of Expert Witness Mr. Jonathan Ellis, who was examined on behalf of the Respondent - Claimant and cross-
examined on behalf of the petitioners.
Page 375 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Thus, its testimony in respect of projected profitability was duly proved and for negating the same, as the petitioners did not produce any document or any expert witnesses to dislodge the testimony of the said respondent's expert witness. Therefore, the aforesaid judgment relied upon by the Petitioners cannot be made applicable in the facts of the present case.
7.22) It was further submitted that the method of computation of damages by way of loss of anticipated profits as adopted by the abovenamed expert witness of Respondent Claimant is one of the recognised methods which is permissible as held by the Hon'ble Supreme Court in the case of McDermott International Inc. vs. Burn Standard Co. Ltd., reported in (2006) Page 376 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 11 SCC 181 wherein it is held as under:
"106. We do not intend to dwell deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages can be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator.
107. If the learned Arbitrator, therefore, apply the EMDM Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court."
7.23) It was therefore, submitted that in the present case, the Arbitral Tribunal has rightly relied on the said report and held that the Respondent-Claimant has discharged its burden.
7.24) It was further submitted that assuming without admitting that the said Page 377 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined report was not to be relied upon and was to be ignored, then in that eventuality also, the findings relating to award of 84 Crore in favour of the Respondent-
Claimant, could, at best, be considered to be findings based on no evidence and would, at the best, be treated as 'perverse' and 'patently illegal', which grounds are undisputedly outside the scope of interference with International Commercial Arbitration awards made in India, under Section 34 of the Act.
7.25) It was further submitted that without prejudice to what is submitted hereinabove, as per sub-section (1) of Section 19 of the Act, the Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. Therefore, merely Page 378 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined because there was no specific claim in this behalf made by the Respondent-
Claimant, and that the claim statement was also not amended, would not defeat the jurisdiction of the Arbitral Tribunal to grant the sum of Rs. 84 Crore by way of damages/loss of profit, to the Respondent-
Claimant, more particularly when the same was not without acceptable reasons or justifications. Reliance was placed on the decision in case of State of Haryana vs. Shiv Shanker Constructions Co. reported in (2022) 3 SCC 109.
Reasons and Findings:
7.26) Issue with regard to quantification of Rs.84 Crore towards damages and loss of profit together with interest at the rate of 12% awarded by the Page 379 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal to the claimant from respondent nos. 1 and 2 is concerned, there are split opinions with regard to this issue as Presiding Officer Mr. Anantham and Mr. Andre Yeap held in favour of the claimant and minority dissenting opinion of late Hon'ble Mr. Justice G.T. Nanvati (retired) was in favour of respondent nos.1 and 2 relying upon clause 34(A) read with clause 21 of the LLP agreement which prescribes the limited liability of the partners as provided under the LLP Act, 2008.
7.27) Tribunal before quantification of loss of profit and damages to be awarded to the claimant came to the conclusion on interpretation of clause 34 of the LLP agreement providing for limited liability and indemnification between the parties, as per the majority of the view of the Page 380 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal, that Clause 34A does not operate to exempt respondent nos.1 and 2 from liability against claims by the claimant since to cheat partner of his investment by fraudulent misrepresentation is more grave than gross negligence and is the worst and most deplorable form of willful wrongdoing. Tribunal therefore, by majority applied clause 34A and 34B of the LLP agreement to hold that on holistic reading, such clauses never intend to exclude liability for gross negligence or willful wrongdoing which includes fraud and fraudulent misrepresentation and would tantamount to giving a conditional license for any investor to be completely victimised with civil impunity which no reasonable businessman would have done.
Clause 34(A) and 34(B) read as follows:
Page 381 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "34. LIMITATION OF LIABILITY/INDEMNIFICATION:
(A) LIMITED LIABILITY :
Except as expressly provided herein, neither partner will be liable to the other partner or the LLP with respect to any subject matter of this agreement under any contract, negligence, strict liability or other legal or equitable theory for (i) any special, indirect, incidental, consequential or punitive damages or lost profits or (ii) cost of procurement of substitute goods or services.
(B) INDEMNIFICATION BETWEEN THE PARTNERS:
Neither partner shall indemnify the other partner or LLP or its respective officers, directors, employees and its respective successors, heirs and assigns ("indemnities") for any loss, claim, damage, liability or action except to the extent resulting from its respective gross negligence or willful wrongdoing. This paragraph does not limit either partner's other remedies available to its under the laws."
7.28) Late Hon'ble Mr. Justice G.T. Nanavati (retired) however, did not agree Page 382 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined with the aforesaid majority view in view of above clauses of Limited Liability by interpreting the same as liability of partner to each other and LLP is limited to the extent stated therein and there was an agreement that no partner will be liable to other partner or to the LLP for the types of damages mentioned in that clause or for loss of profit which is specifically excluded from the liability which a partner would otherwise incur for any wrongful act or inaction by him as a partner of LLP while conducting the affairs of LLP. It was accordingly the opinion of late Hon'ble Mr. Justice G.T. Nanavati(retired) that said clause being valid and binding provision of the agreement has to be given full effect and therefore, Tribunal has no power to award Page 383 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the amount of Rs. 84 Crore or any other sum by way of loss of profit and accordingly, rejected the claim and also reliefs 7(iv) and 7(v) claimed by the claimant.
7.29) On interpretation of clauses 34A and 34B of the LLP Agreement, whether the same has to be applied by taking a holistic view as held by majority members of the Tribunal or same shall apply as strictly construed by minority view, would be out of purview of consideration of section 34 of the Act as held by the Apex court in case of Ssangyong Engineering and Construction company limited v. National Highways Authority of India (NHAI) reported in (2019) 15 Supreme Court Cases 131 that it would not be possible to bring the grounds relatable to section 28(3) of Page 384 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Act within four corners of section 34(2)(a)(iv) of the Act and hence, the submission made by the respondent nos. 1 and 2 relatable to award being beyond clause 34A of the agreement which being strictly relatable to section 28(3) of the Act which provides that while deciding and making an award, the Arbitral Tribunal shall in all cases, take into account the terms of the contract and trade usages applicable to the transaction and alleged misinterpretation of terms of contract is impermissible to be raised in the proceedings under section 34(2)(a)(iv) of the Act. However view taken by minority member of the Tribunal is the correct view as there is no claim made by respondent no.4-LLP for alleged loss suffered by LLP and claimants had no right to make such Page 385 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claim for his alleged share in loss of LLP. Hon'ble The following findings of Hon'ble Supreme Court in case of South East Asia Marine Engineering and Construction Ltd. v. Oil India Ltd.
reported in 2020 (5) SCC 164, clearly show that in facts of the case, Tribunal has exceeded its jurisdiction and has violated section 28(3) of the Act as under:
"[28] In this context, the interpretation of Clause 23 of the Contract by the Arbitral Tribunal, to provide a wide interpretation cannot be accepted, as the thumb rule of interpretation is that the document forming a written contract should be read as a whole and so far as possible as mutually explanatory. In the case at hand, this basic rule was ignored by the Tribunal while interpreting the clause.
[29] The contract was entered into between the parties in furtherance of a tender issued by the Respondent herein. After Page 386 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined considering the tender bids, the Appellant issued a Letter of Intent. In furtherance of the Letter of Intent, the contract (Contract No. CCO/FC/0040/95) was for drilling oil wells and auxiliary operations. It is important to note that the contract price was payable to the 'contractor' for full and proper performance of its contractual obligations. Further, Clauses 14.7 and 14.11 of the Contract states that the rates, terms and conditions were to be in force until the completion or abandonment of the last well being drilled.
[30] From the aforesaid discussion, it can be said that the contract was based on a fixed rate. The party, before entering the tender process, entered the contract after mitigating the risk of such an increase. If the purpose of the tender was to limit the risks of price variations, then the interpretation placed by the Arbitral Tribunal cannot be said to be possible one, as it would completely defeat the explicit wordings and purpose of the contract. There is no gainsaying that there will be price fluctuations which a prudent contractor would have taken into margin, while bidding in the Page 387 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined tender. Such price fluctuations cannot be brought under Clause 23 unless specific language points to the inclusion.
[31] The interpretation of the Arbitral Tribunal to expand the meaning of Clause 23 to include change in rate of HSD is not a possible interpretation of this contract, as the appellant did not introduce any evidence which proves the same."
7.30) As per the above observations, under the LLP Agreement of respondent no.4-C2R as also under LLP Act 2008, award of damages for alleged loss of profit is impermissible, more particularly, in absence of any claim made by respondent no.4-C2R LLP.
7.31) It is pertinent to note that respondent no.4-C2R LLP would not have been able to make any claim as the same would not be international commercial Page 388 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitration and nothing prevented respondent no.4-C2R LLP to initiate arbitration proceedings being domestic arbitration to claim such loss of profit or damages if any. Therefore, the minority view of late Hon'ble Mr. Justice G.T. Nanavati (retired) is a correct view as the award in favour of the claimant is impermissible as damages, if any, suffered by respondent no.4-C2R LLP, LLP and its partners are independent entity and merely because claimant happens to be 20% partner of LLP at the relevant time, in law 20% of alleged damages suffered by LLP could not have been awarded to the claimant to be recovered from respondent no.1 who was also a partner of LLP at the relevant time.
7.32) It is a settled legal position Page 389 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined that once any partner brings fund into the pool of partnership, then such funds would cease to be an individual asset of partner and would be converted into the asset of the partnership and any misappropriation happens of such asset, then partnership would be aggrieved and individual partner cannot be aggrieved by such misappropriation even though same may be by the partner of the firm and accordingly LLP ought to have made such claim.
7.33) As per the claim no.4 made in the Statement of Claim, claimant made a claim of Rs.23.70 Crore towards damages which was improved at the stage of examination in chief of the claimant to Rs. 85.14 Crore and as against that the Tribunal by majority view has accepted the findings of the expert Mr. Jonathan Ellis that the Page 390 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined loss suffered by LLP was of Rs. 419.80 Crore and passed the award of 20% thereof being the share of the claimant towards damages and loss of profit alleged to have been suffered. Thus entire award and analysis of expert evidence of Jonathan Ellis appears to be manifestly perverse and contrary to the justice and morality and is in conflict with the pubic policy as held by the Hon'ble Supreme Court in case of Associate Builders v. Delhi Development Authority reported in (2015) 3 SCC 49, wherein it is held as under:
"Justice
36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs. 30 lakhs in a statement of Page 391 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice"."
7.34) It is also pertinent to note that majority view of the Tribunal has arrived at figure of loss of Rs. 419.80 Crore by awarding both the claims i.e. alleged damages for alleged future loss in the sum of Rs.414.90 Crore and alleged actual loss of Rs. 4.9 Crore which even otherwise is not permissible to be granted as held by the Apex Court in case of Kanchan Udhoyg Limited v. United Spirits Limited reported in (2017) 8 SCC 237, wherein it is held as under:
"30 That leaves the question with regard to reliance loss and the Page 392 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined expectation loss. Whether the two could be maintainable simultaneously or were mutually exclusive? In Pullock & Mulla, 14th Edition, Volume II, page 1174, the primary object for protection of expectation interest, has been described as to put the innocent party in the position which he would have occupied had the contract been performed. The general aim of the law being to protect the innocent party's defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness. The purpose of protection of reliance interest is to put the plaintiff in the position in which he would have been if the contract had never been made. The loss may include expenses incurred in preparation by the innocent party's own performance, expenses incurred after the breach or even pre- contract expenditure but subject to remoteness. The following passage from the same is considered appropriate for extraction:
"No Recovery for Both, the Expectation Loss and the Reliance loss."Page 393 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Although the rules as to damages seek to protect both the expectation and the reliance interests, the innocent party cannot ordinarily recover both expectation loss, viz., loss of profit, and reliance loss, viz., expenses incurred in reliance on the promise; that would involve double counting. He has to choose between the two measures.
However, he cannot claim reliance losses to put himself in a better position that if the contract had been fully performed: else, the award of damages for reliance losses would confer a windfall on the plaintiff, and would increase the damages in proportion to the claimant's inefficiency in performance, rather than in proportion to the gravity of the breach, and probably of normal principles of causation. In such cases, therefore, the plaintiff can recover the loss on account of the wasted expenditure or outlay only to the extent of the expected gain; and the onus of proving lies on the party committing the breach to show that the reliance costs (or any part of them) would not have been recouped, and would still have been wasted, had the contract been performed."
Page 394 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 31 In C & P Haulage , which considers Cullinane also, it has been observed as follows:
"The law of contract compensates a plaintiff for damages resulting from the defendant's breach; it does not compensate a plaintiff for damages resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses he has incurred are losses flowing from entering into the contract, not losses flowing from the defendant's breach. In these circumstances, the true consequence of the defendant's breach is that the plaintiff is released from his obligation to complete the contract-or in other words, he is saved from incurring further losses. If the law of contract were to move from compensating for the consequences of breach to compensating for the consequences of entering into contracts, the law would run contrary to the normal expectations of the world of commerce. The burden of risk would be shifted from the plaintiff to the defendant. The defendant would become the insurer of the plaintiff's' enterprise. Moreover, the amount of damages would increase not in relation to the Page 395 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined gravity or consequences of the breach but in relation to the inefficiency with which the plaintiff carried out the contract. The greater his expenses owing to inefficiency, the greater the damages."
32 In view of the conclusion, that the appellant was not entitled to any expectation loss towards anticipated profits, for reasons discussed, any grant of reliance loss would tantamount to giving a benefit to it for what was essentially its own lapses. There are no allegations of any deficiency in the plant. Contrary to its claim of Rs.2.52 crores towards cost of the plant, the learned Single Judge awarded Rs.1.60 crores without any discussion for the basis of the same. Though the appellant had preferred a cross appeal, it did not press the same."
7.35) It is shocking the conscience of the Court that quantification of amount of Rs. 419.80 Crore as damages by relying on report of expert Mr. Jonatham Ellis and referring to the judgment of Mc Dermott Page 396 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined International Inc. v. Burn Standard Co.
Ltd reported in (2006) 11 SCC 181 which cannot be applied in facts of the case as it is well settled that award cannot be made for the purpose of profiteering. The impugned award is therefore, highly speculative without any basis as held by the Apex Court from time to time in judgments cited by the respondent nos.1 and 2 referred herein in above.
7.36) In view of above analysis, this Court is of the opinion that minority view of late Hon'ble Mr. Justice G.T. Nanavati(retired) is a correct view and no award could have been passed under the head damages of loss and profit to be paid by respondent no.1 to the claimant to the extent of 20% share of claimant by computing total damages and loss of Rs.
Page 397 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 419.80 Crore alleged to have been suffered by respondent no.4-LLP on the basis of estimate made by the Tribunal on hypothesis on not happening of events in future as per the oral evidence of expert Mr.Jonatham Ellis who was examined by the claimant. Such estimate made by the Tribunal is without any basis and contrary to the clause 34A and 34B of the LLP agreement and entire approach of the Tribunal shocks the conscience of the Court for passing such award of Rs. 84 Crore to be payable by respondent no.1 to the claimant.
8) Whether the Tribunal was right in awarding costs, fees and expenses as per Appendix-A to Appendix-G totalling to Rs.14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 payable to the Page 398 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined claimant?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
8.1) It was submitted that validity and the correctness of the cost assumes importance and cost alone cannot be granted in favour of one party against another party in absence of any other relief being granted. It was submitted that the Tribunal has no power or jurisdiction to grant cost alone as is done in the case of appellant-Kamal Jadhwani as the same violates the section 34 of the Act.
8.2) Thereafter learned advocate Mr. Masoom Shah referred to the reasons for granting legal cost other than that of arbitration by the Tribunal. It was Page 399 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined submitted that in para. 271 the Arbitral Tribunal held that appellant Kamal Jadhwani is liable for entire Appendix A as submitted by the claimant and reasons given in para nos. 266 to 271 of the award for giving cost against appellant Kamal Jadhwani for court proceedings, proceedings related to ROC, criminal proceedings and Constitutional remedies.
It was therefore, submitted that granting of legal cost for the proceedings other than arbitration is without jurisdiction and authority.
8.3) Learned advocate Mr. Masoom Shah thereafter referred to findings of the Arbitral Tribunal on the issue of granting cost other than that of arbitration. It was submitted that one of the major reasons attributed by the Page 400 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal is delay. It was submitted that the claimant made allegation against Hon'ble Mr. Justice M.B. Shah (retired) which led to his resignation and resignation of Hon'ble Mr. Justice J.M. Panchal (retired) and then claimant sought for international arbitrators who wanted exorbitant fees and refused to decline the arbitration when appellants were not able to afford their fees. It was therefore, submitted that it was the claimants who are the root cause for delay. It was submitted that section 17 draft order of Hon'ble Mr. Justice M.B. Shah clearly exposes the conduct of the claimant.
8.4) It was further submitted that section 31A of the Act does not empower the Arbitral Tribunal to award cost for constitutional remedies available under Page 401 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Articles 226 and 136 of the Constitution of India. It was submitted that the Constitution has created the Parliament, the Parliament has enacted the Arbitration and Conciliation Act, 1996 which enables the creation of Arbitral Tribunal and therefore, it is absurd that the Arbitral Tribunal claims power to grant cost for proceedings before the Writ Court and Supreme Court under the Constitutional remedies.
8.5) Learned advocate Mr. Masoom Shah thereafter referred to comparision of claimant's Appendix-A and Appendix-A granted by the Tribunal under various heads and submitted that the full claim made by the claimant was granted.
8.6) It was further submitted that on Page 402 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined bare reading of section 31A of the Act it is very clear that Court or Arbitral Tribunal has the power to grant cost for court proceedings and arbitral proceedings respectively but the same cannot be interpreted that in a case where the Court has granted cost or not granted the cost, the Arbitral Tribunal can step in and become a Court which is above the High Court and the Supreme Court. It was therefore, submitted that section 31A does not permit the Arbitral Tribunal to impose cost and the same is without power and authority and is in violation of section 34 of the Act.
8.7) It was submitted that the claimant's claim even includes the cost for which High Court or Supreme Court has not granted any cost or has granted Page 403 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined against the claimant. It was submitted that the petitions under Articles 226 and 136 of the Constitution form part of the basic structure of the Constitution of India and once the Constitutional Courts have decided not to impose the cost, arbitrators cannot impose cost.
8.8) It was submitted that claimant's claim in Appendix A of Written Submission for Court proceedings under the Act, constitutional remedies, criminal proceedings, ROC proceedings etc. is fully granted by the Arbitral Tribunal which is arbitrary, unreasonable and violates the principles of natural justice due to the following reasons:
a) There are lot of discrepancies between Appendix A as claimed and as granted, Page 404 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined though total somehow remains same as is apparent from Schedule 3.
b) No bills, or receipts of any payment including that of travel, lodging etc are produced and everything is accepted by the Tribunal as gospel truth. The claimant has not provided bills, invoices, receipts of payments, transcriber's invoices, travelling tickets, hotel invoices etc.
c) In Table-I, as compared to Table-V, no names of Senior Counsels are given and hence there is no break up as to payment is made regarding which appearances and further no receipts of payments are produced. Same applies of for other items in the said table.
d) In Table-I, at Sr. 5- Payment to Page 405 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Arbitrators, Rs.62 Lakhs approximately out of Rs. 1,24,00,276/- was paid by both the appellants collectively.
e) In Table II, "Costs for November Tranch (7-15 November 2019)", the total of items 2 to 12 comes to be Rs. 39,79,291/- but the total is shown to be Rs.
1,12,79,291.25/-. Hence, there is a difference of Rs. 73,00,000/-. This shows total non-application of mind.
f) In Table-IV of Claimant Appendix-A, the total amount that the claimant has paid to Arbitrators is Rs. 4,39,24,085/- out of which Rs. 1,07,56,800/- is paid to Mr. Rajah Tann as Arbitrator fees. Thus, the total amount paid to the Arbitrators by the claimant is Rs.3,31,67,286/-. While the amount Awarded by the Arbitrators in Page 406 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Table-IV of the Appendix to the Award in the category of Arbitrators fees is Rs.
5,48,07,525/-. Thus, there is a difference of nearly double the amount to what has been paid to Mr. Rajah Tann as is apparent from Schedule I.
g) In Table-IV, no break up is given as to which counsel has been paid fees in relation to Arbitration proceedings and which counsel for any court proceedings.
Thus the claim and grant of legal cost is arbitrary, unreasonable, without application of mind and violates principles of natural justice.
h) For counsel, transcribers' fees etc. claimant has produced no bills and receipts and Tribunal has proceeded to award the same without any proof.
Page 407 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 8.9) Learned advocate thereafter made the following submissions regarding pecuniary inducement arising out of the award:
a) Written Submission of the Claimant has appendix A which is allowed in total in the final award, which has payment to the "arbitrator" called Mr. Rajah Tann of Rs.
1.10 Crore approx. No such arbitrator is ever appointed by the arbitral tribunal.
Payment to such alleged arbitrator is without informing the Appellants and behind the back of the Appellant.
b) There was no order by the Arbitral Tribunal to provide any payments whatsoever in the said person's accounts.
The act of the claimant in remitting the Page 408 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitral fees as per Table IV of Appendix-
A is suspicious and raises serious doubts with regard to the intention of such payments who the claimant claims is the "arbitrator".
c) There have been huge discrepancies in the number of arbitral fees paid by the claimant in their Appendix-A and the fees as awarded in the Arbitral Award dated 16.04.2021.
d) That the unilateral exorbitant fees were decided by the International Arbitrators inspite of the objections by the Appellant and Neeraj Shah (Appellant in connected matter). The same were forced upon the Appellants. There was no conduct like gentleman (From Pradhan J or Anantham J or Andre Yeap J) to walk away as the Page 409 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Appellants were unable to pay exorbitant fees. Late Hon'ble Mr. Justice G.T. Nanavati (retired) had worked previously under Hon'ble Mr. Justice C.K. Thakker (retired) and Hon'ble Mr. Justice M.B. Shah (retired) tribunal, hence the issue arose from the improper demands made by International Arbitrators. Appellants were ready and willing to pay the fees paid to earlier arbitral tribunal headed by Hon'ble Mr. Justice CK Thakker (retired) and Hon'ble Mr. Justice MB Shah (retired) Claimant agreed to pay the fees and the arbitral tribunal was more than ready to accept the same. Reliance was placed on the decision in case of Ashokkumar Nandy v. S.C. Dass, reported in AIR 1935 Cal 3591, wherein it is held as under:
"33. When it was found that Mr. Das was not in a position to pay Page 410 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined his share it would have been wiser on the part of the arbitrators if they had proceeded to complete their award and then retain it until such time as their fees were paid by the party in whose favour it was in fact made.
34. Mr. Isaacs sought to bring the present case within the four corners of an old case decided in England in the year 1734 the case of Shephard v. Brand, 2 Barnard
463. In that case, arbitrators to whom disputes between A and B had been referred, before making their award, demanded three guineas from each of the parties in respect of their charges and expenses. A paid the money but B did not. On a motion to set aside the award it was held that where arbitrators take money from one of the parties singly, whether for charges or anything else, before making their award, that is sufficient cause to set aside the award. No doubt the principle there enunciated is sound and correct and it is therefore generally speaking undesirable not to say improper for arbitrators to take money from one side only before the award is actually made. The decision in the case just referred to was made upon the footing that the arbitrators were or, at any rate, might have been biased in favour Page 411 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the party who in fact, had paid their charges. In a much later case, In re Kenworthy and the Queen Insurance Co. (1893) 9 TLR 181, however the Court refused to set aside an award on the ground that an undertaking had been given by one side to take up the award in any event. In that case, disputes arising out of a policy of insurance were referred to two arbitrators and an umpire under an arbitration clause in the policy at the end of the hearing met before the making of the award. The arbitrator for the company asked the solicitor for the company whether the company would undertake to take up the award in any event. The company gave this undertaking. On a motion to set aside the award on the ground that the undertaking to take up the award amounted practically to a payment of money by the company to the arbitrator, it was held, distinguishing 2 Barnard 463(5) (supra) that the arbitrators had not been guilty of such misconduct as would require that the award should be set aside.
35. All the same however, in my judgment, the principles underlying the decision in 2 Barnard 463(5) still hold good and it is imperative that arbitrators should always scrupulously avoid Page 412 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined any course of action which even remotely bears the complexion of their having put themselves into a position where it might be said against them that they had received a pecuniary inducement which might have had some effect on their determination of the matters submitted to their adjudication. In the present instance. I do not think it can be rightly contended that the circumstances attending the payment of the fees of the arbitrators brings the case between the ambit of the decision in 2 Barnard 463(5) (supra). I should be very reluctant to hold that the arbitrators in the present case were influenced in their decision by the manner in which their fees came into their hands. It is true that the whole of the sum of Rs. 2,000 was paid in the first instance by Akshoy Kumar Nandy but half that sum was provided by him by way of accommodating Mr. Das of the plaintiff firm S.C. Das & Co., when Mr. Das found himself in the position of not been able to arrange for the two cheques for Rs. 500 each to be met on presentation, and what was done by Mr. Deb, the solicitor acting on behalf of the defendant was not objected to by Mr. Banerjee, the solicitor for the plaintiff firm.
Page 413 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined The whole matter of the payment of the arbitrators' fees was one of mutual arrangement between the contending parties as appears from the minutes the correctness of which has not been disputed. Moreover from the very outset of his argument Mr. Isaacs partly stated he was not in a position to substantiate nor did he intend even to put forward the allegation contained in para. 14(3) of the petition of S.C. Das & Co., on which the present proceedings were founded. That attitude on the part of the learned Counsel appearing for S.C. Das & Co., puts the present case outside the mischief aimed at in 2 Barnard 463(5). Having said that however I feel bound to emphasise that the arbitrators would have been wiser had they avoided altogether a method of collecting their fees which laid them open to imputations of corruption-or at any rate prejudice-however unfounded such imputations might prove to be upon close examination. The last point taken by Mr. Isaacs on behalf of the applicant is that set forth in para. 14(4) of the petition. It is stated in these terms:
"That the plaintiff fraudulently withheld the inspection to the defendant of the Khatian or ledger Page 414 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined books for the years 1923 and 1924 although the same were disclosed by the plaintiff in letter dated 24th June 1932 written by the plaintiff's solicitors to the defendant's solicitors and tendered and marked Ex. 10 in the arbitration proceedings in Suit No. 1291 of 1932. If the said ledger books were produced by the plaintiff the same would have disclosed the real state of affairs regarding the items on the debit side of the statement of account filed with the written statement between 28th April 1923 and 14th June 1923 and also between 8th March 1924 and 20th October 1924 involving large sums of money advanced by the defendant, to the plaintiff and the arbitrators could have come to the true findings in their award. (5) The arbitrators should have directed the plaintiff to produce the said ledger books but they did not do so."
e) That such conduct in facts and circumstances of the case along with the issues of unilateral fixation of exorbitant fees, acceptance of unilaterally fixed exorbitant fees from Page 415 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined one party, conditional acceptance of affidavit in evidence if consent for extension of time is granted, non granting of time for new lawyer/ill health of Neeraj Shah, continuation of arbitration in violation of s. 29A, conducting the arbitration in the pandemic virtually when there was no urgency and Supreme Court had suspended limitation, conducting Virtual cross examination, when earlier the same was rejected by the arbitral tribunal, etc leads to the conclusion that the arbitral tribunal has not conducted itself with the independence and impartiality which are hallmarks of arbitration. That a case is made out for corruption u/s. 34.
f) Above said instance when looked conjunctively; leads to conclusion that it will be covered within the scope of such Page 416 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined conduct is blameworthy and improper. The Hon'ble Supreme Court has even considered such blameworthy and improper conduct as "corruption".
g) Reliance was placed on the following decisions:
a) In case of S. Dutt Dr. v. State of UP, reported in AIR 1966 SC 523, wherein it is held as under:
"ll The word "corrupt" has been judicially construed in several cases but we refer here to two cases only. In Emperor v. Rana Nana Chief Justice Macleod considered the word to be of wider import than the words fraudulently or dishonestly and did not confine it to the taking of bribes or cases of bribery. In Bibkhranjan Gupta v. King Mr Justice Sen dealt at length with this word. He was contrasting Section 196 with Section 471 and observed that the word corruptly was not synonymous with dishonestly or fraudulently but was much wider. According to him it even included conduct which was neither fraudulent nor dishonest if it was otherwise Page 417 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined blameworthy or improper."
b) Secretary, Jaipur Development Authority, Jaipur v. Daulat Mal Jain, reported in (1997) 1 SCC 35, wherein it is held as under:
"14. The so-called public policy cannot be a camouflage for abuse of the power and trust entrsuted with a public authority or public servant for the performance of public duties. Misuse implies doing of something improper. The essence of impropriety is replacement of a public motive for a private one. When satisfaction sought in the performance of duties is for mutual personal gain, the misuse is usually termed as corruption. The holder of a public office is said to have misused his position when in pursuit of a private satisfaction, as distinguished from public interest, he has done something which he ought not to have done.
c) In case of High Court of Judiciature at Bombay v. Shirishkumar Rangrao Patil, reported in (1997) 6 SCC 339, wherein it is held as under:Page 418 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined "16... In widest connotation, corruption includes improper or selfish excerise of power and influence attached to a public office(emphasis supplied)"
Submissions of claimant:
8.10) With regard to reasonableness of costs awarded, it was submitted that it is the contention of the petitioners that the Arbitral Tribunal has charged huge amount of costs for which no details have been supplied and that in absence of any agreement between the parties in regard to the same, Arbitral Tribunal could not have charged such a huge amount as 'costs' as it would be regarded to be part of fees only and consequently the Award is illegal and in conflict with public policy, it was submitted that Section 31A of the Act deals with 'regime of costs' and the expenses incurred in connection with Court Page 419 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined proceedings relatable to the Award can always be included within the term 'costs', as provided under Section 31 of the Act.
8.11) It was submitted that the petitioners have alleged that there is an ex facie error in the Arbitral Award passed by the Arbitral Tribunal and that there is difference in the Award of costs between the sums recorded at Para No.272, sub-paragraph No. 'P' and 'U' and the figure awarded at Paragraph No. E at Page-
223 of the Award which is misleading inasmuch as Paragraph No.272. sub-
paragraph Nos. 'P' to 'U' take into account sub-totals 'A', 'C. D. E G' and 'F', amounting to INR 13,14,54,138/- and SGD 948,634/- Thereafter, Paragraph No. E(1)(i) of the Award also includes the sum Page 420 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of INR 11279291,25/- and SGD 229683/-, which was ordered to be paid by the petitioners to respondent by a cost order dated 23.12.2019 which is specifically categorized as sub-total 'B' in Appendix A to the Award. It was submitted that the sum total of the above figures ie, sub-
totals A, C, D, E, F and in paragraph No.272 (P) to (U) and paragraph No. E(1)
(i) of the Award totals to INR 14,27,33,429.65/- and SGD 984,454.87. It was submitted that as such, there is no error, let alone any ex facie error in the Award and therefore, the contention of the petitioners in this behalf is misleading.
8.12) Learned advocate for the claimant submitted that the computation errors in the written submission were specifically corrected vide the email dated 30.03.2021 Page 421 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined addressed by Dato Anantha Kasinather and the reconciled figures of sub-total D i.e, Arbitrator's fee and expenses including per diem and travelling charges as highlighted in Table 4 of Appendix A of Final Award are therefore correct and detailed.
8.13) Learned advocate for the claimant submitted that in support of his submission with regard to cost the respondent filed two affidavits of Mr. Anil Brahmakshatriya (Chartered Accountant) dated 24.10.2019 including one affidavit on the costs incurred by the Respondent and Mr. Brahmakshatriya was cross examined by the counsel of the petitioners. It was therefore, submitted that the contention of the petitioners in respect of 'costs & expenses' are Page 422 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined erroneous and misconceived.
Reasons and Findings:
8.14) On perusal of the impugned award, awarding cost of INR 14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 to the claimant is concerned, on face of it, the Tribunal has computed such cost contrary to the provisions of section 31A of the Act dealing with the regime of cost. It appears that the Tribunal while giving expanded scope to section 31A by including the cost for proceedings between the parties before the High Court and Supreme Court by interpreting Explanation (iv) to sub-section(1) of section 31A which provides for cost for any other expenses incurred in connection with arbitral or Court proceedings and the arbitral award.Page 423 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined However it appears that the Tribunal has lost sight of the fact that sub-section (1) of section 31A provides for cost in relation to any arbitration proceedings or a proceedings under any of the provisions of the Act pertaining to the arbitration only. Thus, the Tribunal by awarding the cost for the fees of the counsels who appeared before the High Court and Supreme Court has violated the provisions of section 31A of the Act. The Explanation
(iv) to sub-section(1) of section 31A cannot go beyond the scope of section 31A and it has to be read harmoniously without ambiguity and it should not be construed to widen the scope of section 31A of the Act. Section 31A of the Act reads as under:
"31A. Regime for costs.-Page 424 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine-
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid.
Explanation.-For the purpose of this sub-section, "costs" means reasonable costs relating to-
(i) the fees and expenses of the arbitrators, Courts and witnesses;
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the arbitration; and
(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.
(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,-
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(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or
(b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.
(3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including-
(a) the conduct of all the parties;
(b) whether a party has succeeded partly in the case;
(c) whether the party had made a frivolous counter-claim leading to delay in the disposal of the arbitral proceedings; and
(d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party.
(4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay-
(a) a proportion of another party's costs;
(b) a stated amount in respect of another party's costs;
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(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date.
(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.]"
8.15) Therefore, reliance placed by respondent no.2 on decision in case of Bihta Cooperative Development Cane Marketing Union Ltd. and another v. Bank of Bihar and others reported in (1967) 1 SCR 848, is squarely applicable to the above proposition of interpreting Page 427 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined applicability of explanation to the provisions of the Act, wherein it is held as under:
"We find ourselves unable to accept this contention. Before the amendments introduced in 1948, the Explanation to the section made no mention of non-members and non- members had to be included in the Explanation because of the inclusion of this class of persons in category (e) of sub-s. (1) of s.48. The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section. The scheme of sub- section (1) of s. 48 seems to be that certain disputes touching the business of a registered society should not be taken to civil courts and made the subject matter of prolonged litigation. The legislature took pains to specify the persons whose disputes, were to be subject matter of reference to the Registrar. Non-members did not come into the picture at all. Non-members other than officers, agents or servants of the society do not figure in sub-cls. (a) to
(d) except as sureties of members.
By sub. cl. (e) only those non- members who had disputes with a Page 428 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined financing bank authorised under the provisions of sub-s. (1) of s. 16 were made amenable to the jurisdiction of the Registrar. It was probably thought desirable in the interest of the financing bank which might otherwise be faced with litigation in a civil court in respect of its ordinary day-to- day transactions of advances to agriculturists who were non- members that disputes between the society and this class of persons should be quickly and inexpensively adjudicated upon by the Registrar. Before the amendment of 1948, the Explanation only served to clear up the doubt as to whether a dispute was referable to the Registrar when the debt or demand was admitted and the only point at issue was the ability to pay or the manner of enforcement of payment. As already pointed out by this Court, the Explanation had to include non-members after the. insertion of category (e) in sub-s. (1) of s. 48. The purpose of the Explanation never was to enlarge the scope of sub-s. (1) of s. 48 and the addition of category (e) to that sub-section and the inclusion of non-members in the Explanation cannot have that effect."
8.16) Therefore, without going into the Page 429 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined details of computation of cost made by the Tribunal, it is held that entire approach of the Tribunal to compute the cost as demonstrated by respondent nos.1 and 2 on face of it is contrary to section 31A of the Act and therefore, the Tribunal was not justified in awarding cost, fees and expenses incurred by the claimant as per Appendix-A to Appendix-G to the award.
8.17) In view of the foregoing reasons, it is held the award passed by the Tribunal awarding the cost of INR 14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 to the claimant would result into miscarriage of justice as the entire approach of the Tribunal is perverse and patently illegal so far as awarding of cost is concerned by providing an undeserved windfall to the claimant.
Page 430 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 8.18) Therefore, the Tribunal was not justified in awarding cost, fees and expenses incurred by the claimant to the extent of INR 14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 to the claimant. Tribunal ought to have awarded cost within the four corners of section 31A of the Act pertaining to the arbitration proceedings only.
III Scope of Section 34
9) Whether any interference is called for in the impugned arbitration award under section 34 of the Arbitration and Conciliation Act, 1996?
Submissions made by learned Senior Advocate Mr. S.N. Soparkar for petitioner- respondent no.1:
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9.1) Learned Senior Advocate Mr. Soparkar submitted that though the respondent nos. 1 and 2 have raised the objections with regard to jurisdiction of the Tribunal on the ground of section 29A of the Act as well as inability of the respondent nos. 1 and 2 to pay the exorbitant fees fixed by the reconstituted Tribunal, by unilateral action for which various applications were filed by the respondent nos. 1 and 2 but the same is brushed aside by the Tribunal without considering the contents thereof. It was submitted that the respondent nos. 1 and 2 have time and again made plea-emails as provided under section 16 of the Act and the Tribunal has failed to decide the same in accordance with the provisions of section 16 and therefore, the respondent Page 432 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined nos. 1 and 2 have only option to challenge the action/order of the Tribunal of assuming jurisdiction under section 34 of the Act in this petition.
9.2) Learned Senior Advocate Mr. Soparkar also raised contention with regard to non compliance of mandatory provision of section 14 of the Act and submitted that mandatory provision of section 14 cannot be waived as the petitioners have preferred an application under section 16 raising objection with regard to the jurisdiction of the Tribunal and the provisions of section 14 of the Act cannot be resorted to as it was not the remedy and the respondent nos. 1 and 2 were required to wait till award is passed to challenge the same under section 34 of the Act.
Page 433 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 9.3) In the alternative, it was submitted that issues of section 14 of the Act goes to the root of the matter and is an issue of without jurisdiction and the entire arbitral proceedings would be a nullity. Reliance was placed on the following decisions of Hon'ble Supreme Court wherein it is held that contention can be taken up at any stage and even during collateral proceedings:
a) Hindustan Zinc Limited (HXL) v. Ajmer Vidyut Vitran Nigam Limited reported in (2019) 7 Supreme Court Cases 82.
b) Lion Engineering Consultants v. State of Madhya Pradesh and others reported in (2018) Supreme Court Cases 758.Page 434 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
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c) Naresh Kanayalal Rajwani and others v.
Kotak Mahindra Bank Limited and another reported in 2022 SCC OnLine Bom 6204.
d) Hina Suneet Sharma v. M/s. Nissan Renault Financial Services India Private Limited (judgment dated 15.02.2023 passed in Arb.O.P.(Com.Div.) No.159 of 2022).
9.4) It was therefore, submitted that even if plea is not taken by way of objection under section 16 of the Act, there is no bar to take such plea by way of petition under section 34 of the Act.
Submissions of claimant:
9.5) On the other hand, learned advocate for the original claimant-decree holder at the outset submitted that the Page 435 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined present case falls under the four corners of 'International Commercial Arbitration"
as is held by Hon'ble Supreme court in its order dated 24.07.2017. It was submitted that scope of section 34 of the Act is very much limited with reference to International Commercial Arbitration inasmuch as the grounds of patent illegality or perversity or wandering outside the contract or going into the merits of the matter or re-appreciation of evidence or jurisdictional error or erroneous application of law etc. are not available for setting aside the the Award in the present matter nor is the judicial review on merits permissible while exercising the powers under section 34 of the Act. In support of his submission, reliance was placed on decision of Hon'ble Page 436 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Supreme Court in case of Ssangyong Engineering & Const. Company Ltd v. NHAI reported in (2019) 15 SCC 131. It was submitted that in para.69 of the said judgment it has been categorically held that the grounds relatable to section 28(3) of the Act to be the matters beyond the scope of submission of arbitration under section 34(2)(1)(iv) of the Act would not be permissible.
9.6) It was submitted that while dealing with the challenge against the award rendered in International Commercial Arbitration conducted in India under section 34 of the Act, very limited power as exercisable under section 48 in case of a foreign award, would be available.
Reliance was placed on decision in case of Vijay Karia v. Prysmian Cavi E Sistemi SRL Page 437 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined reported in (2020) 11 SCC 1.
9.7) Reliance was also placed in decision in case of Government of India v. Vedanta Ltd. reported in (2020) 10 SCC 1, wherein it is held as under:
"42.1 The tribunal's interpretation of Article 15.5(c) had the effect of substituting the plain language of sub-clause (xi) of the said Article, with a new stipulation that the cost of construction of the wells in the Ravva Field would be borne by the Government, once the production capacity of 35,000 BOPD was achieved. This interpretation rendered the stipulation of drilling 19 oil wells and 2 gas wells contained in Article 15.5(c)
(xi) as nugatory. The tribunal omitted any reference to Attachment 10 of the Ravva Development Plan, which was crucial to the determination of the dispute, and formed an integral part of the PSC, since it contained the basis of the computation of the amount payable towards Base Development Cost.
Such an Award would shock the conscience of the Court, and would be in conflict with the public Page 438 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined policy of India, and contrary to the interests of India.
xxx
117. The International Council for Commercial Arbitration (ICCA) Guide to the Interpretation of the 1958 New York Convention : A Handbook for Judges (2011), states that while considering the grounds for refusal of a foreign award, the Court must be guided by the following principles (i) no review on merits; (ii) narrow interpretation of the grounds for refusal; and (iii) limited discretionary power.
118. The merits of the arbitral award are not open to review by the enforcement court, which lies within the domain of the seat courts. Accordingly, errors of judgment, are not a sufficient ground for refusing enforcement of a foreign award.
119. Given the well-settled position in law with respect to the finality of awards in international commercial arbitrations, and the limits of judicial intervention on the grounds of public policy of the enforcement State, we will advert to the facts of the present case.
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120. The Appellants have contended that the award may not be enforced, since it is contrary to the basic notions of justice. We are unable to accept this submission for the following reasons :
121. Firstly, the Appellants have not made out a case of violation of procedural due process in the conduct of the arbitral proceedings. The requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process. Fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based. In the present case, there is no such violation alleged.
122. secondly, the Appellants have not made out as to how the award is in conflict with the basic notions of justice, or in violation of the substantive public policy of India.
123. In the seminal judgment of Parsons (supra), which has been followed in various jurisdictions, including by the Indian Supreme Page 440 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Court in the Renusagar case, it was held that enforcement may be refused only if it violates the enforcement State's most basic notions of morality and justice, which has been interpreted to mean that there should be great hesitation in refusing enforcement, unless it is obtained through "corruption or fraud, or undue means."
xxx
127. The Appellants are aggrieved by the interpretation taken by the tribunal with respect to Article 15.5 (c) of the PSC and its other sub-clauses. The interpretation of the terms of the PSC lies within the domain of the tribunal. It is not open for the Appellants to impeach the award on merits before the enforcement court. The enforcement court cannot re-assess or re-appreciate the evidence led in the arbitration. Section 48 does not provide a de facto appeal on the merits of the award. The enforcement court exercising jurisdiction under Section 48, cannot refuse enforcement by taking a different interpretation of the terms of the contract.
128. We feel that the Page 441 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined interpretation taken by the tribunal is a plausible view, and the challenge on this ground cannot be sustained, to refuse enforcement of the Award."
9.8) It was submitted that as per clause (ii) of Explanation 1 to Section 34(2)(b)(ii) of the Act, the expression "fundamental policy of Indian Law" does not mean an allegation of exercise of fraud by one contracting party to another or simpliciter breach of any legislative provision for setting aside the award but it means a breach of fundamental and substratal legislative policy which is not susceptible of being compromised and not mere breach of a provision of any enactment.
9.9) Relying upon the judgment of Hon'ble Apex Court in case of UHL Power Page 442 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Company Ltd. v. State of Himachal Pradesh reported in (2022) 4 SCC 16, it was submitted that under section 34 of the Act, it is not open to re-appreciate the findings of the Arbitral Tribunal by acting as a Court of Appeal.
9.10) Learned advocate for the claimant submitted that there is no application filed by the petitioners under Section 16 of the Act before the Arbitral Tribunal and in absence thereof, there arises no question of raising any such dispute related to the said provision directly before this Court under Section 34 of the Act and that too during the oral submissions and not in the pleadings of the present petition.
9.11) With regard to the contention of Page 443 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the petitioner of partial setting aside of an award under section 34 of the Act, it was submitted that decision in case of NHAI Vs. M. Hakeem, reported in (2021) 9 SCC 1 is required to be appreciated in the context of the factual backdrop obtaining in the said case, wherein there was a single claim demanding compensation, which was allowed by the learned Arbitrator by awarding abysmally low amount. Whereas, the learned District Court, while exercising Section 34 jurisdiction, modified the said Award by directing NHAI to grant higher amount of compensation. It was in view of the said peculiar facts that the Hon'ble Supreme Court in the said case of M. Hakeem (Supra) held that the learned Court could not have modified the Award under Section 34 of the Act.
Page 444 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 9.12) It was therefore, submitted that the petitions deserve to be dismissed and that the Arbitral Award, being a reasoned award, deserves to be upheld.
9.13) Learned advocate for the claimant thereafter made his submission with regard to limitation period. It was submitted that the Award is executable as a decree of this court once the time period for challenging the Award has lapsed. The petition filed under Section 34 by Mr. Neeraj Kumarpal Shah although presented on 17.12.2021, was only registered on 29.08.2022. Similarly, the petition filed under Section 34 by Mr. Kamal Sevaram Jadhwani although presented on 23.12.2021, was only registered on 01.10.2022. It was submitted that Section 34(3) of the Act prescribes a limitation of 3 months (with Page 445 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined a maximum permissible delay of thirty days) for a petition for setting aside the arbitral award.
9.14) Learned advocate for the claimant thereafter referred to the following dates to submit that the judgment debtors kept their petition under objections for well beyond three months and thirty days:
a. 16.04.2021-Arbitral Award issued by the Arbitral Tribunal.
b. 28.04.2021-Mr. Neeraj Kumarpal Shah (through counsel) acknowledged receipt of the physical copy of the Award.
c. 17.12.2021-Section 34 Petition filed by the Petitioner, Mr. Neeraj Kumarpal Shah.Page 446 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined d. 23.12.2020-Section 34 Petition filed by the Petitioner, Mr. Kamal Sevaram Jadhwani.
e. 29.08.2022- The Section 34 Petition of Mr. Neeraj Kumarpal Shah was registered by the Hon'ble Court (after removal of objections).
f 01.10.2022-The Section 34 Petition of Mr. Kamal Sevaram Jadhwani as registered by the Court (after removal of objections).
9.15) It was submitted that as per the Gujarat High Court Rules, 1993, under Part 2, Rules 267 and 268 allow a period of fourteen days and a further extension of maximum one month to cure the defects of any application/ appeal filed. Rule 268 Page 447 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined
(ii) also mandates that the failure to cure the defects in such filing beyond the period of one month shall result in the failure to prosecute diligently. It was submitted that the total time taken for re-filing the captioned petitions far exceeds the time permitted for the filing of petition itself. It was submitted that no reasons whatsoever, let alone, any justifiable reason have been provided for such a delay by the Judgement Debtors.
Thus, on this ground itself, the captioned petition is liable to dismissed.
9.16) It was further submitted that even if the exclusion of limitation period is taken into account on account of the orders of Hon'ble Supreme Court in Suo Motu Writ Petition No. (3) of 2020, then also vide order dated 10.01.2022, Page 448 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined limitation period was last excluded till 28.2.2022 by the Hon'ble Supreme Court.
9.17) It was therefore, submitted that the limitation for filing even a fresh petition under Section 34 of the Act would have lapsed on 30.06.2022 i.e., after expiry of three months and thirty additional days. In the present case, the Judgement Debtors had kept the same pending for clearing objections for several months.
9.18) In support of his submission that that a party cannot be permitted an indefinite and unexplainable delay in re-
filing the petition and if a party fails to take expeditious steps to take an action within the specified time, then the Courts are proscribed from entertaining Page 449 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined such an action at the instance of such a party, reliance was placed on the following decisions:
a. Union of India v. Bharat Biotech International Ltd. reported in (2020 SCC Online Del 483.
b. Delhi Development Authority v. Durga Construction Co. reported in (2013 SCC Online Del 4451.
c. Executive Engineer v. Shree Ram Construction Co. reported in (2010 SCC Online Del 3951.
d. Delhi Transco Ltd. v Hythro Engineers Pvt. Ltd. reported in (2012 SCC Online Del 3557.Page 450 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 9.19) It was therefore, submitted that the Section petition under 34 is severely barred by limitation.
9.20) Learned advocate for the claimant further submitted that without prejudice to the Decree Holder's submissions on limitation and the Award having attained finality, the consideration of the Judgement Debtor's Section 34 petition, and particularly, the grant of any stay on the operation of the Award, ought to be subject to strict conditions upon the Judgement Debtor. It was submitted that the facts and circumstances of the present case mandate directions to the Judgement Debtors for deposit of security as the current legislative regime does not permit automatic stay on operation of the Award.
Any application for stay is subject to the Page 451 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined provisions of Section 36(3) of the Act. IT was submitted that the Court is required to have due regard to the principles of Order XLI Rule 5 of CPC, for grant of stay of money decree (the arbitral award in the present case) in terms of proviso to Section 36(3). It was submitted that the Judgement Debtors have made multiple and deliberate attempts to delay and derail the execution proceedings and the Judgement debtors have failed to demonstrate any urgency in pressing its Section 34 petition, and yet, has repeatedly cited the "filing" of its Section 34 as a pretext to prevent the execution proceedings from going ahead. It was submitted that the Award is enforceable as a money decree and the liability against the Judgement Debtors Page 452 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined stands crystallized under the Arbitral Award.
Reasons and Findings: 9.21) Section 34 of the Act prescribes
the grounds for setting aside the arbitral award. Section 34 is amended by Arbitration and Conciliation (Amendment)Act, 2015 and reads as under:
"Application for setting aside arbitral award :-
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the
application 4 [furnishes proof
that]-
(i) a party was under some
incapacity; or
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undefined
(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:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Page 454 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2-For the avoidance of doubt, the test as to whether there is a contravention with the Page 455 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined fundamental policy of Indian law shall not entail a review on the merits of the dispute.
[(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33 , from the date on which that request had been disposed of by the arbitral Tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.Page 456 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.]"
9.22) In view of above provision, exercise of jurisdiction under section 34 of the Act to set aside the award, has Page 457 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined been considered in various decision of Hon'ble Supreme Court, more particularly, in case of Associate Builders vs. Delhi Development Authority reported in 2015 3 SCC 49, wherein Hon'ble Apex Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, is impermissible. In addition to the grounds on which an arbitral award can be challenged as laid down in Section 34(2), arbitral award can be challenged on the ground of other than that such award is vitiated by patent illegality appearing on face of the record as provided under sub-
section (2A) as arbitral award is arising out of international commercial Page 458 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined arbitration.
9.23) Therefore, the scope of section 34 of the Act is very much limited with reference to international commercial arbitration award whereby grounds of patent illegality, perversity, wandering outside the contract, going into the merits of the matter, re-appreciation of evidence, jurisdictional error or erroneous application of law are not available for setting aside the award as held by the Apex Court in case of Ssangyong Engineering & Construction Co.
Ltd. vs. NHAI reported in (2019) 15 SCC 131 endorsing the view taken in case of Associate Builders(supra) on scope of interference in the arbitral award, no judicial review on merits is permissible and grounds relatable to section 28(3) of Page 459 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the Act are held to be matters beyond the scope of submission of arbitration under section 34(2)(a)(iv) of the Act and the same would not be permissible.
9.24) With regard to award being in violation of public policy of India, is in conflict with the public policy of India as per section 34(2)(b)(ii) of the Act in respect of award rendered in international commercial arbitration conducted in India, provisions of section 48 of the Act provides for conditions for enforcement of foreign award which provides that enforcement of a foreign award may be refused at the request of the party against whom it is invoked only if the proof as mentioned in clauses (a) to (e) are furnished to the Court.Page 460 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024
NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined 9.25) Section 48(2)(b) of the Act also provides that the enforcement of the award would be refused if the same is contrary to the public policy of India. Therefore, Explanation 1 to both section 34(2) and section 48(2) of the Act have explained what is public policy of India and prescribes that the award shall be said to be in conflict with public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81 or it is in contravention with the fundamental policy of Indian law or it is in conflict with the most basic notions of morality or justice.
9.26) Therefore, while dealing with the challenge against the award rendered in international commercial arbitration Page 461 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined conducted in India, scope of interference under section 34 read with section 48 of the Act is very limited.
9.27) In case of Vijay Karia v. Prysmian Cavi E. Sistemi SRL reported in (2020) 11 SCC 1 Hon'ble Supreme Court has held as under:
"43 It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as "the public policy of India" ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to "public policy of India" would be the same as the ground of resisting enforcement of a foreign award in India. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the Page 462 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India. In this respect, it is important to advert to paragraphs 30 and 43 of Ssangyong (supra) as follows: "30. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), 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.
xxx Violation of FEMA Rules 84 It has been argued by the Appellants, based on the Non-Debt Page 463 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Instrument Rules, that a foreign award by which shares have to be purchased at a discounted value, would violate the aforesaid Rules, and therefore, would amount to a violation of the fundamental policy of Indian law. Resultantly, the Appellants contended that as a result of this, the award in the present case would not be enforceable in India.
Xxx 86 Based on the aforesaid Rules, the Appellants have argued that the transfer of shares from the Karias, who are persons resident in India, to the Respondent No.1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)
(iii), the fundamental policy of Indian law contained in the aforesaid Rules would be breached;
as a result of which the award cannot be enforced.
87 Before answering this question, it is important to first advert to the decision of the Delhi High Court in Cruz (supra). The learned Single Judge was faced with a Page 464 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined similar problem of a foreign award violating the provisions of FEMA. In an exhaustive analysis, the learned Single Judge referred to Renusagar (supra) and then held:
"97.It plainly follows from the above that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian law. The expression fundamental Policy of Indian law refers to the principles and the legislative policy on which Indian Statutes and laws are founded. The expression "fundamental policy"
connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country.
98. It is necessary to bear in mind that a foreign award may be based on foreign law, which may be at variance with a corresponding Indian statute. And, if the expression "fundamental policy of Indian law" is considered as a reference to a provision of the Indian statue, as is sought to be contended on behalf of Unitech, the basic purpose of the New York Convention to enforce foreign awards would stand frustrated. One Page 465 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the principal objective of the New York Convention is to ensure enforcement of awards notwithstanding that the awards are not rendered in conformity to the national laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State's national policy and which it cannot be expected to compromise. The expression "fundamental policy of law" must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. xxx xxx xxx
102. Although, this contention appears attractive, however, fails to take into account that there has been a material change in the fundamental policy of exchange control as enacted under FERA and as now contemplated under FEMA. FERA was enacted at the time when the India's economy was a closed economy and the accent was to conserve foreign exchange by effectively prohibiting transactions in foreign exchange unless permitted. As pointed out by the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. (supra), the object of FERA was to ensure that the nation does not lose foreign Page 466 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined exchange essential for economic survival of the nation. With the liberalization and opening of India's economy it was felt that FERA must be repealed. FERA was enacted to replace the Foreign Exchange Regulation Act, 1947 which was originally enacted as a temporary measure. The Statement of Objects and Reasons of FERA indicate that FERA was enacted as the RBI had suggested and Government had agreed on the need for regulating, among other matters, the entry of foreign capital in the form of branches and concerns with substantial non- resident interest in them, the employment of foreigners in India etc. xxx xxx xxx
110. The contention that enforcement of the Award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the Award would necessarily require compliance of regulatory provisions and/or permissions."
88 This reasoning commends itself to us. First and foremost, FEMA - unlike FERA - refers to the nation's policy of managing Page 467 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined foreign exchange instead of policing foreign exchange, the policeman being the Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian law. Even assuming that Rule 21 of the Non- Debt Instrument Rules requires that shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value, the Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Further, even if the Reserve Bank of India were to take Page 468 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined action under FEMA, the non- enforcement of a foreign award on the ground of violation of a FEMA Regulation or Rule would not arise as the award does not become void on that count. The fundamental policy of Indian law, as has been held in Renusagar (supra), must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. "Fundamental Policy"
refers to the core values of India's public policy as a nation, which may find expression not only in statutes but also time- honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.
89 The Appellants, however, relied upon certain observations in Dropti Devi v. Union of India, 2012 7 SCC 499. In that case, a challenge was made to the constitutional validity of Section 3 of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (hereinafter referred to as "COFEPOSA"), stating that by reason of the new legal regime articulated in FEMA, in replacement of FERA, the said Page 469 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined provision has become unconstitutional in the changed situation. This submission was repelled by this Court stating:
"66. It is true that provisions of FERA and FEMA differ in some respects, particularly in respect of penalties. It is also true that FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA. FEMA continues with the regime of rigorous control of foreign exchange and dealing in the foreign exchange is permitted only through authorised person. While its aim is to promote the orderly development and maintenance of foreign exchange markets in India, the Government's control in matters of foreign exchange has not been diluted. The conservation and augmentation of foreign exchange continues to be as important as it was under FERA. The restrictions on the dealings in foreign exchange continue to be as rigorous in FEMA as they were in FERA and the control of the Government over foreign exchange continues to be as complete and Page 470 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined full as it was in FERA.
67. The importance of foreign exchange in the development of a country needs no emphasis. FEMA regulates the foreign exchange. The conservation and augmentation of foreign exchange continue to be its important theme. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardising the very economic fabric of the country. For violation of foreign exchange regulations, penalty can be levied and its non-compliance results in civil imprisonment of the defaulter. The whole intent and idea behind Cofeposa is to prevent violation of foreign exchange regulations or smuggling activities which have serious and deleterious effect on national economy."
It is important to note that this Court recognized that FEMA, unlike FERA, does not have any provision for prosecution and punishment like that contained in Section 56 of FERA. The observations as to conservation and/or augmentation of foreign exchange, so far as FEMA is concerned, were made in the context of preventive detention of persons who violate foreign exchange regulations. The Court was careful to note that any illegal activity which jeopardises Page 471 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the economic fabric of the country, which includes smuggling activities relating to foreign exchange, are a serious menace to the nation and can be dealt with effectively, inter alia, through the mechanism of preventive detention. From this to contend that any violation of any FEMA Rule would make such violation an illegal activity does not follow. In fact, even if the reasoning contained in this judgment is torn out of its specific context and applied to this case, there being no alleged smuggling activity which involves depletion of foreign exchange, as against foreign exchange coming into the country as a result of sale of shares in an Indian company to a foreign company, it does not follow that such violation, even if proved, would breach the fundamental policy of Indian law.
xxx 112 Having answered each of the submissions of Dr. Singhvi on behalf of the Appellants, we cannot help but be left with a feeling that the Appellants are indulging in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick. We have no Page 472 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined doubt whatsoever that all the pleas taken by the Appellants are, in reality, pleas going to the unfairness of the conclusions reached by the award, which is plainly a foray into the merits of the matter, and which is plainly proscribed by Section 48 of the Arbitration Act read with the New York Convention. We have read, in detail, the four awards passed by the learned sole arbitrator and are satisfied that he has exhaustively discussed the evidence and arrived at detailed findings for each of the issues, claims and counter-claims, and finally accepted the Respondent's case and rejected the Appellants'.
Given the fact that our jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that this Court's time has unnecessarily been taken by a case which has already been dealt with by four exhaustive awards on merits and also by the impugned judgment of the Bombay High Court, we dismiss these appeals with costs of INR 50 lakhs, to be paid by the Appellant to Respondent No.1 within 4 weeks from today.' 9.28) In case of Government of India v.
Vedanata Ltd. reported in (2020) 10 SCC 1, Page 473 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Hon'ble Supreme Court has held as under:
"42.1 The tribunal's interpretation of Article 15.5(c) had the effect of substituting the plain language of sub-clause (xi) of the said Article, with a new stipulation that the cost of construction of the wells in the Ravva Field would be borne by the Government, once the production capacity of 35,000 BOPD was achieved. This interpretation rendered the stipulation of drilling 19 oil wells and 2 gas wells contained in Article 15.5(c)
(xi) as nugatory. The tribunal omitted any reference to Attachment 10 of the Ravva Development Plan, which was crucial to the determination of the dispute, and formed an integral part of the PSC, since it contained the basis of the computation of the amount payable towards Base Development Cost.
Such an Award would shock the conscience of the Court, and would be in conflict with the public policy of India, and contrary to the interests of India.
xxx
117. The International Council for Commercial Arbitration (ICCA) Guide to the Interpretation of the 1958 New York Convention : A Page 474 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Handbook for Judges (2011), states that while considering the grounds for refusal of a foreign award, the Court must be guided by the following principles (i) no review on merits; (ii) narrow interpretation of the grounds for refusal; and (iii) limited discretionary power.
118. The merits of the arbitral award are not open to review by the enforcement court, which lies within the domain of the seat courts. Accordingly, errors of judgment, are not a sufficient ground for refusing enforcement of a foreign award.
119. Given the well-settled position in law with respect to the finality of awards in international commercial arbitrations, and the limits of judicial intervention on the grounds of public policy of the enforcement State, we will advert to the facts of the present case.
120. The Appellants have contended that the award may not be enforced, since it is contrary to the basic notions of justice. We are unable to accept this submission for the following reasons :
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121. Firstly, the Appellants have not made out a case of violation of procedural due process in the conduct of the arbitral proceedings. The requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process. Fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based. In the present case, there is no such violation alleged.
122. secondly, the Appellants have not made out as to how the award is in conflict with the basic notions of justice, or in violation of the substantive public policy of India.
123. In the seminal judgment of Parsons (supra), which has been followed in various jurisdictions, including by the Indian Supreme Court in the Renusagar case, it was held that enforcement may be refused only if it violates the enforcement State's most basic notions of morality and justice, which has been interpreted to mean that there should be great hesitation in refusing enforcement, unless it is obtained Page 476 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined through "corruption or fraud, or undue means."
xxx
127. The Appellants are aggrieved by the interpretation taken by the tribunal with respect to Article 15.5 (c) of the PSC and its other sub-clauses. The interpretation of the terms of the PSC lies within the domain of the tribunal. It is not open for the Appellants to impeach the award on merits before the enforcement court. The enforcement court cannot re-assess or re-appreciate the evidence led in the arbitration. Section 48 does not provide a de facto appeal on the merits of the award. The enforcement court exercising jurisdiction under Section 48, cannot refuse enforcement by taking a different interpretation of the terms of the contract.
128. We feel that the interpretation taken by the tribunal is a plausible view, and the challenge on this ground cannot be sustained, to refuse enforcement of the Award."
9.29) The expression "fundamental Page 477 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined policy" as used in clause (ii) of Explanation 1 to section 34(2)(b)(ii) of the Act would not include an allegation of exercise of fraud by one contracting party to another or simpliciter breach of any legislative provision, for setting aside the award, but it would mean a breach of fundamental and substantial legislative policy being the core values of India's public policy as a nation which is not susceptible of being compromised and not mere breach of a provision of any enactment. Similarly, clause (iii) of Explanation 1 to section 34(2) of the Act provides that the award can be challenged if it is in conflict with the basic notions of morality or justice. The Hon'ble Supreme Court in case of Associate Builders(supra) has interpreted Page 478 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the said clause as under:
"36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given. A claimant is content with restricting his claim, let us say to Rs. 30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him 45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice"."
9.30) It is also a settled legal position that under section 34 of the Act, it is not open to re-appreciate the findings of the Arbitral Tribunal by acting as Court of Appeal as held by the Hon'ble Apex Court in case of UHL Power Company Ltd. v.
Page 479 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined State of Himachal Pradesh reported in (2022) 4 SCC 16 wherein it is held as under:
"15 This Court also accepts as correct, the view expressed by the Appellate Court that the learned Single Judge committed a gross error in re-appreciating the findings returned by the Arbitral Tribunal and taking an entirely different view in respect of the interpretation of the relevant clauses of the Implementation Agreement governing the parties inasmuch as it was not open to the said Court to do so in proceedings under Section 34 of the Arbitration Act, by virtually acting as a Court of Appeal. 16 As it is, the jurisdiction conferred on Courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Limited v. Vedanta Limited, 2019 4 SCC 163 , the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act Page 480 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined has been explained in the following words:
"11. As far as Section 34 is concerned, the position is well- settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)
(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., 1948 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the Page 481 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined contract."
22 In the instant case, we are of the view that the interpretation of the relevant clauses of the Implementation Agreement, as arrived at by the learned Sole Arbitrator, are both, possible and plausible. Merely because another view could have been taken, can hardly be a ground for the learned Single Judge to have interfered with the arbitral award. In the given facts and circumstances of the case, the Appellate Court has rightly held that the learned Single Judge exceeded his jurisdiction in interfering with the award by questioning the interpretation given to the relevant clauses of the Implementation Agreement, as the reasons given are backed by logic."
9.31) The above legal position is required to be applied to the findings to the issues on jurisdiction and on merits as discussed here in above which are summarised as under:
Page 482 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined I - Jurisdiction of the Arbitration Tribunal
1) Whether the Tribunal could have continued the arbitration proceedings under section 29A of the Arbitration and Conciliation Act, 1996 or not?
Findings :
In view of above facts, decision in case of Tata Sons Pvt. Ltd.(supra) relied upon by both the sides and objections raised by respondent nos. 1 and 2, it is held that Tribunal has rightly continued the proceedings as per the provisions of section 29A of the Act as amended with effect from 30.08.2019 as the time limit of 12 months would not apply to the international commercial arbitration after amendment of 2019 and consistent with Page 483 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined amended provision of section 29A, Tribunal has rightly acted within its domain and jurisdiction to decide to continue the arbitration proceeding beyond what is originally stipulated as per unamended provision prior to 30.08.2019 and the contention raised on behalf of respondent nos. 1 and 2 (petitioner) that the Tribunal has lost mandate on completion of 12 months on 1.2.2019 is without any basis.
2) Whether the Arbitration Tribunal could have continued with the arbitration proceedings after the re-determination of fees payable by the parties which is opposed by the respondent nos. 1 and 2 being in violation of principle of party autonomy?
Page 484 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Findings :
This issue is therefore, answered in favour of respondent no.1 and 2.
3) Whether the Tribunal could have denied the respondent no.1 and 2 to lead evidence and file counter claims in violation of principle of natural justice?
Findings :
The issue is therefore, answered in favour of respondent nos.1 and 2 (petitioners).
4) Whether the provisions of sections 12 and 13 of the Arbitration and Conciliation Act, 1996 are violated in arbitration proceedings?
Findings :
Page 485 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined This issue is therefore, answered in favour of the claimant and against the respondent nos. 1 and 2.
5) Whether the Arbitration Tribunal would have assumed the jurisdiction to proceed with the arbitration involving allegation of fraud and forgery which are subject matter of criminal investigation?
Findings :
Therefore, in view of settled legal position as stated here in above, issue is decided in favour of the claimant and against respondent nos.1 and 2.
II On merits : 6(i) Whether the Tribunal was right Page 486 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined in holding that respondent no.1 made misrepresentation to the claimant from December 2014 to February, 2016 and minutes of the meeting dated 18th July,
2015 was forged by respondent no.1?
6(ii) Whether the Tribunal was right in holding that respondent no.1 was guilty of misappropriation of sum of Rs. 22.19 Crore from bank account of respondent no.4-C2R LLP and liable to pay the same to respondent no.4-C2R LLP with interest at the rate of 12% p.a.?
Findings :
Tribunal therefore, was justified in passing the award in the claim petition filed by claimant by directing respondent no.1 to make good the amount of Page 487 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined misappropriation of Rs. 22.19 Crore which is proved by the claimant to be paid by respondent no.1 to respondent no.4-C2R LLP along with interest at the rate of 12% per annum. The above findings of the Tribunal are not disturbed in view of limited scope of section 34 of the Act as no re-appreciation of evidence can be made while considering the challenge to the arbitral award as discussed in detail here in below while dealing with Issue No.III.
7) Whether the Tribunal was right in awarding amount of Rs. 84 Crore towards damages and loss of profit together with interest at the rate of 12% p.a.?
Findings :
In view of above analysis, this Court is Page 488 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined of the opinion that minority view of late Hon'ble Mr. Justice G.T. Nanavati(retired) is a correct view and no award could have been passed under the head damages of loss and profit to be paid by respondent no.1 to the claimant to the extent of 20% share of claimant by computing total damages and loss of Rs. 419.80 Crore alleged to have been suffered by respondent no.4-LLP on the basis of estimate made by the Tribunal on hypothesis on not happening of events in future as per the oral evidence of expert Mr.Jonatham Ellis who was examined by the claimant. Such estimate made by the Tribunal is without any basis and contrary to the clause 34A and 34B of the LLP agreement and entire approach of the Tribunal shocks the conscience of the Court for passing such award of Rs. 84 Page 489 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Crore to be payable by respondent no.1 to the claimant.
8) Whether the Tribunal was right in awarding costs, fees and expenses as per Appendix-A to Appendix-G totalling to Rs.14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 payable to the claimant?
Findings :
Therefore, the Tribunal was not justified in awarding cost, fees and expenses incurred by the claimant to the extent of INR 14,27,29,234.65 and SGD(Singapore Dollar) 984,454.87 to the claimant.
Tribunal ought to have awarded cost within the four corners of section 31A of the Act Page 490 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined pertaining to the arbitration proceedings only.
9.32) In view of above findings to the issues on jurisdiction and on merits, so far as issue of unilateral exorbitant fees is concerned, it violates the principle of "party autonomy" as the Tribunal has fixed the fees without the consent of respondent nos. 1 and 2 which is in violation of party autonomy as the Tribunal could not have continued with the arbitration proceedings in view of repeated objections raised by respondent nos. 1 and 2 for exorbitant fees almost 10 times than that was fixed by the Tribunal at its inception and therefore, the same would fall within the purview of section 34(2) of the Act for setting aside the award. It is also pertinent to note that the Tribunal has Page 491 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined not decided the application under section 12 filed by the respondent no.2 and merely because no application was filed under section 16 of the Act, it cannot be said that respondent nos. 1 and 2 can be precluded from raising such issues of jurisdiction of the Tribunal in the present proceedings under section 34 of the Act. Even otherwise as per the settled legal position, issue of jurisdiction has to be decided along with application under section 34 of the Act only. As held by the Apex Court in case of Afcons Gunanusa JV (supra), principle of "party autonomy" has to be applied in the facts of the case and it cannot be said that respondent nos. 1 and 2 were not justified in invoking party autonomy under the pretext of preventing the Arbital tribunal from adjudicating the Page 492 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined disputes. As elaborated by the Apex Court in case of Afcons Gunanusa JV (supra) and as discussed here in above, the principle of party autonomy would go to the root of the matter and the Tribunal could not have proceeded with the arbitration proceedings in view of the objections raised by respondent nos.1 and 2. Similarly, the Tribunal could not have refused to permit respondent nos. 1 and 2 to lead evidence and to file the counter claim which is in breach of the principles of natural justice on the pretext that the consent sought by the Tribunal from respondent nos. 1 and 2 for extension of nine months for issuing the award as a precondition for taking their evidence on record. Fact remains that the Tribunal has proceeded with the arbitration proceedings by Page 493 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined foreclosing the right of respondent nos. 1 and 2 to lead evidence and file the counter claim. The delay in arbitration proceedings could not have been attributed solely on respondent nos.1 and 2 as claimant also had expressed their concern about continuation of members of the Arbitral Tribunal in the initial stages and as a result thereof Hon'ble Mr. Justice M.B. Shah(retired), Hon'ble Mr. Justice J.M.Panchal (retired) recused from the arbitration proceedings. Similarly, thereafter also arbitration proceedings were delayed because of non availability of the member or Presiding Officer of the Tribunal whereas the member appointed by respondent nos. 1 and 2 late Hon'ble Mr. Justice G.T. Nanavati (retired) was a constant continued member in the Arbitral Page 494 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined Tribunal. Merely because respondent nos. 1 and 2 availed their legal remedy under the law, it cannot be said that attempt was made on behalf of respondent nos.1 and 2 to delay proceedings therefore, right to lead evidence and file counter claim could have been denied by the Tribunal as recorded in para no.44 to 47 of the impugned award. The Tribunal could have permitted respondent nos. 1 and 2 to lead evidence and file counter claim and thereby could have adjudicated the claims in light of such evidence.
ORDER
85. In view of foregoing reasons and findings, following order is passed:
i) Arbitration Petition No.23 of 2023 and Arbitration Petition No.24 of 2023 filed Page 495 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined under section 34 of the Arbitration and Conciliation Act, 1996 by respondent nos.1 and 2 before the Arbitration Tribunal are hereby allowed and the impugned Arbitral Award is quashed and set aside.
ii) In view of above, the contentions raised on behalf of the claimant and the respondents with regard to partial setting aside of the award is not dealt with as the entire Arbitral Award is set aside on the ground of jurisdiction in view of the findings arrived at by this Court.
iii) As the arbitral award is quashed and set aside, no further order is required to be passed in Arbitration Petition No.110/2022 which is filed by Page 496 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024 NEUTRAL CITATION C/ARBI.P/23/2023 JUDGMENT DATED: 05/07/2024 undefined the claimant for execution of the Arbitral Award and the same is also disposed of.
No order as to costs.
Civil Applications also stand disposed of.
(BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 497 of 497 Downloaded on : Wed Jul 10 20:46:41 IST 2024