Mrs. Ruchi Agarwal And Others vs Nicolian India And Others on 26 March, 2012

[Cites 6, Cited by 0]

Delhi High Court

Mrs. Ruchi Agarwal And Others vs Nicolian India And Others on 26 March, 2012

1. These four petitions challenge Award dated 10th June 2006 passed by the sole Arbitrator in the disputes between the predecessor in interest of the Petitioners late Mr. Rakesh Agarwal and Respondent No.1 in each petition.

2. The facts in OMP No.446 of 2006 are that Respondent No.1, Nicolian (India) Private Limited (subsequently renamed as Nicolian Securities and Finance Pvt. Limited) deposited a sum of Rs.50,08,500 with Respondent No.3, Gulmohar Estates Limited ('GEL') for the purpose of booking of properties in Garden Estates, Gurgaon, a project being executed by GEL. It is stated that the amount was advanced by two cheques dated 31st July 1991 O.M.P. 444-47/2006 Page 2 of 20 for the sums of Rs.24,84,000 and Rs.25,24,500 respectively. Late Mr. Rakesh Agarwal, the predecessor in interest of the Petitioners and Mr. Rakesh Agarwal (HUF) executed a deed of personal guarantee on 31st July 1991 whereby both Mr. Rakesh Agarwal, as well as Rakesh Agarwal (HUF) stood guarantee for the payments of the advance made by Respondent No.1 to GEL. It was assured that in the event GEL failed to allot the property by 31st March 1996 or such other extended time as may be agreed in writing by Respondent No.1, the amount paid towards the booking of the property would be refunded with interest at 24% per annum. It is stated that in order to secure the advance of Rs.50,08,500 made by the Respondent to GEL, another company named Apogee International Ltd. ('AIL') executed a corporate guarantee dated 31st July 1991 in favour of Respondent No.1. AIL was holding more than 75% shareholding in GEL. AIL authorized late Mr. Rakesh Agarwal as its Attorney to enable him to execute the deed of corporate guarantee dated 31st July 1991 on behalf of AIL. It is the case of the Respondent No.1 that both GEL and AIL were under the effective control of late Mr. Rakesh Agarwal inasmuch as he was holding 7.07% shareholding in GEL and 46.4% in AIL. According to Respondent No.1, late Mr. Rakesh Agarwal was a promoter Director in AIL and his wife, Mrs. Ruchi Agarwal was only a dummy Director put up by Mr. Rakesh Agarwal in AIL. She did not hold any share in her own name. With late Mr. Rakesh O.M.P. 444-47/2006 Page 3 of 20 Agarwal holding 46.4% in AIL and his father late Mr. Radhey Shyam Agarwal holding 25.81% of the shares, it was claimed that AIL was a company controlled by Mr. Rakesh Agarwal and his family. With the expiry of Mr. Radhey Shyam Agarwal, the effective shareholding of Mr.Rakesh Agarwal increased to 72.45% of the total shareholding.

3. It was stated that late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF) and AIL held shares to the extent of 66.09% in Hotel Banjara Limited ('HBL'). After the death of his father, Mr. Rakesh Agarwal along with AIL was holding shares to the extent of 95.07% in GEL. Accordingly, it was contended by Respondent No.1 before the learned Arbitrator that late Mr. Rakesh Agarwal was a moving spirit in all these companies i.e. HBL, AIL and GEL which were in fact closely held companies of late Mr. Rakesh Agarwal and his family members. In GEL late Mr. Rakesh Agarwal held 7.07% shares and together with AIL (88%) held 95.07% shares.

4. GEL failed to deliver possession of the properties by 31st March 1996 and kept asking for extension of time on the plea that certain problems relating to the litigation were encountered in the execution of the project. Late Mr. Rakesh Agarwal time and again requested that Respondent No.1 should not enforce the bank guarantee or the corporate guarantee as the property was O.M.P. 444-47/2006 Page 4 of 20 going to be ready within a short time. Despite this assurance, GEL could not give possession of the property. Likewise, the guarantor late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF) and AIL expressed inability to refund Respondent No.1 the sum of Rs.50,08,500 together with 24% interest with semi-annual rests.

5. It is stated that after negotiations between the parties, an agreement was entered into on 18th November 1999 between Respondent No.1, late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF), GEL and AIL whereby it was agreed that the entire shareholding of late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF) and AIL in HBL would be transferred in favour of Respondent No.1. It was also agreed that the entire liability of GEL, late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF) and AIL would stand discharged subject to the transfer being effected on or before December 2000.

6. The facts in the other three OMPs are more or less similar, with the names of Respondent No.1 in each petition being different, although they are related sister entities of Respondent No.1 in OMP No.446 of 2006, and in relation to different amounts given by each of them to GEL for booking separate properties in Garden Estates, Gurgaon.

O.M.P. 444-47/2006 Page 5 of 20

7. It is stated that the shares held by late Mr. Rakesh Agarwal (7.32%), Rakesh Agarwal (HUF) (33.77%) and AIL (25%) in HBL were pledged in favour of Tourism Finance Corporation of India ('TFCI') as security for a term loan of Rs.700 lakhs raised by HBL from TFCI. It is stated that the said debt was, however, repaid in full by HBL and the said pledge was discharged on 1st May 2002. It is stated that even thereafter, Mr. Rakesh Agarwal, Rakesh Agarwal (HUF), AIL and GEL failed to take steps to transfer their shareholding in HBL in favour of Respondent No.1 in each petition and this led to Respondent No.1 in each petition to invoke Clause 12 of the Agreement which was an arbitration clause.

8. During the pendency of the arbitral proceedings, Mr. Rakesh Agarwal expired and his legal representatives i.e. his wife, Mrs. Ruchi Agarwal (Petitioner No.1) and his sons, Mr. Nischal Agarwal and Mr. Nikesh Agarwal (Petitioners No.2 and 3 respectively) were brought on record. As already noticed, Petitioner No.1 is an LR of late Mr. Rakesh Agarwal who was at the relevant time a Director of GEL. She is also the Chairman and Managing Director ('CMD') of AIL. A power of Attorney was executed by Petitioner No.1 as CMD of AIL authorizing late Mr. Rakesh Agarwal to act on behalf of AIL. In that capacity, late Mr. Rakesh Agarwal executed a corporate guarantee on behalf of AIL.

O.M.P. 444-47/2006 Page 6 of 20

9. Even prior to his demise despite being served, Mr. Rakesh Agarwal, Rakesh Agarwal, Rakesh Agarwal (HUF) and GEL did not appear and were proceeded ex-parte. AIL despite service also did not file any statement of defence. On 29th March 2003 AIL filed an application under Section 16 of the Act seeking the dropping of the arbitral proceedings against it since, according to AIL, there was no arbitration agreement between the Respondent No.1 and it. Another application filed on the same date was for fixing the venue of arbitration at Delhi. The latter application for fixing the venue was allowed. The remaining applications, including two applications for ordering interrogatories and production of original documents, were dismissed by the learned Arbitrator on the ground that they were not bona fide and were intended to delay the proceedings.

10. Despite there being no statement of defence by any of the Respondents in athe arbitral proceedings i.e. the Petitioners herein and Respondents No.2 and 3, the learned Arbitrator in the impugned Award dated 10th June 2006 took into consideration the allegations of AIL that the agreement dated 18th November 1999 was not valid as there was no Board Resolution authorizing Rakesh Agarwal to act on behalf of AIL and that he was neither a Director nor a CMD of AIL. That application was dismissed on the ground that this O.M.P. 444-47/2006 Page 7 of 20 plea should have been taken in the statement of defence, which was never filed.

11. The learned Arbitrator then framed three issues for consideration:

(i) Whether there was a valid arbitration agreement between the parties;

(ii) Whether the entire shareholding held in HBL by late Mr. Rakesh Agarwal, Rakesh Agarwal and HUF and AIL was liable to be transferred in favour of Respondent No.1 in terms of the agreement dated 18th November 1999;

(iii) Whether, in the alternative, such entities were liable to repay the amount given to GEL by Respondent No.1 along with interest at 24%.

12. It must be mentioned at this stage that on 10th April 2003 while discussing the application under Section 16 of the Act, the learned Arbitrator closed the right of defence of the Respondent in the arbitral proceedings and fixed the matter for evidence by way of affidavit. However, on 27th August 2004 while impleading the LRs of late Mr. Rakesh Agarwal as party to the arbitral proceedings, the learned Arbitrator gave them time to file O.M.P. 444-47/2006 Page 8 of 20 reply/written submissions. A reply was filed by them on 3rd December 2004 but Respondent No.1 objected to this since Mr. Rakesh Agarwal had already been proceeded ex-parte and had not filed reply prior thereto. This contention of Respondent No.1 was upheld by the Arbitrator by an order dated 18th March 2005 and the earlier order dated 27th August 2004 permitting replies to be filed by the LRs was recalled.

13. In between a writ petition filed by the Petitioners was dismissed by this Court. On 17th September 2005, Mr. B.B. Patel, the witness of Respondent No.1, was cross-examined. Notice was issued to the Official Liquidator ('OL') of GEL as it had been wound up in the meanwhile. The cross- examination of Mr. Patel was done by both counsels for the Petitioner and AIL on different dates at great length till 18th February 2006. Applications filed for producing documents and for forensic examination of certain documents were dismissed. Certain review petitions were also dismissed by the learned Arbitrator. Petitioner No.1 on 24th March 2006 sent a letter to the learned Arbitrator alleging bias. This was rejected in final Award by the learned Arbitrator.

14. The learned Arbitrator also noticed that on 28th January 2006 the Deputy OL appeared and filed a status report on behalf of GEL stating that it had no O.M.P. 444-47/2006 Page 9 of 20 concern with the right, title and interest in the property at Garden Estates. The learned Arbitrator noticed that no relief was sought against GEL and, therefore, it was not a necessary party. Relief had been sought by Respondent No.1 only against late Mr. Rakesh Agarwal, Rakesh Agarwal (HUF) and AIL, which had furnished a corporate guarantee. Therefore, the continuance of the proceedings did not require leave of the High Court under Section 446 of the Companies Act, 1956.

15. In each of the matters, the learned Arbitrator passed Award in favour of Respondent No.1 directing the Petitioners and AIL to transfer their entire shareholding in favour of Respondent No.1 or in the alternative pay to Respondent No.1 the sum paid by it to GEL for booking the properties along with interest at 18% per annum pendente lite and post award. The learned Arbitrator also required the Petitioners to pay costs of Rs.25,000 in each matter.

16. The present petitions were filed on 8th September 2006 under Section 34 of the Act challenging the impugned Award. AIL had filed four separate petitions being OMP No.511, 512, 513 and 514 of 2006. All the eight matters were heard by this Court. By a judgment dated 15th January 2010, the learned Single Judge allowed the petitions and set aside the four O.M.P. 444-47/2006 Page 10 of 20 impugned Awards as being violative of principles of natural justice and based on wrong propositions of law. It was held that in view of the fact that the Petitioners' reply/written statements were not taken on record, they were prevented from leading evidence in support of their averments and that every party ought to have a chance to at least one say. As regards the AIL, it was held that the impugned Award of the learned Arbitrator was contrary as on the one hand the learned Arbitrator dismissed the AIL's application under Section 16 of the Act on the ground that complicated questions of facts were involved which required trial but on the other hand, the learned Arbitrator refused to permit AIL to file any reply or written statement or lead evidence. Therefore, the pleas raised by AIL in its application under Section 16 had escaped adjudication. The learned Single Judge by judgment dated 15th January 2010 appointed another learned Retired Judge of this Court as a new Arbitrator to adjudicate all the disputes between the parties.

17. Respondent No.1 then filed appeals being FAO (OS) Nos.403-410 of 2010. By a judgment dated 13th July 2011, the Division Bench set aside the judgment dated 15th January 2010 of the learned Single Judge on the ground that the learned Single Judge erred in holding that the LRs of late Mr. Rakesh Agarwal had asked to file the written statement in their individual capacity. While setting aside the said judgment, the matters were remanded O.M.P. 444-47/2006 Page 11 of 20 to the Single Judge "for fresh consideration for the reasons of the objections raised by the Respondent having been considered by the Court." It was noted that the Single Judge had rested the decision dated 15th January 2010 "solely on the refusal of the Arbitral Tribunal to permit filing of the written statement" and, therefore, "the other objections must now be addressed and decided."

18. On 28th November 2011, this Court was informed that the Special Leave Petitions filed against order dated 13th July 2011 of the Division Bench were pending. Accordingly, the cases were adjourned to 20th March 2012. On 20th March 2012, this Court was informed that Special Leave Petitions filed by the Petitioners in OMP Nos.444-447 of 2006 had been dismissed as withdrawn. However, AIL's counsel informed the Court that it had filed a review petition before the Division Bench seeking recall of the order dated 13th July 2011 in which notice had been issued and the petitions were listed for hearing on 4th May 2012. Accordingly, AIL's OMP Nos.511-514 of 2006 were adjourned to be heard separately.

19. In OMP Nos.444-447 of 2006 final arguments were heard of Mr. Rohit Choudhry, learned counsel for the Petitioners and Mr. Rajiv Nayar and Mr.Jayant Nath, learned Senior counsel for Respondent No.1. It was O.M.P. 444-47/2006 Page 12 of 20 submitted on behalf of the Petitioners that the documents relied upon by Respondent No.1 appeared to be forged and/or fabricated inasmuch as the two alleged guarantees dated 31st July 1991 and the agreement dated 18th November 1999 had been witnessed by the same person almost eight years apart and written in the same ink. Further, the alleged guarantee dated 31st July 1991 referred to Section 372A of the Companies Act, 1956 which had been introduced into the Companies Act only by an amendment with effect from 31st October 1998. It was submitted that the learned Arbitrator failed to note the above glaring discrepancies and erred in placing reliance on the said documents.

20. The above submission is denied by the Respondents. It is pointed out that Mr. Rakesh Agarwal signed the agreement dated 18th November 1999 as the power of attorney holder of Petitioner No.1 who was then the CMD of AIL and also as the largest shareholder of the AIL. It is pointed out that the learned Arbitrator has dealt with this issue and held that the documents were not forged.

21. The question whether the documents produced in evidence during arbitral proceedings are genuine or forged is a question of fact which was to be proved by examination of expert witnesses. Despite numerous O.M.P. 444-47/2006 Page 13 of 20 opportunities given to the predecessor-in-interest of the Petitioners by the learned Arbitrator, he failed to avail of them. During his lifetime late Mr. Rakesh Agarwal did not file any statement of defence. He never questioned the said documents as being forged or fabricated.

22. At the stage of Section 34 of the Act, it is not possible to re-appreciate the evidence. The predecessor-in-interest of the Petitioners could have led evidence in support of the contention that the documents were forged. There is no valid explanation why late Mr. Rakesh Agarwal chose to stay away from the proceedings. With the Division Bench negativing the contention of the Petitioners that they had an independent right to defend themselves in the arbitral proceedings, not limited to their being LRs of late Mr. Rakesh Agarwal, the question of the Petitioners now challenging the genuineness of the guarantee and the agreement dated 18th November 1999 does not arise.

23. One of the issues framed by the learned Arbitrator was whether there was a valid arbitration agreement. In analyzing the evidence, the learned Arbitrator conclusively held that late Mr. Rakesh Agarwal "was in fact managing and controlling all the companies and it is he only who has signed the agreement dated 18th November 1999 which contains the arbitration clause." It was further held that the agreement having been signed for and O.M.P. 444-47/2006 Page 14 of 20 on behalf of AIL, GEL, HBL, Rakesh Agarwal (HUF) and Mr. Rakesh Agarwal himself "is a valid agreement and is executed by Mr. Rakesh Agarwal validly and authorisedly." Further, it was observed in para 38 of the Award that "Mr.Rakesh Agarwal during his lifetime in these arbitral proceedings did not raise any challenge to the statement of claim and documents filed along with statement of claim by the claimant."

24. Mr. B.B. Patel who was cross-examined by counsel for AIL at great length categorically stated that Mr. Rakesh Agarwal had signed the corporate guarantee on behalf of AIL.

25. The above conclusion of the learned Arbitrator can hardly be said to be perverse or contrary to the evidence on record. It is based on proper analysis of the evidence. With the predecessor-in-interest of the Petitioners not choosing to question these documents and not even filing a statement of defence, the said objection cannot be entertained.

26. It was then submitted that the learned Arbitrator failed to appreciate that GEL had a running account with Respondent No.1 and there were no other transactions during the period between 1989 and 2002 and there was nothing to show that any money had in fact been received by GEL during this period. O.M.P. 444-47/2006 Page 15 of 20 The witness examined on behalf of respondent No.1 was also unable to produce any proof of monies being received by the GEL from Respondent No.1. The learned counsel for the Petitioners referred to the evidence recorded by way of cross-examination of Mr. Patel, the witness of Respondent No.1.

27. Despite extensive cross-examination of Mr. Patel for days on end, nothing tangible could be elicited by the Petitioners in support of their contentions. The learned Arbitrator has analysed the evidence in great detail. Once it was established that the agreement dated 18th November 1999 was duly executed between the parties, that document by itself was sufficient to show that monies were given to GEL by Respondent No.1 for booking properties and on the failure of the GEL to give possession of the properties a further agreement had to be entered into whereby shares in HBL were agreed to be transferred to Respondent No.1.

28. The discussion in this behalf by the learned Arbitrator is as under:

"The various question put by the respondents in cross- examination reveal that the respondents want to prove that above mentioned agreement are forged, fabricated and false. They even have tried to show that even the signature of Sh. Rakesh Aggarwal on the documents are O.M.P. 444-47/2006 Page 16 of 20 forged, fabricated and false. Respondent No.5 has gone to the extent of filing application for forensic examination of such documents by an expert. I decided that application on 18-3-2006 by reasoned order and dismissed substantially on the ground that the respondents cannot be permitted to cross-examination to show that the documents are forged, fabricated and false. By seeking to send these documents for forensic examination by experts and getting report as to whether these documents were signed by the same pen or ink, Respondent No.5 has tried to set up an entirely new case of forgery and fraud. It may be noticed that Respondent No.5, for the reasons best to known to them, have chosen not to file the statement of defence.

Respondent No.5 has been allowed cross-examination of Mr. Patel for considerable long time, but in the guise of cross-examination, Respondent No.5 has attempted to set up an entirely new case, as aforementioned, which cannot be permitted. Respondent No.5 cannot be allowed to put forward their pleas and their own case.

Further, this application cannot be allowed for another reason that claimant will be put to great prejudice, as no plea can be permitted on account of which claimant is put to surprise.

It may also be noticed that in case of fraud and forgery, etc. under Order 6 Rule 4 of Code of Civil Procedure, O.M.P. 444-47/2006 Page 17 of 20 particulars of forgery and frauds are necessarily to be given. In the absence of such particulars and the statement of defence, this application cannot be allowed.

It therefore necessarily follows that the respondents cannot be allowed to setup their own case of forgery, fraud and their question cross-examination relating to forgery, fraud have to be ignored and cannot be relied upon."

29. The learned Arbitrator has further formed a definite opinion on the question of forgery as under:

"In order to satisfy myself however about the genuineness of the signature of Mr. Rakesh Aggarwal on the agreements I compared his signature with the signatures appended by him on the annual returns submitted by him to the Registrar of Company (page-187) of evidence and on letters annexed in the claim petition dated 14-6-1996, 11-11-1996, 21-9-1997, 15-12-1998 and 20-11-1999 I am of the opinion that the signature on the agreements are of Sh. Rakesh Aggarwal; and the documents are not forged. In this context I may also notice that the Respondents in their cross-examination have not attempted to demonstrate that the witness of the document dt. 18.11.99 (Ex-37) are also fictitious or their signature are not genuine."

O.M.P. 444-47/2006 Page 18 of 20

30. This Court is unable to find any error in the reasoning or conclusion of the learned Arbitrator. It is based on the correct analysis of the evidence as well as the legal position.

31. It was then contended by learned counsel for the Petitioner that there were other transactions involving GEL and Respondent No.1 which were sought to be confused with the transactions that were the subject matter of the present dispute. Even this point has been dealt with by the learned Arbitrator and rejected as under:

"44. The counsels for the respondents in cross-examination have tried to demonstrate that the claimant has entered in certain transaction of sale and purchase with the M/s. Gulmohar Estate in the past, and probably wanted to demonstrate that such transactions appear to have been entered in connection with the present agreement. These questions are so vague that nothing can be inferred from such transactions. Shri B.B. Patel has clearly replied that those transactions are closed and concluded transactions and have nothing to do with the present transactions. He has further stated that he has purchased certain other property from M/s. Gulmohar Estate Ltd. on power of attorney and he has sold those properties which has no connection or relevance to the claim made in the petition.

45. In the light of above discussion I hold that there is valid O.M.P. 444-47/2006 Page 19 of 20 arbitration agreement between the parties and decide issue No.1 in favour of the claimant and against the respondents."

32. In the present case, the learned Arbitrator after examining shareholding pattern of HBL, AIL and GEL came to the correct conclusion that the entire shareholding was controlled by Rakesh Agarwal and HUF and further that they took no steps to have their shareholdings in HBL transferred to Respondent No.1 despite agreement dated 18th November 1999.

33. This Court is unable to find any ground having been made out for interference with the four impugned Awards dated 10th June 2006. Each of the petitions is, accordingly, dismissed with costs of Rs.10,000 which will be paid by the Petitioners to Respondent No.1 in each petition within a period of four weeks.

S. MURALIDHAR, J MARCH 26, 2012 s.pal O.M.P. 444-47/2006 Page 20 of 20

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