Full Judgment Text
2013:BHC-OS:3054-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
APPEAL NO.361 OF 2010
Dr.Vijaypat Singhania and others Appellants
versus
Hari Shankar Singhania and others Respondents
WITH
APPEAL NO.505 OF 2010
Dr.Gaur Hari Singhania and others Appellants
versus
Hari Shankar Singhania and others Respondents
Mr.Aspi Chinoy, Sr.Advocate with Ms.Gitanjali Prabhu, Mr.Aditya
Thakkar, M.Neville Lashkari, Ms.Jyotsana Kondhalkar, Mr.Anuj P.
Agarwala and Ms.K.A.Vishnupriya i/by Vigil Juris for Appellants in
Appeal No.261 of 2010.
Mr.Pravin Samdani, Sr.Advocate with Mr.Zal Andhyarujina,
Mr.Sreekant Mehta, Mr.Shailesh Shukla i/by Malvi Ranchhoddas & Co.
for Appellants in Appeal No.505 of 2010 and for Respondents 7 to 15 in
Appeal No.361 of 2010.
Mr.I.M.Chagla, Sr.Advocate with Mr.D.D.Madon, Sr.Advocate,
Mr.Riyaz Chagla, Mr.Chetan Kapadia, Mr.Chakrapani Misra,
Ms.Nandini Khaitan, Mr.Ameya Gokhale, Mr.Sahil Narang, Mr.Devesh
Juvekar, Ms.Vatsala Sahay, Mr.Suhas Sagar, Ms.Meghna Rajadhyaksha
i/by Khaitan & Co. for Respondents 2 to 6 in both Appeals.
Mr.M.K.Banatwala for Respondents 1(a) to 1(d).
Mr.Suresh M. Sabrad for Respondents 16 and 18 in Appeal No.361 of
2010 and for Respondents 11 and 13 in Appeal No.505 of 2010.
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CORAM : DR.D.Y.CHANDRACHUD AND
A.A.SAYED, JJ.
DATE : 8 March 2013
JUDGMENT - (PER : DR.D.Y.CHANDRACHUD, J.) :
1. By a judgment dated 1 October 2009 the learned Single Judge
dismissed petitions filed by the Appellants under section 34 of the
Arbitration and Conciliation Act, 1996. The petitions sought to
question the legality of an arbitral award dated 4 August 2008 of a sole
arbitrator, Mr.Justice S.N.Variava.
2. On 21 February 1980 a deed of partnership was constituted in
which three branches of the Singhania family were represented. The
three branches, in these proceedings, would for convenience of
reference, be referred to as the Kanpur, Kolkata and Mumbai branches.
Clause-10 of the deed of partnership provided that a partner could retire
with a stipulated period of notice and unless mutually agreed to, upon
retirement, an outgoing partner would be entitled to receive his
proportionate share in the properties of the firm in specie after
deducting the liabilities. Clause-11 of the deed of partnership provided
as follows :
“That in the event of dissolution of the firm accounts shall
be settled between the partners in accordance with the
provisions of Section 48 of the India Partnership Act as
applicable at the relevant time. The assets of the firm
shall be valued on the basis of the values standing in
the books of accounts and not on the basis of market
value. Unless otherwise agreed upon, on dissolution the
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partners will be entitled to and will receive their
proportionate share in the assets of the firm in specie after
paying the liabilities, so however that they will be entitled
to a share in each category of assets equivalent to their
share of profit. The share of each company shall be
considered as a separate category.”
(emphasis supplied)
Clause-13 of the deed of partnership contained an agreement to refer
disputes to arbitration. The partnership was dissolved on 26 March
1987 by a deed of dissolution which took effect from 19 March 1987.
Clause-4 of the deed of dissolution provided as follows :
“The parties hereto have agreed to distribute the
immovable properties, mentioned in Annexure-II hereto
in specie free from encumbrances as provided in the Deed
of Partnership dt. 21 February 1980 in proportion to their
shares in the said partnership. The distribution shall be
completed as soon as possible and the parties will strive
to accomplish the same by 31 May 1987.”
An arbitration agreement was also contained in the deed of dissolution.
On 28 March 1987, a supplementary agreement was entered into under
which it was provided that the allotment and distribution of the
immovable properties of the dissolved firm shall be free from all
tenancies, licenses or leases that may be subsisting in favour of group
companies, firms, trusts, societies, relatives and family members.
Between 1987 and 1989, there was an exchange of correspondence on
matters relating to the winding-up of the affairs of the firm.
3. A suit under section 20 of the Arbitration Act, 1940 was instituted
on 8 May 1992 by Harishankar Singhania representing the Kolkata
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group. The Defendants to the suit comprised of the Kanpur group and
Mumbai group. The suit was dismissed as barred by limitation by a
Single Judge on 20 February 1986. An appeal was dismissed by a
Division Bench on 8/9 June 2004. The Supreme Court allowed a Civil
appeal against the order of the Division Bench by a judgment dated 4
April 2006 and held that the suit under section 20 was not barred by
limitation. By the judgment of the Supreme Court in Hari Shankar
1
Singhania Vs. Gaur Hari Shankar Singhania , the disputes and
differences between the parties were referred to the arbitration of a sole
arbitrator Mr.Justice S.N.Variava. While disposing of the civil appeal,
the judgment of the Supreme Court, inter alia, specified the nature of
the disputes that had arisen and which would have to be resolved in
arbitration viz. :
“65. … … … … (a) to the extent the
defendants themselves are occupying such properties, the
defendants should be directed to vacate the properties to
enable distribution of the said properties in specie free
from encumbrances;
(b) the defendants' obligation to have vacant
possession of the immovable properties listed at Items 1
to 13 of Exhibit `D' hereto and to ensure that persons
other than themselves actually vacate the said properties
so that the same are available for distribution in specie
free from encumbrances between the plaintiffs and the
defendants pursuant to the said deed of dissolution;
(c) directions and steps be taken by the defendants to
achieve the vacant possession mentioned in paras (a) and
(b) above;
(d) distribution of the above mentioned properties in
specie free from encumbrances between the plaintiffs and
the defendants;
1 (2006)4-SCC-658
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(e) distribution of the properties mentioned at Items 14
and 15 of Exhibit `D' hereto subject to the encumbrances;
(f) fixation of equalization amount, if necessary;
(g) If for any reason any of the defendants do not
permit and comply with the direction for getting vacant
possession of any of the immovable properties listed in
Items 1 to 13 of Ext.`D' to the plaint, then the same
should be valued on the basis of vacant possession and
the plaintiffs should be paid their share on the basis of the
vacant possession by the defendants.”
4. During the course of the arbitral proceedings before the sole
arbitrator, five properties were sold, by consent. On 20 March 2007, an
agreement was arrived at between the parties during the course of
reference to the following effect :
“AGREEMENT
With reference to the arbitration pending before the
Hon'ble Arbitrator Mr.Justice S.N.Variava, Former Judge,
Supreme Court of India, in relation to the distribution of
the properties described at items 1 to 10 set out in
Annexure II to the Deed of Dissolution dated March 27,
1987, the parties have agreed that the properties will
be distributed on the basis of market value and the
date of valuation and the Valuer would be decided by
the Hon'ble Arbitrator. The Valuer will hear the
parties before giving his report .
It is clarified that the properties mentioned at items 11 to
15 of the said Annexure II are not to be included in this
Agreement. Parties agree that the property at Item 11 is
sold, the properties at items 12, 13 and 15 are to be sold
and proceeds distributed. The property at item 14 is not
part of this Agreement.
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All other contentions of the parties, except the
valuation at market value, are kept open .”
(emphasis supplied)
The agreement was taken on record by the arbitrator on 20 March 2007.
By an order of that date, the arbitrator heard the parties on the date with
reference to which the market value would be determined by the valuer.
On 30 July 2007, all the parties informed the arbitrator that they were
agreed on the name of the valuer to be appointed for the purposes of
conducting a valuation of the properties. All parties agreed to a
valuation by HDFC Limited. The valuer circulated a draft of the
valuation report. During the course of the arbitration, on 5 February
2008, the arbitrator declined to entertain the submissions of the Mumbai
group on the draft since this was allowed before the valuer. The
arbitrator, however, observed that it was necessary for the valuer to
consider and take into account the views and facts which may be
brought to its attention by any of the parties. The arbitrator recorded
that the parties had already made representations to the valuer, but to
leave no room for complaint, it was directed that if any of the parties
desired to bring any fact or submission before the valuer, they could do
so on 13 February 2008. The valuer was thereafter directed to take into
account the perspectives of the parties. On 4 February 2008, the
arbitrator recorded that all parties had in pursuance of the previous
directions met the valuer to convey their points of view and three weeks'
time was granted to the valuer to submit the final report. At that stage,
on behalf of the Mumbai group, it was urged that under Section 26(2) of
the Arbitration and Conciliation Act, 1996, parties had a right to insist
that after the submission of the final report, the valuer should participate
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in an oral hearing to submit itself to questioning by the parties and to
enable the parties to present their expert evidence on the valuation of
the properties. The arbitrator rejected this submission holding that the
deadlock between the parties had been resolved when they entered into
an agreement dated 20 March 2007. Section 26(2), the arbitrator noted,
is subject to an agreement otherwise entered into between the parties
and the agreement dated 20 March 2007 was held to be an agreement
where the parties have otherwise provided. The arbitrator noted that by
the agreement dated 20 March 2007, the parties had agreed that all
contentions, except the valuation at the market value, are kept open and
this stipulation was inserted in order that the independent valuer, who
would be appointed by the Tribunal, would finally resolve the deadlock
of valuation by fixing the market value. The arbitrator observed as
follows :
“3. … … … … The whole purpose and
intention was that once the market value was fixed by the
valuer, no question arose of parties bringing in other
experts on the question of market value or of cross
examining the valuer on the market value. Parties have
agreed that on the question of market value the Final
Report will be binding on all. As the Final Report was to
be binding, it was considered proper by this Tribunal that
the parties themselves agree to the name of a valuer.
They were requested to do so. Accordingly parties chose
HDFC as valuers and this Tribunal appointed them as
agreed valuers.
4. As the Final Report was to be binding on all parties
they were granted opportunities to meet the valuers and
present their points of view, including what according to
them should be the method of valuation and what
according to them were the facts which should be taken
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into consideration. Parties had earlier met HDFC. After
5 January 2008 they again met HDFC. I am told that all
the parties have given written submissions to the valuer.
HDFC have been informed that, they have to consider the
submissions and give reasons in writing as to why they
are accepting or not accepting their submissions. Thus,
the principles of natural justice i.e. that the parties be
heard, have been fully complied with.
5. The principles of natural justice have been fully
complied with. Even otherwise, as per the Agreement
dated 20 March 2007, it is now not open to parties to
question the valuation fixed by the agreed independent
valuer. There is now no question of cross-examination of
the valuer and/or of leading evidence of other valuers.
Accordingly, I reject the submission that after the Final
Report is submitted, an opportunity be given under
Section 26(2) of the Arbitration and Conciliation Act,
1996. As stated above this Section is inapplicable to the
facts of this case.”
5. The arbitrator thereafter heard the parties on several dates and
rendered his award on 4 August 2008. The arbitrator thereafter
corrected certain clerical and typographical errors in the award on 12
September 2008.
6. By the award, the arbitrator has partitioned the properties of the
partnership in the following manner :
“a) The Claimants are allotted the property at Sr.No.5
i.e. Kamala Cottage, property No.6 at Juhu, Mumbai. As
the market value of this property is fixed at Rs.89.66 crs.
and each group is entitled to assets worth Rs.43,55,00,000/-
the Claimants will have to bring into the pool to the family,
in the manner set out hereafter, a sum of Rs.46,11,00,000/-.
This then will have to be distributed amongst the other two
groups as per their entitlement.
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(b) Respondents 1 to 9 are allotted the following
properties at the prices mentioned below :
(i) Property at Sr.No.1 i.e. Property no.29/1 at
Kanpur known as Kamla Towers. The value of this
property is fixed at Rs.4 crores;
(ii) Property at Sr.No.2 i.e. Property No.22/134
at Kanpur known as J.K.Kothi. The value of this property
is fixed at Rs.1.63 crores;
(iii) Property at Sr.No.3 i.e. Property No.11 at
Cantt. Kanpur, known as Ganga Kuti. The value of this
property is fixed at Rs.10.44 Crores;
(iv) Property at Sr.No.4 i.e. Property No.6 at
Cantt. Kanpur. The value of this property is fixed at
Rs.4.54 crores.
(v) Property at Sr.No.9 i.e. Property No.20/193
Chatai Mohal, Kanpur. The value of this property is fixed
at Rs.0.23 Crores.
Thus properties worth Rs.20.84 crores are allotted to
Respondents 1 to 9. As they are entitled to assets worth
Rs.43,55,00,000/- they will, in addition to the above,
receive a sum of Rs.22.71 crores from out of the sum of
Rs.46,11,00,000/- which has to be brought in by the
Claimants. They will receive this amount only against
delivery of vacant possession, free from encumbrances, of
all the properties allotted to Respondents 10 to 16. In
other words it will not be open to them to receive a part of
this sum of Rs.22.71 crores on the ground that they have
handed over vacant possession of some of the properties.
(c) Respondents 10 to 16 are allotted the following
properties at the prices mentioned below :
(i) Property at Sr.No.6 i.e. Property No.37,
Kanpur known as Kamla Retreat. The value of this
property is fixed at Rs.9.62 crores.
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(ii) Property at Sr.No.7 i.e. Property No.88/473,
Hiraman Purwa, Kanpur. The value of this property is
fixed at Rs.2 crores.
(iii) Property at Sr.No.8 i.e. Property No.80/80,
Kanpur known as Oil Mills land. The value of this
property is fixed at Rs.7.90 crores and Rs.0.30 crores.
(iv) Property at Sr.No.10 i.e. Property No.20/131
Patkapur, Kanpur. The value of this property is fixed at
Rs.0.33 crores.
Thus, Respondents 10 to 16 are allotted properties worth
Rs.20.15 crores. As they are entitled to assets worth
Rs.43,55,00,000/- they will, in addition to the above,
receive a sum of Rs.23.40 crores from out of the sum of
Rs.46,11,00,000/- which has to be paid by the Claimants.
They will receive this amount only on handing over
vacant possession, free from encumbrance, of the Juhu
property to the Claimants.”
7. Essentially as the award would indicate, ten properties have been
partitioned. One of the properties is a property at Juhu, Mumbai, which
has been in the possession of the Mumbai group and which has been
awarded to the Kolkata group. Nine properties at Kanpur were in the
occupation of the Kanpur group. Out of these nine properties, five
have been awarded to the Kanpur group while four have been awarded
to Mumbai group. Having regard to the valuation of the properties
fixed by HDFC Limited, the arbitrator has directed payment of
amounts in order to effectuate an equalization of the shares of the three
groups. This is indicated in the following table, a copy of which has
been placed on the record of the Court during the course of submissions.
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8. Each of the three groups is entitled to a share in the assets of
Rs.43.55 crores. Since the valuation of the property at Juhu is
Rs.89.66 crores, the Kolkata group which has been awarded the Juhu
property, is required to pay an amount of Rs.46.11 crores in aggregate
to the other two groups. The Kanpur group has been awarded
properties of a value of Rs.20.84 crores and would receive an amount
of Rs.22.71 crores towards equalization of its share. The Mumbai
group has been awarded four properties at Kanpur of a value of
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Rs.20.40 crores and would receive an amount of Rs.23.04 crores in
equalization of its share.
9. Now it is in this background that the submissions which have
been urged on behalf of the Appellants would have to be considered.
On behalf of the Appellants in the Mumbai group, two submissions
have been urged while challenging the judgment of the learned Single
Judge affirming the award :
(i) Section 26(2) of the Arbitration and Conciliation Act, 1996
stipulates that unless otherwise agreed by the parties, an expert
appointed by the arbitral tribunal is required after submission of his
report to participate in an oral hearing where the parties have an
opportunity to put questions to him and to present expert witnesses in
order to testify on the points at issue. The arbitrator, however, barred
the Appellants from cross-examining the valuer and from leading
evidence in support of its case on the valuation of the properties on the
basis that by the agreement between the parties dated 20 March 2007,
the report of the valuer was to be final and binding. According to the
Appellants, what the agreement dated 20 March 2007 brought about
was an alteration in the basis of the valuation of the properties from
book value to market value. What the agreement between the parties
stipulated was that the alteration in the basis of valuation to the market
value of the properties would be binding. The agreement, in the
submission, did not treat the report of the valuer as final and binding.
The arbitrator deprived the Appellants of a right to challenge the report
of the valuer and precluded them from exercising their rights under
Section 26(2) of the Act of 1996;
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(ii) The arbitrator specifically raised an issue of limitation.
The arbitrator, however, proceeded to hold that the claim was not barred
on the basis that the issue of limitation was concluded by the judgment
of Supreme Court in Harishankar Singhania (supra) . This statement
of law on the face of the award is erroneous because, what the Supreme
Court decided was whether the suit under Section 20 was barred by
limitation and not whether the claim before the arbitrator in the arbitral
proceedings was within time. The issue as to whether an application
invoking arbitration has been filed within limitation is distinct from
whether a claim in arbitration is within limitation and the arbitrator, it
has been submitted, has committed an error apparent on the face of the
record by confounding one for the other.
10. While adopting the submissions that were urged by the Mumbai
group, the learned counsel appearing on behalf of the Kanpur group has
submitted that :
(i) The arbitral award is not in terms of the agreement
between the parties since the agreement envisaged that the distribution
of the assets of the dissolved partnership was to take place in specie;
(ii) The arbitrator has applied principles of owelty which are
relevant to a partition of undivided properties of a family and not to the
distribution of the assets of a dissolved partnership. There was no
finding by the arbitrator that the properties of the partnership are
incapable of division and hence there was no justification for the
arbitrator to award amounts for equalization of shares when a
distribution in specie could have been carried out;
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(iii) There is an inherent inconsistency in the arbitral award
which vitiates the award rendering it liable to be set aside.
11. Each of these submissions now falls for determination.
12. At the outset, it would be necessary to understand the background
of the proceedings which resulted in the judgment of the Supreme Court
inter partes and to elucidate the principles laid down in the judgment
of the Supreme Court. An arbitration suit that was filed in this Court
under Section 20 of the Arbitration Act, 1940 was dismissed by a
learned Single Judge as barred by limitation and which decision was
confirmed by the Division Bench. The points for consideration that
were formulated by the Supreme Court were : (i) when the right to
file an application under Section 20 had accrued and when it would
become time barred, and (ii) whether in the context of Section 20, a
difference or dispute could be said to have arisen between the parties
when there was a denial or repudiation of a claim. The judgment of the
Supreme Court noted that upon the dissolution of the partnership, there
was an exchange of correspondence between the parties and if a letter
dated 29 September 1989 is taken in to account, it would show that the
suit under Section 20 was within limitation. The Supreme Court was of
the view that the policy of the law is in the first instance to promote the
efficacy of family settlements and as long as parties are in dialogue, it
could not be asserted that limitation had commenced. Otherwise,
parties would be compelled to resort to litigation or arbitration, even
though they were in dialogue with each other in order to resolve their
disputes. The Supreme Court observed thus :
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“35. It cannot be said that merely because nominees
were appointed for working out an arrangement, which
could not ultimately be arrived at, a dispute or difference
arose way back in February 1988. In fact, even
immediately after this, the correspondence exchanged
between the parties reveals a forthcoming attitude and
amiable efforts made towards implementing the deed of
dissolution.”
The judgment of Supreme Curt has laid down the principles which must
be borne in mind in dealing with disputes involving family settlement.
In that context, the following observations are of significance :
“42. Another fact that assumes importance at this stage
is that, a family settlement is treated differently from any
other formal commercial settlement as such settlement in
the eye of the law ensures peace and goodwill among the
family members. Such family settlements generally meet
with approval of the courts. Such settlements are
governed by a special equity principle where the terms are
fair and bona fide, taking into account the well being of a
family.
43. The concept of “family arrangement or settlement”
and the present one in hand, in our opinion, should be
treated differently. Technicalities of limitation, etc.
should not ... put at risk ... the implementation of a
settlement drawn by a family, which is essential for
maintaining peace and harmony in a family. Also it can
be seen from decided cases of this Court that, any such
arrangement would be upheld if family settlements were
entered into to allay disputes existing or apprehended and
even any dispute or difference apart, if it was entered into
bona fide to maintain peace or to bring about harmony in
the family”.
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The judgment of Supreme Court took note of the fact that the assets of
the partnership were largely with the Kanpur group and an amicable
settlement for the division of the assets had not been arrived at for over
eighteen years, since those who were enjoying the assets in question
were “merely trying to drag proceedings endlessly forever and for
2
another period of uninterrupted enjoyment of the assets” . The Supreme
Court observed that it was an admitted fact that the three branches of the
Singhania family are each entitled to a one third share in the immovable
properties. In regard to the conduct of the Kanpur group, the Supreme
Court made the following observations in the course of the judgment :
“62. it is thus seen that the above facts would clearly go
to show that the contesting Respondents 1-9 are not at
all interested in any conciliation, mediation or
arbitration but only interested in enjoying the bulk of
the immovable properties of the firm and refusing to
carry out their obligations under and pursuant to the
said deed of dissolution by permitting the distribution
of the said properties in specie and free from any
encumbrance as contemplated by the said deed of
dissolution dated 26 March 1987 and the supplementary
agreement dated 28 March 1987.
63. … … … It has now come to a stage
that the real dispute has arisen between the parties.
Already the matter is pending adjudication from 1987
onwards, Respondents 1-9 are admittedly in possession
and enjoyment of the valuable immovable properties
depriving the valuable rights of the appellants and the
other Respondents 10-20. We should not, therefore,
allow Respondents 1-9 to drag the proceedings any
further. The parties have to settle their disputes one day
or the other. In our opinion, the time has now come to
nominate a single arbitrator as provided under clause 13
2 At paragraph 40, page 671 of the judgment of Supreme Court in (2006)4-SCC-658
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of the agreement. It was argued that in case this Court
allows the appeal, the matter may be remitted to the High
Court for appointment of a single arbitrator and in case
the parties are unable to agree upon a single arbitrator a
panel of three arbitrators shall be appointed as provided in
the said agreement. We feel that such a course, if
adopted, would only enable the contesting Respondents
1-9 to squat on the property and enjoy the benefits,
income, etc. arising therefrom.”
(emphasis supplied)
13. These observations which were made by the Supreme Court were
undoubtedly in the context of a decision on the issue as to whether the
arbitration suit under Section 20 of the Arbitration Act, 1940 was barred
by limitation. While reversing the judgment of this Court and holding
that the suit was not barred by limitation, the Supreme Court has laid
down the basic frame work of the underlying principles that must be
applied in dealing with a family settlement. The fundamental principles
which have been emphasized by the Supreme Court are that :
(i) In dealing with a family settlement, the effort of an
adjudicatory tribunal must be to promote the efficacy of a family
arrangement which is intended to achieve a resolution of disputes; and
(ii) Family settlements are governed by a special equity which
postulates that where the terms are fair and bona fide, such settlements
must be enforced even at the cost of diluting technical objections.
In the present case one branch which was in possession of properties
had made every effort to obstruct the distribution of the properties in
order to continue to retain possession. Now it is in this background that
the submissions which have been urged would have to be evaluated.
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14. During the pendency of the arbitral proceedings, an agreement
was arrived at between the parties on 20 March 2007. The agreement
contemplated in its first part that the distribution of the properties would
take place on the basis of market value. This was in substitution of the
book value which was to be treated as the basis of distribution under the
deed of partnership and the deed of dissolution. By their agreement
dated 20 March 2007, the parties while stipulating that the distribution
of the properties would take place on the basis of market value, agreed
that the date of the valuation and the valuer would be decided by the
arbitrator. The valuer was required to hear the parties. In the concluding
part of the agreement, the parties stipulated that “all other contentions of
the parties, except the valuation at the market value, are kept open.”
Now at this stage, it would be necessary to note that two of the three
contesting groups in these proceedings, namely the claimants consisting
of the Kolkata group and one of the Appellants namely the Kanpur
group, were ad-idem, on the meaning of this stipulation. The arbitrator
has noted in the course of the award the submissions of learned counsel
who appeared on behalf of the Kanpur group that “ by an agreement
dated 20 March 2007, all parties have agreed that they will not
3
challenge the valuations as fixed by the valuer” . This, in our view,
assumes significance because both before the learned Single Judge in
challenging the arbitral award and before this Court, both the Mumbai
group and the Kanpur group, are acting together in their objections to
the award. Hence, it is material to note that two of the three contesting
groups construed the agreement dated 20 March 2007 to mean that
parties had agreed that they would not challenge the valuation as fixed
by the valuer.
3 Paragraph 20C
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15. By the first part of the agreement the parties agreed that (i) the
basis of the valuation would be the market value; (ii) the date of the
valuation and the valuer would be decided by the arbitrator; and (iii)
the valuer would hear the parties before giving his report. As a matter
of fact, HDFC Limited was the valuer agreed upon by the parties. The
parties had a full opportunity to and did in fact submit their perspectives
to the valuer. The valuer made available a draft report for inspection
before the parties and allowed the parties an opportunity to respond.
The arbitrator furnished a further opportunity to the parties to place their
submissions before the valuer and it was only thereafter that the valuer
arrived at its final determination.
16. Section 26(1) empowers an arbitral Tribunal to appoint an expert
to report to it on a specific issue to be determined by the arbitral
Tribunal. Under Sub-Section 2 of Section 26, unless otherwise agreed
by the parties, if a party so requests or if the arbitral Tribunal considers
necessary, an expert shall, after submitting the report, participate in an
oral hearing where the parties have opportunity to put questions and to
present expert witnesses in order to testify on the points at issue. The
arbitrator has held that in the present case, the agreement dated 20
March 2007 was an agreement as contemplated by Section 26(2)
between the parties. The parties, as we have noted earlier, by the terms
of their agreement, contemplated that the expert would hear them before
submitting his report. The expert, HDFC Limited, was one in whom the
parties reposed confidence since the appointment was made by consent.
The underlying purpose and object of the provisions of Section 26(2)
was duly fulfilled by the parties by (i) participating in the proceedings
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20 of 31 APP.361.2010
before the expert and being allowed a full opportunity to produce
material and advance submissions; (ii) being furnished with a copy of
the draft report; (iii) being allowed to present their suggestions on the
draft report; and above all (iv) making submissions before the arbitrator
in regard to their choice of properties based on the valuation of the
properties as made. The submission of the Appellants in the Mumbai
group is that in the concluding part of the agreement dated 20 March
2007, the parties agreed that all other contentions (except the valuation
at market value) would be kept open and what was concluded was only
the principle that the basis of valuation was to be market value in stead
of book value. We cannot accede to the submission. The arbitrator in the
present case was called upon to interpret the terms of an agreement
between the parties. The arbitrator was acting within jurisdiction in
interpreting the terms of the agreement. Where an arbitrator takes a
view on a provision of an agreement and which is a possible view, the
Court under Section 34 will not interfere. This principle has been laid
down in the recent judgment of the Supreme Court in Rashtriya Ispat
4
Nigam Limited Vs. Dewan Chand Ram Saran :
“43. In any case, assuming that Clause 9.3 was capable of
two interpretations, the view taken by the arbitrator was
clearly a possible if not a plausible one. It is not possible to
say that the arbitrator had travelled outside his jurisdiction,
or that the view taken by him was against the terms of
contract. That being the position, the High Court had no
reason to interfere with the award and substitute its view in
place of the interpretation accepted by the arbitrator.”
17. Undoubtedly, under the provisions of Section 28, the arbitral
Tribunal is required to decide a dispute submitted to the arbitrator in
4 (2012)5-SCC-306 at paragraph 43
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21 of 31 APP.361.2010
accordance with the substantive law for the time being in force in the
country. The arbitral Tribunal is required to decide in accordance with
the terms of the agreement. An arbitrator, it is well settled, is a creation
of a contract between the parties and if he ignores the specific terms of
the contract, that would constitute a jurisdictional error which is
susceptible of being corrected by the Court (Rajasthan State Mines
and Minerals Limited Vs. Eastern Engineering Enterprises and
5
another and Ispat Engineering and Foundry Works, B.S.City,
6
Bokaro Vs. Steel Authority of India Ltd., B.S. City, Bokaro ) In the
present case, the question of construing the terms of the agreement
dated 20 March 2007, arose before the arbitrator in the course of the
arbitral proceedings. As we have noted, two of the three contesting
parties were in fact in agreement before the arbitrator that the valuations
fixed by HDFC Limited were binding on all parties. This was not
merely the position of the Claimants namely, the Kolkata group but a
solemn statement made before the Arbitrator by the counsel appearing
for the Kanpur group. But apart from that, the construction that has
been placed by the arbitrator on the terms of the agreement which
envisaged that all other contentions of the parties, except the valuation
at the market value are kept open, was a possible construction which
would not warrant interference in proceedings under Section 34 of the
Act of 1996. The learned Single Judge has found no basis to set aside
the arbitral award on this aspect. Surely, as a Division Bench exercising
appellate jurisdiction from a decision of a learned Single Judge
declining to set aside an arbitral award under Section 34, we must
exercise caution and circumspection. The construction of the agreement
fell within the province and domain of the arbitrator. Where a possible
5 (1999)9-SCC-283
6 (2001)6-SCC-347
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22 of 31 APP.361.2010
view is taken, no case arises for interference with the award under
Section 34. Less so in appeal.
18. Now, insofar as the aspect of limitation is concerned, certain
important facets of the matter need to be stated at the outset. Firstly, no
plea of limitation was raised before the arbitral Tribunal in the written
statement that was filed by the Mumbai group. As a matter of fact, the
written statement of the Mumbai group in the course of the proceedings,
sought to emphasise that since the reference was in essence in relation
to a family arrangement, technicalities and strict principles of law
applicable to commercial agreements, must be subservient to achieve
harmony in the family. A defence of limitation was raised in the written
statement of Kanpur group in paragraph 2 where there was an averment
that the claim was barred by limitation. This was reiterated in
paragraph 18. The Kanpur group emphasized, inter alia, that there was
no consensus as to the mode and manner in which the distribution was
to be made and there was in the circumstances no failure on their part to
divide or distribute the immovable properties of the partnership firm.
The basis of the challenge to the arbitral award is that the arbitrator,
having raised the issue of limitation, eroneously came to the conclusion
that the judgment of the Supreme Court dated 4 April 2008 having held
that the suit was within limitation and having referred the disputes to the
arbitral tribunal, the consequence was that the claims as set out in the
statement of claims, would have to be held within limitation.
19. The Appellants have relied on the judgment of the Supreme Court
7
in Union of India Vs. M/s.L.K.Ahuja and Co. in which a distinction
7 (1998)3-SCC-76
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23 of 31 APP.361.2010
has been made between whether : (i) a claim made in arbitration is
barred by limitation under the relevant provisions of the Limitation Act;
and (ii) a claim made for an application under Section 20 of the
Arbitration Act, 1940 is barred. The Supreme Court has observed as
follows :
“8. In view of the well settled principles we are of the
view that it will be entirely a wrong to mix up the two
aspects, namely, whether there was any valid claim for
reference under Section 20 of the Act and, secondly,
whether the claim to be adjudicated by the arbitrator, was
barred by lapse of time. The second is a matter which the
arbitrator would decide unless, however, if on admitted
facts a claim is found at the time of making an order
under Section 20 of the Arbitration Act, to be barred by
limitation. … ...”
The Supreme Court has in that context referred to a judgment of the
Kolkata High Court in Jiwnani Engineering Works Pvt. Ltd. Vs.
8
Union of India .
20. In the reply that was filed by the Kolkata group before the
learned Single Judge to the arbitration petitions, it was stated that the
Appellants had made no submissions in respect of the contention of
limitation before the arbitrator; that the Appellants had participated
actively in the arbitration proceedings and had entered into further
agreements during the process, which had resulted in the passing of the
award and that the disputes related to the distribution of the family
properties in which each group consisted of co-owners. Once again it
was reiterated that no oral submissions had been made on behalf of the
Appellants at any point before the arbitral Tribunal in regard to the
8 AIR-1978-Calcutta-228
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24 of 31 APP.361.2010
alleged bar of limitation. The rejoinder that was filed on behalf of the
Appellants before the learned Single Judge does not contain an adequate
traverse. According to the Appellants, they were not called upon and/or
were not permitted to make submissions in respect of the contention of
limitation before the learned arbitrator. The entire traverse on the part
of the Appellants, is, hence vague and bereft of material particulars.
Undoubtedly, as a matter of first principle, the issue as to whether the
invocation of arbitration is within limitation has to be distinguished
from the question as to whether a substantive claim in the arbitral
proceedings is within limitation. At the same time, having regard to the
broad canvass of the observations of the Supreme Court in the judgment
inter partes noted earlier, it cannot be postulated that those observations
were to be completely ignored in dealing with the question as to
whether the claim in arbitration was barred by limitation. In several
parts of the judgment to which a reference has already been made
earlier, the Supreme Court while laying down the principle of special
equity that applies to what are essentially family settlements, held, that
following the dissolution of the partnership, the parties were in serious
negotiations and that as a result, the first dispute that arose between
them related to September 1989.
21. During the course of these proceedings, it was urged on behalf of
Kanpur group that the governing period of limitation would be that
which is prescribed by Article 5 to the Schedule to the Limitation Act in
respect of a suit for accounts and a share of the profits of a dissolved
partnership. The period of limitation is three years and limitation
commences to run from the date of dissolution. The claim in the
arbitral proceedings in the present case was certainly not one that meets
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25 of 31 APP.361.2010
the description of a suit on accounts and for a share in the profits of a
dissolved partnership referred to in Article 5 of the Schedule to the
Limitation Act. That apart, we find substance in the submission that it
will be manifestly unfair to the arbitral tribunal to find fault with it on
the ground that the Tribunal had not dealt with a submission which was
neither agitated nor advanced. The parties in the present case have
allowed a distribution to take place and it is not in dispute that five
properties have been sold through their agreement during the course of
arbitration. For all these reasons, we are of the view that the challenge
to the arbitral award on the ground of limitation must fail.
22. Now it is in this background that it would be necessary to advert
to the circumstances in which the Juhu property at Mumbai came to be
awarded to the Kolkata group. The objection of the Mumbai group is
that the valuation of the Juhu property should be lower than Rs.89.66
crores as determined by the valuer. The Mumbai group had submitted a
proposal before the arbitrator suggesting that the three groups may be
mutually allowed to bid for every single property and that the property
may be given to the highest bidder. The proposal contemplated that
thereafter the total value fetched would be divided into three parts with
each group would having credit of one third of the bid amount which
would be debited with the amount of the property retained by the group.
The Kanpur group proposed that a party in occupation of a property
should be allowed to retain the property at a value determined by the
valuer, but if it was not willing to do so, then in that event the other
party may be allowed to retain the other property at the determined
value. Before the arbitral Tribunal on 7 April 2008 (which was after the
valuation report valuing the property at Rs.89.66 crores was received),
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26 of 31 APP.361.2010
the Claimants stated that they were willing to take the Juhu property at
the price fixed by the valuer at Rs.89.66 crores. The Claimants
representing the Kolkata group further stated that though the Mumbai
group had stated that they were not interested in taking the Juhu
property at the price as valued, the Kolkata group was still willing to
give the first option to the Mumbai group to take the Juhu property at
the said price. The Kanpur group stated that they had no objection to
either the Kolkata group or the Mumbai group purchasing the Juhu
property. The Mumbai group made a statement before the arbitrator that
they would consider whether they are willing to purchase the property at
Juhu at Rs.89.66 crores. The arbitrator during the course of the award
noted that thereafter the Mumbai group did not intimate its willingness
to be alloted the Juhu property at Rs.89.66 crores. Significantly, the
Mumbai group had submitted a valuation report to the arbitrator in
which the Juhu property was valued at Rs.62.57 crores. Even then, as
the arbitrator noted, the Mumbai group was willing to pay no more than
an amount of Rs.32.00 crores for the Mumbai property.
23. It was in this background that the arbitrator observed that in a
case as the present, it was impossible to exactly divide in specie the
immovable properties as that would mean a physical division of some of
the properties and that none of the parties had asked for such a physical
division. The arbitrator held that though the distribution was to be in
specie, there would have to be an equalization of shares in terms of
money. The shares of the parties were not in dispute. Since the Juhu
property was valued at Rs.89.66 crores, the party to whom the Juhu
property was to be allotted, would have to pay a sum of Rs.46.11 crores
which would be distributed between the other two groups considering
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27 of 31 APP.361.2010
the value of the properties allotted to them. The Kanpur group which
was in possession of the Kanpur properties desired to retain the entirety
of the Kanpur properties but this conduct, as we have noted earlier, has
been the subject matter of adverse comment in the judgment of the
Supreme Court. The Juhu property, as the arbitrator noted, could not be
allotted to the Mumbai group since it was not willing to accept the
allotment of the property at Rs.89.66 crores whereas the Kolkata group
was willing to accept allotment at that price. The arbitrator, in our view,
was justified in holding that when one group was willing to accept the
allotment of the Juhu property at Rs.89.66 crores, there was no
justification for the Mumbai group to expect that the property be
allotted to them at a lower price. The submission of the Mumbai group
was that the Juhu property had been over valued by the valuer. The
arbitrator noted that if according to them the property had been over
valued, they ought to willingly accept their share from the consideration
of the Juhu property, which was offered by the Kolkata group.
Moreover, the proposal of the Mumbai group, as noted earlier, was to
allow bids and to allot properties to the highest bidder. They cannot
possibly have an objection to the Juhu property being allotted at a much
higher value than they were willing to offer.
24. We do not find any merit in the submission of the Kanpur group
that the arbitrator transgressed the limitations of the contract or ignored
the terms of the contract. The distribution of the properties was
undoubtedly to be carried out in specie. This stipulation must bear a
robust understanding, one that accords with common sense. As noticed
in the judgment of the Supreme Court in Harishankar Singhania
(supra) , the fixation of an equalization amount was part of the exercise
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28 of 31 APP.361.2010
that was to be carried out by the arbitrator, if necessary. The arbitral
Tribunal has noted that while carrying out a physical division in specie,
an exact division is impossible. Hence, an equalization in terms of
money would necessarily be warranted. In a petition under Section 34,
the test is not whether another division or a better division could have
been carried out. The only question that has to be answered is as to
whether the arbitrator has transgressed the terms of the agreement and
the governing principles of law that are applicable. An exact physical
division in specie was not possible. As the Supreme Court has held, in
such a case, there is no alternative but to resort to the process called
owelty according to which the rights and interests of the parties in the
properties are protected by allowing only one to retain the same
9
(Badrinarain Prasad Choudhary and others Vs. Nil Ratan Sarkar ) .
In the present case, however, the arbitrator in accordance with his
mandate, which was to effect a distribution in specie, has carried out
that exercise, to the extent to which it was practicable and feasible and
for the purposes of equalization of the shares, directed payments of
money in balance. We find no error apparent that would warrant setting
aside the award under Section 34.
25. On behalf of the Appellants it has been urged that there is an
inconsistency in the arbitral award in regard to the manner in which the
arbitrator has construed the agreement dated 20 March 2007. Learned
counsel submitted that in paragraph 20(a), the arbitrator noted the
submission of the Kolkata group that by the agreement dated 20 March
2007 the parties had only changed the method of valuation from book
value to market value. Learned counsel submitted that in paragraph 21,
9 (1978)3-SCC-30
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29 of 31 APP.361.2010
the arbitrator noted that by the agreement “all that was done” was that in
respect of the distribution on the basis of book value, the parties have
now agreed that the distribution be on the basis of the market value.
The arbitrator also observed that the parties have agreed that the
distribution should be on the basis of market value and that the
contention regarding the market value is no longer open to the parties.
It was urged that having taken this view in one part of the award, the
learned arbitrator erred in coming to the conclusion that the parties had
agreed that on the question of market value, the final report would be
binding on all the parties. This submission, in our view, seeks to lift out
of context the observations of the arbitrator. The submissions noted in
paragraph 20(a) were with reference to the stipulation in the deed of
partnership and the deed of dissolution that the division had to be in
specie. It was in the context of this submission that it was urged on
behalf of the Kanpur group that once the parties had agreed to a
distribution of the properties at the market value, there was no necessity
of distribution in specie, as the equalization should be by adjustment of
monies. Hence, the submission of the Kanpur group was that the
distribution of properties in specie was applicable only so long as the
distribution was to take place in accordance with book value. The
learned arbitrator rejected the submission that was urged on behalf of
the Kanpur group that the agreement dated 20 March 2007 waived the
requirement of a distribution in specie. It was in that context that the
arbitrator held that all that the agreement had done is to substitute
distribution on the basis of market value in stead of distribution by book
value. These observations cannot be read out of context on the
question as to whether the parties had kept open to themselves a right to
agitate against the final report of the valuer.
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30 of 31 APP.361.2010
26. On behalf of the Kanpur group, it has been submitted that in
paragraph 23 of the award, the arbitrator has noted that the property at
sr.no.7 is fully in the occupation of outsiders and that it has been agreed
that it should not be allotted free from all encumbrances. Similarly the
arbitrator noted that the property at sr.no.8 is also in possession of an
outsider except for a small portion in possession of J.K.Oil Mills. The
property which was in the possession of the outsider was valued at
Rs.7.90 crores, whereas that in the possession of J.K.Oil Mills was
valued at Rs.0.04 crores. However, it was urged that in the operative part
of the award in paragraph 26(b), the arbitrator has directed that the
Kanpur group would receive the amount due to them against delivery of
vacant possession free from all encumbrances of all the properties
allotted to Mumbai group. In our view, the direction of the learned
arbitrator in paragraph 26(b) to the effect that the Kanpur group would
receive an amount of Rs.22.71 crores only against the delivery of vacant
possession free from all encumbrances of all the properties allotted to the
Mumbai group is severable and has to be read subject to the findings in
paragraph 24, which is to the effect that it was agreed between the parties
that the properties at sr.nos.7 and 8 would not be allotted free from all
encumbrances since they were in the possession of outsiders. The
operative direction of the learned arbitrator, as noted above, is therefore,
to be subject to the aforesaid stipulation. Parties have agreed in
arbitration that the properties at serial no.7 (which is in the occupation of
an outsider) and serial no.8 (which is substantially in the occupation of
an outsider) do not have to be allotted free of encumbrances. We,
however, do not find any merit in the submission that the entirety of the
award is liable to be set aside merely on that ground.
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31 of 31 APP.361.2010
27. For these reasons, we are of the view that there is no merit in the
appeals. The appeals shall accordingly dismissed. There shall be no
order as to costs.
(DR.D.Y.CHANDRACHUD, J.)
(A.A.SAYED, J.)
MST
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1 of 31 APP.361.2010
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
APPEAL NO.361 OF 2010
Dr.Vijaypat Singhania and others Appellants
versus
Hari Shankar Singhania and others Respondents
WITH
APPEAL NO.505 OF 2010
Dr.Gaur Hari Singhania and others Appellants
versus
Hari Shankar Singhania and others Respondents
Mr.Aspi Chinoy, Sr.Advocate with Ms.Gitanjali Prabhu, Mr.Aditya
Thakkar, M.Neville Lashkari, Ms.Jyotsana Kondhalkar, Mr.Anuj P.
Agarwala and Ms.K.A.Vishnupriya i/by Vigil Juris for Appellants in
Appeal No.261 of 2010.
Mr.Pravin Samdani, Sr.Advocate with Mr.Zal Andhyarujina,
Mr.Sreekant Mehta, Mr.Shailesh Shukla i/by Malvi Ranchhoddas & Co.
for Appellants in Appeal No.505 of 2010 and for Respondents 7 to 15 in
Appeal No.361 of 2010.
Mr.I.M.Chagla, Sr.Advocate with Mr.D.D.Madon, Sr.Advocate,
Mr.Riyaz Chagla, Mr.Chetan Kapadia, Mr.Chakrapani Misra,
Ms.Nandini Khaitan, Mr.Ameya Gokhale, Mr.Sahil Narang, Mr.Devesh
Juvekar, Ms.Vatsala Sahay, Mr.Suhas Sagar, Ms.Meghna Rajadhyaksha
i/by Khaitan & Co. for Respondents 2 to 6 in both Appeals.
Mr.M.K.Banatwala for Respondents 1(a) to 1(d).
Mr.Suresh M. Sabrad for Respondents 16 and 18 in Appeal No.361 of
2010 and for Respondents 11 and 13 in Appeal No.505 of 2010.
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2 of 31 APP.361.2010
CORAM : DR.D.Y.CHANDRACHUD AND
A.A.SAYED, JJ.
DATE : 8 March 2013
JUDGMENT - (PER : DR.D.Y.CHANDRACHUD, J.) :
1. By a judgment dated 1 October 2009 the learned Single Judge
dismissed petitions filed by the Appellants under section 34 of the
Arbitration and Conciliation Act, 1996. The petitions sought to
question the legality of an arbitral award dated 4 August 2008 of a sole
arbitrator, Mr.Justice S.N.Variava.
2. On 21 February 1980 a deed of partnership was constituted in
which three branches of the Singhania family were represented. The
three branches, in these proceedings, would for convenience of
reference, be referred to as the Kanpur, Kolkata and Mumbai branches.
Clause-10 of the deed of partnership provided that a partner could retire
with a stipulated period of notice and unless mutually agreed to, upon
retirement, an outgoing partner would be entitled to receive his
proportionate share in the properties of the firm in specie after
deducting the liabilities. Clause-11 of the deed of partnership provided
as follows :
“That in the event of dissolution of the firm accounts shall
be settled between the partners in accordance with the
provisions of Section 48 of the India Partnership Act as
applicable at the relevant time. The assets of the firm
shall be valued on the basis of the values standing in
the books of accounts and not on the basis of market
value. Unless otherwise agreed upon, on dissolution the
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3 of 31 APP.361.2010
partners will be entitled to and will receive their
proportionate share in the assets of the firm in specie after
paying the liabilities, so however that they will be entitled
to a share in each category of assets equivalent to their
share of profit. The share of each company shall be
considered as a separate category.”
(emphasis supplied)
Clause-13 of the deed of partnership contained an agreement to refer
disputes to arbitration. The partnership was dissolved on 26 March
1987 by a deed of dissolution which took effect from 19 March 1987.
Clause-4 of the deed of dissolution provided as follows :
“The parties hereto have agreed to distribute the
immovable properties, mentioned in Annexure-II hereto
in specie free from encumbrances as provided in the Deed
of Partnership dt. 21 February 1980 in proportion to their
shares in the said partnership. The distribution shall be
completed as soon as possible and the parties will strive
to accomplish the same by 31 May 1987.”
An arbitration agreement was also contained in the deed of dissolution.
On 28 March 1987, a supplementary agreement was entered into under
which it was provided that the allotment and distribution of the
immovable properties of the dissolved firm shall be free from all
tenancies, licenses or leases that may be subsisting in favour of group
companies, firms, trusts, societies, relatives and family members.
Between 1987 and 1989, there was an exchange of correspondence on
matters relating to the winding-up of the affairs of the firm.
3. A suit under section 20 of the Arbitration Act, 1940 was instituted
on 8 May 1992 by Harishankar Singhania representing the Kolkata
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4 of 31 APP.361.2010
group. The Defendants to the suit comprised of the Kanpur group and
Mumbai group. The suit was dismissed as barred by limitation by a
Single Judge on 20 February 1986. An appeal was dismissed by a
Division Bench on 8/9 June 2004. The Supreme Court allowed a Civil
appeal against the order of the Division Bench by a judgment dated 4
April 2006 and held that the suit under section 20 was not barred by
limitation. By the judgment of the Supreme Court in Hari Shankar
1
Singhania Vs. Gaur Hari Shankar Singhania , the disputes and
differences between the parties were referred to the arbitration of a sole
arbitrator Mr.Justice S.N.Variava. While disposing of the civil appeal,
the judgment of the Supreme Court, inter alia, specified the nature of
the disputes that had arisen and which would have to be resolved in
arbitration viz. :
“65. … … … … (a) to the extent the
defendants themselves are occupying such properties, the
defendants should be directed to vacate the properties to
enable distribution of the said properties in specie free
from encumbrances;
(b) the defendants' obligation to have vacant
possession of the immovable properties listed at Items 1
to 13 of Exhibit `D' hereto and to ensure that persons
other than themselves actually vacate the said properties
so that the same are available for distribution in specie
free from encumbrances between the plaintiffs and the
defendants pursuant to the said deed of dissolution;
(c) directions and steps be taken by the defendants to
achieve the vacant possession mentioned in paras (a) and
(b) above;
(d) distribution of the above mentioned properties in
specie free from encumbrances between the plaintiffs and
the defendants;
1 (2006)4-SCC-658
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5 of 31 APP.361.2010
(e) distribution of the properties mentioned at Items 14
and 15 of Exhibit `D' hereto subject to the encumbrances;
(f) fixation of equalization amount, if necessary;
(g) If for any reason any of the defendants do not
permit and comply with the direction for getting vacant
possession of any of the immovable properties listed in
Items 1 to 13 of Ext.`D' to the plaint, then the same
should be valued on the basis of vacant possession and
the plaintiffs should be paid their share on the basis of the
vacant possession by the defendants.”
4. During the course of the arbitral proceedings before the sole
arbitrator, five properties were sold, by consent. On 20 March 2007, an
agreement was arrived at between the parties during the course of
reference to the following effect :
“AGREEMENT
With reference to the arbitration pending before the
Hon'ble Arbitrator Mr.Justice S.N.Variava, Former Judge,
Supreme Court of India, in relation to the distribution of
the properties described at items 1 to 10 set out in
Annexure II to the Deed of Dissolution dated March 27,
1987, the parties have agreed that the properties will
be distributed on the basis of market value and the
date of valuation and the Valuer would be decided by
the Hon'ble Arbitrator. The Valuer will hear the
parties before giving his report .
It is clarified that the properties mentioned at items 11 to
15 of the said Annexure II are not to be included in this
Agreement. Parties agree that the property at Item 11 is
sold, the properties at items 12, 13 and 15 are to be sold
and proceeds distributed. The property at item 14 is not
part of this Agreement.
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6 of 31 APP.361.2010
All other contentions of the parties, except the
valuation at market value, are kept open .”
(emphasis supplied)
The agreement was taken on record by the arbitrator on 20 March 2007.
By an order of that date, the arbitrator heard the parties on the date with
reference to which the market value would be determined by the valuer.
On 30 July 2007, all the parties informed the arbitrator that they were
agreed on the name of the valuer to be appointed for the purposes of
conducting a valuation of the properties. All parties agreed to a
valuation by HDFC Limited. The valuer circulated a draft of the
valuation report. During the course of the arbitration, on 5 February
2008, the arbitrator declined to entertain the submissions of the Mumbai
group on the draft since this was allowed before the valuer. The
arbitrator, however, observed that it was necessary for the valuer to
consider and take into account the views and facts which may be
brought to its attention by any of the parties. The arbitrator recorded
that the parties had already made representations to the valuer, but to
leave no room for complaint, it was directed that if any of the parties
desired to bring any fact or submission before the valuer, they could do
so on 13 February 2008. The valuer was thereafter directed to take into
account the perspectives of the parties. On 4 February 2008, the
arbitrator recorded that all parties had in pursuance of the previous
directions met the valuer to convey their points of view and three weeks'
time was granted to the valuer to submit the final report. At that stage,
on behalf of the Mumbai group, it was urged that under Section 26(2) of
the Arbitration and Conciliation Act, 1996, parties had a right to insist
that after the submission of the final report, the valuer should participate
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7 of 31 APP.361.2010
in an oral hearing to submit itself to questioning by the parties and to
enable the parties to present their expert evidence on the valuation of
the properties. The arbitrator rejected this submission holding that the
deadlock between the parties had been resolved when they entered into
an agreement dated 20 March 2007. Section 26(2), the arbitrator noted,
is subject to an agreement otherwise entered into between the parties
and the agreement dated 20 March 2007 was held to be an agreement
where the parties have otherwise provided. The arbitrator noted that by
the agreement dated 20 March 2007, the parties had agreed that all
contentions, except the valuation at the market value, are kept open and
this stipulation was inserted in order that the independent valuer, who
would be appointed by the Tribunal, would finally resolve the deadlock
of valuation by fixing the market value. The arbitrator observed as
follows :
“3. … … … … The whole purpose and
intention was that once the market value was fixed by the
valuer, no question arose of parties bringing in other
experts on the question of market value or of cross
examining the valuer on the market value. Parties have
agreed that on the question of market value the Final
Report will be binding on all. As the Final Report was to
be binding, it was considered proper by this Tribunal that
the parties themselves agree to the name of a valuer.
They were requested to do so. Accordingly parties chose
HDFC as valuers and this Tribunal appointed them as
agreed valuers.
4. As the Final Report was to be binding on all parties
they were granted opportunities to meet the valuers and
present their points of view, including what according to
them should be the method of valuation and what
according to them were the facts which should be taken
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8 of 31 APP.361.2010
into consideration. Parties had earlier met HDFC. After
5 January 2008 they again met HDFC. I am told that all
the parties have given written submissions to the valuer.
HDFC have been informed that, they have to consider the
submissions and give reasons in writing as to why they
are accepting or not accepting their submissions. Thus,
the principles of natural justice i.e. that the parties be
heard, have been fully complied with.
5. The principles of natural justice have been fully
complied with. Even otherwise, as per the Agreement
dated 20 March 2007, it is now not open to parties to
question the valuation fixed by the agreed independent
valuer. There is now no question of cross-examination of
the valuer and/or of leading evidence of other valuers.
Accordingly, I reject the submission that after the Final
Report is submitted, an opportunity be given under
Section 26(2) of the Arbitration and Conciliation Act,
1996. As stated above this Section is inapplicable to the
facts of this case.”
5. The arbitrator thereafter heard the parties on several dates and
rendered his award on 4 August 2008. The arbitrator thereafter
corrected certain clerical and typographical errors in the award on 12
September 2008.
6. By the award, the arbitrator has partitioned the properties of the
partnership in the following manner :
“a) The Claimants are allotted the property at Sr.No.5
i.e. Kamala Cottage, property No.6 at Juhu, Mumbai. As
the market value of this property is fixed at Rs.89.66 crs.
and each group is entitled to assets worth Rs.43,55,00,000/-
the Claimants will have to bring into the pool to the family,
in the manner set out hereafter, a sum of Rs.46,11,00,000/-.
This then will have to be distributed amongst the other two
groups as per their entitlement.
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9 of 31 APP.361.2010
(b) Respondents 1 to 9 are allotted the following
properties at the prices mentioned below :
(i) Property at Sr.No.1 i.e. Property no.29/1 at
Kanpur known as Kamla Towers. The value of this
property is fixed at Rs.4 crores;
(ii) Property at Sr.No.2 i.e. Property No.22/134
at Kanpur known as J.K.Kothi. The value of this property
is fixed at Rs.1.63 crores;
(iii) Property at Sr.No.3 i.e. Property No.11 at
Cantt. Kanpur, known as Ganga Kuti. The value of this
property is fixed at Rs.10.44 Crores;
(iv) Property at Sr.No.4 i.e. Property No.6 at
Cantt. Kanpur. The value of this property is fixed at
Rs.4.54 crores.
(v) Property at Sr.No.9 i.e. Property No.20/193
Chatai Mohal, Kanpur. The value of this property is fixed
at Rs.0.23 Crores.
Thus properties worth Rs.20.84 crores are allotted to
Respondents 1 to 9. As they are entitled to assets worth
Rs.43,55,00,000/- they will, in addition to the above,
receive a sum of Rs.22.71 crores from out of the sum of
Rs.46,11,00,000/- which has to be brought in by the
Claimants. They will receive this amount only against
delivery of vacant possession, free from encumbrances, of
all the properties allotted to Respondents 10 to 16. In
other words it will not be open to them to receive a part of
this sum of Rs.22.71 crores on the ground that they have
handed over vacant possession of some of the properties.
(c) Respondents 10 to 16 are allotted the following
properties at the prices mentioned below :
(i) Property at Sr.No.6 i.e. Property No.37,
Kanpur known as Kamla Retreat. The value of this
property is fixed at Rs.9.62 crores.
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10 of 31 APP.361.2010
(ii) Property at Sr.No.7 i.e. Property No.88/473,
Hiraman Purwa, Kanpur. The value of this property is
fixed at Rs.2 crores.
(iii) Property at Sr.No.8 i.e. Property No.80/80,
Kanpur known as Oil Mills land. The value of this
property is fixed at Rs.7.90 crores and Rs.0.30 crores.
(iv) Property at Sr.No.10 i.e. Property No.20/131
Patkapur, Kanpur. The value of this property is fixed at
Rs.0.33 crores.
Thus, Respondents 10 to 16 are allotted properties worth
Rs.20.15 crores. As they are entitled to assets worth
Rs.43,55,00,000/- they will, in addition to the above,
receive a sum of Rs.23.40 crores from out of the sum of
Rs.46,11,00,000/- which has to be paid by the Claimants.
They will receive this amount only on handing over
vacant possession, free from encumbrance, of the Juhu
property to the Claimants.”
7. Essentially as the award would indicate, ten properties have been
partitioned. One of the properties is a property at Juhu, Mumbai, which
has been in the possession of the Mumbai group and which has been
awarded to the Kolkata group. Nine properties at Kanpur were in the
occupation of the Kanpur group. Out of these nine properties, five
have been awarded to the Kanpur group while four have been awarded
to Mumbai group. Having regard to the valuation of the properties
fixed by HDFC Limited, the arbitrator has directed payment of
amounts in order to effectuate an equalization of the shares of the three
groups. This is indicated in the following table, a copy of which has
been placed on the record of the Court during the course of submissions.
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11 of 31 APP.361.2010
8. Each of the three groups is entitled to a share in the assets of
Rs.43.55 crores. Since the valuation of the property at Juhu is
Rs.89.66 crores, the Kolkata group which has been awarded the Juhu
property, is required to pay an amount of Rs.46.11 crores in aggregate
to the other two groups. The Kanpur group has been awarded
properties of a value of Rs.20.84 crores and would receive an amount
of Rs.22.71 crores towards equalization of its share. The Mumbai
group has been awarded four properties at Kanpur of a value of
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12 of 31 APP.361.2010
Rs.20.40 crores and would receive an amount of Rs.23.04 crores in
equalization of its share.
9. Now it is in this background that the submissions which have
been urged on behalf of the Appellants would have to be considered.
On behalf of the Appellants in the Mumbai group, two submissions
have been urged while challenging the judgment of the learned Single
Judge affirming the award :
(i) Section 26(2) of the Arbitration and Conciliation Act, 1996
stipulates that unless otherwise agreed by the parties, an expert
appointed by the arbitral tribunal is required after submission of his
report to participate in an oral hearing where the parties have an
opportunity to put questions to him and to present expert witnesses in
order to testify on the points at issue. The arbitrator, however, barred
the Appellants from cross-examining the valuer and from leading
evidence in support of its case on the valuation of the properties on the
basis that by the agreement between the parties dated 20 March 2007,
the report of the valuer was to be final and binding. According to the
Appellants, what the agreement dated 20 March 2007 brought about
was an alteration in the basis of the valuation of the properties from
book value to market value. What the agreement between the parties
stipulated was that the alteration in the basis of valuation to the market
value of the properties would be binding. The agreement, in the
submission, did not treat the report of the valuer as final and binding.
The arbitrator deprived the Appellants of a right to challenge the report
of the valuer and precluded them from exercising their rights under
Section 26(2) of the Act of 1996;
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13 of 31 APP.361.2010
(ii) The arbitrator specifically raised an issue of limitation.
The arbitrator, however, proceeded to hold that the claim was not barred
on the basis that the issue of limitation was concluded by the judgment
of Supreme Court in Harishankar Singhania (supra) . This statement
of law on the face of the award is erroneous because, what the Supreme
Court decided was whether the suit under Section 20 was barred by
limitation and not whether the claim before the arbitrator in the arbitral
proceedings was within time. The issue as to whether an application
invoking arbitration has been filed within limitation is distinct from
whether a claim in arbitration is within limitation and the arbitrator, it
has been submitted, has committed an error apparent on the face of the
record by confounding one for the other.
10. While adopting the submissions that were urged by the Mumbai
group, the learned counsel appearing on behalf of the Kanpur group has
submitted that :
(i) The arbitral award is not in terms of the agreement
between the parties since the agreement envisaged that the distribution
of the assets of the dissolved partnership was to take place in specie;
(ii) The arbitrator has applied principles of owelty which are
relevant to a partition of undivided properties of a family and not to the
distribution of the assets of a dissolved partnership. There was no
finding by the arbitrator that the properties of the partnership are
incapable of division and hence there was no justification for the
arbitrator to award amounts for equalization of shares when a
distribution in specie could have been carried out;
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14 of 31 APP.361.2010
(iii) There is an inherent inconsistency in the arbitral award
which vitiates the award rendering it liable to be set aside.
11. Each of these submissions now falls for determination.
12. At the outset, it would be necessary to understand the background
of the proceedings which resulted in the judgment of the Supreme Court
inter partes and to elucidate the principles laid down in the judgment
of the Supreme Court. An arbitration suit that was filed in this Court
under Section 20 of the Arbitration Act, 1940 was dismissed by a
learned Single Judge as barred by limitation and which decision was
confirmed by the Division Bench. The points for consideration that
were formulated by the Supreme Court were : (i) when the right to
file an application under Section 20 had accrued and when it would
become time barred, and (ii) whether in the context of Section 20, a
difference or dispute could be said to have arisen between the parties
when there was a denial or repudiation of a claim. The judgment of the
Supreme Court noted that upon the dissolution of the partnership, there
was an exchange of correspondence between the parties and if a letter
dated 29 September 1989 is taken in to account, it would show that the
suit under Section 20 was within limitation. The Supreme Court was of
the view that the policy of the law is in the first instance to promote the
efficacy of family settlements and as long as parties are in dialogue, it
could not be asserted that limitation had commenced. Otherwise,
parties would be compelled to resort to litigation or arbitration, even
though they were in dialogue with each other in order to resolve their
disputes. The Supreme Court observed thus :
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15 of 31 APP.361.2010
“35. It cannot be said that merely because nominees
were appointed for working out an arrangement, which
could not ultimately be arrived at, a dispute or difference
arose way back in February 1988. In fact, even
immediately after this, the correspondence exchanged
between the parties reveals a forthcoming attitude and
amiable efforts made towards implementing the deed of
dissolution.”
The judgment of Supreme Curt has laid down the principles which must
be borne in mind in dealing with disputes involving family settlement.
In that context, the following observations are of significance :
“42. Another fact that assumes importance at this stage
is that, a family settlement is treated differently from any
other formal commercial settlement as such settlement in
the eye of the law ensures peace and goodwill among the
family members. Such family settlements generally meet
with approval of the courts. Such settlements are
governed by a special equity principle where the terms are
fair and bona fide, taking into account the well being of a
family.
43. The concept of “family arrangement or settlement”
and the present one in hand, in our opinion, should be
treated differently. Technicalities of limitation, etc.
should not ... put at risk ... the implementation of a
settlement drawn by a family, which is essential for
maintaining peace and harmony in a family. Also it can
be seen from decided cases of this Court that, any such
arrangement would be upheld if family settlements were
entered into to allay disputes existing or apprehended and
even any dispute or difference apart, if it was entered into
bona fide to maintain peace or to bring about harmony in
the family”.
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16 of 31 APP.361.2010
The judgment of Supreme Court took note of the fact that the assets of
the partnership were largely with the Kanpur group and an amicable
settlement for the division of the assets had not been arrived at for over
eighteen years, since those who were enjoying the assets in question
were “merely trying to drag proceedings endlessly forever and for
2
another period of uninterrupted enjoyment of the assets” . The Supreme
Court observed that it was an admitted fact that the three branches of the
Singhania family are each entitled to a one third share in the immovable
properties. In regard to the conduct of the Kanpur group, the Supreme
Court made the following observations in the course of the judgment :
“62. it is thus seen that the above facts would clearly go
to show that the contesting Respondents 1-9 are not at
all interested in any conciliation, mediation or
arbitration but only interested in enjoying the bulk of
the immovable properties of the firm and refusing to
carry out their obligations under and pursuant to the
said deed of dissolution by permitting the distribution
of the said properties in specie and free from any
encumbrance as contemplated by the said deed of
dissolution dated 26 March 1987 and the supplementary
agreement dated 28 March 1987.
63. … … … It has now come to a stage
that the real dispute has arisen between the parties.
Already the matter is pending adjudication from 1987
onwards, Respondents 1-9 are admittedly in possession
and enjoyment of the valuable immovable properties
depriving the valuable rights of the appellants and the
other Respondents 10-20. We should not, therefore,
allow Respondents 1-9 to drag the proceedings any
further. The parties have to settle their disputes one day
or the other. In our opinion, the time has now come to
nominate a single arbitrator as provided under clause 13
2 At paragraph 40, page 671 of the judgment of Supreme Court in (2006)4-SCC-658
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17 of 31 APP.361.2010
of the agreement. It was argued that in case this Court
allows the appeal, the matter may be remitted to the High
Court for appointment of a single arbitrator and in case
the parties are unable to agree upon a single arbitrator a
panel of three arbitrators shall be appointed as provided in
the said agreement. We feel that such a course, if
adopted, would only enable the contesting Respondents
1-9 to squat on the property and enjoy the benefits,
income, etc. arising therefrom.”
(emphasis supplied)
13. These observations which were made by the Supreme Court were
undoubtedly in the context of a decision on the issue as to whether the
arbitration suit under Section 20 of the Arbitration Act, 1940 was barred
by limitation. While reversing the judgment of this Court and holding
that the suit was not barred by limitation, the Supreme Court has laid
down the basic frame work of the underlying principles that must be
applied in dealing with a family settlement. The fundamental principles
which have been emphasized by the Supreme Court are that :
(i) In dealing with a family settlement, the effort of an
adjudicatory tribunal must be to promote the efficacy of a family
arrangement which is intended to achieve a resolution of disputes; and
(ii) Family settlements are governed by a special equity which
postulates that where the terms are fair and bona fide, such settlements
must be enforced even at the cost of diluting technical objections.
In the present case one branch which was in possession of properties
had made every effort to obstruct the distribution of the properties in
order to continue to retain possession. Now it is in this background that
the submissions which have been urged would have to be evaluated.
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18 of 31 APP.361.2010
14. During the pendency of the arbitral proceedings, an agreement
was arrived at between the parties on 20 March 2007. The agreement
contemplated in its first part that the distribution of the properties would
take place on the basis of market value. This was in substitution of the
book value which was to be treated as the basis of distribution under the
deed of partnership and the deed of dissolution. By their agreement
dated 20 March 2007, the parties while stipulating that the distribution
of the properties would take place on the basis of market value, agreed
that the date of the valuation and the valuer would be decided by the
arbitrator. The valuer was required to hear the parties. In the concluding
part of the agreement, the parties stipulated that “all other contentions of
the parties, except the valuation at the market value, are kept open.”
Now at this stage, it would be necessary to note that two of the three
contesting groups in these proceedings, namely the claimants consisting
of the Kolkata group and one of the Appellants namely the Kanpur
group, were ad-idem, on the meaning of this stipulation. The arbitrator
has noted in the course of the award the submissions of learned counsel
who appeared on behalf of the Kanpur group that “ by an agreement
dated 20 March 2007, all parties have agreed that they will not
3
challenge the valuations as fixed by the valuer” . This, in our view,
assumes significance because both before the learned Single Judge in
challenging the arbitral award and before this Court, both the Mumbai
group and the Kanpur group, are acting together in their objections to
the award. Hence, it is material to note that two of the three contesting
groups construed the agreement dated 20 March 2007 to mean that
parties had agreed that they would not challenge the valuation as fixed
by the valuer.
3 Paragraph 20C
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19 of 31 APP.361.2010
15. By the first part of the agreement the parties agreed that (i) the
basis of the valuation would be the market value; (ii) the date of the
valuation and the valuer would be decided by the arbitrator; and (iii)
the valuer would hear the parties before giving his report. As a matter
of fact, HDFC Limited was the valuer agreed upon by the parties. The
parties had a full opportunity to and did in fact submit their perspectives
to the valuer. The valuer made available a draft report for inspection
before the parties and allowed the parties an opportunity to respond.
The arbitrator furnished a further opportunity to the parties to place their
submissions before the valuer and it was only thereafter that the valuer
arrived at its final determination.
16. Section 26(1) empowers an arbitral Tribunal to appoint an expert
to report to it on a specific issue to be determined by the arbitral
Tribunal. Under Sub-Section 2 of Section 26, unless otherwise agreed
by the parties, if a party so requests or if the arbitral Tribunal considers
necessary, an expert shall, after submitting the report, participate in an
oral hearing where the parties have opportunity to put questions and to
present expert witnesses in order to testify on the points at issue. The
arbitrator has held that in the present case, the agreement dated 20
March 2007 was an agreement as contemplated by Section 26(2)
between the parties. The parties, as we have noted earlier, by the terms
of their agreement, contemplated that the expert would hear them before
submitting his report. The expert, HDFC Limited, was one in whom the
parties reposed confidence since the appointment was made by consent.
The underlying purpose and object of the provisions of Section 26(2)
was duly fulfilled by the parties by (i) participating in the proceedings
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20 of 31 APP.361.2010
before the expert and being allowed a full opportunity to produce
material and advance submissions; (ii) being furnished with a copy of
the draft report; (iii) being allowed to present their suggestions on the
draft report; and above all (iv) making submissions before the arbitrator
in regard to their choice of properties based on the valuation of the
properties as made. The submission of the Appellants in the Mumbai
group is that in the concluding part of the agreement dated 20 March
2007, the parties agreed that all other contentions (except the valuation
at market value) would be kept open and what was concluded was only
the principle that the basis of valuation was to be market value in stead
of book value. We cannot accede to the submission. The arbitrator in the
present case was called upon to interpret the terms of an agreement
between the parties. The arbitrator was acting within jurisdiction in
interpreting the terms of the agreement. Where an arbitrator takes a
view on a provision of an agreement and which is a possible view, the
Court under Section 34 will not interfere. This principle has been laid
down in the recent judgment of the Supreme Court in Rashtriya Ispat
4
Nigam Limited Vs. Dewan Chand Ram Saran :
“43. In any case, assuming that Clause 9.3 was capable of
two interpretations, the view taken by the arbitrator was
clearly a possible if not a plausible one. It is not possible to
say that the arbitrator had travelled outside his jurisdiction,
or that the view taken by him was against the terms of
contract. That being the position, the High Court had no
reason to interfere with the award and substitute its view in
place of the interpretation accepted by the arbitrator.”
17. Undoubtedly, under the provisions of Section 28, the arbitral
Tribunal is required to decide a dispute submitted to the arbitrator in
4 (2012)5-SCC-306 at paragraph 43
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21 of 31 APP.361.2010
accordance with the substantive law for the time being in force in the
country. The arbitral Tribunal is required to decide in accordance with
the terms of the agreement. An arbitrator, it is well settled, is a creation
of a contract between the parties and if he ignores the specific terms of
the contract, that would constitute a jurisdictional error which is
susceptible of being corrected by the Court (Rajasthan State Mines
and Minerals Limited Vs. Eastern Engineering Enterprises and
5
another and Ispat Engineering and Foundry Works, B.S.City,
6
Bokaro Vs. Steel Authority of India Ltd., B.S. City, Bokaro ) In the
present case, the question of construing the terms of the agreement
dated 20 March 2007, arose before the arbitrator in the course of the
arbitral proceedings. As we have noted, two of the three contesting
parties were in fact in agreement before the arbitrator that the valuations
fixed by HDFC Limited were binding on all parties. This was not
merely the position of the Claimants namely, the Kolkata group but a
solemn statement made before the Arbitrator by the counsel appearing
for the Kanpur group. But apart from that, the construction that has
been placed by the arbitrator on the terms of the agreement which
envisaged that all other contentions of the parties, except the valuation
at the market value are kept open, was a possible construction which
would not warrant interference in proceedings under Section 34 of the
Act of 1996. The learned Single Judge has found no basis to set aside
the arbitral award on this aspect. Surely, as a Division Bench exercising
appellate jurisdiction from a decision of a learned Single Judge
declining to set aside an arbitral award under Section 34, we must
exercise caution and circumspection. The construction of the agreement
fell within the province and domain of the arbitrator. Where a possible
5 (1999)9-SCC-283
6 (2001)6-SCC-347
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22 of 31 APP.361.2010
view is taken, no case arises for interference with the award under
Section 34. Less so in appeal.
18. Now, insofar as the aspect of limitation is concerned, certain
important facets of the matter need to be stated at the outset. Firstly, no
plea of limitation was raised before the arbitral Tribunal in the written
statement that was filed by the Mumbai group. As a matter of fact, the
written statement of the Mumbai group in the course of the proceedings,
sought to emphasise that since the reference was in essence in relation
to a family arrangement, technicalities and strict principles of law
applicable to commercial agreements, must be subservient to achieve
harmony in the family. A defence of limitation was raised in the written
statement of Kanpur group in paragraph 2 where there was an averment
that the claim was barred by limitation. This was reiterated in
paragraph 18. The Kanpur group emphasized, inter alia, that there was
no consensus as to the mode and manner in which the distribution was
to be made and there was in the circumstances no failure on their part to
divide or distribute the immovable properties of the partnership firm.
The basis of the challenge to the arbitral award is that the arbitrator,
having raised the issue of limitation, eroneously came to the conclusion
that the judgment of the Supreme Court dated 4 April 2008 having held
that the suit was within limitation and having referred the disputes to the
arbitral tribunal, the consequence was that the claims as set out in the
statement of claims, would have to be held within limitation.
19. The Appellants have relied on the judgment of the Supreme Court
7
in Union of India Vs. M/s.L.K.Ahuja and Co. in which a distinction
7 (1998)3-SCC-76
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23 of 31 APP.361.2010
has been made between whether : (i) a claim made in arbitration is
barred by limitation under the relevant provisions of the Limitation Act;
and (ii) a claim made for an application under Section 20 of the
Arbitration Act, 1940 is barred. The Supreme Court has observed as
follows :
“8. In view of the well settled principles we are of the
view that it will be entirely a wrong to mix up the two
aspects, namely, whether there was any valid claim for
reference under Section 20 of the Act and, secondly,
whether the claim to be adjudicated by the arbitrator, was
barred by lapse of time. The second is a matter which the
arbitrator would decide unless, however, if on admitted
facts a claim is found at the time of making an order
under Section 20 of the Arbitration Act, to be barred by
limitation. … ...”
The Supreme Court has in that context referred to a judgment of the
Kolkata High Court in Jiwnani Engineering Works Pvt. Ltd. Vs.
8
Union of India .
20. In the reply that was filed by the Kolkata group before the
learned Single Judge to the arbitration petitions, it was stated that the
Appellants had made no submissions in respect of the contention of
limitation before the arbitrator; that the Appellants had participated
actively in the arbitration proceedings and had entered into further
agreements during the process, which had resulted in the passing of the
award and that the disputes related to the distribution of the family
properties in which each group consisted of co-owners. Once again it
was reiterated that no oral submissions had been made on behalf of the
Appellants at any point before the arbitral Tribunal in regard to the
8 AIR-1978-Calcutta-228
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24 of 31 APP.361.2010
alleged bar of limitation. The rejoinder that was filed on behalf of the
Appellants before the learned Single Judge does not contain an adequate
traverse. According to the Appellants, they were not called upon and/or
were not permitted to make submissions in respect of the contention of
limitation before the learned arbitrator. The entire traverse on the part
of the Appellants, is, hence vague and bereft of material particulars.
Undoubtedly, as a matter of first principle, the issue as to whether the
invocation of arbitration is within limitation has to be distinguished
from the question as to whether a substantive claim in the arbitral
proceedings is within limitation. At the same time, having regard to the
broad canvass of the observations of the Supreme Court in the judgment
inter partes noted earlier, it cannot be postulated that those observations
were to be completely ignored in dealing with the question as to
whether the claim in arbitration was barred by limitation. In several
parts of the judgment to which a reference has already been made
earlier, the Supreme Court while laying down the principle of special
equity that applies to what are essentially family settlements, held, that
following the dissolution of the partnership, the parties were in serious
negotiations and that as a result, the first dispute that arose between
them related to September 1989.
21. During the course of these proceedings, it was urged on behalf of
Kanpur group that the governing period of limitation would be that
which is prescribed by Article 5 to the Schedule to the Limitation Act in
respect of a suit for accounts and a share of the profits of a dissolved
partnership. The period of limitation is three years and limitation
commences to run from the date of dissolution. The claim in the
arbitral proceedings in the present case was certainly not one that meets
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25 of 31 APP.361.2010
the description of a suit on accounts and for a share in the profits of a
dissolved partnership referred to in Article 5 of the Schedule to the
Limitation Act. That apart, we find substance in the submission that it
will be manifestly unfair to the arbitral tribunal to find fault with it on
the ground that the Tribunal had not dealt with a submission which was
neither agitated nor advanced. The parties in the present case have
allowed a distribution to take place and it is not in dispute that five
properties have been sold through their agreement during the course of
arbitration. For all these reasons, we are of the view that the challenge
to the arbitral award on the ground of limitation must fail.
22. Now it is in this background that it would be necessary to advert
to the circumstances in which the Juhu property at Mumbai came to be
awarded to the Kolkata group. The objection of the Mumbai group is
that the valuation of the Juhu property should be lower than Rs.89.66
crores as determined by the valuer. The Mumbai group had submitted a
proposal before the arbitrator suggesting that the three groups may be
mutually allowed to bid for every single property and that the property
may be given to the highest bidder. The proposal contemplated that
thereafter the total value fetched would be divided into three parts with
each group would having credit of one third of the bid amount which
would be debited with the amount of the property retained by the group.
The Kanpur group proposed that a party in occupation of a property
should be allowed to retain the property at a value determined by the
valuer, but if it was not willing to do so, then in that event the other
party may be allowed to retain the other property at the determined
value. Before the arbitral Tribunal on 7 April 2008 (which was after the
valuation report valuing the property at Rs.89.66 crores was received),
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26 of 31 APP.361.2010
the Claimants stated that they were willing to take the Juhu property at
the price fixed by the valuer at Rs.89.66 crores. The Claimants
representing the Kolkata group further stated that though the Mumbai
group had stated that they were not interested in taking the Juhu
property at the price as valued, the Kolkata group was still willing to
give the first option to the Mumbai group to take the Juhu property at
the said price. The Kanpur group stated that they had no objection to
either the Kolkata group or the Mumbai group purchasing the Juhu
property. The Mumbai group made a statement before the arbitrator that
they would consider whether they are willing to purchase the property at
Juhu at Rs.89.66 crores. The arbitrator during the course of the award
noted that thereafter the Mumbai group did not intimate its willingness
to be alloted the Juhu property at Rs.89.66 crores. Significantly, the
Mumbai group had submitted a valuation report to the arbitrator in
which the Juhu property was valued at Rs.62.57 crores. Even then, as
the arbitrator noted, the Mumbai group was willing to pay no more than
an amount of Rs.32.00 crores for the Mumbai property.
23. It was in this background that the arbitrator observed that in a
case as the present, it was impossible to exactly divide in specie the
immovable properties as that would mean a physical division of some of
the properties and that none of the parties had asked for such a physical
division. The arbitrator held that though the distribution was to be in
specie, there would have to be an equalization of shares in terms of
money. The shares of the parties were not in dispute. Since the Juhu
property was valued at Rs.89.66 crores, the party to whom the Juhu
property was to be allotted, would have to pay a sum of Rs.46.11 crores
which would be distributed between the other two groups considering
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27 of 31 APP.361.2010
the value of the properties allotted to them. The Kanpur group which
was in possession of the Kanpur properties desired to retain the entirety
of the Kanpur properties but this conduct, as we have noted earlier, has
been the subject matter of adverse comment in the judgment of the
Supreme Court. The Juhu property, as the arbitrator noted, could not be
allotted to the Mumbai group since it was not willing to accept the
allotment of the property at Rs.89.66 crores whereas the Kolkata group
was willing to accept allotment at that price. The arbitrator, in our view,
was justified in holding that when one group was willing to accept the
allotment of the Juhu property at Rs.89.66 crores, there was no
justification for the Mumbai group to expect that the property be
allotted to them at a lower price. The submission of the Mumbai group
was that the Juhu property had been over valued by the valuer. The
arbitrator noted that if according to them the property had been over
valued, they ought to willingly accept their share from the consideration
of the Juhu property, which was offered by the Kolkata group.
Moreover, the proposal of the Mumbai group, as noted earlier, was to
allow bids and to allot properties to the highest bidder. They cannot
possibly have an objection to the Juhu property being allotted at a much
higher value than they were willing to offer.
24. We do not find any merit in the submission of the Kanpur group
that the arbitrator transgressed the limitations of the contract or ignored
the terms of the contract. The distribution of the properties was
undoubtedly to be carried out in specie. This stipulation must bear a
robust understanding, one that accords with common sense. As noticed
in the judgment of the Supreme Court in Harishankar Singhania
(supra) , the fixation of an equalization amount was part of the exercise
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28 of 31 APP.361.2010
that was to be carried out by the arbitrator, if necessary. The arbitral
Tribunal has noted that while carrying out a physical division in specie,
an exact division is impossible. Hence, an equalization in terms of
money would necessarily be warranted. In a petition under Section 34,
the test is not whether another division or a better division could have
been carried out. The only question that has to be answered is as to
whether the arbitrator has transgressed the terms of the agreement and
the governing principles of law that are applicable. An exact physical
division in specie was not possible. As the Supreme Court has held, in
such a case, there is no alternative but to resort to the process called
owelty according to which the rights and interests of the parties in the
properties are protected by allowing only one to retain the same
9
(Badrinarain Prasad Choudhary and others Vs. Nil Ratan Sarkar ) .
In the present case, however, the arbitrator in accordance with his
mandate, which was to effect a distribution in specie, has carried out
that exercise, to the extent to which it was practicable and feasible and
for the purposes of equalization of the shares, directed payments of
money in balance. We find no error apparent that would warrant setting
aside the award under Section 34.
25. On behalf of the Appellants it has been urged that there is an
inconsistency in the arbitral award in regard to the manner in which the
arbitrator has construed the agreement dated 20 March 2007. Learned
counsel submitted that in paragraph 20(a), the arbitrator noted the
submission of the Kolkata group that by the agreement dated 20 March
2007 the parties had only changed the method of valuation from book
value to market value. Learned counsel submitted that in paragraph 21,
9 (1978)3-SCC-30
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29 of 31 APP.361.2010
the arbitrator noted that by the agreement “all that was done” was that in
respect of the distribution on the basis of book value, the parties have
now agreed that the distribution be on the basis of the market value.
The arbitrator also observed that the parties have agreed that the
distribution should be on the basis of market value and that the
contention regarding the market value is no longer open to the parties.
It was urged that having taken this view in one part of the award, the
learned arbitrator erred in coming to the conclusion that the parties had
agreed that on the question of market value, the final report would be
binding on all the parties. This submission, in our view, seeks to lift out
of context the observations of the arbitrator. The submissions noted in
paragraph 20(a) were with reference to the stipulation in the deed of
partnership and the deed of dissolution that the division had to be in
specie. It was in the context of this submission that it was urged on
behalf of the Kanpur group that once the parties had agreed to a
distribution of the properties at the market value, there was no necessity
of distribution in specie, as the equalization should be by adjustment of
monies. Hence, the submission of the Kanpur group was that the
distribution of properties in specie was applicable only so long as the
distribution was to take place in accordance with book value. The
learned arbitrator rejected the submission that was urged on behalf of
the Kanpur group that the agreement dated 20 March 2007 waived the
requirement of a distribution in specie. It was in that context that the
arbitrator held that all that the agreement had done is to substitute
distribution on the basis of market value in stead of distribution by book
value. These observations cannot be read out of context on the
question as to whether the parties had kept open to themselves a right to
agitate against the final report of the valuer.
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30 of 31 APP.361.2010
26. On behalf of the Kanpur group, it has been submitted that in
paragraph 23 of the award, the arbitrator has noted that the property at
sr.no.7 is fully in the occupation of outsiders and that it has been agreed
that it should not be allotted free from all encumbrances. Similarly the
arbitrator noted that the property at sr.no.8 is also in possession of an
outsider except for a small portion in possession of J.K.Oil Mills. The
property which was in the possession of the outsider was valued at
Rs.7.90 crores, whereas that in the possession of J.K.Oil Mills was
valued at Rs.0.04 crores. However, it was urged that in the operative part
of the award in paragraph 26(b), the arbitrator has directed that the
Kanpur group would receive the amount due to them against delivery of
vacant possession free from all encumbrances of all the properties
allotted to Mumbai group. In our view, the direction of the learned
arbitrator in paragraph 26(b) to the effect that the Kanpur group would
receive an amount of Rs.22.71 crores only against the delivery of vacant
possession free from all encumbrances of all the properties allotted to the
Mumbai group is severable and has to be read subject to the findings in
paragraph 24, which is to the effect that it was agreed between the parties
that the properties at sr.nos.7 and 8 would not be allotted free from all
encumbrances since they were in the possession of outsiders. The
operative direction of the learned arbitrator, as noted above, is therefore,
to be subject to the aforesaid stipulation. Parties have agreed in
arbitration that the properties at serial no.7 (which is in the occupation of
an outsider) and serial no.8 (which is substantially in the occupation of
an outsider) do not have to be allotted free of encumbrances. We,
however, do not find any merit in the submission that the entirety of the
award is liable to be set aside merely on that ground.
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31 of 31 APP.361.2010
27. For these reasons, we are of the view that there is no merit in the
appeals. The appeals shall accordingly dismissed. There shall be no
order as to costs.
(DR.D.Y.CHANDRACHUD, J.)
(A.A.SAYED, J.)
MST
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