Harkisandas Tulsidas Pabari & Ors. v. Alok Nandkishor Acharya & Ors.

9. Mr. Narulla, the learned counsel appearing for Appellant in Appeal No.63 of 2007 would adopt the submissions canvassed by Dr. Tulzapurkar.

10. Mr. Sarda, the learned counsel appearing for Respondent No.1A in Appeal No.62 of 2007 and for Respondent No.2A in Appeal No.63 of 2007 would oppose the Appeal submitting that

3 2011 (2) Mh.L.J. 226 k Page No. 11 of 29 interference is not warranted in well considered decision of the learned Single Judge. That the learned Single Judge has rightly held that the Award was passed in ignorance of contractual and statutory provisions and that the Award was based on no evidence ignoring the vital piece of evidence demonstrating breach of material terms of Memorandum of Understanding on behalf of the Appellants. That the learned Single Judge has correctly applied the tests under the Specific Relief Act, 1963 applicable to the issue of grant of specific performance. On the contrary, the learned Arbitrator had ignored the provisions of Specific Relief Act, 1963. That the Arbitrator had re-written contract between the parties. That the order passed by the learned Single Judge duly conforms to the provisions under Section 34 of the Arbitration Act. It is not necessary for the Judge exercising power under Section 34 of the Arbitration Act to repeat the words of the section and what needs to be examined is whether the Arbitrator has examined the Award within the parameters laid down in Section 34 of the Arbitration Act. That the impugned Award clearly suffered from the vice of perversity and has been rightly set aside by the learned Single Judge. That the learned Single Judge has rightly held that there is no concluded contract between the parties, neither consent of the tenements was obtained nor there is any contract between the parties on the aspect of parking.

11. Mr. Sarda would further submit that continuation of arbitration proceedings before the learned Arbitrator after remand order made by this Court is clearly without jurisdiction. While k Page No. 12 of 29 remanding the proceedings, this Court did not constitute the same Arbitrator, which had made the first Award. That mere forwarding of documents to the learned Arbitrator did not mean that mandate was given to conduct fresh arbitration proceedings after remand. That Respondents had objected to continuation of the arbitral proceedings by the learned Arbitrator right since inception by addressing letters dated 3 December 1998 and 7 December 1998. That the Award clearly suffered from absence of jurisdiction as the learned Arbitrator unilaterally assumed jurisdiction while making the impugned Award. Lastly, he would submit that the jurisdiction of this Court under Section 37 of the Arbitration Act is even more circumscribed than the one which can be exercised under Section 34 of the Arbitration Act by the learned Single Judge. That in absence of any element of perversity in the order of the learned Single Judge, the Appeals deserve to be dismissed.

12. Mr. Joshi, the learned counsel appearing for Respondent No.2A in Appeal No.62 of 2007 and Respondent No.1A in Appeal No.63 of 2007 would additionally submit that the learned Arbitrator improperly assumed jurisdiction after remand order made by this Court. That since the Award was set aside, parties were expected to take steps for fresh constitution of Arbitral Tribunal. That therefore reference to the earlier Arbitrator had come to an end. No letter was issued by the claimant to the Respondents under Section 21 of the Arbitration Act for commencing the arbitral proceedings. That the learned Single Judge has rightly held that the Memorandum of k Page No. 13 of 29 Understanding does not constitute a concluded contract. That the agreement is neither development agreement nor agreement for sale. That the agreement was otherwise repudiated by the claimant himself. That the Administrator was biased and was predetermined to decide the arbitral proceedings against the Respondents. That direction given for specific performance of the Memorandum of Understanding or otherwise incapable of performance. That the Award rightly been set aside by the learned Single Judge by invoking valid grounds of non-issuance of notice under Section 21 of the Arbitration Act, Memorandum of Understanding was repudiated and therefore arbitration agreement came to an end and that the subject matter is not capable of being resolved by arbitration. Mr. Joshi would accordingly pray for dismissal of the Appeal.

D. REASONS AND ANALYSIS

13. The learned Single Judge has set aside the award of the arbitral Tribunal on three grounds of (i) lack of authorisation to the learned Arbitrator to recommence the arbitration proceedings, (ii) MoU not constituting a concluded contract, (iii) impossibility of specifically performing the MoU through execution of the award. D.[1] AUTHORISATION TO THE SAME LEARNED ARBITRATOR TO RECOMMENCE THE ARBITRAL PROCEEDINGS

14. We would first take up the issue of lack of authorisation to the learned Arbitrator to recommence the arbitration proceedings. As k Page No. 14 of 29 observed above, the learned arbitrator has made an award dated 1 April 1998 awarding the claim in favour of the Appellants. Respondents had challenged the Award dated 1 April 1998 by filing Arbitration Petition No. 225 of 1998 in this Court. By order dated 28 September 1998 passed by this Court, the Award was set aside on the ground that sufficient opportunity was not given to the Respondents by the learned Arbitrator. This Court found that the learned Arbitrator did not give notice of closure of proceedings to the Respondents that the proceedings would proceed exparte and that therefore they did not have a fair opportunity of leading evidence. Relevant part of the order dated 28 September 1998 reads thus: “6. The short question, therefore, is whether the notice dated 5th January, 1998 can be said to be a sufficient opportunity given to the petitioners to present their. Even under the provisions of the Arbitration Act, 1940 before the Arbitration closed the proceedings, the Arbitrator was duty bound to give notice of closure of the proceedings, as the case law has evolved pursuant to the judgment of various courts. This is for the purpose that the parties would have a fair opportunity of leading evidence if they have not so led before the proceedings are closed. In the present case the Arbitrator having not given the notice that the proceedings would proceed exparte nor decided the procedure for conducting the arbitral proceedings. I am of the considered view that the petitioner did not have sufficient opportunity to present their case. In that context the impugned award is liable to be quashed and set aside and the same is accordingly set aside.”

15. After setting aside the Award dated 1 April 1998, this Court considered the issue as to whether the proceedings were required to be remanded to the said same Arbitrator. This Court however held that sending back the proceedings to the same Arbitrator was permissible only under the provisions of Sections 33 and 34(4) of k Page No. 15 of 29 the Arbitration Act and that the said power is to be exercised before an Award is set aside. Since this Court had set aside the Award, it did not go into the issue of remand of the proceedings to the same Arbitrator. This Court however observed that it would be open to the parties to move afresh, in which event, the time taken would be saved by virtue of Section 43(4) of the Arbitration Act (though in the typed copy of the order dated 28 September 1998, section 43(a) is reflected, the same appears to be a typographical error). The operative portion of directions issued by this Court in paragraphs 7 to 10 of the order dated 28 September 1998 read thus: “7. The question did arise in the circumstances, after quashing the award whether the matter is to be remitted back to the same Arbitrator. The only provisions are section 33 and 34 (a). That power is to be exercised before an award is set aside. I do not propose to go into that question in these matters as I am setting aside the Award.

8. It is however, made clear that it is always, open to the parties to move afresh in which event the time taken would be save by virtue of section 43(4) of the Arbitration and Conciliation Act, 1996.

9. In the circumstances, of the case there shall be no order as to costs.

10. Office is directed to sent back the original records to the Arbitrator. (emphasis and underling added)

16. After the Award was set aside on 28 September 1998 and liberty was granted to the parties to move afresh, Appellants directly moved before the same Arbitrator without any notice to the Respondents and the same Arbitrator commenced the proceedings by issuing notice to the Respondents on 31 October 1998. Both Shri Rajendra Acharya as well as Shri Nandkumar Acharya raised k Page No. 16 of 29 objections to continuation of the same Arbitrator. While the objection raised by Shri Rajendra Acharya was restricted to the allegation of bias, Shri Nandkumar Acharya raised specific objection about lack of authority of the learned Arbitrator to recommence arbitration proceedings, in addition to raiding the allegation of bias. Thus, the jurisdiction of the learned Arbitrator to recommence the proceedings after passing of order dated 28 September 1998 was specifically raised by one of the Respondents. The learned Arbitrator however proceeded to reject the said objection and continued the arbitration proceedings, leaving no option for the Respondents to participate in the same.

17. The learned Single Judge, in the impugned order dated 11 October 2006, has dealt with this aspect as under: “6. … Thus, this Court has set aside the award and left the parties to their remedy for initiating fresh arbitration Therefore, it can be safely assumed that the arbitration clause between the parties did not come to an end and continued to exist and therefore, in terms of paragraph 8 of the order of this Court quoted above, the arbitration proceedings are to be commenced afresh and therefore, in my opinion, section 21 of the said Act has to be complied with. Section 21 reads as under:-

Perusal of section 21 shows that in order to commence the arbitral proceedings, the claimant has to make a request to the respondent for referral of the dispute to arbitration and the date on which that request is received by the respondent is the date commencement of the arbitral proceedings. In the present case, an objection regarding jurisdiction of the Learned Arbitrator to recommence the arbitral proceedings was raised. The arbitrator made an order on 18th December 1998. Paragraphs 2 and 3 of that order are relevant which read as under:k Page No. 17 of 29 “In the light of clause 13 of Memorandum of understanding dated 20.07.84 and in view of the observation of Hon’ble High Court in its order dated 28.09.98, it appears that the Hon’ble Court has not changed the Arbitrator appointed by all the parties and hence original record have been sent back to me in order to enable the parties to move afresh before me. Hence I am unable to accept the request of the said Acharyas of not conducting arbitration meeting before me. I now Fix arbitration meeting before me on Wednesday, the 6th January 1999 at 4 p.m. at my office." It is clear from the above that according to the Learned Arbitrator, as the High Court has not changed the Arbitrator and as this Court has sent back the record to the Arbitrator, he has jurisdiction to recommence the arbitral proceedings. Same thing is repeated by the Learned Arbitrator in the award in paragraph 11(b). Paragraph 11 (b) reads as under:- "11(b) Accordingly the notices were issued to both the parties and the correspondence also made before and after commencement of arbitration proceeding, which is on record and award also made on 01/04/1998 date but the same was set aside on technical ground and the papers have been sent back to me." It thus appears that the learned Arbitrator has held that he has jurisdiction to resume the proceedings because the records have been sent back him. Merely because the original record which was called by the Court for perusal, because of request made by one of the parties are sent back to the Arbitrator from whom they were received after setting aside the award, would not authorise the Learned Arbitrator to resume the arbitration proceedings. Therefore, the reason that has been given in the award for holding that he has jurisdiction to recommence the arbitral proceedings cannot be said to be proper. But it appears that before the learned Arbitrator resumed the proceedings, the respondents had written a letter dated 12th October 1998 to the learned Arbitrator. On the basis of this letter, it was contended that though this letter is not addressed to the petitioners and is addressed to the Arbitrator, this letter should be treated as a letter issued under section 21 of the said Act. Therefore, it becomes necessary to refer to that letter. Perusal of that letter shows that in paragraph 1 reference is made to the memorandum of understanding between the parties and the award made by the learned Arbitrator. Then in paragraph 2 it is stated thus:- “2. However, on the petitions of the said Rajendra A. Acharya and the said Nandkishore A. Acharya bearing No.225 of 1998 k Page No. 18 of 29 and 295 of 1998 respectively, the Hon’ble High Court set aside the said ‘Award passed by you on the ground that по reasonable opportunity was given to the said Rajendra A. Acharya and Nandkishore A. Acharya, but the Hon’ble High Court refused to grant the request of the said Rajendra A. Acharya and Nandkishore A. Acharya of not referring back the said matter to you once again, but on the contrary the Hon’ble High Court by sending back the original records to you clearly indicated and clearly expressed that the parties or any of them should move you the Arbitrator afresh. We are herewith sending you a copy of the Order dated 28th September 1998 of the Hon’ble High Court which speaks for itself.” It is clear from what is stated above that according to the respondents, because the Court did not accept the request of the petitioners to change the Arbitrator and because the Court directed that the record should be sent back to the Arbitrator and because the Court had directed that the parties should move the Arbitrator afresh, the Arbitrator was requested to start the arbitral proceedings afresh and he was asked to give notice to the parties. Section 21 has been quoted above. It contemplates that there shall be a request made by claimant to the respondents for referring the dispute to arbitration. Reading of this letter from any point of view would not show that this letter contains a request made by the respondents to the petitioners to refer their disputes to the Arbitrator. The tenor of the letter is that because the High Court has not changed the Arbitrator and because the High Court has directed that the record shall be sent back, the learned Arbitrator is entitled to resume the proceedings. I have already found that this position cannot be said to be correct position in law. Even assuming that strict compliance of provisions of section 21 is not necessary and that substantial compliance is enough, then also the letter dated 12th October 1998, in my opinion, cannot be termed as even an attempt made to substantially comply with the provisions of section 21. In my opinion therefore for this reason also, the award is liable to be set aside.… (emphasis and underlining added)

18. The learned Single Judge of this Court thus held that twin errors had crept in the exercise of jurisdiction by the learned Arbitrator. Firstly, it is held that this Court had not remanded the proceedings to the same Arbitrator and that mere remittance of the k Page No. 19 of 29 original records to the learned Arbitrator did not mean that he had an authority to resume the arbitration proceedings. Secondly, it is held that Appellants did not complete the procedure mandated in Section 21 of the Arbitration Act and no request was made to the Respondents for commencement of the arbitration proceedings.

19. So far as the first aspect of absence of authorisation to the learned Arbitrator is concerned, this Court had specifically considered the issue of remand of proceedings in paragraph 7 of the order dated 28 September 1998. After observing that the Award was set aside, this Court examined the possibility of remitting back the proceedings to the same arbitrator. However, this Court has held that the proceedings could not be remitted back to the same arbitrator as procedure for remand is envisaged only under provisions of Sections 33 and 34(a) (sic) of the Arbitration Act and recourse for the said provisions could be made only before passing of award. Thus, the suggestion for remitting back the proceedings to the same arbitrator was thus not accepted by this Court in order dated 28 September 1998. Remission back of the proceedings to the same arbitrator cannot be done after the award was set aside. Therefore this Court granted liberty to the parties to move afresh, meaning thereby to commence the proceedings afresh. This could obviously be done by appointing the same arbitrator by serving notice to the Respondents under Section 21 of the Act. However, in the present case, Appellants never requested the Respondents for commencing the arbitral proceedings afresh by suggesting the name of the same arbitrator. If such suggestion was made and if the k Page No. 20 of 29 Respondents were not to object to the said suggestion, the same learned arbitrator could conduct the fresh arbitration proceedings. However, there was fundamental flaw on the part of the Appellants and the arbitrator in comprehending the order passed by this Court. Both erroneously presumed that this Court had remitted back the arbitral proceedings to the same arbitrator. This presumption was drawn by the arbitrator on twin reasons of (i) this Court not changing the arbitrator and (ii) this Court sending back the original records to the arbitrator. Both the reasonings adopted by the learned arbitrator are flawed. There was no occasion for this Court to change the arbitrator as this Court had granted liberty to the parties to ‘move afresh’. This meant that the parties were expected to take steps for fresh commencement of the proceedings and in the event of parties not agreeing on a name of the arbitrator, proceedings under Section 11 would be necessary. The second reason of this Court sending back the proceedings to the arbitrator, did not mean that there was a mandate for the same arbitrator to recommence the proceedings. Since the proceedings travelled to the Court from the arbitrator, the same were apparently directed to be sent back to him. Thus, both the reasons recorded by the learned arbitrator for recommencing the arbitral proceedings are flawed. In the light of this position, we agree with the findings recorded by the learned Single Judge that it was impermissible for the learned Arbitrator to resume the arbitration proceedings.

20. There is yet another reason why the learned Arbitrator could not have resumed the arbitration proceedings. The learned k Page No. 21 of 29 Single Judge, while granting liberty to the parties to ‘move afresh’, specifically directed that the intervening period would be saved by virtue of provisions of Section 43(4) of the Arbitration Act. Section 43(4) of the Arbitration Act provides thus: “(4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.”

21. Thus, under provisions of sub-section (4) of Section 43 of the Arbitration Act, where the arbitral Award is set aside, the period between commencement of arbitration and the date of the order of the Court needs to be excluded in computing the time prescribed by the Limitation Act for ‘commencement’ of the proceedings. Thus Section 43(4) of the Arbitration Act applies only when arbitration proceedings are to be freshly commenced. Therefore reference made by this Court while setting aside the award to provisions of Section 43(4) of the Act again makes the position clear that what was contemplated was commencement of fresh proceedings and not remand of proceedings to the same arbitrator.

22. When it comes to ‘commencement’ of proceedings under Section 43(4) of the Act, provisions of Section 21 become relevant. Section 21 of the Arbitration Act provides thus:

23. In our view therefore, the order passed by this Court on 28 September 1998 setting aside the previous arbitral Award dated 1 April 1998 warranted commencement of arbitral proceedings afresh and not resumption of the arbitration proceedings by the same Arbitrator.

24. As observed above, the arbitral proceedings would commence after passing of order dated 28 September 1998 only in accordance with provisions of Section 21 of the Arbitration Act, under which it was mandatory for the claimants to make a request to the Respondents for reference of the dispute for arbitration. The fact that this Court envisaged application of provisions of Section 43(4) of the Arbitration Act would itself indicate that the fresh arbitration proceedings were required to be commenced. If arbitration proceedings were merely required to be resumed by the same Arbitrator there would have been no question of application of period of limitation. The fact that this Court envisaged that limitation will have to be computed, it clearly meant commencement of fresh arbitral proceedings after setting aside of the Award. k Page No. 23 of 29

25. The contention raised on behalf of the Appellants that the Award was not challenged on the ground of failure to issue notice under Section 21 of the Arbitration Act, does not any ice. Failure to serve notice under Section 21 of the Arbitration Act is merely an additional defect as the very act of the Arbitrator in recommencing the proceedings is found to be erroneous. One of the Respondents had clearly raised an objection to continuation of arbitration proceedings by the same learned Arbitrator, both before the Arbitrator as well as in the Petition filed under Section 34 of the Arbitration Act.

26. In our view therefore, the learned Single Judge has rightly held the Award to be vitiated on account of improper constitution of the arbitral Tribunal.

27. Coming to the aspect of non-fulfillment of requirements of Section 21 of the Arbitration Act, it is an admitted position that the Appellants never requested Respondents to refer the disputes to arbitration after passing of order dated 28 September 1998. The Appellants unilaterally wrote to the arbitrator on 12 October 1998 for resumption of the arbitral proceedings by representing to the arbitrator that “…but the Hon’ble High Court refused to grant the request of the said Rajendra A. Acharya and Nandkishore A. Acharya of not referring back the said matter to you once again, but on the contrary the Hon’ble High Court by sending back the original records to you clearly k Page No. 24 of 29 indicated and clearly expressed that the parties or any of them should move you the Arbitrator afresh.’ The Arbitrator acted on this representation made by the Appellant and straightaway proceeded to fix a date of hearing of the arbitral proceedings by issuing letter to the Respondents. On account of fundamental flaw in comprehension of the order passed by this Court and by erroneously presuming that this Court directed remission of proceedings to the same arbitrator, the Appellants failed to follow the procedure prescribed in Section 21 of the Act.

28. Both the above aspects have been correctly appreciated by the learned Single Judge while setting aside the impugned Award. Even if the requirement provided under Section 21 of the Arbitration Act is held to be directory, still the impugned Award did not pass the muster of authorization for the arbitral Tribunal to resume the arbitration proceedings.

29. In our view therefore, since there was improper constitution of the arbitral Tribunal, the learned Single Judge was justified in setting aside the Award.

30. Having held that the constitution of the arbitral tribunal itself was erroneous warranting setting aside of the award, it is not really k Page No. 25 of 29 necessary to go into the merits of the award. However, since the learned Single Judge has recorded detailed findings on merits of the Award, we proceed to briefly deal with the same. While holding that the MoU did not constitute a concluded contract between the parties, the learned Single Judge has taken into consideration the fact that the building was occupied by tenants/occupants and that the vendors (Respondents) were entitled to construct or reconstruct additional floors on the existing building by consuming and exploiting the additional FSI. The vendors sold their respective 50% undivided share in the property together with right to exploit, utilise, consume and take advantage of FSI in respect of the property to the Appellants. Under clause 5 of the MoU, the responsibility of obtaining consent of tenants/occupants was put on the vendors. Such consent was to be obtained for either reconstructing the building or for constructing additional floors on the existing building. The learned Single Judge took note of clauses 3 and 5 of the MoU, under which the purchasers had the option of either reconstruction of the entire building or construction of additional floors thereon. The learned Single Judge held that in the event of Appellants opting for reconstruction option, tenants were required to vacate the structures which would have incurred liability of payment of interim rent. If on the other hand only additional floors were to be constructed, vacation of premises by tenants was not necessary. The learned Single Judge therefore held that the proposed course of action of either reconstructing the building or constructing additional floors was not clearly set out and parties were yet to agree on this vital aspect. It is for this reason k Page No. 26 of 29 that the learned Single Judge held that the parties did not arrive at a concluded contract.

31. The learned Single Judge then took into consideration the direction given by the learned Arbitrator to the Respondents to comply with their obligations under the MoU by securing consent of tenants/occupants within one month from the award. The learned Single Judge therefore held that specific performance of the MoU was impossible as the same depended on grant of consent by the tenants.

32. This is how the learned Single Judge has set aside the Award of the arbitral tribunal on the grounds of MoU not constituting a concluded contract and impossibility of execution of directions issued by the Arbitrator. We again do not find any element of perversity in the findings recorded by the learned Single Judge. The Award of the arbitral tribunal was rendered by excluding the relevant material of clauses 3 and 5 of the MoU and this was a fit ground for setting aside the Award.

33. Though it is sought to be suggested that the learned Single Judge has acted as an Appellate Court while reversing findings of the Arbitrator, it is seen that the learned Single Judge has also dealt with the issue as to whether the operative directions issued by the Arbitrator could at all be executed. Specific performance of the MoU would require procurement of consent of the tenants by the Respondents. If tenants were to refuse consent and were to not k Page No. 27 of 29 vacate possession of their premises, how the transaction of sale would be executed has not really been examined by the learned Arbitrator. So far as the nature of MoU is concerned, the learned Single Judge has noticed that the exact course of action to be adopted of either reconstruction of building or addition of floors was not finalized between the parties and that therefore MoU could not be treated as a concluded contract. This vital material was excluded by the learned Arbitrator, who merely concentrated on acceptance of part consideration by the Respondents. Exclusion of vital material by the learned Arbitrator constitutes a valid ground for setting aside the arbitral Award under Section 34 of the Arbitration Act. We are therefore, not inclined to interfere in the findings recorded by the learned Single Judge about MoU not constituting a concluded contract and impossibility of specific performance thereof.

34. In fact, the submissions canvassed on behalf of the Appellants before us are as if we are exercising power of first Appellate Court over the findings recorded by the learned Single Judge. Strenuous attempt is made to demonstrate as to how the findings recorded by the learned Single Judge about MoU not constituting concluded contract are erroneous. We are afraid, our jurisdiction under Section 37 of the Arbitration Act is same as that of the jurisdiction of the learned Single Judge under Section 34 of the Arbitration Act. Appellants have made an attempt to urge before us that recording of different conclusion of MoU constituting concluded contract is also k Page No. 28 of 29 possible as was done by the arbitrator. However, the same was done by excluding the vital material on record. The learned Single Judge has not exceeded the boundaries prescribed under Section 34 of the Arbitration Act.

E. CONCLUSIONS

35. After considering the overall conspectus of the case, we do not find that any valid ground is made out by the Appellants for interference in the Order passed by the learned Single Judge in the present Appeals. The learned Single Judge, while exercising power under Section 34 of the Arbitration Act, has acted within the bounds of its jurisdiction. The order passed by the learned Single Judge is unexceptionable.

F. ORDER

36. We accordingly do not find any substance in the Appeals. The Appeals are accordingly dismissed. (SANDEEP V. MARNE, J.) (CHIEF JUSTICE) k Page No. 29 of 29