- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. APPEAL NO.298 OF 2008 IN ARBITRATION PETITION NO.455 OF 2006 ... Sushil Kumar Gupta ...Appellant v/s. Vinod Kumar Gupta & ors. ...Respondents ... Mr.Aspi Chinoy, Sr.Counsel with Mr.V.K.Rambhadran i/b Shah Legal for the Appellant. Mr.Rohit Kapadia, Sr.Counsel with Mr.P.N.Mody i/b Thakordas & Madgavkar for the Respondents. ... CORAM: D.K.DESHMUKH & A.A.SAYED, JJ. DATED: 4TH APRIL, 2009 - 2 - JUDGMENT:(PER D.K.DESHMUKH, J.) 1. By this Appeal, the Appellant takes exception to the order dated 28th December, 2007 passed by the learned single Judge of this Court in Arbitration Petition No.455 of 2006. That Arbitration Petition was filed by the Appellant under Section 34 of the Arbitration & Conciliation Act, 1996 challenging the award made by the learned sole arbitrator on 24-4-2006. 2. The facts that are relevant and material are that one Mahavir Prasad Gupta was the father of the Appellant-Sushil and the Respondent No.1-Vinod. He was a businessman. He owned moveable and immoveable properties and he was carrying on business with the help of several companies. In order to effect division of the properties held by Mahavir amongst his two sons and himself he prepared a document on 24-4-1997, which was styled as an award. By the award, properties were distributed between Vinod and Sushil in the following manner: - 3 - Properties :- ----------------------------------------------------- Sushil Gupta Vinod Gupta 51% share Bhandup 49% share Bhandup Land 51% loans 49% of loans 51% of All Receivables 49% of all receivables Flat at Sumangal Flat at Laxmi Vilas Unit * 161 Mittal Unit * 162 Mittal Land at Mulund SVA Ltd. 2 flats at Raag Mangla Capital Godown at Byculla Vadgadi Manish Kalamboli Ragnigandha Badli Panvel Mazgaon Gurgaon Shops Radhepuri Diamond Ghusari 51% of Ery Sterate 49% of Ery Sterate 51% of cylinder stocks 49% of Cylinder stocks 51% of Chlro base stocks 49% of Chiro base stocks 51% of POY and HCL thoyo 49% of POY and HCL thoyo goods and stocks 112 lacs Goods and stocks 39.35 per annexure 1 lacs per annexure 1 - 4 - VKG to pay SKG 13 lacs by 15 June 1997 and the balance of 15.3 lacs by 15 July 1997 without demur in default VKG will pay 2 percent p.m. 3. The said Mahavir expired on 27-7-1971 without leaving behind him a Will. After the death of Mahavir, disputes arose between his sons in relation to the properties which were retained by Mahavir with himself. Therefore, all the parties to these disputes entered into an arbitration agreement and the dispute were referred to the sole arbitrator Mr.Justice M.L.Pendse. Before the learned Arbitrator a statement of claim was filed by Vinod. The Appellant-Sushil filed his reply. Their mother Shantidevi also filed her reply. On February, 12, 2002 points of determination were settled and notice of the proceedings was also given to two daughters of Mahavir by names Pushpa and Shiksha, who were already married, during the course of the arbitration proceedings. The claim of Shantidevi, the widow of Mahavir as well as Shiksha were settled and on the basis of the agreed terms interim award was made by the learned Arbitrator, which was declared on 9-6-2004. By consent interim award, it was agreed that Shantidevi would be given (i) Property at Shakti - 5 - Nagar, Delhi, (ii) Flat at Phoenix Building at Mumbai; and (iii) Two flats at Vrindavan building at Malad, Mumbai, as absolute property. In addition, Shantidevi was to be given an amount of Rs.Five Crores for giving up her rights in the estate left by Mahavir Prasad. The writing signed by Shantidevi was countersigned by Sushil Kumar Gupta and Vinod Gupta accepting the allotment of the estate to her. Shantidevi gave another writing whereby she gave up her right in (i) the plot of land bearing CTS Nos.551/76 at Mulund. (ii) Flat in building Laxmi Vilas, Napean Sea Road, Mumbai. (iii) Shantidevi agreed that out of Rs.5 crores which she would be entitled to, Rs. One crore will be paid by her to her daughter Shiksha. It was also accepted that credit will be given in respect of the entitlement of Rs.5 crores for the amounts received till she signed the document and only the balance amount would be payable. Thereafter, before the Arbitrator the only dispute that remained was between Sushil and Vinod. Before the Arbitrator, both Vinod and Sushil agreed to implement the directions given in the award in respect of the immoveable properties. So far as the monetary part of the award is concerned, the disputes were referred to the Chartered Accountant - 6 - M/s.Haribhakti. Both the parties appeared before him and submitted the documents. He submitted the report to the learned Arbitrator. The parties were given an opportunity of being heard in relation to that report and the learned arbitrator ultimately made an award dated 24-7-2006. So far as immoveable properties are concerned, the award reflects what was stated in the award made by Mahavir Gupta and records that deeds of release or transfers have already been executed by Vinod & Sushil in implementation of the same. The award directs Sushil to pay Vinod an amount of Rs.3,51,31,642/- towards half share in the rent received from Mid Day/Sitaram Mill property’s rent from 1999. The award directs Sushil to pay an amount of Rs.1,82,50,000/- towards share of sale proceeds of Embassy flat. The award also direct that Sushil shall pay interest at the rate of 24% p.a. from 18-11-2000. Both the parties after the award was made filed an application under Section 33 of the Arbitration Act before the learned Arbitrator. On 26th July, 2006 the learned Arbitrator made an order disposing of both the applications. 4. Only Sushil felt aggrieved by the award and filed - 7 - petition under Section 34 of the Act. The grievance of Sushil, interalia, was in relation to two immoveable properties namely the plot of land at Tikri, Gurgaon and the shops at Gurgaon. So far as payment of money is concerned, grievance of Sushil was in relation to the direction for payment of amount received from Mid Day as well as the amounts that were to be paid as sale-proceeds of Embassy Apartment flat. He also made a grievance against the directions for payment of interest at the rate of 24% p.a. from 18-11-2000. The arbitration petition was heard and finally disposed off by the learned single Judge of this Court by order dated 20th December, 2007. The learned single Judge was pleased to dismiss the petition. The present appeal has been filed by Sushil challenging both the orders of the learned single Judge as well as the award of the learned arbitrator. 5. In so far as the award relating to the land at Tikari, which is a plot of land admeasuring 2.2 acres at Delhi Gurgaon road is concerned, the grievance of Sushil is that Vinod had made a declaration on 23-6-2005 that Sushil has 50% share in that land. Vinod had filed the suit in the court in Delhi for - 8 - recovery of that land. The grievance made by Sushil is that the award notes that the property is in dispute and the litigation in relation to that land is pending. It also observes that both the brothers should try to recover the properties. But no direction is issued in the award in relation to the pending litigation. Before the learned single Judge a grievance was made that as the suit has been filed by Vinod and as it is an admitted position that Sushil has 50% share in the land, the learned arbitrator should have given directions as to how the litigation is to be conducted and who is to conduct the litigation. But no such directions have been given. It was contended that the learned single Judge, however, failed to appreciate the grievance of the Petitioner. The learned single Judge, also on finding that the directions that were necessary to be issued have not been issued by the learned arbitrator, has held that on this ground the award cannot be set aside. According to the Petitioner/Appellant, the learned single Judge has recorded a contradictory finding on this aspect. It was submitted that after the award was made, Vinod has unilaterly settled the matter and has withdrawn the suit, and it was submitted that this has happened - 9 - only because of the failure of the arbitrator in issuing effective directions in that regard. On behalf of Vinod the only submission made in this behalf was that the case of the Vinod in relation to this land in the Delhi court was weak and that there is no document on record to show that this was the ancestral property. 6. Now, perusal of the record shows that so far as this property is concerned, there is a declaration made by Vinod, which is dated 23-6-2005, which reads as under:- DECLARATION This is to confirm that the land purchased/agreed to purchase at Tikri, Gurgaon from M/s.Lekhram & others has not been encumbered by me in any manner, I confirm that Mr.Sushil Gupta has right, title and interest or claim to the extent of 50% in the said property. A suit pending against the sellers and present occupants of the said property. - 10 - 7. It is, thus, clear that Vinod accepted that Sushil has 50% share in the property and that he has filed the suit which is pending in court. In the award the arbitrator in paragraph 17 has observed thus:- "The family had purchased some open land at Tikri near Gurgaon, Sushil is claiming share in this land. Vinod pointed out that the proceedings in respect of this property are pending in Delhi Court. I suggested that it is advisable to put an end to the litigation, if possible. Sushil desired to know what was the status of that case and to meet the lawyer representing the family. Sushil and Vinod agreed to visit Delhi and to contact the lawyer. As the property is in dispute and pending litigation, it is not necessary to give any direction and both the brothers should try to recover the property or put an end to the litigation by settling the dispute." In the same award the learned arbitrator notes the submissions on behalf of Sushil that he should get - 11 - his share in the Tikri land. But the learned arbitrator observes that there is no material on record to show that what is the status of Tikri land and therefore no relief can be granted in the present proceedings. This was pointed out to the learned single Judge that these are the contradictory observations. It is clear from the observations in paragraph 17 of the award that share of Sushil in the land was accepted by Vinod and the status was that the land was in possession of seller and suit was pending for recovering the land. Still the learned arbitrator did not give any effective directions in relation to the land and the pending litigation. The learned single Judge in relation to this property observed thus:- "43. Insofar as the land at Tikri is concerned, the same is situated near Gurgaon. SKG is claiming the land. However, there are some pending proceedings in the court at Delhi. Pendency thereof is not disputed by the parties. Therefore, the learned Judge has not given any directions pertaining thereto. To my mind, the claim of SKG in this behalf being not seriously opposed by - 12 - VKG, then, this land can go to SKG upon the litigation coming to an end. Till then, the Arbitrator could have directed that the litigation be contested jointly. However, such a Direction being not issued is not fatal. The Award cannot be set aside on the count alone." 8. Now, following things emerge: (i) Vinod admitted that Sushil has 50% share in the land; (ii) Vinod had filed suit for recovery of the land; 9. The learned arbitrator notes all these things, but does not issue any effective directions for conduct of the proceedings. As a result, after the award, Vinod reaches settlement with the Defendant in the suit and withdrawing the suit. That the suit has been withdrawn is not disclosed to the learned single Judge and now, Sushil is presented with a fate-accompli, because nobody knows on what terms the suit has been settled and withdrawn. Vinod has been - 13 - able to do this, only because of the failure of the learned arbitrator to give effective directions regarding conduct of the litigation. In our opinion, therefore, the observations of the learned single Judge that for failure of the learned arbitrator to give effective directions in this regard that the award cannot be faulted, are not proper. In our opinion, once having found that the effective direction was necessary to be made and has not been made by the learned arbitrator, in the absence of any application being made by the parties for taking resort to the provisions of sub-section (4) of Section 34 of the Act, the only option left with the learned single Judge was to set aside the award. 10. Now, taking up the direction of the learned arbitrator to Sushil to pay an amount of Rs.3,51,31,642/- to Vinod towards half share in the Mid Day rent from 1999 is concerned, Sitaram Mills property was the part of the assets retained by Mahavir in his 1997 award. This property was let by M/s.Saidpur Jute Co.Pvt.Ltd. to M/s.MBK Enterprises, which was a family firm. The tenant M/s.MBK Enterprises sub-let the property to Respondents Nos. 13 to 17 companies, which had further sub-let the - 14 - property to Mid Day Enterprises in August, 1995. The rent/licence fee was received from Mid Day by Respondents Nos.13 to 17 from 1995 till 2004. This property was retained by Mahavir by his award as observed above. By the interim consent award, the mother Shantidevi had agreed to transfer her rights in the property equally to Vinod and Sushil, subject to Vinod transferring the bungalow at Shaktinagar, Delhi and giving possession of the same to her. The arbitrator directs payment of 50% of the amount of rent received by Respondents Nos.13 to 17 in relation to this property to Vinod. It was submitted on behalf of Sushil that the chartered accountant arrived at the figure of rent only on the basis of the agreement. The amount of TDS was also deducted at the rate of 20% on assumption. According to Sushil, before the arbitrator statements were produced showing that the net profits of the Respondents Nos.13 to 17 companies from 1998 to 2005 was approximately Rs.82,00,000/- and still direction was made against Sushil and not against the Respondents Nos.13 to 17 to make payment. It was also submitted that as tax was payable not by Sushil individually, but by the companies Respondents Nos.13 to 17, the rate of tax was 37% to 40% and not 20%. - 15 - It was also claimed that Vinod having not delivered possession of Shaktinagar property to mother Shantidevi, he cannot claim 50% of amount of rent. It was also the grievance of Sushil that the learned arbitrator has directed payment of interest at the rate of 24% p.a. from 1999, as if the entire amount has been received in the year 1999. It was submitted that the amounts were received monthly till 2004 and therefore even on the amounts received in the year 2004 the interest has been given from 1999. The learned single Judge in his order refers to the submissions made on this aspect in detail, however, the learned single Judge does not decide any of the grounds that have been raised against this aspect of the award. Paragraphs 48 and 49 of the order of the learned single Judge dealt with this aspect of the matter, which read as under:- 48. In my view, it will not be possible for me to go into such minute details as if the present proceedings are an appeal against the Award. The figures have some basis. It is not as if the sole Arbitrator has arbitrarily fixed the quantum of sum payable by SKG. There was basis for the same in the form of - 16 - the report of the C.A.’s who have been appointed with consent of the parties. Parties themselves agreed to go before the C.A. and produce the documents in support of their claims. Whatever material was produced by them has been referred and relied upon. In the instant case it is not the argument of Mr.Bookwala that the agreement with Mid-day has not been referred to. In such circumstances, merely because the Award directs some payment by SKG under this head does not mean that it is liable to be interfered with. 49. In this behalf, the reply-affidavit which is filed has also referred to in detail to the proceedings before the Arbitrator and the Chartered Accountants. VKG states that the rents received were as per the agreement with Mid-day. The agreement was between Mid-day and Respondent Nos.13 to 17. These Companies are admittedly under the control of the petitioner and he has access to their Accounts and Documents. If the calculation was incorrect then the correct statement of - 17 - rentals received by SKG from Respondent No.13 to 17 would have been placed as contemporaneous evidence. That is admittedly not done. Once the property also gone to the share of SKG, then, it is not as if the Award is one-sided, or fails to take into consideration the rival cases or that the Award is something which has absolutely no basis. 11. Perusal of the above quoted paragraphs from the judgment of the learned single Judge shows that the learned single Judge has not decided the objection that though the amount of rent was received by Respondents Nos.13 to 17, which are companies incorporated under the Companies Act, why Sushil has been directed to make payment to Vinod. The learned single Judge has also not dealt with the objection that as money is received by Respondents Nos.13 to 17 they were required to pay income-tax at much higher rate. The arbitrator relying on the report of the Chartered accountant has allowed deduction of income-tax on the assumption that the amounts were received by Sushil and not the company. The learned single Judge has also not considered that by the - 18 - interim consent award Vinod had to give possession of Shaktinagar bungalow to mother Shantidevi in order to become entitled to 50% share in Sitaram Mills property. Admittedly, Vinod has not handed possession of Shaktinagar bungalow to mother, still he is held to be entitled to claim share in the rent of Sitaram Mills property. The learned single Judge has also not considered that the amount of rent/licence fee was received every month from 1997, but the learned arbitrator has directed payment of interest on the entire amount received from 1997 to 2004 from the year 1999 at the rate of 24% p.a. The only submission made in this regard on behalf of Vinod was that had interest been awarded from 1997 on the amounts as they were received, much higher amount would have been required to be paid. But no material was produced before us in support of this submission. The award definitely does not have anything which will indicate that such consideration weighed with the learned arbitrator in awarding interest from 1999 even on the amounts which were received in 2004. In the order of the learned Judge, he refers to the objection raised on behalf of Sushil that the amount of rent was received by the Respondents Nos. 13 to 17 and they are parties to the arbitration - 19 - proceedings; still the learned arbitrator has directed Sushil to make the payment without giving any reason why such a direction has been made, but the learned single Judge has not decided the objection. Before us several reasons were put forth on behalf of Vinod to claim that the arbitrator was justified in making the directions. That there may be good reason for making a particular direction is not justification for making the order without disclosing that reason. The reason for directing Sushil to make the payment, when admittedly the payment was received by the companies is to be disclosed either in the award or in the order of the learned single Judge. In our opinion, it would be unfair to make an attempt to discover that reason for the first time in appeal against the order of the learned single Judge. In our opinion, the directions made by the learned arbitrator in this regard against the Petitioner/Appellant is unjust and suffers from total non-application of mind to the material on record. The order of the learned single Judge suffers from omission to consider the relevant and material aspects of the matter. In our opinion, therefore, this singular aspect is enough to set aside the award made by the learned arbitrator. - 20 - 12. We also find considerable substance in the submission made by the learned counsel appearing for the Appellant in relation to directions issued for payment of Rs.1,82,50,000/- by Sushil to Vinod towards 50% sale-proceeds of Embassy Apartment Flat and also in relation to the direction for payment of interest at the rate of 24% p.a. on the wrong assumption that both the brothers had claimed interest at the rate of 24% p.a. In our opinion, however, as the principal claim is in relation to payment of Sitaram Mills property’s rent and as we find that the award is totally silent in that regard, in our opinion, it is not necessary to go into other aspect of the matter. In our opinion, the award is incomplete, in asmuch as, it does not give effective direction either in relation to Tikri land or in relation Gurgaon shops. It excludes from its consideration the relevant and material aspects in issuing directions against the Appellant and therefore, in our opinion, the award is liable to be set aside. 13. It was contended on behalf of Vinod that the Petition filed by Sushil under Section 34 of the - 21 - Arbitration Act challenging the Award was not maintainable, because Sushil has acted on the Award. This objection, admittedly, was not raised before the learned single Judge. It is also not raised in this appeal by filing an affidavit so as to give notice to the Appellant that such an objection is to be raised. Therefore, really speaking we cannot consider this objection. Assuming that such an objection can be raised, we find no substance in the objection. It appears that Sushil has dealt with the property that has been allotted to him by the award, assuming that he becomes owner of the property. It appears that he did so because that part of the award was made by consent of the parties and nobody has challenged that part of the award. Really speaking he cannot become owner of the property that is allotted to him by the award till, at least, the award becomes final. But only because he deals with the property on a wrong assumption will not debar him from challenging that part of the award which is not made by consent of the parties. 14. In the result, therefore, the appeal succeeds and is allowed. The order of the learned single Judge impugned in the appeal is set aside. - 22 - Arbitration Petition No.455 of 2006 succeeds. The award dated 24th April, 2006 read with order dated 26th July, 2006 is set aside. (D.K.DESHMUKH, J.) (A.A.SAYED, J.)