- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. APPEAL NO.981 OF 2001 IN ARBITRATION PETITION NO.432 OF 1998 ... Mrs.Pushpa P. Mulchandani and ors. ...Appellants v/s. Admiral Radhakrishin Tahiliani(Retd.) and ors. ...Respondents ... Mr.Kamal Bulchandani with Ms.S.K.Bulchandani, Mr.J.P.Shah i/b Kamal & Co. for the Appellants. Mr.D.J.Khambata with Mr.Riyaz Chagla i/b Mulla & Mulla & CB & C for Respondent No.1. - 2 - Mr.F.E.Devitre with Mr.Siraj Rustomjee i/b Federal & Rashmikant for Respondents Nos. 2 & 3. Mr.G.Misquitoo i/b Eastly Lam & Co. for Respondents Nos. 4, 5, 6, 21 & 22. ... CORAM: D.K.DESHMUKH & J.H.BHATIA, JJ. DATED: 4TH OCTOBER, 2007 ORAL ORDER: (PER D.K.DESHMUKH J.) 1. By this Appeal, the Appellants challenge the order dated 22-6-2001 passed by the learned single Judge of this court in Arbitration Petition No.432 of 1998. That Petition was filed under Section 34 of the Arbitration & Conciliation Act, 1996 (herein after referred to as "the Act") challenging the award dated 16th September, 1998 made by the sole-arbitrator. By her order dated 22-6-2001 the learned singe Judge dismissed the petition. - 3 - 2. The facts that are relevant for deciding this Appeal are that the parties to this Appeal entered into an agreement dated 31st December, 1996. The parties to that agreement described themselves as share holders of James Engineering Co.Ltd. They noted that there are disputes amongst them and they appointed one Mr.J.C.Bhatia as the sole arbitrator. It was stated that the disputes have arisen between the parties to the agreement, who were share holders of Jayems Engineering Co.Ltd. in regard to the matters relating to the aforesaid company as also interpretation of the Will dated 15th May, 1966 left by late Mr.Kimatrai Sanwalsingh Khushalani. It appears that initially the aforesaid company was the proprietary concern of the said Mr.Kimatrai Khushalani. The parties to the arbitration agreement were all related to him and that in the Will of said Mr.Kimatrao Khushalani there was provision made for distribution of his estate as also in relation to the affairs of the company. The parties to the agreement referred all the disputes and differences between them which were set out in schedule to the agreement to Mr.J.C.Bhatia, in whom the parties declared to have full faith and confidence. He was given full - 4 - power and he was empowered to make an award without the presence of the legal representatives or the legal adviser. The learned arbitrator was given power to device his own procedure. He was also empowered to take services of auditors and chartered accountants etc. as he may find necessary. According to the agreement, he was to make an award within four months from the date of entering upon the reference. He was also not required to give any reason for the award that he would make. It was also provided that the arbitrator can proceed only on the documents and no oral evidence or oral submission will be necessary. In the schedule following twelve disputes were narrated, which were referred to the arbitrator: SCHEDULE Disputes and differences referred to the Arbitration. 1. Did Mr.Kimatrai S. Khushalani by his will dated 15th May, 1966 dispose off the interest of all or any of the partners other than himself in Jayems Engineering Co. and if yes then could he have done so? - 5 - 2. Has the testator willed the goodwill of his trading concerns to the Trust? 3.Can the tenancy of the premises be valued as a part of the Good will of the trading concerns? 4. Was it open to the Trustees to allow conversation of the Partnership business of Jayems Engineering Company into a Limited Company? 5. Were the Trustees under an obligation to furnish to the beneficiaries full information on the working of the trust and render accounts? 6. Can any of the beneficiaries resist the termination of the business of the Company? 7. Can any of the beneficiaries insist that if the company is to be wound-up then the assets of the Company should be returned to the corpus of the trust? 8. Can the Company’s business be valued distinctly from its Real Estate and/or its tenancy rights? - 6 - 9. Can there be a equal Division of the Company’s assets and liabilities irrespective of the shareholding? 10. Can Ensemble division of the Company be purchased by Tarun Tahiliani and/or Mrs.Gayatri Parikh in consideration for the share in the other divisions and if yes what should be the fair value of Ensemble division? 11. On dissolution and/or winding up of M/s.Jayems Engineering Co.Ltd., including making up of accounts thereof and distribution of assets and liabilities and determining what is due and owing by one or other of the parties hereto to the other of them and how payable? 12. What should be the distribution as per the Will dated 15th May 1966 of late Mr.Kimatrai S. Khushalani and when should it be payable or distributable? --- - 7 - 3. These disputes were decided by the arbitrator by his award dated 16-9-1998. In paragraph (5) of the award the arbitrator stated that in order to decide the issues referred to him he obtained valuation reports in respect of business of Jayems Engineering Co. including its Ensemble division, as an independent business. The learned arbitrator decided twelve issues that were referred to him as follows:- Issue No.2- Yes- the testator willed the goodwill of his trading concerns to the Trust. Issue No.3-Yes- tenancy of the premises can be valued as a part of the Goodwill of the trading concerns. Issue No.4-Yes- it was open to the Trustees to allow conversation of the partnership business of Jayems Engineering Company into a Limited Company. Issue No.5-Yes- the Trustees are under an obligation to furnish to the beneficiaries full information on the working of the Trust and render accounts. - 8 - Issue No.6-No- none of the beneficiaries can resist the termination of the business of the Company. Issue No.7-No- none of the beneficiaries can insist that if the Company is to be would up then the assets of the company should be returned to the Corpus of the Trust. Issue No.8- Yes- Company’s business can be valued distinctly from its Real Estate and/or its tenancy rights. Issue No.9- No - there cannot be an equal Division (distribution) of the Company’s assets and liabilities irrespective of the shareholding. Issue No.10-Yes- I do hereby Award and determine that Tarun Tahiliani and/or Mrs.Gayatri Parikh have the option to purchase Ensemble Division of Jayems Engineering Co.Ltd. in consideration for their respective shares in the other Division at or for the price of Rs.135.00 Lakhs (Rupees One Hundred Thirty - 9 - Five Lakhs) only plus payment of rent of Rs.1,48,000/- (Rupees One lakh Forty Eight Thousand) only per month for the use of the following premises currently occupied by Ensemble in Great Western Building, 130-132 Shahid Bhagatsingh Marg, Fort, Mumbai 23. (i) On the ground floor 2174 sq.ft. (ii)On the first floor in the front portion 179 st.ft. And 178 sq.ft. (iii)On the first Floor in the rear out house 416 sq.ft. I have come to the conclusion that the total value of the interest of Tarun Tahiliani and Mr.Gayatri Parikh in Jayems Engineering Co.Ltd. , is as follows Name Shares held Total Value 1. Tarun Tahiliani 319 Rs. 94,86,103/- 2. Mrs.Gayatri Parikh 320 Rs. 95,15,840/- . If Tarun Tahiliani and/or Mrs.Gayatri Parikh intent to exercise the said option, they would - 10 - be required to do so within a period of six months from the date of this Award. Issue No.11- I hold that in the event of dissolution and/or winding up of M/s.Jayems Engineering Co.ltd., accounts shall be made so that the realised value of assets as reduced by the liabilities of the Company can be distributed amongst the existing share holders of the Company in the ratio of their respective shareholding after adjusting the balances in their individual accounts int he books of the Company on the relevant date/s. Issue No.12- The Trust Property shall be divided amongst the legal heirs surviving at the end of the duration of the trust on the youngest grandchild of late Mr.Kimatrai S. Khushalani attaining the age of 18 years and the distribution shall be according to the provisions of Hindu succession Act, 1956, pertaining to the Intestate Succession. 4. The present Appellants felt aggrieved by that Award. In particular, they were aggrieved by the - 11 - decision of the arbitration of fixing the valuation of the Ensemble division of the Jayems Engineering Co.Ltd. at Rs.1,35,00,000/- and also valuation of the shares of Jayems Engineering Co.Ltd. They were aggrieved by the decision of the arbitrator of giving option to Mr.Tarun Tahiliani and Mrs.Gayatri Parikh to purchase Ensemble division by paying only Rs.1,35,00,000/-. They were also aggrieved by the decision that the valuation of the shares of Mr.Tarun Tahiliani and Mrs.Gayatri Parikh was fixed at approximately Rs.94 lakh and Rs.95 lakh respectively. The award was challenged by the Appellants by filing a petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act) on various grounds. 5. The learned single Judge considered those grounds and rejected them by the order impugned in this Appeal and dismissed the petition. Before us, the award and the order of the learned single Judge was assailed by the Appellants on several grounds. But the two principal ground that were urged before us were (i) that the award is vitiated for non-compliance with the provisions of sub-section (3) of Section 24 of the Act by non-supply of copies of - 12 - the valuation report on which the award is based and (ii) that the award has been made after termination of the mandate of the arbitrator. 6. We propose to consider only these two challenges to the award. 7. So far as the first ground is concerned, the learned counsel appearing for the Appellants submits that it is clear from the award that the award is based on two valuation reports obtained by the arbitrator. It is submitted that it is an admitted position that copies of these valuation reports were not made available to the Appellants during the pendency of the arbitration proceedings. They were not made available to the Appellants even during the pendency of the petition before the learned single Judge. The copies of the valuation reports became available to the Appellants for the first time during the pendency of this appeal. It is submitted that the provisions of sub-section (3) of Section 24 of the Act requiring supply of copies of valuation reports by the Arbitrator to the parties is a mandatory requirement, and therefore the award made in violation of that mandatory requirement is - 13 - vitiated and is liable to be set aside. Reliance is placed on the judgment of the Supreme Court in the case of Oil & Natural Gas corporation Ltd. v/s. Saw Pipes Ltd. 2003 (5) SCC 705. 8. On behalf of the Respondents, on the other hand, it is contended that non-supply of copies of the valuation reports does not vitiate the award considering the nature of power which is conferred by the agreement on the arbitrator. Generally, the reasons given by the learned single Judge in the judgment were reiterated. It was also contended that provisions of sub-section (3) of Section 24 are not mandatory. It was contended that the Supreme Court held in its judgment in the case of Narayan Prasad Lohia v/s. Nikunj Kumar Lohia and ors. (2002) 3 SCC 572, that the provisions of section 10 of the Act are capable of being waived and therefore, according to the Respondents even the right conferred by sub-section (3) of Section 24 is also capable of being waived and that it has actually been waived as held by the learned single Judge. 9. So far as second ground is concerned, the learned Counsel appearing for the Appellants relied on Clause - 14 - (5) of the arbitration agreement to claim that the award was to be made within four months from the date of entering upon the reference by the Arbitrator. According to him, if the letter written by the learned arbitrator himself is taken into consideration, then obviously the award has not been made within the period specified in the agreement. It is submitted that the mandate of the arbitrator had, therefore, come to an end much before the date on which the award was made. 10. The learned Counsel appearing for the Respondents, on the other hand, took us through the entire correspondence between the parties and submitted that the learned single Judge was absolutely justified for the reasons given by her in her judgment in holding that the term in the agreement fixing four months time from the date of entering upon the reference was varied by the parties and therefore, the mandate of the arbitrator was not terminated. 11. On behalf of the Respondents it is also urged that one Mr.Harish Melwani was a party to the arbitration agreement. He was also party to the - 15 - proceeding before the learned arbitrator, but he has not been joined as a party to the petition challenging the award, therefore, the petition was liable to be dismissed for non-joinder of necessary party. 12. From the rival submissions, it is clear that it is an admitted position that the copies of the valuation reports were not supplied to the Appellants during the pendency of the arbitration proceedings. They were also not supplied to the Appellants during the pendency of the proceedings before the learned single Judge. It is also an admitted position that the principal award made by the learned arbitrator is based on the valuation reports obtained by the learned arbitrator. Perusal of the award shows that in paragraph (5) of the award the learned arbitrator observed thus: 5. I state that to decide the issues referred to me, I have obtained valuation reports in respect of (i) the business of Jayems Engineering Co.Ltd. (including its Ensemble Division) and its interest in immovable properties by way of tenancies and (ii) of - 16 - Ensemble Division as an Independent business. 13. Perusal of the above quoted paragraph makes it clear that for deciding the issues referred to the arbitrator, he obtained valuation reports in respect of Jayems Engineering Co. including its Ensemble division as also in relation to the interest of that company in immoveable properties by way of tenancies and he also obtained a valuation report of the Ensemble division of the Jayems Engineering Co. Ltd. as an independent business. Perusal of answers given to Dispute No.10 referred to the arbitrator shows that it is only on the basis of the valuation reports of the Ensemble division as an independent Unit that the learned Arbitrator has held that Mr.Tarun Tahiliani and Mrs.Gayatri Parikh have to pay an amount at Rs.1,35,00,000/- in order to become owners of Ensemble division and that except this valuation report, there is no other reason for fixing the amount at Rs.1,35,00,000/- payable by the above said two persons as the value of the Ensemble division. By the award the learned arbitrator has held that the value of the shares held by Mr.Tarun Tahiliani and Mrs.Gayatri Parikh together in Jayems Engineering Co. is in excess of Rs.2 crore only on the basis of the - 17 - valuation reports obtained by the learned arbitrator. The result is for becoming the owners of the Ensemble division of the company, the above said two persons do not have to pay anything to the company, on the contrary, they will be entitled to receive an amount in excess of Rs.60 lakh from the company towards the balance value of their shares in Jayems Engineering Co.Ltd. It is, thus, clear that valuation reports obtained by the arbitrator are not only relevant and material for the purpose of the award that is made by the learned arbitrator, but the valuation reports are the very foundation of the award. 14. Section 24 of the Arbitration Act reads as under:- 24. Hearing and written proceedings- (1) Unless otherwise agreed by the parties, the arbitral Tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials; Provided that the arbitral Tribunal shall hold - 18 - oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held. (2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral Tribunal for the purposes of inspection of documents, goods or other property; (3) All statements, documents or other information supplied to, or applications made to the arbitral Tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral Tribunal may rely in making its decision shall be communicated to the parties. Perusal of sub-section (3) of Section 24 shows that, that provisions cast a duty on the arbitrator to communicate to the parties any expert report or documentary evidence on which the arbitral tribunal proposes to rely. The learned single Judge has considered the objections raised to the award on this - 19 - ground in paragraphs 51, 52 & 53 of her judgment. In substance, the learned single Judge has held that by conferring on the arbitrator summary jurisdiction the Appellants have waived their rights to receive the valuation reports. Paragraphs 51, 52 & 53 of the orer reads as under:- 51. In view of the contents of the arbitration agreement by which summary powers were given to the learned arbitrator, the parties at the time when they referred the matter to arbitration were aware of the fact that the subject matter of the arbitration proceedings involved valuation as the Petitioners have in their submissions made to the learned arbitrator stated that valuation should be carried out, for which purpose the Petitioners have also recorded an understanding to the effect that "no doubt, the arbitration will take help of accountant for valuation in regard to the "Ensemble". The Petitioners have, in their submissions, called upon the learned arbitrator as under: "In the light of the above, I have to request - 20 - you to pass the award after obtaining such legal and accounting advise as you consider necessary." This submission, therefore, records that the arbitrator was given the power to obtain legal and accounting advise and decide the issues referred to him. At no point of time did the Petitioners who were aware of the fact that the subject matter of the reference could not be decided within valuation requested the arbitrator to furnish the valuation report as the terms of reference empowered him to make his award after obtaining valuation and accounting advice as he may consider necessary. This was in accordance with the terms of the arbitration agreement and reference to arbitration. By virtue of the fact that the arbitration agreement gave the arbitrator the aforesaid power coupled with the fact that the Petitioners in their submissions also requested the arbitrator to obtain accounting advice, it is amply clear that the Petitioners had waived and contracted out their right to be shown a copy of the valuation report and - 21 - cannot agitate the issue at this stage for challenging the award. 52. Though on behalf of the Petitioner reliance has been placed on section 18 of the Arbitration & Conciliation Act, 1996 with regard to equal treatment which was to be given to the parties and full opportunity to the parties to present their case, so far as the Respondents are concerned, it is not the case of the Petitioners that the valuation report was given to the Respondents and the Petitioners were denied the same, for the valuation report has not been given either to the Petitioners or to the Respondents. hence by virtue of the powers given to the arbitrator, the non-furnishing of the valuation report by the arbitrator to the Petitioners cannot vitiate the award as to the Petitioners at no point of time had asked for the report and the terms of the submissions made by the Petitioners records that the Petitioners were aware of the fact that the arbitrator was required to seek accounting advice in order to decide the valuation of the - 22 - "Ensemble Division", which was a subject matter of the reference. 53. It has been urged on behalf of the Respondents that section 24(3) of the Arbitration and Conciliation Act is only one facet of the principles of natural justice, which the parties have chosen to contract out. It cannot be, therefore, urged on behalf of the Petitioners that the award is against public policy as the same is in contravention of section 24(3) of the Arbitration and Conciliation Act. In the light of the various terms of the arbitration agreement by which the arbitrator was authorised to hear one party in the absence of the other, the arbitrator was authorised not to call for oral submission but was given discretionary and summary power, the Petitioners cannot be heard to say that the arbitrator has failed to comply with the provisions of section 24(3) of the Arbitration Act and hence non-compliance was fatal to the award. 15. It is clear from what is observed by the learned - 23 - single Judge that according to the learned single Judge, the Appellants by authorising the arbitrator to call for the valuation report and requesting him to call for valuation report had waived their rights to receive the copies of the valuation reports. The learned single Judge has also held that what is incorporated in sub-section (3) of Section 24 of the Act is only a facet of the principles of natural justice and the Appellants have contracted themselves out of that right. The Supreme Court has considered the provisions of Section 24 of the Act in its judgment in ONGC v/s. Saw Pipes’s case(supra). The observations of the Supreme Court found in paragraphs 12 & 13 of that judgment, in our opinion, are relevant. They read as under:- 12. Hence, the jurisdiction or the power of the Arbitral Tribunal is prescribed under the Act and if the award is dehors the said provisions, it would be, on the face of it, illegal. The decision of the Tribunal must be within the bounds of its jurisdiction conferred under the Act or the contract. In exercising jurisdiction, the Arbitral Tribunal cannot act in breach of some provisions of - 24 - substantive law or the provisions of the Act. 13. The question, therefore, which requires consideration is- whether the award could be set aside, if the Arbitral Tribunal has not followed the mandatory procedure prescribed under Section 24, 28 or 31(3), which affects the rights of the parties. Under sub-section (1)(a) of Section 28 there is a mandate to the Arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. Suppose, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, the question would be- whether such award could be set aside. Similarly, under sub-section (3), the Arbitral Tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. If the Arbitral Tribunal - 25 - ignores the terms of the contract or usage of the trade applicable to the transaction, whether the said award could be interfered. Similarly, if the award is