Case: RATNAM SUDESH IYER Vs. JACKIE KAKUBHAI SHROFF

1.5 million was kept in escrow to ensure that those proceedings came to an end, and on achieving the said objective the escrow amount had to be released to the respondent. 35. The second stage was of the sale of shares and the escrow amount of US$ 2 million was to be paid to the respondent when the shares were sold. It appears that there was some delay in the sale of shares which is what was objected to by the wife of the respondent and the appellant claimed that he could not be pushed into an early sale. Be that as it may, the sale did take place. Thus, the necessary conditions of the Deed of Settlement stood satisfied. It is in this context that we have to consider whether clause 6 would come into play, so as to deprive the respondent of the benefits which were two fold, i.e., monetary benefit to cease and desist on complaints and litigations, and the proceeds from the sale of shares that were owned by him. Clause 6 provided for the return of the amount of US$ 1.5 million in case the representations/assurances of the respondent turn out to be false or incorrect. That was not the case. The only aspect emphasised by the appellant as a cause for denying the respondent his dues are the two e-mails sent by his wife. We may note here that though the wife was initially impleaded in the proceedings under Section 9 of the said Act, she was later dropped from the arbitration proceedings as she was not a party to the agreement vide consent order dated 06.08.2012. In a sense the agreement accepted that the wife of the respondent had no role to play and the respondent could not be penalised for her conduct. 36. We may note that what has weighed with the Courts below is the fact that the respondent did nothing to ratify the e-mails of his wife. The effect of the award would be to deprive the respondent of the due valuation of the shares and what was paid to him to bring his complaints to an end. 37. Even if we turn to the complaints of the wife, at best they would fall in the category of some indiscreet language. The e-mail dated 09.06.2011 makes a grievance to the appellant about not being informed about the deal term sheet having been signed and uses the expression that the appellant was not being straight with us. This can hardly be objected to. Of course, this was circulated to their associates but the e- mail itself can hardly be called damaging. If we turn to the e-mail dated 15.06.2011, once again, a grievance about updates not being given is made. Certainly, the sentence I have no wish to fraternise with a forger. must be called wholly inappropriate. But then, that by itself cannot deny the respondent of his dues merely because of such an indiscreet e-mail by his wife, who was not even party to the proceedings nor party to the Deed of Settlement which contained the arbitration clause. It is in the aforesaid context that the impugned orders have been delivered and we consider it appropriate to extract para 23 of the learned Single Judges order which succinctly set forth what would be the consequences of the result of the award. 23. When we see the bizarre outcome it has brought about in the matter, the extent of the fallacy can be realised better. The Respondent got practically everything that he wanted from the Petitioner in return for payment of USD 3,500,000 to the latter. He got the EOW complaint withdrawn; he got the Petitioner to ratify the original Placement Instruction to SCB for sale of Atlas shares and for making over of the consideration to Grandway; he got an irrevocable power of attorney in his name for sale of shares of Atlas from the Petitioner; he got all the Petitioners claims against him, his wife and Atlas and Grandway and their shareholders released; he got the Petitioners resignation from the Board of Atlas; he got an agreement and irrevocable consent from the Petitioner for sale and transfer of Atlas shares; he got an agreement or consent from the Petitioner for dividend distribution and winding up of Atlas in a manner as the Board and the other shareholders might deem fit; and he got a confirmation of no claim against him or his family member or Atlas or Grandway of their shareholders by the Petitioner. And after all that is done, he even gets back his entire money of USD 3,500,000. And that because the Petitioners wife calls him a forger in a private communication made to a couple of acquaintances or associates. Can such award be ever sustained as something a fair and judiciously minded person could have made. In my humble opinion, it is the very opposite of justice; it would be a travesty of justice to uphold such award. 38. The aforesaid scenario cannot be countenanced and this is what has been responsible for interference with the award of the learned arbitrator in the context of the legal position applicable to the award pre the amendment. We find that the arbitrators conclusions are not in accordance with the fundamental policy of Indian law, and can thus be set aside under the pre-2015 interpretation of S. 34 of the said Act. We may also note that clause 6 of the Deed of Settlement could not have been relied on to award liquidated damages in favour of the appellant, we agree with the observations of the Single Judge and the Division Bench in this regard. In fact, the consequences are so inappropriate that the same appears to be the reason that both the learned Single Judge and the Division Bench have opined that whatever be the position that is applicable - pre or post amendment, in these facts the award would not stand, something with which we agree. Conclusion:

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The admitted position is that the appellant is a party based in Singapore and thus, in terms of the aforesaid definition the arbitration although carried out a within the country, would be an international commercial arbitration. We may notice at this stage that it is nobodys case that the award in question is a foreign award within the meaning of Part II Section 44 of the said Act. For domestic awards, Chapter 7 of the said Act provides recourse against the arbitral award. Section 34 of the said Chapter provides for application for setting aside an arbitral award and specifies the ground available for the same. The Arbitration and Conciliation (Amendment) Act, 2015 (for short 2015 Amendment Act) amended the said Act w.e.f. 23.10.2015; inter alia by inserting Explanations to Section 34(2) of the said Act as well as by inserting Sub-Section 2A to Section 34. There is no doubt that the scope of interference by the Court became more restrictive with the amendments coming into force. The pre- amendment position with respect to expression in conflict with public policy of India was enunciated by this Court in Ssangyong Engineering and Construction Company Ltd. v. National Highways Authority of India (NHAI) (2019) 15 SCC 131,  which referred to the judgment of this Court in Associated Builders v. Delhi Development Authority (2015) 3 SCC 49 .17. The crux of the aforesaid is that while the plea of the award being vitiated by patent illegality is available for an arbitral award, such an award has to be a purely domestic award, i.e. the plea of patent illegality is not available for an award which arises from international commercial arbitration post the amendment.18. We are noticing the aforesaid distinction as it appears that the judgments of the learned Single Judge and the Division Bench decide the challenge to the award on the plea of patent illegality without noticing this distinction. No doubt both judgments proceed on the basis that in either situation, i.e., within the test available for a purely domestic award or a domestic award arising from an international commercial arbitration; the award cannot be sustained. Thus far as to the nature of the award.20. It is not in dispute that the Section 34 proceedings commenced prior to 23.10.2015, which is the crucial date. As to when the amendment would apply is an aspect that is no longer res integra. We may refer to relevant judicial pronouncements in this regard.21. In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. & Ors. (2018) 6 SCC 287  a reference was made to Section 26 of the 2015 Amendment Act which had bifurcated proceedings into arbitral proceedings and court proceedings. The said provision reads as under:26. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act, unless the parties, otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.22. It was clearly elucidated in para 39 of the judgment that the reason behind the first part of Section 26 of the 2015 Amendment Act being couched in the negative was only to state that the Amendment Act will apply even to arbitral proceedings commenced before the amendment if the parties otherwise agree. This is not so in the second part. The judgment derived that the intention of the legislature was to mean that the 2015 Amendment Act is prospective in nature and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the said Act, on or after the 2015 Amendment Act, and to court proceedings which had commenced on or after the 2015 Amendment Act came into force.27. In the context of the Arbitration Act, 1940 (hereinafter referred to as the Old Act) and the said Act, there are some observations in Thyssen Stahlunion Gmbh v. Steel Authority of India Limited (1999) 9 SCC 334,  which are relevant for the purposes of this discussion. While opining that the provisions of the Old Act would apply in relation to arbitral proceedings which had commenced before the coming into force of the said Act, this Court referred to the Repeal and savings provision in Section 85(2)(a) of the said Act. It was observed that the phrase in relation to arbitral proceedings cannot be given a narrow meaning so as to mean only pendency of arbitration proceedings before the arbitrator, but would also cover proceedings before the court. The appellants cited two judgments of the Bombay High Court in support of their case, i.e., Padmini Chandran Menon v. Vijay Chandran Menon (2018) 2 AIR Bom R 108 and Board of Trustees of the Pot of Mumbai v. Afcons Infrastructure Limited 2016 SCC Online Bom 10037, which in turn rely on Thyssen Stahlunion Gmbh(supra).28. However, the general observations aforesaid cannot come to the aid of the appellant in view of a number of judicial pronouncements by this Court which deal with a similar issue.30. In a similar vein, the arbitration clause in Union of India v. Parmar Construction Company (2019) 15 SCC 682  provided that subject to the provisions of the aforesaid Arbitration and Conciliation Act, 1996 and the Rules thereunder and any statutory modifications thereof shall apply to the arbitration proceedings under this Clause.Relying on this clause, a contention was sought to be raised that the 2015 Amendment Act would apply to the arbitral proceedings which had been pending on 23.10.2015.It was opined by this Court that a conjoint reading of Section 21 of the said Act and Section 26 of the 2015 Amendment Act left no manner of doubt that the provisions of the 2015 Amendment Act shall not apply to arbitral proceedings which had commenced in terms of the provisions of Section 21 of the said Act unless the parties otherwise agree. Whether the application was pending for appointment of an arbitrator or in the case of rejection because of no claim as in that case for appointment of an arbitrator including change/substitution of the arbitrator was held not to be of any legal effect for invoking the provision of the 2015 amendment. While S.P. Singla (supra) and Parmar Construction Company (supra) opined on the topic of arbitral proceedings, we may note here that the matter concerns Section 34 proceedings for setting aside the award. In this case, the Section 34 proceedings had already commenced when the 2015 Amendment Act came into effect. The court proceedings were already subject to the pre- 2015 legal position. In a conspectus of the aforesaid, a generally worded clause such as Clause 9 of the Deed of Settlement cannot be said to constitute an agreement to change the course of law that the Section 34 proceedings were subject to. We may also note that a learned single Judge of the Delhi High Court in ABB India Ltd. v. Bharat Heavy Electricals Ltd. (OMP (T) (Comm) No.48/2020), while referring to the judgment in Parmar Construction Company (supra)case, has proceeded in accordance with this Courts observations while distinguishing the judgment in Thyssen Stahlunion Gmbh (supra) .In the context of anticipating new enactments that may come into operation, it was opined that while Thyssen Stahlunion Gmbh (supra)dealt with Section 85(2)(a) of the said Act, this provision is dissimilar to Section 26 of the 2015 Amendment Act. Section 26 starts with a negative covenant which is subject to an exception in the case of an agreement between the parties, whereas the observations in Thyssen Stahlunion Gmbh (supra) were coloured by Section 85(2)(a) of the said Act which is structured differently. We refer to the same only to give our imprimatur. The relevant portion of ABB India Ltd. (supra) reads as follows:71. Besides, in Thyssen Stahlunion GMBH, there was no provision, similar to Section 26 of the 2015 Amendment Act, which is crucial to adjudication of the dispute in the present case. In this context, it is necessary to distinguish the structure of Section 85(2)(a) of the 1996 Act, with Section 26 of the 2015 Amendment Act. Whereas Section 85 (2)(a) of the 1996 Act made, inter alia, the 1940 Act applicable to arbitral proceedings which commenced before the coming into force of the 1996 Act, unless otherwise agreed by the parties. Section 26 of the 2015 Amendment Act starts with a negative covenant, to the effect that nothing contained in the 2015 Amendment Act – which would include the insertion of Section 12(5) of the 1996 Act – would apply to arbitral proceedings, commenced before the 2015 Amendment Act came into force, i.e. before 23rd October, 2015. This negative covenant was subject to an exception in the case of agreement, otherwise, by the parties. Structurally and conceptually, therefore, Section 26 of the 2015 Amendment Act is fundamentally different from Section 85(2)(a) of the 1996 Act, and requires, therefore, to be interpreted, keeping this distinction in mind.31. We may note that the line of reasoning in Ssangyong Engineering and Construction Company Ltd. (supra) itself shows that to prevent any uncertainty in law, while seeking to fine tune the law to restrict the scope of interference in awards the legislature took a conscious decision to make applicable the amendments only from the date it came into force. Thus, the general phraseology of a clause which seeks to include any amendment to the Act would not be able to be availed of to expand the scope of scrutiny as it would appear to run contrary to the legislative intent of Section 26 of the Amendment Act. In this regard it may be appropriate to refer to the Supreme Courts observations in Ssyangong Engineering and Construction Company Ltd. (supra) relating to the scope of public policy as a ground to set aside arbitral awards before the 2015 Amendment Act:24. Yet another expansion of the phrase public policy of India contained in Section 34 of the 1996 Act was by another judgment of this Court in Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263  : (2014) 5 SCC (Civ) 12] , which was explained in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49  : (2015) 2 SCC (Civ) 204] as follows : (SCC pp. 73-77, paras 28-34)28. In a recent judgment, ONGC v. Western Geco International Ltd. [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263  : (2014) 5 SCC (Civ) 12] , this Court added three other distinct and fundamental juristic principles which must be understood as a part and parcel of the fundamental policy of Indian law. The Court held : (SCC pp. 278-80, paras 35 & 38-40)29. It is clear that the juristic principle of a judicial approach demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.30. The audi alteram partem principle which undoubtedly is a fundamental juristic principle in Indian law is also contained in Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act. These sections read as follows:18. Equal treatment of parties.—The parties shall be treated with equality and each party shall be given a full opportunity to present his case.34. Application for setting aside arbitral award.—(1)* * *(2) An arbitral award may be set aside by the court only if—(a) the party making the application furnishes proof that—(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:(i) a finding is based on no evidence, or(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or(iii) ignores vital evidence in arriving at its decision,such decision would necessarily be perverse.32. We have considered the aforesaid two legal issues which would govern the present case and have come to the conclusion that it would be the pre-2015 legal position which would prevail.33. It is no doubt true that the arbitrator has the first hand benefit of recording evidence and examining the factual scenario. The present case is one which is solely based on an interpretation of a clause against the background of a dispute which gave rise to the Deed of Settlement. Wehave reproduced the relevant clauses which would emphasise that the respondent was required to take a couple of steps back from the position they had reached in the dispute, in order to avail the financial benefit under the Deed of Settlement.34. The first such step was to withdraw all complaints and proceedings against appellant and all other named and unnamed persons before the EOW. The respondent complied with the same and all such proceedings were brought to an end. US $ 1.5 million was kept in escrow to ensure that those proceedings came to an end, and on achieving the said objective the escrow amount had to be released to the respondent.35. The second stage was of the sale of shares and the escrow amount of US$ 2 million was to be paid to the respondent when the shares were sold. It appears that there was some delay in the sale of shares which is what was objected to by the wife of the respondent and the appellant claimed that he could not be pushed into an early sale. Be that as it may, the sale did take place. Thus, the necessary conditions of the Deed of Settlement stood satisfied. It is in this context that we have to consider whether clause 6 would come into play, so as to deprive the respondent of the benefits which were two fold, i.e., monetary benefit to cease and desist on complaints and litigations, and the proceeds from the sale of shares that were owned by him. Clause 6 provided for the return of the amount of US$ 1.5 million in case the representations/assurances of the respondent turn out to be false or incorrect. That was not the case. The only aspect emphasised by the appellant as a cause for denying the respondent his dues are the two e-mails sent by his wife. We may note here that though the wife was initially impleaded in the proceedings under Section 9 of the said Act, she was later dropped from the arbitration proceedings as she was not a party to the agreement vide consent order dated 06.08.2012. In a sense the agreement accepted that the wife of the respondent had no role to play and the respondent could not be penalised for her conduct.36. We may note that what has weighed with the Courts below is the fact that the respondent did nothing to ratify the e-mails of his wife. The effect of the award would be to deprive the respondent of the due valuation of the shares and what was paid to him to bring his complaints to an end.37. Even if we turn to the complaints of the wife, at best they would fall in the category of some indiscreet language. The e-mail dated 09.06.2011 makes a grievance to the appellant about not being informed about the deal term sheet having been signed and uses the expression that the appellant was not being straight with us. This can hardly be objected to. Of course, this was circulated to their associates but the e- mail itself can hardly be called damaging. If we turn to the e-mail dated 15.06.2011, once again, a grievance about updates not being given is made. Certainly, the sentence I have no wish to fraternise with a forger. must be called wholly inappropriate. But then, that by itself cannot deny the respondent of his dues merely because of such an indiscreet e-mail by his wife, who was not even party to the proceedings nor party to the Deed of Settlement which contained the arbitration clause. It is in the aforesaid context that the impugned orders have been delivered and we consider it appropriate to extract para 23 of the learned Single Judges order which succinctly set forth what would be the consequences of the result of the award.23. When we see the bizarre outcome it has brought about in the matter, the extent of the fallacy can be realised better. The Respondent got practically everything that he wanted from the Petitioner in return for payment of USD 3,500,000 to the latter. He got the EOW complaint withdrawn; he got the Petitioner to ratify the original Placement Instruction to SCB for sale of Atlas shares and for making over of the consideration to Grandway; he got an irrevocable power of attorney in his name for sale of shares of Atlas from the Petitioner; he got all the Petitioners claims against him, his wife and Atlas and Grandway and their shareholders released; he got the Petitioners resignation from the Board of Atlas; he got an agreement and irrevocable consent from the Petitioner for sale and transfer of Atlas shares; he got an agreement or consent from the Petitioner for dividend distribution and winding up of Atlas in a manner as the Board and the other shareholders might deem fit; and he got a confirmation of no claim against him or his family member or Atlas or Grandway of their shareholders by the Petitioner. And after all that is done, he even gets back his entire money of USD 3,500,000. And that because the Petitioners wife calls him a forger in a private communication made to a couple of acquaintances or associates. Can such award be ever sustained as something a fair and judiciously minded person could have made. In my humble opinion, it is the very opposite of justice; it would be a travesty of justice to uphold such award.38. The aforesaid scenario cannot be countenanced and this is what has been responsible for interference with the award of the learned arbitrator in the context of the legal position applicable to the award pre the amendment. We find that the arbitrators conclusions are not in accordance with the fundamental policy of Indian law, and can thus be set aside under the pre-2015 interpretation of S. 34 of the said Act. We may also note that clause 6 of the Deed of Settlement could not have been relied on to award liquidated damages in favour of the appellant, we agree with the observations of the Single Judge and the Division Bench in this regard. In fact, the consequences are so inappropriate that the same appears to be the reason that both the learned Single Judge and the Division Bench have opined that whatever be the position that is applicable - pre or post amendment, in these facts the award would not stand, something with which we agree.