Case: Pradeep Anand Vs. I.T.C. Ltd.

2. On 11.9.1990 an agreement styled asas made in Tokyo (Japan) between M/s. Toshiba Corporation (hereinafter calledM/s. Toshiba Battery Co. Ltd. (hereinafter calledM/s. ITC Ltd. (hereinafter calledhaving its registered office at 37, Chowringhee, Calcutta, M/s. Toshiba Anand Batteries Ltd. (hereinafter called ‘Toshibahaving its registered office at M.G. Road, Ernakulam, Kerala and Shri C.L. Anand (hereinafter called ‘Shrirepresenting his family and his associated companies. The terms of the agreement were set out under Articles 1 to 12 of the document. In Article 5 of the Agreement the following stipulation was made :is agreed to release all personal guarantees given by Shri Anand and Shri Pradeep Anand to the bankers and financial institutions on behalf of Toshiba Anand with assistance andby ITC or its associates or by its friends and/or by Toshiba and/or by TBCL as soon as possible but not later than 31st March,Under Article 8 of the agreement it was stipulated thatAnand agrees that he will not raise nor cause his associates including subsidiaries to raise any claim against Toshiba and/or TBCL in any manner whatsoever in connection with his share transfer, his resignation from Chairman of Toshiba Anand, or any other matter as contemplatedUnder Article 10 dealing with ‘Specificit was stipulated that :parties hereto shall be entitled to specific performance of the terms of this agreement and their respective obligations including the use of their voting right and also the exercise of their powers as set out in Article 9 of thisArticle 11 in which was dealt withof the agreement, it was stated :Toshiba Anand is wound up or otherwise than for amalgamation or reconstruction approved by the parties hereto, or (b) This agreement is terminated by mutual agreement in writing of the partiesIn Article 12 of the agreement certain general provisions were made. Clause (b) thereof provided that :In the foregoing circumstances, the claimant prays the arbitral tribunal may be pleased to take steps for setting the disputes and make the undermentioned Award directing the defendants :(a) Jointly and severally to take immediate and appropriate steps to ensure that all personal guarantees given by the claimant Shri C.L. Anand and his son, Pradeep Anand to the Banks and Financial Institutions are returned to the claimant duly discharged and cancelled;(b) Alternatively to award to the claimant the amounts that he and his son, Pradeep Anand are called upon to reimburse to the Banks and Financial Institutions in respect of the said personal guarantees;(c) Alternatively, to hold the defendants liable for all losses and consequences arising to the claimant and his son, Pradeep Anand, as a result of any legal actions taken by the Banks and Financial Institutions pursuant to the personal guarantees;(d) To award costs of this reference to Arbitration; and(e) Any other relief, as may be prayed for, from time to time, in the circumstances of thehis answers to the issues contained in Clause 13 of the reference the Arbitrator in paragraph 54.1.1 stated as follows:54.2.1 Clause 13.1(a)No54.2.2 Clause 13.1(b)Not applicable54.2.3 Clause 13.2(a)(i)Yes54.2.4 Clause 13.2(a)(ii)Yes54.2.5 Clause 13.2(a)(iii)No54.2.6 Clause 13.2(a)(iv)No54.2.7 Clause 13.2(b)Not applicable54.2.8 Clause 13.3(a)According to claimant54.2.9 Clause 13.3(b)Not applicable54.2.10 Clause 13.4(a)No54.2.11 Clause 13.4(b)No54.2.12 Clause 13.5(a)Would not debar of estop the 1st defendant, ITC Limited from raising the same pleas, contentions or defences before the Arbitrator in this reference.54.2.13 Clause 13.5(b)No54.2.14 Clause 13.6(a)Declaratory relief to the claimant for compensation for breach of Article 5 of theAgreement dated 11.9.1990 against 1st, 2nd and 3rd defendants, jointly and severally, damages to be assessed.54.2.15 Clause 13.6(b)The claimant, Shri C.L. Anand was representing his family members and associated companies when he signed theAgreement dated 11.9.1990 and also in this reference. The answer is therefore Yes.54.2.16 Clause 13.7(a)No54.2.17 Clause 13.7(b)Only 1st defendant, ITC Limited committed breach of Article 1 of theAgreement dated 11.9.1990. Claimant is entitled to claim against 2nd and 3rd defendants, Toshiba Corporation and Toshiba Battery Company Ltd. in this reference under Article 5 of thee extracts from the Partial Award noted by the learned Single Judge read as followregard to the abovenamed factors I decline to order specific performance in terms of Clause 4.12(a) of the Terms of Reference, in the exercise of my discretion.50.11.3In my opinion, an Arbitrator should not direct specific performance when the contract was no longer in existence.50.11.4Another reason for refusing, specific performance of Clause 4.12(a) of the TOR is that, if granted, it would indirectly involve the Banks and Financial Institutions to hand over the personal guarantees to the claimant duly discharged and cancelled when both the Banks and Financial Institutions have not been made parties to this reference.50.12.1I now pass to consider Clause 4.12(b) of the TOR.50.12.2I am inclined to agree with the contention of Counsel for ITC that this relief claimed by the claimant is premature inasmuch as no Court action has been taken by the Banks and Financial Institutions against the claimant and his son, Shri Pradeep Anand in respect of the said personal guarantees.50.12.3In short, the claimant is asking the Arbitrator to make an award on matter which did not exist yet.50.12.4For this reason I refuse to make an award in terms of the relief claimed in Clause 4.12(b) of the TOR.50.13.1I turn to deal with Clause 4.12(c) of the TOR and(2) of the Section 21 of the Specific Relief Act of the 1963 may be relevant and it reads :50.13.2In a suit for specific performance of a contract, the plaintiff may also claim compensation for its breach, either in addition to, or in substitution of, such performance(2) If, in any such suit, the Court decides that specific performance ought not to be granted, but that there is a contract between the parties which has been broken by the defendant, and that the plaintiff is entitled to compensation for that breach, it shall award him such compensation accordingly.(3) . . . . . . . . . . . . . . . . . . . . . . . .(4) In determining the amount of any compensation awarded under this section, the Court shall be guided by the principles specified in Section 73 of the Indian Contract Act, 1872 (9 of 1872).(5) . . . . . . . . . . . . . . . . . . . . . . .Section 73 of the 1872 Act is in the following termsa contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach ofcompensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.50.14.1Counsel for ITC has further argues that Section 73 of the Contract Act, 1872 imposes on the claimant a duty of taking all reasonable steps to mitigate the loss consequent on the breach of contract and debars the claimant from claiming any part of the damage which is due to his neglect to take such steps.50.14.2Counsel also submits that it is well settled that the loss to be ascertained is the loss as on the date of the breach [see KAS Jamal v. Moolla Dawood Sons & Co. (1915) AC 175] in terms of Article 5 of theAgreement dated 11.9.1990 the personal guarantees given by the claimant and his son Shri Pradeep Anand to the Banks and Financial Institutions were required to be discharged by 31.3.1991.50.15.1 I have already held and adjudged based on the documents produced before me in this reference ITC had committed a breach of Article 5 of theAgreement dated 11.9.1990 in that ITC had failed to arrange for the release of all personal guarantees given by Shri C.L. Anand and his son, Shri Pradeep Anand to the Banks and Financial Institutions on behalf of Toshiba Anand Batteries Ltd. (TABL) as agreed.50.15.2And I have also held and adjudged that ITC had refused to assist andwith the release of the said personal guarantees when the Consortium Banks proposed that ITC gave corporate guarantee instead in order to secure the discharge of the said personal guarantees given by Shri C.L. Anand and his son, Shri Pradeep Anand to the said Banks.50.16.1 In my opinion, the appropriate relief to be awarded to the claimant for breach of Article 5 of theAgreement dated 11.9.1990is for compensation for breach of contract, with damages to be assessed under Section 21(2) of the Indian Specific Relief Act, 1963.50.16.2I hereby reserve powers to make a Final Award on the quantum of monetary compensation (if any) to be awarded to the claimant after having invited and received further submissions from the parties and/or their Counsel in this regard at a later date.50.17.1 Since ITC, TOSHIBA AND TABL had agreed under Article 5 of the saidAgreement to assist andto release all personal guarantees given by Shri C.L. Anand and his son, Shri Pradeep Anand to the Banks on behalf of Toshiba Anand Batteries Ltd. (TABL) in my opinion, it is fair and equitable that all three parties should be held jointly and severally, liable to the claimant. I have therefore so held and adjudged.50.70.2To avoid any doubt I have to make it clear that I am granting to the claimant declaration relief under Clause 4.12(c) of the Terms of Reference for breach of Article 5 of theThe relief is for compensation for breach of contract, with damages to be assessed under Section 21(2) of the Indian Specific Relief Act, 1963 at a laterreceipt of the notice of the Award made by the Arbitrator ITC Ltd. (respondent No. 1 herein) filed a suit, Suit No.of 1998 under Section 14 of the Arbitration Act, 1940 (hereinafter referred to as ‘thefor a direction to the Arbitrator (respondent No. 5 herein) and ICC (respondent No. 6 herein) to file the Award (partial Award) dated 24.4.1998 in ICC Arbitration Case and on 1.8.1998 filed an application for stay of the arbitration proceedings.5. Considering the application for stay in IA No. 3658 of 1997 in OMP No. 10 of 1996 filed by Toshiba (respondent No. 2 herein) and TBCL (respondent No. 3 herein), the learned Single Judge passed the order to the effect that though the arbitration proceedings may go on no final award shall be passed till the next date of hearing which was fixed on 16th July, 1998. Against the said order the appellant moved the Division Bench an appeal, FAO (OS) No. 146 of 1998 in which the Division Bench vide order dated 29.5.1998 granted stay of operation of the order dated 22.5.1998. The said order was disposed of by a consent order on 22.7.1998 to the effect that the final award may be passed but the same shall not be implemented till the disposal of the I.A. filed by respondents 2 and 3 which was pending before the learned Single Judge. The Arbitrator on being informed about the order passed by the Division Bench proceeded further in the arbitration proceedings and called upon the parties to send their witness statements, documentary evidence etc.6. While Suit No.of 1998 filed by respondent No. 1 was pending the said respondent filed OMP No. 197 of 1998 under Sections 30 and 33 of the Act inter alia challenging the legality and validity of theed 11.9.1990. Both the suit and the OMP are pending before the High Court. It is relevant to note here that previously when the ICC had decided that the arbitration shall be conducted by the Sole Arbitrator but the Arbitrator had not entered upon the reference, the respondent No. 1 had filed Suit No. 50 of 1995 and OMP No. 16 of 1995 in the Delhi High Court challenging the legality and validity of theed 11.9.1990 as well as the legality and validity of the arbitration clause in the said agreement and had prayed for a declaration that the same were illegal and null and void. Respondent No. 1 had sought stay of further proceedings in the petition OMP No. 16 of 1995. When Suit No. 50 of 1995 and OMP No. 16 of 1995 were pending for trial the respondent No. 1 filed an application under Order 23 Rule 1 of the Code of Civil Procedure, unconditionally withdrawing the said two proceedings. By the order dated 17.10.1995 passed by the High Court the suit and the OMP were dismissed as withdrawn. The respondent No. 1 also filed I.A. No. 7558 of 1998 seeking stay of further arbitration proceedings alleging certain illegalities in the procedure followed by the Arbitrator which, according to it had vitiated the award passed by the Arbitrator. The respondent No. 1 also questioned the jurisdiction of the Arbitrator to award monetary compensation in the case in favour of the appellant. The validity of theagreement was also challenged by the said respondent. The appellant herein refuted the allegations and contentions raised on behalf of the respondent No. 1 in the counter affidavit.7. The learned Single Judge after hearing the Counsel appearing for the parties and considering the contentions raised on their behalf took the view that the validity of the impugned partial award should first be decided and only after it was found to be in order and valid, further proceedings for making the final award be undertaken. In support of the view the learned Judge noted that according to him the petitioner had prima facie case as, prima facie, the grounds of challenge to the impugned partial award were not, on the face of the same, devoid of merits; rather the same appeared to have substance and were required to be heard and decided in proper proceedings.8. Thereafter the learned Judge proceeded to give reasons in support of his finding that the balance of convenience lies in favour of the respondent No. 1 herein. It appears from the discussions in the order the learned Judge took exception as the Arbitrator had not filed the partial award in Court promptly despite a direction by the Court and proceeded to quantify the damages on the basis of the partial award in which a declaratory order was made. From this the learned Single Judge inferred that the respondent No. 1 was rendered remediless and thus gagged. However, the learned Judge himself observed in the order :the situation has changed because before the application under consideration for stay could be decided, the Arbitrator filed the award in S. No. 1084A/98, though very late, and also authorised the petitioner to file its copy on hisThe learned Single Judge has discussed in detail the merits of the partial award; the further steps being taken by the Arbitrator in the proceeding for quantification of damages; inconvenience likely to be created to the respondent No. 1 if the proceeding continued since he will have to bear the burden of expenditure, passed the order of stay on following termsafter having found prima facie case and the balance of convenience in favour of the petitioner and also having come to a prima facie view that presently respondent No. 1 is not going to be prejudiced by grant of stay, I allow the application and direct that further arbitration proceedings for making final award shall remain stayed till the impugned partial award is made Rule of the Court.Before parting with the order, it is made clear that any observations made in this order shall not affect the merits of the respective contentions of the parties relating to the impugned partial award dated 24.4.1998.Being aggrieved by the stay order passed by the learned Single Judge, the appellant filed the appeal FAO (OS) No. 134/99 which was decided by a Division Bench of the High Court vide the judgment dated 13th March, 2000. From the discussions in the judgment it is clear that the Division Bench, considering the contention raised on behalf of the respondents against maintainability of the petition for stay filed before the learned Single Judge and the appeal assailing the stay order, opined that the application for stay was maintainable and the order passed on the application for stay was maintainable and the order passed on the application was an order under the Arbitration Act (‘thefor short). Regarding the question of maintainability of the appeal the Division Bench held that the order under challenge being not one of the orders specified in Section 39 of the Act the appeal was not maintainable. The Division Bench further observed that having held the appeal to be not maintainable it was not necessary for the Court to go into the questions as to whether the learned Single Judge was right in passing the order staying the proceedings before the Arbitrator; however, as the matter was fully argued by the parties the Division Bench proceeded to consider the matter on merits. In that regard the Division Bench made the following observationsis not in dispute that the Arbitrator had written a letter on 21st November, 1997 informing the parties that he had prepared the draft final award and sent the same to the ICC International Court for its scrutiny. It is also not in dispute that the Secretariat of the ICC in its letter dated 5th February, 1998 had informed the parties that the draft final award was under the scrutiny process of the ICC Court of Arbitration. It is also not in dispute that ultimately the Award which was sent to the parties was described as a partial award. The question, therefore, naturally coming to the mind of the Court is how the draft final award prepared by the Arbitrator and sent to the ICC Court of Arbitration was changed to partial award. The other question which comes to the mind of the Court is as to how and under which provision of law the Arbitrator can send the award for scrutiny or approval to another Forum which has nothing to do with Arbitration. It is admitted between the parties that Indian laws were applicable to the arbitration proceedings. It is well settled that under the Indian laws the Award of the Arbitrator leaving a matter in dispute to be decided by a third person is invalid as it is not open to the Arbitrators to delegate their authority to a stranger. Even a partial delegation of authority vitiates the Award if the defective part cannot be separated from the rest. Delegation of his authority and functions by an Arbitrator amounts to judicial misconduct. Such an award suffers for a serious infirmity and as such is liable to be set aside. In this case, it is not denied that the Arbitrator did send the award for scrutiny to the International Court of Arbitration.In our view, therefore, prima facie, it appears to us that the whole approach of the Arbitrator in sending the award to the ICC Court of Arbitration amounted to delegation of authority to a third party. Prima facie, the award is suffering from serious infirmity. At the time of deciding this application for stay, it cannot be said whether or not the Arbitrator has committed misconduct by sending the award to a third party. It may also not be possible for this Court to decide at this stage as to how and in what circumstances the final award was changed to a partial award. There is nothing before the Court also to find out as to what was written in the draft final award sent to the International Court of Arbitration for scrutiny and to what extent this draft final award was changed so as to be described as a partial award. All these questions have to be gone into during the hearing of the mainfurther the Division Bench also took exception to the conduct of the Arbitrator in not filing the depositions and documents before the Court on the ground of confidentiality and claim of privilege. The Division Bench observedobjections filed by the ITC to the award described as a partial award cannot be decided without such deposition and documents before the Court. It is, therefore, but natural that it was incumbent upon the Arbitrator to file the same on being so required either by the parties or by the Court.of the depositions and documents and claiming privilege and confidentiality about the same, prima facie, show that the Arbitrator is being influenced by the opinion of a third party, may be in the present case the International Court of Arbitration. That being the position, in our view, the Arbitrator could not be permitted to continue with the arbitration proceedings till such time the objections to the partial award were decided by the Court. In our opinion, therefore, there was a prima facie case for the stay of further proceedings before the Arbitrator. We are, therefore, in complete agreement with the view of the learned Single Judge that in the interest of justice, further proceedings before the Arbitrator should bethe Division Bench dismissed the appeal holding that it was devoid of merit and clarified that any observation made in the order shall not have any bearing on the merits of the objections under Sections 30, 31 and 33 of the Act pending before the learned Single Judge.

Reasoning:
10. From the discussions made in the foregoing paragraphs, it is manifest that the disputes raised in the proceeding arises from and relates to thet dated 11.9.1990entered into between the parties. In the said agreement it was agreed by the parties under Article 12 that ‘any unresolvedarising in connection with this Agreement shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more Arbitrators appointed in accordance with those rules and the arbitration shall be held at Bombay, India. The arbitration proceeding was initiated in pursuance of the express provision made in the agreement and the Arbitrator was appointed by the ICC under the stipulation in the agreement. On the materials on record the position has to be accepted, prima facie, that the Indian law is applicable to the proceeding. The proceeding is to be conducted and decided in accordance with the provisions of the Arbitration Act, 1940. We make it clear that our observation in this regard will not prevent any of the parties to raise the question, at the appropriate stage of the proceedings before the Court and if such contention is raised the Court will decide the same in accordance with law. The Arbitration Act, 1940 is fairly comprehensive and contains provisions from the stage of appointment of Arbitrator till the award being made Rule of the Court where after it becomes a decree of the Court and executable as such. In Section 34 of the Act power is vested in the Court to order stay of legal proceedings, where there is an arbitration agreementthe provision in the section it is clear that in case there is an arbitration agreement entered between the parties, they should ordinarily be held by their agreement and should not be permitted to initiate any legal proceeding other than arbitration proceeding relating to any dispute coming within the arbitrationprovisions, in our view show that the legislative policy is to ensure proper enforcement of an arbitration award and to assist a party who apprehends that he may face serious difficulties in execution of the award passed in his favour on account of the conduct of the other party. Be it noted here that different provisions of the Arbitration Act leaves little scope for doubt that an arbitration proceeding is to be conducted by the Arbitrator with reasonable dispatch and after the award is passed the Court should also dispose of the proceedings and decide the question whether the award should be made a Rule of Court expeditiously so that the party in whose favour the award has been passed gets the benefit of the arbitration clause. In the present case the order passed by the learned Single Judge gives rise to a converse situation. The Court has intervened to stay further proceedings in a proceeding which is continuing before the Arbitrator giving the reason inter alia that the petitioner applying for stay may be put to unnecessary expenses in defending the proceeding before the Arbitrator. As noted earlier, the respondent No. 1 herein, has initiated proceedings before the Court to direct the Arbitrator to file the Partial Award and has also filed an application under Sections 30 and 33 of the Act challenging the validity of the award and has also raised the question of validity of the agreement itself in the petition. The said proceedings are pending in the Court. The questions raised therein will be decided by the Court on merit after hearing the parties. In such circumstances, the view taken by the High Court that the Arbitrator should not proceed further in the arbitration proceeding is unnecessary, uncalled for and erroneous. The observation of the learned Single Judge that since the Arbitrator did not file the Partial Award in Court immediately on being directed by the Court the respondent No. 1 was made remediless and wasis equally uncalled for and erroneous. It may be noted here that no party will be entitled to get any benefit in any final award passed by the Arbitrator until the same is made Rule of the Court and before this is done the Court is duty bound to give notice to the parties and consider objections if any raised by any of the parties against the award.11. On perusal of the judgment/order passed by the learned Single Judge, we are constrained to observe that the learned Judge travelled beyond the limited jurisdiction vested in him in deciding the question of stay and has discussed the merits of the case and made observations which may prejudice the parties of any of them in a proceeding before the Arbitrator and at subsequent stages in the proceeding before the Court.12. The judgment of the Division Bench, we are constrained to observe, suffers from similar error of approach as the learned Single Judge. Being aware of the position that the respondent No. 1 has challenged the partial award by filing objections under Sections 30, 31 and 33 of the Act and proceeding is pending before the Trial Court, the Division Bench thought it appropriate to make observations regarding the alleged misconduct of the Arbitrator in sending that draft award to the ICC International Court of Arbitration for advise and also in declining to send up the depositions and the documents to the Court on certain grounds the Division Bench appears to have lost sight of the fact that all these questions may come up for decision before the Trial Court in the proceeding under Sections 30 and 33 of the Act and parties will have opportunity to have their say in the matter. The Division Bench failed to appreciate that in the context of facts of the case it is in the interest of the parties that the arbitration proceedings should be concluded and the challenge against the draft award/final award should be decided as expeditiously as possible. The observations made by the Division Bench in the judgment are not only unnecessary but also uncalled for keeping in view the limited question that came up for consideration before it i.e. whether the further proceeding before the Arbitrator should be stayed or it should continue. Any observation touching upon the merits of the case particularly, the allegations relating to alleged misconduct of the Arbitrator at the stage of consideration of the application for interim order of stay does not commend us. It appears from the record that the respondent No. 1 has also filed an application before the Court for removal of the Arbitrator and the same is also pending. We are conscious of the position that grant of stay is a matter of discretion of the Court and if the Trial Court on consideration passes the order of stay the Appellate Court should be slow to interfere with the same. But that does not mean that if the order of stay passed by the Trial Court is based onconsideration such order is not liable to be interfered with by the Appellate Court. However, since the Division Bench held that the appeal was not maintainable we need say no further on merits of the observations/findings in the judgment.