Case: Harendra H. Mehta  Vs. Mukesh H. Mehta

2. For convenience, we refer to the appellants as `Harendra and respondents as `Mukesh. Both Harendra and Mukesh are brothers. Harendra is elder to Mukesh. They appointed their older brother Lalit Mehta as arbitrator to divide their businesses and properties both in the United States of America (USA) and India. Lalit Mehta gave his award in New York. Some proceedings arising out of the arbitration agreement and the award were held there in the courts. Arbitration agreement was entered into at New York where arbitration proceedings held and award given. Mukesh applied to the Bombay High Court here under the provisions of the Foreign Awards (Regulation and Enforcement) Act, 1961 (for short, the `Foreign Awards Act) for enforcing the award. High Court after contest ordered the award to be filed and pronounced judgment according to the award as required under Section 6 of the Foreign Awards Act. Harendra finds himself aggrieved by the judgment. That is how the matter before us3. We may now consider the controversy between the brothers in detail. Harendra and Mukesh were having vast businesses in the USA and India. They also acquired properties in both the countries. Disputes having arisen, they decided to divide and distribute their jointly held assets. Both have equal share in all the properties and businesses. On October 25, 1989, they entered into an agreement to refer their disputes to their elder brother Lalit Mehta. Their submission to the arbitrator is in the following terms :Lalit Mehta,48 Arbor Lane,We, Harendra Mehta and Mukesh Mehta hereby appoint you as our sole arbitrator for the following difference of opinionsThey are related to :1. All our business in USA & India2. Social relationshipYour award in the matter shall be binding on both of us and our legal heirsIn areas where you need any assistance of any lawyers and or technical or outside persons you are fully authorised to take such assistanceOn our part we agree to offer our fullest co-operation in giving you all the documents, papers and any information you call for from time to timeWe shall ensure full participation. In the meetings and clarify whatever explanations and clarification you may seekWe shall be prepared to sign any papers in advance that you ask for before the beginning of the arbitration proceedings which will remain solely in your custodyIf you require the signatures of our wives and any of our representatives we shall give you the same as may be called for by you4. Thereafter a formal agreement dated November 17, 1989 to refer the disputes to ARbitrator Lalit Mehta was entered into by the parties. It was signed by Harendra, his wife Amita Mehta and Harendra Mehta as Manager (Karta) of his HUF on the one part and Mukesh Mehta, his wife Daksha Mehta and Mukesh Mehta as Manager (Karta) of his HUF on the other. This agreement gave the details of the businesses carried on by the parties and their properties in USA and India. The agreement was entered into in New York and was duly not arised there. It would appear that the formal agreement dated November 17, 1989 to refer the disputes to Arbitrator superseded the earlier agreement dated October 25, 19895. Harendra challenged the agreement dated November 17, 1989 in the Supreme Court of the State of New York, Nassau County Court by motion dated February 16, 1990 on the ground that it was unconscionable, against public policy, entered under duress and coercion and that the arbitrator is biased and cannot be fair and impartial. This challenge was negatived by judgment dated March 12, 1990. It will be seen that the challenge to the agreement was made after the arbitrator had entered into reference. The court observed that Harendra was a seasoned businessman, having managed numerous successful businesses both in USA and in India. He signed not just one but two submission agreements. Court wondered why did he consent on two occasions that Lalit Mehta be chosen arbitrator if he allegedly had strained relations with him. There was nothing to show that any duress or coercion was caused. In short, the Court negatived all the pleas of Harendra and said that the agreement could not be declared invalid on a motion under Article 7503 of CPLR (Civil Practice Law Rules) and, therefore, an application to declare the agreement invalid must await a trial and, therefore, was premature6. During the pendency of the arbitration proceedings, parties settled their differences by entering into a detailed agreement on March 20, 1990. The agreement was to be retroactively effective as on March 1, 1999. The agreement detailed various properties and businesses which the parties were having. Harendra was to draw four packages `A, `A-1, `B and `B-1 as under :- - USA properties and businesses`A-1 - U.S. Note for payment in US $ and share in jointly held in US properties and businesses`B - Indian properties and businesses`B-1 - Indian Note for payment in Indian rupees and certain Indian properties and share and interest in jointly held Indian properties and businesses.. It was agreed that one party would choose A+B-1 or B+A-1 : First choice was to be exercised by Mukesh. The arbitrator was to make his award in accordance with the selection of packages. Parties were to execute transfer and closing documents in terms of the award. The form in which the documents were to be executed were also prescribed. It was also agreed that the parties shall execute, from time to time, any and all further documents that may be required at any time to effectuate the award made in pursuance to the agreement. On refusal of any of the parties to execute the transfer and closing documents, it was agreed that Mr. Vinod Mehta shall be duly appointed attorney of each of the parties to execute the transfer and closing documents. There was also a penalty clause in case of failure or refusal to execute the transfer and closing documents. That was irrespective of any other remedy open to the parties. Mukesh opted for the package B+A-1. On March 20, 1990 itself, the arbitrator rendered his award after the proceedings were held under CPLR 7507 incorporating the aforesaid settlement agreement of the same date. CPLR 7507 provides that the award shall be in writing, signed and acknowledged by the arbitrator making it within the time fixed by the agreement, or if the time is not fixed, within such time as the court orders. There is also provision for delivering a copy of the award to each of the parties8. In proceedings under CPLR 7507 which were held on March 20, 1990, Amita Mehta, wife of Harendra, represented her husband as his attorney and appeared in-person. Both Mukesh and his wife Daksha Mehta were present. They all waived notice of the hearing. They agreed that they had entered into and executed an agreement involving all the issues of the arbitration proceedings. Judge Ralph Diamond, before whom the proceedings under CPLR 7507 were held, examined the parties who were present along with their counsel as to the execution of the settlement agreement by each of the parties and thereafter the award made by the arbitrator. It was recorded that Mukesh had given the choice of packages A1 with B. It was also recorded that the arbitrator had two fold functions (1) to make the award and (2) to implement the award9. Now, Mukesh Mehta brought a motion for an order pursuant to CPLR 7510 for confirmation of the award in the Nassau County Court in the State of New York. Harendra also filed cross motion for an order pursuant to CPLR 7511(b) for vacating the award or in the alternative seeking modification of the award on the grounds mentioned in the cross motion. By judgment dated October 22, 1990, the Court confirmed the award granting the motion of Mukesh Mehta with certain modifications. It observed that Harendra failed to demonstrate that the award either dealt with matters beyond the scope of what had been submitted or that he gave a completely irrational construction to the settlement agreement between the parties which was incorporated in the award and formed part of the award. There were certain typographical errors in the judgment which were corrected by Order dated October 31, 1990. A formal order was drawn on January 14, 1991 which read as under :ORDERED AND ADJUDGED, pursuant to CPLR 7510 and 7514 that the award of the arbitrator,dated October 31, 1990 is hereby confirmed and shall constitute a judgment of this court, provided however, that payments by A.D. Development Ltd. to Mukesh Mehta for the purchase of his shares of A.D. Development Ltd. shall be limited pursuant to Business Corporation Law $ 514 to the availability of surplus, and it is further,ORDERED AND ADJUDGED, that the branch of the motion of Mukesh Mehta and Daksha Mehta seeking reargument of this courts order and decision dated October 22, 1990 be, and the same hereby is granted, and it is declared that the limitation of payments by A.D. Development Ltd. for the repurchase of shares to years in which the Corporation has a surplus is not applicable to others obligated to make such payments, and it is furtherORDERED, that the cross-motion of Harendra pursuant to CPLR 7511(b) for an order vacating such arbitration award on grounds of fraud or for modification of the award to substitute a different neutral party to determine certain matters be, and the same hereby is, denied without a hearing, and it is furtherORDERED, that the branch of Harendras cross-motion pursuant to CPLR 7514 seeking to compel Mukesh Mehta to comply with certain obligations pursuant to such arbitration award, and conditioning enforcement of any judgment against Harender upon Mukesh Mehtas first fully complying therewith be, and the same hereby is, denied and it is furtherORDERED AND ADJUDGED, that other remedies to enforce the award flow from this judgment and enforcement proceedings may be brought in an appropriate forum; and it is furtherORDERED, that the branch of Harendras cross-motion pursuant to CPLR 6302 and 6311 to enjoin Mukesh Mehta and Daksha Mehta from taking any additional action concerning certain Indian documents released to them by the law firm of D.M. Harish & Co., and compelling Mukesh Mehta to deliver such documents to the court pending further proceedings be, and the same hereby is denied, and it is furtherORDERED AND ADJUDGED, that pursuant to the provisions of paragraphs 12, 15 and 17 of the Settlement Agreement dated March 20, 1990 incorporated into the award of the arbitrator, Mukesh Mehta, residing atRoslyn Heights, New York 11577 shall recover from A.D. Development Ltd., a New York Corporation having its principal place of business located at 22, Athex Drive, Glen Cove, New York 11542 the sum of $265,00 less the sum of $146,293.79 paid on account thereof, making the net sum of $188,706.21, with interest upon $68,706.31 of said sum from October 31, 1990 to December 31, 1990 at the rate of 9% per annum, in the amount of $1,030.59; and interest on $25,000 from November 1, 1990 to December 31, 1990 at the rate of 9% per annum, in the amount of $187.50; and making in all a judgment of $120,299.30 as of December 31, 1990; and it is further.........s of Harendra to the award were, thus, rejected by the Nassau County Court. It, however, modified the award limiting and restricting the payment to be made to Mukesh by the US company for his shares and passed judgment confirming the award so modified10. In those proceedings under CPLR 7510, the Court noticed that arbitration proceedings were recorded under oath held before a Court Reporter and Notary Public and though language of the award showed that the arbitrator had signed and affirmed the award but, in fact, he did not actually sign the award or deliver a copy to each party as required by CPLR 7507. The Court, however, observed that the parties agreed that the failure of the arbitrator to issue an award shall not affect the validity or binding effect of settlement agreement. The Court, therefore, remitted to the arbitrator to sign and affirm the award in compliance with CPLR 7507 and serve a copy on the parties or their attorneys. Liberty was then granted to Mukesh to renew his application to confirm the signed award. In pursuance with this direction by the Court, the arbitrator signed his award on October 31, 199011. Amita Mehta then filed an affidavit on February 13, 1992 in Nassau County Court alleging that duly initialed schedule A and B of the Settlement Agreement had been fraudulently substituted by other non-initialed schedules which contained some entirely new clauses. By order dated September 20, 1993, the Supreme Court of New York Appellate Division rejected her plea regarding fraudulent substitution of schedules12. Now, the scene shifted to India when Mukesh moved the Bombay High Court under provisions of the Foreign Awards Act for enforcement of the Award dated October 31, 1990 ofthe arbitrator, contending the same to be a foreign award. Harendra raised various pleas in opposition thereto. High Court after elaborate discussion rejected all of them and ordered that the award be filed and proceeded to pronounce judgment according to the award and thereafter decree followed.

Court's reasoning:
matter came to this Court on a certificate granted by the High Court under Article 134A read with Article 134(1)(c) of the Constitution. The impugned judgment had been rendered by a single Judge. There was some controversy if a single Judge could grant such a certificate. However, considering the importance of the issue involved, this Court admitted the appeal. The controversy, therefore, does not survive in the present appeal.In our view these two judgments do not help the appellants. Rather the stress in these judgments is that broad and not restricted construction should be given to the word commercial appearing in Section 2 of the Foreign Awards Act. In R.M. Investment and Trading Companies Pvt. Limiteds case, terms of the agreement required the petitioner to play an active role in promoting the sale and to provide commercial and managerial assistance and information which may be helpful in respondents sales efforts. It was held that relationship between the appellants and respondents was of commercial nature. This Court said that the word commercial under Section 2 of the Foreign Awards Act should be liberally construed. In Renusagars case no doubt this Court observed that the Foreign Awards Act was calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and also said that any expression or phrase occurring therein should receive consistent with its literal and grammatical sense, a liberal construction.We do not understand as to how it could be said that the award was not a foreign award. All the ingredients of foreign award were there. Parties were having business both in India and in the United States of America as a joint venture and they also acquired properties. Differences that arose between the parties were out of legal relationships and certainly of commercial nature under the laws of this country. Agreement to refer the disputes to arbitration, in writing, was made in the United States where arbitration proceedings held and award given. It is not disputed that United States is a country to which clause (b) of Section 2 of the Foreign Awards Act applies. In the present case, the parties are no doubt related to each other but that could not take the award outside the ambit of the Foreign Awards Act. We asked Mr. Ganesh as to what would happen if there were two strangers having businesses both in India and in United States or when there was a joint venture between an Indian and a US national having properties both moveable and immovable in both the countries and disputes having arisen and award given in the United States. Mr. Ganesh, in spite of his resourcefulness, was unable to give any convincing reply. There is no merit in the objection of the appellant that the award is not a foreign award and that it is outside the Foreign Awards Act.judgment hardly helps Mr. Ganesh in his submissions. In the present case, the parties entered into the settlement during pendency of the arbitration proceedings. Appellant himself approached the courts in the United States never complaining that it was not an award. In proceedings under CPLR 7507 and CPLR 7510. Harendra had even accepted the execution of the settlement agreement and the award made by the arbitrator. We find that no such plea was taken either in the High Court or in the grounds of appeal to this Court. Nassau County Court noticed the functions to be performed by the arbitrator in the settlement agreement. We do not find any merit in the argument of Mr. Ganesh that arbitration agreement stood revoked when the parties during the course of arbitration proceedings entered into a settlement among themselves and yet wanted the arbitrator to give his award in terms thereof. It is nobodys case that authority of the arbitrator was revoked at any time. This argument of Mr. Ganesh seems to us to be made in more desperation24. Nassau County Court did not modify the award as such it merely corrected the award so as to conform to the law of the State of New York25. Contention of the appellants that fraud was committed subsistuting schedules in the award which schedules formed part of the settlement agreement referring disputes to arbitration was also a subject matter of challenge in Nassau County Court by the appellants which was rejected.Supreme Court of New York, Appellate Division rejected the appellants plea regarding fraudulent substitution of the schedules to the award. It will be seen that a competent court in the State of New York rejected the contention of the appellants that any fraud had been committed. Therefore, sub-section (2) of Section 7 of the Foreign Awards Act would not be applicable. There are no conditions now exist under sub-section (1) of Section 7 of the Foreign Awards Act not to enforce the award on the alleged ground of fraud. We find no merit in the plea of the appellant that schedules to the award were substituted. This contention of the appellants must fail.judgment, in our view, is not applicable in the present case. If read out of context, it may appear to be so applicable but it is not so.The judgment of this Court in Badat & Co. is based on the English Common Law. Provisions of the Arbitration (Protocol and Convention) Act, 1937 were held to be inapplicable to the facts of the case. Here we are concerning with the provisions of Foreign Awards Act which give effect to the Convention on the Recognition and Enforcement of Foreign Arbitral) Awards held at New York on June 10, 1958 to which India was a party. To enforce a foreign award, what we have to see is : if it is a foreign award within the meaning of Section 2 of the Foreign Awards Act and conditions as prescribed by Section 7 for its enforcement exist. Under Section 4 of this Act, a foreign award shall, subject to the provisions of the Act, be enforceable in India as if it were an award made on a matter referred to arbitration in India. The Court has to apply the provisions of the Foreign Awards Act to enforce a foreign award within the meaning of Section 2 of the said Act. It would not be relevant to consider if the said Act. It would not be relevant to consider if the foreign award has attained finality in the country where it was made. Further, if a judgment has been obtained on the basis of the award in the country of its origin, the person in whose favour the judgment is made may also be entitled to file suit in this country based on that judgment if it satisfies the criteria laid by law in this country. That may give that person an alternative mode to enforce the award but that would not mean that the provision of Foreign Award Act can be given a go by. We, therefore, find no force in the submission of Mr. Ganesh that once the award attained finality in the Supreme Court of New York, proceedings to enforce foreign award would not be maintainable and that only suit could be filed on the foreign judgment, being the judgment given by the Supreme Court of New York.Thus, as held in Renusagars case, 1984(4) SCC 679 Foreign Awards Act is a complete Code in itself providing for all the possible contingencies in relation to foreign awards. Once it is held that an award is a foreign award, the provisions of the foreign Awards Act would apply and where the conditions for enforcement of such an award exist as mentioned in Section 7 of this Act, the Court shall order the award to be filed and shall proceed to pronounce judgment granting award and upon the judgment so pronounced, decree shall follow. It is not material for the purpose of enforcement of a foreign award under the Foreign Awards Act that in any other country than India, a judgment has already been passed by a Court of competent jurisdiction in terms of that award. A party may have other remedy for filing a suit passed on a foreign judgment but that will not oust jurisdiction of the Court to enforce a foreign award under the Foreign Awards Act. Provisions as contained in Sections 13 and 14 of the Code of Civil Procedure (for short, the `Code) would apply when a suit is brought on a foreign award. Under Section 44A of the Code, there is a provision for execution of decrees passed by Courts in reciprocating territory. Explanation 1 to this section defines reciprocating territory to mean any country or territory outside India which the Central Government may, by notification, in the Official Gazette, declare to be a reciprocating territory for the purposes of this section. Reciprocating territory specified in Section 44A of the Code may not be same as that specified in clause (b) of Section 2 of the Foreign Awards Act. We are not called upon to decide in the present proceedings what is the effect of the judgment given on the award in question in the United States and how the High Court would proceed in the matter when a suit has been filed on the basis of the judgment. The argument that the foreign award has merged in the judgment of the Supreme Court of the State of New York has, therefore, to be rejected.34. The mere fact that the documents of conveyance/exchange/lease are to be executed subsequently in pursuance of the said agreement for transfer is of no relevance or consequence at all. In fact, such documents of conveyance can be executed only if and after the requisite no objection certificate 9NOC) under the provisions of Chapter XX-C is issued. The scheme of Chapter XX-C is that once an agreement for transfer has been entered into, the parties have to mandatorily comply with the requirements of Chapter XX-C and are prohibited from effecting transfer of the property without first complying with the provisions of Chapter XX-C, that is to say, filing the Section 269 UC statement within the specified time and obtain the requisite NOC from the Appropriate Authority. It was submitted that the only situation in which Chapter XX-C does not apply is where the transfer of property takes place without such an agreement ever having been reached and without the volition of the owner, such as, for example, when the property is sold by auction under a Courts order. Conversely, whenever there is an agreement for transfer as defined under Chapter XX-C, which has been entered into between the parties, Chapter XX-C would be applicable in all force.37. In Baldevdas Shivlal and another v. Filmistan Distributors (India) Pvt. Ltd. and others, AIR 1970 SC 406 , this Court was considering whether a consent decree operates as res judicata. It said that consent decree does snot operate as res judicata as it is merely the record of a contract between the parties to a suit to which is super-added the seal of the court and that a matter in contest in a suit may operate as res judicata only if there is an adjudication by the court. The Court said that the terms of Section 11 of the Code of Civil Procedure left no scope for a contrary view.42. We do not think that submissions made by Mr. Ganesh on Chapter XX-C of IT Act have any sound basis. Settlement agreement dated March 20, 1990 is not a mere agreement for transfer. As noted above, parties had vast businesses and properties both in India and in the USA. Settlement agreement was between (1) Harendra Mehta, his wife Amita Mehta and he himself as Karta of Harendra Mehta HUF : (2) Mukesh Mehta, his wife Daksha Mehta and he himself as Karta of Mukesh Mehta HUF; (3) Mettaco Enterprises Trust; and (4) A.D. Developments Ltd., a New York Corporation having its principal office at New York. The settlement agreement runs into 57 long pages. It is a complex agreement. It also mentioned litigation between parties pending in the Supreme Court of the State of New York, Nassau County Court. After the parties have got their respective packages of the properties and businesses both in India and in the United States the award required the parties to execute transfer and closing documents.a mere look at the agreement shows that it is not an agreement for transfer as understood in clause (a) of Section 269 UA of Chapter XX-C of the IT Act. The settlement agreement also does not stipulate exchange of any immoveable property. It rather divides equally businesses and properties between Harendra and Mukesh. Exchange has been defined under Section 118 of the Transfer of Property Act where two persons mutually transfer of Property Act where two persons mutually transfer the ownership of one thing for ownership of another. When we consider exchange of immovable property falling within the definition of `exchange in Section 118 both the properties would situated in India. Agreement for transfer refers to immovable property falling within the definition of `exchange in Section 118 both the properties would situated in India. Agreement for transfer refers to immovable property which is defined in clause (d) of Section 269UA. It is difficult to appreciate the arguments of Mr. Ganesh as to how in the present case, there is transfer of any immovable property under the settlement agreement. It appears to us that the bone of contention is a flat in Urvashi building in Mumbai which formed part of B+A1 of Mukesh. It was not disputed before us that for this the appellants did execute a gift deed in favour of the respondents on advice received but n steps were taken to compel the transaction as, it appears, relations soured. This would also show that the settlement agreement on the award did not require filing of any declaration under Chapter XX-C of the IT Act. Moreover, in our view in the case of a foreign award, provisions of Chapter XX-C of the IT Act are not attracted. It was said that under Chapter XX-C a net has been thrown wide to bring within its purview all sorts of immovable properties but that net is not wide enough to cover foreign award covering businesses and properties both in India and in a foreign country. Apprehension of Mr. Ganesh that if we give this interpretation a method can be found by the parties to escape the rigour of Chapter XX-C knocking at the very provision of law which strikes at the root of black-money rampant in the sale and purchase of immovable property. If that is so, legislature can always step in to block the gap if it finds there is any escapement of revenue. We are also of the view that a foreign award under the Foreign Awards Act does not require registeration under the Registration Act43. A decree or order of a court does not require registration under clause (b) of sub-section (1) of Section 17 of the Registration Act. This is the effect of clause (vi) of Section 2 of Section 17. Earlier under this clause (vi) before its amendment in 1929 even an award did not require registration. However, after omission of the words and any award an award creating or declaring right or interest in immovable property of the value of Rs. 100 would require registration. But then that award would be an award under the Arbitration Act, 1940 and certainly not an foreign award.foreign judgment does not require registration as the process of suit having been decreed on that basis will have to be gone through. When a decree is passed by the Court, it does not require registration in view of clause (vi) of sub-section 2 of Section 17 of the Registration Act. A decree or order of a court affecting the rights mentioned in Section 17(1)(b) and (c) would not require registration. It would, however, require registration where the decree or order on the basis of compromise affects the immovable property other than that which is the subject matter of the suit or proceeding. Even a decree passed by the foreign court execution of which is sought under Section 44A of the Code of Civil Procedure would not require registration. That being the position, we are of the view that foreign award under the provisions of the Foreign Awards Act does not require registration under the Registration Act. In any case, in the present case the award creates a right to obtain transfer and closing documents which as regards Indian properties and businesses are yet to be executed by D.M. Harish & Co., Chartered Accountants.Decision of this Court in Mrs. Tehmi P. Sidhwa case, 1974(2) SCC 579 as rightly pointed by Mr. Dholakia, learned counsel appearing for the respondents, would be fully applicable and the argument that the award required registration has to be rejected on this ground as well.