Ratnam Sudesh Iyer v. Jackie Kakubhai Shroff
SANJAY KISHAN KAUL, J.
1. Business associations can sour and that is what has happened
in the present case. That the association was across the seas is another
aspect. The two parties before us were shareholders in the investment
holding company called Atlas Equifin Private Limited, India (for short
‘Atlas’) which held 11,05,829 equity shares of Rs.10 each in Multi Screen
Media Pvt. Ltd. (for short ‘MSM’). It appears that the appel lant had
been attempting to sell the shares in MSM since 2002. In furtherance of
the said objective, a placement instruction dated 15.11.2005 was signed
by the parties authorising Standard Chartered Bank (for shor t ‘SCB’)
as their agent to identify the purchaser for the appellant’s shares in Atlas.
The dispute apparently commenced on account of the st and of the
respondent that his signatures on the placement instructions had b een
forged. Accordingly, he lodged a complaint with the Economic Offences
Wing, Mumbai Police (for short ‘EOW’) on 19.04.2010 against both the
appellant and the SCB.
2. Better sense appears to have prevailed at that st age amongst
the parties, or if one would say commercial sense; and they endeavoured
to resolve their disputes by entering into a Deed of Settl ement dated
03.01.2011. Since the present proceedings need to be adjudicate d on
aspects which emerge from the Deed of Settlement, i t would be
appropriate at this stage to set out the gist of its relevant clauses.
a. Clause 2 provided that the respondent would withdraw all
complaints and proceedings filed against the appellant.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
b. Clause 3 forbade the respondent from writing lett ers,
communications, or complaints to any person about the subject
matter of the Deed of Settlement. The latter part of t he said
clause reads as under:
“3..........It is farther agreed that in future Jackie shall not write
any letter or communication or complaint to any police authority/
ies and/or any other judicial, quasi-judicial authority or statutory
authority or any person or entity complaining about the subject
matter of the present Deed.” (sic)
c. As a monetary incentive to the respondent to brin g the
complaints to an end, an amount of US$ 1.5 million was to be
paid to the respondent as per clause 4.1. This amount vide
banker’s cheque was to be held in an Escrow by M/s. D. M.
Harish & Co., to be handed over to the respondent o n
confirmation by the EOW of the appellant having withdrawn
his complaint dated 19.04.2010. The respondent was also
required to give further assurance to ensure that if any quashing
proceedings are initiated, he would cooperate in the same.
d. As per Clause 4.2, US$ 2 million was to be paid t o the
respondent within seven (7) days of the receipt of the proceeds
from the sale of MSM’s shares.
e. The respondent was put to terms for committing any breac h
of the Deed of Settlement in clause 6, the consequence of
which would be the termination of the Deed of Settlement and
the release of US$ 1.5 million kept in escrow back to the
appellant.
f. The Deed of Settlement contained an arbitration clause for
resolution of disputes in clause 9. The said clause reads as
under:
“9. If any dispute arises between the parties hereto in relation
to any provision of this Deed, the dispute shall be referred
to Arbitration by a single Arbitrator to be appointed by mutual
consent. The Arbitration proceedings shall be governed by
the Arbitration and Conciliation Act, 1996 of India or any
amendment thereto. Courts in Mumbai shall have jurisdiction
in relation to any legal action or proceeding arising out of or
in connection with this Deed.”
105
Trigger for arbitration:
3. The appellant claimed breach of the aforesaid De ed of
Settlement by an e-mail dated 09.06.2011 from the wife of the respondent
informing the appellant that “....once again you are not being straight
with us, and I’m concerned about this .” Copy of this e-mail was
marked to some of their associates. This was alleged to be the first
breach. The second breach was another e-mail dated 15.06.2011, once
again, by the wife of the respondent. The email stated that “I have no
wish to continue to fraternise with a forger. ” Thereafter the e-mail
sought to refer to the Deed of Settlement and the alleged failure of the
appellant not to give updates to the respondent. This e-mail was also
circulated to their associates. On the respondent asking the appellant on
30.06.2011 to complete the sale of shares for release of the s econd
escrow cheque of US$ 2 million, the appellant replied the s ame day
stating that the respondent could not push him to sell. The appellant also
alleged the breach of the Deed of Settlement by the false and defamatory
e-mail on 15.06.2011. This triggered recourse to the arbitration clause.
Arbitral proceedings and Court proceedings in relati on to
arbitral proceedings :
4. In July 2012, a share purchase agreement was executed for
MSM’s shares and the transfer was pending approval by the Forei gn
Investment Promotion Board. The appellant filed a petition under Section
9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as
the ‘said Act’) seeking interim relief against the respo ndent, his wife,
and the escrow agent. The appellant claimed that the amount should not
be released to the respondent on account of the breach of the Deed of
Settlement through the e-mail sent by the responden t’s wife on
15.06.2011. In the said proceedings, being Petition No.853/2012, a consent
order was passed on 06.08.2012 in terms whereof the respondent’s wife
was dropped from the array of parties as she was not a p arty to the
Deed of Settlement. The disputes were referred by consent to the sole
arbitration of a former Judge of the Supreme Court of Ind ia. It was
further directed that the escrow agent would hand over the cheque f or
US$ 1.5 million only after the direction of the arbitrator.
5. The appellant lodged a claim before the arbitrator seeking a
refund of US$ 1.5 million (Rs.8.49 crore) with 18 per cent interest per
annum w.e.f. 07.07.2011 till the date of payment. A statement of claim
was filed before the arbitrator dated 2.11.2012 in the following terms:
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
“52. The Claimant therefore prays:
(a) that this Hon’ble Tribunal be pleased to hold and declare that
the Respondent has breached the Deed of Settlement dated
January 3, 2011 and severely harmed and damaged the hard-
earned reputation of the Claimant.
(b) that this Hon’ble Tribunal be pleased to hold and declare that
as a result of the breach of said Deed by the Respondent the
Respondent has caused damage to the Claimant as stated in the
Particulars of Claim or such amount as this Hon’ble Tribunal may
deem just and reasonable;
(c) that this Hon’ble Tribunal be pleased to order a nd direct
Respondent to compensate the Claimant and pay the damages as
stated in the Particulars of Claim (Annexure “S”) or such amount
as this Hon’ble Tribunal may deem just and reasonable with interest
thereupon as stated in the Particulars of Claim;
(d) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent forthwith refund the sum of US$ 1.5 Million or
Indian Rupees 8 crores 49 lakhs to the Claimant with inter est
thereupon @ 18% per annum from July 7, 2011 till the date of
payment by the Respondent to the Claimant.
(e) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent by himself his officers, servants, and agent s be
restrained by an order and permanent injunction of this Hon’ble
Tribunal from seeking the release of, and/or encashing the Second
Cheque from the Escrow Agent and that the Claimant be permitted
to take custody of the Second Cheque from the Escrow Agent or
the Escrow Agent be directed and ordered to hand-over the Second
Cheque to the Claimant.
(f) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent by himself his officers, servants, and agent s be
restrained by an order and permanent injunction of this Hon’ble
Tribunal from making any false, baseless and defama tory
statements against the Claimant in breach of the express terms of
the Deed of Settlement.
(g) For the costs of this Claim; and
107
(h) For such further and other reliefs as the natur e and
circumstances of the case may require and the Hon’ble Tribunal
deems fit.”
6. The respondent sought recourse to Section 16 of the said Ac t
seeking to raise a jurisdictional challenge against the reference, however
the arbitrator opined on 17.01.2013 that there could not be a threshold
rejection of the appellant’s claim. Thereafter the pr oceedings were
contested by the respondent.
7. It may be noticed that MSM’s shares were sold in Mar ch,
2013, and on 06.04.2013, Atlas declared and paid divi dend to its
shareholders from the proceeds. The appellant immediately thereafter
filed an application under Section 17 of the said Act seeking to attach an
amount of US$ 1.5 million which the respondent was to receive as his
share of the said proceeds. That application was rejected a nd further
proceedings in respect of the same also met the same f ate in the High
Court. That being the position, the respondent filed a petition under Section
9 of the said Act seeking directions to the escrow age nt to hand over
US$ 2 million on account of sale of MSM’s shares. However, the same
was dismissed on 02.04.2014 inter alia on the ground that the appellant
was resisting the payment and seeking a refund, and the appeal against
the same was dismissed as withdrawn.
8. The learned arbitrator made the final award on 10.11.2014,
awarding a claim for liquidated damages of US$ 1.5 million in favour of
the appellant, as set out in clause 6 of the Deed of Settl ement. The
award also held that the respondent would not be entitled to the second
cheque of US$ 2 million held in escrow, on account of the respondent’s
breach of the Deed of Settlement.
9. The respondent moved a petition under Section 34 of the said
Act on 24.01.2015 before the Bombay High Court as Arbitration Petition
No.167/2015, while the appellant filed for execution of th e award.
Consequently, the respondent also filed for stay of the enforcement of
the award. Interim stay was granted on 06.04.2018 and the SLP against
the same was dismissed, being SLP No. 27085 of 2018. The learned
Single Judge of the High Court set aside the award in terms of the
judgment dated 19.05.2020. The appeal filed by the respondent under
Section 37 of the said Act was dismissed by the Division Bench in terms
of the impugned judgment dated 20.04.2021. The High Court also granted
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
interim protection against withdrawal of the amount specified under the
Deed of Settlement for a limited period of time.
10. In the Special Leave Petition while issuing notice on 02.08.2021,
the interim arrangement by the High Court was extended and after grant
of leave, arguments were concluded on 28.09.2021.
11. In the conspectus of these facts, we feel the need for setti ng
forth certain legal principles within the contours of which the present
dispute needs to be adjudicated.
The nature of arbitral proceedings :
12. One of the issues raised before us is the nature of the award.
The appellant claims that it is an award arising out of an i nternational
commercial arbitration. To appreciate this contention we turn to Section
2(1)(f) of the said Act, which reads as under:
“2. Definitions. —
(1) In this Part, unless the context otherwise requires,—
xxxx xxxx xxxx xxxx
(f) “international commercial arbitration” means an arbitr ation
relating to disputes arising out of legal relationships, whethe r
contractual or not, considered as commercial under the law in
force in India and where at least one of the parties is—
(i) an individual who is a national of, or habitually resident in, any
country other than India; or
(ii) a body corporate which is incorporated in any country other
than India; or
(iii) an association or a body of individuals whose central
management and control is exercised in any country other than
India; or
(iv) the Government of a foreign country;”
The admitted position is that the appellant is a party based in
Singapore and thus, in terms of the aforesaid definition the arbitr ation
although carried out a within the country, would be an “interna tional
commercial arbitration”. We may notice at this stage that it is nobody’s
case that the award in question is a foreign award within the meaning of
109
Part II Section 44 of the said Act. For domestic awar ds, Chapter 7 of
the said Act provides recourse against the arbitral award. Section 34 of
the said Chapter provides for application for setting asid e 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) 1, which referred to the judgment of this
Court in Associated Builders v. Delhi Development Authority 2.
13. A distinction is sought to be carved out between a domest ic
award arising from an international commercial arbitration and a purely
domestic award. The test for interference was sought to be made more
stringent by the amendment in respect of a domestic award arising from
an international commercial arbitration.
14. We may note that Explanation 1 sought to elucidate what is
meant by “in conflict with the public policy of India” by narrowing it to
the three aspects therein as under:
“Explanation 1.-For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indi an
law; or
(iii) it is in conflict with the most basic notions of morality or justice.”
15. The further elucidation is by Explanation 2, which reads a s
under:
“Explanation 2.-For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.”
1 (2019) 15 SCC 131.
2 (2015) 3 SCC 49.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
16. A distinction is sought to be made between purely domestic
awards and awards arising out of arbitrations other than inter national
commercial arbitrations, as set out in sub-section 2A to Section 34 of the
said Act, which reads as under:
“(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set as ide by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciat ion of
evidence.”
17. The crux of the aforesaid is that while the plea of the awar d
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 int ernational
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 Benc h 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.
Whether the amendment would apply in the facts of the present
case:
19. It is the say of the appellant that the award has to be scrutinised
in the post amendment scenario and, thus, both the forums below f ell
into error by applying the test applicable in the pre-amendment scenario.
It is, thus, the appellant’s say that patent illegality has no application as a
test to the award in question.
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.
111
21. In Board of Control for Cricket in India v. Kochi Cricket
Pvt. Ltd. & Ors. 3 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 th e
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 sec ond 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 c ourt
proceedings which had commenced on or after the 2015 Amendment
Act came into force.
23. The applicability of Section 34(2A) was further elucidated in
Ssangyong Engineering and Construction Company Ltd. v. National
Highways Authority of India4, where the SC categorically opined that
Section 34 as amended will apply only to Section 34 applications that
have been made to the Court on or after 23.10.2015, irrespective of the
fact that the arbitration proceedings may have commenced prior to that
date.
24. In the subsequent judgment of Hindustan Construction
Company Ltd. and Anr. v. Union of India & Ors.5, it was observed in
para 60 that the result of the BCCI judgment was that salutary
amendments made by the 2015 Amendment Act would apply to all court
proceedings initiated after 23.10.2015.
3 (2018) 6 SCC 287.
4 (2019) 15 SCC 131.
5 2019 SCC OnLine 1520.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
25. The contention of the appellant, faced with the aforesaid judicial
pronouncements, solely rests on the wording of clause 9 of the Deed of
Settlement, which provides that “the Arbitration proceed ings shall be
governed by the Arbitration and Conciliation Act, 1996 of India or any
amendment thereto.” (Emphasis supplied). The submission thus was
that this phraseology of clause 9 included the possibility of any future
amendments to the said Act being made applicable to the arbitration in
question.
26. We have to thus examine the effect of such phraseology used
in the arbitration clause.
27. In the context of the Arbitration Act, 1940 (hereinafter referred
to as the ‘Old Act’) and the said Act, there are some ob servations in
Thyssen Stahlunion Gmbh v. Steel Authority of India Limited6, 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 rel ation to arbitral
proceedings” cannot be given a narrow meaning so as to mea n 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 Menon7 and Board of Trustees
of the Pot of Mumbai v. Afcons Infrastructure Limited ,8 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.
29. In S.P. Singla Constructions Pvt. Ltd. v. State of Himachal
Pradesh & Anr. 9, the arbitration clause provided that the arbitration
would be subject to the provisions of the Arbitration Act, 1940 or any
statutory modification or re-enactment thereof. A plea was r aised that
the amended provisions would apply in accordance with Section 26 of
the 2015 Amendment Act. This contention was repelled by the Cou rt
6 (1999) 9 SCC 334.
7 (2018) 2 AIR Bom R 108.
8 2016 SCC Online Bom 10037.
9 (2019) 2 SCC 488.
113
which opined that such general conditions of the contract cannot be
taken to be an agreement between the parties to apply the provisions of
the 2015 Amendment Act. As a result, the provisions of the 2015
Amendment Act would apply only in relation to arbitral proceedi ngs
commenced on or after the date of commencement of t he 2015
amendment.
30. In a similar vein, the arbitration clause in Union of India v.
Parmar Construction Company10provided that “subject to the provisions
of the aforesaid Arbitration and Conciliation Act, 1996 and t he 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 sa id 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 lega l effect for
invoking the provision of the 2015 amendment. While S.P. Singla11 and
Parmar Construction Company 12 opined on the topic of arbitral
proceedings, we may note here that the matter concerns S ection 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 su bject 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 cann ot 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. 13, while referring to the judgment in Parmar
10 (2019) 15 SCC 682.
11 supra
12 supra
13 OMP (T) (Comm) No.48/2020
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
Construction Company14 case, has proceeded in accordance with this
Court’s observations while distinguishing the judgment in Thyssen
Stahlunion Gmbh15. In the context of anticipating new enactments that
may come into operation, it was opined that while Thyssen Stahlunion
Gmbh16 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 Gmbh17were 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 S ection
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 ar bitral
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, Sec tion
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. 18 itself shows that to
prevent any uncertainty in law, while seeking to fine tune the law to
14 supra
15 supra
16 supra
17 supra
18 supra
115
restrict the scope of interference in awards the le gislature 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 b e
availed of to expand the scope of scrutiny as it would appear t o run
contrary to the legislative intent of Section 26 of the Amendment Act. In
this regard it may be appropriate to refer to the Sup reme Court’s
observations in Ssyangong Engineering and Construction Company
Ltd.19(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 “jud icial
approach” demands that a decision be fair, reasonab le 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:
19 supra
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
‘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.”
Factual Analysis:
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. That being the position,
we would have to examine whether in the conspectus of that legal position
it can be said that the learned Single Judge and the Division Bench erred
in setting aside the award.
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
117
the background of a dispute which gave rise to the Deed of Settlement.
We have reproduced the relevant clauses which would emphasise th at
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 complai nts 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 es crow
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 provi ded for the
return of the amount of US$ 1.5 million in case the representation s/
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 acce pted
that the wife of the respondent had no role to play and the res pondent
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.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]
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 expr ession
that the appellant was not being “straight with us.” This can hardl y be
objected to. Of course, this was circulated to their associat es 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 frate rnise with a
forger.” must be called wholly inappropriate. But then, that b y 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 learne d Single
Judge’s 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 be tter. 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 t o
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 Petitioner’s c laims
against him, his wife and Atlas and Grandway and th eir
shareholders released; he got the Petitioner’s resigna tion 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 div idend
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 Petitioner’s 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 fai r and
119
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 arbitrator’s conclusions a re 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 th e 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:
39. In the conspectus of the aforesaid discussion we are not able
to find fault with the judgment of the learned Single Judge and the Division
Bench to the extent it interferes with the award and sets aside the award.
Consequently, the appeal is dismissed with costs.
Nidhi Jain Appeal dismissed.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF
[SANJAY KISHAN KAUL, J.]