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TMI Blog2014 (6) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... ral award dated 4 August 2008 of a sole arbitrator, Mr. Justice S.N. Variava. 2. On 21 February 1980 a deed of partnership was constituted in which three branches of the Singhania family were represented. The three branches, in these proceedings, would for convenience of reference, be referred to as the Kanpur, Kolkata and Mumbai branches. Clause-10 of the deed of partnership provided that a partner could retire with a stipulated period of notice and unless mutually agreed to, upon retirement, an outgoing partner would be entitled to receive his proportionate share in the properties of the firm in specie after deducting the liabilities. Clause-11 of the deed of partnership provided as follows : "That in the event of dissolution of the firm accounts shall be settled between the partners in accordance with the provisions of Section 48 of the India Partnership Act as applicable at the relevant time. The assets of the firm shall be valued on the basis of the values standing in the books of accounts and not on the basis of market value. Unless otherwise agreed upon, on dissolution the partners will be entitled to and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court, inter alia, specified the nature of the disputes that had arisen and which would have to be resolved in arbitration viz. : "65. ... ... ... ... (a) to the extent the defendants themselves are occupying such properties, the defendants should be directed to vacate the properties to enable distribution of the said properties in specie free from encumbrances; (b) the defendants' obligation to have vacant possession of the immovable properties listed at Items 1 to 13 of Exhibit `D' hereto and to ensure that persons other than themselves actually vacate the said properties so that the same are available for distribution in specie free from encumbrances between the plaintiffs and the defendants pursuant to the said deed of dissolution; (c) directions and steps be taken by the defendants to achieve the vacant possession mentioned in paras (a) and (b) above; (d) distribution of the above mentioned properties in specie free from encumbrances between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 2008, the arbitrator declined to entertain the submissions of the Mumbai group on the draft since this was allowed before the valuer. The arbitrator, however, observed that it was necessary for the valuer to consider and take into account the views and facts which may be brought to its attention by any of the parties. The arbitrator recorded that the parties had already made representations to the valuer, but to leave no room for complaint, it was directed that if any of the parties desired to bring any fact or submission before the valuer, they could do so on 13 February 2008. The valuer was thereafter directed to take into account the perspectives of the parties. On 4 February 2008, the arbitrator recorded that all parties had in pursuance of the previous directions met the valuer to convey their points of view and three weeks' time was granted to the valuer to submit the final report. At that stage, on behalf of the Mumbai group, it was urged that under Section 26(2) of the Arbitration and Conciliation Act, 1996, parties had a right to insist that after the submission of the final report, the valuer should participate in an oral hearing to submit itself to questioning by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t open to parties to question the valuation fixed by the agreed independent valuer. There is now no question of cross-examination of the valuer and/or of leading evidence of other valuers. Accordingly, I reject the submission that after the Final Report is submitted, an opportunity be given under Section 26(2) of the Arbitration and Conciliation Act, 1996. As stated above this Section is inapplicable to the facts of this case." 5. The arbitrator thereafter heard the parties on several dates and rendered his award on 4 August 2008. The arbitrator thereafter corrected certain clerical and typographical errors in the award on 12 September 2008. 6. By the award, the arbitrator has partitioned the properties of the partnership in the following manner: "a) The Claimants are allotted the property at Sr.No.5 i.e. Kamala Cottage, property No.6 at Juhu, Mumbai. As the market value of this property is fixed at Rs.89.66 crs. and each group is entitled to assets worth Rs.43,55,00,000/- the Claimants will have to bring into the pool to the family, in the manner set out hereafter, a sum of Rs.46,11,00,000/-. This then will hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (iv) Property at Sr.No.10 i.e. Property No.20/131 Patkapur, Kanpur. The value of this property is fixed at Rs.0.33 crores. Thus, Respondents 10 to 16 are allotted properties worth Rs.20.15 crores. As they are entitled to assets worth Rs.43,55,00,000/- they will, in addition to the above, receive a sum of Rs.23.40 crores from out of the sum of Rs.46,11,00,000/- which has to be paid by the Claimants. They will receive this amount only on handing over vacant possession, free from encumbrance, of the Juhu property to the Claimants. 7. Essentially as the award would indicate, ten properties have been partitioned. One of the properties is a property at Juhu, Mumbai, which has been in the possession of the Mumbai group and which has been awarded to the Kolkata group. Nine properties at Kanpur were in the occupation of the Kanpur group. Out of these nine properties, five have been awarded to the Kanpur group while four have been awarded to Mumbai group. Having regard to the valuation of the properties fixed by HDFC Limited, the arbitrator has directed payment of amounts in order to effectuate an equalization of the shares of the three groups. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator, however, proceeded to hold that the claim was not barred on the basis that the issue of limitation was concluded by the judgment of Supreme Court in Harishankar Singhania (supra). This statement of law on the face of the award is erroneous because, what the Supreme Court decided was whether the suit under Section 20 was barred by limitation and not whether the claim before the arbitrator in the arbitral proceedings was within time. The issue as to whether an application invoking arbitration has been filed within limitation is distinct from whether a claim in arbitration is within limitation and the arbitrator, it has been submitted, has committed an error apparent on the face of the record by confounding one for the other. 10. While adopting the submissions that were urged by the Mumbai group, the learned counsel appearing on behalf of the Kanpur group has submitted that : (i) The arbitral award is not in terms of the agreement between the parties since the agreement envisaged that the distribution of the assets of the dissolved partnership was to take place in specie; (ii) The arbitrator has applied principles of owelty which are relevant to a partition of undivided pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies reveals a forthcoming attitude and amiable efforts made towards implementing the deed of dissolution." The judgment of Supreme Court has laid down the principles which must be borne in mind in dealing with disputes involving family settlement. In that context, the following observations are of significance: "42. Another fact that assumes importance at this stage is that, a family settlement is treated differently from any other formal commercial settlement as such settlement in the eye of the law ensures peace and goodwill among the family members. Such family settlements generally meet with approval of the courts. Such settlements are governed by a special equity principle where the terms are fair and bona fide, taking into account the well being of a family. 43. The concept of "family arrangement or settlement" and the present one in hand, in our opinion, should be treated differently. Technicalities of limitation, etc. should not ... put at risk ... the implementation of a settlement drawn by a family, which is essential for maintaining peace and harmony in a family. Also it can be seen from decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in (2006)4-SCC-658 of the agreement. It was argued that in case this Court allows the appeal, the matter may be remitted to the High Court for appointment of a single arbitrator and in case the parties are unable to agree upon a single arbitrator a panel of three arbitrators shall be appointed as provided in the said agreement. We feel that such a course, if adopted, would only enable the contesting Respondents 1-9 to squat on the property and enjoy the benefits, income, etc. arising therefrom." (emphasis supplied) 13. These observations which were made by the Supreme Court were undoubtedly in the context of a decision on the issue as to whether the arbitration suit under Section 20 of the Arbitration Act, 1940 was barred by limitation. While reversing the judgment of this Court and holding that the suit was not barred by limitation, the Supreme Court has laid down the basic frame work of the underlying principles that must be applied in dealing with a family settlement. The fundamental principles which have been emphasized by the Supreme Court are that : (i) In dealing with a family settlement, the effort of an adjudicatory tribunal must be to promote the efficacy of a fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as fixed by the valuer. 15. By the first part of the agreement the parties agreed that (i) the basis of the valuation would be the market value; (ii) the date of the valuation and the valuer would be decided by the arbitrator; and (iii) the valuer would hear the parties before giving his report. As a matter of fact, HDFC Limited was the valuer agreed upon by the parties. The parties had a full opportunity to and did in fact submit their perspectives to the valuer. The valuer made available a draft report for inspection before the parties and allowed the parties an opportunity to respond. The arbitrator furnished a further opportunity to the parties to place their submissions before the valuer and it was only thereafter that the valuer arrived at its final determination. 16. Section 26(1) empowers an arbitral Tribunal to appoint an expert to report to it on a specific issue to be determined by the arbitral Tribunal. Under Sub-Section 2 of Section 26, unless otherwise agreed by the parties, if a party so requests or if the arbitral Tribunal considers necessary, an expert shall, after submitting the report, participate in an oral hearing where the parties have opportunity to put q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place of the interpretation accepted by the arbitrator." 17. Undoubtedly, under the provisions of Section 28, the arbitral Tribunal is required to decide a dispute submitted to the arbitrator in paragraph 43 accordance with the substantive law for the time being in force in the country. The arbitral Tribunal is required to decide in accordance with the terms of the agreement. An arbitrator, it is well settled, is a creation of a contract between the parties and if he ignores the specific terms of the contract, that would constitute a jurisdictional error which is susceptible of being corrected by the Court (Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises (1999)9-SCC-283 and another and Ispat Engineering and Foundry Works, B.S.City, Bokaro Vs. Steel Authority of India Ltd., B.S. City, Bokaro (2001)6-SCC-347) In the present case, the question of construing the terms of the agreement dated 20 March 2007, arose before the arbitrator in the course of the arbitral proceedings. As we have noted, two of the three contesting parties were in fact in agreement before the arbitrator that the valuations fixed by HDFC Limited were binding on all parties. This was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the claims as set out in the statement of claims, would have to be held within limitation. 19. The Appellants have relied on the judgment of the Supreme Court in Union of India Vs. M/s.L.K.Ahuja and Co. (1998)3-SCC-767 in which a distinction has been made between whether : (i) a claim made in arbitration is barred by limitation under the relevant provisions of the Limitation Act; and (ii) a claim made for an application under Section 20 of the Arbitration Act, 1940 is barred. The Supreme Court has observed as follows : "8. In view of the well settled principles we are of the view that it will be entirely a wrong to mix up the two aspects, namely, whether there was any valid claim for reference under Section 20 of the Act and, secondly, whether the claim to be adjudicated by the arbitrator, was barred by lapse of time. The second is a matter which the arbitrator would decide unless, however, if on admitted facts a claim is found at the time of making an order under Section 20 of the Arbitration Act, to be barred by limitation." The Supreme Court has in that context referred to a judgment of the Kolkata High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for accounts and a share of the profits of a dissolved partnership. The period of limitation is three years and limitation commences to run from the date of dissolution. The claim in the arbitral proceedings in the present case was certainly not one that meets the description of a suit on accounts and for a share in the profits of a dissolved partnership referred to in Article 5 of the Schedule to the Limitation Act. That apart, we find substance in the submission that it will be manifestly unfair to the arbitral tribunal to find fault with it on the ground that the Tribunal had not dealt with a submission which was neither agitated nor advanced. The parties in the present case have allowed a distribution to take place and it is not in dispute that five properties have been sold through their agreement during the course of arbitration. For all these reasons, we are of the view that the challenge to the arbitral award on the ground of limitation must fail. 22. Now it is in this background that it would be necessary to advert to the circumstances in which the Juhu property at Mumbai came to be awarded to the Kolkata group. The objection of the Mumbai group is that the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such a physical division. The arbitrator held that though the distribution was to be in specie, there would have to be an equalization of shares in terms of money. The shares of the parties were not in dispute. Since the Juhu property was valued at Rs.89.66 crores, the party to whom the Juhu property was to be allotted, would have to pay a sum of Rs.46.11 crores which would be distributed between the other two groups considering the value of the properties allotted to them. The Kanpur group which was in possession of the Kanpur properties desired to retain the entirety of the Kanpur properties but this conduct, as we have noted earlier, has been the subject matter of adverse comment in the judgment of the Supreme Court. The Juhu property, as the arbitrator noted, could not be allotted to the Mumbai group since it was not willing to accept the allotment of the property at Rs.89.66 crores whereas the Kolkata group was willing to accept allotment at that price. The arbitrator, in our view, was justified in holding that when one group was willing to accept the allotment of the Juhu property at Rs.89.66 crores, there was no justification for the Mumbai group to expect that the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 34. 25. On behalf of the Appellants it has been urged that there is an inconsistency in the arbitral award in regard to the manner in which the arbitrator has construed the agreement dated 20 March 2007. Learned counsel submitted that in paragraph 20(a), the arbitrator noted the submission of the Kolkata group that by the agreement dated 20 March 2007 the parties had only changed the method of valuation from book value to market value. Learned counsel submitted that in paragraph 21, the arbitrator noted that by the agreement "all that was done" was that in respect of the distribution on the basis of book value, the parties have now agreed that the distribution be on the basis of the market value. The arbitrator also observed that the parties have agreed that the distribution should be on the basis of market value and that the contention regarding the market value is no longer open to the parties. It was urged that having taken this view in one part of the award, the learned arbitrator erred in coming to the conclusion that the parties had agreed that on the question of market value, the final report would be binding on all the parties. This submission, in our view, seeks to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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