Arbitration and Conciliation Act, 1996 :
ss. 19 and 34(2) – Agreement between appellants and respondent-Company – For joint-venture for construction of residential-cum-commercial complex – On the land owned by the appellants – Construction not completed by the Company within the time stipulated in the agreement – Compromise between the parties – New management of the Company filed application u/s. 9 of the Act seeking to restrain the appellants from damaging or demolishing the construction – Company also sought appointment of Arbitrator – The Arbitrator, by his Award rejected the claim as well as the counter-claim of the parties – The Award was affirmed in the appeal u/s. 37 – High Court remanded the matter to the Arbitrator on the ground that parties were not granted appropriate opportunity to tender evidence and that the Arbitrator had not considered the question as to extent of construction on the land and the amount of expenditure thereon – Appeal to Supreme Court – Held : When the challenge to arbitral award is on the ground of procedural irregularity, it would fall u/s. 34(2)(a)(iii) – As per s.19, the rules of procedure to be followed by the Arbitrator is flexible and can be as agreed upon by the parties – In the present case, procedure for the proceedings was as agreed upon by the parties and no objection thereto was raised – It is evident from the Award that the Arbitrator has adverted to the question of extent of construction and the quantum of expenditure thereon –The challenge to the award does not fall under any of the clauses of s.34 – However, in the peculiar facts of the case, in the interest of justice, in exercise of power u/Art. 142 of the Constitution, landowner is directed to pay a sum of Rs. 45 lacs to the Company whereupon they would be entitled to assume possession of the subject land.
Disposing of the appeal, the Court
HELD: 1.1 When a challenge is raised on the ground that the appropriate procedure was not followed and there was denial of opportunity, it would at best fall under Section 34 (2) (a) (iii) of Arbitration and Conciliation Act, 1996. [Para 12][443-B-C]
1.2 Section 19 of the 1996 Act provides that the Arbitral Tribunal is not bound by the Code of Civil Procedure or the Evidence Act. Further, it provides that the parties are free to agree on the procedure to be followed by the Arbitral Tribunal. The rules of procedure to be followed by an Arbitral Tribunal is flexible and can be agreed upon by the parties as provided under Section 19 of the 1996 Act. [Para 12 and 11][442-F; 443-H]
1.3 In the present case, in the proceedings dated 28.11.2009 (Annexure P-15) before the Arbitrator, the procedure to be followed has been discussed and recorded. That apart by the very proceedings dated 28.11.2009 the points on which arguments would be addressed were also treated as the issues for consideration and has been formulated and recorded in the order sheet. From a perusal of the proceedings dated 28.11.2009 it would be clear that both contentions raised by the counsel for the respondent and which were accepted by the Single Judge of the High Court to ultimately remand the matter, would not be justified. Firstly, in the presence of the parties and their counsel, it had been recorded that they do not wish to cross-examine any of the witnesses whose affidavits have been filed by the parties concerned and one of the witness who was present was discharged without being cross examined and no grievance was made either by the parties or their counsel who were present. It is in that view, the evidence was taken as closed on 28.11.2009 and the issues for consideration was settled for arguments on the same day. In that circumstance having consented to the said procedure, it would not be open for the respondent to approbate and reprobate so as to raise a different contention at this point. Having accepted the said procedure, the respondent is estopped from raising such contention before the Single Judge that the arbitrator misconducted himself by not permitting the parties to crossexamine the witness and also that the Arbitrator being more than
70 years of age and suffering from knee problem has pressurized the respondent to speed up the matter and the evidence was closed. [Para 12 and 13][444-A, E-H; 445-A-B]
1.4 Though the respondent was represented by their counsel and the order dated 28.11.2009 was passed while recording the proceedings of that day, neither any application had been filed before the Arbitrator to recall the said order and provide opportunity to tender evidence or cross examine, nor was a challenge raised by initiating any other proceedings, before the award was passed. It is only subsequent to the award being passed, such contention is being raised as an afterthought, which in such event cannot be accepted. [Para 14][445-C-E]
1.5 That apart, the agreement being entered into on 14.12.1996 and the work not having progressed subsequent to March,1999 was not seriously in dispute and in that circumstance, based on the affidavit, the admitted documents have been taken note by the Arbitrator due to which the non-cross-examination in any event has not prejudiced the respondent. [Para 14][445-E]
1.6 Since through the very order dated 28.11.2009, the issues for consideration on which the arguments would be addressed was settled and the matter was proceeded on that understanding without raising any objection, the grievance put forth by the respondent and accepted by the Single Judge of the High Court that the Arbitrator has not answered each of the claims separately in the award, cannot also be accepted. A perusal of the award would indicate that the Arbitrator has adverted to all aspects in a sequential manner and has recorded his conclusion in answer to the contentions that were put forth. [Para 15][446-B-C]
2.1 A perusal of the award passed by the Arbitrator would indicate that after having arrived at the conclusion that the respondent has committed the breach, the Arbitrator has also adverted to the contention relating to the cost incurred for the extent of construction made, as claimed and has rejected the same. [Para 16][446-E-F]
2.2 It had been noticed by the Arbitrator relating to the change of Directors and shareholders of the company in 2007 as against the shareholders who existed as on 30.09.2005 and also that the erstwhile Directors/shareholders who had personal knowledge have not been examined by filing their affidavits and even though an application dated 12.09.2009 for summoning them as witnesses was filed, the same was not pressed and the evidence was closed on 28.11.2009 with the consent of the parties. The Arbitrator has in fact recorded that none of them have come forward to render assistance in the proceedings. In such circumstance when the respondent, who were themselves the claimants before the Arbitrator have not conducted the matter in an appropriate manner by securing affidavit evidence of the erstwhile directors/shareholders, they cannot at this stage turn around and contend that the Arbitrator has misconducted himself. In any event the challenge to the award does not fall under any of the clauses of Section 34 of Act, 1996. [Para 17][447-E-H; 448A]
2.3 Except raising some columns, there is no major construction that is put up. In so far as the expense as claimed by the respondent, as indicated by the Arbitrator, there is no conclusive evidence to that effect. Though such columns are raised, admittedly construction activity has not taken place beyond March, 1999 and already two decades have elapsed. In view of the breach and the respondent failing in the present lis, there would be no absolute right in their favour since the inevitable loss suffered by the appellants by not being able to enjoy the property for the last more than two decades also cannot be lost sight. The appellant who is the owner of the property will have to enter into a fresh contract and the need and manner of development may not be the same at this point and in such event the appellant herein also would be put to some loss to undertake the demolition process themselves or there would be reduction that would be made by the alternate developers who would undertake the project. Further, the actual quantum in any event cannot be determined and also when a breach has been committed through the predecessor directors/shareholders of the respondent company and when the present directors/shareholders have entered the scene in the midst of the breach they would have to bear the loss, if any, to that extent. Therefore, without reference to the actual loss suffered by the parties, while putting an end to the litigation between the parties, in the peculiar circumstance and in the interest of justice, notwithstanding the fact that the order of the Single Judge is not sustainable, in exercise of power under Article 142 of the Constitution of India, the appellant is directed to pay the sum of Rs. 45,00,000/- (Rupees Forty-Five Lakhs only) to the respondent whereupon they would be entitled to assume possession of the subject land and proceed to enjoy the same in accordance with law. [Para 18][448-C-H]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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