2014 (6) TMI 199 - HC - Indian Laws

Legality of an arbitral award - Valuation of properties- HDFC appointed as arbitrator - Appellants contends that 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 the parties and to enable the parties to present their expert evidence on the valuation of the properties - arbitrator rejected this submission holding that the deadlock between the parties had been resolved when they entered into an agreement dated 20 March 2007 - Therefore, legality of award questioned - Held that - During the pendency of the arbitral proceedings, an agreement was arrived at between the parties on 20 March 2007. The agreement contemplated in its first part that the distribution of the properties would take place on the basis of market value. This was in substitution of the book value which was to be treated as the basis of distribution under the deed of partnership and the deed of dissolution. By their agreement dated 20 March 2007, the parties while stipulating that the distribution of the properties would take place on the basis of market value, agreed that the date of the valuation and the valuer would be decided by the arbitrator. The valuer was required to hear the parties. In the concluding part of the agreement, the parties stipulated that all other contentions of the parties, except the valuation at the market value, are kept open. 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 not merely the position of the Claimants namely, the Kolkata group but a solemn statement made before the Arbitrator by the counsel appearing for the Kanpur group. But apart from that, the construction that has been placed by the arbitrator on the terms of the agreement which envisaged that all other contentions of the parties, except the valuation at the market value are kept open, was a possible construction which would not warrant interference in proceedings under Section 34 of the Act of 1996. The learned Single Judge has found no basis to set aside the arbitral award on this aspect. Surely, as a Division Bench exercising appellate jurisdiction from a decision of a learned Single Judge declining to set aside an arbitral award under Section 34, we must exercise caution and circumspection. The construction of the agreement fell within the province and domain of the arbitrator. Where a possible view is taken, no case arises for interference with the award under Section 34. 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 the Juhu property should be lower than Rs.89.66 crores as determined by the valuer. The Mumbai group had submitted a proposal before the arbitrator suggesting that the three groups may be mutually allowed to bid for every single property and that the property may be given to the highest bidder. The proposal contemplated that thereafter the total value fetched would be divided into three parts with each group would having credit of one third of the bid amount which would be debited with the amount of the property retained by the group. Direction of the learned arbitrator in paragraph 26(b) to the effect that the Kanpur group would receive an amount of Rs.22.71 crores only against the delivery of vacant possession free from all encumbrances of all the properties allotted to the Mumbai group is severable and has to be read subject to the findings in paragraph 24, which is to the effect that it was agreed between the parties that the properties at sr.nos.7 and 8 would not be allotted free from all encumbrances since they were in the possession of outsiders. The operative direction of the learned arbitrator, as noted above, is therefore, to be subject to the aforesaid stipulation. Parties have agreed in arbitration that the properties at serial no.7 (which is in the occupation of an outsider) and serial no.8 (which is substantially in the occupation of an outsider) do not have to be allotted free of encumbrances - Decided against appellants.

Summary

Issues Involved:
1. Legality of the arbitral award dated 4 August 2008.
2. Interpretation of the agreement dated 20 March 2007 regarding property valuation.
3. Application of Section 26(2) of the Arbitration and Conciliation Act, 1996.
4. Issue of limitation regarding the claim in arbitration.
5. Distribution of properties in specie and equalization payments.
6. Alleged inconsistencies in the arbitral award.

Detailed Analysis:

1. Legality of the Arbitral Award:
The arbitral award dated 4 August 2008 was challenged under section 34 of the Arbitration and Conciliation Act, 1996. The learned Single Judge dismissed the petitions questioning the legality of the award, which partitioned the properties of the dissolved partnership among the three branches of the Singhania family, namely the Kanpur, Kolkata, and Mumbai branches. The arbitrator directed payments to equalize the shares of the three groups based on the market value of the properties.

2. Interpretation of the Agreement Dated 20 March 2007:
The agreement dated 20 March 2007 altered the basis of property valuation from book value to market value. The arbitrator interpreted this agreement to mean that the valuation by the appointed valuer, HDFC Limited, would be final and binding. This interpretation was contested by the Mumbai group, which argued that the agreement only changed the valuation basis but did not make the valuer's report binding. However, the arbitrator's interpretation was upheld, as it was a possible view within the jurisdiction of the arbitrator.

3. Application of Section 26(2) of the Arbitration and Conciliation Act, 1996:
Section 26(2) stipulates that an expert appointed by the arbitral tribunal must participate in an oral hearing unless otherwise agreed by the parties. The arbitrator held that the agreement dated 20 March 2007 constituted such an agreement, thereby precluding the parties from cross-examining the valuer or presenting expert witnesses. The arbitrator ensured that the parties had opportunities to present their views to the valuer and that the principles of natural justice were followed.

4. Issue of Limitation:
The arbitrator concluded that the claim was not barred by limitation, referencing the Supreme Court's judgment in Harishankar Singhania v. Gaur Hari Shankar Singhania, which held that the suit under Section 20 was within limitation. The appellants argued that this was an error, as the Supreme Court's decision pertained to the suit under Section 20, not the arbitral proceedings. However, the arbitrator's decision was upheld, noting that the parties had not raised the limitation issue during the arbitration, and the Supreme Court's observations on family settlements influenced the decision.

5. Distribution of Properties in Specie and Equalization Payments:
The arbitrator allotted properties based on their market value and directed payments for equalization. The Kolkata group was awarded the Juhu property in Mumbai, while the Kanpur and Mumbai groups received properties in Kanpur. The arbitrator justified the equalization payments to balance the shares of the three groups, considering the impracticality of an exact physical division in specie.

6. Alleged Inconsistencies in the Arbitral Award:
The appellants argued that the arbitrator's award contained inconsistencies, particularly regarding the interpretation of the agreement dated 20 March 2007. However, the court found that the arbitrator's interpretation was consistent and within jurisdiction. The arbitrator's decision to award the Juhu property to the Kolkata group at the valued price of Rs. 89.66 crores was upheld, as the Mumbai group was unwilling to accept the property at that price.

Conclusion:
The appeals were dismissed, affirming the arbitral award and the judgment of the learned Single Judge. The court found no merit in the challenges raised by the appellants, concluding that the arbitrator acted within jurisdiction and followed the principles of natural justice. The distribution of properties and the equalization payments were upheld, ensuring an equitable resolution of the family dispute.