Arb. Appeal Nos. 32, 36 of 2015 & Cross Objection No.165/2015

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MRS. JUSTICE SHIRCY V.** **TUESDAY, THE 30TH DAY OF JANUARY 2018 / 10TH MAGHA, 1939** ## **Arb.A.No. 32 of 2015** **(AGAINST THE ORDER DATED 22-11-2014 IN OP (ARB) 1020/2011 of II ADDL.DISTRICT COURT, ERNAKULAM)** ## **APPELLANTS/PETITIONERS:** **1. MERCY JULIET W/O. V.J. GEORGE, VADAKKEMULLOTH HOUSE, NORTH KALOOR, KOCHI -682 017. [EXPIRED]** - ***2. V.J. GEORGE S/O JOSEPH, AGED 79 YEARS, VADAKKEMULLOTH HOUSE, NORTH KALOOR, KOCHI-682017.** - ***3. MARY GLADIS AGED 49 YEARS, KURANGANTHARTA HOUSE, JANATHA PIPELINE ROAD, PALARIVATTOM, KOCHI-24.** - ***4. RAJU GEORGE AGED 44 YEARS, VADAKKEMULLOTH HOUSE, DOOR NO.1A, NAVANI PRINCESS APARTMENT, BENNET ROAD, CHEMBUKKAVU, TRICHUR.** - ***5. SILJU GEORGE AGED 39 YEARS, VADAKKEMULLOTH HOUSE, NORTH KALOOR, KOCHI-682017.** **BY ADVS.SRI.V.V.ASOKAN (SR.) SRI.VINEETH KOMALACHANDRAN SRI.P.RAHUL** ## **RESPONDENT/RESPONDENT:** **V.J. ANTONY S/O. V.V. JOSEPH, 11/662-A, VELIYANNUR ROAD, THRISSUR-21.** ## **R1 BY ADVS. SRI.S.VINOD BHAT** **SRI.LEGITH T.KOTTAKKAL** ***[APPELLANTS 2 TO 5 ARE IMPLEADED AS SUPPLEMENTARY APPELLANTS AS PER ORDER DATED 07-07-2015 IN IA No.2298/2015 IN ARB. APPEAL No.32/2015.]** **THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 30-01-2018, ALONG WITH ARBA No.36/2015 & CROSS OBJECTION No.165/2015 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **AMG.** ## **C.K. ABDUL REHIM, J. & SHIRCY V., J.** ------------------------------------------------- ## **Arb. Appeal No. 32, 36 OF 2015 & Cross Objection No. 165 OF 2015** ------------------------------------------------DATED THIS THE 30[th] DAY OF JANUARY, 2018 ## **J U D G M E N T** ## Abdul Rehim, J: Both the above appeals and the cross objection arise out of a common judgment of the District Court, Ernakulam in OP (Arb) Nos.1020/2011 & 1021/2011. The original petitions were filed before the District Court seeking to set aside the award passed by the sole arbitrator, dated 14-072011, in AR No.22/2001. The appellant in both the appeals was the petitioner in OP (Arb) No.1020/2011 and respondent in OP (Arb) No.1021/2011. The respondent in both the appeals, who is the cross objector in C.O. No.165/2015 was the respondent in OP (Arb) No.1020/2011 and petitioner in OP (Arb) No.1021/2011. The parties are referred hereunder in this judgment as the appellant and the respondent, respectively. **Arb. A Nos.32, 36/2015 and CO No.165/2015** -2- 2. A brief description about the dispute involved is that, the parties were partners of a firm named Biju & Co. and the respondent retired from the partnership by virtue of Ext.P12 (a) reconstitution deed executed between them on 31-03-2000. The husband of the appellant and her son were inducted as new partners of the firm and the business was continued. There were some other sister concerns of the partnership, which firms were also reconstituted on 31-032000. There arose a dispute between the parties regarding the settlement of accounts of the firms, alleged misappropriation of the assets of the firms by the respondent and also with respect to partition of the assets of the firm between the parties. The appellant filed a petition before this court seeking appointment of an arbitrator to resolve the disputes, and Justice K.A. Nair (retired Judge of this court) was appointed through an order passed by this court on 09-01-2002. The sole arbitrator had passed an award dated 25-03-2008, which was subjected to challenge in the original petitions filed by both parties before the District Court. On dismissal of those original **Arb. A Nos.32, 36/2015 and CO No.165/2015** -3- petitions the parties came up before this court in appeals filed as Arb. Appeal Nos.4/2010 & 10/2010. It was contended before this court by both the parties that the reliance placed by the arbitrator on a family settlement, which was marked as Ext.X1 & X2 was totally illegal and unsustainable. Both the parties have expressed the view that they have no objection in setting aside the award and in appointing another arbitrator to adjudicate the matter afresh. Accordingly, through a common judgment passed by this court in Arb. Appeal No.4/2010 & 10/2010, dated 7[th] April 2010 a new arbitrator was appointed (Adv. K. Ramachandran). This court made it clear that the arbitrator will be at liberty to appoint Chartered Accountant or qualified Auditor to look into accounts of the firm. A time limit was stipulated to the arbitrator to pass a fresh award. Consequently a new arbitrator appointed by this court had considered the matter and passed the present award on 14-07-2011. The operative portion of the award contained in para 39 is extracted below; **Arb. A Nos.32, 36/2015 and CO No.165/2015** -4- - “39. In the result, an award is passed on the following terms:- - **(I)** (a).The claimant will hand over and surrender possession with her husband PW-1 the Veliyannoor house and its site (Shown as items 6 & 7 in Annexure-I list) in Sy. No.1175 of Thrissur village with mesne profit @ Rs.3,000/- per year from today until delivery or surrender of possession. - (b) The claimant and her husband PW1 will surrender possession of 16.25 cents of property comprised in Sy. No.103/1 of Kacheri Village, Kozhikode District (item 13 in Annexure-I list) with mesne profit @ Rs.5,000/- per year till surrender or delivery of possession. - (c) The claimant with her son Raju George will also hand over and surrender possession of 9 and odd cents comprised in Sy. No.478 of Marathukara village, Thrissur District (item 14 in Annexure-I list) with mesne profit @ Rs.1,000/- per year till surrender or delivery of possession. - (d) The claimant will also with her daughter Luxy Antony hand over and surrender possession of 26 cents comprised in Sy. No.100/8 of Kasaragode village, Thrissur District (item 15 in Annexure-I list) with mesne profit @ Rs.6,000/- per year until surrender or delivery of possession. - **(II)** To comply with the above directions the claimant will also take steps to see that the title of such properties is also conveyed or assigned to the respondent at the expense of the respondent, and in case the claimant fails to do so, the respondent is at liberty to get such assignments executed by necessary legal steps. **Arb. A Nos.32, 36/2015 and CO No.165/2015** -5- - **(III)** The respondent is also given the right to recover from the claimant and her assets Rs.26 lakhs with interest at 12% per annum from today till realization. - **(IV)** All other items shown in Annexure-I list and all other assets in the name of Biju & Co. and sister companies, it is hereby declared, will belong to the claimant in title and possession and the respondent will have no claim for those properties. - **(V)** Annexure-I will form part of this Award. - **(VI)** In the circumstances of this case there is no separate order regarding costs.” 3. The appellant filed the original petition before the District Court being aggrieved mainly by the rejection of her claim with respect to the alleged misappropriation. Whereas, the respondent sought to set aside the award to the extent it directed partition of the immovable properties relying on Ext.X1 & X2. He had also raised a contention pointing out that the sole arbitrator had failed to quantity the exact amount due to him towards his due share in the assets of the partnership, on his retirement. While adjudicating the original petitions the District Court found that the findings arrived by the arbitrator with respect to the alleged misappropriation of funds of the firm, is not **Arb. A Nos.32, 36/2015 and CO No.165/2015** -6- liable to be interfered with, since those findings could not be challenged under any of the grounds provided in Section 34 of the Arbitration and Conciliation Act, 1996 (herein after referred to as 'the Act' for short). With respect to contention raised by the respondent against the acceptance of Ext.X1 & X2 as a family settlement, the court below found that, in terms of Ext.P12(a) deed of reconstitution of the partnership, the partition of the properties of the firm as it existed on the date of retirement alone was in contemplation. But the matter in issue agitated before the arbitral tribunal was with respect to sharing of the assets of the firm between the parties. However, it was found that, the appellant and the respondent alone were the parties in the arbitral proceedings and any dispute involving others could not have resolved by the arbitrator. The court below found that the terms of Ext.X1 & X2 would indicate several properties owned by persons other than the parties to the arbitral proceedings, which was also directed to be partitioned and transferred, as per the award impugned. Hence it is held that it is not possible in law to order an **Arb. A Nos.32, 36/2015 and CO No.165/2015** -7- executable partition or sharing of the immovable properties which belongs to such parties, based on Exts.X1 & X2. But the learned District Judge found that, both sides had agreed that the immovable properties remaining in their names were acquired using the funds of the firms and therefore those properties are the assets of the firm. Therefore it was held that the properties mentioned as item Nos.2, 3, 5, 6, 7, 8 and 13 in Annexure-I alone can be treated as properties of the firm, which are liable to be partitioned among the appellant and the respondent. It is held that no award with respect to remaining properties, which are in the name of strangers in the arbitral proceedings, can be sustained. Therefore the arbitral award to the extent it directed partition of properties other than mentioned as above, was set aside. The District Court remitted the matter to the arbitrator for effecting partition of the properties mentioned as above, which were found to be the assets of the firms. 4. Contention of the appellant is mainly that the impugned order of the District Court is illegal, erroneous and unsustainable, mainly because it ought not have upheld **Arb. A Nos.32, 36/2015 and CO No.165/2015** -8- the directions contained in the award of the arbitrator to the extent it ordered partition of the immovable properties based on Ext.X1 & X2. It was contended that, Ext.X1 & X2 are not a family settlement which was finally agreed upon by the parties and it is not signed by the appellant. It is also pointed out that, Ext.X3 would indicate that the parties have not agreed upon in terms of Ext.X1 and X2 and all of them have not singed in the settlement in terms of Ext.X1 & X2. That being the position, it is contended that, the court below ought to have set aside the findings of the arbitrator to the extent it placed reliance on Ext.X1 & X2. Further contention of the appellant is that, the court below ought to have considered the fact that the arbitrator had failed in directing payment of the amount misappropriated by the respondent. 5. Per contra, it was contended on behalf of the respondent that, the court below as well as the sole arbitrator had failed to appreciate the claims of the respondent with respect to the share in the profit of the firm, which was continuing business even after the date of **Arb. A Nos.32, 36/2015 and CO No.165/2015** -9- his retirement, without setting his due share in the assets of the firm. To be more precise, contention raised by the respondent through the cross objection is that, there occurred an omission on the part of the arbitrator in considering his claims based on Section 37 of the Indian Partnership Act, 1932. It is argued that the District Court had also failed to consider the above said claim and to set aside the award on that ground. 6. Before evaluating the rival contentions, it will be beneficial to consider about the scope of interference permissible against an arbitral awards, under Section 34 of the Act. As pointed out in the impugned judgment of the court below, in **ONGC Ltd. v. Saw Pipes Ltd. (AIR 2003 SC 2629)** the hon'ble Supreme Court held that, an arbitral award is liable to be set aside if it is contrary to; (a) fundamental policy of Indian Law (b) the interest of India (c) justice or morality (d) if it is patently illegal. The apex court had further explained that, the illegality should be one going to the root of the matter and if the illegality is of any trivial nature, it cannot be held that the award is against **Arb. A Nos.32, 36/2015 and CO No.165/2015** -10- public policy. An award could also be set aside if it is so unfair and unreasonable to the extent that it shocks the conscience of the court. Such an award is opposed to public policy and is required to be adjudged as void, is the findings. The hon'ble Supreme Court in **Mc.Dermott International Inc v. Burn standard Company Ltd. (2006 (11) SCC 181)** held that, the court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again, if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at a minimum level. In another decision of the apex court in **K.V.Mohammed Zakkir vs. Regional Sports Centre (2009 (9) SCC 357)** it is held that, where the arbitrator had acted within the jurisdiction, reasonableness of the reasons given by the arbitrator was not open for scrutiny by the court. In order to set aside the findings, it should be shown that the reasons are such that, no person of ordinary prudence could ever approve them or the reasons were so outrageous in their defiance of logic, that they shocked the conscience of the court. In a more **Arb. A Nos.32, 36/2015 and CO No.165/2015** -11- recent decision in **Oil & Natural Gas Corporation v. M/s. Wig Brothers Builders & Engineers Pvt. Ltd. (2010 (13) SCC 377** , the apex court observed that, an award is not open to challenge on the ground that the arbitrator had reached a wrong conclusion or had failed to appreciate some facts. But if there is an error apparent on the face of it or if there is misconduct on the part of the arbitrator or if there occurred any legal misconduct in conducting the proceedings or in making the award, the court will interfere. In **Mohammmed Mamdouh Matwally Ghali vs. Kerala Automobiles Ltd. (2011 (3) KLT 159)** this court held that, the courts have to alertly ascertain whether there is any patent illegality to justify interference with an award on the ground available under Section 34 (2) (b)(ii) of the Act. It has to be verified whether the award is vitiated by gross perversity so as to justify interference on that ground. But if it is found that, “the award is so vitiated, we find no reason for a court not to invoke its powers under Section 34. If the court finds that the award is vitiated by gross perversity and consequently patent illegality, the **Arb. A Nos.32, 36/2015 and CO No.165/2015** -12- court should not hesitate to invoke the power under Section 34(2)(b)(ii).” 7. When the case at hand is analysed based on the legal principles enumerated as above and on taking into consideration of the rival contentions, it is to be found that, any interference with the order of the District Court is possible only if it is found that the District Court had omitted to notice any patent illegality committed by the sole arbitrator or had omitted to take into consideration of any perversity in the findings of the arbitrator which is so patent and gross and which is apparent on the face of record; or if such findings are so unfair and unreasonable that it shocks the conscience of the court. If only in such cases the award can be held as one opposed to public policy and is required to be adjudged as void. 8. It is true that this Court had set aside the earlier award based on an observation that the reliance placed by the arbitrator on Exts.X1 and X2 as a family settlement cannot be sustained. But it is to be noticed that, the issues framed based on the claim statement and counter statement **Arb. A Nos.32, 36/2015 and CO No.165/2015** -13- of the parties by both the arbitrators are one and the same, except issue no. 9 added by the present arbitrator, which is regarding 'reliefs and costs'. It is to be noted that, those issues include among other things as to whether there was any agreement preceding the retirement of the parties from the firm and if so what are the terms of such settlement; and whether the terms of such settlement was complied with or not; and who was responsible for the non compliance if any. Likewise, another issue framed is that, what are the assets and liabilities of the firm at the head office and its branches. So also another issue famed was as to what is the status of the sister concerns and whether they are wholly financed by Biju & Co. Yet another issue framed is as to what are the land and assets purchased in the name of the partners and the relatives, out of the funds of Biju & Co. to be accounted in the name of the partners. In view of the above said issues framed on the basis of contentions of the parties, it cannot be held that the arbitrator went erred in looking into Exts.X1 and X2, for the purpose of determining as to whether the immovable **Arb. A Nos.32, 36/2015 and CO No.165/2015** -14- properties were purchased with the assets of the firm. In this regard the findings of the present arbitrator that reliance can be placed on the documents of Exts.X1 and X2 to decide such an issue, cannot in any manner be held as a finding which is totally perverse or patently illegal. The decision of the sole arbitrator to place reliance on those documents, cannot in any manner be termed as a patently erroneous decision, which is apparent on the face of record or as a grossly perverse decision which shocks the conscience of the court. It is not true or correct to say that the dispute which was resolved through the arbitration had strictly confined to the issue of sharing of the assets of the firm Biju & Co. on the retirement of the respondent. This is especially because when the parties are at an agreement on the fact that the sister concerns were started based on the assets of the firm Biju & Co. and when the parties are conceding on the fact that the various immovable properties mentioned in Exts.X1 and X2 are assets belonging to the partnership. As we have already observed, the reasoning arrived by the sole arbitrator to direct partition of the **Arb. A Nos.32, 36/2015 and CO No.165/2015** -15- immovable properties, is not a finding which can be interfered by invoking the powers vested under Section 34, even if the court arrives at an opinion that a different reasoning or an alternate decision would have been possible on the facts, materials and the circumstance. Therefore, we are of the considered opinion that, the contention of the appellant that the award need to be set aside based on the fact that the Arbitrator had placed undue reliance on Exts.X1 and X2, cannot be sustained. In this regard it is necessary to place reliance on the observations contained in the impugned order of the District Court. It is categorically mentioned that both sides had agreed that the properties remaining in their names were acquired using funds of the firm and so those properties become properties of the firm. In this regard, we notice the observations contained in the award of the sole arbitrator that, at the time of hearing the claimant's/appellant's counsel had agreed that she does not dispute the provisions in Exts.X1 and X2 relating to the immovable properties and that those provisions can be honoured to the full extent. It is recorded in the award of **Arb. A Nos.32, 36/2015 and CO No.165/2015** -16- the arbtirator that the respondent's counsel had denied Exts.X1 and X2 in tooth and nail and had submitted that Exts.X1 and X2 cannot be relied upon for the purpose of the arbitration proceedings. The further observations contained in the arbitral award that, “Whether they are family settlement deeds or not, the fact that the claimant and the respondent had no objection to the terms embodied in the documents at the time when they have signed cannot be forgotten or overlooked.” Similarly it was observed by the Arbitrator that, “Simply because they are not registered documents and no transfer of interest of the immovable properties cannot be done without registered documents also cannot mean that there was no decision between the parties regarding the division of the parties consequent to the valid retirement of the respondent from the firm”. The Arbitrator further observed that, the observations contained in the previous judgment of this court in Arbitration Appeal Nos.4/2010 and 10/2010 does not indicate that the allotment of the properties as per Exts.X1 and X2 should not be considered at all, even if they are the result of the **Arb. A Nos.32, 36/2015 and CO No.165/2015** -17- mutual agreement between the parties and are reasonable. All the above said aspects would only persuade this court to arrive at a conclusion that the reliance placed by the sole arbitrator on Exts.X1 and X2 to determine as to whether the properties were purchased with the assets of the firm and to order partition of such properties, does not warrant interference in exercise of power vested under Section 34 of the Act. 9. Question remains as to whether the interference made by the District Court with respect to those properties which are in the name of third parties, need to be interfered, as contended by the appellant. In the case of immovable properties which are in the name of persons, who are not parties to the arbitration, the finding of the court below need to be confirmed. The direction issued by the sole arbitrator for partition of those immovable properties, will definitely end in a patent illegality. Such a finding would definitely affect rights of those third parties who had not participated in the arbitral proceedings nor had any opportunity to contest the same. Moreover, as **Arb. A Nos.32, 36/2015 and CO No.165/2015** -18- observed by the court below, such directions will become unworkable or rather inexecutable because of the challenges which may be raised by those third parties in whose name such immovable properties are situated. 10. Based on the above discussion, we are not persuaded to accept the contention of the appellant that the arbitral award is liable to be set aside totally, with respect to findings regarding partition of the immovable properties. On the other hand, such directions with respect to properties which belong to the parties to the dispute need to be upheld. Therefore, we decline interference with the impugned order of the District court in that respect. 11. The parties have not raised much contentions with respect to the findings arrived by the Arbitrator directing the payment of the amount which is found due to the respondent, as his due share on the retirement from the partnership firm. Such a finding is based on evaluation of the factual aspects and the materials available on record and the findings of such nature cannot be interfered under Section 34 of the Act. **Arb. A Nos.32, 36/2015 and CO No.165/2015** -19- 12. Lastly, while considering the contentions in the cross objection with respect to the claim made by the respondent based on Section 37 of the Indian Partnership Act, it has to be noted that, the court below had made an observation that the firm cannot be said to have continued business making use of the share of the respondent in the firm, because of the stipulations contained in the retirement deed that three branches would be given to the respondent and the remaining branches including the head office shall be continued by the reconstituted firm. The learned Counsel appearing for the respondent contended that, such a finding is not correct in view of the terms contained in Ext.P12(a), the reconstituted deed. The terms contained are to the extent that, apart from assigning three branches to the respondent, due share in the firm will be determined and paid within a period of six months. When the appellant had failed to make a settlement of the due share within the period of six months as undertaken in Ext.P12(a), the respondent has got an option to claim share of the profit made by the firm, since he ceased to be a partner, is the **Arb. A Nos.32, 36/2015 and CO No.165/2015** -20- contention. But it is to be noted that, the respondent had never made any such demand to the reconstituted firm for share in the profit, at any point of time, even after the lapse of the six months period stipulated in the reconstituted deed. From the records it is evident that, such a claim was made for the first time only through the additional claim statement filed before the present arbitrator. Going by wordings of Section 37, the entitlement of the retired partner for getting share of profit out of the business of the reconstituted firm is always at his option and otherwise he will be entitled only for interest at the rate of 6% per annum on the amount of his share in the property of the firm. Therefore, it is to be held that, unless and until the retired partner had made any request in exercise of the option left to him for claiming share in the profit of the business of the reconstituted firm, it cannot be said that he will become automatically entitled for such share. 13. As observed above, in the cases at hand, the above said claim was made for the first time only after this court had set aside the original award passed by the former **Arb. A Nos.32, 36/2015 and CO No.165/2015** -21- Arbitrator. Question may also arise as to whether such a claim will become barred by limitation under the Limitation Act. For these reasons, we are of the considered opinion that the court below was fully justified in declining the challenge based on the alleged right conferred on the respondent under Section 37 of the Indian Partnership Act. In view of the discussions contained in the foregoing paragraphs, we arrive at a conclusion that the impugned common order passed by the District Court, Ernakulam in O.P.(ARB)Nos.1020/2011 and 1021/2011 needs no interference. Consequently both the above appeals as well as the Cross Objection fail and are accordingly dismissed. The parties shall suffer their respective costs. Sd/- ## **C.K. ABDUL REHIM, JUDGE** . Sd/- ## **SHIRCY V., JUDGE** . **AMG/Smm** True copy P.A. to Judge