Biju Jacob P.V. v. Dr. Sreekumar G.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** ## **&** **THE HONOURABLE MRS. JUSTICE C.S. SUDHA MONDAY, THE 24[TH] DAY OF JANUARY 2022 / 4TH MAGHA, 1943 ARB.A NO. 14 OF 2018** **(CHALLENGING THE ORDER IN OP(ARB) 160/2015 ON THE ARBITRATION AWARD DATED 03.05.2015 PASSED BY SRI.K.RAMAKRISHNAN, RETIRED DISTRICT AND SESSIONS JUDGE, THE SOLE ARBITRATOR APPOINTED WITH RESPECT TO THE DISPUTES OF M/S WAYANAD VENTURES) APPELLANT/PETITIONER IN OP(ARB) 160/2015/CLAIMANT :** **BIJU JACOB P.V. S/O.P.C.VAVOO, 1/3862, THEKKAYIL COLONY, EAST HILL ROAD, WEST HILL POST, KOZHIKODE, PIN-673005.** **BY ADVS.SRI.P.A.AUGUSTIAN SRI.M.A.BABY SMT.LINDA.M.J.** ## **RESPONDENT/RESPONDENT IN OP(ARB) 160/2015/RESPONDENT:** **DR.SREEKUMAR G. S/O.GOPALAKRISHNAN N.P., 1/4509, BILATHIKULAM, ERANHIPALAM POST, KOZHIKODE, PIN-673006.** **BY ADVS.SRI.C.M.ANDREWS SMT.ANITYA ANNIE MATHEW SMT.BOBY M.SEKHAR KUM.LAYA MARY JOSEPH SRI.P.T.MOHANKUMAR SMT.NEETHU RAVIKUMAR SMT.REVATHY P. MANOHARAN SRI.SHYAM PADMAN** **THIS ARBITRATION APPEALS HAVING COME UP FOR ADMISSION ON** **24.01.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** 2 Arb.Appeal No.14 of 2018 P.B.SURESH KUMAR & C.S.SUDHA, JJ. -------------------------------------------------Arb.Appeal No.14 of 2018 ------------------------------------------Dated this the 24[th] day of January, 2022 ## J U D G M E N T ## C.S.Sudha, J. This is an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act), challenging the order dated 05.07.2017 in O.P.(Arbitration) No.160/2015 on the file of the District Court, Kozhikode. The appellant herein is the petitioner and the respondent herein, the respondent in the aforesaid OP filed under Section 34 of the Act challenging the Arbitral Award dated 03.05.2015 of the sole Arbitrator. The parties in this appeal will be referred to as described in the proceedings before the Arbitral Tribunal. 2. The claimant and the respondent acquired landed properties having an extent of 14.02 Acres in Muppainad Village, Vythiri Taluk, Wayanad District as per Exts.A10, A11 and A12 3 Arb.Appeal No.14 of 2018 assignment deeds. On 01.04.2007, the parties entered into Ext.B1 partnership deed for the purpose of running a business in hospitality and tourism in the name and style, 'M/s.Wayanad Ventures' (the firm) in the property. Resources were required for the development of necessary infrastructure for the business. Hence, for the purpose of obtaining a loan from Kerala Financial Corporation (KFC), they executed Ext.B2 amendment deed. Initially, as per Ext.B1 partnership deed, the partnership was one at 'Will'. For the purpose of obtaining a loan, on 28.02.2009 the parties entered into Ext.B2 amendment deed by which it was agreed that the firm would not be dissolved till the loan availed from the financial institutions are cleared. A clause was also inserted in the deed to the effect that the aforesaid co-ownership property being contributed as the partners' share towards the capital of the firm, would thereafter be treated as the absolute property of the firm. This clause in Ext.B2, according to the claimant, was intended only for the purpose of obtaining a loan from the KFC and that the parties had never intended to act upon it. He contended that in spite of the execution of Ext.B2 4 Arb.Appeal No.14 of 2018 amendment deed, the properties continued to be treated as coownership property, which aspect is clear from the fact that the said immovable properties were never included or shown as the fixed assets of the firm in any of its documents. 3. Disputes arose between the parties relating to the functioning of the business and in the matter of generation of funds for running the day-to-day affairs of the business. The business right from the beginning was running at a loss. When the claimant realised that the business was always at a loss and that it was not generating profits as expected, he decided to retire from the partnership with effect from 01.07.2011. So, he sent Ext.A1 notice dated 01.06.2012 informing the respondent of his intention to do so. The parties were not able to arrive at a consensus relating to this. The respondent then filed O.P.Arb.No.429/2011 under Section 9 of the Act before the District Court, Kozhikode, for restraining the claimant from causing obstruction in the smooth running of the business. Having failed in his attempt to obtain an interim order from the court, the respondent filed Arb. Appeal 5 Arb.Appeal No.14 of 2018 No.58/2021 before this Court, during the course of which this Court with the consent of both parties, appointed Sri. K. Ramakrishnan, a retired District Judge, as the sole Arbitrator and interim Receiver. 4. Both the parties appeared before the learned Arbitrator and filed their respective statements. On the request of both sides, the question whether the firm stood dissolved by way of Ext.A1 notice issued by the claimant intimating the respondent of his desire to retire from the partnership was considered as a preliminary issue. After giving opportunity to both sides to adduce evidence and after hearing the parties, an interim Award dated 15.12.2012 was passed, by which the learned Arbitrator held that the firm stood dissolved w.e.f. 01.07.2011. Aggrieved by the said finding, the respondent moved O.P.Arb.No.27/2013 before the District Court for setting aside the interim Award. The said OP was dismissed, against which the respondent filed Arb. Appeal No.6/2014 before this Court. This Court by order dated 24.10.2014 dismissed the appeal and directed the learned Arbitrator to complete the proceedings within 6 months. 6 Arb.Appeal No.14 of 2018 Thereafter the learned Arbitrator proceeded with the arbitration and passed a final Award on 03.05.2015. 5. As per the Award, the total extent of the property has been directed to be divided and the claimant allotted 45% of the property and the remaining 55% to the respondent. Aggrieved by the finding, the claimant filed O.P.(Arbitration) No.160/2015 before the District Court and the respondent filed O.P.(Arbitration) No.110/2015. Both the petitions were dismissed by the impugned common order dated 05.07.2017. Aggrieved, the petitioner in O.P.(Arbitration) No.160/2015 is before us. The respondent has not filed any appeal against the order in O.P.(Arbitration) No.110/2015. 6. Heard Sri. P.A. Augustin, the learned counsel for the appellant and Sri. P.T. Mohan Kumar, the learned counsel for the respondent. 7. The present appeal challenges the findings of the learned Arbitrator on issues I and IV in the Award, which were confirmed by the court below. Issues I and IV in the Award read - (i) “I. 7 Arb.Appeal No.14 of 2018 What are the properties of the firm? Whether the landed properties covered by Ext.A10, A11 and A12 Assignment Deeds are the properties of the firm?” (ii) “IV. What is the residue and in what proportion the residue is to be divided among the partners?” The learned Arbitrator found that the properties covered by Exts.A10 to A12 deeds are in fact the properties of the firm and so directed its division in the proportion referred to earlier. The claimant is aggrieved by this finding of the learned Arbitrator and contends that Ext.B2 is a sham document, which was never intended to be acted upon. It was created only for the purpose of availing a loan from KFC. When funds were required for the development of necessary infrastructure for the business, the parties decided to approach the KFC for availing a loan. As directed by KFC, they executed Ext.B2 in which clause 2 was incorporated, which reads - “(2) Now it is hereby recorded that the parties hereto have contributed their properties to the extent of 5.6750 He. comprised in R S No.350/2, 3, 4, 5, 6 of Muppainad Village, Vythiri Taluk, Wayanad District as their share towards capital of the firm and that the said properties shall be hereafter be the absolute property of the firm.” 8 Arb.Appeal No.14 of 2018 The claimant contended that the parties had never ever intended to act upon the aforesaid clause. On the other hand, the property even after the execution of Ext.B2, continued to be treated as co-ownership property. However, neither the learned Arbitrator nor the court below comprehended this contention of the claimant in the correct perspective. On the other hand, by wrongly interpreting the provisions of the Partnership Act, they have held it to be the property of the firm and directed division of the properties in the proportion referred to above. This according to the learned counsel for the claimant is patently illegal, being in conflict with the public policy of India. 8. Section 34 read with Section 5 of the Act make it clear that an arbitral award can be set aside only on the grounds mentioned under Section 34(2) and not otherwise. Substitutions and insertions have been brought into sub-section (2) by Amendment Act 3/2016, which came into retrospective effect from 23.10.2015. 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 9 Arb.Appeal No.14 of 2018 that the arbitration proceedings may have commenced prior to that date (Ssangyong Engineering and Construction Co. Ltd. v. NHAI (2019 KHC 6554) . Admittedly O.P.(Arbitration) No.160/2015 was filed before the court below on 31.07.2015. Therefore, it is the unamended sub-section (2) of Section 34 that will have to be applied in the instant case. 9. According to the learned counsel for the claimant, the challenge to the Award in this case falls under Section 34 (2)(b)(ii) of the Act. The said provision before its substitution by way of amendment in 2015, reads- “(b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation. - Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of S.75 or S.81.” 10 Arb.Appeal No.14 of 2018 10. What is “public policy” has been explained by the Hon’ble Supreme Court in Associate Builders Vs. Delhi Development Authority [(2015) 3 SCC 49] after referring to several other decisions on the point. The Apex Court referred to ONGC v. Saw Pipes , [(2003) 5 SCC 705] , wherein it has been held that the phrase "public policy of India" required to be given a wider meaning. The concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest varies from time to time. However, the Award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. It was further held that the Award could be set aside if it is patently illegal. The result is that an Award can be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the 11 Arb.Appeal No.14 of 2018 matter and if the illegality is of trivial nature, it cannot be found that Award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such an Award is opposed to public policy and is required to be adjudged void. What would constitute public policy is a matter dependent upon the nature of the transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record was held to be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contra distinguished from the policy of a particular Government (State of Rajasthan v. Basant . Nahata), [(2005)12 SCC 77] 11. However, it has also been held that when a court applies the "public policy" test to an arbitration Award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the ultimate master of the quantity and 12 Arb.Appeal No.14 of 2018 quality of evidence to be relied upon when he delivers his arbitral award. ( Associate Builders supra). 12. Keeping the aforesaid principles in mind, it has to be examined whether the findings of the learned Arbitrator on issue numbers I and IV are so unfair and unreasonable that it shocks the conscience of this Court. The argument advanced on behalf of the claimant that clause (2) by which the parties decided to treat the properties as partnership property was never intended to be acted upon and that Ext.B2 is a sham document, has been rejected by the learned Arbitrator as well as by the court below. Though such a contention had been taken up by the claimant, no oral evidence is seen adduced by the claimant before the learned Arbitrator. His oral testimony could probably have explained the intention which the parties are supposed to have entertained at that point of time. However, for reasons best known to the claimant, he chose not to adduce any oral evidence. In the absence of oral evidence to substantiate the said allegation, the learned counsel was specifically asked as to what material or circumstance(s) 13 Arb.Appeal No.14 of 2018 was being relied on to substantiate the same. In answer to this query, two circumstances were pointed out, namely, (i) Ext.A15 letter written by the respondent to the claimant is accompanied by a statement of accounts dated 05.09.2011. However, the immovable properties are conspicuously absent (ii) that though Ext.B2 was executed, the Registrar of Firms was never intimated about the same. The first circumstance pointed out is seen taken up before the learned Arbitrator and the court below. The second circumstance pointed out now, is neither seen taken up before the learned Arbitrator nor the court below. 13. The learned Arbitrator on the basis of the pleadings of the parties and documentary evidence let in, rejected the contention that Ext.B2 had never been acted upon. The learned Arbitrator took note of the fact that after the execution of Ext.B2, the original of the said document along with Exts.A10 to A12 deeds had been deposited by the parties before the KFC and a loan of ₹ 75 lakhs was obtained. With the said amount, the firm developed the necessary infrastructure for the business. Tourists' cottages, swimming pool and other amenities in the 14 Arb.Appeal No.14 of 2018 property were seen to have been constructed. Constructions were made treating the entire extent of the landed property as a single unit with approach road from the entrance on the western boundary to the restaurant on the eastern side. This was found to be indicative of the fact that the entire extent of the property had been put to use for the purpose of the firm. The learned Arbitrator also noticed that the claimant had not disputed the fact that the firm had been using the property for accommodating and entertaining guests, even from foreign countries, and for other tourism related activities. 14. The claimant also took up a contention that the report filed by the Surveyor who had been appointed to measure out the properties and prepare a plan, is incorrect and that property having an extent of 25 cents has been shown as part of the partnership property by ignoring the existence of boundaries separating the co-ownership property and the property of the firm. However, this allegation of the claimant was also rejected by the learned Arbitrator. The total extent of property covered by Exts.A10 to A12 is only 14.02 acres. However, on 15 Arb.Appeal No.14 of 2018 measurement, the total extent was found to be 14.06 acres. Neither the Surveyor nor the Advocate Commissioner had reported the existence of any boundary separating the properties as alleged by the claimant. The learned Arbitrator had also visited the property several times and therefore he was also quite aware of the lie of the same. Taking all these factors into consideration, the learned Arbitrator held that the allegation that Ext.B2 is a sham document and that it has not been acted upon, is incorrect. 15. It is true that the court below went wrong in referring to sub-section (2-A) of Section 34 also as the said sub-section came into the statute book only w.e.f. 23.10.2015. The present case on the other hand is to be dealt with as per the pre-amended provisions of Section 34. The claimant has not been successful in substantiating the contention that Ext.B2 has not been acted upon. On the other hand, the facts and circumstances clearly show that it has been acted upon. The findings of the learned Arbitrator on issues I and IV are based on the pleadings and documentary evidence let in by the parties. It is well 16 Arb.Appeal No.14 of 2018 settled that a court exercising powers under Section 34 or the High Court in exercise of its powers under Section 37 of the Act, has no power to re- appreciate the evidence let in before the learned Arbitrator as the Arbitrator is the final judge on such matters. 16. The claimant is also aggrieved by the proportion in which the properties have been directed to be allotted to the parties. According to the claimant, the properties covered by Exts.A10 to A12 are co-ownership properties and therefore on dissolution of the firm, the properties will have to be allotted in equal proportion, i.e., 50% to each party. By way of Ext.B2 amendment deed, the properties have already been brought into the hotchpot of the firm and on the basis of the same, the property was treated as the absolute property of the firm. As per Ext.B1 partnership deed, the profit and loss arising from the firm is liable to be divided among the partners in the following proportion, i.e., 55% to the respondent and 45% to the claimant. It is based on the same, the proportion appears to have been fixed. There is no infirmity or illegality in the findings of the Arbitrator as canvassed 17 Arb.Appeal No.14 of 2018 on behalf of the claimant. Hence, no interference into the findings of the learned Arbitrator, is called for and so the court below was justified in refusing interference. The appeal is found to be without any merits and hence the same is dismissed. No order as to costs. Interlocutory applications if any pending, shall stand disposed of. Sd/- P.B. SURESH KUMAR JUDGE Sd/- C.S. SUDHA JUDGE ami/