An Arbitral Award Cannot Be Challenged In Appeal On Entirely New Grounds Which Were Not Taken Under Section 34 Of The A&C Act: Bombay High Court

The bench of Chief Justice Devendra Kumar Upadhyaya and Justice Arif S. Doctor held that an arbitration award cannot be challenged on afresh grounds that were never taken before. It held that such a course would not just be in teeth of the settled position of law but would also disturb the entire scheme of the arbitration act.

The Court also held that under Section 37(1)(c) of the A&C Act, it is only the order of the Court under Section 34 against which the appeal is maintainable, therefore, the challenge must be to the order of the Court and not to mere award.

Facts

The Appellants, who are the sons of Gulam Rasool Jamal Sheru, along with Yusuf Miyaji and Gulam Rasool Suleman, were partners in the Firm, which operated a restaurant at 10 Musafirkhana Road, off Carnac Road, Mumbai, 400 001. The Firm's formation was initially documented in the First Deed of Partnership in 1960, and over time, the partners periodically revised their shares.

On March 15, 1975, the partners executed the Fourth Deed of Partnership, reducing Sheru's share in the Firm to 12%. They also entered into a Conducting Agreement where Sheru agreed to manage the business for a year, paying a royalty/hire charge to Miyaji and Suleman.

Sheru continued to manage the Firm until April 1, 1992, at which point the Firm resumed autonomous operation as before the Conducting Agreement.

In July 1992, the Fifth Deed of Partnership was executed, maintaining Sheru's 12% share. It stipulated that in the event of a partner's death, the surviving partners could continue the business with or without inducting the heirs of the deceased partner.

In August 2002, Sheru passed away, and a disagreement emerged between the surviving partners and Sheru's sons (the Appellants). The parties disagreed on the events following Sheru's demise, business conduct, and possession of the Restaurant Premises. The Appellants claimed they continued the business, while the Firm asserted it was shut down on May 2, 2003, and an FIR was filed against the surviving partners.

In response, the Firm filed a lawsuit in June 2003 against the Appellants and Abdul Wahid, seeking an injunction and alleging unauthorized entry and damage to the Restaurant Premises. The Court dismissed the Firm's case in August 2005 due to a lack of evidence of their possession.

The Firm subsequently filed a second lawsuit in 2006, seeking to regain possession of the Restaurant Premises and mesne profits.

In September 2006, the disputes were referred to arbitration with the consent of the parties. The Arbitral Tribunal issued an award directing the Appellants to provide vacant and peaceful possession of the Restaurant Premises to the Firm and pay compensation for wrongful use and occupation.

The Appellants contested the Arbitral Award through a Commercial Arbitration Petition, which was dismissed in the Impugned Order.

Grounds of Appeal

The appellant made the following submissions:

• The tribunal framed one-sided issues and the issues framed did not reflect the contentions raised by the appellants during the arbitral proceedings.
• There is no reference to any of the Deeds of Partnership and/or Conducting Agreement in the Arbitral Award, which reflects a complete nonapplication of mind on the part of the Arbitral Tribunal amounting to legal misconduct, is equally devoid of merit.
• The award has been passed in absence of any evidence qua proof of the said Deeds of Partnership.
• That none of the Deeds of Partnership (except the Second Deed) were registered and the deed out of which the arbitral reference arose was not stamped.

Analysis by the Court

The Court observed that the grounds taken by the appellants in appeal are entirely new as none of those contentions were ever raised before the tribunal or the Court under Section 34 challenge.

The Court held that an appeal to challenge an arbitral award cannot be on entirely new grounds. It held that grounds which were not taken before the Court under Section 34 of the A&C Act cannot be taken in appeal.

The Court held that an arbitration award cannot be challenged on afresh grounds that were never taken before. It held that such a course would not just be in teeth of the settled position of law but would also disturb the entire scheme of the arbitration act.

Also, the Court observed that the appellant has not raised any challenge against the decision of the single judge, but only challenged the impugned award. It held that in Section 37 appeal against an order under Section 34, the appellant hast to challenge the impugned order or the reasoning therein and not merely the arbitral award.

The Court held that under Section 37(1)(c) of the A&C Act, it is only the order of the Court under Section 34 against which the appeal is maintainable, therefore, the challenge must be to the order of the Court and not to mere award.

On merits also, the Court rejected all the contentions of the appellant. The Court found that the challenge to the Arbitral Award lacks merit. None of the grounds presented amount to a patent illegality that would justify setting aside the Award.

The contention that the Arbitral Award is patently illegal, perverse, arbitrary, and whimsical was deemed untenable. The Appellants failed to provide evidence that they had requested the Arbitral Tribunal to consider certain issues not addressed in the Award.

The second ground of challenge, which claimed that there was no reference to the Deeds of Partnership and Conducting Agreement in the Arbitral Award, was also rejected. The Appellants had admitted and relied on these documents, so their absence from the Award was not an issue.

The third ground, alleging a lack of evidence concerning the Deeds of Partnership, was dismissed. The Appellants had admitted these documents, and the contention was never raised before the Arbitral Tribunal or the Learned Single Judge.

The fourth ground, asserting that some Deeds of Partnership were not registered, was deemed irrelevant. The Registration Act did not require registration of such documents, and the objection was never raised before.

The Court also pointed out that objections related to the sufficiency of stamp duty should have been raised at an earlier stage, which the Appellants failed to do. Additionally, the Deeds of Partnership were found to have sufficient stamp duty as per the relevant regulations. Importantly, the Court noted that the arbitration was initiated by consent of the parties and not solely based on the Partnership Deeds, rendering the stamping issue irrelevant to the arbitration process. Consequently, the Court concluded that this ground had no merit in challenging the Arbitral Award.

The last submission argued that the second suit was barred, but the Court found that the causes of action in both suits were distinct and separate.

Accordingly, the Court dismissed the appeal as lacking any merit.

Case Title: Azizur Rehman Gulam v. Radio Restaurant, Commercial Appeal No. 18 of 2023 in Comm. Arbitration Petition No. 1286 of 2019

Date: 25.10.2023

Counsel for the Appellants: Mr. Subhash Jha a/w Mr. Harekrishna Mishra, Mr. Siddharth Jha, Ms. Linisha Seth, Mr. Clifford Gonsalves, Ms. Shraddha Kataria, Mr. Ritesh Kesarwani, Mr. Krunal Jadhav, Ms.Praveena Venkatraman and Ms. Alka Pandey i/by Law Global Advocates for the Appellants.

Counsel for the Respondent: Mr. Karl Tamboly a/w Mr. Anuj Desai, Ms. Rujuta Patil, Mr. Yohaan Shah and Mr. Hasan Mushabeer i/by Negandhi Shah & Himayatullah for Respondent No.1. Mr. Ghanshyam Upadhyay a/w Mr. Ankit Upadhyay and Mr. Vijay Jha i/by Law Juris for Respondent Nos.2 to 8. Mrs. Rucha Ambekar, Section Officer for Court Receiver present

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