Award Debtor Failed To Take Recourse To S. 26 of Arbitration Act; Cannot Challenge Award Claiming Expert Was Not Examined: Bombay High Court

The bench of Justice Manish Pitale was dealing with a petition challenging the arbitral award in a dispute between partners, where the award debtor contented that the dissolution notice of the partnership firm was invalid since one of the partners was allegedly of unsound mind at the time of issue of notice.

While holding that the question of unsoundness of mind can never be decided in the arbitral proceedings, and the same can be decided only by a special forum created by a special law, the Court ruled that the said ground was rightly dismissed by the arbitrator.

Section 26 of the A&C Act deals with appointment of an expert by the arbitral tribunal. Section 26(2) provides that a party may request the expert to participate in an oral hearing where the parties would have the opportunity to put questions to him and the opportunity to present their own expert witnesses, to testify on the points at issue.

The petitioner, Zenobia Poonawala, and the respondents, including Rustom Ginwalla, are partners in two partnership firms.

The petitioner, allegedly, transferred certain amount from the account of the partnership firm to her personal account, without the knowledge or consent of the other partners. Consequently, a notice for dissolution of the firms was issued by the other partners and the dispute between the parties was subsequently referred to arbitration.

Noting that the accounts of the partnership firms had to be settled, the Arbitrator appointed a Chartered Accountant as an auditor for the firms’ accounts. The Auditor submitted its report along with the financial statements. Taking into consideration the said report, the Arbitrator passed an award upholding the dissolution of the partnership firms, and directed the petitioner to pay certain amount to the firm.

The petitioner, Zenobia Poonawala, challenged the award by filing a petition under Section 34 of the A&C Act before the Bombay High Court. The petitioner submitted that since the author of the auditor’s report was not examined, the Arbitrator could not have placed reliance on the same. She added that since the respondents chose to rely upon the report of the auditor, the burden was on the respondents to prove the same. The petitioner further argued that the dissolution notice was invalid.

Thus, the petitioner contended that the award violated the basic tenets of the law of evidence, leading to miscarriage of justice.

The respondent, Rustom Ginwalla, submitted that the auditor was appointed by the consent of the parties and if the petitioner had any objection to the report, she ought to have taken recourse to Section 26 of the A&C Act.

The respondent averred that the petitioner’s claim that the dissolution notice was invalid, was based on the ground that one of the partners, at the time the dissolution notice was issued, was allegedly of unsound mind. The respondents pleaded that the said issue regarding the alleged unsoundness of mind, is not an arbitrable matter.

Referring to the decision of the Apex Court in Ssangyong Engineering & Construction Company Ltd. v. National Highway Authority of India (NHAI) (2019), the Court reiterated that arbitral awards cannot be casually interfered with, only because the Court finds that on merits, another view was possible.

The High Court noted that the Supreme Court in Ssangyong Engineering & Construction Company Ltd. (2019), after referring to Section 26 of the A&C Act, had ruled that if a party requests for the report of the expert along with the documents in its possession, the same ought to be made available to the party. Further, if requested, the parties must be given an opportunity to put questions to the expert and to present their own expert witnesses in order to decide the points at issue.

The High Court thus concluded: “In the facts of the present case, this Court is of the opinion that the respondents are justified in relying upon the above-quoted provision, to oppose the contentions raised on behalf of the petitioner, as regards the report of the auditor.”

While holding that the provisions of Section 26 of A&C Act were applicable to the case, the bench said, “..if the petitioner so desired, she could have requested the learned arbitrator to call the auditor to participate in the hearing, where the petitioner could have put questions to the auditor, under sub-section (2) of Section 26 of the said Act. In fact, the petitioner could have presented expert witnesses, in order to testify on the points at issue.”

The Court added that the petitioner, having failed to take recourse to the provisions of Section 26, cannot claim that the respondents ought to have examined the auditor, before the arbitrator could take the auditor’s report into consideration.

Ruling that the arbitrator is the master of the evidence, the bench held that it is only in cases of no evidence that an award can be interfered with under Section 34.

Dealing with the contention that the dissolution notice was invalid in view of the fact that one of the partners was allegedly of unsound mind, the Court said, “The ground pertaining to unsoundness of mind of Farhad Ginwalla is unsustainable, for the reason that the question of unsoundness of mind could never have been decided in the arbitral proceedings. Such an issue cannot be an arbitrable issue and it can be decided only by the special forum created by the special law in that regard. It is an admitted position that the petitioner had initiated such a proceeding under the Mental Health Act, against Farhad Ginwalla, before the Bombay City Civil Court, but the same was inconclusive. Therefore, no error can be attributed to the learned arbitrator for having held against the petitioner on the said ground.”

While ruling that no ground was made for interference in the arbitral award, the Court dismissed the petition.

Case Title: Zenobia Poonawala versus Rustom Ginwalla & Ors.

Citation: 2023 LiveLaw (Bom) 56

Dated: 25.01.2023

Counsel for the Petitioner: Mr. Aseem Naphade a/w. Mr. Premlal Krishnan, Mr. Rehmat Lokhandwala and Mr. Prashant Bothre, i/by. Pan India Legal Services LLP

Counsel for the Respondent: Mr. Sameer Pandit and Ms. Sarrah Khambati, i/by. Wadia Ghandy & Co.

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