Gujarat High Court
Sentinel Properties Private Limited vs Legal Heir Of Deceased Atul Dhirajlal … on 13 September, 2024
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/1639/2023 CAV JUDGMENT DATED: 13/09/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 1639 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1639 of 2023
With
R/FIRST APPEAL NO. 1624 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1624 of 2023
With
R/FIRST APPEAL NO. 1626 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1626 of 2023
With
R/FIRST APPEAL NO. 1627 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1627 of 2023
With
R/FIRST APPEAL NO. 1629 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1629 of 2023
With
R/FIRST APPEAL NO. 1630 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1630 of 2023
With
R/FIRST APPEAL NO. 1631 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1631 of 2023
With
R/FIRST APPEAL NO. 1632 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1632 of 2023
With
R/FIRST APPEAL NO. 1617 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1617 of 2023
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With
R/FIRST APPEAL NO. 1614 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1614 of 2023
With
R/FIRST APPEAL NO. 1620 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1620 of 2023
With
R/FIRST APPEAL NO. 1618 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1618 of 2023
With
R/FIRST APPEAL NO. 1623 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1623 of 2023
With
R/FIRST APPEAL NO. 1622 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1622 of 2023
With
R/FIRST APPEAL NO. 1621 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1621 of 2023
With
R/FIRST APPEAL NO. 1619 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In R/FIRST APPEAL NO. 1619 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
=============================================
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1 Whether Reporters of Local Papers may be No
allowed to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
=============================================
SENTINEL PROPERTIES PRIVATE LIMITED
Versus
LEGAL HEIR OF DECEASED ATUL DHIRAJLAL AMIN VIRAL
ATULBHAI AMIN S/O LATE AUTLBHAI AMIN
=============================================
Appearance:
MR MIHIR JOSHI, SR ADVOCATE with MR VAIBHAV GOSWAMY,
MR ANUJ K TRIVEDI(6251) for the Appellant(s) No. 1
MR DHRUV AGARWAL, SR ADVOCATE with MR VIBHORE
VARDHAN, MR RUTUL P. DESAI AND MR PAVAN GODIAWALA for
the Defendant(s) No. 1
=============================================
CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 13/09/2024
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE
MRS. JUSTICE SUNITA AGARWAL)
1. This appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (in short as the “Arbitration Act’
1996”) has been preferred by the original claimant in
arbitration case, viz. CMA No. 05/2012 before the
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arbitral tribunal, viz. the learned sole arbitrator who has
declared the award dated 24.10.2016.
2. We may note, at the outset, that the order dated
20.10.2016 passed by the learned sole arbitrator in
rejecting the applications Exhibit 44 and 15 others has
also been subjected to challenge before the civil court
under Section 34 of the Act, 1996 apart from the
impugned award dated 24.10.2016. In all, 16 arbitration
references being CMA Nos. 5 to 20 of 2012 were
decided by the learned arbitrator vide common award
dated 24.10.2016 and the award reads as under :-
“(1) It is hereby declared that the Power of
Attorney dated August 31st 2007 Exh. 10 executed
by respondent in favour of the claimant is
irrevocable and cannot be revoked. It is declared
that cancellation of Power of attorney by the
respondent is bad in law and Power of attorney
Exh. 10 remains in force.
(2) Claimant is directed to put in fixed deposit for a
period of three months in any nationalized Bank in
Ahmedabad an amount of Rs. 3,63,825/- (Rupees
Three Lac Sixty Three Thousand Eight Hundred
Twenty Five only) being balance of sale
consideration of the land bearing Survey No. 802
admeasuring 6,374 Sq. mt. situate at Mouje
Sachana, Taluka Viramgam, District Ahmedabad of
this claim within two months from the date of
receipt of this order.
(3) Claimant shall communicate the fact of such
fixed deposit with a Xerox copy of such fixed
deposit to the respondent by registered post A. D.
and speed post.
(4) On receipt of the communication of Fixed
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Deposit from the claimant, the respondent is
directed to make an application to the competent
authority for conversion of land to non-agricultural
land from agricultural land within 15 days from the
date of receipt of the communication of fixed
deposit.
(5) On receipt of necessary requisite permission for
change of Tenure and N. A. use, Respondent shall
communicate the same to claimant in writing at the
earliest by Registered Post A.D. and Speed Post
and execute Registered Sale-deed.
(6) In case of default, parties may take legal action
for the further implementation of Award.
(7) Respondent shall pay cost of claimant and bear
his own cost quantified at Rs. 14,10,000/- (Rupees
Fourteen Lacs Ten Thousand only) (amount split up
Rs 10.50,000/- Fees of sole arbitrator, Rs.
1,05,000/- remuneration of administrative assistant,
Rs. 1,05,000/- Miscellaneous Expenses and
Rs.1,50,000/- advocate’s fees) for all the
consolidated matters.”
3. A perusal of the award indicates that the claimant, viz.
the appellant herein, a Company incorporated under the
provisions of the Companies Act, 1956 promoted by K.
Raheja Corporation, Mumbai, is a major developer
engaged in the business of group housing, commercial
and industrial developments across India. The claimant
claims to be the purchaser of lands from four
respondents/owners of different survey numbers, who
have been termed as vendors no.1, 2, 3 and 4 in the
award. There were 16 claim petitions consolidated for
16 parcels of lands owned by four different owners and
the dispute was with respect to the purchase of the said
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property after they were converted into Non-agricultural
purposes by way of registered agreements to sell
entered into by the claimant with the respondents on
different dates over a period of one year between the
years 2007-2008, as is evident from the table.
4. A perusal of the Deed of agreements to sell given in the
table indicates that 16 agreements to sell were executed
on different dates between 29.03.2007 to 25.03.2008. It
was the case of the claimant-appellant herein before the
learned arbitrator that the respondents executed in the
form of agreements to sell, an irrevocable Power of
Attorney, appointing the claimant as true and lawful
person to transfer the said property. The respondents
were required to get the properties converted from
agricultural lands to non-agricultural lands at their own
cost and expenses and sale consideration was to be paid
only at the time of execution of the conveyance deed.
However, till date, the respondents had not got the
properties converted from agricultural lands to non-
agricultural lands nor had obtained and produced the
title clearance certificate from reputed solicitor nor they
appear to have made attempt to do so and further for
conversion of the lands from new tenure to old tenure.
5. It was submitted that the irrevocable Power of Attorney
executed in the shape of agreements to sell were
coupled with pecuniary interest in the property. The
claimant had paid substantial amount towards sale
consideration as per the terms and conditions of the
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agreement and the agreements were to purchase the
non-agricultural land and, therefore, they were not
barred by law. It was further contended before the
learned arbitrator that the claimant was always ready
and willing to perform the terms and conditions of the
agreements to sell and the application for conversion of
the lands in question from agricultural lands to non-
agricultural lands was required to be moved by the
vendor and the claimant had no role to play. It was
further argued that since the agreement to sell was for
purchase of lands in question as non-agricultural lands
after conversion, no invalidity can be attached to the
agreements in view of Section 63(1)(c) of the Gujarat
Tenancy and Agricultural Lands Act, 1948 (for short
“Gujarat Tenancy Act’ 1948”). It was argued that the
provisions of the Gujarat Tenancy Act’ 1948 would not
be applicable to the facts and circumstances of the case.
6. The stand of the claimant was that the irrevocable Power
of Attorney executed in favour of the claimant being
coupled with the pecuniary interest could not be revoked
yet the respondents had issued public notices dated
29.06.2012 and 30.06.2012 to cancel or to revoke the
Power of Attorney. The total payment of consideration
made by the claimant to the owners with respect to the
entire sale transaction of all the properties is
approximately Rs. 51,08,04,634/- (Rs. Fifty One Crores
Eight Lakhs Four Thousand Six Hundred and Thirty Four
Only). After execution of the agreements to sell, the
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claimant was in touch with the respondents throughout
through their mediator/facilitator and the respondents
gave a picture that they will soon get the property
converted for non-agricultural purposes and shall
execute a sale deed in favour of the claimant.
7. When nothing was done for a long time, the claimant
inspected the records of the Revenue Department in the
month of January 2011 and came to know that the
respondents executed a sale deed in favour of third
parties for some of the properties, which however, have
not been included in the claim petition. It was,
thereafter, agreed between the parties that the
respondents shall not transfer, assign, mortgage the
properties, subject matter of agreements to sell, to third
parties and they will get the title clearance certificate for
the property in question and would get it converted from
agricultural to non-agricultural use before execution of
the sale deed in favour of the claimant.
8. However, in the month of June 2012, the claimant came
across a public notice in the newspapers “Gujarat
Samachar” daily and “Times of India” daily stating that
four respondents, viz. Mr. Ajay Patel, Mr. Atul Amin, Mr.
Chirag Amin and Mr. Pragnesh Patel have revoked the
Power of Attorney given by them to the claimant with
respect to the properties in question and other
properties which were part of Exhibit 16 with respect to
which the sale deeds were executed by them in favour of
the third party. The claimant replied to the said public
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notice in the newspapers “Divya Bhaskar” and “Times of
India” stating that the Power of Attorney was coupled
with interest and could never be cancelled and does not
stand cancelled accordingly. It was stated that the
original documents pertaining to the title of the suit
properties were delivered by the respondents to the
claimant at the time of execution of understanding
(Exhibit 9) and the said documents are in possession of
the claimant even on that day.
9. An application under Section 9 of the Act’ 1996 for
interim relief was then moved by the claimants and
before the civil court at Viramgam, a consent term had
been arrived at between the parties whereunder, they
have submitted their consent/compromise purshis
agreeing for appointment of the learned sole arbitrator
who happened to be a retired Judge of the High Court of
Gujarat. It was also agreed that both the parties shall
maintain status quo as per the interim order passed by
the civil court till the award is passed by the learned
arbitrator. The proceedings under Section 9 of the
Arbitration Act’ 1996 was accordingly, disposed of.
10. Taking note of the above facts, the manner in which the
proceedings were initiated and the dispute raised by the
claimant before the learned arbitrator, at this juncture,
we may refer to the common order dated 20.10.2016
passed by the learned sole arbitrator on applications
Exhibit 44 and 15 others. It is noted in the order
impugned dated 20.10.2016 passed by the learned sole
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arbitrator that after exchange of pleadings and oral
evidence adduced by the parties, oral arguments were
completed on 12.08.2016. Both the learned advocates
have filed written arguments on 29.09.2016. However, a
day before the date of filing of the written arguments by
the respondents, all the claimants have separately filed
an application under Section 12(2) of the Arbitration Act’
1996, which was received by Speed Post on 26.09.2016.
All the applications were disposed of by the learned
arbitrator by common order dated 20.10.2016.
11. A perusal of the said order indicates that the
respondents have taken a stand that it has come to their
knowledge only a couple of days back that the sole
arbitrator was not competent to proceed further with the
present arbitral proceeding, as he has conducted the
arbitration in utter violation of the provisions embodied
in Sections 12(1) and 12(2) of the Arbitration Act’ 1996
and a request had been made to the learned Arbitrator
to withdraw from the proceedings. The reason given for
the same as narrated by the applicants-respondents in
the claim petitions were that the circumstances came to
their notice are likely to give justifiable doubts as to the
independence and impartiality of the learned arbitrator.
It has come to the notice of the respondents-applicants
that :-
1) One Mr. Mahendra G. Lodha is a Director in a
company named Pinal Infrastructure Private Ltd.
Pinal Infrastructure Private Ltd., a major share
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holder of claimant Sentinel Properties Private Ltd.
One Nitrex Logistics Private Ltd. has merged with
Pinal Infrastructure Private Ltd. This Pinal
Infrastructure Private Ltd. has 51% stake in
Sentinel Properties Pvt. Ltd. Mr Mahendra G.
Lodha is a Director and a share holder in both the
Pinal Infrastructure Private Limited and Nitrix
Logistics Private Ltd. On the merger of Pinal
Infrastructure Private Ltd. with Nitrex Logistics
Private Ltd. they are known as Nitrex Logistics
Private Ltd. Mr Mahendra G. Lodha is interested in
the outcome in the Sentinel Properties Pvt. Ltd.
(2) Mr. Mahendra G. Lodha is a founder trustee of one
public trust ‘Justice on Trial’ (“Trust” for short). The
sole arbitrator Justice Soni is also a founder
member of the trust. Being co-trustee, Mr. Justice
Soni is having a close association and contact with
Mr. Mahendra G. Lodha. Mr. Justice Soni (sole
arbitrator) is having a family relationship with
family of Mr. Mahendra G. Lodha. Mr. Justice Soni
and his family members are invitees in family
function of Mr. Lodha.
(3) These facts as alleged qualify a justifiable doubt in
the mind of applicant as to independence and
impartiality of sole arbitrator namely Mr. Justice
Soni. The learned arbitrator ought to have declared
these facts from the time of his appointment as an
arbitrator and also during the proceedings.
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(4) These facts have come to the notice of applicant
only a couple of days back. The party’s advocate
Mr. Sanjay Thaker for the claimant and Mr. N. R.
Patel had a meeting with the learned arbitrator at
his residence in the afternoon of 12th May 2013.
Then the arbitration proceeding commenced and on
completion of the pleadings oral evidence of one
witness was over. During this period, i.e. from 17th
May 2013 to 8th May 2015 when Mr Rajesh Lodha
second witness was cross examined when for the
first time, the names of Mr. Mahendra G. Lodha,
Pinal Infrastructure Pvt. Ltd., Nitrex Logistic Pvt.
Ltd. had come on record.
12. The respondents-applicants by means of the said
application with the above-noted facts requested the
learned arbitrator to withdraw from the proceedings. It
was contended that the learned sole arbitrator was
required to declare these facts at the time of his
appointment as an arbitrator and also during the
proceedings. When in the cross-examination of the
second witness of the claimant, viz. Mr.Rajesh Lodha
during the period from 17.05.2013 till 08.05.2015, the
names of Mr. Mahendra G. Lodha, Pinal Infrastructure
Pvt. Ltd. and Nitrex Logistics Pvt. Ltd. had surfaced.
13. From the extract of the cross-examination of Mr. Rajesh
Lodha, as noted in the order impugned dated
20.10.2016, it can be noted that the names of Pinal
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Infrastructure Pvt. Ltd and Mr. Mahendra G. Lodha
appeared on record on 08.05.2016 during the cross-
examination of Mr. Rajesh Lodha who had admitted that
Mr. Mahendra G. Lodha was his cousin brother and Pinal
Infrastructure Pvt. Ltd. has purchased 51% of the share
holding of the claimant Company in the year 2011 and
Mr. Rajesh Lodha became the Director in the claimant
Company in the year 2011 itself. It has also come on
record that Mr. Mahendra G. Lodha was a founder
trustee of the Trust ‘Justice on Trial’ from 27.09.2004,
though he had resigned on 13.08.2010 due to his pre-
occupation in his professional work. The resignation of
Mr. Mahendra G. Lodha as a founder trustee of the said
Trust was accepted in the meeting held on 24.10.2010.
It is observed by the learned sole arbitrator in the order
impugned dated 20.10.2016 that during the period of six
years of Mr.Mahendra G. Lodha being trustee of the said
Public Trust, he had attended only 5 to 6 meetings and
the trustees of the said Trust were not knowing each
other prior to 27.09.2004, before inception of the trust.
14. The order dated 20.10.2016 records the statement of the
learned sole arbitrator that since the resignation of Mr.
Mahendra G. Lodha, the learned Arbitrator has no
connection with him in any respect. However, it is
admitted that Mr.Mahendra G. Lodha had organised a
function to celebrate the birthday of his grandson on
08.11.2014 and the learned sole arbitrator along with his
wife had attended the said function. It is recorded by
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the learned arbitrator in the order impugned dated
20.10.2016 that Mr. Ajay Patel, one of the respondents
was also an invitee in the said function and except the
said function, the learned arbitrator was never invited in
any other function by Mr. Mahendra G. Lodha.
15. Mr. Ajay Patel, one of the respondents before the
learned arbitrator, in his application dated 24.09.2016,
has clearly stated that because of the close relationship
of Mr. Mahendra G. Lodha, the Director of Pinal
Infrastructure Pvt. Ltd., which is having 51% stake in the
claimant Company, viz. Sentinal Properties Pvt. Ltd., the
respondents-applicants had justifiable doubts about the
independence and impartiality of the learned arbitrator.
However, the learned arbitrator has discarded this
version on the ground that Mr. Ajay Patel was also an
invitee in the birthday celebration of the grandson of
Mr.Mahendra G. Lodha on 08.11.2014 and was aware of
relationship of the learned sole arbitrator with
Mr.Mahendra G. Lodha, at least since that date, but he
had not raised this issue for about two years.
16. It was observed that the statement in the application
dated 24.09.2016 submitted by the Mr.Ajay Patel that he
learnt about the fact stated in the application only a
couple of days back was vague and devoid of particulars
with a view to bring in the application within time limit
prescribed under Section 13(2) of the Arbitration Act,
1996 in a malafide manner. The applicants have not
deliberately provided correct information and knowledge
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of the facts disclosed in the application filed under
Section 13(2) and hence, an adverse inference is to be
drawn that he had the knowledge and information of
these facts for a long period.
17. It was admitted by the learned arbitrator that for the
period from 27.09.2004 to 13.10.2010, the learned sole
arbitrator and Mr. Mahendra G. Lodha were co-trustees.
However, it was observed that there cannot be a
presumption that the co-trustee must know about the
personal, professional, social, business concerns and/or
involvement of each other. The name of Nitrex Logistics
Pvt. Ltd. came on record and to the knowledge of the
learned Arbitrator only when Mr. Ajay Patel filed
rejoinder affidavit dated 09.10.2016 before the Tribunal
on 12.10.2016 with the list of documents like Annual
statements and the Trust Deed, etc. filed by him.
18. In the cross-examination of Mr.Rajesh Lodha, there were
simply suggestion that Mr. Mahendra G. Lodha had
interest in Pinal Infrastructure Pvt. Ltd. and the
document to show his interest was placed on record only
on 12.10.2016 during the course of hearing of the
application under Sections 12 and 13 of the Arbitration
Act’ 1996. During the arbitration proceedings, which
commenced from 17.05.2013 with the arguments and
completed on 12.08.2016, interest of Mr. Mahendra G.
Lodha could not be found or had not been disclosed.
19. It is opined by the learned arbitrator that mere
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reproduction of the words “justifiable doubts as to the
independence or impartiality” in itself does not give rise
to any justifiable doubt about the independence or
impartiality of the learned arbitrator. Bias or
impartiality has to be shown from the record with
reference to the specific instances and there is no single
direct or indirect remote or recent instance to show bias
or impartiality of the learned arbitrator.
20. It was held that Mr. Ajay Patel knew that the learned
sole arbitrator had attended the birthday celebration of
the grandson of Mr.Mahendra G. Lodha as he was also
one of the invitees, but till the affidavit in rejoinder filed
on 12.10.2016, there was nothing on record to show the
interest of Mr. Mahendra G. Lodha even in the claimant
Company viz. Sentinal Properties Pvt. Ltd. There is
nothing on record to show that Nitrex Logistics Pvt. Ltd.
had any nexus with the claimant, viz. Sentinal Properties
Pvt. Ltd. It was, thus, opined that all the imputation on
the impartiality of the learned arbitrator are only the
mental perceptions of the applicant.
21. From the time of appointment of the learned arbitrator
and throughout the arbitral proceedings, there is no
disclosure of any circumstances, which are likely to give
rise to justifiable doubts as to the independence or
impartiality of the learned arbitrator. There are no
facts, information or particulars on record from which
the learned sole arbitrator can have knowledge and was
required to make a disclosure about his acquaintance
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with Mr. Mahendra G. Lodha who is otherwise cousin
brother of Mr.Rajesh Lodha, the Director of the
claimant Company, viz. Sentinal Properties Pvt. Ltd.
There does not exist any circumstance where a
reasonable and fair minded person would think it
probable or likely that the learned arbitrator would be
prejudiced against the litigant. For the fact of simply
being co-trustee of a Public Trust, it cannot be assumed
that the learned arbitrator being co-trustee was having
information about the occupation, business, social,
professional status of the co-trustee.
22. It was, thus, held by the learned arbitrator that in
absence of material particulars on record or evidence to
show the knowledge, no inference can be drawn about
the possibility of bias as a reasonable or fair mind.
There is no incident on record which may create any
doubt as to the independence or impartiality of the
learned arbitrator and hence, the application is liable to
be rejected. It was also noted that as the challenge has
not been made in timely manner, the same must fail as
having been waived off on the ground of acquiescence in
holding of further proceedings of the application.
23. Coming on the challenge to the award, keeping in mind
the limited scope of interference under Section 37 of the
Arbitration Act’ 1996, we may note the issues framed by
the learned arbitrator for declaration of the award as
under :-
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(1) Whether the Claimant proves that the
Respondent made out the title of the suit land clear
and marketable free from encumbrances and
handover the vacant and peaceful possession after
converting the same into non-agricultural land?
(2) Whether the Claimant proves that the
Respondent had given irrevocable Power of
Attorney, coupled with pecuniary interest with the
land, cannot be revoked?
(3) Whether the Respondent proves that the Claim
statement is not maintainable at law?
(4) Whether the Respondent proves that the Claim
Agreement to sell in question is unenforceable at
Law as the same is invalid under Sec. 64(1) (c) of
the Gujarat Tenancy and Agricultural Lands Act?
(5) Whether the Respondent proves that the Claim
Agreement to sell in question contains the clauses
gives unilateral option to the Claimant to terminate
the Agreement hence the nature of the Agreement
is determinable and not enforceable?
(6) Whether the Respondent proves that the
Arbitration proceedings based on Claim Agreement
to sell is barred by period of limitation and is also
unenforceable?
(7) Whether the Claimant proves that the Claimant
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is entitled for declaration as prayed for in prayer
clause Para-38(A) of the Claim Statement?
(8) Whether the claimant proves that the
Claimant is entitled for direction to respondent as
prayed in prayer clause para 38(B)?
(9) Whether the Claimant proves that the Claimant
is entitled for a judgment and decree of specific
performance of the understanding against the
respondent as prayed for in prayer clause Para
38(C)?
(10) Whether the Claimant has been always ready
and willing to perform its part of the claimant
Agreement?
(11) What award?
24. Dealing with the above issues, the learned arbitrator has
discarded the stand of the respondents that Exhibit 9 is
not a concluded contract. The terms of Exhibit 9 are
specific and clear and cannot be said to be uncertain.
Clause 6 of the contract is a declaration that the parties
have agreed to the terms mentioned therein.
Simultaneously, with the execution of the Power of
Attorney by the vendors, all the original title deeds as
part performance of the Agreement had been given to
the purchaser to verify as to the title of the property. As
per the conditions in the Agreement, on the verification
as to the title of the property, if the purchaser finds any
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difficulty and asks the vendor to correct it and the
vendor fails to do so, it was the purchaser who will get it
corrected at the cost of the vendor. It was, thus, opined
that in view of these conditions, it cannot be said that
there was no concluded contract between the parties.
The clauses in the contract like arbitration clause in the
agreement cannot be modified, amended or
supplemented, except by an agreement in writing,
signed by both the parties thereto, is proof of the fact
that there was no uncertainty and the agreements
cannot be said to be inconclusive. Section 17 of the
Specific Relief Act, thus, has no application. It was
further noted that the arbitrator is competent to grant
specific relief for part performance of the contract as it
can equally grant specific relief for performance of the
entire contract.
25. On the issue about revocation of the Power of Attorney
executed by the vendors, it was held that the Power of
Attorney given in favour of the claimant as the true and
lawful attorney to do all or any of the acts, deeds,
matters and things mentioned thereto, was irrevocable.
Moreover, the claimant had paid more than 50% of the
sale consideration and the said fact is not disputed.
Under these circumstances, the Power of Attorney being
coupled with pecuniary interest in the lands agreed to be
purchased by the claimant cannot be revoked.
26. On the issue of applicability of Section 63 of the Gujarat
Tenancy Act’ 1948 and the agreement being hit by the
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said provision and, as such, incapable of being
specifically performed, it was held that Exhibit 9, which
is a contract for sale with no interest or charge having
been created over the property can be said to be a
simple contract for sale and, as such, is not covered
under the word “Agreement” referred to in clause (c) of
sub-section (1) of Section 63 and, as such, is not hit by
the provisions of the Gujarat Tenancy Act’ 1948. There
is no question of invalidity of the said agreement as
such. As regards the provisions of Section 43 of the
Gujarat Tenancy Act’ 1948, it was opined that in Exhibit
9, there is a specific condition that after getting the
lands converted into non-agricultural use and also
getting the lands converted from old tenure to new
tenure, the sale deed is to be executed. A conditional
decree, as such, can be passed requiring the vendor to
get the lands in question converted into non-agricultural
use and new tenure and then execute the sale deed.
27. It was, thus, opined that a proper reading of Exhibit 9
makes it clear that the Sale Deed is to be executed only
after the NA permission is obtained and, therefore, it can
be said that the agreement is in two parts like reciprocal
promises. The first part is of getting NA, title clearance
and tenure changed, which was the obligation of the
vendors to perform and on compliance of these
conditions, second part for execution of the sale deed
would arise and, thus, for payment of balance sale
consideration.
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28. The argument with regard to the invalidity of the
agreements to sell being hit by Section 43(2) and
Section 63(1)(c) was, thus, answered in negative. It was
further held that there was no clause in Exhibit 9
(Agreement), which can be read over to give either party
right to determine the agreement. Moreover, the
vendors in the written arguments had admitted that they
had neither repudiated nor renunciated the agreement
and hence, even according to the respondents, the
Agreement Exhibit 9 is in force.
29. On the issue of limitation and the readiness and
willingness of the claimant to perform its part of the
Agreement, it was held that though in every agreement,
the respondents vendors stated that the time of three
months was given for obtaining NA, but no time was
fixed or stipulated to complete the transaction, except in
five claim petitions where six months’ time was
indicated. The contention of the vendors that the
claimant was required to file the claim within three
years on the expiry of the period of six months and in
case, six months’ time is not stipulated in the contract,
they were required to file the claim within reasonable
time, was rejected with the observation that the cause of
action for filing the claim petition arose when the
performance of contract was refused by the respondents.
Reference has been made to Article 54 to the Schedule
of the Limitation Act to hold that the period of three
years begins to run either from the date of performance,
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if it fixed, or if no such date is fixed, then when the
claimant has noticed that the performance is refused. It
was held that in five claims though time stipulated to
complete the transaction is indicated as six months, but
no date is fixed.
30. The claimant came to know about refusal of the vendors
to perform its part of contract when public notice was
published in the newspapers on 30.06.2012 and
29.06.2012. These notices were duly replied by the
claimant and all the claim petitions have been filed
within the period of limitation, which is to reckon from
the date of the public notice to cancel the Power of
Attorney, i.e., the date when the vendors refused
performance. With these findings, the Tribunal has
declared the award in the following manner :-
“(1) It is hereby declared that the power of
Attorney dated August 31 2007 Exh. 10 executed
by respondent in favour of the claimant is
irrevocable and cannot be revoked. It is declared
that cancellation of Power of Attorney by the
respondent is bad in law and Power of Attorney
Exh. 10 remains in force.
(2) Claimant is directed to put in Fixed Deposit
for a period of three months in any Nationalized
Bank in Ahmedabad an amount of Rs. 3,63,825/-
(Rupees Three Lac Sixty Three Thousand Eight
Hundred Twenty Five only) being balance of sale
consideration of the land bearing Survey No. 802
admeasuring 6,374 sq. mt. situate at Mauje
Sachana, Taluka Viramgam, District Ahmedabad of
this claim within two months from the date of
receipt of this order.
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(3) Claimant shall communicate the fact of such
fixed deposit with a Xerox copy of such Fixed
Deposit to the Respondent by Registered Post A.D.
and Speed Post
(4) On receipt of the communication of Fixed
Deposit from the Claimant, the Respondent is
directed to make an application to the Competent
Authority for conversion of land to Non-agricultural
Land from Agricultural land within 15 days from
the date of receipt of the communication of fixed
deposit.
(5) On receipt of necessary requisite permission
for change of Tenure and N. A. use, Respondent
shall communicate the same to Claimant in writing
at the earliest by Registered Post A.D. and Speed
Post and execute Registered Sale-deed
(6) In case of default, parties may take legal
action for the further implementation of Award.
(7) Respondent shall pay cost of claimant and
bear his own. Cost quantified Rs. 14,10,000/-
(Rupees Fourteen Lacs Ten Thousand only)
(amount split up – Rs. 10,50,000/- Fees of Sole
Arbitrator, Rs. 1.05.000/- Remuneration of
Administrative Assistant, Rs. 1,05,000/-
Miscellaneous Expenses and Rs. 1,50,000/-
Advocate’s fees) for all the consolidated matters.”
31. The civil court under Section 34 Application has
proceeded to set aside the arbitral award being contrary
to the statutory provisions and being against the public
policy. It was held that Section 63 of the Gujarat
Tenancy Act’ 1948 prohibits agreement made by an
instrument in writing for sale in favour of a person who
is not an agriculturist by declaring such an agreement to
be invalid. The execution of the Sale Deed was agreed
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to be done after having obtained requisite sanction
under Sections 43 and 63 of the Gujarat Tenancy Act’
1948, which prohibits execution of Agreements to Sell
pertaining to agricultural land without prior sanction.
Moreover, as per Rule 36 which provides condition on
which the permission for sale, etc. of the land under
Section 63 may be granted, the Collector or any officer
authorised by him is prohibited from granting
permission for sale, gift, exchange, lease or mortgage of
any land in favour of a person who is not either an
agriculturist or agricultural labourer or being an
agriculturist, cultivates personally any land not less than
the ceiling area or whether as owner or tenant or partly
as owner or partly as tenant unless the conditions
prescribed therein are satisfied.
32. It was further held that the specific performance of
agreement is an equitable relief and the equity court
does not enforce the performance of the contract, which
involves continuous act and which require watching and
supervision of the Court. The courts are not to enforce
the specific performance of the contract on which
sanction, assent or permission of the third person is
needed. The principle in suits for specific performance
of a contract for grant of decree for specific performance
of contract is that the Court will not decree any claim for
specific performance, which becomes impossible to
perform nor will the Court grant such decree, which
becomes impossible of execution. Instead of granting of
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specific performance of the contract, the Court may
grant appropriate relief of adequate damages to
compensate the loss to the plaintiff. The Agreements for
Sale being prohibited and forbidden by the provisions of
Sections 43 and 63 of the Gujarat Tenancy Act’ 1948, in
contravention of the statutory provisions, cannot be put
into execution by directing the respondents to execute
the sale deed after seeking NA permission or conversion
of the land in question from new tenure to old tenure.
33. The Court under Section 34 of the Arbitration Act’ 1996
has further proceeded to examine the issue pertaining to
the readiness and willingness on the part of the claimant
and the delay in approaching the Tribunal for specific
performance of the Agreements to Sell. It was held that
as per Article 54 of the Limitation Act, the limitation for
specific performance of an agreement is three years
from the date fixed for the performance and if no such
date is fixed, when the plaintiff has noticed that the
performance is refused. Out of 16 agreements, 5
transactions stipulated time period of six months for
completion of transaction from the date of the respective
agreements. With reference to such contracts, which
were executed in the year 2007, proceedings were
initiated by filing application under Section 9 of the
Arbitration Act’ 1996 before the civil court only on
17.10.2012. There is no correspondence between the
claimant and the original respondents for extending the
time for completion of the sale transaction or for
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conversion of the land into NA land. The claim for
specific performance of the Agreements to Sell in five
References Nos. 5/12, 6/12, 8/12, 15/12 and 18/12,
therefore, was barred by limitation.
34. With respect to other agreements, the stipulated time is
of three months for obtaining NA permission from the
date of the agreement. The vendors had executed the
Power of Attorney in favour of the claimant and hence,
the claimant was required to take steps for obtaining the
requisite permission within the specified time limit. No
steps had been taken by the claimant for taking requisite
permission till the Power of Attorney was cancelled and
the claimant had approached the Arbitral Tribunal after
five years, which itself shows that the claimant was not
ready and willing to perform its part of the contract.
This delay itself dis-entitles the claimant to seek specific
performance of Agreements to Sell. The Arbitral
Tribunal ought to have refused specific performance for
this reason. On the contrary, if assumed for the moment
that the vendors were required to obtain NA permission
and the claimant was obliged to start any process for
conversion of the lands into NA, then when the vendors
did not initiate steps for conversion of lands within the
stipulated period of three months, it would clearly
suggest that the vendors had refused the performance of
the agreement and the period of limitation of three years
would start from the expiry of the stipulated period of
three months from the date of the agreement. The
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proceedings were initiated by the claimant only on
17.10.2012 and no steps had been taken in the
meantime. Thus, from all angle, all the Arbitral
References were time barred.
35. On the validity of the order dated 20.10.2016 rejecting
the application moved by the respondents under Section
12/13 of the Arbitration Act’ 1996, it was held that
Section 12(1)(a) of the Arbitration Act’ 1996 casts duty
on the arbitrator at the time of his appointment to
disclose in writing any circumstances such as existence
of either direct or indirect, of any past or present
relationship with or interest in any of the parties,
whether financial, business, professional or any other
kind which is likely to give rise to justifiable doubts as to
his independence or impartiality. Section 12(2) of the
Arbitration Act’ 1996 casts duty on the arbitrator that he
should during the arbitral proceedings disclose in
writing the circumstances referred to in sub-section (1),
if any. The disclosure has to be made in the form
specified in the Sixth Schedule. Explanation 1 to Section
12(1) provides that the ground stated in Fifth Schedule
shall guide in determining whether circumstances exist
which give rise to justifiable doubt of independence or
impartiality of the arbitrator.
36. Section 12(3) provides that the appointment of an
arbitrator can be challenged only on the ground
mentioned in sub-section (1) (a) of Section 12 and
Section 13(2) provides that a party who intends to
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challenge the arbitrator shall within 15 days after
becoming aware of any circumstances referred to in
Section 12(3) send Written Statement of the reasons for
the challenge to the Arbitral Tribunal. Section 13(4)
gives remedy to the party challenging the arbitrator to
make an application for setting aside of the arbitral
award in accordance with Section 34 of the Act’ 1996.
Section 13(1) allows the party’s freedom to agree on the
procedure for challenging the arbitrator and in absence
of and on failure of an agreement to the contrary,
Section 13(4) permits the arbitrator to himself rule upon
the challenge.
37. The effect of these provisions is that if the challenge is
not successful, the arbitral proceedings must go on
without any right to appeal. However, the only remedy
is the last remedy of seeking relief to set aside the award
under Section 34 of the Arbitration Act’ 1996. It was,
thus, opined that Section 12(1) of the Arbitration Act’
1996 cast an obligation upon the arbitrator to disclose
existence of circumstances referred to in Section 12(1)
of the Act’ 1996.
38. In the instant case, as per the averments in the
claimant’s statement, Mr. Rajesh Lodha, Director of the
claimant Company, was looking after the day to day
affairs and management of the claimant Company.
During the arbitral proceedings, the fact that Mr. Rajesh
Lodha is the real cousin of Mr. Mahendra G. Lodha had
came on surface. Admittedly, Mr. Mahendra G. Lodha
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was co-trustee with the learned arbitrator in one public
charitable trust. It was, thus, opined by the civil court
that it cannot be believed that at the time of
appointment of the learned arbitrator he might not be
knowing that Mr. Mahendra G. Lodha was having stakes
in the claimant Company because at that time, Mr.
Rajesh Lodha was representing the claimant Company.
However, before passing of the impugned award, an
application in the form of Written Statement challenging
the learned arbitrator was given by the respondents
wherein it was brought on record that Mr.Mahendra G.
Lodha along with the learned arbitrator were founder
trustees of a Public Trust in the name of ‘Justice on Trial’
and were appointed as such on 27.09.2004 and
continued, as such, till his resignation on 13.10.2010.
During that span, Mr. Mahendra G. Lodha and the
learned arbitrator worked together as co-trustee and
attended at least 5-6 meetings of the Trust as per the
record. Not only that, the learned arbitrator had
attended the family function of birthday party of
grandson of Mr. Mahendra G. Lodha along with his wife
on 08.11.2014.
39. Admittedly, Mr. Mahendra G. Lodha, who is the Director
of Pinal Infrastructure Private Limited holds 51% shares
in the claimant Company, which was later merged with
Nitrix Logistics Pvt. Ltd., which continues to be a major
shareholder of the claimant Company. Mr. Mahendra G.
Lodha, being the Director and shareholder of Nitrix
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Logistics Pvt. Ltd., is in turn holding 51% shareholding
in the claimant Company and as such would obviously be
interested in the outcome of the arbitration proceedings.
Mr. Mahendra G. Lodha was known to and having
relationship with the learned sole arbitrator not only in
the past, but even during the arbitration proceeding.
The name of Mr. Mahendra G. Lodha had surfaced for
the first time in the cross-examination of Mr. Rajesh
Lodha, Director of the claimant Company, in the year
2015. It was, thus, incumbent upon the learned sole
arbitrator to make a mandatory disclosure under Section
12 of the Arbitration Act’ 1996 either at the time of his
appointment or after the name of Mr. Mahendra G.
Lodha surfaced in the cross-examination.
40. With these findings, the civil court has opined that once
in the cross-examination of Mr. Rajesh Lodha, it was
revealed that Mr. Mahendra G. Lodha had interest in
Pinal Infrastructure Pvt. Ltd., the totality of the
circumstances gave rise to justifiable doubts as to the
independence and impartiality of the learned sole
arbitrator in the mind of a reasonable man. The
expression used in the provision is “justifiable doubts
and not conclusive evidence” to suggest that the Arbitral
Tribunal is unfair and bias.
41. As regards the time period prescribed under Section
13(2) of the Arbitration Act’ 1996 for a party challenging
the arbitrator within a period of 15 days after becoming
aware of the constitution of the Arbitral Tribunal or after
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becoming aware of the circumstances referred to in
Section 12(3), in view of the categorical statement made
by the applicants (original respondents) that they came
to know about the circumstances referred to in Section
12(3) only a couple of days back, there was no reason to
draw any adverse inference more so when the original
claimant could not refute the said applications.
42. The reasoning given by the Arbitral Tribunal that as Mr.
Ajay Patel, one of the applicants, was also an invitee to
the birthday party of grandson of Mr. Mahendra G.
Lodha, he would have known of the relationship of the
learned arbitrator with Mr. Mahendra G. Lodha long
before is wholly misconceived, inasmuch as, Mr. Ajay
Patel had categorically stated that he had not attended
the birthday party though he was an invitee. Even if it is
assumed that in the birthday party thrown by Mr.
Mahendra G. Lodha, Mr. Ajay Patel was present, it could
not give rise to an inference that he was aware of all the
circumstances such as the learned arbitrator being the
co-founder trustee of the Trust along with Mr. Lodha.
43. The applicant-original respondent had produced a copy
of the Trust Deed before the learned arbitrator to reveal
that the learned arbitrator along with Mr. Mahendra G.
Lodha was founder trustee of the Trust ‘Justice on Trial’
for the period from 2004 to 2010. Moreover, the time
limit of 15 days prescribed by the Act is directory in
nature to introduce the principle of waiver by the
parties. There is no evidence that the applicants-original
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respondents had waived their right to file an application
under Section 13(2), rather the applicants categorically
averred that they came to know about the circumstances
a couple of days back and the said averment could not
have been disbelieved or discarded by drawing adverse
inference.
44. It was, thus, held that the impugned order dated
20.10.2016 passed by the learned arbitrator is unjust
and improper and is liable to be quashed. On account of
the failure on the part of the learned arbitrator to make
the mandatory disclosure, as contemplated by Section
12(1) of the Arbitration Act’ 1996, the award is liable to
be set aside in view of the ratio laid down by the Apex
Court in Vinodbhaiyalal Jain and Ors. vs. Wadhwani
Parmeshwari Cold Storate Pvt. Ltd.[(2020) 15 SCC
726].
45. Mr. Mihir Joshi, learned Senior advocate assisted by Mr.
Vaibhav Goswamy and Mr. Anuj K. Trivedi, learned
advocates for the appellant would submit that the civil
court while exercising its jurisdiction under the
Arbitration Act, 1996 cannot act as a Court of appeal.
Section 34 of the Arbitration Act’ 1996 confers power
upon the civil court for setting aside the arbitral award
on very limited grounds. The Arbitration Act’ 1996
contained in Sub-section (2) of Section 34 proceedings
does not empower the Court to examine on the merits of
the award as if dealing with the appeal or revision. The
Court cannot examine the merits of the award on the
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findings of facts as a court of appeal to correct the
errors of the learned arbitrator. Limited judicial
interference on extremely limited grounds is available
giving no opportunity to the Court to deal with the
merits of the award. Reliance is placed on the decision of
the Apex Court in National Higways Authority of
India vs. M. Hameem [(2021) 9 SCC 1].
46. Reliance is further placed on the decision of the Apex
Court in Reliance Infrastructure Ltd. Vs. State of
Goa [(2024) 1 SCC 479] to submit that the settled
legal position is that in an application under Section 34,
the court is not expected to act as an appellate court to
re-appreciate the evidence. The limited scope of
interference would be so warranted when the award is in
violation of the public policy of India, which has been
held to be fundamental policy of Indian law. A judicial
intervention on account of interfering on the merits of
the award would not be permissible. The ground for
interference on the basis that the award is in conflict
with justice or morality is to be understood as a conflict
with the “most basic notions of morality or justice”. It is
only when the arbitral award shocks the conscience of
the court, it can be set aside on the aforesaid ground.
The third ground to set aside the award on account of
patent illegality appearing on the face of the record
cannot be made out except where illegality is such which
goes to the root of the matter. However, an illegality
with regard to mere erroneous application of law would
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not be a ground for interference. In any case, re-
appreciation of evidence would not be permissible on the
plea of patent illegality apparent on the face of the
record. However, the finding based on no evidence at all
or an award which ignores the vital evidence in arriving
at a decision would be perverse and can be set aside on
the ground of patent illegality.
47. It was with these assertion, the learned counsel for the
appellant vehemently argued that the civil court in
exercise of jurisdiction under Section 34 of the
Arbitration Act’ 1996 has committed an illegality in re-
appreciating the evidence on record so as to arrive at an
alternative view than what has been taken by the
learned Arbitrator. While acting as a court of appeal, it
has gone through each and every clauses of the
agreement to record a finding as to whether the relief of
specific performance of agreement could have been
granted by the learned arbitrator. The manner in which
the court has dealt with the application under Section 34
shows that the court was confused to have the power of
a court of appeal to examine the evidence on record and
to substitute the opinion of the learned arbitrator.
48. It is not a case where it can be said that the learned
arbitrator’s award was wholly perverse and/or against
the public policy or suffers from patent illegality, which
goes to the root of the matter. The learned arbitrator
upon appreciation of the evidence on record by reading
the terms and conditions of the agreement, reached at
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the conclusion that the time was not the essence and
there may be reciprocal obligations upon the parties for
the purposes of execution of the sale deeds. The
agreements to sell were for aggregation of land and
some part of the land was non-agricultural with respect
to which there was an obligation of the vendors to obtain
permission of the competent authority to clear his title
and execute the sale deed. In any case, the appellant
was not handed over possession of the lands in question
and there was no transfer, which can be said to be hit by
Section 43 or Section 63 of the Gujarat Tenancy Act’
1948.
49. Reliance is placed on the decision of the Full Bench of
this Court in Deceased Shaikh Ismailbhai
Hushainbhai vs. Vankar Ambalal Dhanabhai
[2024(1) GLH 222] to submit that Section 63 of the
Gujarat Tenancy Act’ 1948 bars transfer to a non-
agriculturist sans permission of the Collector or an
officer authorised by the State Government in that
behalf by sale, gift, etc. as an instrument for transfer
including agreement. Section 43 of the Gujarat Tenancy
Act’ 1948 puts a restriction on transfer of the land
purchased by a tenant under certain provisions of the
Tenancy Act or sold to any person under the Tenancy
Act, as stated in Sub-section (1) to Section 43, by an
instrument in writing, without previous sanction of the
Collector. The Full Bench of this Court in the aforesaid
decision, after reading the aforesaid two provisions, has
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observed that there is a radical difference between the
language of the two statutes. Section 63(1) though
makes an agreement made by an instrument in writing
for sale, lease, etc. by a non-agriculturist invalid, but the
first proviso to Sub-section (1) of Section 63 attaches
validity to such transfer on the ground of permission by
the Collector or an officer authorised by the State
Government in this behalf on such conditions as may be
prescribed.
50. It was, thus, held by the full bench that an instrument of
transfer or an agreement made by an instrument in
writing for transfer in favour of a non-agriculturist
become valid on the permission being granted by the
Collector or an officer authorised by the State
Government on the condition as may be prescribed in
the order of permission. Such transfer as such can be
validated. It was, thus, held that there is no absolute bar
in Section 63 about the transfer of a land though there is
a restriction like Section 63, which contemplates
absolute bar by making transfer of a land of restricted
nature illegal without previous permission of the
Collector.
51. In the instant case, there was an agreement for transfer
of the land in question to a non-agriculturist and the
agreement which was put into execution seeking decree
of specific performance by the appellant does not create
any right or title in favour of the appellant transferee.
The possession of the lands in question was never
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handed over and, as such, it cannot be said to be a case
where the agreement is ipso facto void the requirement
that the vendors were to take appropriate steps to seek
permission of the Collector or any other officer
authorised by the State Government before affecting
transfer. The agreement itself puts an obligation upon
the vendors to move application before the Collector or
authorised officer to seek permission. The vendors
having not moved any application, cannot take benefit of
their own wrong so as to contest the claim of the
appellant that the appellant is entitled for a decree of
specific performance of an agreement with the condition
that the vendors have to apply to the Collector or to the
authorised officer seeking permission and then execute
the Sale Deed on such permission being granted on the
conditions prescribed in the order of permission.
52. The arbitral award issued direction to the respondents to
make an application to the competent authority for
conversion of land to non-argricultural land from
agricultural land on the deposit of the balance sale
consideration in a fixed deposit by the appellant-
claimant and execute the sale deed on receipt of the
necessary permission for change of tenure and the NA
use cannot be said to suffer from any illegalilty, much
less patently illegal by any stretch of imagination. The
civil court has committed a grave error of law in setting
aside the arbitral award on the ground that the
agreement was hit by Section 43 and Section 63 of the
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Gujarat Tenancy Act’ 1948.
53. On the second issue about the learned Arbitrator’s
obligation to disclose his relationship with the parties to
the dispute, as highlighted by the civil court in setting
aside the order dated 20.10.2016 in rejection the
application under Section 13(2) of the Arbitration Act’
1996, reliance is placed on the decisions of the Apex
Court and Delhi High Court in State of Haryana vs.
G.F. Toll Road (P) Ltd. [(2019) 3 SCC 505] and
Himanshu Shekhar vs. Prabhat Shekhar [2022 SCC
Online Del 1651]; respectively, to submit that it must
be demonstrated by the party objecting to the
independence and impartiality of the learned arbitrator
that there exists justifiable doubts as to the fairness of
the learned arbitrator. Mere apprehension of the party
pleading bias against the learned arbitrator would not be
sufficient to raise any doubt so as to accept its claim of
disqualification of the learned arbitrator by virtue of
provisions of Section 12(5) of the Arbitration Act’ 1996.
The test to be applied for bias is whether the
circumstances are such as would lead to a fair-minded
and informed person to conclude that the learned
arbitrator was in fact biased. Mere allegations of bias
are not a ground for removal of an arbitrator. The
submission is that the award passed by the learned
arbitrator cannot be said to fall within the grounds
stated in Sub-section (2) of Section 34 of the Arbitration
Act’ 1996 and on both the above noted counts, the order
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passed by the civil court under Section 34 of the
Arbitration Act’ 1996 is liable to be set aside and the
award is to be upheld.
54. Lastly, reliance is placed on the decision of the Apex
Court in Gaddipati Divija vs. Pathuri Samrajyam and
Ors. [2023 SCC Online SC 442] to submit that the
performance of the purchaser’s obligation to pay the
balance sale consideration within the time prescribed in
the agreements in question shall be dependent upon the
fulfilment of the vendors’ obligation and hence, when the
vendors have failed to fulfill their obligation, the
question of time being an essence does not arise as the
specific performance of the terms of the contract has not
been done.
55. Mr. Dhruv Agarwal, learned Senior counsel assisted by
Mr. Vibhore Vardhan, Mr. Rutul P. Desai and Mr. Pavan
Godiawala, learned advocates appearing for the
respondents vendors, in rebuttal, would argue that the
award itself is opposed to public policy, inasmuch as, it
has been brought on record by the respondents vendors
by means of the application moved before the learned
arbitrator under Section 13(2) that the learned
arbitrator was having close family relationship with
Mr.Mahendra G. Lodha, Director of the Company who
was having 51% stake in the claimant Company. Section
12(5), Fifth Schedule talks of any circumstances, direct
or indirect, past or present relationship, which may give
rise to justifiable doubts about the independence and
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impartiality of the arbitrator.
56. Clause 9 of the Fifth Schedule is a guideline
enumerating possible circumstances giving rise to
justifiable doubts as to the independence or impartiality
of the arbitrator. Clause 9 contained in Fifth Schedule
talks of “the arbitrator has a close family relationship
with one of the parties and in the case of companies with
the persons in the management and controlling the
company”. Mr. Mahendra G. Lodha has filed an
affidavit-in-reply to Section 12 application filed by the
vendors before the learned arbitrator and admitted that
he possess 51% shareholding in the claimant Company
as Director of Pinal Infrastructure Private Limited. Once
this set of evidence was brought before the learned
arbitrator, it was required to keep its hands off by
withdrawing from the arbitration. Rather, it was the
duty of the learned arbitrator to disclose his
acquaintance with Mr. Mahendra G. Lodha when his
name had surfaced during the examination of Mr. Rajesh
Lodha, his cousin brother, the Director of the claimant
Company.
57. With reference to the decision of the Apex Court in
Voestalpine Schienen BMBH vs. Delhi Metro Rail
Corporation Limited [(2017) 4 SCC 665], it was
argued that the independence and impartiality of the
arbitrator are the hallmarks of any arbitration
proceedings. Rule against bias is one of the fundamental
principles of natural justice, which apply to all judicial
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and quasi judicial proceedings. The arbitrator who has
adjudicatory role to perform, functions and duties,
require him to rise above the partisan interest of the
parties impartially. Section 12 has been amended with
the objective to induce neutrality of the arbitrator and
the Seventh Schedule is based on IBA Guidelines. The
amended provision is enacted to identify the
circumstances which give rise to justifiable doubts about
the independence and impartiality of the arbitrator. If
any of those circumstances as mentioned therein exist, it
will give rise to justifiable apprehension of bias. The
Fifth Schedule to the Act enumerates the grounds which
may give rise to justifiable doubts of this nature. The
Seventh Schedule mentions those circumstances, which
would attract the provisions of Sub-section (5) of Section
12 and nullify any prior agreement to the contrary. A
comprehensive list is enumerated in Fifth Schedule,
which has to be looked into as a guideline when the
issue of independence and impartiality of the arbitrator
is raised.
58. Reliance is placed on the decision of the Apex Court in
Bharat Broad Band Network Ltd. vs. United
Telecoms Ltd. [(2019) 5 SCC 755] to assert that the
only way in which the ineligibility can be removed, in
law, is that the parties may after the disputes having
arisen between them, waive the applicability of Sub-
section (5) of Section 12, by an express agreement in
writing. The express agreement in writing must have
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reference to a person who is interdicted by the Seventh
Schedule, but who is stated by parties (after the disputes
have arisen between them) to be a person in whom they
have faith notwithstanding the fact that such person is
interdicted by the Seventh Schedule. The submission is
that the ineligibility of the arbitrator is not removed or
obliterated by any other circumstances except there is
an express agreement in writing of the parties reposing
faith in the learned arbitrator removing ineligibility on
any of the circumstances mentioned in the Seventh
Schedule.
59. Reliance is further placed on the decisions of the Apex
Court in Vinodbhaiyalal Jain (supra), V. K. Dewan
and Co. vs. Delhi Jal Board [(2010) 15 SCC 717] and
the Delhi High Court in M/s. Lanco-Rani (JV) vs.
National Highways Authority of India [2016 SCC
Online Del 6267] to argue that the statutory
requirement of disclosure under Sub-section (1) of
Section 12 is not only at the beginning of the arbitration
proceeding, but also during the course of the
proceedings and the requirement to make a disclosure
under Section 12(1) of the Act being mandatory, the
failure to do so would vitiate the award. Reference has
been made to the findings of the Trial Court to submit
that it was a case of real likelihood of bias or lack of
independence of the learned arbitrator on account of
close family relationship of the learned arbitrator with
Mr. Mahendra G. Lodha, the cousin brother of Mr.
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Rajesh Lodha, the Director of the claimant Company,
who is also having 51% stake in the claimant Company.
60. It was further argued that the decree for specific
performance of the contract could not have been
awarded by the learned arbitrator, inasmuch as, the
claim was barred by limitation. The agreements to sell
were executed between March 2007 to March 2008 over
a period of one year and as against total sale
consideration of Rs. 6,91,72,700/-, an amount of
Rs.2,93,37,961/- had been paid as against the
outstanding of Rs. 3,98,34,749/-. There has been no
expression of readiness and willingness on the part of
the claimant for more than three years, the limitation
prescribed for seeking a decree of specific performance
of agreement. The Power of Attorney executed by the
vendors was coterminous with the agreement which
prescribe that all formalities for seeking NA permission
and clearing the title of the vendors would be completed
within a period of six months from the date of the
agreement. The Power of Attorney executed on
31.08.2007 had given the power to the claimant to seek
permission under Section 63. After expiry of outer limit
from the last of six months of such agreement executed
on 25.03.2008, limitation period of three years would
expire on 24.09.2011, which would be the cut-off date
for institution of the proceedings seeking for decree of
specific performance of agreement. Till the year 2012,
when for the first time the application under Section 9
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dated 17.10.2012 nothing had been done by the
claimant. There was complete silence and the claimant,
in fact have themselves abandoned the project. The
cancellation of the Power of Attorney in the year 2012
cannot be taken as a refusal of the vendors of the
performance of the contract on its part, inasmuch as, the
Power of Attorney was cancelled much after the expiry
of the time period of six months for completion of the
formalities provided under the contract when the
limitation under Article 54 of the Limitation Act, 1963 of
three years from the date fixed for the performance or if
no such date is fixed when the plaintiff has noticed that
the performance is refused, had expired. Further, when
there was no readiness and willingness expressed by the
vendors, viz. the complainant throughout the period of
more than three years of the contract, there was no
question of grant of decree for specific performance of
contract on the premise that the time was not the
essence of the contract. The submission is that the
learned arbitrator has committed a patent illegality in
holding that the limitation under Article 54 would run
from the date of the cancellation of the Power of
Attorney and the claim was within the prescribed period
of limitation of three years.
61. Lastly, it was argued that Section 63 of the Gujarat
Tenancy Act’ 1948 prohibits transfer to a non-
agriculturist except without the permission of the
Collector. The provision states that the agreement made
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by an instrument in writing for sale in favour of a person
who is not an agriculturist shall not be valid. However,
the Collector or an authorised officer may grant
permission for such sale on such conditions as may be
prescribed. Keeping in mind this provision, six months
time period was prescribed in the agreement to
complete the process of seeking permission from the
Collector, which has not been adhered to by the
claimant/vendee who had been given power on the basis
of the Power of Attorney dated 31.08.2007 to apply and
seek permission of the competent authority. There has
been failure on the part of the vendee to adhere to the
said condition of the agreement. The agreements which
are invalid under Section 63(1)(c) of the Gujarat Tenancy
Act’ 1948 are in their nature determinable. Section
14(1)(c) of the Specific Relief Act, 1963 provides inter
alia that a contract which is in its nature determinable
cannot be specifically enforced. Simultaneously,
Section 43 of the Indian Contract Act makes the
agreements in question unlawful, inasmuch as, the
agreement in writing for transfer in favour of a person
who is not an agriculturist is forbidden by law.
62. The question of ex post facto permission of the Collector
to attach validity to such an agreement is not of
relevance in the instant case, inasmuch as, performance
of the contract was not possible after six months. The
reason being that the contracts or the agreements
expired on their own. After expiry of the period of three
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years plus six months, the claims for specific
performance of the agreements were barred. No
infirmity can be attached to the findings of the Trial
Court on the issue of limitation, i.e. the applicability of
Article 54 of the Limitation Act in the facts and
circumstances of the instant case.
63. Having heard the learned counsels for the parties and
perused the record, we find that four issues have arisen
for consideration before us :-
(1) The first issue is about the restraint on transfer of
the lands in question to the appellant-original claimant
who is admittedly a non-agriculturist in view of the
provisions of the Tenancy Act and the effect of such
transfer when the decree of specific performance is
sought.
(2) The second issue is about the limitation prescribed
in Article 54 of the Limitation Act seeking decree of
specific performance of agreement.
(3) The third issue is about independence and
impartiality of the arbitrator.
(4) The last one is about the scope of interference
under Sections 34 and 37 of the Arbitration Act’ 1996.
64. In order to appreciate the arguments of the learned
Senior counsel for the appellant about the validity of the
order passed by the civil court under Section 34 of the
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Arbitration Act’ 1996 in setting aside the arbitral award
and to set out the scope of inquiry into the matter in the
instant appeal under Section 37 of the Arbitration Act’
1996, we find it apt to deal with the last issue first, i.e.
the scope of interference in the arbitral award in
exercise of powers under Sections 34 and 37 of the
Arbitration Act’ 1996.
65. At the outset, we may set out the provisions of Sections
34 and 37 of the Arbitration Act’ 1996 for ready
reference :-
“34. Application for setting aside arbitral
award.–(1) Recourse to a Court against an arbitral
award may be made only by an application for
setting aside such award in accordance with sub-
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court
only if–
(a) the party making the application establishes on
the basis of the record of the arbitral tribunal
that–
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid
under the law to which the parties have
subjected it or, failing any indication thereon,
under the law for the time being in force; or
(iii) the party making the application was not
given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or
was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not
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contemplated by or not falling within the
terms of the submission to arbitration, or it
contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated
from those not so submitted, only that part of
the arbitral award which contains decisions
on matters not submitted to arbitration may
be set aside; or
(v) the composition of the arbitral tribunal or
the arbitral procedure was not in accordance
with the agreement of the parties, unless such
agreement was in conflict with a provision of
this Part from which the parties cannot
derogate, or, failing such agreement, was not
in accordance with this Part; or
(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 1.–For the avoidance of any
doubt, it is clarified that an award is in
conflict with the public policy of India, only if,
—
(i) the making of the award was induced or
affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental
policy of Indian law; or
(iii) it is in conflict with the most basic notions
of morality or justice.
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Explanation 2.–For the avoidance of doubt,
the test as to whether there is a contravention
with the fundamental policy of Indian law
shall not entail a review on the merits of the
dispute.
(2A) An arbitral award arising out of
arbitrations other than international
commercial arbitrations, may also be set aside
by the Court, if the Court finds that the award
is vitiated by patent illegality appearing on
the face of the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous
application of the law or by reappreciation of
evidence.
(3) An application for setting aside may not be
made after three months have elapsed from
the date on which the party making that
application had received the arbitral award
or, if a request had been made under section
33, from the date on which that request had
been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the
applicant was prevented by sufficient cause
from making the application within the said
period of three months it may entertain the
application within a further period of thirty
days, but not thereafter.
(4) On receipt of an application under sub-
section (1), the Court may, where it is
appropriate and it is so requested by a party,
adjourn the proceedings for a period of time
determined by it in order to give the arbitral
tribunal an opportunity to resume the arbitral
proceedings or to take such other action as in
the opinion of arbitral tribunal will eliminate
the grounds for setting aside the arbitral
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award.
(5) An application under this section shall be
filed by a party only after issuing a prior
notice to the other party and such application
shall be accompanied by an affidavit by the
applicant endorsing compliance with the said
requirement.
(6) An application under this section shall be
disposed of expeditiously, and in any event,
within a period of one year from the date on
which the notice referred to in sub-section (5)
is served upon the other party.”
“37. Appealable orders.–(1) Notwithstanding
anything contained in any other law for the time
being in force, an appeal shall lie from the
following orders and from no others to the Court
authorised by law to hear appeals from original
decrees of the Court passing the order, namely:–
(a) refusing to refer the parties to arbitration
under section 8;
(b) granting or refusing to grant any measure
under section 9;
(c) setting aside or refusing to set aside an
arbitral award under section 34.
(2) Appeal shall also lie to a court from an order of
the arbitral tribunal–
(a) accepting the plea referred to in sub-
section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim
measure under section 17.
(3) No second appeal shall lie from an order
passed in appeal under this section, but
nothing in this section shall affect or takeaway
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any right to appeal to the Supreme Court.”
66. The law pertaining to the scope of challenge to the
arbitral award under Section 34 and and the scope of
appeal under Section 37 of the Arbitration Act’ 1996 is
fairly well settled in a recent decision of the Apex Court
in Reliance Infrastructure Ltd. (supra) cited by the
learned Senior counsel for the appellant, wherein the
Apex Court has reiterated the principles enunciated in
some of its relevant previous decisions on the issue.
Relevant operative paragraphs 26, 27, 28, 28, 29, 30 and
31 are to be extracted hereinunder :-
“26. In MMTC [MMTC Ltd. v. Vedanta Ltd., (2019)
4 SCC 163 : (2019) 2 SCC (Civ) 293], this Court
took note of various decisions including that in
Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] and
exposited on the limited scope of interference
under Section 34 and further narrower scope of
appeal under Section 37 of the 1996 Act,
particularly when dealing with the concurrent
findings (of the arbitrator and then of the Court).
This Court, inter alia, held as under : (MMTC case
[MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 :
(2019) 2 SCC (Civ) 293] , SCC pp. 166-67, paras
11-14)“11. As far as Section 34 is concerned, the
position is well-settled by now that the Court
does not sit in appeal over the arbitral award
and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e.
if the award is against the public policy of
India. As per the legal position clarified
through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn,Page 52 of 94
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includes a violation of the fundamental policy
of Indian law, a violation of the interest of
India, conflict with justice or morality, and the
existence of patent illegality in the arbitral
award. Additionally, the concept of the
“fundamental policy of Indian law” would
cover compliance with statutes and judicial
precedents, adopting a judicial approach,
compliance with the principles of natural
justice, and Wednesbury [Associated
Provincial Picture Houses v. Wednesbury
Corpn., (1948) 1 KB 223 (CA)]
reasonableness. Furthermore, “patent
illegality” itself has been held to mean
contravention of the substantive law of India,
contravention of the 1996 Act, and
contravention of the terms of the contract.
12. It is only if one of these conditions is met
that the Court may interfere with an arbitral
award in terms of Section 34(2)(b)(ii), but
such interference does not entail a review of
the merits of the dispute, and is limited to
situations where the findings of the arbitrator
are arbitrary, capricious or perverse, or when
the conscience of the Court is shocked, or
when the illegality is not trivial but goes to the
root of the matter. An arbitral award may not
be interfered with if the view taken by the
arbitrator is a possible view based on facts.
(See Associate Builders v. DDA [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204] Also see ONGC Ltd. v. Saw
Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd.,
(2003) 5 SCC 705] ; Hindustan Zinc Ltd. v.
Friends Coal Carbonisation [Hindustan Zinc
Ltd. v. Friends Coal Carbonisation, (2006) 4
SCC 445] ; and McDermott International Inc.
v. Burn Standard Co. Ltd. [McDermott
International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181] )
13. It is relevant to note that after the 2015
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Amendment to Section 34, the above position
stands somewhat modified. Pursuant to the
insertion of Explanation 1 to Section 34(2),
the scope of contravention of Indian public
policy has been modified to the extent that it
now means fraud or corruption in the making
of the award, violation of Section 75 or
Section 81 of the Act, contravention of the
fundamental policy of Indian law, and conflict
with the most basic notions of justice or
morality. Additionally, sub-section (2-A) has
been inserted in Section 34, which provides
that in case of domestic arbitrations, violation
of Indian public policy also includes patent
illegality appearing on the face of the award.
The proviso to the same states that an award
shall not be set aside merely on the ground of
an erroneous application of the law or by
reappreciation of evidence.
14. As far as interference with an order made
under Section 34, as per Section 37, is
concerned, it cannot be disputed that such
interference under Section 37 cannot travel
beyond the restrictions laid down under
Section 34. In other words, the Court cannot
undertake an independent assessment of the
merits of the award, and must only ascertain
that the exercise of power by the Court under
Section 34 has not exceeded the scope of the
provision. Thus, it is evident that in case an
arbitral award has been confirmed by the
Court under Section 34 and by the Court in an
appeal under Section 37, this Court must be
extremely cautious and slow to disturb such
concurrent findings.”
27. In Ssangyong Engg. [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 :
(2020) 2 SCC (Civ) 213], this Court has set out the
scope of challenge under Section 34 of the 1996
Act in further details in the following words : (SCC
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“37. Insofar as domestic awards made in India
are concerned, an additional ground is now
available under sub-section (2-A), added by
the Amendment Act, 2015, to Section 34.
Here, there must be patent illegality
appearing on the face of the award, which
refers to such illegality as goes to the root of
the matter but which does not amount to mere
erroneous application of the law. In short,
what is not subsumed within “the fundamental
policy of Indian law”, namely, the
contravention of a statute not linked to public
policy or public interest, cannot be brought in
by the backdoor when it comes to setting
aside an award on the ground of patent
illegality.
38. Secondly, it is also made clear that
reappreciation of evidence, which is what an
appellate court is permitted to do, cannot be
permitted under the ground of patent
illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate
Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204], namely, a
mere contravention of the substantive law of
India, by itself, is no longer a ground available
to set aside an arbitral award. Para 42.2 of
Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204],
however, would remain, for if an arbitrator
gives no reasons for an award and
contravenes Section 31(3) of the 1996 Act,
that would certainly amount to a patent
illegality on the face of the award.
40. The change made in Section 28(3) by the
Amendment Act really follows what is stated
in paras 42.3 to 45 in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , namely, that the
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construction of the terms of a contract is
primarily for an arbitrator to decide, unless
the arbitrator construes the contract in a
manner that no fair-minded or reasonable
person would; in short, that the arbitrator’s
view is not even a possible view to take. Also,
if the arbitrator wanders outside the contract
and deals with matters not allotted to him, he
commits an error of jurisdiction. This ground
of challenge will now fall within the new
ground added under Section 34(2-A).
41. What is important to note is that a
decision which is perverse, as understood in
paras 31 and 32 of Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204], while no longer
being a ground for challenge under “public
policy of India”, would certainly amount to a
patent illegality appearing on the face of the
award. Thus, a finding based on no evidence
at all or an award which ignores vital evidence
in arriving at its decision would be perverse
and liable to be set aside on the ground of
patent illegality. Additionally, a finding based
on documents taken behind the back of the
parties by the arbitrator would also qualify as
a decision based on no evidence inasmuch as
such decision is not based on evidence led by
the parties, and therefore, would also have to
be characterised as perverse.”
28. The limited scope of challenge under Section 34
of the Act was once again highlighted by this Court
in PSA Sical Terminals [PSA Sical Terminals (P)
Ltd. v. V.O. Chidambranar Port Trust, (2023) 15
SCC 781 : 2021 SCC OnLine SC 508] and this Court
particularly explained the relevant tests as under :
(SCC paras 40 to 42)
“40. It will thus appear to be a more than
settled legal position, that in an application
under Section 34, the Court is not expected toPage 56 of 94
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act as an appellate court and reappreciate the
evidence. The scope of interference would be
limited to grounds provided under Section 34
of the Arbitration Act. The interference would
be so warranted when the award is in
violation of “public policy of India”, which has
been held to mean “the fundamental policy of
Indian law”. A judicial intervention on account
of interfering on the merits of the award
would not be permissible. However, the
principles of natural justice as contained in
Sections 18 and 34(2)(a)(iii) of the Arbitration
Act would continue to be the grounds of
challenge of an award. The ground for
interference on the basis that the award is in
conflict with justice or morality is now to be
understood as a conflict with the “most basic
notions of morality or justice”. It is only such
arbitral awards that shock the conscience of
the Court, that can be set aside on the said
ground. An award would be set aside on the
ground of patent illegality appearing on the
face of the award and as such, which goes to
the roots of the matter. However, an illegality
with regard to a mere erroneous application
of law would not be a ground for interference.
Equally, reappreciation of evidence would not
be permissible on the ground of patent
illegality appearing on the face of the award.
41. A decision which is perverse, though
would not be a ground for challenge under
“public policy of India”, would certainly
amount to a patent illegality appearing on the
face of the award. However, a finding based
on no evidence at all or an award which
ignores vital evidence in arriving at its
decision would be perverse and liable to be
set aside on the ground of patent illegality.
42. To understand the test of perversity, it will
also be appropriate to refer to paras 31 and
32 from the judgment of this Court in
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Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204],
which read thus : (SCC pp. 75-76)
“31. The third juristic principle is that a
decision which is perverse or so
irrational that no reasonable person
would have arrived at the same is
important and requires some degree of
explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into
account something irrelevant to the
decision which it arrives at; or
(iii) ignores vital evidence in arriving at
its decision, such decision would
necessarily be perverse.
32. A good working test of perversity is
contained in two judgments. In CCE &
Sales v. Gopi Nath & Sons [CCE & Sales
v. Gopi Nath & Sons, 1992 Supp (2) SCC
312], it was held : (SCC p. 317, para 7)
“7. … It is, no doubt, true that if a
finding of fact is arrived at by
ignoring or excluding relevant
material or by taking into
consideration irrelevant material or
if the finding so outrageously defies
logic as to suffer from the vice of
irrationality incurring the blame of
being perverse, then, the finding is
rendered infirm in law.” ‘ “
29. In Delhi Airport Metro Express [Delhi Airport
Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131
: (2022) 1 SCC (Civ) 330], this Court again
surveyed the case law and explained the contours
of the Courts’ power to review the arbitral awards.
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Therein, this Court not only reaffirmed the
principles aforesaid but also highlighted an area of
serious concern while pointing out “a disturbing
tendency” of the Courts in setting aside arbitral
awards after dissecting and reassessing factual
aspects. This Court also underscored the pertinent
features and scope of the expression “patent
illegality” while reiterating that the Courts do not
sit in appeal over the arbitral award. The relevant
and significant passages of this judgment could be
usefully extracted as under : (Delhi Airport Metro
Express case [Delhi Airport Metro Express (P) Ltd.
v. DMRC, (2022) 1 SCC 131 : (2022) 1 SCC (Civ)
330] , SCC pp. 147-48, 150-51 & 155-56, paras 26,
28-30 & 42)“26. A cumulative reading of the Uncitral
Model Law and Rules, the legislative intent
with which the 1996 Act is made, Section 5
and Section 34 of the 1996 Act would make it
clear that judicial interference with the
arbitral awards is limited to the grounds in
Section 34. While deciding applications filed
under Section 34 of the Act, Courts are
mandated to strictly act in accordance with
and within the confines of Section 34,
refraining from appreciation or reappreciation
of matters of fact as well as law. (See
Uttarakhand Purv Sainik Kalyan Nigam Ltd. v.
Northern Coal Field Ltd. [Uttarakhand Purv
Sainik Kalyan Nigam Ltd. v. Northern Coal
Field Ltd., (2020) 2 SCC 455 : (2020) 1 SCC
(Civ) 570] , Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd. [Bhaven
Construction v. Sardar Sarovar Narmada
Nigam Ltd., (2022) 1 SCC 75 : (2022) 1 SCC
(Civ) 374] and Rashtriya Ispat Nigam Ltd. v.
Dewan Chand Ram Saran [Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran,
(2012) 5 SCC 306].)
* * *
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28. This Court has in several other judgments
interpreted Section 34 of the 1996 Act to
stress on the restraint to be shown by Courts
while examining the validity of the arbitral
awards. The limited grounds available to
Courts for annulment of arbitral awards are
well known to legally trained minds. However,
the difficulty arises in applying the well-
established principles for interference to the
facts of each case that come up before the
Courts. There is a disturbing tendency of
Courts setting aside arbitral awards, after
dissecting and reassessing factual aspects of
the cases to come to a conclusion that the
award needs intervention and thereafter,
dubbing the award to be vitiated by either
perversity or patent illegality, apart from the
other grounds available for annulment of the
award. This approach would lead to corrosion
of the object of the 1996 Act and the
endeavours made to preserve this object,
which is minimal judicial interference with
arbitral awards. That apart, several judicial
pronouncements of this Court would become
a dead letter if arbitral awards are set aside
by categorising them as perverse or patently
illegal without appreciating the contours of
the said expressions.
29. Patent illegality should be illegality which
goes to the root of the matter. In other words,
every error of law committed by the Arbitral
Tribunal would not fall within the expression
“patent illegality”. Likewise, erroneous
application of law cannot be categorised as
patent illegality. In addition, contravention of
law not linked to public policy or public
interest is beyond the scope of the expression
“patent illegality”. What is prohibited is for
Courts to reappreciate evidence to conclude
that the award suffers from patent illegality
appearing on the face of the award, as Courts
do not sit in appeal against the arbitral award.
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The permissible grounds for interference with
a domestic award under Section 34(2-A) on
the ground of patent illegality is when the
arbitrator takes a view which is not even a
possible one, or interprets a clause in the
contract in such a manner which no fair-
minded or reasonable person would, or if the
arbitrator commits an error of jurisdiction by
wandering outside the contract and dealing
with matters not allotted to them. An arbitral
award stating no reasons for its findings
would make itself susceptible to challenge on
this account. The conclusions of the arbitrator
which are based on no evidence or have been
arrived at by ignoring vital evidence are
perverse and can be set aside on the ground
of patent illegality. Also, consideration of
documents which are not supplied to the other
party is a facet of perversity falling within the
expression “patent illegality”.
30. Section 34(2)(b) refers to the other
grounds on which a court can set aside an
arbitral award. If a dispute which is not
capable of settlement by arbitration is the
subject-matter of the award or if the award is
in conflict with public policy of India, the
award is liable to be set aside. Explanation
(1), amended by the 2015 Amendment Act,
clarified the expression “public policy of
India” and its connotations for the purposes of
reviewing arbitral awards. It has been made
clear that an award would be in conflict with
public policy of India only when it is induced
or affected by fraud or corruption or is in
violation of Section 75 or Section 81 of the
1996 Act, if it is in contravention with the
fundamental policy of Indian law or if it is in
conflict with the most basic notions of
morality or justice.
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42. The Division Bench referred to various
factors leading to the termination notice, to
conclude that the award shocks the
conscience of the Court. The discussion in
SCC OnLine Del para 103 of the impugned
judgment [DMRC v. Delhi Airport Metro
Express (P) Ltd., 2019 SCC OnLine Del 6562]
amounts to appreciation or reappreciation of
the facts which is not permissible under
Section 34 of the 1996 Act. The Division
Bench further held [DMRC v. Delhi Airport
Metro Express (P) Ltd., 2019 SCC OnLine Del
6562] that the fact of AMEL being operated
without any adverse event for a period of
more than four years since the date of
issuance of the CMRS certificate, was not
given due importance by the Arbitral Tribunal.
As the arbitrator is the sole Judge of the
quality as well as the quantity of the evidence,
the task of being a Judge on the evidence
before the Tribunal does not fall upon the
Court in exercise of its jurisdiction under
Section 34. [State of Rajasthan v. Puri
Construction Co. Ltd., (1994) 6 SCC 485] On
the basis of the issues submitted by the
parties, the Arbitral Tribunal framed issues
for consideration and answered the said
issues. Subsequent events need not be taken
into account.”
(emphasis supplied)
30. In Haryana Tourism [Haryana Tourism Ltd. v.
Kandhari Beverages Ltd., (2022) 3 SCC 237 :
(2022) 2 SCC (Civ) 87], this Court yet again pointed
out the limited scope of interference under Sections
34 and 37 of the Act; and disapproved interference
by the High Court under Section 37 of the Act while
entering into merits of the claim in the following
words : (SCC p. 240, paras 8-9)“8. So far as the impugned judgment and
order [Kandhari Beverages Ltd. v. Haryana
Tourism Ltd., 2018 SCC OnLine P&H 3233]Page 62 of 94
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passed by the High Court quashing and
setting aside the award and the order passed
by the Additional District Judge under Section
34 of the Arbitration Act are concerned, it is
required to be noted that in an appeal under
Section 37 of the Arbitration Act, the High
Court has entered into the merits of the claim,
which is not permissible in exercise of powers
under Section 37 of the Arbitration Act.
9. As per settled position of law laid down by
this Court in a catena of decisions, an award
can be set aside only if the award is against
the public policy of India. The award can be
set aside under Sections 34/37 of the
Arbitration Act, if the award is found to be
contrary to : (a) fundamental policy of Indian
Law; or (b) the interest of India; or (c) justice
or morality; or (d) if it is patently illegal. None
of the aforesaid exceptions shall be applicable
to the facts of the case on hand. The High
Court has entered into the merits of the claim
and has decided the appeal under Section 37
of the Arbitration Act as if the High Court was
deciding the appeal against the judgment and
decree passed by the learned trial court. Thus,
the High Court has exercised the jurisdiction
not vested in it under Section 37 of the
Arbitration Act. The impugned judgment and
order [Kandhari Beverages Ltd. v. Haryana
Tourism Ltd., 2018 SCC OnLine P&H 3233]
passed by the High Court is hence not
sustainable.”
31. As regards the limited scope of interference
under Sections 34/37 of the Act, we may also
usefully refer to the following observations of a
three-Judge Bench of this Court in UHL Power Co.
Ltd. v. State of H.P. [UHL Power Co. Ltd. v. State
of H.P., (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401]
: (SCC p. 124, paras 15-16)
“15. This Court also accepts as correct, the
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view expressed by the appellate court that the
learned Single Judge committed a gross error
in reappreciating the findings returned by the
Arbitral Tribunal and taking an entirely
different view in respect of the interpretation
of the relevant clauses of the implementation
agreement governing the parties inasmuch as
it was not open to the said court to do so in
proceedings under Section 34 of the
Arbitration Act, by virtually acting as a court
of appeal.
16. As it is, the jurisdiction conferred on
courts under Section 34 of the Arbitration Act
is fairly narrow, when it comes to the scope of
an appeal under Section 37 of the Arbitration
Act, the jurisdiction of an appellate court in
examining an order, setting aside or refusing
to set aside an award, is all the more
circumscribed.”
67. From a careful reading of the aforesaid paragraphs and
the decisions of the Apex Court referred therein, the
principles about the limited jurisdiction conferred on the
Court under Section 34 and even more limited or
narrower scope of appeal under Section 37 of the
Arbitration Act’ 1996 can be culled out and summarised
as under :-
(a) The Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited
grounds provided under sections 34(2)(b)(ii), i.e. if
the award is against the public policy of India.
(b) As per the clarification in Explanation 1 to Clause
(b) (ii) of Sub-section (1) of Section 34, the
instances of award being in conflict with the publicPage 64 of 94
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policy of India would mean, if –
i. the making of the award was induced or
affected by fraud or corruption or was in violation of
Section 75 or Section 81; or
ii. it is in contravention of the fundamental
policy of the Indian law; or
iii. it is in conflict with the most basic notions of
justice or morality
(c) With the 2015 amendment to Section 34, Sub-
section (2A) has been inserted in Section 34, which
provides that in case of domestic arbitration, the
Court may also set aside the award if it is found to
be vitiated by patent illegality appearing on the face
of the award. However, proviso to Sub-section (2A)
states that an award shall not be set aside merely
on the ground of an erroneous application of the
law or by re-appreciation of evidence.
(d) It is, thus, settled that it is only if one of the
conditions mentioned above is met that the Court
may interfere with the arbitral award in terms of
Section 34(2)(b)(ii) or Section 34 (2A), but such
interference does not entail a review of the merits
of the dispute by re-appreciation of evidence or on
the premise that the award is a result of an
erroneous application of the law.
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(e) The interference is limited to situations when the
findings of the arbitrator is arbitrary, capricious or
perverse so as to shock the conscience of the court.
Meaning thereby, the illegality is not trivial, but
goes to the root of the matter. An arbitral award
cannot be interfered with if the view taken by the
arbitrator is a possible view based on the facts.
(f) The contravention of a Statute not linked to public
policy or public interest cannot be brought in to set
aside the award on the ground of patent illegality.
A mere contravention of the substantive law of
India, by itself, is no longer a ground available to
set aside an arbitral award.
(g) However, if an arbitrator gives no reason for an
award and contravenes Section 31(3) of the
Arbitration Act’ 1996, that would certainly amount
to a patent illegality on the face of the award. Also
if the arbitrator wanders outside the contract and
deals with the matters not allotted to him, he
commits an error of jurisdiction. This ground of
challenge will fall within the ground of award
vitiated by patent illegality under Section 34(2A).
The interference is limited when the arbitrator
construes the contract in a manner that no fair
minded or reasonable person would, i.e. where the
arbitrator’s view is not even a possible view to take.
(h) Similarly, when the finding is based on no evidence
at all or an award which ignores vital evidence in
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arriving at its finding would be perverse and liable
to be set aside on the ground of patent illegality.
(i) Additional finding based on the documents taken
behind the back of the parties by the arbitrator
would also qualify as a decision based on no
evidence, inasmuch as, such decision is not based
on evidence led by the parties and, therefore, would
also have to be characterised as perverse. A
decision which is perverse though would not be a
ground for challenge under “public policy of India”,
but would certainly be liable to be set aside on the
ground of patent illegality appearing on the face of
the record.
(j) A good working test of perversity as noted by the
Apex Court is that if a finding of fact is arrived at by
ignoring or excluding the relevant material or by
taking into consideration irrelevant material or if
the finding so outrageously defies logic as to suffer
from the vice of irrationality incurring the blame of
being perverse, then the finding is rendered infirm
in law.
(Emphasis supplied – para 33 in Associate Builders
(supra))
(k) As reiterated by the Apex Court, what is prohibited
for the courts is to re-appreciate the evidence to
conclude that the award suffers from patent
illegality appearing on the face of the award as
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courts do not sit in appeal against the arbitral
award.
(l) Section 34(2)(b)(i) refers to other grounds on which
a Court can set aside an arbitral award, if a dispute
which is not capable of settlement by arbitration
under law for the time being in force is the subject
matter of the award.
(m) In Haryana Tourism (supra), the Apex Court has
further set out the scope of interference by the High
Court under Section 37 of the Arbitration Act’ 1996
and held that it is not permissible for the High
Court in exercise of powers under Section 37 of the
Arbitration Act’ 1996 to enter into the merits of the
claim. It was held that the award can be set aside
under Section34/37 of the Arbitration Act, if the
award is found to be contrary to (a) fundamental
policy of Indian Law; or (b) the interest of India; or
(c) justice or morality; or (d) if it is patently illegal.
If none of the aforesaid exceptions are applicable in
the facts of the case, the High Court would be erred
in entering into the merits of the claim and decide
the appeal under Section 37 of the Arbitration Act,
as if deciding appeal against the judgement and
decree passed by the Trial Court.
(n) In UHL Power Co. Ltd (supra), it was held that
when it comes to the scope of appeal under Section
37 of the Arbitration Act, the jurisdiction of an
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appellate court in examining the order setting aside
or refusing to set aside an award passed under
Section 34 of the Arbitration Act’ 1996, is all the
more circumscribed. With regard to the limited
scope of interference in the arbitral award by a
court in exercise of its jurisdiction under Section 34
of the Act, the scope is all the more circumscribed
in an appeal under Section 37.
68. With these principles in mind, we may examine the rival
submissions of the parties in relation to the matter
before us.
69. In the facts of the instant case, there is no dispute about
the fact that the agreements, performance of which had
been sought in the claim petitions before the arbitral
tribunal were hit by Section 63 of the Gujarat Tenancy
Act’ 1948, inasmuch as, the transfer of agricultural land
to a non-agriculturist is barred. Section 63(1) (c) and
the proviso to Sub-section (1) of Section 63 reads as
under:-
“63. Transfers to non-agriculturists barred.- (1)
Save as provided in this Act,–
(a) x x x x x
(b) x x x x x
(c) no agreement made by an instrument in
writing for the sale, gift, exchange, lease or
mortgage of any land or interest therein.
shall be valid in favour of a person who is not
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an agriculturist or who being an agriculturist
cultivates personally land not less than the
ceiling area whether as an owner or tenant or
partly as owner and partly as tanant or who is
not an agricultural labourer:
Provided that the Collector or an officer
authorised by the State Government in this
behalf may grant permission for such sale,
gift, exchange, lease or mortgage, or for such
agreement on such conditions as may be
prescribed:
Provided further that no such permission shall
be granted, where land is being sold to a
person who is not an agriculturist for
agricultural purpose, if the annual income of
such person from other sources exceeds five
thousand rupees.”
70. A bare reading of the said provision indicates that an
agreement for sale in writing shall not be valid if it is
executed in favour of a person who is a non-agriculturist.
However, the Collector has been empowered to grant
permission for such agreement on such conditions as
may be prescribed. There is no dispute about the fact
that the agreements to sell, in the instant case, are
merely agreements signifying the intention of the
transferor to sell the property in question for a specified
consideration on some specified date on the happening
of certain acts to be performed by the transferor or
transferee. They can be termed to be Memorandums of
Understanding recorded in writing in relation to a sale
which could have been given effect to after the
conditions of the Memorandum of Understanding has
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been fulfilled and parties have performed their
obligation of such agreements.
71. On the question as to whether the agreements were
contingent contract or contract creating absolute
liabilities between the parties without contemplating any
contingency, it is clear that the agreements clearly
contemplated that the sale deeds were to be executed
after the requisite permission was obtained from the
Collector for transfer of the lands in question to a non-
agriculturist and that without permission, the land was
not to be sold. The question is whether the Court or the
arbitrator has jurisdiction to pass a contingent or
conditional decree of specific performance directing the
vendor to seek necessary permission and execute sale
deed.
72. In Rojasara Ramjibhai Dahyabhai vs Jani
Narottamdas Lallubhai [1986 (3) SCC 300], the
appellant had entered into an agreement to purchase
plots recorded as Girasdar agricultural land of which he
was a tenant from Girasdari. The agreement stipulated
that the appellant was to apply for permission from the
Collector to convert the agricultural land into village
site, i.e., for non-agricultural use. The sale deed was
executed by the appellant after he had obtained the
requisite permission from the Collector within one
month from the agreement with the Girasdar, by a
contract covenanted to sell the property to another
person. The agreement provided that the appellant as a
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vendor was to get the land converted into village site at
his own expenses. The appellant applied to the Collector
for grant of permission to convert the land into village
site, but his application was rejected. In the meantime,
the Saurashtra Land Reforms Act, 1951 came into force
with effect from 01.09.1951 and the appellant was
recognised to be an occupant thereof under the
provisions of the Bombay Land Revenue Code, 1898. The
appellant thereafter, obtained permission for converting
the land both as plots for non-agricultural use. The
respondent then called upon the appellant to execute the
conveyance of the property in accordance with the
agreement to sell between the parties and on his failure
to comply, the suit for specific performance was
instituted.
73. The appellant therein contested the suit on two grounds,
firstly that he had an imperfect title and secondly that
the contract with the respondent was contingent
contract dependent on appellant’s vendor (Girasdar)
obtaining permission for conversion of land. The civil
judge dismissed the suit holding that the same was
barred by limitation and further that the contract
between the parties being a contingent contract, the
agreement in view of the events that had happened
made it unenforceable. On an appeal, the High Court
reversed the decree and held that the agreement
between the parties had not been cancelled by mutual
consent. On the question whether the agreement was a
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contingent contract, it was held by the Apex Court that
there is always in such a contract implied covenant on
the part of the vendor to do all things necessary to give
effect to the agreement including obtaining of the
permission for the transfer of the property.
74. The decision of the Privy Council in Motilal v. Nanhelal
Ghasiram [AIR 1930 PC 287] was relied therein to
observe that it is an authority for the proposition that if
the vendor agrees to sell the property which can be
transferred only with the sanction of some Government
authority, the Court has jurisdiction to order the vendor
to apply to the authority within a specified period, and if
the sanction is forthcoming to convey to the purchaser
within a certain time. The law is well settled in this
regard. (Ref: Motilal v. Nanhelal Ghasiram [AIR
1930 PC 287], Chandnee Widya Vati Madden Vs
C.L.Katial & Others [AIR 1964 SC 978], Rojasara
Ramjibhai Dahyabhai Vs Jani Narottamdas
Lallubhai (dead) by L.Rs., & others [(1986) 3 SCC
300] and R. C. Chandiok & Anr vs Chuni Lal
Sabharwal [1971 AIR 1238].
75. It is settled that in the agreement to sell, when the
vendor had agreed to do certain acts and things, there is
an implied covenant on the part of the vendor to do all
things necessary to give effect to the agreement,
including the obtaining of permission or clearance for
the transfer of the property.
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76. In Govindbhai Gordhanbhai Patel & Ors vs Gulam
Abbas Mulla Allibhai [1977 3 SCC 179 1977], while
dealing with Section 63 of the Bombay Tenancy Act, the
Apex Court had considered the question as to whether
the performance of the contract therein became
impossible, rather it became impracticable on the refusal
of the Prant Officer to grant the permission under
Section 63 of the Act. It was argued before the Apex
Court that the contract was contingent upon the grant of
permission by the Prant Officer and on refusal thereof,
the parties would be governed by Section 56 of the
Contract Act, according to which, a contract becomes
void if something supervenes after its execution which
renders it impracticable. While answering the question
whether the order of the Prant Officer rendered the
contract impracticable, it was noted by the Apex Court
that the said order was not of such a catastrophic
character as can be said to have struck at the very root
of the whole object and purpose for which the parties
had entered into the bargain in question or to have
rendered the contract impracticable or impossible of
performance.
77. It was held therein that a careful perusal of the order of
the Prant Officer indicated that it was not conclusive nor
was based on the merits of the application seeking
permission, rather refusal was on technical ground
which do not prohibit the appellant from making a fresh
application to the Collector in view of Section 63 of the
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Tenancy Act. It was, thus, concluded that since the
order of the Prant Officer therein did not put any fetter
on the appellant to apply to the Collector or the
Additional Collector for grant of the requisite permission
for sale and purchase of the land after obtaining the
aforesaid certificate, no untoward event or change of
circumstances supervened to make the agreement
factually or legally impossible of performance so as to
attract Section 56 of the Contract Act.
78. In Mrs. Chandnee Widya Vati Madden (supra), the
Apex Court had discussed Section 12 and Section 21 of
the Specific Relief Act, 1877. In the said case, one of the
terms of the contract of sale of a house on the plot
granted by the Government was that the vendor shall
obtain necessary permission of the Government for sale
within two months of the agreement and if the
permission was not forthcoming within that time, it was
open to the vendor to extend the date or to treat the
agreement as cancelled. The vendor made an
application, but for the reasons of her own withdrew the
same. In the suit filed by the vendees for specific
performance of the contract or in the alternative for
damages, it was found that the vendees were always
ready and willing to perform their part of the contract
and that it was the vendor who willfully refused to
perform her part of contract and that the time was not of
the essence of the contract. The Supreme Court, thus,
has held that the High Court was correct in decreeing
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the suit for specific performance of the contract and has
held that the main ground of attack in the appeal was
that the contract was not enforceable being of a
contingent nature and the contingency having not been
fulfilled, was without substance.
79. It was observed therein that so far as the parties to the
contract are concerned, they have agreed to bind
themselves by the terms of the documents executed
between them. Under that document, it was for the
defendant vendor to make necessary application for the
permission to the Chief Commissioner. For the reason
best known to the defendant vendor, though such an
application was made, but the vendor decided to
withdraw the same. On the finding that the plaintiffs
have always been ready and willing to perform their part
of the contract and that it was the defendant who
willfully refused to perform her part of the contract and
that the time was not of the essence of the contract, the
Court has directed to enforce the terms of the contract
and to enjoin upon the defendant-appellant to make the
necessary application to the Chief Commissioner or such
other competent authority as may have been empowered
to grant the necessary sanction to transfer within the
time prescribed therein. It was further held that the
High Court was entirely correct in decreeing the suit for
specific performance of contract with the above
direction and further that in the event of the sanction
being refused, the plaintiff shall be entitled to the
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damages as decreed by the High Court.
80. The general principle is that if a condition is laid down
that the transferor is bound to do everything to give
effect to the contract, specific performance can be
obtained with a direction to the transferor to obtain the
requisite consent or permission. The principle is that
unless and until the transaction itself is unlawful, it may
be enforced directing the defendant/transferor to take
such steps as are necessary for affecting the contract.
The principle is that if the vendor has agreed to sell the
property, which can be transferred only with the
sanction of some Government authority, the Court has
jurisdiction to order the vendor to apply to the authority
and if the sanction is not forthcoming, to convey to the
purchaser the same, but on the ground that the sanction
is not available, decree for specific performance cannot
be refused. It is settled that when permission from some
authority is required to be obtained, prior obtaining of
the same is not a condition precedent for grant of decree
for specific performance, if after grant of the decree
permission can be obtained. The conditional decree for
specific performance can be granted making it subject to
obtaining permission or exemption, as contemplated in
the Statute. The relief can be moulded to such an extent
that the vendor is required to obtain permission or
consent. It has been the consistent view that on the
ground of non-availability of consent or permission, the
vendor cannot avoid such an agreement. There are
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series of judgments of various High Courts, following the
principles laid down in Mrs. Chandnee Widya Vati
Madden (supra). Reference may be made to Khan
Bhadur C.B. Taraporwala vs. Kazim Ali Pasha [AIR
1966 AP 361], Indra Prasad Saxena vs. Chaman Lal
Malik [AIR 1994 ALL 105], Shri Rajesh Aggarwal
vs. Shri Balbir Singh [AIR 1994 Del 345],
Rameshwarlal vs. Dattatraya [AIR 2010 MP 187].
81. Insofar as the decision in Hasvantbhai Chhanubhai
Dalal vs. Adesinh Manshin Raval [2019(2) GLH
357], where the Court has refused to grant a relief of
specific performance of agreement, the transaction
between the parties was held to be hit by Section 43 of
the Tenancy Act and being opposed to public policy
noticing the language of the statutory provision where
prior permission was required for entering into an
agreement for sale of the property. It was held that the
agreement entered into without previous permission of
the Collector was invalid being hit by Section 43 of the
Tenancy Act and was unenforceable in law, as explained
under Section 23 of the Contract Act. This Court in
Hasvantbhai Chhanubhai Dalal (supra) has held that
there is a clear bar for entering into an agreement to sell
of the granted lands without previous permission of the
Government and if an agreement is entered into in
respect of such land, the same is in violation of Section
43 and is invalid. Section 23 of the Indian Contract Act,
1872 bars the enforcement of a contract, which is
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forbidden by law. The agreement offending a statute or
public policy or forbidden by law is not merely void but it
is invalid from nativity. The term “law” in Section 23
must be understood in the sense of the term explained in
Article 13(3) of the Constitution. Thus, what is done in
contravention of the provisions of any law cannot be
made the subject matter of an action. If the contract is
expressly prohibited by law, it is void ab initio and
cannot be enforced. In the circumstances, Courts cannot
grant a decree for specific performance subject to the
permission, which may be obtained by one of the parties
from the Collector. The suit filed by the plaintiff for
enforcement of the invalid agreement cannot be
entertained by the civil court.
82. The principle that the courts will refuse to enforce an
illegal agreement at the instance of a person who is
himself a party to an illegality of fraud, as explained by
the Apex Court in Sita Ram vs. Radha Bai [AIR 1968
SC 534], relied by the learned Single Judge in
Hasvantbhai Chhanubhai Dalal (supra), will not be
attracted in the instant case, inasmuch as, this case falls
in the exceptional circumstances classified therein that
maxim “In pari causa potior est conditio possidentis”
does not apply, inasmuch as, the claimant does not have
to carry on the illegality to make out his claim. The
transaction herein though is invalid in view of Section 63
of the Tenancy Act, but can be validated with the
permission of the Collector for transfer to non-
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agriculturist before executing the deed of transfer.
83. The distinction between two statutory provisions under
Sections 43 and 63 of the Gujarat Tenancy Act’ 1948 has
been noticed by the Full Bench of this Court in Shaikh
Ismailbhai Hushainbhai (supra), wherein it was held
that there is a radical difference between the language
of two statutes. The provisions of Section 43 of the
Gujarat Tenancy Act puts complete prohibition in
execution of even an agreement in writing to transfer a
land of restricted tenure without the previous sanction of
the Collector. In view of the negative language of the
statute, the two conditions of transfer in Sub-section (1)
of Section 43 are of mandatory character. Section 43,
thus, not only prohibits transfer by sale, lease, etc, but it
expressly prohibits execution of agreement in writing to
transfer a land by sale, lease, etc. without complying
with the conditions in Sub-section (1) of Section 43.
84. On the other hand, Section 63 (1) though couched in
negative language, but the first proviso attached to Sub-
section (1) qualifies the negative language employed in
the main sub-section, which makes an agreement made
by an instrument in writing for sale, lease etc. to a non-
agriculturist invalid. The first proviso to Sub-section (1)
of Section 63 attaches validity to such transfer on the
permission being granted by the Collector or an
authorised officer, on such conditions as may be
prescribed. Sub-section (1) of Section 63 along with
the first proviso attached to the same, thus, gives a clear
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indication that though the instrument of transfer or
agreement made by an instrument in writing for the
transfer in favour of a non-agriculturist shall not be
valid, but on the permission being granted by the
Collector or an authorised officer on such conditions as
may be prescribed in the order of permission, such a
transfer can be validated. It was, thus, observed by the
Full bench that though there is a restriction on transfer
to a non-agriculturist, but there is no absolute bar under
Section 63 for transfer, as contemplated in Section 43
about transfer of land of restricted tenure without the
previous permission of the Collector.
85. In light of the above the submission of the learned
Senior counsel appearing for the respondents on the
findings of the Court under Section 34 that the judgment
of the Division Bench of this Court in Vijaybhai
Shambhubhai Patel vs. Sushilaben Dayalbhai in
First Appeal No. 1556 of 2021, which is in respect of
Section 43 of the Tenancy Act and wherein it has held
that there could not be specific performance of
agreement to sell, which was hit by Section 43 of the
Tenancy Act would apply with equal force to the
Agreements for Sale hit by Section 63 of the Tenancy
Act, inasmuch as, both the Sections are almost pari
materia, has no substance and is liable to be turned
down.
86. The conclusion drawn by the court under Section 34
about the transaction being hit by Section 63 and as
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such incapable of being specifically enforced are, thus,
in ignorance of the law laid down by this Court in a
catena of decisions about the impact of Section 63 of the
Gujarat Tenancy Act, beginning from Govindbhai
Gordhanbhai Patel (supra) and the Full bench
judgment in Shaikh Ismailbhai (supra) clarifying the
legal position about the scheme of Section 43 and
Section 63 of the Gujarat Tenancy Act. It cannot be said
that since the agreements to sell were executed in
favour of a non-agriculturist, no conditional decree for
specific performance of the agreement could be passed
by the learned arbitrator, inasmuch as, the agreements
being invalid are in their nature determinable, cannot be
enforced in view of Section 14(1)(d) of the Specific Relief
Act.
87. It would not be a circumstance where the original
claimant/appellant has to rely upon the illegal contract
to make out his claim so as to draw the court’s refusal to
give effect to an illegal agreement at the instance of a
person who is himself a party to the illegality, as held in
the case of Sita Ram (supra). The original
claimant/appellant could have insisted upon the
performance of the agreements by execution of sale
deeds after grant of permission by the Collector.
88. Proceeding further, in the facts of the instant case,
admittedly, it is noteworthy that a Power of Attorney
dated 31.08.2007 was executed simultaneously with the
execution of the agreements to sell giving power to the
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vendee/appellant/original claimant to apply and seek
permission under Section 63 of the Gujarat Tenancy Act.
The agreement for sale further provided period of six
months for obtaining of such permission. However, the
claimant had not taken any step by applying for
obtaining requisite permission in the specified time limit
until the Power of Attorney was cancelled in the year
2012. The claimant had approached the arbitral tribunal
after 5 years, which resulted in the claim being held time
barred under Section 54 of the Limitation Act, which
provided the limitation for specific performance of an
agreement being three years from the date fixed for the
performance and if no such date is fixed, when the
plaintiff has noticed that performance is refused. The
present is a case where the original claimant-vendee
himself had abandoned the contract and never shown his
readiness and willingness to perform his part of the
contract. There was no obligation on the part of the
vendors-respondents herein to obtain NA permission,
inasmuch as, the claimant-vendee had taken upon
himself to initiate the process for conversion of land
within the stipulated period in the agreement by getting
a Power of Attorney. It would not be a case where the
vendors had refused the performance of the agreement
and the period of limitation would start from the date of
cancellation of the Power of Attorney signifying refusal
on the part of the vendors.
89. The communications between the vendor and one Mr.
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Dharmendra Gandhi or any Memorandum of
Understanding executed between them, relied by the
learned Arbitrator are irrelevant. The claimant though
has simply stated that he was ready and willing to
perform the terms and conditions of the contract and
also admitted that a Power of Attorney was given to him
on 31.08.2007, but have simply laid the burden upon the
vendors, viz. the respondents herein that they have not
got the property converted from agricultural to non-
agricultural. It is the case of the claimant that all
throughout, they were requesting the respondents and
the mediator/facilitator Mr. Dharmendra Gandhi to
inform as to the current status and progress of
converting the land from agricultural to non-agricultural
and every time, assurance was given to have personal
discussion. The claimant, however, when inspected the
records of the Revenue Department on 20.01.2011, he
came to know that the respondents had executed sale
deed in favour of a third party for some of the properties
which have been kept out of the claim petition.
90. A Memorandum of Understanding dated 29.03.2007
Exhibit 16 was arrived between the mediator Mr.
Dharmendra Gandhi and the vendee, whereunder it was
agreed that the respondents shall not transfer, assign,
mortgage the suit property to a third party and the
respondents will get title clearance certificate for the
suit property and would get the property converted from
agricultural to non-agricultural use before execution of
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the sale deed in favour of the claimant. It is the case of
the claimant that in the month of June 2012, they came
across a public notice in the newspapers that the
vendors have revoked the Power of Attorney given to
them with respect to the suit properties and other
properties, which were part of Exhibit 16. The claimant
then moved the civil court under Section 9 of the
Arbitration Act’ 1996 seeking to restrain the respondents
(vendors) from alienating or creating third party right
over the property, subject matter of the agreement. The
learned arbitrator was appointed in the proceedings
under Section 9 with the consent of the parties.
91. However, the fact remains that on account of silence on
the part of the claimant or inaction in proceeding with
the application to seek permission of the Collector for a
period of five years from the date of execution of the
contract in-spite of having a Power of Attorney in his
favour, the agreement became impossible to perform.
The circumstances supervened after execution of the
agreement struck the agreement at the very root of the
whole object and purpose of the agreement and
rendered the contract impracticable or impossible of
performance, inasmuch as, the suit for specific
performance of the agreements became time barred by
virtue of Article 54 of the Limitation Act. This aspect of
the matter has been conveniently ignored by the learned
arbitrator while holding that there was no time fixed or
stipulated to complete the transaction and filing the suit
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for specific performance of agreement would run from
the date the public notices were issued in the month of
June 2012 in the newspapers revoking the Power of
Attorney executed in favour of the vendee.
92. The learned arbitrator committed a patent illegality in
holding that the claimant came to know only from the
public notice that the vendors were not inclined to
execute the document of transfer after converting the
lands from agricultural to non-agricultural and
complying other conditions when the notices were
published in the newspapers in the month of June 2012
and, thus, the performance of the agreement was
refused and the suit, as such, cannot be said to be
barred by limitation.
93. Apart from the above, there is one more aspect of the
matter where the learned arbitrator had faced with an
application under Section 13(2) of the Arbitration Act’
1996 wherein doubt had been raised about the
independence and impartiality of the learned arbitrator.
Admittedly, the said application was filed during the
course of the arbitration proceeding by the respondents-
vendors and the record indicated that the learned sole
arbitrator had a close relationship with Mr. Mahendra G.
Lodha even prior and during the course of the arbitral
proceedings. During the period from the year 2004 to
2010, the learned arbitrator was a founder trustee of the
Trust ‘Justice on Trial’ of which Mr. Mahendra G. Lodha
was also one of the trustees. Moreover, during
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continuance of the arbitration proceeding, learned
arbitrator had attended the birth day party of the
grandson of Mr. Mahendra G. Lodha in the year 2014
along with his family, which further suggested that the
relationship between the learned arbitrator and Mr.
Mahendra G. Lodha were personal and had continued
even during the course of the arbitral proceedings.
94. The record also proves and it is undisputed that Mr.
Mahendra G. Lodha had pecuniary interest in the
claimant Company and this fact had surfaced during the
course of cross-examination of Mr. Rajesh Lodha, the
Director of the claimant Company, in the year 2015. The
fact of Mr. Mahendra G. Lodha having 51% share in the
claimant Company, being the Director of Pinal
Infrastructure Pvt. Ltd., had came to the knowledge of
the respondents while arbitral proceedings were going
on and on 26.09.2016, when the oral arguments were
completed in the matter, an application under Section
12(2) of the Arbitration Act’ 1996 was filed. The
applicants-respondents had categorically stated therein
that the fact that Mr. Mahendra G. Lodha was cousin
brother of Mr. Rajesh Lodha and had purchased 51%
shareholding of the claimant Company in the year 2012
of which Mr. Mahendra G. Lodha became Director, had
surfaced in the arbitral proceeding for the first time on
08.03.2015 during the course of cross-examination of
Mr. Rajesh Lodha. However, the fact that the learned
arbitrator and Mr. Mahendra G. Lodha were trustees of
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the Trust ‘Justice on Trial’ from 2004 to 2010 recently
came to the knowledge of the respondents after which
they moved application under Section 12(2) on
26.09.2016.
95. The said fact was further supported by means of a
rejoinder affidavit filed on 09.10.2016 by the vendors
before the tribunal along with the list of documents like
Annual statement and Trust Deed etc. It was the case of
the respondents/vendors that during the arbitration
proceedings, which commenced from 17.05.2013 and
when the arguments were completed on 12.08.2016,
interest of Mr. Mahendra G. Lodha and the relationship
of the learned arbitrator with Mr. Mahendra G. Lodha
could be found which had not been disclosed.
96. In these facts and circumstances, when such facts were
surfaced during the course of arbitration proceedings,
we are of the considered view that the learned arbitrator
ought to have recused himself from forming any opinion
on the claim of the parties by rejecting the application
under Section 12(2) vide order dated 20.10.2016. While
rejecting the application, the learned arbitrator did not
contradict the aforesaid facts brought before him and
the stand of the applicants in the application under
Section 12(2) of the Arbitration Act’ 1996, rather had
proceeded to hold that there was not a single, direct or
indirect, remote or recent instance to show bias or
partiality by the learned arbitrator.
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97. The learned arbitrator has proceeded to hold that apart
from the the material brought with the affidavit-in-
rejoinder filed on 12.10.2016, there was nothing on
record to show the interest of Mr. Mahendra G. Lodha in
the claimant Company, viz. Sentinel Properties Private
Limited, and further the subsequently acquired
Company, viz. Nitrix Logistics Pvt. Ltd. had no nexus
with the claimant Sentinel Properties Pvt. Ltd. and all
imputation on the learned arbitrator was only mental
perception of the applicants, inasmuch as, the applicants
knew that the learned arbitrator had attended the
birthday celebration of the grandson of Mr. Mahendra G.
Lodha, wherein one of the the applicants, viz. Mr. Ajay
Patel himself was also an invitee.
98. In the order impugned dated 20.10.2016, the learned
Arbitrator had admitted that he was co-trustee with Mr.
Mahendra G. Lodha for few years in a public trust and
they had attended the meetings together. It was also
admitted that the learned arbitrator had attended the
family function of the birthday party of the grandson of
Mr. Mahendra G. Lodha alongwith his wife on
08.11.2014, when the arbitral proceedings were going
on. Mr. Mahendra G. Lodha was the Director of Pinal
Infrastructure Pvt. Ltd, which holds major 51% share of
the claimant Company was also not disputed. The said
Pinal Infrastructure Pvt. Ltd. was merged with Nitrix
Logistics Pvt. Ltd and thereby Nitrix Logistics Pvt. Ltd.
became major shareholder of the claimant Company,
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which in turn holds major 51% shareholding in the
claimant Company, was not disputed.
99. The name of Mr. Mahendra G. Lodha had surfaced for
the first time in the cross-examination of Mr. Rajesh
Lodha in the year 2015, who is the Director of the
claimant Company is a fact admitted on the record. It
was admitted by Mr. Rajesh Lodha in his cross-
examination that Pinal Infrastructure Pvt. Ltd. had
purchased 51% share of the claimant Company in the
year 2011. Mr. Mahendra G. Lodha filed an affidavit in
the arbitral proceedings in support of the claimant
Company stating that he is the shareholder of the
claimant Company and is familiar with the arbitral
proceedings.
100. In light of the above fact, we find that the court under
Section 34 has rightly reached at the conclusion of
existence of circumstances referred to in Section 12(1)
(a) of the Arbitration Act’ 1996. It was rightly concluded
that when in the cross-examination of Mr. Rajesh Lodha,
it was revealed that Mr. Mahendra G. Lodha had interest
in Pinal Infrastructure Pvt. Ltd., the learned arbitrator
ought to have made the disclosure of the circumstances
referred to in Section 12(1) of the Arbitration Act, 1996.
101. In the totality of the facts and circumstances of the
instant case, the manner in which the learned arbitrator
has dealt with the whole issue, it cannot be said that it
does not give rise to a justifiable doubt as to the
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independence and impartiality of the learned arbitrator
in the mind of a reasonable man. Independence and
impartiality of the arbitrator are hallmark of the arbitral
proceedings. Section 12 has been amended by the
Amendment Act, 2015 and it is manifest that the main
purpose for amending the provision was to provide for
neutrality of the arbitrator, i.e. their independence and
impartiality. The amended provision is enacted to
identify the circumstances “which give rise to justifiable
doubts about the intention or impartiality of the
arbitrator”. If any of these circumstances as mentioned
in the Fifth Schedule exists, it will give rise to justifiable
apprehension of bias. The Fifth Schedule enumerates
the grounds as guidance in determining whether
circumstances exist, which give rise to justifiable doubts
of this nature. Likewise, the Seventh Schedule mentions
those circumstances which would attract the provisions
of Sub-section (5) of Section 12 and nullify any prior
agreement of the contrary. A comprehensive list is
enumerated in the Fifth Schedule and Seventh Schedule
and it was the bounden duty of the learned arbitrator to
make a disclosure if any of the circumstances
enumerated in the Fifth Schedule exist or surfaced
during the course of arbitration proceedings. Section
12(2) mandates the learned arbitrator to disclose to the
parties in writing any circumstances referred to in Sub-
section (1) of Section 12, from the time of his
appointment and throughout the arbitration
proceedings, unless the parties have already been
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informed of them by him.
102. As observed by the Apex Court in Voestalpine
Schienen GmbH (supra), the judgment relied by the
relied by the learned counsel for the respondents,
independence and impartiality are two different
concepts. An arbitrator may be independent and yet,
lacks impartiality, or vice versa. Impartiality, as is well
accepted, is a more subjective concept as compared to
independence. Independence, which is more an objective
concept may thus, be more straightforwardly
ascertained by the parties at the outset of the arbitration
proceedings in light of the circumstances disclosed by
the arbitrator, while impartiality will more likely surface
during the arbitration proceedings.
103. In our considered opinion, once the circumstances
enumerated in Clause 9 of the Fifth Schedule to the
Arbitration Act’ 1996 has surfaced during the course of
arbitration proceedings and it was brought on record
that the learned arbitrator has a close family
relationship with one of the persons controlling the
claimant Company having 51% share of the claimant
Company, it was incumbent for the learned arbitrator to
keep his hands off, inasmuch as, there has been no
disclosure on the part of the learned arbitrator when the
said fact came on record for the first time in the year
2015 during the course of the cross-examination of Mr.
Rajesh Lodha. We are also inclined to give benefit of
doubt to the learned arbitrator that he was not aware of
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the stakes of Mr. Mahendra G. Lodha in the Claimant
Company, but when this fact was brought to his
knowledge even after the completion of the argument by
means of the application under Section 12(2) of the
Arbitration Act’ 1996 filed on 26.09.2016 prior to filing
of the written statement, in order to maintain the
independence and impartiality of the arbitral
proceedings, the learned arbitrator ought to have
recused himself as the circumstances existed has an
effect giving rise to justifiable doubts as to the
independence and impartiality of the learned arbitrator.
104. For the above discussion, we are of the view that the
award of the learned arbitrator is found to be vitiated by
patent illegality appearing on the face of the record
being in conflict with the basic notions of justice and
morality and, thus, being in conflict with the public
policy of India. The illegality found in the award is not
trivial, but goes to the very root of the matter and, thus,
the interference made by the court in setting aside the
award in terms of Section 34(2) (b)(iii) and Sub-section
(2A) cannot be said to suffer from any error of law. This
is not a case where the award has been found to be bad
on review of the case of the parties on merits by re-
appreciation of the evidence or on the premise that the
award is a result of erroneous application of the
statutory provision. The claim was found to be hit by
Article 54 of the Limitation Act on the face of the record
and as such could not have been awarded and further,
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justifiable doubts about the independence and
impartiality of the learned arbitrator have been
expressed even before making of the award in view of
the circumstances as narrated in the Fifth Schedule to
Arbitration Act’ 1996, brought on record.
105. For the above discussion the challenge to the order
passed by the civil court under Section 34 of the
Arbitration and Conciliation Act, 1996 is hereby turned
down. The appeals under Section 37 of the Arbitration
and Conciliation Act, 1996 are accordingly, dismissed
being devoid of merits. No order as to costs.
Connected Civil Applications would not survive and
shall stand disposed of, accordingly.
(SUNITA AGARWAL, CJ )
(PRANAV TRIVEDI,J)
FURTHER ORDER
At the time of delivering the judgment the prayer made
by Mr.Mihir Joshi, learned Senior Advocate appearing for the
appellant to pass an order of status quo is hereby turned
down.
(SUNITA AGARWAL, CJ )
(PRANAV TRIVEDI,J)
BIJOY B. PILLAI
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