TaxTMI 
TaxTMI 
2010 (10) TMI 931
X X X X Extracts X X X X
X X X X Extracts X X X X
....perty, latest by 31st January, 2007. The original Petitioner was also directed to return to Respondent No.1 by 31st January, 2007, the original deed of mortgage as also the original deed of transfer of the mortgage and all like documents. The arbitrator also directed the original Petitioner to pay Respondent No.1, a sum of Rs.27,36,351/- with simple interest thereon at eighteen per cent per annum from 1st September, 2000, till payment and compensation at the rate of eighteen per cent per annum on Rs. 1,42,60,046/-, being the value of the said first and second floor premises from 12th April, 2000, being the date of expiry of the notice period given by the first Respondent to the original Petitioner till reassignment thereof. The original Petitioner's counter-claim was dismissed as not pressed. 2. Respondent No.1 was the Claimant before the arbitrator. The original Petitioner, Naresh Seth, Respondent No.2 Shiv Prakash Seth, original Respondent No.3 Janak Raj Seth and original Respondent No. 4, Ramesh Seth were brothers. After this petition was filed, the original Petitioner died and his heirs viz. his widow and his minor son were brought on record as Petitioners. After the petition ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in and the mortgagees that he had taken over possession of the property pursuant to the deed of transfer dated 28th September, 1984 and that he would auction the property in the event of the mortgagors and the guarantors committing default in payment of the amounts thereunder. By a further letter dated 27th September, 1985, the original Petitioner stated that as there was a failure to pay the mortgage debt, he became entitled to recover his dues under the indenture of mortgage dated 24th December, 1979 read with the deed of transfer dated 28th September, 1984. (c) Respondent No.1 by a letter dated 22nd February, 1986, addressed to the original Petitioner stated that he could sell the mortgaged properties and realise his dues from the sale proceeds. (d) The original Petitioner created a monthly tenancy in favour of one S. Agarwal with effect from 1st April, 1986, in respect of the ground floor of the said building. Thereafter, by a conveyance dated 30th June, 1986, he sold the ground floor premises to the said S. Agarwal for a sum of Rs.11,00,000/-. (e) Respondent No.1 contended that as on 30th June, 1986, it owed the original Petitioner a sum of Rs.13,75,000/-, inclusive of inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e account including existing account may be used, as mutually agreed, by transferring limited funds from the above common joint account to this account. 8. The balance remaining in the said common pool after satisfying all the dues and liabilities of the said Company and the said two firms including all taxes and other legal liabilities shall be distributed by the said Company as mutually agreed, subject to payment of tax thereon according to law. This distribution must be done within five years or if so agreed mutually by all parties within further extended period of three more years. 9. The parties hereto and Shiv Prakash Seth, Janakraj Seth, Ramesh Kumar Seth and Naresh Kumar agree to withdraw all legal proceedings filed by one against the other immediately after execution of this Memorandum of Understanding. 10. The parties agree to execute all documents/writings required for carrying out and implementation of the terms of this Memorandum of Understanding. 11. The Memorandum of Understanding shall be binding upon the parties hereto and Shiv Prakash Seth, Janakraj Seth, Ramesh Kumar Seth and Naresh Seth and their heirs, executors and administrators and shareholders of the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was the owner/tenant/mortgagee in possession of the second floor premises. 10. In view thereof, the first Respondent invoked the arbitration agreement contained in clause 12 of the Memorandum of Understanding. 11.(A) Mr. DeVitre, the learned senior counsel appearing on behalf of the Petitioner challenged the award on the following grounds: (I) The arbitrator had no jurisdiction to decide the claims. The submission was based on the following grounds :-- (a) The arbitrator wrongly granted the relief of reassignment of the property although the same was not prayed for. (b) The arbitrator awarded claims sought in the statement of claim but not raised in the letter invoking the arbitration agreement. (c) The Memorandum of Understanding deals only with the sale of the properties and not with the inter-se disputes between the parties thereto. (d) The arbitrator wrongly proceeded on the basis that the Claimant/Respondent No.1 had sought specific performance of the Memorandum of Understanding. (e) The arbitrator had no jurisdiction to decide the disputes arising in respect of the licence allegedly created by Respondent No.1 in favour of the original Petitioner in view of the prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing. Prayer a(ii) bases this declaration "in view of the redemption of the loan covered by the agreement dated 28th September, 1984 i.e. the deed of transfer of the mortgage from the original mortgagees to the original Petitioner." In prayer b(ii) of the statement of claim, the first Respondent sought an award ordering and decreeing the original Petitioner to give vacant possession of the said premises on the same basis viz. in view of the repayment of the loan covered by the deed of transfer of mortgage dated 28th September, 1984. 14. The submission that the award is bad for having granted the relief of reassignment of the said property on the ground that the first Respondent had not prayed for the same is, therefore, rejected. 15. Mr. DeVitre submitted that the first Respondent's letter dated 26th July, 2000, invoking arbitration restricted the disputes and the claim to possession of the second floor. Despite the same in the statement of claim additional reliefs were sought including declarations and decrees in respect of the first floor and claims for monetary compensation as well. According to Mr. DeVitre an arbitrator is not entitled to consider any claims or reliefs other th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce the reference is in relation to the item set out in the notice, the jurisdiction of the Arbitrators stands confined to those matters only and cannot travel outside it. Therefore, there is no question of examining the claim which is totally different from the one made in the notice which is the basis of the reference as to whether or not damages could be awarded on that claim. Once the claim is outside the reference, it is outside the scope and ambit of the inquiry by the Arbitrators and, therefore, the Arbitrators cannot go into it. Therefore, in our view, the claim made in the reference, which is inconsistent with paragraph 6 of the notice, cannot be entertained by the Arbitrators." 17. I do not read the judgment to hold as an absolute proposition that the claim made in arbitration must in every case be limited to the claim stated in the notice/letter invoking arbitration. Indeed in many, if not most cases, the letter/notice of invocation of the arbitration agreement does not stipulate and crystallize the claims. The judgment does not set out the arbitration agreement that applied between the parties therein. It does not indicate the nature of the arbitration agreement. If M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the counsel for all the parties filed the following statement describing it a Recorded Note :- "Recorded Note 1. Advocate and parties on either side agree that this reference be considered as related and restricted only to the disputes and differences concerning the property Simplex House (except ground floor thereof) at Juhu which is at item no.5 in annexure "A" to the Memorandum of Understanding dated 20h July 1995. 2. Advocates and parties on either side further agree that all other disputes and differences and all other claims and contentions constituting the subject matter of their respective pleadings (including the statement of claim and reply thereto as also the counterclaim and reply thereto) and/or arising out of the Memorandum of Understanding dated 20th July 1995 and/or otherwise, are not pressed in this arbitration and should, therefore, not be considered in this arbitration. Parties are, however, at liberty to raise and agitate the same in separate proceedings including separate arbitration proceedings." The parties had thus agreed that the reference be considered as related and restricted only to the disputes and differences concerning the property Simplex House ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Petitioner by entering into the Memorandum of Understanding did not agree to having the disputes between himself and the others including the first Respondent being referred to arbitration. 24. Considering the nature of the arbitration clause, this submission is not well founded. I have set out the arbitration clause earlier. The parties had agreed to have all differences and disputes, if any, among them 'in relation to or in connection with' the Memorandum of Understanding decided by arbitration. The expressions 'in relation to' and 'in connection with' are of wide amplitude. I need go no further than to refer to the judgment of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co., (1984) 4 SCC 679 where the Supreme Court held : "25. Four propositions emerge very clearly from the authorities discussed above: (1) Whether a given dispute inclusive of the arbitrator's jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ. (2) Expressions such as "arising out of" or "in respect of" or "in connection wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operties mentioned therein being sold in the manner stated therein acknowledged the title of the first Respondent in respect thereof. Whether the representation in the Memorandum of Understanding by the parties thereto are evidence of clear title of the first Respondent in respect of such properties is a question of fact. However, when one or more of the parties to the Memorandum of Understanding wishes that the properties mentioned therein be sold in terms of the Memorandum of Understanding and another party thereto either denies the first Respondent's title thereto or clear title thereto, an issue to this effect arises. The property then can be sold only after an adjudication thereof. The property can be sold effectively only upon determining the title or the extent of the title of the first Respondent to such property. This is a dispute between the parties to the Memorandum of Understanding and in respect of the subject matter of the Memorandum of Understanding. It is a dispute a decision in respect whereof precedes the grant of an award to sell the property as provided in the Memorandum of Understanding. In other words, the award for the sale of the property as per the Memorand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yse the facts differently. 31. Mr.DeVitre submitted that in any event the arbitrator would have no jurisdiction to decide the monetary claims granted by him for the same reason. 32. I do not agree. These claims for monetary compensation are inextricably linked to the issue of title and are attached to the property and are necessary incidents of ownership thereof. If the arbitrator has jurisdiction to adjudicate issues relating to a mortgage, he would also have jurisdiction to adjudicate the claims for the amounts due by a mortgagee for wrongful occupation of the mortgage property after the mortgagees right to continue in possession thereof ceases. The monetary claims would form part of and represent the rights of the parties in the property itself. That the original Petitioner had not undertaken to or incurred liability in or under the Memorandum of Understanding to vacate the premises or to pay compensation for the use thereof is irrelevant. 33. In the circumstances, Mr.DeVitre's submission that the claims made before the arbitrator and the reliefs granted in the award did not fall within the ambit of the arbitration agreement contained in clause 12 of the Memorandum of Underst....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to adopt appropriate proceedings including making a further reference for the sale thereof. Nothing prevented a limited reference as to the title and consequential reliefs without also seeking a sale of the said property. The reference was necessitated in view of the original Petitioner having denied the first Respondent's title. 40. Mr.Kamdar submitted that the record note establishes that the original Petitioner had agreed to refer the disputes regarding redemption to arbitration. I do not agree. 41. The record note by itself does not establish the same. It merely refers to the subject matter of the reference namely Simplex House except the ground floor thereof. This was the reason for my holding earlier that the "Recorded Note" negated Mr.DeVitre's submission that the arbitrator exceeded his jurisdiction by awarding claims not raised in the letter invoking the arbitration. If however, the questions of redemption and payment of monetary compensation were not within the purview of the Memorandum of Understanding, the arbitrator would not have had jurisdiction to decide the same merely in view of what is recorded in the note dated 19th June 2002, which is extracted in paragraph ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the said premises for the period of three years as requested by the Respondent, but, only upon payment of compensation / mesne profits at the then prevailing market rate of Rs.60,000/- p.m. i.e., Rs.7,20,000/- p.a. inasmuch as the mortgage amount alongwith interest thereon stood repaid to the Respondent long back i.e., on 31-3-1991. The Respondent had agreed to the above. Accordingly, the Claimants allowed the Respondent to occupy the said premises only for a period of three years from 1.1.1997 i.e., upto 31.12.1999. 22. The Claimants say that on or about 3.3.1997, the Claimants received a cheque of Rs.3,25,139/- from the Court Commissioner of the Hon'ble Bombay High Court from the moneys paid on account of the aforesaid Company Petition. The Claimants have duly given credit for the said amount to the Respondent in the particulars of their claim made herein. The Claimants have made correspondence with the Court Receiver to know the exact amount paid by the Respondent in pursuance of the aforesaid order dated 27.2.1997. However, the Claimants have still not received the entire details in that behalf. The Claimants crave leave to refer to and rely upon the relevant evidence in reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disputes arising in respect of the alleged licence. 46. Mr.Kamdar submitted that it is not open to the Petitioners to raise this contention as it had not been raised before the arbitrator. I have proceeded on the basis that the contention was not raised before the arbitrator. My conclusions on this submission in a nutshell are as follows : (i) The first Respondent itself contended at all times including in the statement of claim that it had granted a licence in favour of the original Petitioner for the period 1st January 1997 to 31st December 1999 at the market rate of Rs.60,000/- per month. (ii) The reliefs claimed before and awarded by the arbitrator pertained to and were a consequence of the said licence agreement. (iii) An arbitral tribunal lacks inherent jurisdiction to decide disputes relating to licence agreement in view of Section 41 of the PSCC Act. (iv) An objection as to such inherent lack of jurisdiction is non-derogable and cannot be waived. (v) Such an objection can be raised even in a petition under section 34 even if it was not raised before the arbitral tribunal. 47. Mr.DeVitre submitted that disputes pertaining to a licence agreement are not arbitrable. Thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r a period of three years upon payment of compensation at the market rate of Rs.60,000/- per month. This is an arrangement de hors and unconnected to the mortgage, the agency of the Court Receiver and the Memorandum of Understanding. It is not the Respondent's case that under this arrangement/agreement the original Petitioner was permitted to continue under or in terms of the mortgage or as a tenant or as a owner. The agreement pleaded is nothing but a licence created by the first Respondent in favour of the original Petitioner. Even if it was a gratuitous licence, it would make no difference. The judgment of the Full Bench would apply even to a gratuitous licensee. The Full Bench held that : "40. In summation, we would hold that section 41(1) of the Act of 1882 is a special law which in turn has constituted special Courts for adjudication of disputes specified therein between the licensor and licensee or a landlord and tenant. The effect of section 41(2) of the Act of 1882 is only the suits or proceedings for recovery of possession of immovable property or of licence fee thereof, to which, the provisions of specified Acts or any other law for the time being in force apply, have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s even if it was not taken before the trial court. This is established by the following judgments of the Supreme Court : (A) The Supreme Court in "Hira Lal Patni v. Kali Nath,(1962) 2 SCR 747 held : "4. The only ground on which the decision of the High Court is challenged is that the suit instituted on the original side of the Bombay High Court was wholly incompetent for want of territorial jurisdiction and that, therefore, the award that followed on the reference between the parties and the decree of Court, under execution, were all null and void. Strong reliance was placed upon the decision of the Privy Council in the case of Ledgard v. Bull 1. In our opinion, there is no substance in this contention. There was no inherent lack of jurisdiction in the Bombay High Court where the suit was instituted by the plaintiff-decree holder. The plaint had been filed after obtaining the necessary leave of the High Court under clause 12 of the Letters Patent. Whether the leave obtained had been rightly obtained or wrongly obtained is not a matter which can be agitated at the execution stage. The validity of a decree can be challenged in execution proceedings only on the ground that the court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... try a case goes to the very root of the jurisdiction, and where it is lacking, it is a case of inherent lack of jurisdiction. On the other hand, an objection as to the local jurisdiction of a court can be waived and this principle has been given a statutory recognition by enactments like section 21 of the Code of Civil Procedure. Having consented to have the controversy between the parties resolved by reference to arbitration through court, the defendant deprived himself of the right to question the authority of the court to refer the matter to arbitration or of the arbitrator to render the award. It is clear, therefore, that the defendant is stopped from challenging the jurisdiction of the Bombay High Court to entertain the suit and to make the reference to the arbitrator. He is equally stopped from challenging the authority of the arbitrator to render the award. In our opinion, this conclusion is sufficient to dispose of the appeal. It is not, therefore, necessary to determine the other points in controversy, including the question whether the Decrees and Orders Validating Act, 1936 (Act 5 of 1936) had the effect of validating what otherwise may have been invalid." (B) In Kiran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tation imposed by a statute, charter or commission, a court is without jurisdiction to entertain any particular claim or matter, neither the acquiescence nor the express consent of the parties can confer jurisdiction upon the court, nor can consent give a court jurisdiction if a condition which goes to the root of the jurisdiction has not been performed or fulfilled. Where the court has jurisdiction over the particular subject-matter of the claim or the particular parties and the only objection is whether, in the circumstances of the case, the court ought to exercise jurisdiction, the parties may agree to give jurisdiction in their particular case; or a defendant by entering an appearance without protest, or by taking steps in the proceedings, may waive his right to object to the court taking cognizance of the proceedings. No appearance or answer, however, can give jurisdiction to a limited court, nor can a private individual impose on a judge the jurisdiction or duty to adjudicate on a matter. A statute limiting the jurisdiction of a court may contain provisions enabling the parties to extend the jurisdiction by consent." 32. In Bahrein Petroleum Co.13 this Court also held that n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was based on principle. It was not confined to civil courts. The judgments had only incidentally been delivered in proceedings which originated in a civil court. These principles were not discussed in the context of the proceedings initiated in a civil court. It would be incorrect then to confine the ratio of these judgments to such proceedings. It applies to all courts, tribunals and authorities. 54. Mr.Kamdar however submitted that if a question of even inherent lack of jurisdiction is not raised before the Arbitral Tribunal, it cannot be raised in a petition under section 34. He relied upon sections 16 and 34 of the 1996, Act which read as under: 16. Competence of arbitral tribunal to rule on its jurisdiction.-(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....greement 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.-Without prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (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 applicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y arbitration. The award may be set aside even if the Court itself finds that the subject matter of the disputes is not capable of settlement by arbitration. Indeed, if the Arbitral Tribunal lacks inherent jurisdiction which cannot be cured or waived, the Arbitral Tribunal award would also be in conflict with the public policy of India for section 41, as held by the Full Bench is based on public policy. 58. Mr.Kamdars reliance upon the judgment of the Supreme Court in (2007) 5 SCC 38 is of no assistance in this regard. He relied upon paragraph 24 & 25 of this judgment. It is however necessary to note that this was not a case of inherent lack of jurisdiction. The Petitioner had challenged the constitution of the Arbitral Tribunal. It is, therefore, necessary also to note para 4 of the judgment. The Supreme Court held as under: "4. The principal ground on which the petition under section 34 of the Act had been filed by Respondent 1 was that it had invoked the arbitration clause by sending a notice to Appellant 1 on 17-7-1999 and accordingly Appellant 1 was required to send a panel of three names for arbitration within 30 days of receipt of notice. Since Appellant 1 did not respond ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....does not support his submission but in fact militates against it. In that case, an arbitrator had been appointed by an order passed under section 11. In a petition to challenge the award the Petitioners contended that the appointment of the arbitration under section 11 was not appropriate. The Division Bench of the Karnataka High Court analysed the provisions of section 16. It referred to the public policy of reducing the scope of interference by Courts with arbitral awards and the need for expediting the process. Mr.Kamdar relied upon paragraphs 16 and 17 of the judgment, which read as under : "16. Thirdly, the appellant should be deemed to have waived his right to object to the jurisdiction of the Arbitrator to pass the impugned award in terms of the provisions of section 4 of the Act. Section 4 reads as follows :-- "4. Waiver of right to object A party who knows that --- (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such noncompliance without undue delay or, if a time limit is provided for stating th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s (2) and (3) are not non-derogable provisions. They in any event do not denude the arbitral tribunal of inherent jurisdiction. The judgment does not deal with a question as to whether an award can be challenged on the ground that the arbitrator lacked inherent jurisdiction over the subject matter of the reference. 60. Mr.Kamdar submitted that in view of section 16(6), a finding on a question of jurisdiction can be challenged under section 34. If however the objection was not taken, no award in that respect would obviously be made. In that even, there is nothing to challenge in a petition under section 34. 61. This submission is not well founded. Even in a Civil Court, and even in execution proceedings, the same situation would obtain namely that the judgment of the trial court would not have dealt with the question of inherent lack of jurisdiction where the point was not raised. That, however, it has been held cannot prevent the Appellate Court or even the executing court from considering the question of inherent lack of jurisdiction. On a parity of reasoning Mr.Kamdar's submissions in this regard is rejected. 62. In view of this contention the entire award is liable to be set ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. The learned arbitrator has not dealt with this aspect of the matter at all. The contention was also raised in the written submissions. I would normally not consider the parties written submissions. However, the learned arbitrator has himself while considering the claim being one for specific performance of the Memorandum of Understanding referred to the Respondent's written submission. 68. Thus, the award so far as it grants compensation of eighteen per cent per annum on the value of the first and the second floor is liable to be set aside also on the ground that the dispute in this regard did not fall within the arbitration agreement and on the ground that the award in this regard contains no reasons. 69. In this view of the matter, it is not necessary for me to consider Mr.DeVitre's submission that the claim of compensation at eighteen percent per annum on the value of the property was without any particulars or evidence and is therefore bad. Re. : (IIA) Having come to the conclusion that he had no jurisdiction to consider the issue of tenancy raised by the original Petitioner, the arbitrator could not have made any observations in regard thereto. (IIB) The arbitrator, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e record and is, therefore, patently absurd. 75. Mr.DeVitre submitted that the award of monetary compensation for the alleged illegal use of the first floor was unsustainable, patently absurd and contrary to the record in view of the fact that it was the Respondent's case that possession of the first floor was in fact given to the first Respondent after the order dated 20th December 1996. The Respondent reiterated this even in the affidavit in reply in this petition. He further stated that the arbitrator had himself in paragraph 9 noted the same as follows : "........ Thereafter Naresh Seth (original Petitioner) delivered to the claimants (first Respondent) vacant and peaceful possession of the entire premises situated on the first floor of Simplex House. ......" In that view of the matter, he submitted that the arbitrator could never have awarded compensation for unauthorized occupation of the premises on the first floor with effect from 12th April 2000 till reassignment. 76. I had set out earlier paragraph 21 of the statement of claim. In the first sentence it is stated that after the order dated 20th December 1996, the original Petitioner gave vacant and peaceful possession o....