Arbitral Awards Cannot Be Casually Interfered: High Court Of Bombay

CASE TITLE:

Zenobia Poonawala (nee Jinwalla) v. Rustom Ginwalla & Ors.

DATE OF ORDER:

25 January 2023.

JUDGE(S):

Justice Manish Pitale.

PARTIES:

Petitioner: Zenobia Poonawala (nee Jinwalla).

Respondent: Rustom Ginwalla & Ors.

SUBJECT:

In the present case, the petitioner has challenged the awards passed by the sole arbitrator in these two petitions. According to the petitioner, the arbitrator had erred in passing the awards as he had not taken into account the submissions and evidence of the petitioner, and had wrongly awarded an amount in excess of what was claimed by the respondents. The petitioner has alleged that the arbitrator had also failed to decide the disputes in accordance with the law and has prayed for setting aside of the awards passed by him.

BRIEF FACTS: 

• The case involves the partnership between Farhad Ginwalla, Cherie Ginwalla, and Zenobia Poonawalla. 
• In 1995, Farhad and Cherie Ginwalla executed a partnership deed introducing Zenobia as a partner in the Colaba firm with a 20% share in profits. 
• In 1996, they executed an indenture making Zenobia a partner with shares in profits and losses. 
• In 2012, the partners in the Grant Road firm executed a partnership deed introducing Zenobia as a partner with a 29% share. 
• Between 2012 and 2014, Zenobia and her father Farhad were involved in the day-to-day management of both the firms. 
• In January 2014, the relationship between Zenobia and other family members broke down and a decision was taken to wind up the business of the two firms.
• The case involves the transfers of money (70 lakhs and 79 lakhs) from two firms without the knowledge or consent of the other partners. 
• On 30th May 2016 and 7th June 2016, the partners of the Grant Road firm and the Colaba firm respectively issued notices of dissolution. 
• This led to disputes between petitioner Zenobia and the other family members and partners in the two firms. To resolve this dispute, a petition was filed under Section 11 of the Arbitration and Conciliation Act, 1996, to constitute an arbitral tribunal. Mr. Pradeep Sancheti, Senior Advocate, was appointed as the sole arbitrator with the consent of the parties.
• The Learned Arbitrator appointed M/s Dhanboora & Co., Chartered Accountants, as the auditor for accounts of both the firms with the consent of the parties involved. 
• During the proceedings, the parties were allowed to communicate with the auditor regarding any information or documents they wanted to show. 
• The auditor then sought direction from the learned arbitrator to interact with a longtime manager of the firms in order to seek clarifications relating to the accounts. 
• The learned arbitrator issued directions allowing the auditor to hold meetings with the said manager.
• The arbitrator had directed the petitioner to pay certain amounts to the firms and had also directed for payment of costs. 
• The petitioner filed two petitions challenging the awards and filed applications for stay of the same. The court then directed the petitions to be taken up for final disposal at the admission stage itself. 
• The respondents agreed to not proceed with the execution proceedings while the petitions were being adjourned.

QUESTIONS RAISED:

• Whether the Court has the jurisdiction to interfere with the awards given during arbitral proceedings?

ARGUMENTS ADVANCED BY THE APPELLANT:

• In this case, Mr. Aseem Naphade, a learned counsel, was appearing for the petitioner in two petitions. 
• He argued that the impugned awards should be set aside based on various grounds. 
• He argued that even though the awards were based on a report submitted by an auditor, the report had not been proved as evidence. 
• He argued that the appointment of the auditor was not prejudicial to the rights and contentions of the parties, and the auditor should have been examined by the learned arbitrator. 
• He further argued that the report of the auditor should have been proved in evidence by the author of the report, or alternatively, if it was to be treated as an expert opinion, it should have been proved in accordance with the law.
• This argument is based on the fact that the auditor who wrote the report was not examined by the arbitrator. This means that the arbitrator was not able to thoroughly investigate the report and assess its credibility. 
• As a result, the findings of the arbitrator in both the awards, pertaining to the accounts of the firms, were completely based on the report of the auditor, which could be unreliable. Therefore, it is argued that this invalidates the impugned awards.
• The learned counsel placed reliance on the following judgements-
• Vilas Dinkar Bhat v/s. State of Maharashtra and others [(2018) 9 SCC 89]
• Pradyuman Kumar Sharma and another v/s. Jaysagar M. Sancheti and others [2013 (5) Mh.L.J.]
• Rashmi Housing Private Limited v/s. Pan India Infraprojects Private Limited (2014 SCC Online Bom 1874)
• Nazim H. Kazi v/s. Kokan Mercantile Co-operative Bank Limited (2013 SCC Online Bom 209).
• The petitioner has argued that the respondents relied upon a report from an auditor to support their claims in two arbitration proceedings. 
• The petitioner has argued that since the respondents chose to rely on the report, it was their responsibility to prove the report. 
• The petitioner further argued that only one witness from the respondents was called to testify and his evidence was of no consequence in regards to the Colaba firm. 
• The petitioner argued that the arbitrator did not base his findings on the witness' testimony, but instead based his findings on the unproven auditor's report. Finally, the petitioner argued that the auditor's report was incomplete and heavily relied on verbal explanations from the manager of the firms.
• The petitioner submitted that he had never seen the accounts of the firms, so it was necessary for the auditor's report to be proven according to law. 
• Moreover, the petitioner's objections were ignored by the arbitrator. 
• Lastly, the mode of dissolution of the firms was not in accordance with Section 48 of the Partnership Act, as the awards called upon the petitioner and Farhad Ginwalla to contribute towards liabilities of the firms before the assets of the firms were liquidated, even though the claimants had only sought relief in terms of Section 48 of the Act.

ARGUMENTS ADVANCED BY THE RESPONDENT:

• Mr. Sameer Pandit, the learned counsel for the respondents, argued that the challenge raised by the petitioner in both the petitions did not meet the requirements of Section 34 of the Act. 
• He referred to various judgments of the Supreme Court and of this Court which are mentioned below-
• Ssangyong Engineering & Construction Company Ltd. v/s. National Highway Authority of India (NHAI), [(2019) 15 SCC 131], 
• Dyna Technologies Private Limited v/s. Crompton Greaves Limited, [(2019) 20 SCC 1), 
• Delhi Airport Metro Express Private Limited v/s. Delhi Metro Rail Corporation Limited, [(2022) 1 SCC 131], 
• UHL Power Company Limited v/s. State of Himachal Pradesh, [(2022) 4 SCC 116] 
• Jagannath Parmeshwar Mills Pvt. Ltd. v/s. Agility Logistics Private Limited, (2022 SCC Online Bom 1462).
• The above mentioned cases stated that the arbitrator is the best judge of the quantity and quality of the evidence in the proceedings. 
• He further argued that the insistence of the petitioner that the auditor should have been examined as a witness for the report of the auditor to be taken into consideration was not sustainable.
• It is argued that the main ground of objection is that Farhad Ginwalla had an unsound mind at the time the notice was issued, which is not an arbitrable issue, so the argument is invalid. 
• It is also argued that the fact that the respondents did not examine one of the witnesses in the list of their witnesses does not necessarily mean that an adverse inference can be drawn, as there is no mandatory requirement to examine all the witnesses.
• Section 48 of the Arbitration and Conciliation Act, 1996 deals with losses of a firm, not money owed by partners of the firm. The respondents had leveled a charge against the petitioner of unlawfully withdrawing funds from the firm, and the direction given in the impugned awards is justified. Section 31-A of the Act also provides for the imposition of costs in the arbitral awards, so no interference is warranted on this aspect either.

ANALYSIS OF THE COURT:

• In order to evaluate the present case, the court is examining the scope of jurisdiction exercised by the court under Section 34 of the Act.
• The petitioner is challenging the arbitral award made by the learned arbitrator on the grounds that the procedure adopted was defective. Specifically, the petitioner is arguing that the arbitrator relied upon the report of an auditor without requiring the auditor to enter the witness box and be examined. The petitioner claims that this violates the law of evidence, leading to a miscarriage of justice and conflict with the public policy of India.
• When a court considers an appeal against an arbitral award, the scope of their interference is limited. They cannot interfere unless there are errors in the award that can be considered by the Court. This is in line with the purpose of the Arbitration Act, which seeks to prioritize the finality of the arbitral awards, and the Amending Act of 2015, which was introduced to further emphasize this purpose.
• The court here is stating that the respondents are justified in relying on the provision in the agreement between the two firms that allowed for the appointment of an auditor to audit the accounts of both firms. 
• The court also states that it does not find anything wrong with the direction given by the arbitrator for the auditor to meet with the manager of both firms in order to seek clarification on the accounts. This is seen as a step in the right direction in order to resolve the dispute between the two firms.
• This court is rejecting the petitioner's argument that the respondents should have examined the auditor, simply because the petitioner gave consent to the appointment of the auditor. 
• This court is stating that the petitioner could have requested the learned arbitrator to call the auditor to participate in the hearing and put questions to the auditor under subsection (2) of Section 26 of the Act. Additionally, the petitioner could have presented expert witnesses to testify on the points at issue. 
• Since the petitioner did not do this, the court is rejecting the argument that the respondents should have examined the auditor.
• The auditor had to be appointed in order to settle the accounts of the two firms in light of the dissolution notices issued by the respondents. The petitioner did not challenge the auditor's report or apply for the auditor to participate in the hearing. 
• The arbitrator had the authority to rely on the auditor's report to render findings on the question of accounts, and the petitioner was not provided with any grounds to challenge the report.
• In this case, the petitioner had raised several grounds in order to have the arbitral award set aside. The learned arbitrator correctly found that the dissolution notices were valid, as the majority partners of the firms had issued such notices for dissolution. 
• Additionally, the ground pertaining to unsoundness of mind of Farhad Ginwalla was found to be unsustainable since the question of unsoundness of mind could never have been decided in the arbitral proceedings. 
• The Court also found no substance in the other grounds raised by the petitioner, such as the respondents having failed to examine all the witnesses named in their list of witnesses and the arbitral tribunal having permitted the auditor to seek clarifications from the long-time manager of the two firms. 
• Finally, the Court found that the petitioner’s contention regarding non-compliance with Section 48 of the Partnership Act was also without substance since the petitioner had already admitted to having withdrawn funds from the firm. 
• Therefore, the court found no substance in the grounds raised by the petitioner and upheld the arbitral award.

CONCLUSION

In conclusion, the petitions were found to be without merit and were dismissed. The arbitral tribunal's award of costs were found to be in line with the parameters indicated in Section 31-A of the Amending Act of 2015, and no interference was warranted. Therefore, the petitions were dismissed with no order as to costs.
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