RATNAM SUDESH IYER versus JACKIE KAKUBHAI SHROFF on 10 November 2021

[2021] 11 S.C.R. 97

RATNAM SUDESH IYER

v.

JACKIE KAKUBHAI SHROFF

(Civil Appeal No. 6112 of 2021)

NOVEMBER 10, 2021

[SANJAY KISHAN KAUL AND M. M. SUNDRESH, JJ.]

Arbitration and Conciliation Act, 1996: s. 34 – Setting asideof arbitral award –Dispute between the appellant and respondentas regards sale of share – Complaint by the respondent before thepolice against the appellant – Parties entered into settlement deedwhereby the respondent had to withdraw all complaints against theappellant and was forbidden from writing complaints to any personabout the Deed and in return was to be paid US$ 1.5 million held inescrow till the withdrawal of complaints; and US$ 2 million was tobe paid to the respondent out of the proceeds from the sale of sharesof the company – Breach of settlement deed through e-mail sent byrespondent’s wife – Initiation of arbitration proceedings –Directionto escrow agent not to hand over the cheque for US$ 1.5 million tillthe direction of the arbitrator–Meanwhile execution of sharepurchase agreement and the shares were sold – Final award passedawarding liquidated damages of US$ 1.5 million in favour of theappellant; and that the respondent would not be entitled to the secondcheque of US$ 2 million held in escrow – Petition u/s. 34 – Both theSingle Judge and the Division Bench set aside the award – Onappeal, held: Appellant is a party based in Singapore thus, thearbitration though carried out within the country, would be aninternational commercial arbitration – Pre-2015 legal position wouldprevail since s.34 proceedings had already commenced when the2015 Amendment Act came into effect – A generally worded clause,Clause 9 of the Settlement Deed cannot be said to constitute anagreement to change the course of law that the s.34 proceedingswere subject to – General phraseology of a clause which seeks toinclude any amendment to the Act would not be able to be availedof to expand the scope of scrutiny as it would appear to run contraryto the legislative intent of s.26 of the Amendment Act – Necessaryconditions of the Deed of Settlement stood satisfied – Effect of the

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Aaward would be to deprive the respondent of the due valuation ofthe shares and what was paid to him to bring his complaints to anend – Respondent cannot be denied his dues because of suchindiscreet e-mail by his wife, who was not even party to theproceedings nor party to the Settlement Deed – Arbitrator’sconclusions not in accordance with the fundamental policy of IndianBlaw, and can thus be set aside under the pre-2015 interpretation ofs.34 – Since the consequencesare so inappropriate, the both theHigh Courts opined that whatever be the position that is applicable-pre or post amendment, in these facts the award would not standandthe same is upheld – Arbitration and Conciliation (Amendment) Act,C2015.

Dismissing the appeal, the Court

HELD: 1.1 The admitted position is that the appellant is aparty based in Singapore and thus, in terms of the said definitionof “international commercial arbitration” u/s. 2(1)(f) of theDArbitration and Conciliation Act, 1996, the arbitration althoughcarried out a within the country, would be an “internationalcommercial arbitration”. It is nobody’s case that the award inquestion is a foreign award within the meaning of Part II Section44 of the said Act. For domestic awards, Chapter 7 of the saidEAct provides recourse against the arbitral award. Section 34 ofthe said Chapter provides for application for setting aside anarbitral award and specifies the ground available for the same.The Arbitration and Conciliation (Amendment) Act, 2015amended the said Act w.e.f. 23.10.2015; inter alia by insertingExplanations to Section 34(2) of the said Act as well as by insertingFSub-Section 2A to Section 34. There is no doubt that the scope ofinterference by the Court became more restrictive with theamendments coming into force. [Para 12][108-G-H; 109-A-C]

1.2 A distinction is sought to be carved out between adomestic award arising from an international commercialGarbitration and a purely domestic award. The test for interferencewas sought to be made more stringent by the amendment inrespect of a domestic award arising from an internationalcommercial arbitration. A distinction is sought to be made betweenpurely domestic awards and awards arising out of arbitrationsH

other than international commercial arbitrations, as set out insub-section 2A to Section 34 of the said Act.The crux of the saidis that while the plea of the award being vitiated by patent illegalityis available for an arbitral award, such an award has to be a purelydomestic award, i.e. the plea of patent illegality is not availablefor an award which arises from international commercial arbitrationpost the amendment.The judgments of the Single Judge and theDivision Bench decided the challenge to the award on the plea ofpatent illegality without noticing this distinction. No doubt bothjudgments proceeded on the basis that in either situation, i.e.,within the test available for a purely domestic award or a domesticaward arising from an international commercial arbitration; theaward cannot be sustained. Thus far as to the nature of the award.[Para 13, 16-18][109-D; 110-A, C-E]

2.1 It is the say of the appellant that the award has to bescrutinised in the post amendment scenario and, thus, both theforums below fell into error by applying the test applicable in thepre-amendment scenario. It is, thus, the appellant’s say that patentillegality has no application as a test to the award in question.It isnot in dispute that the Section 34 proceedings commenced priorto 23.10.2015, which is the crucial date. As to when theamendment would apply is an aspect that is no longer res integra.[Para 19, 20][110-F-G]

2.2 The matter concerns Section 34 proceedings for settingaside the award. In this case, the Section 34 proceedings hadalready commenced when the 2015 Amendment Act came intoeffect. The court proceedings were already subject to the pre-2015 legal position. In a conspectus of the aforesaid, a generallyworded clause such as Clause 9 of the Deed of Settlement cannotbe said to constitute an agreement to change the course of lawthat the Section 34 proceedings were subject to. [Para 30][113-E-G]

2.3 The line of reasoning in Ssangyong Engineering andConstruction Company Ltd’ case itself shows that to prevent anyuncertainty in law, while seeking to fine tune the law to restrictthe scope of interference in awards the legislature took aconscious decision to make applicable the amendments only fromthe date it came into force. Thus, the general phraseology of a AB

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Aclause which seeks to include any amendment to the Act wouldnot be able to be availed of to expand the scope of scrutiny as itwould appear to run contrary to the legislative intent of Section26 of the Amendment Act. [Para 31][114-G; 115-A-B]

3.1 It would be the pre-2015 legal position which wouldBprevail. It is no doubt true that the arbitrator has the first handbenefit of recording evidence and examining the factual scenario.The instant case is one which is solely based on an interpretationof a clause against the background of a dispute which gave riseto the Deed of Settlement. The relevant clauses emphasise thatthe respondent was required to take a couple of steps back fromCthe position they had reached in the dispute, in order to avail thefinancial benefit under the Deed of Settlement. [Para 32, 33][116-G-H; 117-A-B]

3.2 The first such step was to withdraw all complaints andproceedings against appellant and all other named and unnamedDpersons before the EOW. The respondent complied with the sameand all such proceedings were brought to an end. US $ 1.5 millionwas kept in escrow to ensure that those proceedings came to anend, and on achieving the said objective the escrow amount hadto be released to the respondent. [Para 34][117-B-C]

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3.3 The second stage was of the sale of shares and theescrow amount of US$ 2 million was to be paid to the respondentwhen the shares were sold. It appears that there was some delayin the sale of shares which is what was objected to by the wife ofthe respondent and the appellant claimed that he could not beFpushed into an early sale. Be that as it may, the sale did takeplace. Thus, the necessary conditions of the Deed of Settlementstood satisfied. Clause 6 provided for the return of the amount ofUS$ 1.5 million in case the representations/assurances of therespondent turn out to be false or incorrect. That was not thecase. The only aspect emphasised by the appellant as a cause forGdenying the respondent his dues are the two e-mails sent by hiswife. Though the wife was initially impleaded in the proceedingsunder Section 9 of the said Act, she was later dropped from thearbitration proceedings as she was not a party to the agreement vide consent order dated 06.08.2012. In a sense the agreementaccepted that the wife of the respondent had no role to play andthe respondent could not be penalised for her conduct. [Para35][117-C-G]

3.4 What weighed with the Courts below is the fact that therespondent did nothing to ratify the e-mails of his wife. The effectof the award would be to deprive the respondent of the duevaluation of the shares and what was paid to him to bring hiscomplaints to an end.The complaints of the wife, at best wouldfall in the category of some indiscreet language. The e-mail dated09.06.2011 makes a grievance to the appellant about not beinginformed about the deal term sheet having been signed and usesthe expression that the appellant was not being “straight withus.” This can hardly be objected to. Of course, this was circulatedto their associates but the e- mail itself can hardly be calleddamaging. In the e-mail dated 15.06.2011, once again, a grievanceabout updates not being given is made. Certainly, the sentence“I have no wish to fraternise with a forger.” must be called whollyinappropriate. But then, that by itself cannot deny the respondentof his dues merely because of such an indiscreet e-mail by hiswife, who was not even party to the proceedings nor party to theDeed of Settlement which contained the arbitration clause. It isin the said context that the impugned orders were delivered andthe para 23 of the Single Judge’s order succinctly set forth whatwould be the consequences of the result of the award. [Para 36,37][117-G-H; 118-A-D]

3.5 The said scenario cannot be accepted and this is whathas been responsible for interference with the award of thearbitrator in the context of the legal position applicable to theaward pre the amendment. The arbitrator’s conclusions are notin accordance with the fundamental policy of Indian law, and canthus be set aside under the pre-2015 interpretation of S. 34 ofthe said Act. Clause 6 of the Deed of Settlement could not havebeen relied on to award liquidated damages in favour of theappellant, the observations of the Single Judge and the DivisionBench in this regard are accepted. In fact, the consequences areso inappropriate that the same appears to be the reason that boththe Single Judge and the Division Bench have opined that A

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[2021] 11 S.C.R.

Awhatever be the position that is applicable - pre or postamendment, in these facts the award would not stand, is accepted.[Para 38][119-B-D]

ABB India Ltd. v. Bharat Heavy Electricals Ltd. OMP(T) (Comm) No.48/2020 – approved.

BSsangyong Engineering and Construction Company Ltd.v. National Highways Authority of India (NHAI) (2019)15 SCC 131 : [2019] 7 SCR 522 – relied on.

Associated Builders v. Delhi Development Authority(2015) 3 SCC 49 : [2014] 13 SCR 895; Board ofCControl for Cricket in India v. Kochi Cricket Pvt. Ltd.& Ors. (2018) 6 SCC 287 : [2018] 2 SCR 829;Hindustan Construction Company Ltd. and Anr. v.Union of India & Ors. (2019) SCC OnLine 1520;Thyssen Stahlunion Gmbh v. Steel Authority of IndiaDLimited (1999) 9 SCC 334 : [1999] 3 Suppl. SCR 461;Padmini Chandran Menon v. Vijay Chandran Menon 7(2018) 2 AIR Bom R 108; Board of Trustees of the Potof Mumbai v. Afcons Infrastructure Limited (2016) SCCOnline Bom 10037; S.P. Singla Constructions Pvt. Ltd.v. State of Himachal Pradesh & Anr. (2019) 2 SCC 488E: [2018] 14 SCR 1005; Union of India v. ParmarConstruction Company (2019) 15 SCC 682 : [2019] 5SCR 1009 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6112 of2021.

From the Judgment and Order dated 20.04.2021 of the High Courtof Judicature at Bombay in Arbitration Appeal (L) No. 4901 of 2020 inArbitration Petition No.167 of 2015.

Vishal Gandhi, Dr. Lalit Bhasin, P. V. Yogeswaran, Advs. for theAppellant.

C. A. Sundram, Sr. Adv., Rahul Chitnis, Aaditya A. Pande, ShyamDewani, Chander Shekhar Ashri, Advs. for the Respondent.

The Judgment of the Court was delivered by SANJAY KISHAN KAUL, J.

1. Business associations can sour and that is what has happenedin the present case. That the association was across the seas is anotheraspect. The two parties before us were shareholders in the investmentholding company called Atlas Equifin Private Limited, India (for short‘Atlas’) which held 11,05,829 equity shares of Rs.10 each in Multi ScreenMedia Pvt. Ltd. (for short ‘MSM’). It appears that the appellant hadbeen attempting to sell the shares in MSM since 2002. In furtherance ofthe said objective, a placement instruction dated 15.11.2005 was signedby the parties authorising Standard Chartered Bank (for short ‘SCB’)as their agent to identify the purchaser for the appellant’s shares in Atlas.The dispute apparently commenced on account of the stand of therespondent that his signatures on the placement instructions had beenforged. Accordingly, he lodged a complaint with the Economic OffencesWing, Mumbai Police (for short ‘EOW’) on 19.04.2010 against both theappellant and the SCB.

2. Better sense appears to have prevailed at that stage amongstthe parties, or if one would say commercial sense; and they endeavouredto resolve their disputes by entering into a Deed of Settlement dated03.01.2011. Since the present proceedings need to be adjudicated onaspects which emerge from the Deed of Settlement, it would beappropriate at this stage to set out the gist of its relevant clauses.

a. Clause 2 provided that the respondent would withdraw allcomplaints and proceedings filed against the appellant.

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Ab. Clause 3 forbade the respondent from writing letters,communications, or complaints to any person about the subjectmatter of the Deed of Settlement. The latter part of the saidclause reads as under:

“3..........It is farther agreed that in future Jackie shall not writeBany letter or communication or complaint to any police authority/ies and/or any other judicial, quasi-judicial authority or statutoryauthority or any person or entity complaining about the subjectmatter of the present Deed.” (sic)

c. As a monetary incentive to the respondent to bring theCcomplaints to an end, an amount of US$ 1.5 million was to bepaid to the respondent as per clause 4.1. This amount videbanker’s cheque was to be held in an Escrow by M/s. D. M.Harish & Co., to be handed over to the respondent onconfirmation by the EOW of the appellant having withdrawnhis complaint dated 19.04.2010. The respondent was alsoDrequired to give further assurance to ensure that if any quashingproceedings are initiated, he would cooperate in the same.

d. As per Clause 4.2, US$ 2 million was to be paid to therespondent within seven (7) days of the receipt of the proceedsfrom the sale of MSM’s shares.Ee. The respondent was put to terms for committing any breachof the Deed of Settlement in clause 6, the consequence ofwhich would be the termination of the Deed of Settlement andthe release of US$ 1.5 million kept in escrow back to theappellant.Ff. The Deed of Settlement contained an arbitration clause forresolution of disputes in clause 9. The said clause reads asunder:

“9. If any dispute arises between the parties hereto in relationto any provision of this Deed, the dispute shall be referredGto Arbitration by a single Arbitrator to be appointed by mutualconsent. The Arbitration proceedings shall be governed bythe Arbitration and Conciliation Act, 1996 of India or anyamendment thereto. Courts in Mumbai shall have jurisdictionin relation to any legal action or proceeding arising out of orHin connection with this Deed.”

Trigger for arbitration:

3. The appellant claimed breach of the aforesaid Deed ofSettlement by an e-mail dated 09.06.2011 from the wife of the respondentinforming the appellant that “....once again you are not being straightwith us, and I’m concerned about this.” Copy of this e-mail wasmarked to some of their associates. This was alleged to be the firstbreach. The second breach was another e-mail dated 15.06.2011, onceagain, by the wife of the respondent. The email stated that “I have nowish to continue to fraternise with a forger.” Thereafter the e-mailsought to refer to the Deed of Settlement and the alleged failure of theappellant not to give updates to the respondent. This e-mail was alsocirculated to their associates. On the respondent asking the appellant on30.06.2011 to complete the sale of shares for release of the secondescrow cheque of US$ 2 million, the appellant replied the same daystating that the respondent could not push him to sell. The appellant alsoalleged the breach of the Deed of Settlement by the false and defamatorye-mail on 15.06.2011. This triggered recourse to the arbitration clause.

Arbitral proceedings and Court proceedings in relation toarbitral proceedings:

Arbitral proceedings and Court proceedings in relation toarbitral proceedings:

4. In July 2012, a share purchase agreement was executed forMSM’s shares and the transfer was pending approval by the ForeignInvestment Promotion Board. The appellant filed a petition under Section9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to asthe ‘said Act’) seeking interim relief against the respondent, his wife,and the escrow agent. The appellant claimed that the amount should notbe released to the respondent on account of the breach of the Deed ofSettlement through the e-mail sent by the respondent’s wife on15.06.2011. In the said proceedings, being Petition No.853/2012, a consentorder was passed on 06.08.2012 in terms whereof the respondent’s wifewas dropped from the array of parties as she was not a party to theDeed of Settlement. The disputes were referred by consent to the solearbitration of a former Judge of the Supreme Court of India. It wasfurther directed that the escrow agent would hand over the cheque forUS$ 1.5 million only after the direction of the arbitrator.

5. The appellant lodged a claim before the arbitrator seeking arefund of US$ 1.5 million (Rs.8.49 crore) with 18 per cent interest perannum w.e.f. 07.07.2011 till the date of payment. A statement of claimwas filed before the arbitrator dated 2.11.2012 in the following terms:

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A“52. The Claimant therefore prays:

(a) that this Hon’ble Tribunal be pleased to hold and declare thatthe Respondent has breached the Deed of Settlement datedJanuary 3, 2011 and severely harmed and damaged the hard-earned reputation of the Claimant.

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(b) that this Hon’ble Tribunal be pleased to hold and declare thatas a result of the breach of said Deed by the Respondent theRespondent has caused damage to the Claimant as stated in theParticulars of Claim or such amount as this Hon’ble Tribunal maydeem just and reasonable; C

(c) that this Hon’ble Tribunal be pleased to order and directRespondent to compensate the Claimant and pay the damages asstated in the Particulars of Claim (Annexure “S”) or such amountas this Hon’ble Tribunal may deem just and reasonable with interestthereupon as stated in the Particulars of Claim; D

(d) that this Hon’ble Tribunal be pleased to order and direct thatthe Respondent forthwith refund the sum of US$ 1.5 Million orIndian Rupees 8 crores 49 lakhs to the Claimant with interestthereupon @ 18% per annum from July 7, 2011 till the date ofpayment by the Respondent to the Claimant.

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(e) that this Hon’ble Tribunal be pleased to order and direct thatthe Respondent by himself his officers, servants, and agents berestrained by an order and permanent injunction of this Hon’bleTribunal from seeking the release of, and/or encashing the SecondCheque from the Escrow Agent and that the Claimant be permittedto take custody of the Second Cheque from the Escrow Agent orthe Escrow Agent be directed and ordered to hand-over the SecondCheque to the Claimant.

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(f) that this Hon’ble Tribunal be pleased to order and direct thatthe Respondent by himself his officers, servants, and agents berestrained by an order and permanent injunction of this Hon’bleTribunal from making any false, baseless and defamatorystatements against the Claimant in breach of the express terms ofthe Deed of Settlement.

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(g) For the costs of this Claim; and

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(h) For such further and other reliefs as the nature andcircumstances of the case may require and the Hon’ble Tribunaldeems fit.”

6. The respondent sought recourse to Section 16 of the said Actseeking to raise a jurisdictional challenge against the reference, howeverthe arbitrator opined on 17.01.2013 that there could not be a thresholdrejection of the appellant’s claim. Thereafter the proceedings werecontested by the respondent.

7. It may be noticed that MSM’s shares were sold in March,2013, and on 06.04.2013, Atlas declared and paid dividend to itsshareholders from the proceeds. The appellant immediately thereafterfiled an application under Section 17 of the said Act seeking to attach anamount of US$ 1.5 million which the respondent was to receive as hisshare of the said proceeds. That application was rejected and furtherproceedings in respect of the same also met the same fate in the HighCourt. That being the position, the respondent filed a petition under Section9 of the said Act seeking directions to the escrow agent to hand overUS$ 2 million on account of sale of MSM’s shares. However, the samewas dismissed on 02.04.2014 inter alia on the ground that the appellantwas resisting the payment and seeking a refund, and the appeal againstthe same was dismissed as withdrawn.

8. The learned arbitrator made the final award on 10.11.2014,awarding a claim for liquidated damages of US$ 1.5 million in favour ofthe appellant, as set out in clause 6 of the Deed of Settlement. Theaward also held that the respondent would not be entitled to the secondcheque of US$ 2 million held in escrow, on account of the respondent’sbreach of the Deed of Settlement.

9. The respondent moved a petition under Section 34 of the saidAct on 24.01.2015 before the Bombay High Court as Arbitration PetitionNo.167/2015, while the appellant filed for execution of the award.Consequently, the respondent also filed for stay of the enforcement ofthe award. Interim stay was granted on 06.04.2018 and the SLP againstthe same was dismissed, being SLP No. 27085 of 2018. The learnedSingle Judge of the High Court set aside the award in terms of thejudgment dated 19.05.2020. The appeal filed by the respondent underSection 37 of the said Act was dismissed by the Division Bench in termsof the impugned judgment dated 20.04.2021. The High Court also granted A

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Ainterim protection against withdrawal of the amount specified under theDeed of Settlement for a limited period of time.

10. In the Special Leave Petition while issuing notice on 02.08.2021,the interim arrangement by the High Court was extended and after grantof leave, arguments were concluded on 28.09.2021.

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11. In the conspectus of these facts, we feel the need for settingforth certain legal principles within the contours of which the presentdispute needs to be adjudicated.

The nature of arbitral proceedings:

12. One of the issues raised before us is the nature of the award.CThe appellant claims that it is an award arising out of an internationalcommercial arbitration. To appreciate this contention we turn to Section2(1)(f) of the said Act, which reads as under:

“2. Definitions. —D(1) In this Part, unless the context otherwise requires,—

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(f) “international commercial arbitration” means an arbitrationrelating to disputes arising out of legal relationships, whethercontractual or not, considered as commercial under the law inEforce in India and where at least one of the parties is—

(i) an individual who is a national of, or habitually resident in, anycountry other than India; or

(ii) a body corporate which is incorporated in any country otherFthan India; or

(iii) an association or a body of individuals whose centralmanagement and control is exercised in any country other thanIndia; or

(iv) the Government of a foreign country;”

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The admitted position is that the appellant is a party based inSingapore and thus, in terms of the aforesaid definition the arbitrationalthough carried out a within the country, would be an “internationalcommercial arbitration”. We may notice at this stage that it is nobody’scase that the award in question is a foreign award within the meaning of H

Part II Section 44 of the said Act. For domestic awards, Chapter 7 ofthe said Act provides recourse against the arbitral award. Section 34 ofthe said Chapter provides for application for setting aside an arbitralaward and specifies the ground available for the same. The Arbitrationand Conciliation (Amendment) Act, 2015 (for short ‘2015 AmendmentAct’) amended the said Act w.e.f. 23.10.2015; inter alia by insertingExplanations to Section 34(2) of the said Act as well as by inserting Sub-Section 2A to Section 34. There is no doubt that the scope of interferenceby the Court became more restrictive with the amendments coming intoforce. The pre-amendment position with respect to expression “in conflictwith public policy of India” was enunciated by this Court in SsangyongEngineering and Construction Company Ltd. v. National HighwaysAuthority of India (NHAI)[1], which referred to the judgment of thisCourt in Associated Builders v. Delhi Development Authority[2].

13. A distinction is sought to be carved out between a domesticaward arising from an international commercial arbitration and a purelydomestic award. The test for interference was sought to be made morestringent by the amendment in respect of a domestic award arising froman international commercial arbitration.

14. We may note that Explanation 1 sought to elucidate what ismeant by “in conflict with the public policy of India” by narrowing it tothe three aspects therein as under:

“Explanation 1.-For the avoidance of any doubt, it is clarified thatan award is in conflict with the public policy of India, only if,-

(i) the making of the award was induced or affected by fraud orcorruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indianlaw; or

(iii) it is in conflict with the most basic notions of morality or justice.”15. The further elucidation is by Explanation 2, which reads asunder:

“Explanation 2.-For the avoidance of doubt, the test as to whetherthere is a contravention with the fundamental policy of Indian lawshall not entail a review on the merits of the dispute.”

1 (2019) 15 SCC 131.

2 (2015) 3 SCC 49.

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16. A distinction is sought to be made between purely domesticawards and awards arising out of arbitrations other than internationalcommercial arbitrations, as set out in sub-section 2A to Section 34 of thesaid Act, which reads as under:

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“(2A) An arbitral award arising out of arbitrations other thanBinternational commercial arbitrations, may also be set aside bythe Court, if the Court finds that the award is vitiated by patentillegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the groundof an erroneous application of the law or by reappreciation ofCevidence.”

17. The crux of the aforesaid is that while the plea of the awardbeing vitiated by patent illegality is available for an arbitral award, suchan award has to be a purely domestic award, i.e. the plea of patentillegality is not available for an award which arises from internationalDcommercial arbitration post the amendment.

18. We are noticing the aforesaid distinction as it appears that thejudgments of the learned Single Judge and the Division Bench decidethe challenge to the award on the plea of patent illegality without noticingthis distinction. No doubt both judgments proceed on the basis that inEeither situation, i.e., within the test available for a purely domestic awardor a domestic award arising from an international commercial arbitration;the award cannot be sustained. Thus far as to the nature of the award.

Whether the amendment would apply in the facts of the presentcase:

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19. It is the say of the appellant that the award has to be scrutinisedin the post amendment scenario and, thus, both the forums below fellinto error by applying the test applicable in the pre-amendment scenario.It is, thus, the appellant’s say that patent illegality has no application as atest to the award in question.

20. It is not in dispute that the Section 34 proceedings commencedprior to 23.10.2015, which is the crucial date. As to when the amendmentwould apply is an aspect that is no longer res integra. We may refer torelevant judicial pronouncements in this regard.

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21. In Board of Control for Cricket in India v. Kochi CricketPvt. Ltd. & Ors.[3] a reference was made to Section 26 of the 2015Amendment Act which had bifurcated proceedings into arbitralproceedings and court proceedings. The said provision reads as under:

“26. Nothing contained in this Act shall apply to the arbitralproceedings commenced, in accordance with the provisions ofSection 21 of the principal Act, before the commencement of thisAct, unless the parties, otherwise agree but this Act shall apply inrelation to arbitral proceedings commenced on or after the dateof commencement of this Act.”

22. It was clearly elucidated in para 39 of the judgment that thereason behind the first part of Section 26 of the 2015 Amendment Actbeing couched in the negative was only to state that the Amendment Actwill apply even to arbitral proceedings commenced before the amendmentif the parties otherwise agree. This is not so in the second part. Thejudgment derived that the intention of the legislature was to mean thatthe 2015 Amendment Act is prospective in nature and will apply to thosearbitral proceedings that are commenced, as understood by Section 21of the said Act, on or after the 2015 Amendment Act, and to courtproceedings which had commenced on or after the 2015 AmendmentAct came into force.

23. The applicability of Section 34(2A) was further elucidated inSsangyong Engineering and Construction Company Ltd. v. NationalHighways Authority of India[4], where the SC categorically opined thatSection 34 as amended will apply only to Section 34 applications thathave been made to the Court on or after 23.10.2015, irrespective of thefact that the arbitration proceedings may have commenced prior to thatdate.

24. In the subsequent judgment of Hindustan ConstructionCompany Ltd. and Anr. v. Union of India & Ors.[5], it was observed inpara 60 that the result of the BCCI judgment was that salutaryamendments made by the 2015 Amendment Act would apply to all courtproceedings initiated after 23.10.2015.

3 (2018) 6 SCC 287.

4 (2019) 15 SCC 131.

5 2019 SCC OnLine 1520.

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A25. The contention of the appellant, faced with the aforesaid judicialpronouncements, solely rests on the wording of clause 9 of the Deed ofSettlement, which provides that “the Arbitration proceedings shall begoverned by the Arbitration and Conciliation Act, 1996 of India or anyamendment thereto.” (Emphasis supplied). The submission thus wasthat this phraseology of clause 9 included the possibility of any futureBamendments to the said Act being made applicable to the arbitration inquestion.

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26. We have to thus examine the effect of such phraseology usedin the arbitration clause.C27. In the context of the Arbitration Act, 1940 (hereinafter referred

C27. In the context of the Arbitration Act, 1940 (hereinafter referredto as the ‘Old Act’) and the said Act, there are some observations inThyssen Stahlunion Gmbh v. Steel Authority of India Limited[6], whichare relevant for the purposes of this discussion. While opining that theprovisions of the Old Act would apply in relation to arbitral proceedingswhich had commenced before the coming into force of the said Act, thisDCourt referred to the ‘Repeal and savings’ provision in Section 85(2)(a)of the said Act. It was observed that the phrase “in relation to arbitralproceedings” cannot be given a narrow meaning so as to mean onlypendency of arbitration proceedings before the arbitrator, but would alsocover proceedings before the court. The appellants cited two judgmentsEof the Bombay High Court in support of their case, i.e., PadminiChandran Menon v. Vijay Chandran Menon[7 ]and Board of Trusteesof the Pot of Mumbai v. Afcons Infrastructure Limited,[8] which inturn rely on Thyssen Stahlunion Gmbh (supra).

28. However, the general observations aforesaid cannot come toFthe aid of the appellant in view of a number of judicial pronouncementsby this Court which deal with a similar issue.

29. In S.P. Singla Constructions Pvt. Ltd. v. State of HimachalPradesh & Anr.[9], the arbitration clause provided that the arbitrationwould be subject to the provisions of the Arbitration Act, 1940 or anyGstatutory modification or re-enactment thereof. A plea was raised thatthe amended provisions would apply in accordance with Section 26 ofthe 2015 Amendment Act. This contention was repelled by the Court 6 (1999) 9 SCC 334.7 (2018) 2 AIR Bom R 108.8 2016 SCC Online Bom 10037.H9 (2019) 2 SCC 488.

which opined that such general conditions of the contract cannot betaken to be an agreement between the parties to apply the provisions ofthe 2015 Amendment Act. As a result, the provisions of the 2015Amendment Act would apply only in relation to arbitral proceedingscommenced on or after the date of commencement of the 2015amendment.

30. In a similar vein, the arbitration clause in Union of India v.Parmar Construction Company[10]provided that “subject to the provisionsof the aforesaid Arbitration and Conciliation Act, 1996 and the Rulesthereunder and any statutory modifications thereof shall apply to thearbitration proceedings under this Clause.”

Relying on this clause, a contention was sought to be raised thatthe 2015 Amendment Act would apply to the arbitral proceedings whichhad been pending on 23.10.2015. It was opined by this Court that aconjoint reading of Section 21 of the said Act and Section 26 of the 2015Amendment Act left no manner of doubt that the provisions of the 2015Amendment Act shall not apply to arbitral proceedings which hadcommenced in terms of the provisions of Section 21 of the said Actunless the parties otherwise agree. Whether the application was pendingfor appointment of an arbitrator or in the case of rejection because of noclaim as in that case for appointment of an arbitrator including change/substitution of the arbitrator was held not to be of any legal effect forinvoking the provision of the 2015 amendment. While S.P. Singla[11] andParmar Construction Company[12] opined on the topic of arbitralproceedings, we may note here that the matter concerns Section 34proceedings for setting aside the award. In this case, the Section 34proceedings had already commenced when the 2015 Amendment Actcame into effect. The court proceedings were already subject to thepre-2015 legal position. In a conspectus of the aforesaid, a generallyworded clause such as Clause 9 of the Deed of Settlement cannot besaid to constitute an agreement to change the course of law that theSection 34 proceedings were subject to. We may also note that a learnedsingle Judge of the Delhi High Court in ABB India Ltd. v. BharatHeavy Electricals Ltd.[13], while referring to the judgment in Parmar 10 (2019) 15 SCC 682.

11 supra

12 supra

13 OMP (T) (Comm) No.48/2020

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AConstruction Company[14] case, has proceeded in accordance with thisCourt’s observations while distinguishing the judgment in ThyssenStahlunion Gmbh[15]. In the context of anticipating new enactments thatmay come into operation, it was opined that while Thyssen StahlunionGmbh[16] dealt with Section 85(2)(a) of the said Act, this provision isdissimilar to Section 26 of the 2015 Amendment Act. Section 26 startsBwith a negative covenant which is subject to an exception in the case ofan agreement between the parties, whereas the observations in ThyssenStahlunion Gmbh[17]were coloured by Section 85(2)(a) of the said Actwhich is structured differently. We refer to the same only to give ourimprimatur. The relevant portion of ABB India Ltd. (supra) reads asCfollows:“71. Besides, in Thyssen Stahlunion GMBH, there was noprovision, similar to Section 26 of the 2015 Amendment Act, whichis crucial to adjudication of the dispute in the present case. In thiscontext, it is necessary to distinguish the structure of SectionD85(2)(a) of the 1996 Act, with Section 26 of the 2015 AmendmentAct. Whereas Section 85 (2)(a) of the 1996 Act made, inter alia,the 1940 Act applicable to arbitral proceedings which commencedbefore the coming into force of the 1996 Act, unless otherwiseagreed by the parties. Section 26 of the 2015 Amendment Actstarts with a negative covenant, to the effect that nothing containedEin the 2015 Amendment Act – which would include the insertionof Section 12(5) of the 1996 Act – would apply to arbitralproceedings, commenced before the 2015 Amendment Act cameinto force, i.e. before 23rd October, 2015. This negative covenantwas subject to an exception in the case of agreement, otherwise,Fby the parties. Structurally and conceptually, therefore, Section26 of the 2015 Amendment Act is fundamentally different fromSection 85(2)(a) of the 1996 Act, and requires, therefore, to beinterpreted, keeping this distinction in mind.”

31. We may note that the line of reasoning in SsangyongGEngineering and Construction Company Ltd.[18] itself shows that toprevent any uncertainty in law, while seeking to fine tune the law to 14 supra15 supra16 supra17 supraH18 supra RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF[SANJAY KISHAN KAUL, J.]

restrict the scope of interference in awards the legislature took aconscious decision to make applicable the amendments only from thedate it came into force. Thus, the general phraseology of a clause whichseeks to include any amendment to the Act would not be able to beavailed of to expand the scope of scrutiny as it would appear to runcontrary to the legislative intent of Section 26 of the Amendment Act. Inthis regard it may be appropriate to refer to the Supreme Court’sobservations in Ssyangong Engineering and Construction CompanyLtd.[19](supra) relating to the scope of ‘public policy’ as a ground to setaside arbitral awards before the 2015 Amendment Act:

24. Yet another expansion of the phrase “public policy ofIndia” contained in Section 34 of the 1996 Act was by anotherjudgment of this Court in Western Geco [ONGC v. Western GecoInternational Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12],which was explained in Associate Builders [AssociateBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] asfollows : (SCC pp. 73-77, paras 28-34)

“28. In a recent judgment, ONGC v. Western GecoInternational Ltd. [ONGC v. Western Geco International Ltd.,(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], this Court addedthree other distinct and fundamental juristic principles which mustbe understood as a part and parcel of the fundamental policy ofIndian law. The Court held : (SCC pp. 278-80, paras 35 & 38-40)

[…]

29. It is clear that the juristic principle of a “judicialapproach” demands that a decision be fair, reasonable andobjective. On the obverse side, anything arbitrary and whimsicalwould obviously not be a determination which would either befair, reasonable or objective.

30. The audi alteram partem principle which undoubtedlyis a fundamental juristic principle in Indian law is also contained inSections 18 and 34(2)(a)(iii) of the Arbitration and ConciliationAct. These sections read as follows:

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‘18. Equal treatment of parties.—The parties shall betreated with equality and each party shall be given a full opportunityto present his case.

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34. Application for setting aside arbitral award.—(1)

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(2) An arbitral award may be set aside by the court only if—

(a) the party making the application furnishes proof that—

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(iii) the party making the application was not givenproper notice of the appointment of an arbitrator or of thearbitral proceedings or was otherwise unable to present hiscase;’

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31. The third juristic principle is that a decision whichis perverse or so irrational that no reasonable person wouldhave arrived at the same is important and requires somedegree of explanation. It is settled law that where:

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(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account somethingirrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, suchdecision would necessarily be perverse.”

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Factual Analysis:

32. We have considered the aforesaid two legal issues which wouldgovern the present case and have come to the conclusion that it wouldbe the pre-2015 legal position which would prevail. That being the position,we would have to examine whether in the conspectus of that legal positionit can be said that the learned Single Judge and the Division Bench erredin setting aside the award.

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33. It is no doubt true that the arbitrator has the first hand benefitof recording evidence and examining the factual scenario. The presentHcase is one which is solely based on an interpretation of a clause against

the background of a dispute which gave rise to the Deed of Settlement.We have reproduced the relevant clauses which would emphasise thatthe respondent was required to take a couple of steps back from theposition they had reached in the dispute, in order to avail the financialbenefit under the Deed of Settlement.

34. The first such step was to withdraw all complaints andproceedings against appellant and all other named and unnamed personsbefore the EOW. The respondent complied with the same and all suchproceedings were brought to an end. US $ 1.5 million was kept in escrowto ensure that those proceedings came to an end, and on achieving thesaid objective the escrow amount had to be released to the respondent.

35. The second stage was of the sale of shares and the escrowamount of US$ 2 million was to be paid to the respondent when theshares were sold. It appears that there was some delay in the sale ofshares which is what was objected to by the wife of the respondent andthe appellant claimed that he could not be pushed into an early sale. Bethat as it may, the sale did take place. Thus, the necessary conditions ofthe Deed of Settlement stood satisfied. It is in this context that we haveto consider whether clause 6 would come into play, so as to deprive therespondent of the benefits which were two fold, i.e., monetary benefit tocease and desist on complaints and litigations, and the proceeds fromthe sale of shares that were owned by him. Clause 6 provided for thereturn of the amount of US$ 1.5 million in case the representations/assurances of the respondent turn out to be false or incorrect. That wasnot the case. The only aspect emphasised by the appellant as a causefor denying the respondent his dues are the two e-mails sent by his wife.We may note here that though the wife was initially impleaded in theproceedings under Section 9 of the said Act, she was later dropped fromthe arbitration proceedings as she was not a party to the agreement videconsent order dated 06.08.2012. In a sense the agreement acceptedthat the wife of the respondent had no role to play and the respondentcould not be penalised for her conduct.

36. We may note that what has weighed with the Courts below isthe fact that the respondent did nothing to ratify the e-mails of his wife.The effect of the award would be to deprive the respondent of the duevaluation of the shares and what was paid to him to bring his complaintsto an end.

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A37. Even if we turn to the complaints of the wife, at best theywould fall in the category of some indiscreet language. The e-mail dated09.06.2011 makes a grievance to the appellant about not being informedabout the deal term sheet having been signed and uses the expressionthat the appellant was not being “straight with us.” This can hardly beobjected to. Of course, this was circulated to their associates but theBe-mail itself can hardly be called damaging. If we turn to the e-maildated 15.06.2011, once again, a grievance about updates not being givenis made. Certainly, the sentence “I have no wish to fraternise with aforger.” must be called wholly inappropriate. But then, that by itselfcannot deny the respondent of his dues merely because of such anCindiscreet e-mail by his wife, who was not even party to the proceedingsnor party to the Deed of Settlement which contained the arbitration clause.It is in the aforesaid context that the impugned orders have been deliveredand we consider it appropriate to extract para 23 of the learned SingleJudge’s order which succinctly set forth what would be the consequencesof the result of the award.D

“23. When we see the bizarre outcome it has brought about in thematter, the extent of the fallacy can be realised better. TheRespondent got practically everything that he wanted from thePetitioner in return for payment of USD 3,500,000 to the latter.He got the EOW complaint withdrawn; he got the Petitioner toEratify the original Placement Instruction to SCB for sale of Atlasshares and for making over of the consideration to Grandway; hegot an irrevocable power of attorney in his name for sale of sharesof Atlas from the Petitioner; he got all the Petitioner’s claimsagainst him, his wife and Atlas and Grandway and theirFshareholders released; he got the Petitioner’s resignation fromthe Board of Atlas; he got an agreement and irrevocable consentfrom the Petitioner for sale and transfer of Atlas shares; he gotan agreement or consent from the Petitioner for dividenddistribution and winding up of Atlas in a manner as the Board andthe other shareholders might deem fit; and he got a confirmationGof no claim against him or his family member or Atlas or Grandwayof their shareholders by the Petitioner. And after all that is done,he even gets back his entire money of USD 3,500,000. And thatbecause the Petitioner’s wife calls him a ‘forger’ in a privatecommunication made to a couple of acquaintances or associates.HCan such award be ever sustained as something a fair and judiciously minded person could have made. In my humble opinion,it is the very opposite of justice; it would be a travesty of justice touphold such award.”

38. The aforesaid scenario cannot be countenanced and this iswhat has been responsible for interference with the award of the learnedarbitrator in the context of the legal position applicable to the award prethe amendment. We find that the arbitrator’s conclusions are not inaccordance with the fundamental policy of Indian law, and can thus beset aside under the pre-2015 interpretation of S. 34 of the said Act. Wemay also note that clause 6 of the Deed of Settlement could not havebeen relied on to award liquidated damages in favour of the appellant,we agree with the observations of the Single Judge and the DivisionBench in this regard. In fact, the consequences are so inappropriate thatthe same appears to be the reason that both the learned Single Judgeand the Division Bench have opined that whatever be the position that isapplicable - pre or post amendment, in these facts the award would notstand, something with which we agree.

Conclusion:

39. In the conspectus of the aforesaid discussion we are not ableto find fault with the judgment of the learned Single Judge and the DivisionBench to the extent it interferes with the award and sets aside the award.Consequently, the appeal is dismissed with costs.

Nidhi Jain

Appeal dismissed.

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