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2014 DIGILAW 1839 (BOM)

Gaurang v. Vinay A. Choksi

2014-08-20

R.P.SONDURBALDOTA

body2014
Judgment 1. This petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”) challenges the arbitral award dated 10th August, 2008 made by “Sub-Committee of Producers Grievances Cell and In-House Settlement” (for short “the Committee”) of Indian Motion Picture Producers Association (IMPPA). The challenge to the award is on three grounds. Firstly that, there is no arbitration agreement between the petitioner and the respondent. Therefore, the learned arbitrator had no jurisdiction to decide the dispute between the parties. Secondly that, the notice of the arbitral proceedings had not been served upon the petitioner. And thirdly that the award deals with the dispute which is beyond the statement of claim. The respondent contests the petition contending that the same is barred by the law of limitation and also on merits. 2. Briefly stated the facts of the dispute decided by the arbitral award are as follows:- One Vinod Doshi (since deceased), father of the petitioner, carried on business of film production in the name and style of “M/s. V.R. Pictures”. He intended to produce a Hindi feature film titled “Trishul-The Game of Death”. He had approached the respondent a financer, for financial assistance. Tri-partite agreement dated 18th June, 2004 was executed between the father of the petitioner, the petitioner and the respondent for rendering financial assistance in which the father of the petitioner was described as the “Producer”, the petitioner as the “Guarantor” and the respondent as the “financer”. Under the agreement, the respondent agreed to provide financial assistance to the extent of Rs.60,00,000/- payable as under:- Rs.25,00,000/- Amt transferred from picture “Deewaarlet's bring our heroes home” Rs.35,00,000/- As per the discretion of the Third part subject to progress of the said picture. Rs.60,00,000/- Total (Rupees Sixty Lacs Only) The amount was to be repaid “along with 18% discount in commission thereon before effecting the delivery of the prints of the picture for the territory, C.P. BERAR C. I” i.e. on/or before 18th December, 2004 whichever was earlier.” The discounting commission was to be paid at the rate of 1.50 per month per Rs.100/- till repayment of the loan. The father of the petitioner and the petitioner jointly executed a Bill of Exchange guaranteeing the repayment of the loan. The petitioner also issued post-dated cheques totalling to Rs.25,00,000/- being the amount already received by the father of the petitioner. The father of the petitioner and the petitioner jointly executed a Bill of Exchange guaranteeing the repayment of the loan. The petitioner also issued post-dated cheques totalling to Rs.25,00,000/- being the amount already received by the father of the petitioner. Another similar Bill of Exchange was to be executed and post-dated cheques issued for the balance amount, as and when, the same was received. Finally the total amount of financial assistance extended by the respondent under the agreement was of Rs.57,00,000/-. As a security for repayment of loan, M/s. V.R. Pictures had forwarded a letter from M/s. Adlabs Films Limited to the respondent, stating that they shall not deliver any print for release in C.P. BERAR & C-I Circuit without written consent of the respondent. Later the father of the petitioner by his letter dated 18th December, 2004 got the due date of repayment under the agreement extended by another 18 months i.e. until 18th June 2006 for the reason that the project of producing the picture had got delayed. Unfortunately however he died on 31st October, 2006. 3. As the amount under the agreement remained unpaid the respondent by his letter dated 25th July, 2007 complained to IMPPA and requested it to arbitrate upon the dispute. The Committee of IMPPA took up the dispute for arbitration and made the impugned award directing the petitioner, in his capacity as “the proprietor of M/s. V.R. Pictures” and in his individual capacity as “the guarantor” to deposit a sum of Rs.57,00,000/- with IMPPA within a period of one month from the date of the award for paying to the respondent. The petitioner was also directed to pay interest at the rate of 18% p.a. on the amount from the date of the agreement till payment. Being aggrieved by the award, the petitioner has challenged the same by resorting to Section 34 of the Arbitration Act. It would be relevant to note here that during the pendency of the petition, the award was put into execution and one of the properties of the petitioner has been sold. 4. Since the respondent has taken up preliminary objection to the petition that, it is barred by the law of limitation, the same will have to be considered before touching upon the merits of the matter. The impugned award is dated 10th August 2008. The present petition was filed on 26th February 2010. 4. Since the respondent has taken up preliminary objection to the petition that, it is barred by the law of limitation, the same will have to be considered before touching upon the merits of the matter. The impugned award is dated 10th August 2008. The present petition was filed on 26th February 2010. Therefore according to the respondent the same is barred by limitation. The respondent in his affidavit-in-reply points out that, Advocate Gajendra Singh had appeared before the arbitral tribunal on behalf of the petitioner and sought adjournments. The copy of the award therefore had been forwarded by IMPPA to Advocate, Gajendra Singh. The petitioner was thus, throughout, aware of the arbitration proceedings and had knowledge of the award on 15th September, 2009. 5. The petitioner on the other hand disputes that there is delay in filing application under Section 34 of the Arbitration Act. He, claims that he learnt about the award for the first time in the month of January, 2010, when he received notice of the execution proceedings initiated by the respondent and therefore the petition filed on 18th February, 2010 is within the prescribed period of limitation. According to him, though a copy of the award had been received by Advocate Gajendra C. Singh from IMPPA under covering letter dated 15th September, 2009, no intimation was received by him from the Advocate about receipt of the award. IMPAA had not served the award personally upon him. Therefore, there was no compliance of Section 31(5) of the Arbitration Act. 6. Mr. Davar the learned advocate appearing for the petitioner submits that limitation for filing the application for setting aside arbitral award is prescribed by sec.34(3) of the Arbitration Act which reads as under: “34. Application for setting aside arbitral award.-- (1) (2)*** (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the Arbitral Tribunal: Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months, it may entertain the application within a further period of thirty days, but not thereafter.” Mr. Davar, further submits that Section 31(5) of the Arbitration Act, mandates that after an arbitral award is made, it's signed copy is delivered to each party. Further, delivery of the arbitral award is a matter of substance because it sets into motion several periods of limitation, one of them being for challenge to the award. Therefore, the delivery of the award has to be an effective delivery i.e. direct delivery to the party to the arbitration and the period of limitation u/s 34(3) will start to run only after the party itself receives copy of the award. 7. In support of his submission Mr. Davar seeks to rely upon following decisions of the Apex court. (i) Union of India v/s Tecco Trichy Engineers & Contractors, reported in (2005) 4 Supreme Court Cases page 239. (ii) Benarsi Krishna Committee and Others v/s Karmyogi Shelters Private Limited, reported in (2012) 9 Supreme Court Cases page 496. (iii) State of Maharashtra and Others v/s. ARK Builders Private Limited, reported in (2011) 4 Supreme Court Cases page 616. 8. In the case of Tecco Trichy (supra), the Apex Court was required to consider efficacy of service of the arbitral award by delivering a copy thereof in the office of the General Manager, Southern Railways. The delivery was acknowledged by someone in the office, probably by the Inwards Clerk. The Chief Engineer received the copy of the award from the tribunal more than a week thereafter. While considering the question of bar of limitation for application for setting aside the arbitral award under Section 34 of the Arbitration Act, the Apex Court considered the provision of Section 31 of the Arbitration Act, to note that according to it's sub-section (5), the term “party” used in the provision would be as defined by Clause-(h) of Section 2 of the Act, as being “a party to an arbitration agreement”. When it came to assign the meaning to the term, “party” in the context of the State or a Department of the Government, Apex Court held that the term “party” has to be construed to be a person directly connected with and involved in the proceedings and who is in control of the proceedings before the arbitrator. On the significance and importance of delivery of an arbitral award under Section 31(5) the Apex Court observed as follows:- “8. On the significance and importance of delivery of an arbitral award under Section 31(5) the Apex Court observed as follows:- “8. The delivery of an arbitral award under sub-section (5) of Section 31 is not a matter of mere formality. It is a matter of substance. It is only after the stage under Section 31 has passed that the stage of termination of arbitral proceedings within the meaning of Section 32 of the Act arises. The delivery of arbitral award to the party, to be effective, has to be “received” by the party. This delivery by the Arbitral Tribunal and receipt by the party of the award sets in motion several periods of limitation such as an application for correction and interpretation of an award within 30 days under Section 33(1), an application for making an additional award under Section 33(4) and an application for setting aside an award under Section 34(3) and so on. As this delivery of the copy of award has the effect of conferring certain rights on the party as also bringing to an end the right to exercise those rights on expiry of the prescribed period of limitation which would be calculated from that date, the delivery of the copy of award by the Tribunal and the receipt thereof by each party constitutes an important stage in the arbitral proceedings.” In the facts of the case before it, the Apex Court held that service of the notice on the Chief Engineer was the starting point of limitation to challenge the award before the Court. 9. In Benarsi Krishna's case copies of the award duly signed by the learned arbitrator was received by the Counsel for the respective parties. The Apex Court rejected the service as proper service observing that, “It is one thing for an advocate to act and plead on behalf of a party in a proceeding and it is another for an advocate to act as the party himself. The expression “party”, as defined in Section 2(1)(h) of the 1996 Act, clearly indicates a person who is a party to an arbitration agreement. The said definition is not qualified in any way so as to include the agent of the party to such agreement. The expression “party”, as defined in Section 2(1)(h) of the 1996 Act, clearly indicates a person who is a party to an arbitration agreement. The said definition is not qualified in any way so as to include the agent of the party to such agreement. Any reference, therefore, made in Section 31(5) and Section 34(2) of the 1996 Act can only mean the party himself and not his or her agent, or advocate empowered to act on the basis of a vakalatnama. In such circumstances, proper compliance with Section 31(5) would mean delivery of a signed copy of the arbitral award on the party himself and not on his advocate, which gives the party concerned the right to proceed under Section 34(3) of the aforesaid Act.” 10. In ARK Builder's case (supra), the Apex Court while reiterating its decision in Tecco Trichy case, held that the expression “party making that application had received the arbitral award” from Section 34 of the Arbitration Act, cannot be read in isolation and it must be understood in the light of what is said earlier in Section 31(5) that requires a signed copy of the award to be delivered to each party. Reading of the two provisions together, it is clear that limitation prescribed under Section 34(3) would commence only from the date the signed copy of the award is delivered to the party making an application for setting it aside. On the commencement of the period of limitation, the Apex Court further observed as follows:- “15. The highlighted portion of the judgment extracted above, leaves no room for doubt that the period of limitation prescribed under Section 34(3) of the Act would start running only from the date a signed copy of the award is delivered to/received by the party making the application for setting it aside under Section 34(1) of the Act. The legal position on the issue may be stated thus. If the law prescribes that a copy of the order/award is to be communicated, delivered, dispatched, forwarded, rendered or sent to the parties concerned in a particular way and in case the law also sets a period of limitation for challenging the order/award in question by the aggrieved party, then the period of limitation can only commence from the date on which the order/award was received by the party concerned in the manner prescribed by the law.” 11. The position of law that can be culled out from the above decisions is that, delivery of the arbitral award under Section 31(5) must be on the party to the arbitration agreement who is in control of the proceedings before the arbitrator. Delivery to any other person including the Counsel appearing for the parties to the arbitration does not satisfy compliance of the provision of Section 31(5) of the Arbitration Act. 12. In the light of the above legal position the date of delivery of the award to the Advocate for the petitioner cannot be the starting point for commencement of the period of limitation. In absence of any other material on record the date claimed by the petitioner of receipt of the award by him will have to be accepted as the correct date. Therefore, I find no substance in the preliminary objection of limitation taken by the respondent and hold that the petition filed is within the period of limitation prescribed under Section 34(3) of the Arbitration Act. 13. This brings us to the appreciation of the rival contentions on merits. It will be relevant to note at the outset that the material facts of the dispute i.e. advance of loan in the sum of Rs.57,00,000/- to the petitioner's father as the proprietor of “M/s. V.R. Pictures”, the petitioner being the guarantor for repayment of the loan, execution of the tri-partite agreement dated 18th June, 2004, issuance of bills of exchange and post-dated cheques by the petitioner and failure to repay the loan are not disputed. The challenge to the award on merit is not in strict sense of the term merit. It is essentially procedural in nature. 14. The petitioner contends that, there is no arbitration agreement between him and the respondent. The tri-partite agreement dated 18th June, 2004 does not contain an arbitration clause. The agreement of arbitration arises out of the Articles of Association of IMPPA. It provides for arbitration of disputes inter se the members. Undisputedly, all the three parties to the tripartie agreement are members of IMPAA. Mr. Davar, however submits that the agreement under the Articles of Association cannot be extended to the petitioner because his role in the transaction was not that of a producer but it was 0f a guarantor. 15. In my opinion, there can be no merit in the argument of Mr. Davar. Mr. Davar, however submits that the agreement under the Articles of Association cannot be extended to the petitioner because his role in the transaction was not that of a producer but it was 0f a guarantor. 15. In my opinion, there can be no merit in the argument of Mr. Davar. Admittedly, all the three persons to the transaction are members of IMPAA and the Articles of Association of IMPAA provides for resolution of the disputes inter se it's members, by way of arbitration conducted by “Sub-Committee of Producers Grievances Cell and In-House Settlement”. It is nobody's case that the IMPAA makes any distinction amongst it's members. Therefore, even if the dispute between it's members arises out of any capacity other than strictly that of a producer in the transaction between the parties, there can be no escape from the arbitration clause in the Articles of Association. 16. There is one more reason for rejecting the argument of Mr. Davar of want of Arbitration agreement between the parties. It is the specific case of the respondent that father of the petitioner carried on business of film producing in the name and style of M/s V.R. Pictures. The petitioner, who is also a producer, on the death of his father, continued the business of the father in the same name i.e. M/s V.R. Pictures from the same business premises. Therefore, on the death of the father, he stepped into shoes of the father and became liable to repay the loan in the capacity of the principal borrower as well. There is no material on record to challenge this contention of the respondent. It is not even the case of the petitioner that, on the death of his father the business carried on in the name of M/s. V.R. Pictures is closed down by stating the necessary particulars therefor and that there is no business carried on in that name since the death of the father. The petitioner has baldly denied that, he is carrying on the business of his father. In the peculiar facts of the case, where the petitioner has stepped into the shoes of his father, I am not inclined to hold that there is no arbitration agreement between the parties. The petitioner has baldly denied that, he is carrying on the business of his father. In the peculiar facts of the case, where the petitioner has stepped into the shoes of his father, I am not inclined to hold that there is no arbitration agreement between the parties. Further as will be seen hereinafter, the petitioner was well aware of the arbitration proceedings, but did not raise the dispute of absence of arbitration agreement, at any point of time. 17. The petitioner next complains that notice of arbitration proceedings was not served upon him. Perusal of the impugned award shows that, on receipt of the complaint from the respondent, IMPPA had called for the comments from the petitioner. When he failed to respond, IMPPA assigned the complaint to the Committee for arbitration. The Committee sent notice of the arbitration dated 17th September, 2007 to the petitioner calling upon him to remain present before itself for the arbitration proceedings. Three more notices had thereafter been sent to the petitioner being notices dated 11th January, 2008, 29th January, 2008 and 8th February, 2008. The final notice came to be issued on 24th March, 2008 with a specific intimation to the petitioner that on his failure to attend the meeting, an ex-parte decision will be taken in the dispute. Even thereafter, two more notices i.e. notices dated 6th May, 2008 and 26th June, 2008 were given by the Committee to the petitioner before passing the arbitral award. This material from the record is neither disclosed in the petition nor dealt with by the petitioner. In any case, the record shows that the petitioner had appointed Advocate Gajendra Singh to represent him in the arbitral proceedings. That is how the advocate had, received the award on his behalf. Therefore, there is no merit in the contention of non-service of notice of arbitration proceedings. 18. The third ground of challenge canvassed is that, the award deals with the dispute which is beyond the statement of claim. The details of this contention are not stated anywhere in the arbitration petition. The reference to the arbitration had been made by the letter dated 27th July, 2007 sent by the respondent to the Secretary, IMPPA for taking up the case with M/s. V.R. Pictures for refund of the amount of Rs.57,0,000/-with interest thereon. The letter specifically refers to the extension of time to repay until 18th June, 2006. The reference to the arbitration had been made by the letter dated 27th July, 2007 sent by the respondent to the Secretary, IMPPA for taking up the case with M/s. V.R. Pictures for refund of the amount of Rs.57,0,000/-with interest thereon. The letter specifically refers to the extension of time to repay until 18th June, 2006. Therefore, it cannot be said that the reference to the arbitration was of a claim that beyond the statement of claim. In all the above circumstances I find no merit in the petition and dismiss the same.