Sachin Gupta and Another vs KS Forge Metal Pvt. Ltd.

Cav. No. 1145/2012

Since the caveator has put in appearance, the caveat stands discharged.

FAO (OS) No. 539/2012 and CM No. 18962/2012 (Stay)

The present appeal u/s 37 of the Arbitration and Conciliation Act (''the Act'') by the appellant assails the judgment dated 04.09.2012 passed by the learned Single Judge in O.M.P. No. 49/2008, whereby the objections preferred by the respondent u/s 34 of the Act challenging the award dated 31.07.2004 passed by the sole arbitrator have been allowed and the award set aside. The case of the appellants was that appellant nos. 1 and 2 had invested certain amounts in the respondent company for the construction of a building on Plot No. 31, Rajasthani Udyog Nagar, G.T. Road, Delhi. The appellants also claim that an agreement was entered into, to the effect that after the building was completed, a furnace plant would be installed and the profits therefrom would be shared by the parties. The appellants claim to have dealt with the respondent through their attorney Mr. Amit Aggarwal. The appellants also claim that since the project could not be completed, they sought to recover their amounts and an amicable settlement was arrived at between the respondent through its director Mr. Ramesh Sharma and attorney Mr. Amit Aggarwal with the appellants. They agreed to pay certain amounts to the two appellants under the said agreement. It is claimed that promissory note and receipt was executed on 14.08.2001 by the respondent company acting through its director Mr. Ramesh Sharma and attorney Mr. Amit Aggarwal. They further claimed that the respondent had agreed that in case the amount was not paid alongwith interest within ten days of a written demand by the appellants, the amount due with interest would be adjusted and taken as part consideration for sale of the aforesaid plot admeasuring 2610 sq. yds. to be sold by the respondent to the appellants for a total sale consideration of Rs. 38 lacs. The appellants claim to have been provided with photocopies of power of attorney, resolution, minutes, title document of the aforesaid plot by the respondent towards acknowledgment of liability in terms of the agreement.

The appellants claim that they invoked their rights under the said agreement dated 14.08.2001, but the respondent company did not comply. Consequently, the arbitration agreement between the parties was invoked. The appellants claimed repayment of a sum of Rs. 37,70,208/- due till 14.05.2004 alongwith interest @ 24% p.a. from 14.05.2004 onwards, and for a decree of specific performance of the agreement dated 14.08.2001 for transfer of the aforesaid property in favour of the appellants for sale consideration of Rs. 38 lacs.

Undisputedly, the arbitrator made an ex-parte award who claimed that the respondent did not appear despite service of notice through its director Mr. Amit Aggarwal. The arbitrator also claims to have sent a notice under certificate of posting dated 06.07.2004. According to the arbitrator, the respondent did not choose to appear despite service. The arbitrator made the ex-parte award dated 31.07.2004 on the basis of the promissory note (Ex. CW-1/1), receipt (Ex. CW-1/2), agreement (Ex. CW-1/3), copies of attorney, resolution, and title documents (Ex. CW-1/4 to 1/7), copy of letter dated 17.05.2004 (Ex. CW-1/8), reply/writing dated 22.05.2004 (Ex. CW-1/9).

It was held that the appellants were entitled to Rs. 37,41,207/- with future interest @ 24% p.a. which was required to be adjusted towards sale consideration of the plot in question. A direction was issued to the respondent to execute and get registered the transfer deed in respect of the aforesaid plot in favour of the appellant or their nominee after completing all the formalities within one month. The respondent was also directed to hand over peaceful and vacant possession of the plot to the appellants.

The appellants filed Execution Petition no. 61/2005 seeking to enforce the award. Orders were passed issuing attachment warrants in respect of the property in question. On 09.08.2005, the respondent company appeared in the proceedings stating that they had filed objections to the award. The respondent filed proceedings before the Court of the Civil Judge, Tis Hazari Court challenging the award in question. The respondent thereafter filed E.A. No. 388/2007 in the execution proceedings seeking a direction to the arbitrator to provide a copy of the award and other documents to the respondent. Eventually, the objections to the award were preferred by the respondent.

The learned Single Judge noticed that the objections were filed within the period of limitation by observing that the arbitral record shows that the copy of the impugned award was sent only to the address of K.K. Aggarwal, and the AD card showed the signature of one Mr. Amit Aggarwal without any stamp of the respondent company. It did not appear that a signed copy of the award was received by the respondent company.

The learned Single Judge has, inter alia, observed in the impugned order:

A perusal of the arbitral record also leads to the conclusion that notices of the arbitral proceedings were not served on the Petitioner company. Strangely the arbitral record does not have a postal acknowledgment signed by an authorised representative of the Petitioner company showing that the notices of the arbitral proceedings was properly served on it. The proof of dispatch by UPC does not inspire confidence. This is made even more suspicious on account of the delivery certificate endorsed by Respondent No. 2 Mr. Mahipal Singh on 15th June 2004 on the reverse of the notice purportedly sent by the learned Arbitrator. The said notice bears the signature of ''A. Kumar'' which according to the Respondents is how Mr. Amit Aggarwal used to sign. Mr. Mahipal Singh claimed that on reaching the premises on 15th June 2004 at about 11 am, he found one Chowkidar named Udai Singh who did not allow him to go inside stating that there was no one in the company. From there, he was supposed to have gone with Respondent No.1 to the house of Mr. Amit Aggarwal. The endorsement of 22nd June 2004 states that at 4.30 in the evening, he went to the residence of Mr. Amit Aggarwal, who took the notice in his hand and signed on the notice by saying that if some time was given, everything would be alright. He was supposed to have asked Mr. Mahipal Singh not to say anything to Mr. K.K. Aggarwal about the proceedings.

The above endorsements made on the reverse of the notices sent by the learned Arbitrator do not appear to be genuine proof of service of notice on the Petitioner company. Significantly there is no stamp of the Petitioner company on any of the notices. The learned Arbitrator could not have possibly accepted the said endorsements as proper proof of service of notice on the Petitioner company. The fact that there was no effort to properly serve the Petitioner company the notices of the arbitral proceedings, is sufficient to hold that the impugned ex parte Award is patently illegal and opposed to the public policy of India.

The aforesaid being the position, we are not inclined to interfere with the finding returned by the learned Single Judge on the basis of the arbitral record. Since the award was made against the respondent company, it was the respondent company which ought to have been served with a signed copy of the award. Even if one were to accept that a signed copy of the award was addressed and sent to one of the directors, that would not suffice as the company is a separate juristic entity. On this short ground, the conclusion of the learned Single Judge to set aside the arbitral award is entitled to be upheld. Further, the learned Single Judge has examined the award on merits as well, and found the same to have been procured on the basis of forged and fabricated documents.

Since the respondent was proceeded ex-parte before the learned arbitrator, the learned Single Judge has undertaken an exercise which normally the arbitral tribunal would have undertaken with the assistance of the parties. The learned Single Judge has observed that the promissory note attributed to the respondent contains the signature of one ''A. Kumar''. The appellants attributed these signatures to Mr. Amit Aggarwal. Mr. Amit Aggarwal by moving E.A. No. 201/2009 had denied the signatures attributed to him of ''A. Kumar''. The learned Single Judge observed that the signatures of Mr. Amit Aggarwal on the application and the supporting affidavit (in E.A. No. 201/2009) were completely different even to the bare eye from the signatures on the promissory note and the alleged agreement dated 14.08.2001.

The learned Single Judge also deals with the signatures attributed to Mr. A. Kumar and Mr. Ramesh Sharma on the alleged agreement. They were allegedly authorized to act on behalf of the respondent company by virtue of a resolution of the respondent company purportedly passed on 21.12.2000, which purported to authorize Mr. Amit Aggarwal as general attorney of the respondent to act on behalf of the respondent company. The resolution was claimed to have signed by Mr. K.K. Arora and Mr. Ramesh Sharma. The respondent had categorically asserted that neither of these persons were authorized to act on its behalf. Pertinently, there was no satisfactory rebuttal of this assertion on the part of the appellants.

The case of the respondent that Mr. K.K. Aggarwal had never been a director of the respondent company, and that neither Mr. Ramesh Sharma nor Mr. Amit Aggarwal had power or authority to act on behalf of the respondent company? particularly for the purpose of entering into an agreement to transfer a valuable property of the respondent company, was not effectively met by the appellants. The power of attorney of Mr. K.K. Aggarwal is not a power of attorney executed by the respondent company. The same does not explain how Mr. K.K. Aggarwal could claim to be the attorney of the respondent company without any resolution of the board of directors of the respondent company.

The learned Single Judge has noted that the case set up by Mr. K.K. Aggarwal is that Mr. Amit Aggarwal had sold the property to him acting on behalf of the respondent company and, in turn, Mr. K.K. Aggarwal was appointed as the attorney of the respondent company. He observes that since the rights of Mr. Amit Aggarwal were in serious doubt, the above transaction of sale was of a doubtful validity.

Reliance placed by the appellant on the letter dated 22.05.2004 attributed to Mr. Amit Aggarwal (signed as A. Kumar) on non judicial stamp paper of Rs. 100/- has been brushed aside by the learned Single Judge by observing that the said document/letter is not addressed to any particular person. A criminal case for forgery and fabrication of documents had been instituted against Mr. Amit Aggarwal, and the same is pending investigation.

On the basis of the aforesaid materials, the learned Single Judge has concluded that the impugned award is based on documents of doubtful validity which appear to be forged and fabricated. Grave doubt has been raised on the authority of Mr. Amit Aggarwal to act as attorney of the respondent company and to enter into the above transaction. His signatures on the so-called documents, namely, the agreement and the promissory note do not tally with his signatures in E.A. No. 201/2009 filed alongwith the supporting affidavit dated 13.04.2009. The learned Single Judge does not rule out the possibility that the appellants may have been cheated by being made to believe that Mr. Amit Aggarwal and Mr. Ramesh Sharma were bonafide in acting on behalf of the respondent company, but the Court cannot validate patently invalid transaction on that basis. The appellants have been left to seek redress in other appropriate proceedings in accordance with law. Consequently, it has been concluded that the award is opposed to public policy and patently illegal.

The submission of learned senior counsel for the appellant is that the scope of enquiry undertaken by the learned Single Judge is beyond the realm of section 34 of the Act.

Normally, the nature of the enquiry undertaken by the learned Single Judge in the present case, in proceedings u/s 34 of the Act, may not be permissible. However, in the peculiar facts of the case, namely that an ex-parte award was obtained by the appellants on the basis of unreliable service reports, in our view, the learned Single Judge was justified in drawing conclusions on the basis of the respective stands of the parties and the documents sought to be relied upon by the appellants. It cannot be said that for the nature of the enquiry undertaken by the learned Single Judge, a trial was necessary. In any event, the right of the appellants to seek appropriate remedy has been preserved while setting aside the impugned award. We, therefore, find no merit in the appeal and the stay application and dismiss the same.