In the case of Sanjay Roy v. Sandeep Soni & Ors., 2022 SCC OnLine Del 1525 decided on 20.05.2022, the High Court of Delhi held that an Arbitral Award in contravention to the judicial decisions and principles laid down by Indian courts is against public policy under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”).
Late Mr. Subash Chand Roy (hereinafter referred to as the “Testator”) was the deceased father of Mr. Sanjay Roy (hereinafter referred to as “Appellant”), Mrs. Gouri Sarkar (hereinafter referred to as “Respondent No. 2”), Mr. Amitabho Roy (hereinafter referred to as “Respondent No. 3”) and Mr. Paratho Sarthi Roy (hereinafter referred to as “Respondent No. 4”).
The Testator bequeathed the suit property in favour of his wife, Late Mrs. Kalyani Roy (hereinafter referred to as the “Beneficiary”) by the way of a Will dated 15.03.1988. The Beneficiary got the suit property mutated in her name and received a “No-Objection” in her favour by the legal heirs, including the Appellant and Respondent No. 2 to 4. Thereafter, a Conveyance Deed dated 07.12.2001 was executed in favour of the Beneficiary.
Subsequently, the Beneficiary entered into a Collaboration Agreement dated 09.08.2016 with Mr. Sandeep Soni (hereinafter referred to as “Respondent No. 1”) for the re-construction and development of the suit property.
The Appellant, being aggrieved by the Collaboration Agreement, filed a suit for injunction in which an Interim Order was granted in favour of the Appellant, and further filed a suit for declaring the Collaboration Agreement and Supplementary Collaboration Agreement to be null and void. Respondent No. 1 filed an application under Section 11 of the Act to refer the dispute to Arbitration.
The Arbitrator upon examination of the Will observed that in case of inconsistencies between clauses in a Will, the latter clause shall prevail. The Arbitrator concluded that the Beneficiary was not granted full ownership of the property in the Will and only had a life interest, she was incompetent to enter into the Collaboration Agreement with Respondent No. 1.
Aggrieved by the Award, Respondent No. 1 filed an application under Section 34 of the Act challenging the Arbitrator’s Award.
Proceedings before the Ld. Single Judge
The Ld. Single Judge, High Court of Delhi (hereinafter referred to as “High Court”) was of the view that upon a holistic reading of the Will it was clear that the second part of the Will was easily reconcilable with the first part. It was evident that the intention of the Testator was to bequeath the suit property to the Beneficiary as an absolute owner and without any limitations.
The suit property would devolve to the legal heirs, only when the suit property was not alienated or the ownership rights were not exercised by the Beneficiary, in accordance with the second part of the Will. The Ld. Single Judge held that the Arbitrator had erroneously interpreted the Will. Hence, the Beneficiary was the absolute owner of the property and was competent to enter into the Collaboration Agreement with Respondent No. 1.
Aggrieved by the order of Ld. Single Judge, the Appellant preferred an appeal under Section 37 of the Act.
ISSUES BEFORE THE HIGH COURT
- Whether the Beneficiary had acquired an absolute interest or life interest in the suit property by virtue of the Will executed by the Testator?
- Whether it is within the scope of Section 34 of the Act to upset the findings of the Ld. Arbitrator?
CONTENTIONS OF THE PARTIES
The Appellant contended that a comprehensive reading of the Will indicates that the intention of the Testator was to bequeath the suit property to all the legal heirs and the Beneficiary was entitled to a limited interest in the property during her lifetime.
The Appellant argued that as per Section 88 of the Indian Succession Act, 1925, where two clauses of a gift or a will are irreconcilable and cannot stand together, then the latter clause shall prevail, and the Will shall be considered as a whole.
The Appellant submitted that the Ld. Single Judge had failed to correctly construe the terms of the Will and the order of reversal of the Arbitrator’s Award suffered from patent illegality and was bound to be set aside.
Respondent No. 1 contended that the Appellant and Respondents No. 2 to 4, being the legal heirs of the Beneficiary, we legally bound to honour the obligations of their mother. Respondent No. 1 argued that the Beneficiary being the absolute owner of the suit property had entered into the Collaboration Agreement with Respondent No. 1, and the said collaboration was supported by all her legal heirs, i.e. Respondents No. 2 to 4, except the Appellant.
DECISION AND FINDINGS
Regarding the first issue, the High Court relied upon a catena of decisions of the Supreme Court, Bombay High Court and Delhi High Court regarding the interpretation of clauses of will. Relying upon the decision in Shyamal Kanti Guha vs. Meena Bose (2008) 8 SCC 115, the High Court observed that when there are discrepancies between two clauses of a will, the Court must strive to give effect to both clauses, if feasible.
The High Court further placed reliance on the decision in M.S. Bhawani vs. M.S. Raghu Nandan (2020) 5 SCC 361, wherein the Supreme Court held that the intention of testator while constructing the Will is to be taken into consideration while interpreting a Will. Moreover, if the testator has once bequeathed absolute right and interest in favour of one person, the testator cannot create successive legatees in his Will.
The Supreme Court held that once an absolute right is conferred on anyone, the subsequent bequest for the same property in favour of other persons would be repugnant to the first bequest and has to be held invalid.
The High Court concluded that the Beneficiary was conferred an absolute right and title in the suit property, and that the Beneficiary mutated the property in her name, to which the Appellant took no objection.
Thus, the High Court held that the Beneficiary’s right over the suit property is crystallized and a challenge to the Will or the mutation/Conveyance Deed could have been taken within 3 years, but it cannot be agitated after 22 years from the date it was brough tot effect.
The High Court noted the trite law that no amount of evidence or argument in the absence of pleadings can be gone into by the Court, relying upon the decisions of the Supreme Court in Trojan & Co. Ltd. v. Rm. N. N.Nagappa Chettiar, AIR 1953 SC 235 and Ram Kumar Barnwal v. Ram Lakhan (dead), 2007 (5) SCC 660.
Resultantly, the High Court observed that as the registered Conveyance Deed in favour of the Beneficiary was never challenged by the Appellant in his pleadings or otherwise, the absolute ownership rights of the Beneficiary conferred by the Conveyance Deed is beyond challenge and any challenge now would be clearly time barred.
The High Court held that the Ld. Single Judge had rightly held that the Beneficiary had an absolute right in the suit property, and that the findings of the Ld. Arbitrator contrary to the Will, were liable to be set aside being patently illegal.
With regards to the second issue, the High Court observed that as per Section 34 of the Act, an Award can be set aside if it is against the ‘public policy of India’. The High Court stated the following grounds on which an Arbitral Award would be in conflict with public policy of India:
“(i) the award is induced or affected by fraud; or
(ii) is in contravention with the fundamental policy of Indian Law; or
(iii) is in conflict with the most basic notions of morality of justice.”
The High Court relied on the decision in Renusagar Power Co. Ltd. v. General Electric Co, 1994 Supp (1) SCC 644 (hereinafter referred to as the “Renusagar case”), wherein the Supreme Court, in construing the expression ‘public policy’ in context of a Foreign Award, observed that disregarding the orders passed by the superior Courts would adversely affect the administration of justice, and shall be considered to be in violation of the fundamental policy of Indian law. The said decision was reiterated by the Supreme Court in Associate Builders v. DDA, (2015) 3 SCC 49.
The High Court further referred to the decision in Ssangyong Engineering and Construction Company Limited v. NHAI, (2019) 15 SCC 131 which traced the scope of 2015 amendments to the Act to give judicial interpretation of the term “fundamental policy of Indian law” and it was held that the expression “fundamental policy of Indian law” is relegated to the understanding of this expression as was defined in the Renusagar case.
The High Court was of the view that mere violation of any enactment is not sufficient to constitute a breach of the fundamental policy of Indian law. For the same, the High Court placed reliance on the decision in Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020) 11 SCC, where the Supreme Court held that for a violation of any enactment to constitute breach of fundamental policy of Indian law, the violation must contravene the most basic substratal values and principles forming the basic policy of laws in the country.
The High Court held that the Ld. Arbitrator had failed to apply the basic fundamental law contained in the Limitation Act, 1963 and the Transfer of Property Act, 1882, and the Arbitrator’s Award was further not in consonance with the judicial decisions and principles laid down by the Indian courts.
Thus, the High Court concluded that the findings of the Ld. Arbitrator were in breach of the fundamental policy of India law, and the Single Judge had rightly held that the grounds of challenge fell within the scope of Section 34 of the Act.
In the instant case, the dispute arose from the interpretation of the clauses of the Will. The High Court relied on various judicial pronouncements of the Supreme Court and High Courts to determine the rules of interpretation applicable on the Will. The High Court further noted that the Appellant’s challenge to the Beneficiary’s right of ownership was time barred under the Limitation Act, 1963 and in contravention of the Transfer of Property Act, 1882.
Based on the aforementioned findings of the High Court, the High Court concluded that the Arbitral Award passed by the Ld. Arbitrator was in breach of the enactments under Indian Law and multiple judicial pronouncements issued by Indian Courts.
The High Court traversed through multiple judicial precedents which have evolved the concept of “ conflicting with public policy” for setting aside Arbitral Awards, and emphasized the ground of “in contravention with the fundamental policy of Indian Law” as a ground to set aside Arbitral Award being in conflict with public policy.
The High Court noted that the findings of Ld. Arbitrator was in contravention of the fundamental policy of Indian Law not based on a judicial approach, resulting in breach of principles of natural justice and basic notions of justice.
Through this decision, the High Court recognised another ground for setting aside Arbitral Awards in conflict with public policy, by holding that an Arbitral Award passed in disregard of judicial decisions and enactments constitutes a contravention of fundamental policy of Indian Law and subsequently is in conflict with public policy.
-Team AMLEGALS, assisted by Ms. Aditi Mishra (Intern)
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