The Bombay High Court has upheld an arbitral award granting over ₹7.39 crore to a partner upon dissolution of a partnership firm, holding that interference under Section 34 of the Arbitration and Conciliation Act is impermissible unless perversity or illegality goes to the root of the matter.
At the same time Justice Somasekhar Sundaresan strongly indicated the petitioner’s conduct as a subversion of the arbitral process and warning of potential criminal contempt consequences:
“Considering the wanton and deliberate manner of conduct, it would not be appropriate to let this off lightly. This is a fit case for framing of charges for consideration of criminal consequences for such conduct. Yet, taking into account Khan’s purported ailments and the sheer persuasiveness on the part of Mr. Toor, I consider it appropriate to give Khan an opportunity to truly purge the contempt alleged.”
The dispute arose out of the dissolution of a partnership firm, Saras Developers, where the respondent claimed that she continued to hold an 80% share and subsequent partnership deeds allegedly diluting her share and recording her retirement were forged and fabricated. The arbitral tribunal accepted this case, held that she remained a partner till dissolution, and awarded her share in the firm’s profits based on available material.
The petitioner assailed the award on grounds of limitation, improper quantification, and alleged non-consideration of vital evidence, including income tax returns and financial material.
Rejecting these contentions, Justice Somasekhar Sundaresan emphasised that a Section 34 court does not function as an appellate forum and cannot reappreciate evidence merely because another view is possible. The Court noted that the arbitral tribunal had undertaken a detailed analysis of documentary material, including sale transactions and contemporaneous records, and had arrived at findings that were both plausible and reasoned.
On the allegation of ignoring vital evidence, the Court held that even where perversity is alleged, it must be of such magnitude that it “cuts to the root of the matter.” It found that the tribunal’s approach, particularly in relying on confirmed sales data and making a best judgment assessment, was justified in light of the petitioner’s own conduct.
Notably, the petitioner had failed to produce audited financial statements and had withdrawn from the arbitration proceedings, thereby frustrating the adjudicatory process. The Court held that in such circumstances, the tribunal was entitled to draw adverse inferences and proceed on the basis of available evidence. It rejected the contention that reliance on income tax returns was mandatory, observing that tax returns serve a different purpose and cannot substitute for full financial records, especially when the party in possession of such records withholds them.
On the issue of quantification, the Court upheld the tribunal’s method of computing profits based on sale consideration reflected in registered documents, applying a deduction towards construction costs, and determining the respondent’s share accordingly. It held that such best judgment assessment, necessitated by lack of full disclosure, cannot be termed arbitrary or perverse.
Addressing limitation, the Court rejected the argument that claims in a partnership dissolution must be confined to a three-year window. It held that partnership accounts represent cumulative financial positions, and on dissolution, the entire financial position of the firm must be reckoned, rather than isolating transactions within a narrow timeframe.
Crucially, the Court has made strong observations on the petitioner’s conduct, noting that the arbitral process had been actively subverted. It recorded that the petitioner had adopted a course of conduct that undermined justice delivery and withheld material necessary for adjudication. In the connected contempt proceedings, the Court observed that the petitioner’s position was “abject” and that he appeared to be one among several actors involved in subverting the arbitral process. It held that the conduct warranted serious consequences and noted that the case was fit for framing of charges with potential criminal consequences.
However, taking into account submissions regarding the petitioner’s health and granting him an opportunity, the Court deferred immediate punitive action and allowed him a chance to purge the contempt.
The Court directed that the petitioner must deposit the entire awarded amount along with accrued interest within six weeks, observing that this was the only way to demonstrate genuine remorse and ensure that any apology was not merely “lip service.” It made it clear that failure to comply would result in the matter being listed for framing of charges in criminal contempt, while compliance would be considered in deciding whether further coercive action was necessary.
The Court accordingly upheld the arbitral award, deferred determination of costs, and directed that the contempt petition be listed after six weeks to assess compliance and consider further action.
Appearances
Mr. Harinder Toor a/w Mr. Sandeep Parikh, Ms. Sabreen Siddiqui, Ms. Pooja Jaiswal i/b Mr. A. C. Mahimkar, for Petitioner in CARBP No.19/2015 and for the Respondent in CP No.102/2015.
Mr. J.P. Sen, Senior Advocate a/w Mr. Sameer Bhalekar, for the Respondent in CARBP No.19/2015 and for the Petitioner in CP No.102/2015.
