The Bombay High Court dismissed the petition filed for challenging the award passed by the learned arbitrator on the ground that they heavily relied on the auditor’s report, which the opposite party did not examine. A single judge bench comprising Hon’ble Justice Manish Pitale held that once the party failed to take recourse of section 26 of the Arbitration and Conciliation Act, 1996 (A&C Act), it is not open for them to challenge the award by claiming that the report not was examined by the expert or opposite party.
Brief Facts:
In 1994, the father of the parties executed a partnership deed, introducing the Petitioner Zenobia Poonawalla as a partner in the Colaba firm. However, in January 2014, the relationship between Petitioner and other family members, who were partners in the two firms, broke down, and a decision was taken to wind up the business of the two firms. On 27th October 2014, Petitioner transferred 70 lakhs ₹ from the account of the Colaba firm to the account of the Grant Road firm and, thereafter, to her personal account. It was alleged that both transfers were made without the knowledge or consent of the other partners. In this backdrop, on 28th July 2016, a petition was filed, under section 11 of the A&C Act, for the constitution of an arbitral tribunal in which an Arbitrator was appointed by order of this Court. During the proceedings, the learned arbitrator ordered to appoint an auditor with the consent of both parties. The said auditor submitted its report along with financial statements, which were considered while deciding the final award.
The present petition was filed for challenging impugned awards, which upheld the dissolution of the firms and directed the partners with negative balances to pay their dues to the firms.
Submissions of the Petitioner:
The learned Counsel for the Petitioner submitted that both the awards were based on reports submitted by the auditor but was not proved in evidence by its author. It was further submitted that since the Petitioner had objected to the auditor's report in her statement of defence, the auditor ought to have been examined by the learned arbitrator. The learned Counsel emphasized that the auditor's report, like any other document, ought to have been proved in evidence by stepping into the witness box. The learned Counsel for the Petitioner further sought to demonstrate the missing links in the auditor's report and claimed that the report itself was extensively based on verbal explanations given by the manager of the firms.
The learned Counsel further submitted that the mode of dissolution of the firms was contrary to Section 48 of the Partnership Act, inasmuch as the awards called upon the Petitioner and Farhad Ginwalla to contribute towards liabilities of the firms, before the assets of the firms being liquidated. Therefore, he pleaded to hold the findings of the learned arbitrator as unsustainable as the objections raised by the Petitioner were completely ignored by the learned arbitrator.
Submissions of the Respondents:
The learned Counsel for the Respondents submitted that the nature of the challenge, raised on behalf of the Petitioner in both the petitions, did not satisfy the requirements of Section 34 of the A&C Act. He further submitted that the auditor was appointed by the consent of the parties, and if the Petitioner had any objection to the report of the auditor, she ought to have taken recourse to Section 26 of the A&C Act. Therefore, so long as the auditor's report was based on a reasonable exercise and the learned arbitrator proceeded to accept the same, in the light of the material available on the record, no fault could be found with the approach adopted by the learned arbitrator.
In regards to the objections raised about the validity of the dissolution notice, it was submitted that the main ground, raised on behalf of the Petitioner, pertained to alleged unsoundness of mind, which could never be an arbitrable issue since special law, providing for a special forum was available for determining such issues. In light of the specific charge levelled by the respondents against the Petitioner of unlawfully withdrawing funds from the firm, it was submitted that the direction given in the impugned awards was justified.
Observation of the Court:
This Court noted that the auditor, in the present case, was appointed with the consent of both parties, who were given the liberty to communicate with the auditor and place any information or documents before the auditor during the audit process of both firms. This Court does not find anything amiss in the direction issued by the learned arbitrator.
In regard to the contention that the respondents ought to have examined the auditor, this Court found substance in the contention raised on behalf of the respondents that if the Petitioner so desired, she could have requested the learned arbitrator to call the auditor to participate in the hearing, where the Petitioner could have put questions to the auditor, under Section 26(2) of the said Act. Having failed to do so, it cannot lie in the mouth of the Petitioner that the respondents ought to have examined the auditor for the report. The ground pertaining to the unsoundness of mind of Farhad Ginwalla was also held unsustainable by this Court because the question of unsoundness of mind could never have been decided in the arbitral proceedings. Such an issue cannot be arbitrable and can be decided only by the special forum created by the special law in that regard.
Regarding non-compliance with Section 48 of the Partnership Act, this Court was of the opinion that the Petitioner had unlawfully withdrawn funds from the firm, and she had placed the same in her personal accounts. In such a situation, when the learned arbitrator directed the Petitioner to bring back the amount, it could not be said that the direction was issued for her to contribute to the losses of the firm. Therefore, this Court found no substance in the contentions raised on behalf of the Petitioner.
The decision of the Court:
The Bombay High Court found the present petitions without merit and, accordingly, dismissed them.
Case Title: Zenobia Poonawala versus Rustom Ginwalla & Ors.
Coram: Hon’ble Justice Manish Pitale
Case no.: INTERIM APPLICATION NO. 1010 OF 2020 AND 1339 OF 2020 ALONG WITH ARBITRATION PETITION (LODGING) NO. 15 OF 2020
Advocate for the Petitioner: Mr. Aseem Naphade
Advocate for the Respondent: Mr. Sameer Pandit and Ms. Sarrah Khambati
Read Judgment;
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