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Anil Gupta Vs. Atul Kumar Gupta and ors. - Court Judgment

LegalCrystal Citation
SubjectContract;Arbitration
CourtDelhi High Court
Decided On
Case NumberCivil Appeal No. 295A of 1980
Judge
Reported in20(1981)DLT497
ActsIndian Contract Act, 1872 - Sections 55; Arbitration Act, 1940 - Sections 30
AppellantAnil Gupta
RespondentAtul Kumar Gupta and ors.
Advocates: A.B. Saharia,; Rajiv Nayar,; P. Dayal and;
Cases Referred(Longman v. Lord Arthur Hill and
Excerpt:
.....within the provisions of section 62 and 64 of the contract act, 1872 - it was held that the party to the contract would stand returned to its original position before the contract, after availing the remedy of rescissionc) in the instant case, the disputes were raised among the partners regarding the control of the company under section 30 of the arbitration act, 1940 - in this context, the matter was referred to the arbitrator, who in turn made the award as speaking one - in this view, the petitioner made an application under sections 14 and 17 of the act for making the award as a rule of court - it was found that the arbitrator went beyond the terms of reference which was an error of law on the face of the award - on this account, the arbitrator gave a practical decision on..........submissions to him. on may 7, 1980 he made the award. the award went in favor of anil kumar gupta. anil then made an application to this court under sections 14 and 17 of the arbitra- corporation act, 1940 for making the award arule of the court. to the award objections were filed by atul kumar gupta, sushil kumar gupta and mrs. sudha gupta seeking to set aside the award. (3) the nature of the dispute between the parties was this. the dispute, as i ve said, centres round the control of the company iron traders private limited. all the four partners have shares in the company. in order to have smooth management of the company it was decided that anil shall purchase the shares held by atui, sushil and sudha at 10^ of their face value and these three shall withdraw from the board of.....
Judgment:

Avadh Behari Rohatgi, J.

(1) A family firm M/s Deoki Nandan and Sons carries on business at Delhi. The firm consists of lour partners. They are three brothers find a widow of a deceased brother. These are Atul Kumar Gupta, Anil Kumar Gupta, Sushil Kumar Gupta and Mrs. Sudha Gupta, wife of late Krishan Kumar Gupta. Of this partnership Atui Kumar Gupta is the managing[ partner. This firm has a large holding of shares in a company called Iron Traders Private Limited. The firm, its partners and other members of the family of 'the partners own shares in Iron Traders Private Limited. They have the controlling interest in the Company. Anil Kumar Gupta is the managing director to the company. Disputes arose amongst the partners of the firm regarding the control of the company M/s. Iron Tiaders Private Limited. There is a clause of arbitration in the partnership deed of the firm. In terms of the arbitration clause the partners agreed to refer their disputes on March 10,1980 to Justice S.N. Andley (retired) as sole arbitrator.

(2) The parties appeared before the arbitrator. He heard them. They made oral and written submissions to him. On May 7, 1980 he made the award. The award went in favor of Anil Kumar Gupta. Anil then made an application to this Court under sections 14 and 17 of the Arbitra- corporation Act, 1940 for making the award arule of the Court. To the award objections were filed by Atul Kumar Gupta, Sushil Kumar Gupta and Mrs. Sudha Gupta seeking to set aside the award.

(3) The nature of the dispute between the parties was this. The dispute, as I ve said, centres round the control of the company Iron Traders Private Limited. All the four partners have shares in the company. In order to have smooth management of the company it was decided that Anil shall purchase the shares held by Atui, Sushil and Sudha at 10^ of their face value and these three shall withdraw from the Board of Directors of Iron Traders Private Limited. An agreement dated February 1, 1978 was executed between the parties. To this agreement Anil Kumar Gupta, the present petitioner, (for short 'Anil'), was one party on one side. Atui, Sushil and Mrs. Sudha were the other party to the contract. I shall refer to these three contracting parties collectively as the 'other party' in this judgment.

(4) The salient terms of the agreement are these. In the first place Anil was to obtain release from the Central Bank of India who were the bankers of the company of the guarantees given to the said bank by the other party. The other party had deposited the title deeds of a certain property in Sadar with the bank as collateral security. Shares belonging to the firm has also been pledged with the bank. Anil was required to get all the guarantees, shares, title deeds etc. released from the bank and returned to the other party on or before a fixed date. Originally it was agreed that he will do all this by March 31, 1979. But by mutual agreement this date of March 31, 1979 was extended to August 31, 1979.

(5) In the second place, Anil was to make payment of a substantial amount to the other party in specified Installments over a given period. In a phased programme spread over a period of nearly two years beginning from April 1978 and ending with March 1980 he was to pay approximately a sum of Rs. 3,27,353.89p in stated Installments. On his performing these two essential-conditions, the other party agreed to transfer their shares at 10% of their face value in favor of Anil. There were certain other conditions in the written contract dated February 1, 1978 but they are not material for the purposes of this case. Anil's case was that he had performed these two conditions and was entitled to the transfer of shares from the other party. The other party, on the contrary, contended that Anil had failed to perform his part of the bargain by the stipulated date of August 31, 1979 and was, thereforee, not entitled to the transfer of shares from tliern. This was, in broad outline, the dispute which was referred to the arbitrator by the parties on March 10, 1980.

(6) The primary questions for decision before the arbitrator were two. Firstly, did Anil perform his part of the contract And secondly, is the other party bound to transfer their shares in Iron Traders Private Limited in favor of Anil at 10% of the face value as was agreed In other words, the whole question was whether the other party was bound by the contract to convey shares to Anil at the agreed price.

(7) The arbitrator made a speaking award. He came to the conclu- sion that time was of the essence of the contract and Anil was liable to perform the first condition on or before August 31,1979. In his opinion he was to obtain the release of guarantees etc. and arrange for the return of the title deeds and shares on or before August 31, 1979. He found as a fact that Anil had failed to perform this condition within the stipulated time. He further found that though Anil got the guarantees, title deeds, shares released from the Central Bank, but this was done after August 31,1979. On September 22, 1979 the bank wrote to the company that guarantees and the shares had been released and the company after passing a resolution can send an authorised representative to collect the shares and the title deeds of the property from the bank But as this was done beyond August 31, 1979, the arbitrator found that Anil 'failed to perform his obligation', so far as the release of guarantees and title deeds and shares from the Bank was concerned.

(8) On the second condition, namely, the payment of money in Installments; the arbitrator found that Anil had fulfillled his part of the contract. In fact it was not disputed before him that Anil had made payment of approximately Rs. 3,27,353.89 p. to the other party in stated Installments. The other party received the amounts specified in the contract on the due dates. The arbitrator was, thereforee, of the opinion that as the other party did not avoid the contract on the failure of Anil to obtain the reqursite releases within time and, on the other hand, accepted and continued to accept payments of the various amounts mentioned in the agreement, the other party was disentitled to rescind the contract. In the result) he held that upon payment of 10/o of the face value of the shares, the other party was bound to transfer their shares in favor of Anil. This was his award. To this award the other party has filed objections.

(9) On the objections the following issues were framed, on July 25, 1980:

1.Has the arbitrator gone beyond the terms of reference? If so, its effect.

2.Is the award liable to be set aside on any other ground raised by the objector?

The real question before the arbitrator was whether the other party was bound by the contract and could not refuse to transfer shares. The arbitrator mainly relied upon sections 55 and 64 of the Contract Act. What the arbitrator had to decide was the issue whether the other party was entitled to repudiate the transaction after having received benefit under the contract. They got all that was due to them under contract. Their loans and deposits in the company were paid by Anil in terms of the contract. After having received the payments the other parly claimed that they were not bound to convey the shares because one essential condition of the contract had not been per formed by Anil withih the stipulated time.

(10) The other party claims to have rescinded the contract. Now the effect of rescission is to nullify the contract ab initio. An essential requirement of this remedy of rescission is the restoration of the. parlies to their original position. In the language of the law restitution is essential. Justice and equity demand that there should be no rescission until and unless the parties can be restored to the exact position that they formerly occupied.

(11) Undoubtedly the right of rescission is a real right. But a party must communicate his intention to rescind to the other contracting party. This must be so because the other party is entitled to treat the contractual nexus as continuing until he is made aware of intention of the other to exercise his option to rescind. So the intention must be communicated and an uncommunicated intention will be ineffectual. Because communication is essential to break the nexus.

(12) Applying these principles to this case, it appears that the other party had the right to rescind the contract soon after the expiry of August 31, 1979 when Anil had failed to perform his part of the bargain in so far as the releases were concerned. The other party was communicate their decision to Anil that they had elected to rescind the contract and were no longer bound by it. In order to repudiate the transaction, the communication has to be distinct and positive. The party directing to rescind must demonstrate clearly that he has decided to repudiate the transaction and to be no longer bound by it. If there is no such communication, the contract will subsist. If the other party had said to Anil: ''you have committed breach of the contract. We are proposing not to be bound by it any longer' the contract would have ended. But as this was not done, the contract subsisted. Now it appears from the acceptance of payments by the other party that the other party received the benefit under the contract. As benefit has been accepted and was not returned after August 31, 1979 and has in fact not been returned at any stage of this litigation, it must be held that the other party had no intention to disaffirm the contract. Omission to repudiate is evidence and may be conclusive evidence, of an election to affirm the contract, but that if on the other hand the party elects to rescind, he is to manifest that election by distinctly communicating to the other party his intenion to reject the contract and claim no interest under it. As has been said in an English case:

'ANaffirmation of a voidable contract may be established by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm.' 'Gar and Universal Finance Go. Ltd. v. Caldwill (1965) lo. B. 525

(13) The arbitrator has found that the other party went on accepting the payments from Anil even after August 31, 1979. On that date Anil had failed to obtain the releases. This was the finding of the arbitrator. If there is no performance by a party on time, the other party can certainly rescind the contract. Where lime is of essence it means that performance on time is a condition of the other party's duty. There has to be a punctual performance. Anil obtained releases from the bank but that was on September 22, 1979. There was a delay in performance on his part. This delayed or defective performance on the part of Anil could be made a ground for terminating the contract by the other party. But the opposing party had to evince their intention to disaffirm the contract. There has to be unequivocal act of election which demonstrates clearly that the other party to the contract has made the choice to terminate the contract. This choice or decision has to be communicated in a positive or distinct manner. The party must announce his election to the opposing party that the contract has been ended.

(14) The acceptance of payments by the other party in this case induced a reasonable belief in the mind of Anil that time will no longer be treated as of the essence. The arbitrator founded his decision on waiver. He was of opinion that the other party had received the benefit and they were estopped from contending that they were no longer bound by the contact. The other party gladly accepted the payments, 'without demur', as the arbitrator put it. This was one of the undertakings of Anil. He had to make payment. This he fulfillled. The other commitment of release he did not fulfill in time.

(15) 'WHEREa party waives his right by taking benefit under a contract after the time fixed under the contract has elapsed he cannot rely on time being of the essence of the contract.'

(Mulla-Contract Act, 9th Edn. Page 392) There is utter destruction of the essential character of time in a case where benefit has been received and retained and enjoyed. This is the effect of section 64 of the Contract Act. In my opinion the arbitrator was right in his decision

'THATthe other party and/or their families were bound to transfer their shares in Iron Traders Private Limited in favor of Anil or his nominee against payment of 1/o of the face value to the holders of the shares.'

(16) Counsel for the other party, Mr. D.K. Aggarwal, contended that the arbitrator's award was bad. His main objection was that having found that Anil had committed breach of the contract, inasmuch as he had failed to obtain the releases from the bank by August 31, 1979, the arbitrator had no business to find in Anil's favor on the other ground of payment. He argued that the arbitrator should have ondered at best the refund of Rs. 3,27,353.89p. and should not have ordered transfer of shares. I cannot accept this argument. The contract dated February 1, 1 978 was a 'package deal', as the arbitrator called it. It contained the whole transaction. Clause 5 of the contract which provided for a phased programme of payment was an integral part of the contract. The arbitrator found that the other party having taken the benefit, the condition of time had list all importance. He, thereforee, looked at the contract as a whole and decided on the reciprocal promises of the parties that there was no breach of contract by Anil in the last analysis. Breach certainly did find on the part of Anil but on the ground of waiver, estopped and election he came to the conclusion that the other party had no right to rescind the contract, having readily accepted the payments over a period of 2 years or so. His decision, in my opinion, is eminently just and no exception can be taken to it.

(17) Counsel next contended that the arbitrator went beyond the terms of reference. I do not agree. From the statement of case submitted by the parties to the arbitrator, which is on record, it appears that this was the dispute on which they invited the arbitrator to adjudicate. The other party claimed that they were no longer bound to transfer the shares. They claimed that they had repudiated the transaction. The arbitrator did not accept this contention. Form the claim and counter-claim made before the arbitrator it appears that the arbitrator decided the very question that was referred to him.

(18) Counsel then said that specific dispute was not set out in the agreement dated March 10, 1980 and, thereforee, the arbitrator's award was illegal. It is true that in the agreement dated March 10, 1980 the dispute as such has not been defined though the fact of disputes and differences having arisen amongst the partners is specifically mentioned. From the statement of claim and the written submissions made to the arbitrator it is clear that the specific dispute was the one on which he gave his award.

(19) Lastly, counsel contended that the arbitrator's award discloses an error of law on its face. He submitted that the application of Section 55 of the Contract Act to which the arbitrator specifically refers is not correct in the facts and circumstances of this case. In my opinion the arbitrator 'did not tie himself down to any special legal proposition which when examined appears to be unsound.

'ANerror of law on the face of the award means that you can find in the award some legal proposition which is the basis of the award and which you can then say is erroneous.'

(Champsey Bhara & Co v. Jivraj Bhalloo Spinning & Weaving Co., Air 1923 P.C. 66). There is no legal proposition enunciated in the award of the arbitrator. As a conclusion of fact he found that the other party was estopped from rescinding the contract. He found that they had waived their right to rescind. The conclusion on waiver was reached on facts. Whether the election to rescind has been validly exercised is always one of fact. (Longman v. Lord Arthur Hill and others (1891) 7 Tlr 639. The arbitrator is a master of law and facts. On facts he found that the opposing party by their conduct had affirmed the contract. On this conclusion he was entitled to come on the facts and circumstances of the case before him. I cannot say that he was wrong. There is no proposition of law which can be said to have been propounded by him and which is erroeous. The arbitrator gave a practical decision on merits. There is no legal proposition which invalidated the award.

(20) For these reasons, the objections are dismissed. The award is made a rule of the Court. The parties are, however, left to bear their own costs.


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