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2024 Supreme(Online)(MAD) 22077
HIGH COURT OF MADRAS
Honourable Mr Justice C.SARAVANAN
VIL MAKERS – Appellant
Versus
V.Maharaja – Respondent
An arbitrator cannot alter the essential nature of an agreement without sufficient legal grounding, as such actions are deemed a patent illegality under the Arbitration and Conciliation Act.
Headnote:
Arbitration - Arbitration and Conciliation Act, 1996 - Sections 34(2)(a), 34(2-A), 28(3) - The court set aside an Arbitral Award for patent illegality, highlighting that the Arbitrator mischaracterized a partnership deed as a loan agreement, failing to respect the original contractual terms and legal frameworks.
Fact of the Case:
The petitioner challenged an arbitral award favoring the respondent based on an agreement interpreted as a loan rather than a partnership deed, contending the arbitrator misapplied legal provisions and altered the contract's nature.
Finding of the Court:
The court found the arbitrator's determination that the agreement was a loan rather than a partnership deed incorrect, noting that such recharacterization constituted a patent illegality violating fundamental policies of Indian law.
Issues: Whether the arbitration award misinterpreted the nature of the agreement between the parties and if the award was susceptible to being set aside under the Arbitration and Conciliation Act.
Ratio Decidendi: The court held that the arbitrator's failure to comply with legal standards regarding the interpretation of partnership agreements led to a fundamental mischaracterization, warranting the award's annulment.
Final Decision: The arbitral award was set aside, allowing the parties to approach the Arbitral Tribunal for a new award.
O R D E R
This petition has been filed by the Award Debtor under Section 34
2(a) & (b) (ii), 34(2-A) of the Arbitration and Conciliation Act, 1996, to set aside the award passed by the learned Arbitrator in Arbitration Case No.2 of 2019 on 01.09.2021.
2. By the impugned Award dated 01.09.2021, the learned Arbitrator has allowed the claim filed by the respondent (claimant) by awarding a sum of Rs.50,00,000/- together with interest at 12% per annum from the date of payment till the date of receipt.
3. Operative portion of the impugned Award passed by the learned Arbitrator on 01.09.2021 reads as under:-
“49.In light of the above discussions, the issues are answered accordingly herein below:
Issue 1:
The claimant has violated the conditions of the agreement dated 10.11.2016 but however, the said agreement cannot be held to be a partnership agreement since the requisite conditions for a partnership are not satisfied and the agreement is to be construed as a finance / loan agreement and accordingly, the nature of relationship between the parties will have to be determined in that manner.
Issue 2:
The claimant cannot go beyond the terms of the agreement but however, in light of the finding in issue 1 that the agreement itself is not a partnership deed and it is only a finance or a loan agreement, both parties are governed by the conditions of the agreement by analysing it as a loan agreement since the essential intrinsic features of a partnership agreement are absent and no firm has been constituted, the claimant is within his rights to claim the return of monies given in pursuance of the agreement.
Issue 3:
The respondent is liable to make a payment of Rs.50,00,000/- to the claimant along with interest at the rate of 12% per annum from the date of payment till the date of receipt by the claimant of the repayment.”
4. The respondent herein earlier had filed O.A.No.113 of 2018 and A.No.1098 of 2018 for the following two reliefs:-
| Prayer in O.A.No.113 of 2018 | Prayer in A.No.1098 of 2018 |
| To pass an order Injunction restraining the respondents,* their men, agents or anybody claiming through and or on behalf of the respondents from releasing the movie title “AARUDRA” pending disposal of the Arbitration Proceedings. | To direct the respondent* to furnish security to the tune of Rs.60,00,000/- with interest of 12% from the date of payment till the present pending disposal of the Arbitration proceedings. |
* petitioner herein
5.By an order dated 26.07.2018, this Court had passed the following orders in O.A.No.113 of 2018 and A.No.1098 of 2018:-
“These Applications coming on this day before this Court for hearing in the presence of Mr.Naveenkumar Maruthi, Advocate for the applicant in both applications and Mr.K.S.Jayaganeshan, Advocate for the respondent in both applications and upon reading the judges summons and the affidavit of V.Maharaja, and the counter affidavit of B.Vijay filed in O.A.No.113 of 2018 and A.No.1098 of 2018, and this court having observed that after several rounds of deliberations, out of Rs.60,00,000/- due, the applicant agree to receive Rs.10,00,000/- on or before 15.08.2018 and it is also stated by the learned counsel for the respondent that the date for the release of the film is not yet fixed, as the same, depends on the decision of the Producer Council, and the learned counsel for the the respondent is also confident that once the movie is released, he would discharge the entire liability and as the date of the release of the film is not yet fixed and there is an admitted liability of Rs.60,00,000/-. it is ordered as follows:-
That the respondent herein do pay a sum of Rs.10,00,000/- (Rupees ten lakhs only) directly to the applicant herein, on or before 20.08.2018.
2. That in default of paying the amount within time as mentioned in clause (1) supra, VIL Makers, the defendant herein, be and are hereby restrained by an order of injunction from releas
