1999-VIL-38-SC-DT

Equivalent Citation: Other Citation: [1999] 238 ITR 158, 156 CTR 201, 106 TAXMANN 1, 1999 AIR 2054, 1999 (3) SCR 562, 1999 (5) SCC 108

Supreme Court of India

Appeal (civil) 4006 of 1995

Date: 13.05.1999

HARENDRA H. MEHTA AND OTHERS

Vs

MUKESH H. MEHTA AND OTHERS

BENCH

Judge(s)  : D. P. WADHWA., N. SANTOSH HEGDE

JUDGMENT

The judgement of the court was delivered by

D. P. Wadhwa J.-The appellants (Harendra H. Mehta and others) are challenging the judgment dated February 24, 1995 (see [1998] 92 Comp Cas 402), of the Bombay High Court enforcing the "foreign award" dated October 31, 1990, on a petition filed by the respondents (Mukesh H. Mehta and others). It was, however, directed that the enforcement of the same or execution of the decree shall be subject to the respondents' obtaining the necessary permission under the Foreign Exchange Regulation Act, 1973 (the "FERA", for short), as regards the enforcement part in India is concerned. The matter came to this court on a certificate granted by the High Court under article 134A read with article 134(l)(c) of the Constitution. The impugned judgment had been rendered by a single judge. There was some controversy if a single judge could grant such a certificate. However, considering the importance of the issue involved, this court admitted the appeal. The controversy, therefore, does not survive in the present appeal.

For convenience, we refer to the appellants as "Harendra" and the respondents as "Mukesh". Both Harendra and Mukesh are brothers. Harendra is elder to Mukesh. They appointed their elder brother, Lalit Mehta, as arbitrator to divide their businesses and properties both in the United States of America (U.S.A.) and India. Lalit Mohan gave his award in New York. Some proceedings arising out of the arbitration agreement and the award were held there in the courts. The arbitration agreement was entered into at New York where arbitration proceedings were held and the award given. Mukesh applied to the Bombay High Court here under the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961 (for short, the "Foreign Awards Act"), for enforcing the award. The High Court after contest ordered the award to be filed and pronounced judgment according to the award as required under section 6 of the Foreign Awards Act. Harendra finds himself aggrieved by the judgment. That is how the matter is before us.

We may now consider the controversy between the brothers in detail. Harendra and Mukesh were having vast businesses in the U.S.A and India. They also acquired properties in both the countries. Disputes having arisen, they decided to divide and distribute their jointly held assets. Both have equal share in all the properties and businesses. On October 25, 1989, they entered into an agreement to refer their disputes to their elder brother, Lalit Mohan. Their submission to the arbitrator is in the following terms :

"Lalit Mehta,

48, Arbor Lane,

Roslyn Hts.,

New York 11577.

Dear Lalitbhai,

We, Harendra Mehta and Mukesh Mehta hereby appoint you as our sole arbitrator for the following difference of opinions.

They are related to :

1. All our business in U.S.A. and India.

2. Social relationship.

Your award in the matter shall be binding on both of us and our legal heirs.

In areas where you need any assistance of any lawyers and or technical or outside persons you are fully authorised to take such assistance.

On our part we agree to offer our fullest co-operation in giving you all the documents, papers and any information you call for from time to time.

We shall ensure full participation in the meetings and clarify whatever explanations and clarification you may seek.

We shall be prepared to sign any papers in advance that you ask for before the beginning of the arbitration proceedings which will remain solely in your custody.

If you require the signatures of our wives and any of our representatives we shall give you the same as may be called for by you.

Yours sincerely,

(Sd.) HarendraMehta.

(Sd.) Mukesh Mehta.

(Sd.) Witness."

Thereafter a formal agreement dated November 17, 1989, to refer the disputes to the arbitrator, Lalit Mohan, was entered into by the parties. It was signed by Harendra, his wife, Amita Mehta, and Harendra Mehta as manager (karta) of his Hindu undivided family on the one part and Mukesh Mehta, his wife, Daksha Mehta, and Mukesh Mehta as manager (karta) of his Hindu undivided family on the other. This agreement gave the details of the businesses carried on by the parties and their properties in the U.S.A. and India. The agreement was entered into in New York and was duly not arised there. It would appear that the formal agreement dated November 17, 1989, to refer the disputes to the arbitrator superseded the

earlier agreement dated October 25, 1989.

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During the pendency of the arbitration proceedings, the parties settled their differences by entering into a detailed agreement on March 20, 1990. The agreement was to be retroactively effective as on March 1, 1999. The agreement detailed various properties and businesses which the parties were having. Harendra was to draw four packages "A", "A-1", "B" and "B-1" as under :

" 'A'-U.S.A. properties and businesses.

'A-1'-U.S. Note for payment in US $ and share in jointly held US properties and businesses.

'B'- Indian properties and businesses.

'B-1' Indian Note for payment in Indian rupees and certain Indian properties and share and interest in jointly held Indian properties and businesses."

It was agreed that one party would choose A+B-1 or B+A-1 ; The first choice was to be exercised by Mukesh. The arbitrator was to make his award in accordance with the selection of packages. The parties were to execute transfer and closing documents in terms of the award. The forms in which the documents were to be executed were also prescribed. It was also agreed that the parties shall execute, from time to time, any and all further documents that may be required at any time to effectuate the award made in pursuance of the agreement. On refusal of any of the parties to execute the transfer and closing documents, it was agreed that Mr. Vinod Mehta shall be duly appointed attorney of each of the parties to execute the transfer and closing documents. There was also a penalty clause in case of failure or refusal to execute the transfer and closing documents. That was irrespective of any other remedy open to the parties. Mukesh opted for the package B+A-1. On March 20, 1990, itself, the arbitrator rendered his award after the proceedings were held under CPLR 7507 incorporating the aforesaid settlement agreement of the same date. CPLR 7507 provides that the award shall be in writing, signed and acknowledged by the arbitrator making it within the time fixed by the agreement, or if the time is not fixed, within such time as the court orders. There is also provision for delivering a copy of the award to each of the parties.

In proceedings under CPLR 7507 which were held on March 20, 1990, Amita Mehta, wife of Harendra, represented her husband as his attorney and appeared in person. Both Mukesh and his wife, Daksha Mehta, were present. They all waived notice of the hearing. They agreed that they had entered into and executed an agreement involving all the issues of the arbitration proceedings. Judge Ralph Diamond, before whom the proceedings under CPLR 7507 were held, examined the parties who were present along with their counsel as to the execution of the settlement agreement by each of the parties and thereafter the award made by the arbitrator. It

was recorded that Mukesh had given the choice of packages Al with B. It was also recorded that the arbitrator had two-fold functions, (1) to make the award, and (2) to implement the award.

Now, Mukesh Mehta brought a motion for an order pursuant to CPLR 7510 for confirmation of the award in the Nassau County Court in the State of New York. Harendra also filed cross-motion for an order pursuant to CPLR 7511(b) for vacating the award or in the alternative seeking modification of the award on the grounds mentioned in the cross-motion. By judgment dated October 22, 1990, the court confirmed the award granting the motion of Mukesh Mehta with certain modifications. It observed that Harendra failed to demonstrate that the award either dealt with matters beyond the scope of what had been submitted or that he gave a completely irrational construction to the settlement agreement between the parties which was incorporated in the award and formed part of the award. There were certain typographical errors in the judgment which were corrected by order dated October 31, 1990. A formal order was drawn on January 14, 1991.

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Objections of Harendra to the award were, thus, rejected by the Nassau County Court. It, however, modified the award limiting and restricting the payment to be made to Mukesh by the U.S. company for his shares and passed judgment confirming the award so modified.

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Now, the scene shifted to India when Mukesh moved the Bombay High Court under provisions of the Foreign Awards Act for enforcement of the award dated October 31, 1990, of Lalit Mohan, the arbitrator, contending the same to be a foreign award. Harendra raised various pleas in opposition thereto. The High Court after elaborate discussion rejected all of them and ordered that the award be filed and proceeded to pronounce judgment according to the award and thereafter decree followed.

Mr. Ganesh, learned counsel for the appellant, submitted that the High Court could not order the award to be filed and give judgment in terms thereof. His objections to the impugned judgment were :

1. It is not an arbitral award inasmuch as there was no dispute on the basis of which the arbitrator could give his award. The arbitrator merely acted as a rubber stamp.

2. It is not an award under the Foreign Awards Act as the award is merely effecting a family settlement. It is not of commercial nature. The dispute did not arise out of any international trade.

3. Chapter XX-C of the Income-tax Act, 1961, has been violated and the enforcement of the award in violation of the law of this country would be against the public policy.

4. The award merged in the foreign judgment of a New York Court which modified the award. So only the judgment could be enforced.

5. A fraud has been committed in getting the award and further that certain schedules which formed part of the agreement to refer the disputes to arbitration have been fraudulently substituted.

6. The Supreme Court of the State of New York had already passed judgment on June 6, 1995, directing enforcement of the award which would now be foreign judgment. The respondent had, in fact, filed a suit in the Bombay High Court on the basis of the foreign judgment which suit was filed in 1996 and service was effected on the appellant only in 1997.

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The main stress of Mr. Ganesh has been on the plea that the award is bad for non-compliance with the provisions of Chapter XX-C of the Income-tax Act, 1961 (for short, "the Income-tax Act"). Chapter XX-C confers on the Central Government (through the Income-tax Department) the pre-emptive right to purchase an immovable property for the amount of "apparent consideration", where the appropriate authority (constituted under the Income-tax Act) finds that such "apparent consideration" is 15 per cent. or more below the fair market value of the property. Chapter XXC gives the Income-tax Department a statutory right of purchase of immovable property in respect of which the parties have entered into an "agreement for transfer" within the meaning of section 269UA(a) of the Income-tax Act. Section 269UC requires that if an "agreement for transfer" has been entered into, the parties must thereupon reduce it to writing and file the requisite statement in the prescribed form with the appropriate authority, thereby enabling the appropriate authority to consider the transaction and then to decide whether or not to exercise its statutory power of compulsory purchase. Rule 48L(2) of the Income-tax Rules, 1962, lays down that the statement under section 269UC must be furnished within 15 days from the date of the entering into the "agreement for transfer". Failure to comply with this statutory requirement attracts criminal sanctions under section 276AB. The term "transfer" has been given a wide meaning under section 269UA(f). It was submitted that the purpose behind the insertion of these provisions is to ensure that each and every transaction concerning "transfer" of "immovable property" (which terms are very widely defined in section 269UA(f) and section 269UA(d) of the Income-tax Act) comes under the scrutiny of the appropriate authority as only then can there be a check on proliferation of unaccounted money. It is stated that this Chapter was introduced in order to tackle the extremely grave .problem of rampant tax evasion and generation of black money which is then utilised for acquisition of immovable properties at prices which are shown to be far below their real market value.

The mere fact that the documents of conveyance/exchange/ lease are to be executed subsequently in pursuance of the said "agreement for transfer" is of no relevance or consequence at all. In fact, such documents of conveyance can be executed only if and after the requisite no objection certificate (NOC) under the provisions of Chapter XX-C is issued. The scheme of Chapter XX-C is that once an "agreement for transfer" has been entered into, the parties have to mandatorily comply with the requirements of Chapter XX-C and are prohibited from effecting "transfer" of the property without first complying with the provisions of Chapter XX-C, that is to say, filing the section 269UC statement within the specified time and obtaining the requisite NOC from the appropriate authority. It was submitted that the only situation in which Chapter XX-C does not apply is where the transfer of property takes place without such an agreement ever having been reached and without the volition of the owner, such as, for example, when the property is sold by auction under a court's order. Conversely, whenever there is an "agreement for transfer" as defined under Chapter XX-C, which has been entered into between the parties, Chapter XX-C would be applicable in all force.

As to what was the background under which Chapter XX-C came to be incorporated under the Income-tax Act. Mr. Ganesh referred to a decision of this court in C. B. Gautam v. Union of India [1993] 199 ITR 530, where this court noticed the arguments of the Union of India as (page 538) :

". . . the main reason behind the introduction of this Chapter in the Income-tax Act was the desire to curb large scale evasion of income-tax and to counter other modes of tax evasion adopted by various assessees to deprive the Government of its legitimate tax dues. It was felt that a lot of tax evasion was involved in transfers of immovable properties in urban areas. Reference is made in the affidavit to the recommendations of the Direct Taxes Inquiry Committee chaired by Mr. Justice Wanchoo, retired Chief Justice of India and known as the Wanchoo Committee. In its interim report in 1970, the Wanchoo Committee took the view that understatement of prices in the sale deeds of the immovable properties was widespread method of tax evasion and recommended, by way of a drastic remedy, that the Government should empower itself to acquire the property where the consideration was found to be understated in the sale deeds. It was in pursuance of this recommendation that the provisions of Chapter XX-A were introduced in the Income-tax Act. However, the provisions of that Chapter were found inadequate for dealing with the evil of undervaluation of immovable properties in sale deeds and agreements to sell with a view to evade tax and certain difficulties emerged in the effective enforcement of the provisions of Chapter XX-A. It was in these circumstances that Chapter XX-C was introduced in the Income-tax Act. It may be mentioned here that the provisions of Chapter XX-A ceased to operate in respect of transfers of immovable property made after September 30, 1986, and as from October 1, 1986, the provisions of Chapter XX-C came into force."

Mr. Ganesh submitted that the settlement agreement dated March 20, 1990, attracted the provisions of Chapter XX-C of the Income-tax Act and, thus, it mandatorily required compliance with the provisions of that Chapter. The award was at best only a consent award which stood on no better footing than or on the same footing as a consent decree. He said in view of the decision of this court that a consent decree is nothing but a private agreement between the parties and that the seal of the court which is added thereto does not in any manner change its character or effect in law.

In Baldevdas Shivlal v. Filmistan Distributors (India) Pvt. Ltd., AIR 1970 SC 406, this court was considering whether a consent decree operates as res judicata. It said that a consent decree does not operate as res judicata as it is merely the record of a contract between the parties to a suit to which is super-added the seal of the court and that a matter in contest in a suit may operate as res judicata only if there is an adjudication by the court. The court said that the terms of section 11 of the Code of Civil Procedure left no scope for a contrary view. On this, Mr. Ganesh based an argument that the award was nothing but a contract which contained transfer of interest in immovable property in India by Harendra and Mukesh and, thus, fell within the scope of Chapter XX-C of the Income-tax Act.

In Ruby Sales and Services (P.) Ltd. v. State of Maharashtra [1994] 1 SCC 531, the question before this court was whether a consent decree where-under title in immovable property is conveyed expressly falls under the definition of "conveyance" under section 2(g) or "instrument" under section 2(1) of the Act or such consent decree falls outside the ambit and scope of the a definition of "conveyance" or "instrument" under the Act. This court upheld the view of the Division Bench of the Bombay High Court that having regard to the recital in the consent decree itself, the consent decree on its true interpretation, is a conveyance itself and is covered by the definition of "conveyance" under the Stamp Act and at any rate the consent decree fulfils all the requirements of transfer under the consent decree in favour of the vendees and as such a consent decree would be liable to stamp duty under the Act. This court noticed that the consent decree depends on the terms thereof. Merely because an agreement is put in the shape of a consent decree it does not change the contents of the document. It remains an agreement and it is subject to all rights and liabilities which any agreement may suffer. Having a stamp of court affixed will not change the nature of the document. A compromise decree does not stand on a higher footing than the agreement which preceded it. A consent decree is a mere creature of the agreement on which it is founded and is liable to be set aside on any of the grounds which will invalidate the agreement.

Further submission of Mr. Ganesh was that an award is also an "agreement for transfer" within the meaning of Chapter XX-C. The award declares the right of Mukesh to immovable properties comprised in the packages selected by him and also similarly declares the rights of Harendra in respect of immovable properties included in the packages allotted to him. Both these sets of packages included a large number of immovable properties located in and outside Mumbai in India and also in the United States. It was, thus, submitted that the arbitral award which declares the rights of the parties in respect of immovable properties was compulsorily required to be registered under the provisions of the Registration Act, 1908, and if the award was not registered, the court cannot look at such an award or pass a decree in terms thereof. Reference was made to a decision of this court in Lachhman Dass v. Ram Lal, AIR 1989 SC

1923; [1989] 3 SCC 99.

It was, thus, submitted that since the award in the present case was not registered, the impugned judgment and decree passed which are in terms of the said unregistered award are to be set aside. The judgment of this court in Tehmi P. Sidhwa v. Shib Banerjee and Sons Pvt. Ltd., AIR 1974 SC 1912 ; [1974] 2 SCC 574, was sought to be distinguished. Section 269UC of Chapter XX-C prohibits registration of a transfer unless the requisite NOC is obtained. In Lachhman Dass v. Ram Lal, AIR 1989 SC 1923 ; [1989] 3 SCC 99, there was a dispute between the brothers respecting a certain piece of land which stood in the name of the appellant. The claim of the respondent was that it was benami in the name of the appellant. They set an arbitrator who gave his award and then filed the same in the court for making that rule of the court. One of the objections raised by the appellant was that the award was bad and unenforceable. It was not properly stamped nor was it registered and as such could not be made rule of the court. The award which was under the Arbitration Act, 1940, said that half ownership of the disputed land was now be owned by the respondent. Then the award gave certain directions. This court said that the award affected immovable property of the value of over Rs. 100 and as such required to be registered under the Registration Act. In Tehmi P. Sidhwa v. Shib Banerjee and Sons Pvt Ltd., AIR 1974 SC 1912 ; [1974] 2 SCC 574, the award under the Arbitration Act, 1940, directed partition of immovable property of the value of more than Rs. 1,00,000. The question was if it requires registration under section 17(l)(b) of the Registration Act. This court after examining the award said that if the award related to partition of immovable property of the value exceeding Rs. 100, it would require registration but then it is to be seen if the award operated to create rights in immovable property or whether it merely created a right to obtain another document which would when executed create any such right. Since the award merely created a right to obtain another document, it would fall under section 17(2)(v) and not under section 17(l)(b) of the Registration Act and would not require registration.

Lastly, it was submitted that if what the High Court in the impugned judgment says is correct, it would become extremely easy to bypass the provisions of Chapter XX-C thereby effectively reducing it to a dead letter as it would always be possible for parties first to enter into an agreement and then to get an arbitral award in terms of such an agreement within or outside India and then claim that the provisions of Chapter XX-C are not attracted. Mr. Ganesh said that if this interpretation was to be accepted, Chapter XX-C would become completely unworkable and meaningless and its underlying public purpose and policy would be totally frustrated.

We do not think that submissions made by Mr. Ganesh on Chapter XX-C of the Income-tax Act have any sound basis. Settlement agreement dated March 20, 1990, is not a mere agreement for transfer. As noted above, the parties had vast businesses and properties both in India and in the U.S.A. The settlement agreement was between, (1) Harendra Mehta, his wife Amita Mehta and he himself as karta of Harendra Mehta Hindu undivided family ; (2) Mukesh Mehta, his wife Daksha Mehta and he himself as karta of Mukesh Mehta Hindu undivided family ; (3) Mettaco Enterprises Trust; and (4) A. D. Developments Ltd., a New York Corporation having its principal office at New York. The settlement agreement runs into 57 long pages. It is a complex agreement. It also mentioned litigation between parties pending in the Supreme Court of the State of New York, Nassau County Court. After the parties have got their respective packages of the properties and businesses both in India and in the United States the award required the parties to execute transfer and closing documents. In this respect, clause 5 of the settlement agreement would be relevant and is as under :

"Further, at the closing, the parties will execute transfer and closing documents to be mutually agreed to by the parties' respective attorneys. If the parties' attorneys cannot agree on the sum and substance of the closing documents, the firm of Skadden, Arps, Slate, Meaghr and Flom, or if they refuse the firm of Simpson, Tacher and Bartlett shall choose the appropriate transfer and closing documents and the choice made by this firm shall be binding upon the parties of this agreement and the cost of any consultation or assistance in preparation of the transfer and closing documents shall be shared equally between the parties. It is specifically understood that the transfer and closing documents referred to herein are the United States Businesses and Properties Transfer and Closing Documents. The parties have already agreed that the opinion of D. M. Harish and Company with respect to the transfer and closing documents of Indian businesses and properties will be final and binding on the parties."

This clause also provided as to how the documents would be executed if any party refused to execute the aforesaid transfer and closing documents. Then there are various terms regarding continuance of their obligations under the businesses and properties even though there is separation and division of assets between two different groups. The settlement agreement also stipulates certain rights of one party with respect to the assets falling to the share of the other. All these clauses are not to be read in isolation and they form part of one composite agreement.

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Again a mere look at the agreement shows that it is not an agreement for transfer as understood in clause (a) of section 269UA of Chapter XX-C of the Income-tax Act. The settlement agreement also does not stipulate exchange of any immovable property. It rather divides equally businesses and properties between Harendra and Mukesh. "Exchange" has been defined under section 118 of the Transfer of Property Act where two persons mutually transfer the ownership of one thing for the ownership of another. When we consider exchange of immovable property falling within the definition of "exchange" in section 118 both the properties would situated in India. Agreement for transfer refers to immovable property which is defined in clause (d) of section 269UA. It is difficult to appreciate the arguments of Mr. Ganesh as to how in the present case, there is transfer of any immovable property under the settlement agreement. It appears to us that the bone of contention is a flat in Urvashi building in Mumbai which formed part of B+A1 of Mukesh . It was not disputed before us that for this the appellants did execute a gift deed in favour of the respondents on advice received but no steps were taken to complete the transaction as, it appears, relations soured. This would also show that the settlement agreement on the award did not require filing of any declaration under Chapter XX-C of the Income-tax Act. Moreover, in our view in the case of a foreign award, the provisions of Chapter XX-C of the Income-tax Act are not attracted. It was said that under Chapter XX-C a net has been thrown wide to bring within its purview all sorts of immovable properties but that net is not wide enough to cover a foreign award covering businesses and properties both in India and in a foreign country. The apprehension of Mr. Ganesh that if we give this interpretation a method can be found by the parties to escape the rigour of Chapter XX-C knocking at the very provision of law which strikes at the root of black money rampant in the sale and purchase of immovable property. If that is so, the Legislature can always step into block the gap if it finds there is any escapement of revenue. We are also of the view that a foreign award under the Foreign Awards Act does not require registration under the Registration Act.

A decree or order of a court does not require registration under clause (b) of sub-section (1) of section 17 of the Registration Act. This is the effect of clause (vi) of sub-section (2) of section 17. Earlier under this clause (vi) before its amendment in 1929 even an award did not require registration. However, after omission of the words "and any award" an award creating or declaring right or interest in immovable property of the value of Rs. 100 would require registration. But then that award would be an award under the Arbitration Act, 1940, and certainly not a foreign award.

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After having examined all the contentions raised by the appellants, we find no ground to interfere in the impugned judgment of the High Court. The appeal is accordingly dismissed with costs.

 

 

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