SUPER DIAMOND TOOLS & ORS. versus K. MOHAN RAO

Citation: [2023] 3 S.C.R. 644 · Decided: 02-03-2023 · Supreme Court of India · Disposal: Dismissed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2023] 3 S.C.R.
SUPER DIAMOND TOOLS & ORS.
v.
K. MOHAN RAO
(Civil Appeal No. 6216 of 2012)
MARCH 02, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Arbitration and Conciliation Act, 1996: s. 34 – Setting aside
of arbitral award – Dispute regarding partnership accounts between
the parties referred to arbitration – As a counter claim, the surviving
partner of the appellant firm alleged that the respondent had
falsified accounts and siphoned huge sums of money – Arbitrator
concluded that the respondent was guilty of fraud – Application by
the respondent for setting aside of award – Rejected by Single Judge
of the High Court – Division Bench of the High Court held
arbitrator’s method of proceeding backwards and looking at
accounts of 21 years was unsustainable and set aside the award on
the ground of public policy – On appeal, held: Appellant had
knowledge of the alleged fraud, but made no attempt to positively
enforce his claim for more than 3 years from the date of such
knowledge – Further, no specific averments on allegation of fraud
– Thus, no error by Division Bench of High Court in setting aside
the award.
Limitation Act, 1963 – s. 17 – Effect of fraud or mistake –
Start of period of limitation – Held: s. 17 is an exception to the rule
that the period of limitation commences from the date of cause of
action – However, where the condition contemplated under the
provision exists (such as fraud), then subject to proof based on
specific averments, date when limitation begins to be seen is date of
knowledge of the plaintiff.
Vallabh Glass Works Ltd. v. Union of India [1984] 3
SCR 180; Commissioner of Sales Tax, UP v. Auriaya
Chambers of Commerce, Allahabad [1986] 2 SCR 430;
R. Radha Bai & Ors. v. P. Ashok Kumar & Ors. [2018]
12 SCR 143 – relied on.
[2023] 3 S.C.R. 644
644
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Case Law Reference
[1984] 3 SCR 180
relied on
Para 10
[1986] 2 SCR 430
relied on
Para 10
[2018] 12 SCR 143
relied on
Para 10
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6216
of 2012.
From the Judgment and Order dated 29.09.2008 of the High Court
of Madras in OSA No. 67 of 2007.
R. Anand Padmanabhan, Pramod Dayal, Advs. for the Appellants.
P. I. Jose, Adv. for the Respondent.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. The present appeal questions an order of the Madras High
Court which upset the findings of a learned single judge of that Court.
The single judge had rejected the respondent’s petition under Section 34
of the Arbitration and Conciliation Act, 1996; the Division Bench set
aside the single judge’s order and appointed a fresh arbitrator.
2. The award in this case was made, pursuant to a reference by
the Madras High Court on 28.08.1997. The dispute between the parties
was in respect of partnership accounts. The surviving partner of the
appellant alleged that the first respondent was guilty of falsification of
accounts and that he had siphoned off huge sums of money. The parties
had initiated a dialogue with the idea of settling the dispute amicably.
However, there was no resolution. As a result, the respondent approached
the High Court under Section 11 of the Act which culminated in the
reference.
3. The arbitral tribunal comprising of a sole arbitrator examined
the pleadings and evidence and concluded that the first respondent was
guilty as alleged. The appellant, interestingly, did not prefer a claim, and
instead made a counter claim in the course of the arbitration proceedings,
initiated at the behest of the first respondent. The arbitral tribunal, on the
basis of its findings held that a total sum of ` 76,34,423.86/- had to be
duly accounted after deducting the first respondent’s share. The amount
was ` 53,87,664.40/-.
SUPER DIAMOND TOOLS & ORS. v. K. MOHAN RAO
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SUPREME COURT REPORTS
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4. The arbitrator also directed payment of interest @ 18% p.a.
from 31.01.1994 till date of commencement of arbitration and future
interest at the same rate. The first respondent‘s application under Section
34 was rejected by the single judge. He, therefore, approached the
Division Bench, which by the impugned order, held that the award could
not be sustained as it was contrary to public policy. To so conclude, the
Division Bench was of the opinion that the method adopted by the
arbitrator in proceeding backwards as it were, and taking accounts for a
period of 21 years, was unsustainable.
5. This Court has heard counsel for the parties. 

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