Holding

The award is a foreign award within the meaning of the Foreign Awards Act and is enforceable in India.

Summary

Harendra Mehta and his family (appellants) and Mukesh Mehta and his family (respondents) were brothers who owned businesses and properties in India and the United States. They executed an arbitration agreement appointing their elder brother as arbitrator to divide the assets, and the arbitrator rendered an award in New York incorporating a settlement agreement. Mukesh obtained confirmation of the award in New York courts and sought enforcement in India under the Foreign Awards (Regulation and Enforcement) Act, 1961; the Bombay High Court ordered the award to be filed and pronounced judgment in accordance with the award. The appellants appealed, contending that the award was not a "foreign award" because it stemmed from a family settlement, alleged fraud, violation of Chapter XX‑C of the Income‑Tax Act, and that the award had merged into a foreign judgment. The Supreme Court held that the award satisfied all the criteria of a foreign award, that none of the grounds under Section 7 of the Act applied, and that Chapter XX‑C and registration requirements were inapplicable to a foreign award. Consequently, the appeal was dismissed and the High Court's order enforcing the award was affirmed.

Issues considered

The award whether qualifies as a 'foreign award' under Section 2(b) of the Foreign Awards Act, 1961.
Whether the conditions for enforcement under Section 7 of the Foreign Awards Act are satisfied.
Whether allegations of fraud, public policy violation, or breach of Chapter XX‑C of the Income‑Tax Act bar enforcement.
Whether the award merged into a foreign judgment, thereby precluding enforcement under the Act.
Whether the award requires registration under the Registration Act, 1908.

Legislation cited

Code of Civil Procedure, 1908s. 13, s. 14, s. 44A
Foreign Exchange Regulations Act, 1973
Income Tax Act, 1961s. 269UA, s. 269UC, s. Chapter XX-C
Registration Act, 1908s. 17

Subjects

Foreign awardEnforcementArbitrationCommercial disputeIncome‑Tax ActChapter XX‑CPublic policyFraudRegistration ActNew York arbitration

Judgment

A HARENDRA H. MEHTA AND ORS.
v.
MUKESH H. MEHTA AND ORS.

MAY 13, 1999

B (D.P. WADHWA AND SANTOSH HEGDE, JJ.]

Foreign Awards (Regulation and Enforcement) Act. 1961-Section 2(b),
7-Enforcement offoreign award-Conditions for-Parties, brothers having
business both in India and in United States of America-Disputes of
C commercial nature-Arbitration proceedings held in United States of
America-Whether it could be held as an award under the Foreign Awards
Act-Held, Yes.

The appellant's and respondents, two brothers families appointed their
D elder brother as an arbitrator to divide their vast businesses and properties
both in the United States of America and India. The arbitrator gave his award
in New York incorporating the settlement between the parties. Respondents
applied to the Bombay High Court under the provisions of the Foreign
Awards (Regulation and Enforcement) Act 1961, for enforcing the award.
Single Judge of the High Court pronounced1judgment according to the award
E as required u/s 6 of the Foreign Awards Act. This appeal had been filed
challenging the judgment of the Bombay High Court enforcing the foreign
award. The appellants submitted that the High Court could not order the
award to be filed and give judgment in terms thereof as it was not an arbitral
award as there was no dispute on the basis of which the arbitrator could give
his award; that it was not an award under the Foreign Awards Act as the
F award was merely effecting a family settlement and dispute did not arise out
of any international· trade;· that a fraud had been committed in getting the
award and certain schedule which formed the part of the agreement to refer
the dispute to arbitration, had been fraudulently substituted and that chapter
XX-C of the Income Tax Act 1961 had been violated and the enforcement of
G the award in violation of the law of this country would be against the public
policy.

Dismissing the appeal, this Court

HELD : 1.1. In the instant case all the ingredients of a foreign award
H were there. Parties were having business both in India and in the United
562
_J

H.H. MEHTA v. M.H. MEHTA 563
States of Amrica as a joint venture and they also acquired properties. A
Differences that arose between the parties were out of legal relationships
and certainly of commercial nature under the laws of this country. Agreement
to refer the disputes to Arbitration, in writing, was made in the United States
- ..- where arbitration proceedings were held and award given. United States is
a country to which clause (b) of section 2 of the Foreign Awards Act applies. B
In the present case, the parties were related to each other but that could not
take the award outside the ambit of the Foreign Awards Act.
(574-G-H; 575-A)
1.2. The parties entered into the settlement during tendency of the
.• arbitration proceedings. Appellant himself approached the courts in the
United States never complaining that it was not an award. It cannot be held
C
that the agre~ment stood revoked when the parties during the course of
arbitration proceedings entered into a settlement among themselves and yet
wanted the arbitrator to give his award in terms thereof. It is nobody's case
that authority of the arbitrator was revoked at any time. [576-C-EJ
1.3. A competent court in the State of New York rejected appellants' D
case that any fraud had been committed. Therefore, sub-section (2) of Section
7 of the Foreign Act would not be applicable. No conditions now exist under
sub-section (1) of Section 7 of the Foreign Award Act not to enforce the
award on the alleged ground of fraud. (576-H; 577-AJ

1.4. Foreign Awards Act is a complete Code in itself providing for all E
the possible contingencies in relation to foreign awards. Once it is held that
an award is a foreign award, the provisions of the Foreign Award Act would
apply and where the conditions for enforcement of such an award exist as
mentioned in Section 1of this Act, the Court shall order the award to be filed
and shall proceed to pronounce judgment granting ward and upon the judgment F
so pronounced, decree shall follow. It is not material for the Foreign Award
Act that in any other country than India, a judgment has already been passed
by a court of competent jurisdiction in terms of the award. A party may have
other remedy for filing a suit passed on a foreign judgment but that will oust
jurisdiction of the Court to enforce a foreign award under the Foreign
Awards Act. [583-B-C] G
1.5. A mere look at the agreement shows that it is not an agreement
for transfer as understood in clause (a) of Section 269 UA of Chapter XX-
C of the Income Tax Act. The settlement agreement also does not stipulate
exchange of any immoveable property. It rather divides equally business and
properties between appellants and respondents. In the present case, there is H
564 SUPREME COURT REPORTS [1999] 3 S.C.R.

A no transfer of any immoveable property under the settlement agreement. The
settlement agreement on the award did not require filing of any declaration
under Chapter XX-C of the Income Tax Act. Moreover, in the case of a
foreign award, provisions of Chapter XX-C of the IT Act are not attracted.
A foreign award under the Foreign Award Act does not require registration
B under the Registration Act. [592-C-F; 593-A]

R.M Investment and Trading Co. Pvt. Ltd. v. Boeing Co. & Anr., [1994)
4 SCC 541;. K.K. Modi v. K.N. Modi & Ors., [1998) .3 SCC 573, Badat &
Co. v. East India Trading Co., [1964) 4 SCR 1~; Baldevdas Shiv/al &Anr.
v. Filmistan Distributors (India) Pvt. Ltd., AIR (1970) SC 406; Ruby Sales
C and Services (P) Ltd. & Anr. v. State of Maharashtra & Ors., [1994) 1 SCC
531 and Lachman Das v. Ram Lal, [1989) 3 SCC 99, distinguished.

Renusagar Power Co. Ltd. v. General Electric Co. & Anr., (1984) 4
SCC 679 and Tehmi Sidhwa & Ors. v. Shiv Banerjee & Sons Pvt. Ltd., [1974]
2 sec 574, relied on.
D CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4006 of
1995.

From the Judgment and Order dated 24.2.95 of the Bombay High Court
in Arbitration Petition No. l 02 of 1991.
E S. Ganesh, P.S. Sudheer, P. Venugopal and K.J. John for the Appellants.

S.K. Dholakia, Bhargava V. Desai and Siddharth Choudhary for the
Respondents.

The Judgment of the Court was delivered by
F
D.P. WADHWA, J. The Appellants (Harendra H. Mehta & Ors.) are
challenging the judgment dated February 24, 1995 of the Bombay High Court
enforcing the 'foreign award' dated October 31. 1990 on a petition filed by
the Respondents .(Mukesh H. Mehta & Ors., ). It was, however, directed that
the enforcement of the same or execution of the decree shall be subject to
G the respondents' obtaining the necessary permission under Foreign 'Exchange
Regulations Act, 1973 ('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 I
Constitution. The impugned judgment had been rendered by a single Judge. '·
H· There was some controversy if a single Judge could grant such a certificate.
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 565
However, considering the importance of the issue involved, this Court admitted A
the appeal. The controversy, therefore, does not survive in the present appeal.

For convenience, we refer to the appellants as 'Harendra' and respondent
as 'Mukesh'. Both Harendra and Mukesh are brothers. Harendra is elder to
Mukesh. They appointed thei~ older brother Lalit Mehta as arbitrator to
divide their businesses and properties both in the United States of America B
(USA) and India. Lalit Mehta gave his award in New York. Some proceedings
arising out of the arbitration agreement and the award were held there in the
courts. Arbitration agreement was entered into at New York where arbitration
proceedings held and award given. Mukesh applied to the Bombay High
Court here under the provisions of the Foreign Awards (Regulation and. C
Enforcement) Act, 1961 (for short, the 'Foreign Awards Act') for enforcing the
award. High C~urt 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 before us.
D
We may now consider the controversy between the brothers in detail.
Harendra and Mukesh were having vast businesses in the USA and India.
They also acquired properties in both the countries. bisputes 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 E
entered into an agreement to refer their disputes to their elder brother Lalit
Mehta. Their submission to the arbitrator is in the following terms:

"Lalit Mehta,

48 Arobor Lane,
F
Roslyn Hts.,

N.Y.11577.

Dear Lalitbhai,
G
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 USA & India H
566 SUPREME COURT REPORTS [1999] 3 S.C.R.

A 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
B 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 document, papers and any information you call for from time
to time.

We shall ensure full participation in the meetings and clarify whatever
c 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.

-D 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,

E Sd/-

Harendra Mehta

Sd/-

Mukesh Mehta
F
Sd/-

Witness"

Thereafter a formal agreement dated November 17, 1989 to refer the
G disputes to Arbitrator Lalit Mehta was entered into by the parties. It was
signed by Harendra, his wife Arnita Mehta and Harendra Mehta as Manager
(Karta) of his HUF on the one part and Mukesh Mehta his wife Daksha Mehta
and Mukesh Mehta as Manager (Karta) of his HUF on the other. This
agreement gave the details of the businesses carried on by the parties and
their properties in USA and India. The agreement was entered into in New
H York and was duly notorised there. It would appear that the formal agreement
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.) 567

dated November 17, 1989 to refer the disputes to Arbitrator superseded the A
earlier agreement dated October 25, 1989.

Harendra challenged the agreement dated November 17, 1989 in the
Supreme Court of the State of New York, Nassau County Court by motion
dated February 16, 1990 on the ground that it was unconscionable, against
public policy, entered under duress and coercion and that the arbitrator is B
biased and cannot be fair and impartial. this challenge was negatived by
judgment dated March 12, 1990. It will be seen that the challenge to the
agreement was made after the arbitrator had entered into reference. The court
observed that Harendra was a seasoned businessman, having managed
numerous successful businesses both in USA and in India. He signed not
just one but two submission agreements. Court wondered why did he consent C
on two occasions that Lalit Mehta be chosen arbitrator if he allegedly had
strained relations with him. There was nothing to show that any duress or
coercion was caused. In short, the Court negatived all the pleas of Harendra
and said that the agreement could not be declared invalid on a motion under
Article 7503 ofCPLR (Civil Practice Law Rules) and, therefore, "an application D
to declare the agreement invalid must await a trial and, therefore, was
premature."

During the pendency of the arbitration proceedings, parties settled their
differences by entering into a detailed agreement on March 20, 1990. The
agreement was to be retroactively effective as on March I, 1999. The agreement E
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' - USA properties and businesses

'A- l' - U.S.- Note for payment. In US $ and share in jointly held in
US properties and businesses. F
'B ' - Indian properties and businesses

'B'- Indian Note for payment in Indian rupees and certain India
properties and share and interest in jointly held Indian properties and
businesses." G
It was agreed that one party would choose A+B-1 or B+A-l. First
choice was to be exercised by Mukesh. The arbitrator was to make his award
in accordance with the selection of packages. 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 H
568 SUPREME COURT REPORTS [1999] 3 S.C.R.

A 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 to 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.
--
B There was also a penalty clause in case of failure or feusal 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
C 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
Arnita Mehta, wife of Harendra, represented her husband as his attorney and
D 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
E 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.

F Now, Mukesh Mehta brought a motion for an order pursuant to CPLR
751 O for confirmation of the award in the Nassau Country 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
G 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
H errors in the judgment which were corrected by Order dated October 31, 1990.
H.H. MEHTA v. M:H. MEHTA [D.P. WADHWA, J.] 569

A formal order was drawn on January 14, 1991 which read as under: A
"ORDERED AND ADJUDGED, pursuant to CPLR 7510 and 7514
that the award of the arbitrator, Lalit Mehta, dated October 31, 1990
is hereby confirmed and shall constitute a judgment of this court,
provided however, that payments by A.D. Development Ltd. to Mukesh
Mehta for the purchase of his shares of A.O. Development Ltd. shall B
be limited pursuant to Business Corporation Law s. 514 to the
availability of surplus, and it is further,

ORDERED AND ADJUDGED, that the branch of the motion ofMukesh
Mehta and Daksha Mehta seeking reargument of this court's order
and decision dated October 22, 1990 be, and the same hereby is C
granted, and it is declared that the limitation of payments by A.D.
Development Ltd. for the repurchase of shares to years in which the
Corporation has a surplus is not applicable to others obligated to
make such payments, and it is further,

ORDERED, that the cross-motion ofHarendra pursuant to CPLR 751 l(b) D
for an order vacating such arbitration award on grounds of fraud or
for modification of the award to substitute a different neutral party to
determine certain matters be, and the same hereby is, denied without
a hearing, and it is further,

ORD ERE~, that the branch of Harendra 's cross-motion pursuant to E
CPLR 7514 seeking to compel Mukesh Mehta to comply with certain
obligations pursuant to such arbitration award, and conditioning
enforcement of any judgment against Harendra upon Mukesh Mehta' s
first fully complying therewith be, and the same hereby is, denied, and
it is further, F
ORDERED AND ADJUDGED, that other remedies to enforce the award
flow from this judgment and enforcement proceedings may be brought
in an appropriate forum; and it is further,

ORDERED, that the branch of Harendra's cross-motion pursuant to
CPLR 6302 and 6311 to enjoin Mukesh Mehta and Daksha Mehta from G
taking any additional action concerning certain Indian documents
released to them by the law firm. ofD.M. Harish & Co., and compelling
Mukesh Mehta to deliver such documents to the court pending further
proceedings be, and the same hereby is denied, and it is further,

ORDERED AND ADJUDGED, that pursuant to the provisions of H
570 SUPREME COURT REPORTS · [ 1999] 3 S.C.R.

A paragraphs "12", "15" and ".J 7" of the Settlement Agreement dated
March 20, 1990 incorporated into the award of the arbitrator, Mukesh
Mehta, residing at 48 Arbor Lane, Roslyn Heights, New York 11577
shall recover from A.O. Development Ltd., a New York Corporation
having its principal place of business located at 22, Athex Drive, Glen
Cove, New York 11542 the sum of$ 265,000 less the sum of $146.293
B paid on account thereof, making the net sum of $188, 706.21, with
interest upon $ 68706.3 l of said sum from October 31, 1990 to December
31, 1990 at the rate of 9% per annum, in the amount of $1,030.59; and
interest on $25,000 from November 1, 1999 to December 31, 1990 at the
rate of9% per annum, in the amount of$375; with interest on $25,000
C from December 1, 1990 to December 31, 1990 at the rate of 9% per
annum, in the amount of $187.50; and making in all a judgment of
$120,299.30 as of December 31, 1990; and it is further ... "

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

In those proceedings under CPLR 7510, the Court noticed that arbitration
proceedings were recorded under oath held before a Court Reporter and
Notary Public and though language of the award showed that the arbitrator
E had signed and affirmed the award but, in fact, he did not actually sign the
award or deliver a copy to each party as required by CPLR 7507. The Court,
however, observed that the parties agreed that the failure of the arbitrator
to issue an award shall not affect the validity or binding effect of settlement
agreement. The Court, therefore, permitted to the arbitrator to sign and affirm
F the award in compliance with CPLR 7507 and serve a copy on the parties or
their attorneys. Liberty was then granted to Mukesh to renew his application
to confirm the signed award. In pursuance with this direction by the Court,
the arbitrator signed his award on October 31, 1990.

Arnita Mehta then filed an affidavit on February 13, 1992 in Nassau
G County Court alleging that duly initiated schedules A and B of the Settlement
Agreement had been fraudulently substituted by other non-initialed schedules
which contained some entirely new clauses. By order dated September 20,
1993, the Supreme Court of New York Appellate Division rejected her plea
regarding fraudulent substitution of schedules.

H Now, the scene shifted to India when Mukesh moved the Bombay High
H.H. MEHTA v. M.H. MEHTA [D.P. WADl:IWA, J.] 571
Court under provisions of the Foreign Awards Act for enforcement of the A
Award dated October 31, 1990 of Lalit Mehta the arbitrator, contending the
same to be a foreign award. Harendra raised various pleas in opposition
thereto. 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.
B
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 C
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. Dispute did not arise out of any international trade.
D
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 E
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.
F
6. 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 has, 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 G
effected on the appellant only in 1997.
Detailing his' objections Mr. Ganesh said :

He read the objects and reasons of the Foreign Awards Act. Definition
of 'foreign Award' is given in Section 2 of that Act and also Articles l and
ll of the New York Convention of Recognition and Enforcement of Foreign H
572 SUPREME COURT REPORTS (1999] 3 S.C.R.

A Awards which is schedule to the Foreign Awards Act. Argument was that
Foreign Awards Act is inapplicable as it is not a 'foreign award'.
Section 2 of the Foreign Awards· Act defines the "foreign award" to
mean an award on differences between persons arising out of legal relationship,
whether contractually or not considered as commercial under the law in force
B in India, made on or after the 11th day of October, 1960-

(a) in pursuance of an agreement in writing for arbitration to which the
Convention set forth in the Schedule applies, and

(b) in one of such territories as the Central Government ~eing satisfied
C that reciprocal provisions have been made, may by notification in the Official
Gazette, declare to be territories to which the said Convention applies .

• Article l of the New York Convention is as under :

"Article I
D
l. This convention shall apply to the recognition and enforcement of
arbitral awards made in the territory of a State other than the State
where the recognition and enforcement of such awards are sought,
and arising out of difference between persons, whether physical or
legal. It shall also apply to arbitral awards not considered as domestic
E awards in the State where their recognition and enforcement are
sought.

2. The term "arbitral awards" shall include not only awards made by
arbitrators appointed for each case but also those made by the
permanent arbitral bodies to which the parties have submitted.
F
3. When signing, ratifying or acceding to this Convention, or notifying
extension under article X hereof, any State may on the basis of
reciprocity declare that it will apply the Convention to the recognition
and enforcement of awards made only in the territory of another
Contracting State. It may also declare that it will apply the Convention
G
only to differences arising out of legal relationships, whether
contractual or not, which are considered as commercial under the
national law of the State making such declaration."

! Article II of the Convention is in somewhat similar terms as the expression
H 1
'foreign award' under Section 2 ofthe Foreign Awards Act and it is as under:
H.H. MEHTA v. M.H. MEHTA [D.P. WAOHWA, J.] 573

"Article II A
1. Each Contracting State shall recognise an agreement in writing
under which the parties undertake to submit to arbitration all or any
differences which have arisen or which may arise between them in
respect of defined legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by arbitration. B
2. The term "agreement in writing" shall include an arbitral clause in
a contract or an arbitration agreement, signed by the parties or
contained in and exchange of letters or telegrams.

3. The Court of a Contracting State, when seized of an action in a C
matter in respect of which the parties have made an agreement within
the meaning of this article, shall, at the request of one of the parties,
refer the parties to arbitration, unless it finds that the said agreement
is null and void, inoperative or incapable of being performed."

Submission of Mr. Ganesh was that it is not a foreign award because D
(i) there was no commercial dispute arising out of any international trade; (ii)
award does not relate to any commercial dispute arising in the course of
international trade; and (iii) legal relationship betw.een the parties was of
family members having equal shares in the properties and businesses who
merely sought separation and partition of their respective shares. He said that E
mere fact that some of the properties happened to be derived form the
business done by the parties could not convert the award into foreign award.
To support his submission, he referred to two decisions of this Court in R.M
Investment and Trading Co. Ltd. v. Boeing Co. and Anr., [1994] 4 SCC 54
and Renusagar Power Co. Ltd v. General Electronic Co. & Anr., [1984] 4
sec 679. In our view these two judgments do not help the appellants. Rather F
the stress in these judgments is that broad and not restricted construction
should be given to the word "commercial" appearing in Section 2 of the
Foreign Awards Act. In R.M Investment and Trading Companies Pvt. Limited's
case, terms of the agreement required the petitioner to play an active role in
promoting the sale and to provide "commercial and managerial assistance and G
information" which may be helpful in respondents sales efforts. It was held
that relationship between the appellants and respondents was of commercial
nature. This Court said that the word "commercial" under Section 2 of the
Foreign Awards Act should be liberally construed. In Renusagar's case no
doubt this Court observed that the Foreign Awards Act was calculated and
designed to subserve the cause of facilitating international trade and promotion H
574 SUPREME COURT REPORTS (1999] 3 S.C.R.

A thereof by providing for speedy settlement of disputes arising in such trade
through arbitration and also said that any expression or phrase occurring
therein should receive consistent with its literal and grammatical sense a
liberal construction.

In ordinary parlance "commercial means"
B
"1. of, engaged in, or concerned with, commerce. 2 Having profit as
primary and rather than artistic etc. value; philistine." (the Concise
Oxford Dictionary).

In Black's Law Dictionary, "commercial" is defined as:
c
"Relates to or is connected with trade and traffic or commerce in
general; is occupied with business and commerce. Anderson v. Humble
Oil & Refining Co., 226 Ga. 174 S.E. 2d 415, 416."

The word "trade" is also defined in the Black's Law Dictionary. It is :
D
"the act or the business or buying and selling for money; traffic;
barter. May v. Sloan, 101U.S.231, 25, L.Ed. 797. Purchase and sale
of goods and services between businesses, states or nations. Trade
is not a technical word and is ordinarily used in three senses: (I) in
that of exchanging goods or commodities by barter or by buying and
E selling for money; (2) in that of a business occupation generally; (3)
in that of a mechanical employment, in contradistinction to the learned
professions, agriculture, of the liberal arts. People v. Volar vort of
America, Inc., IO Misc. 2d 378, 174 N.Y. S. 2d 789, 793.

An occupation or regular means of livelihood and is business one
F practices other work in which one engages regularly. One's calling;
occupation; gainful employment; means of livelihood. People v. Carr.,
163 Cal. App. 2d 568, 329 P. 2d 746, 752."

We do not understand as to how it could be said that the award was
G not a foreign award. All the ingredients of Foreign award were there. Parties
were having business both in India and in the United States of America as
a joint venture and they also acquired properties. Differences that arose
between the parties were out of legal relationships and certainly of commercial
nature under the laws of this country. Agreement to refer the disputes to
arbitration, in writing, was made in the United States where arbitration
H proceedings held and award given. It is not disputed that United States is a
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 575
country to which clause (b) of Section 2 of the Foreign Awards Act applies. A
In the present case, the parties are no doubt related to each other but that
could not take the award outside the ambit of the Foreign Awards Act. We
asked Mr. Ganesh as to what would happen if there were two strangers
having businesses both in India and in United States or when there was a
joint venture between an Indian and a US national having properties both B
moveable and immovable in both the countries and disputes having arisen
and award given in the United States. Mr. Ganesh, in spite of his
resourcefulness, was unable to give any convincing reply. There is no merit
in the objection of the appellant that the award is not a foreign award and
that it is outside the Foreign Awards Act.
c
That the award is not an arbitral award, submission of Mr. Ganesh was
that tqe arbitration agreement which was entered into on November 17, 1989
stood revoked after the parties arrived at the settlement agreement dated
March 20, 1990. Earlier agreement dated October 25, 1989 to refer the disputes
to arbitration stood superseded by the agreement dated November 17, 1989. D
Mr. Ganesh read in detail the terms of the settlement agreement to contend
that parties themselves had resolved their disputes and that agreement was
to take effect irrespective of the fact whether the arbitrator gave his award
in terms thereof or not. He said arbit_rator was to act merely as a rubber stamp
after parties had opted for various packages containing their businesses and
properties. Submission in brief was that unless there was dispute or difference, E
there could be no arbitration. The arbitrator was not only not required to act
judicially after the agreements dated November 17, 1989 had been arrived at
between the parties but, in fact, he was prevented from acting judicially and
giving any decision whatsoever affecting the fights of parties. He was not
expected to hear or apply his mind or perform any of the arbitration functions. F
In such a situation, even though there was in existence an arbitration agreement
that stood revoked for one basic and simple reason that at that time there
existed no dispute. The agreement was straightaway made into the award. In
support of his submissions, Mr. Ganesh referred to a decision of this Court
in K.K. Modi, v. K.N. Modi & Ors., [1983] 3 SCC 573 to contend that when G
a person has been authorised to decide a certain dispute between the parties
but he has no function to perform as arbitrator, he could not give an award.
But in that case, under clause (9) of the Memorandum of Understanding
between the parties there were different contentions; one contending that the
clause constituted arbitration agreement, the other contending to the contrary.
This clause (9) was as follows : H
576 SUPREME COURT REPORTS (1999] 3 S.C.R.

A "Implementation will be done in consultation with the financial
institutions. For all disputes, clarifications etc. in respect of
implementation of this agreement, the same shall be referred to the
Chairman, IFCI or his nominees whose decisions will be final and
binding on both the groups".

B It was in this context that this Court said. that looking at the nature of
the functions expected to be performed by the Chairmen, IFCI, his decision -
i~ not arbitration award. This judgment hardly helps Mr. Ganesh in his
submissions. In the present case, the parties entered into the settlement
during pendency of the arbitration proceedings. Appellant himself approacJled
C the courts. in the Unit~d States never complaining that it was not an award.
In proceedings uqder CPLR 1507 and CPLR 7510, Harendra had even accepted
the execution of the settlement agreement and the award made by the arbitrator.
We find that no ·such plea was taken either in the High Court or in the
grounds of appeal to this Court. Nassau County Court noticed the functions
to be performed by the arbitrator in the settlement agreement. We do not find
D any merit in the argument of Mr. Ganesh that arbitration agreement· stood
revoked when the parties during the course of arbitration proceedings entered
into a settlement among themselves and yet wanted the arbitrator to give his
award in terms thereof. It is nobody's case that authority of the arbitrator was
revoked at any time. This argument of Mr.. Ganesh seems to us to be made
E in more desperation.

Nassau County Court did not modify the award as such it merely
corrected the award so as to conform to the law of the State of New York.

Contention of the appellants that fraud was committed substituting
F schedules in ,the award which schedules formed part of the settlement
agreement referring disputes to arbitration was also a subject matter of
·challenge in Nassau County Court by the appellants which was rejected.

Section 7 of the Foreig11 Award Act details the circumstances under
which a foreign award may not be enforced. These are :
G "7. Conditions for enforcement of foreign awards . - (I) A foreign
award may not be enforced under this At:t --

(a) if the party against whom it is sought to enforce the award proves
to the Court dealing with the case that -- ·

H (i) the parties to the agreement were under the law applicable to
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 577
them, under some incapacity, or the said agreement is not valid A
under the law to which the parties have subjected it, or failing
any indication thereon, under the law of the country where the
award made; or
(ii) the party was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was 'otherwise B
... unable to present his case; or
(iit) the award deals with questions not referred or contains decisions
on matter beyond the scope of the agreement :

Provided that if the decisions on matter submitted to arbitration .can
be separated from those not submitted, that part of the award which C
contains decisions on matter submitted to arbitration may be enforced;
or
(iv) the composition of the arbitral authority or the arbitra! authority
or the arbitral procedure was not in accordance with the
agreement of the parties or failing such agreement,. was not in D
accordance with the law of the country where the arbitration
took place; or
(v) the award has not yet become binding on the parties or has been
set aside or suspended by a competent authority of the country
in which, or under the law of which, that award was made; or E
(b) if the Court dealing with the case is satisfied that -

(i) the subject-matter of the difference is not capable of settlement
by arbitration under the law of India; or

(it) the enforcement of the award will be contrary to public policy; F
(2) If the' court before which a foreign award is sought to be relied
upon is satisfied that an application for the setting aside of suspension
of the award has been made to a competent authority referred to in
sub-clause (v) of clause (a) of sub-section (1 ), the court may, if it
deems proper, adjourn the decision on the enforcement of the award G
and may also, on the application of the party claiming enforcement of
the away, order the other party to furnish suitable security."

Supreme Court of New York, Appellate Division rejected the appellants
plea regarding fraudulent substitution of the schedules to the award. It will
be seen that a competent court in the State of New York rejected the contention H
578 SUPREME COURT REPORTS [1999] 3 S.C.R.

A of the appellants that any fraud had been committed. Therefore, sub-section
(2) of Section 7 of the Foreign Awards Act would not be applicable. There
are no conditions now exist under sub-section (I) of Section 7 of the Foreign
Awards Act not to enforce the award on the alleged ground of fraud. We find
no merit in the plea of the appellant that schedules to the award were
B substituted. This contention of the appellants must fail.

It was then submitted by Mr. Ganesh that it was the case of the
respondents themselves that the foreign award had already merged into
judgment dated January 8, 1991 of the Nassau County Court of the New York
State. Under CPLR 7514, a judgement shall be entered upon the confirmation
C of an award. CPLR 7514 of the New York Arbitration Law is as under:

"7514, Judgement on an Award

(a) Entry. A judgment shall be entered upon the confirmation of an
award.

D (b) Judgment-roll, The judgement-roll consists of the original or a
copy of the agreement and each written extension of time within which
to make an award; the statement required by section seventy-five
hundred eight [7508] where the award was by confession; the award;
each paper submitted to the court and each order of the court upon
E an application sections 7510 and 7511; and a copy of the judgment."

He said the respondents filed a suit in the Bombay High Court on its
original side (Suit No. 3787/96) on the basis of the judgment of Nassau
County Court dated 8.1.1991 and that suit is pending of which service was
effected on the appellants only in August 1996. A copy of plaint in the suit
F filed by the respondents was shown to us during the course of hearing.
Respondents in that prayed as under :

(a) That the Hon'ble Court be pleased to order and declares that the
said foreign judgment dated 8th January, 1991 delivered by the Supreme
Court of Nassau. USA as confirmed by the Appellate Division of the
G Supreme Court of New York dated 20th September 1993 is final,
conclusive and binding upon the plaintiffs as well as the Defendants
herein;

(b) That this Hon'ble Court be pleased to pass a decree in terms of
the said Foreign Judgment dated 8th January, 1991 delivered by the
Supreme Court of Nassau, USA as confirmed by the Appellate Division
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 579
of the Supreme Court of New York dated 20th September, 1993." A
Thus, the argument was that when respondents have themselves filed
suit on the basis of the foreign judgement, they could not have recourse to
Foreign Awards Act. It was the foreign judgment in which the award merged
which would now hold the field. In support of this submission reference was
made to a decision of this Court in Badat & Company v. East India Trading B
-- Co. [1964] 4 SCR 19. This judgement, in our view, is not applicable in the
present case. If read out of context, it may appear to be a so applicable but
'it is not so. In this case, dispute arose between Badat & Co., an Indian firm
and East Indian Trading Company, a Private Ltd. Company incorporated
under the laws of the State of New York in USA for supply of turmeric by C
the Indian firm to the foreig_n company. Parties had agreed to do business on
the terms of the American Spice Trade Association. Under the rules of the
Association all questions and controversies and all claims arising under the
contract shall be submitted to and settled by arbitration. American company
invoked the arbitration agreement. It obtained two exparte awards totalling D
US $18748. American Company then adopted proceedings in the Supreme
Court of the State of New York to have the said awards confirmed and
judgment entered thereon. Judgment confirming the awards was pronounced
on April 13, 1950. American company thereupon instituted the suit in the
Bombay High Court on January 14, 1954. Suit was substantially based on the
foreign judgment and in the alternative on the two awards given by a domestic E
tribunal functioning in New York. Indian firm raised number of pleas in
' defence. It was submitted that Indian firm was not residing within the limits
of the original jurisdiction of the Bombay High Court or carry on business
therein and the High Court had no jurisdiction to entertain the suit. It was
not disputed that the Indian firm on the date of the suit had ceased to reside p
or carry on business within the limits of the civil jurisdiction of the Bombay
High Court. The matter could have rested at that but this court proceeded to
examine the position regarding the enforcement of foreign awards and foreign
judgments based upon awards. It referred to the provisions of the Arbitration
(Protocol and Convention) Act, 1937 and observed that it was common
ground that the provisions of that Act were not applicable to the awards in G
question. It s:iid that apart from the provisions of that Act, foreign awards
and foreign judgments based upon awards were enforceable in India on the
same grounds and in the same circumstances on which they were enforceable
in England under the common law on grounds of justice, equity and good
conscience. This Court then examined the law on the subject in England and H
580 SUPREME COURT REPORTS [1999] 3 S.C.R.

A said that there was conflict of opinion on a number of points concerning the
enforcement of foreign awards and judgments based upon foreign awards.
However, certain propositions appear to be clear and these were stated as
under:

"One is that where the award is followed by a judgment in a proceeding
B which is not merely formal but which permits of objections being
taken to the validity of the award by the party against whom judgment
is sought, the judgment will be enforceable in England. Even in that
case, however, the plaintiff will have the right to sue on the original
cause of action. The second principle is that even a foreign award will
....
c be enforced in England provided it satisfies mutatis mutandis the
tests applicable for the enforcement of foreign judgements on the
ground that it creates a contractual obligation arising out of submission
to arbitration. On two matters connected with this there is difference
of opinion. One is whether an award which is followed by a judgment
can be enforced as an award in England or whether the judgment
D alone can be enforced. The other is whether an award which is not
enforceable in the country in which it was made without obtaining an
enforcement order or a judgement can be enforced in England or
whether in such a case the only remedy is to sue on the original cause
of action. The third principle is that a foreign judgment or a foreign
award may be sued upon in England as giving good cause of action
E provided certain conditions are fulfilled one of which is that it has
become final."

Bearing in mind these principles this Court again considered whether
judgment of the Supreme Court of New York would be.enforced against the
F Indian firm by instituting a suit on the original side of the High Court and
said that the judgment furnished an independent cause of action and, therefore,
the question would be whether the cause of action furnished by it arose
within the limits of the original jurisdiction of the Bombay High Court. The
judgment was rendered in New York and, therefore, the cause of action
furnished by it arose at that place and not that anywhere else. This Court then I
>-
G said that cause of action was really independent of the cause of action 'r
afforded by the contract and, therefore, if advantage was sought to be taken
of it, the suit would not lie at Bombay, Finally the Court said : ,_
"(I) that there was a contract between the parties whereunder disputes .
l
I-
between them could be referred to arbitration to a tribunal in a
H foreign country;
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 581

(2) that the award is in accordance with the tenns of the agreements; A
(3) that the award is valid according to the law governing arbitration
proceedings obtaining in the country where the award was made;

(4) that it was final according to the law of that country; and

(5) that it was a subsisting award at the date of suit. B
Then the court observed as follows :

"A view has been expressed in some English case that an award must
also be enforceable in the country in which it was made before a suit
can be brought in England on its basis. But upon the view we are C
taking it is not necessary to decide this point. Now, when a suit is
brought by a plaintiff on the basis of an award it is not necessary for
him to prove that the amount claimed was actually payable to him in
respect of the dispute nor is it open to the defendants to challenge
the validity of such an award on grounds like those which are available
in India under S.30 of the Arbitration Act. A very limited challenge D
to the claim based on the award is permissible to the defendants and
that is one of the reasons why it is important to ascertain whether the
award has in fact attained finality in the country in which it was made.
We will assume that the plaintiffs have satisfactorily established the
first three of the five conditions which we have set out above. The
question then is whether the fourth and the fifth conditions have been E
satisfied."

The Court then considered the requirements of the laws of New York
State for giving an award finality and after examining various provisions said
that "from all these provisions it would be abundantly clear that the award F
has no finality till the entire procedure is gone through and that the award
as such can never be enforced. What is enforceable is the judgment." It then
added "No doubt, as a result of the judgement the decision of the arbitrators
became unchallengable in the New York State and for all practical purposes
in India as well but in the process the award made by them has given way
to the judgment of the Supreme Court of New York. It is this judgment which G
can now furnish a cause of action to the plaintiffs and not the awards". This
Court then finally held :

"No doubt, an award can furnish a fresh cause of action. But the
award must be final. If the law of the country in which it was made
gives finality to judgment based upon an award and not to the award H
582 SUPREME COURT REPORTS [1999] 3 S.C.R.

A itself, the award can furnish no cause of action for a suit in India. In
these circumstances, we hold that though the High Court of Bombay
~as jurisdiction to enforce a final award made in a foreign country in

B
pursuance of a submission made within the limits of its original
jurisdiction, the awards in question being not final, cannot furnish a
valid cause of action for the suit. Upon this view we allow the appeal
and dismiss the suit with costs throughout."
-
The judgment of this Court in Badat & Co. is based on the English
Common Law. Provisions of the Arbitration (Protocol and Convention) Act,
1937 were held to be inapplicable to the facts of the case. Here we are
C concerning with the provisions of Foreign Awards Act which give effect to
the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards held at New York on June 10, 1958 to which India was a party. To
enforce a foreign award, what we have to see is : if it is a foreign award within
the meaning of Section 2 of the Foreign Awards Act and conditions as
prescribed by Section 7 for its enforcement exist. Under Section 4 of this Act,
D a foreign award shall, subject to the provisions of the Act, be enforceable in
India as if it were an award made on a matter referred to arbitration in India.
The Court has to apply the provision of the Foreign Awards Act to enforce
a foreign award within the meaning of Section 2 of the said Act. It would not
be relevant to consider ifthe foreign award has attained finality in the country
E where it was made. Further, if a judgme~t has been obtained on the basis of
the award in the country of its origin, the person in whose favour the
judgment is made may also be entitled to file suit in his country based on that
judgment if it satisfies the criteria laid by Jaw in this country. That may give
that person an alternative mode to enforce the award but that would not mean
that the provision of Foreign Award Act can be given a go by. We, therefore,
F find no force in the submission of Mr. Ganesh that once the award attained
finality in the Supreme Court of New York, proceedings to enforce foreign
award would not be maintainable and that only suit could be filed on the .
foreign judgment, being the judgment given by the Supreme Court of New
York, In Renusagar's, this Court said :
G "Moreover, an examination of the rl!levant provisions of this Act
(Foreign Awards Act) and the Arbitration Act, 1940 will show that the
schemes of the two Acts are not identical and as will be pointed out
at the appropriate stage there are various differences which have a
material bearing on the question under consideration and as such
H decisions on similar or analogous provisions contained in the
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 583
'
" Arbitration Act may not help in deciding the issue arising under the A
Foreign Awards Act because just as the Arbitration Act, 1940 is a
consolidating enactment governing all domestic awards the Foreign
Awards Act constitutes a complete code by itself providing for all
possible contingencies in relation to foreign awards made pursuant to
agreements to which Article II of the Convention applies."
B
Thus, as held in Renusagar's case [1984] 4 SCC 679, Foreign Awards
Act is a complete Code in itself providing for all the possible contingencies
in relation to foreign awards. Once it is held that an award is a foreign award,
the provisions of the Foreign Awards Act would apply and where the
conditions for enforcement of such an award exist as mentioned in Section
7 of this Act, the Court shall order the award to be filed and shall proceed
c
to pronounce judgment granting award and upon the judgment so pronounced,
decree shall follow. It is not material for the purpose of enforcement of a
foreign award under the Foreign Awards Act that in any other country than
India, a judgment has already been passed by a Court of competent jurisdiction
in tenns of that award. A party may have other remedy for filing a suit passed D
on a foreign judgment but that will not oust jurisdiction of the Court to
enforce a foreign award under the Foreign Awards Act. Provisions as contained
in Sections 13 and 14 of the Code of Civil Procedure (for short, the 'Code')
would apply when a suit is brought on a foreign award. Under Section 44A
of the Code, there is a provision for execution of decrees passed by Courts
E
in reciprocating territory. Explanation I to this section defines "reciprocating
territory" to mean any country or territory outside India which the Central
Government may, by notification, in the Official Gazette, declare to be a
reciprocating territory for the purposes of this section, Reciprocating territory
specified in Section 44A of the Code may not be same as that specified in
clause (b) of Section 2 of the Foreign Awards Act. We are not called upon F
to decide in the present proceedings what is the effect of the judgment given
on the award in question in the United States and how the High Court would
proceed in the matter when a suit has been filed on the basis of the judgment.
The argument that the foreign award has merged in the judgment of the
Supreme Court of the State of New York has, therefore, to be rejected.
G
__.
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 'IT Act'). Chapter XX-C confers on the Central
Government (through Income-Tax Department) primitive right to purchase an
immovable property for the amount of "apparent consideration", where the H
584 SUPREME COURT REPORTS [1999] 3 S.C.R

A Appropriate Authority (constituted under the IT Act) finds that such "apparent
consideration" is 15% or more below the fair market value of the property.
Chapter XX-C gives the Income-Tax Department statutory right of purchase
of immoveable property in respect of which the parties have entered into an
"agreement for transfer" within the meaning of Section 269 UA(a) of the IT
B Act. Section 269 UC 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 48 L (2) of the Income Tax Rules, 1962 lays down that the
C 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 user Section 276 AB.
The tenn "transfer" has been given a wide meaning under Section 269 UA (f).
It was submitted that the purpose behind the insertion of these provisions
is to ensure that each and every transaction concerning "transfer" of
D "immoveable property" (which terms are very widely defined in Section 269
UA(f) and Section 269 UA( d) of the IT Act) comes under the scrutiny of the
Appropriate Authority as only then can there be -a check on proliferation of
uncounted money. It-is stated that this Chapter was introduced in order to
tackle the extremely grave problem of rampant tax evasion and generation of
E black money which is then utilised for acquisition of immoveable properties
at prices which are shown to be far be:low 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
F 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
G with the provisions of Chapter XX-C, that is to say, filing the Section 269 UC
statement within the specified time and obtain the requisited 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
H a Court's order. Conversely, whenever there is an "agreement for transfer" as
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 585

defined under Chapter XX-C, which has been entered into between the parties, A
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 IT Act, Mr. Ganesh referred to a decision of this Court
in C.B. Gautam v. Union ofIndia & Ors., (1993) 199 ITR 530, where this Court
noticed the arguments of the Union of India as : B
" ... 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 to other modes of tax evasion adopted by various
assessees to deprive the Government of its legitimate tax dues. lt was
felt that a lot of tax evasion was involved in transfers of immovable C
properties in urban areas. Reference is made in the affidavit to the
recommendations of the Direct Taxes Inquiry Committee chaired by
the Hon'ble Mr. Justice Wanchoo, retired Chief Justice of India and
known as the Wanchoo Committee. In this interim report in 1970, the
Wanchoo Committee took the view that understatement of prices in D
the sale deeds of the immovable properties was a 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 die 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 provision E
of that Chapter were found inadequate for dealing with the evil of
under valuation 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
F

provisions of Chapter XX-C came into force."

Mr. Ganesh submitted that the settlement agreement dated March 20, G
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:
fooling 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 H
586 SUPREME COURT REPORT~ [I999] 3 S.C.R.

A thereto does not in any manner change its character or effect in law.
In Baldevdas Shiv/al and Anr. v. Filmistan Distributors (India). Pvt.
Ltd & Ors., AIR (I 970) SC 406, this Court was considering whether a consent
decree operates as res judicata. It said that consent decree does not operate
as res judicata as it is merely the record of a contract between the parties to
B 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 I I of the Code of Civil
Procedure left no scope for a contrary view. On this, Mr. Ganesh based an
argument that award was nothing but a contract which contained transfer of
C interest, immoveable property in India by Harendra and Mukesh and, thus,
fall within the scope of Chapter XX-C of the IT Act.

In Ruby Sales and Services (P) Ltd & Anr. v'. State of Maharashtra
& Ors., [I 994] I SCC 531, question before this Court was whether a consent
decree whereunder the title of immoveable property is conveyed expressly
D falls under the definition of"conveyance" under Section 2(g) or "instrument"
under Section 2( l) of the Act or such consent decree falls outside the ambit
and scope of the 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
E 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
F 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
G 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
declare the right of Mukesh to immoveable properties comprised in the packages
H selected by him and also similarly declare the rights of Harendra in respect
' H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.]

of immoveable properties including in the packages allotted to him. Both
587
A
these sets of packages including a large number of immoveable 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 immoveable properti~s was compulsorily required to be registered
under the provisions of the Registration Act, 1908 and if the award was not B
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 & Anr., [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 C
the said unregistered award are to be set aside. Judgment of this Court in
Tehmi Sidhwa & Ors. v. Shiv Banerjee & sons Pvt. Ltd., [1974] 2 SCC 574,
was sought to be distinguished. Section 269 UC of Chapter XX-C prescribes
registration of a transfer unless the requisite NOC obtained. In Lachhman
Dass v. Ram Lal & Anr., [1989] 3 SCC 99, there was dispute between the
brothers respecting certain. piece of land which stood in the name of the D -
appellant. Claim of the respondent was that it was Benami in the name of the
appellant. They set an arbitration 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 it was registered one and as such could not be made
rule of the court. The award which was under the Arbitration Act, 1940 said E
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 immoveable property of the value of over Rs 100/- and as such
required to be registered under the Registration Act. In Mrs. Tehmi P. Sidhwa
& Ors. v. Shiv Benerjee & Sons Pvt. Ltd. & Anr., [1974] 2 SCC 574, the award p
under the Arbitration Act, 1940 directed partition of immovable property of
the value of more than Rs. 1,00,000. The question was ifit requires registration
under Section l 7(l)(b) of the Registration Act. This Court after examining the
award said that if the award related to partition of immoveable property of the
value exceeding Rs. 100, it would require registration but then it to be seen
if the award operated to create rights in immovable property or whether it G
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 l 7(2)(v) and not under Section l 7(l)(b)
of the Registration and would not require registration.
Lastly, it was submitted that if what the High Court in the impugned H
588 SUPREME COURT REPORTS [1999] 3 S.C.R.

A 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
<JS it could 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.
B 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 IT Act h11ve any sound basis. Settlement agreement dated March 20,
C 1990 is not a mere agreement for transfer. As noted above, parties have vast
businesses and properties both in India and in the USA. Settlement agreement
was between (1) Harendra Mehta, his wife Arnita Mehta and he himself as
Karta of Harendra Mehta HUF; (2) Mukesh Mehta, his wife Daksha Mehta
and he himself as Karta of Mukesh Mehta HUF; (3) Mettaco Enterprises
Trust; and (4) A.D. Developments Ltd., a New York Corporation having its
D 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
E 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
F closing comments, the firm of Skadden, Arps, Slate, Meaghr & Flom
or if they refuse the firm of Simpson, Thacher & 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 of assistance in preparation of the Transfer
and closing documents shall be shared equally between the parties.
G 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 & Company with respect to the transfer
and closing documents of Indian Businesses and properties will be
H final and binding on the parties."
' H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.]

This clause also provided as to how the documents would be executed if any
589

A
party refuses to execute the aforesaid transfer and closing documents. Then
there are various terms regarding continuances of their obligations under the
businesses and properties even though there is separation and division of
assets between two different groups. Settlement agreement also stipulates
certain rights of one party with respect to the assests falling to the share of B
the other. All these clauses are not to be read in isolation and they fonn part
of one composite agreement. It is not necessary to detail various clauses of
the settlement agreement. It will, however, be interesting to note some part
of the proceedings under CPLR 7507 before Judge Ralph Diamond on March
20, 1990 Mr. Sciacca represented Harendra while Mr. Ravi Khanna represented
Mukesh. Anita Mehta appeared for herself and as attorney to her husband C
Harendra Mehta :

"THE COURT: It is my understanding that the agreement as well as
the plan that has been selected will all be included as part of the
arbitrator's award.
D
MR. SCIACCA : Correct. '

MR. KHANNA: Correct.

LAUT MEHTA (Arbitrator) : Jt is the further understanding of
the arbitrator that two plans of settlement have been, pursuant to said E
agreement, proposed by Harendra and presented to Mukesh for
acceptance of one of the plans.

I now address Mukesh Mehta and ask ifhe has had an opportunity
to review the plan and make a selection.

MUKESH MEH'fA : Yes, I have selected the India Plan which is
F
B combined with, I believe, A-I, which is the second half of the B
plan.

The B plan is the Indian package which enumerates the various
assets including Mettaco Engineering, Mettaco Cold rolling Private G
Limited, Mettaco Allpys Private Limited, Mettaco Rolling Industries;
Mettaco International, Mettaco Corporation, Progressive Sales Private
Limited, Mettaco Enterprises Trust, Daksh Holding and Trading Private
Limited, Amish Holding and Trading Private Limited, Shaanamish
Holding and Trading Private Limited, H.H. Associates, Amish
Associates, D.M. Associates, an apartment in Urvach Building. H

-1
590 SUPREME COURT REPORTS [1999] 3 S.C.R.

A LALIT MEHTA (Arbitrator): That is on Nepenacy Road in Bombay.
That is the Petit Hall Apartment.

MR. SCIACCA : Don't read it. We will sign it.

MR. KHANNA : The Indian Plan B is three pages. It is in
B conjunction with another plan.

MUKESH MEHTA : I have to take A 1 with B.

MR. KHANNA : That is two pages.

MUKESH MEHTA : Plan B along with Plan A 1. That is how
C the pages are prepared.

MR. KHANNA : That's it.

THE COURT: Is there any problem? My understanding is there
are two plans. Each plan has two parts. And the two parts you are
D talking about is part of that one plan.

MR. KHANNA : That is how th~ agreement is made out. Anyone
picking the India Plan will pick out Plan A 1.

LALIT MEHTA (Arbitrator): There is no objection.

E MR. SCIACCA : That is right.

LALIT MEHTA (Arbitrator) Therefore, that plan is what
· number? Let the lawyer see it.

MR. SCIACCA : Plan A and Plan Bl.
F Let Mukesh Mehta sign A I and Plan B. •

(Mukesh Mehta signed Agreement.)

LALIT MEHTA (Arbitrator): l\isly I request that each side check
each and every page.
G
MUKESH MEHTA: Should we initial each page?

LALIT MEHTA (Arbitrator) : Yes.
....
...

(Each page initiated.)

H THE COURT : May I suggest the following : when the arbitrator's
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, J.] 591

award is complete it's going to include a number of exhibits. A
Exhibit A will be the agreement itself.

Exhibit B will be the plan selected by Mukesh and Daksh.

Let's have the reporter so mark it so their will be no question as to
what we are referring to. B
(Settlement Agreement marked as Exhibit 'A' for identification.)

Plan B and Plan Al marked as Exhibit B for identification)

. MR. SCIACCA : Just to be clear, the plan that Mukesh has C
chosen is Exhibit B to this stipulation and arbitration proceeding.

Plan B which is the Indian Package and Plan A I which is the' United
States note.

MR. KHANNA: Plan Bis 3 pages and Al is two pages. Therefore, D
Exhibit B is 5 pages in all. Each of which have been either initiated
or signed by Mukesh.

MR. SCIACCA : Attorneys for both side have initiated Exhibit B
immediately beneath the Exhibit mark.

THE COURT : Regarding Exhibit C, which is being made a part of
E
the arbitrator award, that is regarding Harendra Mehta which properties
will be going to Harendra or Plan A, the United States package, and
B-1, the Indian note, which we are collectively marking at this
proceeding as Exhibit C. The United States Package is four pages and
the Indian Note is four pages. There is a total of eight pages in Exhibit F
c.
...__
(Plan A and Plan B-1, the Indian Note, marked as Exhibit C for
Identification.)

MR. KHANNA Each of these pages have been initialed by G
Arnita Mehta and the attorneys immediately below the Exhibit mark.

THE COURT : I would also like the reporter to maker as Exhibit
D, the Power of Attorney, going from Harendra to Arnita.

(Power of Attorney marked as Exhibit 'D' for identification.) H
592 SUPREME COURT REPORTS [1999] 3 S.C.R.

A THE COURT : Regarding transfer documents, it is my understanding
and the arbitrators understanding, that an agreement has been made
regarding these transfer documents.

MR. SCIACCA : Correct, that is provided for in a transfer
agreement.
B
THE COURT : According to the original submission, the arbitrator
had a twofold function.

One was to make the award.

And two was to implement that award ..."
c Again .a mere look at the agreement shows that it is not an agreement
for transfer as understood in clause (a) of Section 269 UA of Chapter XX-
C of the IT Act. The settlement agreement also does not stipulate exchange
of any immoveable property. It rather divides equally businesses and properties
between Harendra and Mukesh. "Exchange" has been defined under Section
D 118 of the Transfer of Property Act where two persons mutually transfer the
ownership of one thing for ownership of another. When we consider exchange
of immoveable property falling within the definition of 'exchange' in Section
118 both the properties would situated in India. Agreement for transfer refers
to immoveable property which is defined in clause (d) of Section 269UA. It
E is difficult to appreciate the arguments of Mr. Ganesh as to how in the present
case, there is transfer of any immoveable 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+Al 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
F , compel 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 IT Act. Moreover, in our view in the
case of a foreign award, provisions of Chapter XX-C of the IT Act are not
attracted. It was said that under Chapter XX-C a net has been thrown wide
G to bring within its purview all sorts of immoveable properties but that net is
not wide enough to cover foreign award covering businesses and properties
both in India and in a foreign country. 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
H immoveable property. If that is so, legislature can always stop in to block the
H.H. MEHTA v. M.H. MEHTA [D.P. WADHWA, .T.] 593

gap if it finds there is any escapement of ievenue. We are also of the view A
that a foreign award under the Foreign Award 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) B
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 immoveable 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.
c
Let us examine this argument of Mr. Ganesh that foreign award required
registration from another angle. He said that the foreign award has already
merged in the foreign judgment on the basis of which Mukesh has brought
suit in the Bombay High Court. A foreign judgment does not require registration
as the process of suit. having been decreed on that basis will have to be gone
through. When a decree is passed by the Court, it does not require registration D
in view of clause (vi) of sub-section (2) of Section 17 of the Registration Act.
A decree or order of a court affecting the rights mentioned in Section 17(1 )(b)
and (c) would not require registration. It would, however, require regis~ration
where the decree or order on the basis of compromise affects the immoveable
property other than that which is the subject matter of the suit or proceeding. E
Even a decree passed by the foreign court execution of which is sought under
Section 44A of the Code of Civil Procedure would not require registration.
That being the position, we are of the view that foreign award under the
provisions of the Foreign Awards Act does not require registration under the
Registration Act. In any case, in the present case the award creates a right
to obtain transfer and closing documents which as regards Indian properties F
and businesses are yet to be executed by D.M: Harish & Co., Chartered
Accountants. Decision of this Court in Mrs. Tehmi P. Sidhwa, case [1974] 2
SCC 579, as rightly pointed by Mr. Dholakia, learned counsel appearing for
the respondents, would be fully applicable and the argument that the award
required registration has to be rejected on this ground as well. G
After having examined all the contentions raised by the appellants, we
find no ground to interfere in the impugned judgment of the High Court.
Appeal is accordingly dismissed with costs.

R.A. Appeal dismissed.