Family Settlement Dispute Threatens Hamdard Tax Exemption; Delhi High Court Refuses Independent Auditor Appointment and Directs Parties to Seek Relief Before Existing Arbitral Tribunal Instead
Can Execution Court Appoint Independent Auditor During Pending Family Arbitration? Delhi High Court Directs Hamdard Trustee to Seek Relief Before Arbitral Tribunal
Facts
The dispute arose in execution proceedings instituted by Hammad Ahmed, the decree holder, against Abdul Majeed and others, concerning implementation of a Family Settlement Deed relating to Hamdard entities. The application sought, among other things, a declaration that the appointment of Ellahi Goyal & Co. as statutory auditor of Hamdard Laboratories India (HLI) was illegal and requested appointment of an independent auditor. HAMMAD AHMED
The independent auditor was sought for completing statutory compliances, preparing consolidated balance sheets, conducting the statutory audit, filing income-tax returns and preparing a corrected Form 10AB. HAMMAD AHMED
The parties had entered into a Family Settlement Deed (FSD), which was made part of a consent decree dated 13 December 2019. Under the arrangement, Hamdard’s affairs were to be managed through two separate charitable trusts: Hamdard Laboratories (Trust) (HLT) and Hamdard Foods India (HFI). HLT was to exclusively manage the medicines, pharmaceuticals, drugs and cosmetics business, while HFI was to manage the food products business. HAMMAD AHMED
HLI enjoyed tax-exempt status. Its registration was valid until 31 March 2026, and Form 10AB for renewal was required to be filed. The decree holder alleged that Judgment Debtors 1 and 2 unilaterally filed Form 10AB without proper participation or consultation. HAMMAD AHMED
The Income Tax authorities subsequently found issues with the filing. The earlier Form 10AB was rejected on 30 March 2026 with liberty to refile, and the ITAT dismissed the challenge on 20 July 2026. Another Form 10AB had been filed on 31 March 2026, to which the decree holder objected. HAMMAD AHMED
The dispute was closely connected with whether various properties of HLI had actually been segregated or vested pursuant to the Family Settlement.
Issues
The principal questions were:
- Whether the execution court should declare the appointment of the existing statutory auditor illegal and appoint an independent/neutral auditor.
- Whether the filing of Form 10AB and the alleged discrepancies concerning HLI properties required immediate intervention to protect HLI’s tax exemption.
- Whether these issues were independently enforceable under the consent decree or were intrinsically connected with disputes under the FSD already pending before an arbitral tribunal.
- Whether the decree holder should instead seek interim relief under Section 17 of the Arbitration and Conciliation Act, 1996.
Decree Holder’s Arguments
Hammad Ahmed argued that Judgment Debtors 1 and 2 had been cooperating in filing audit reports but excluded him when filing Form 10AB, thereby potentially jeopardising HLI’s tax exemption contrary to the Family Settlement. HAMMAD AHMED
According to him, two unilateral actions required intervention: first, the filing of Form 10AB without his consent; and second, the appointment of the statutory auditor without consulting him.
He argued that earlier financial statements had been jointly signed, demonstrating that the parties understood the FSD as requiring cooperation in these matters. HAMMAD AHMED
The decree holder further alleged discrepancies concerning properties mentioned in Form 10AB and sought appointment of an independent auditor who could examine the financial records of both sides and file an appropriate Form 10AB after consultation. HAMMAD AHMED
Judgment Debtors’ Arguments
Judgment Debtors 1 and 2 disputed the alleged urgency. They distinguished Form 10B, concerning the audit report, from Form 10AB, concerning tax-exemption registration, arguing that Form 10AB had already been filed. HAMMAD AHMED
They further contended that Clauses 6 and 18 of the Family Settlement did not contain executable directions of the nature asserted by the decree holder.
Most importantly, they argued that disputes concerning segregation and vesting of properties were already before an arbitrator and that the controversy surrounding Form 10AB was directly connected with those same issues. Therefore, the decree holder should approach the arbitral tribunal. HAMMAD AHMED
Analysis of the Law
1. No Urgency Regarding Form 10AB
The Court first rejected the decree holder’s contention that urgent intervention was required regarding Form 10AB.
It noted that Form 10AB relates to extension of HLI’s tax exemption and is required periodically. Since HLI had already filed Form 10AB on 30 September 2025, the Court found no urgency justifying immediate directions in the execution application. HAMMAD AHMED
2. Property Segregation Was the Real Dispute
The Court found that the controversy surrounding Form 10AB was fundamentally connected with the description and segregation of properties under the Family Settlement.
The decree holder claimed that properties had already been segregated or hived off. Judgment Debtors 1 and 2 disputed this and maintained that legal segregation through the relevant registration documents had not occurred.
The Court therefore considered the property dispute to be central to the entire controversy. HAMMAD AHMED
Notably, the Income Tax Department’s notice recorded that several properties included in Form 10AB were alleged not to belong to HLI and to have been erroneously included. These included properties in Delhi, Aurangabad, Manesar and Patna. HAMMAD AHMED
3. Family Settlement Disputes Were Already Before an Arbitrator
This became decisive.
Earlier proceedings under Section 9 of the Arbitration Act had resulted in disputes under the FSD being referred, with consent, to the arbitration of Justice Badar Durrez Ahmed (Retd.). The parties were expressly permitted to make claims under the FSD and seek interim directions under Section 17. HAMMAD AHMED
A subsequent order had also recognised that disputes concerning implementation of the FSD were already pending before the sole arbitrator and that the tribunal was capable of granting the interim relief sought. HAMMAD AHMED
4. Arbitration Clause Covered the Present Controversy
The Court noted that Clause 45 of the FSD contained the arbitration agreement.
Since the Form 10AB controversy and the decree holder’s objections were intrinsically intertwined with segregation of properties—some of which were admittedly already the subject matter of arbitration—the Court held that the relief sought was appropriately referable to arbitration. HAMMAD AHMED
This is the central legal takeaway from the order: a party cannot isolate one manifestation of an underlying Family Settlement dispute and seek parallel relief before the execution court when the substantive implementation dispute is already before the agreed arbitral forum.
5. Independent Auditor Not Appointed at the Eleventh Hour
The Court also considered the practical consequences.
Even assuming there was a statutory filing deadline of 30 September 2026, appointing an entirely new independent chartered accountant at the last moment could itself prove disruptive or harmful to both sides.
Accordingly, the Court declined to pass interim directions appointing a new auditor. HAMMAD AHMED
Precedent Analysis
The decree holder relied upon Rajesh Sanei v. Ravi Sanei, Ravi Sanei v. Rajesh Sanei and M/s Sky One Corporate Park LLP v. Shobha Rasiklal Dhariwal in support of maintainability of the execution proceedings. HAMMAD AHMED
Judgment Debtors 1 and 2 relied upon Atul Chopra v. Technotree Corporation, Ashutosh Infra Pvt. Ltd. v. Pebble Downtown India, Asma Lateef v. Shabbir Ahmad and Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd. HAMMAD AHMED
However, the Court expressly stated that because it had concluded that the controversy should be referred to arbitration, it was unnecessary to examine these authorities in extenso. HAMMAD AHMED
Court’s Reasoning
The Court essentially found that the auditor/Form 10AB controversy could not be separated from the larger dispute over implementation of the Family Settlement.
The alleged errors in Form 10AB themselves arose from disagreement over whether specific HLI properties had already been segregated and vested under the FSD.
That very question was already before an arbitral tribunal pursuant to the FSD’s arbitration clause.
Consequently, instead of appointing an independent statutory auditor or deciding the underlying property controversy in execution proceedings, the High Court permitted Hammad Ahmed to seek the appropriate interim or substantive directions from the existing arbitral tribunal. HAMMAD AHMED
Importantly, the Court did not decide whether the consent decree or particular clauses of the FSD were executable. Those objections were expressly left open for determination at an appropriate later stage. HAMMAD AHMED
Conclusion
The application seeking appointment of an independent/neutral statutory auditor and related directions was disposed of without granting the requested relief.
Instead, Hammad Ahmed was permitted to approach the existing arbitral tribunal for appropriate interim or other directions. The tribunal was expressly left free to determine any such application independently on its merits and without being influenced by observations in the High Court’s order. HAMMAD AHMED
The execution petition itself was directed to be listed on 2 December 2026. HAMMAD AHMED
Case Details
Case: Hammad Ahmed v. Abdul Majeed & Ors.
Court: High Court of Delhi at New Delhi
Case No.: EX.P. 66/2025 with connected execution applications
CNR No.: DLHC010483132025 HAMMAD AHMED
Judge: Justice Tushar Rao Gedela HAMMAD AHMED
Reserved: 28 September 2026
Delivered: 29 September 2026 HAMMAD AHMED
Result: Application disposed of; no independent auditor appointed. Decree holder permitted to seek appropriate relief before the existing arbitral tribunal. Questions concerning executability of the consent decree/FSD clauses left open
