Delhi High Court
M/S Spentex Industries Ltd vs Mr O.P. Lohia on 10 September, 2009
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ A.A. 178/2009
% Date of decision:10.09.2009
M/S SPENTEX INDUSTRIES LTD ....Petitioner
Through: Mr.Sudhir Pandey, Advocate
Versus
MR O.P. LOHIA ... Respondent
Through: Mr. Rajiv Nayyar, Sr. Advocate with
Mr. Ajit Warrier, Advocate.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? Yes
2. To be referred to the reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. The petition under Section 11(4) of the Arbitration Act, 1996 is preferred with respect to a Share Purchase Agreement dated 17th February, 2006. The counsel for the sole respondent appeared on the very first date when the petition came up for admission and sought time to file reply. Reply is shown to have been filed on 2nd September, 2009. The counsel for the petitioner today sought time to file rejoinder. However, considering the nature of the proceedings and a defect found in the petition, the request for time has been declined.
2. The Share Purchase Agreement dated 17th February, 2006 (supra) is between the petitioner on the one hand and "the persons as detailed in Annexure-I, each of them acting through their duly constituted attorney Mr Om Prakash Lohia" collectively referred to A.A.178/2009 Page 1 of 8 as "Sellers" on the other hand. Anexure-I to the Agreement gives particulars of 11 persons as sellers, including Mr Om Prakash Lohia.
3. The petitioner has impleaded Mr Om Prakash Lohia only as the respondent to the present petition. The Arbitration clause in the said agreement is for reference of the matter to arbitration with the arbitration panel consisting of three arbitrators; one to be appointed by each of the parties and the third arbitrator to be nominated by the two arbitrators so appointed.
4. The petition has been preferred stating that arbitrable disputes having arisen, the petitioner issued notice to the respondent i.e., to Mr Om Prakash Lohia only, nominating its arbitrator and calling upon the said Mr Lohia to appoint an arbitrator from his side within 30 days and the said Mr. Om Prakash Lohia failed to appoint the arbitrator.
5. This court is of the opinion that once the agreement of the petitioner was with 11 persons, this petition impleading one only of the said 11 persons is misconceived, even if the other 10 persons had executed the said agreement through the said Mr Om Prakash Lohia. Thus it was felt that no purpose would be served in adjourning the matter and the counsel for the petitioner was asked to explain. It may also be stated that the respondent also in the reply filed by him has inter alia taken a plea that the petition is bad for non-joinder of necessary parties and liable to be dismissed. The respondent has also filed an application IA.No.9268/2009 under Order 1 Rule 9 and Order 7 Rule 11 of the CPC which has also come up before this court today for the first time for the reason of non-joinder of necessary parties. The counsel for the petitioner has of course contended that advance copy of the application was not furnished to him; though A.A.178/2009 Page 2 of 8 from the index of the said application on record the advance copy of the same is shown to have been served on the counsel for the petitioner on 23rd July, 2009 itself.
6. The counsel for the petitioner while not disputing that the agreement of the petitioner was with 11 persons and not with the respondent alone, first contended that he be given an opportunity to implead the others as a party to the present petition. However, it was informed that the same was not possible since the defect was not only of the non-joinder in this petition of all the parties to the agreement containing an arbitration clause but also of the petitioner not issuing the notice required to be issued under Section 11(4) (a) of the Act to the other parties to the agreement besides the respondent.
7. The counsel for the petitioner next contended that if the petitioner was required to issue notice to all the 11 persons, each of them may appoint an arbitrator of his own making the arbitration process inconvenient and impracticable. However, the said contention of the counsel for the petitioner is not only untenable but even otherwise contrary to the agreement. It is untenable because if that be the agreement between the parties, the petitioner can act only in consonance therewith and cannot unilaterally change the agreement of arbitration for the reason of the same being impracticable. The aforesaid contention of the counsel for the petitioner is contrary to the agreement because, as pointed out by the senior counsel for the respondent, "parties" is defined in Article 1.1 of the agreement as meaning the Purchaser and the Sellers collectively. The senior counsel for the respondent has contended that in the light of the said definition of "parties", the arbitration A.A.178/2009 Page 3 of 8 clause is to be read as entitling the petitioner as purchaser to appoint one arbitration and all the 11 persons described as sellers in the agreement to together/collectively the other arbitrator and the said two arbitrators appointing the third arbitrator. That is the correct meaning/interpretation of the agreement and the argument made by the counsel for the petitioner for not giving notice for appointment of arbitrator to all the 11 persons appears to be specious and an afterthought.
8. It is also felt by this court that once the agreement is for 11 sellers to jointly/collectively appoint an arbitrator, the notice calling upon only one of them to appoint the arbitrator or impleading one person only as party to this petition is not permissible in law.
9. The counsel for the petitioner next contended that the respondent Mr. Om Prakash Lohia was the attorney of all the other sellers in the agreement. However, that would also not change the position. Even if the respondent was the attorney of all the others, the same would not entitle the petitioner to institute this petition against the respondent only. Merely because a party has appointed another as the attorney does not permit the attorney alone to be sued or impleaded as a party and the party to the agreement remains a necessary party in his or her name for the purposes of the court proceedings and these proceedings. Section 230 of the Contract Act, in the absence of a contract to the contrary, provides that an agent is not personally bound by he contract made on behalf of the Principal. The arbitration clause while providing for one arbitrator to be appointed by the sellers i.e. all of them collectively, does not say "acting through Mr. O.P. Lohia". Thus, there is no agreement to be contrary in the present case, i.e. by the Principals authorizing the A.A.178/2009 Page 4 of 8 agent to appoint arbitrator on their behalf, in which case it could perhaps have been urged that since Mr. O.P. Lohia was empowered in the agreement itself to appoint arbitrator not only for himself but for other sellers also, notice to him alone or petition against him alone is maintainable.
10. It may also be noticed that the notice under Section 11(4) of the Act issued by the petitioner to the respondent alone also, has not been served on the respondent in his capacity as the attorney of all the other sellers. Neither is there any averment in the petition that the respondent is being sued in this proceedings on behalf of any other person.
11. It was also enquired from the counsel for the petitioner whether the respondent under the power of attorney under which he had executed the agreement, was entitled to be the attorney of the others in relation to these proceedings. The counsel for the petitioner stated that the power of attorney had not been filed in this court. The senior counsel for the respondent however handed over in the court a photocopy of a power of attorney dated 14th February, 2006 i.e., of a date prior to the date of the agreement dated 17th February, 2006 (supra) executed by other sellers in favour of the respondent Shri Om Prakash Lohia. It is urged that there is no other power of attorney of the others in favour of the respondent than the said power of attorney. A perusal of the said power of attorney shows that the same only authorizes the respondent to effect the sale of the shares subject matter of the agreement dated 17th February, 2006 (supra) and to execute the Share Purchase Agreement and any other agreement in respect of the sale of the said shares and to accept the consideration from the petitioner/purchaser and to hand A.A.178/2009 Page 5 of 8 over the original share certificates and duly executed share transfer deeds to the petitioner/purchaser; the same does not contain any authorization in favour of the respondent to represent the other sellers in the matter of the arbitration proposed.
12. The counsel for the petitioner, in the absence of the counsel for the respondent, at the end of the day, mentioned the matter and drew attention to Article 16.3 of the Agreement which provides for service of notice or other communications pursuant to the agreement, if required to be issued/delivered to the sellers, to be delivered to the respondent. It was contended that the notice dated 24th February, 2009 under Section 11(4) (a) of the Act was issued by the petitioner to the respondent only for this reason. The counsel for the petitioner also drew attention to Article 12.10 of the agreement which provides that no claim shall be made relating to any of the matters covered by warranties meted out by the sellers and as contained in the agreement unless notice has been given of such claim on or before 12 months of the earlier of the appointment date and the closing date. It was contended that the petitioner acting on Article 16.3 has given a notice under Article 12.10 to the respondent Mr. Om Prakash Lohia only and if this court were to hold that the notice was required to be given to all the sellers, the claims of the petitioner against the others sellers, covered by the warranties may be barred inasmuch as the period of 12 months mentioned therein for giving the notice has expired.
13. The aforesaid argument of the counsel for the petitioner also does not persuade me otherwise. The notice required to be given under Article 12.10 is entirely different from the procedure required to be followed under Section 11(4) (a) of the Act. Section 11(4) of A.A.178/2009 Page 6 of 8 the Act provides that if a party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party, the party giving the notice shall thereafter be entitled to approach this court under Section 11(4) of the Act. If the petitioner has given the notice under Article 12.10 to the sellers in accordance with the agreement within the time in which the said notice was required to be given, then the same will remain unaffected by the procedure, the petitioner is required to follow under Section 11(4)(a) of the Act.
14. I may also notice that even where the parties have in the matter of arbitration agreement acted through an attorney, the notice under Section 11(4)(a) is required to be given to the party only unless in the agreement itself it is provided that the notice of arbitration may be given to the attorney.
15. The senior counsel for the respondent had also drawn attention to Article 12.1 of the agreement whereunder each of the sellers has indemnified the petitioner/purchaser against the losses resulting from any breach of warranty and also permitting the claims against particular sellers in this regard. It was argued that thus the liability of each seller of shares to the petitioner was distinct and not joint, to enable the petitioner to deal with the respondent Om Prakash Lohia only in the matter of arbitration.
16. In my opinion, the rights, if any, of the petitioner under Section 12.10 shall remain unaffected by the petitioner being required to give notice for appointment of the arbitrator to each of the sellers, since it is not shown that they had given any authority to the respondent Mr Om Prakash Lohia in this regard. Similarly the petition, if any required to be filed, will have to be against each of A.A.178/2009 Page 7 of 8 the sellers.
17. The petition is therefore found to be misconceived and is dismissed. No order as to costs.
RAJIV SAHAI ENDLAW (JUDGE) September 10, 2009 M A.A.178/2009 Page 8 of 8