Calcutta High Court
Niranjan Lal Todi & Another vs Nandlal Todi & Others on 10 September, 2010
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
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GA No. 1756 of 2010
GA No. 1596 of 2010
CS No. 121 of 2010
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
NIRANJAN LAL TODI & ANOTHER
-Versus-
NANDLAL TODI & OTHERS
For Defendant Nos. 1 & 2: Mr Jayanta Kumar Mitra, Sr Adv.,
Mr Reetabrata Mitra, Adv.,
Mr Manik Das, Adv.
For the Plaintiffs: Mr S.N. Mookerjee, Sr Adv.,
Mr R.R. Sen, Adv.,
Mr Joy Saha, Adv.,
Mr S. Choudhury, Adv.
For Defendant Nos. 3, 4 & 7: Mr Jishnu Chowdhury, Adv.,
Ms Debamitra Adhikari, Adv.
For Defendant Nos. 5 & 6: Mr Anirban Roy, Adv.,
Mr Subhankar Chakraborty, Adv.
For Defendant Nos. 8 to 10: Mr Ratnanko Banerji, Adv.,
Mr Tarun Aich, Adv.,
For the Defendant Nos. 11
to 16, 17 to 20, 21, 23 to 27,
29 to 32, 34 to 46,48, 50,
77 to 83: Mr Samit Talukdar, Sr. Adv.,
Mr Ranjan Bachawat, Adv.,
Mr Debangshu Basak, Adv.,
Mr Koushik Chowdhury, Adv.,
Mr Vivek Jhunjhunwala, Adv.
For Defendant Nos. 47 & 49: Mr Ranjan Deb, Sr. Adv.,
Mr Sabyasachi Chowdhury, Adv.,
Ms Sudeshna Bagchi, Adv.,
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Ms Debarathi Dutta, Adv.
For Defendant Nos. 51 to 76: Mr Manik Das, Adv.,
For the Defendant No. 84: Mr Samrat Sen, Adv.
Hearing concluded on: September 6, 2010.
BEFORE
The Hon'ble Justice
SANJIB BANERJEE
Date: September 10, 2010.
SANJIB BANERJEE, J. : -
The suit is in the nature of partition. The first plaintiff and the first,
seventh and eleventh defendants are brothers. In all, the plaintiffs claim reliefs
under 30 heads spread over nine pages of the 111-page plaint in the suit
instituted with leave under clause 12 of the Letters Parent and under Order II
Rule 2 of the Code of Civil Procedure. The cause title runs into 21 pages. The
second plaintiff is the son of the first plaintiff. The second to the tenth defendants
belong to the first defendant's branch; the twelfth to the sixteenth defendants are
in the eleventh defendant's branch; and, the eighteenth to the twentieth
defendants are in the seventeenth defendant's branch. The remaining defendants
are mostly companies except three of them which are partnership firms. The
plaintiffs claim such companies and firms to be part of the family business of the
Todis and treat such business entities and their assets as part the joint family
properties.
GA No. 1596 of 2010 is the plaintiffs' interlocutory application in aid of the
reliefs claimed in the suit. GA No. 1756 of 2010 is the first defendant's
application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking
a reference of the disputes to arbitration. There is an anomalous second prayer in
the first defendant's application to the effect that the four brothers be directed to
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proceed with the ongoing arbitration before a sole arbitrator, but such prayer
may be seen as the general understanding of the Todi brothers that
notwithstanding the ostensible independent identity of the family companies and
firms, such companies and firms and the assets that are in their names are part
of the joint properties.
The application under Section 8 of the 1996 Act was heard out and
judgment reserved on August 5, 2010 after all the then appearing parties had
concluded their submission. It was thereafter discovered that a number of the
parties may not have been served since the affidavit-of-service was not on record.
The application was then directed to appear on August 9, 2010 and the first
defendant was called upon to produce the affidavit-of-service. No affidavit-of-
service was forthcoming. Service was directed to be effected on all the parties so
that the views of the parties could be obtained as to whether they supported or
opposed the first defendant's prayer for reference of the disputes in the suit to
arbitration. It was only on August 27, 2010 that a satisfactory report as to service
could be placed by the first defendant. The order of such date recorded that only
the plaintiffs and the 84th defendant appeared to oppose the application for
reference. The 84th defendant claimed that it had no previous notice of the
application and sought directions for filing its affidavit. All the defendants, save
the defendant nos. 22, 28 and 33, have been represented. The three non-
appearing defendants were served but chose not to appear. The 47th and 49th
defendants have submitted that such companies have no connection with the
Todi family and there are no Todi shareholders in their registers of members.
They suggest that they are neither proper parties to the suit nor can the Todis
claim anything against such companies or their assets. Such position has not
been seriously disputed by the individual Todis or the Todi concerns which are
represented.
It is the application under Section 8 of the 1996 Act that has to be taken
up first, for if such application succeeds the plaintiffs' interlocutory application
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would become meaningless. To appreciate the circumstances in which the first
defendant, supported by the overwhelming majority of the other defendants,
maintains that the disputes in the suit are liable to be referred to arbitration, it is
the plaintiffs' claim that has first to be seen. The following case has been made
out in the plaint:
a. The four Todi brothers who are parties herein are sons of Brijlal Todi,
deceased. Brijlal and his father Ganesh Narayan settled in erstwhile East
Bengal in 1940. Brijlal's younger brother Ramdhan had separated from the
family. Brijlal's father died in 1944 and Brijlal became the karta of the joint
family governed by the Mitakshara School of Hindu law. The family, under
Brijlal, carried on business of manufacturing glass and enamel and also
delved in rice trading. In 1951 the family moved to India and settled in
Calcutta.
b. The family purchased a residential house in Ezra Street. By the time
Brijlal died in 1965, the family had a sizable business spread over divers
areas. When Brijlal died, the first defendant was aged 35, the eleventh
defendant was aged 20, the first plaintiff was 19 and the seventeenth
defendant was 17. The family continued to remain joint and the first
defendant came to be the karta thereof.
c. In course of time the family business burgeoned and spread to Delhi.
By 1974 the family shifted to the more posh Ballygunge area at premises
no. 2, Queens Park comprising land measuring about 24 cottah where a
three-storeyed house was constructed. The first defendant's branch
occupied the entirety of the second floor at the Queens Park residence and
the first plaintiff and the eleventh defendant shared the first floor. The
ground floor had the family living rooms, dining rooms, kitchen and store.
The seventeenth defendant looked after the Delhi business of the family.
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d. By 1980 the family acquired a property at New Friends Colony in
New Delhi where the seventeenth defendant resided with the members of
his immediate family.
e. The family business expanded in the fields of real estate, financing,
leasing and hire purchase. The plaintiffs claim that the first defendant, as
the eldest, decided how the businesses would be run and organized; and
companies and firms were formed or acquired and HUFs, family trusts,
Nidhis and Koshes were set up to hold assets and carry on business in a
tax-efficient manner. The details of the family business entities have been
listed in appendices to the plaint.
f. The plaintiffs claim that the shareholding in the family companies
and firms and the members of the other entities were decided upon by the
first defendant karta but these were always for the benefit of the members
of the Todi family and notwithstanding the ostensible owners of the
immovable properties, whether in individual names of the members of the
family or in the names of family companies, firms or other entities, the four
branches were entitled to equal share in the family business, profits and
assets.
g. The plaintiffs suggest that it was upon the death of Brijlal's widow in
1987 that the first defendant changed colours and appeared to confer
undue benefits on his eldest son to promote such son as the next family
supremo ahead of the other brothers of the first defendant. At the first
plaintiff's request, the first defendant apparently agreed to partition the
assets and business of the family but insisted that the three other brothers
would take equally and the first defendant would take twice the share in
the family assets and business as allotted to each of the other brothers.
The plaintiffs claim that though the other brothers found the suggestion
disagreeable, they were constrained to accept the same since the first
defendant was in complete control of the assets and business.
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h. A memorandum of understanding was executed by the four brothers
on November 1, 1989 on the basis of a networth statement said to have
been prepared by the first defendant but retained by him. The plaintiffs say
that the plaintiffs received a copy of the MOU of November 1, 1989 only in
the year 2006. The MOU provided for division of the assets and business as
at September 30, 1988 and as disclosed by the first defendant. Such MOU,
according to the plaintiffs, remained unimplemented and the joint family
was not disrupted. The three Calcutta brothers separated only in mess but
remained joint in residence and worship. The plaintiffs suggest that though
the two other Calcutta brothers were allowed to manage some of the HUFs,
trusts, Nidhis and Koshes independently to permit them to take care of
their individual needs, the overall control and management of the family
companies and business continued to be exercised by the first defendant.
i. In September, 1991 the four brothers appointed two close relatives of
the family to implement the MOU but the first defendant did not cooperate
in the exercise. The two relatives gave up the attempted mediation by 1998.
The plaintiffs have furnished particulars in support of their claim that the
control of the concerns allotted to the first plaintiff's branch was retained
by the first defendant though some of the concerns were permitted to be
managed by the first plaintiff. The plaintiffs say that in 2001 the first
plaintiff caused the undivided 1/6th share of the Queens Park property
standing in his name to be transferred to the defendant no. 84, "which is
under the control of the daughter of plaintiff no. 1."
j. Several pages in the plaint have been expended to demonstrate that
the MOU had not been implemented. The plaintiffs have also referred to
several correspondence, which the plaintiffs claim to have discovered only
in October, 2009, that would evidence that the first defendant had impeded
in the implementation of the MOU. The plaintiffs claim that the first
defendant's failure to circulate the statement of networth of the family
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assets was the major roadblock in the working out of the MOU. They say
that the first defendant won over the eleventh defendant and, after 1989,
the family continued to acquire or form new assets and companies and
promote business from out of the nucleus or corpus of the joint family
assets. They say that the shares in the companies subsequently acquired
or promoted were allotted to or kept in the names of such members of the
Todi family or concerns that the first defendant, with the active support of
the eleventh defendant, determined.
k. The plaintiffs state that after repeated requests, the first defendant
agreed in 2004 to a partition to be brought about through the arbitration of
his nominee. The plaintiffs suggest that the two other brothers supported
the first defendant's stand and it was in such circumstances, under
economic duress, that the plaintiffs signed an arbitration agreement on
January 31, 2004 where a solicitor was named as the arbitrator.
l. The plaintiffs claim of the irregular and unusual procedure adopted
by the arbitrator. They complain that the networth statement was not
supplied to them nor were they permitted to inspect the original MOU.
They contend that several assets of the family had been kept out of the
MOU of 1989 and the subsequent assets and business ventures acquired
out of the family corpus were not included for partition and distribution.
The plaintiffs have referred to several properties and some business
ventures in such regard. They say that some of the valuable assets which
were come to the first plaintiff's branch have subsequently been alienated
by the first defendant with the connivance of the eleventh defendant. They
suggest that several companies and firms that had substantial operations
in 1989 had been rendered defunct in the interregnum and insinuate that
the MOU was neither just nor would it now be equitable to allot a meagre
part of the family assets and business to the first plaintiff's branch in
terms of the MOU which does not include the substantial accretion to the
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family business and assets over the twenty years thereafter. They furnish
particulars in furtherance of their contention that the new business
ventures continue with old family employees and share offices with the
other Todi concerns. They say that the members of the branches of the
other three brothers have been shown as shareholders and directors of the
new concerns to the exclusion of the plaintiffs' branch. They suggest that
what ought to have been given to the first plaintiff under the MOU, even if
ultimately given, would be less than the first plaintiff's due even on the
basis of the first plaintiff's acceptance of 20 per cent of the family assets
and business. They cite fraud and deception practiced by the first and
eleventh defendants on them and blame the other brothers of concealing
the family's worth. The plaintiffs say that the arbitration agreement of
January 31, 2004 "is vague and uncertain and incapable of being made
certain;" that the arbitration agreement "has become defunct and ...
infructuous;" and, that the arbitrator has done nothing though he was
required to make the award within a specified time.
m. The plaintiffs instituted a suit in Alipore relating to one of the family
properties and claim that it was only thereafter that the first defendant
goaded the arbitrator into action and there was a flurry of activities in
April-May, 2010.
n. The plaintiffs declare that the total value of the family assets would
be about Rs.800 crore and each branch is entitled to a quarter thereof.
They suggest that partition should be effected such that the value of the
business and assets allotted to each of the four branches is approximately
Rs.200 crore. The plaintiffs complain of forgery and fabrication by the
defendant nos. 1 and 11 in particular and of family funds being siphoned
off.
o. Into the 98th paragraph of the plaint, the plaintiffs say that the MOU
"has become void and ceased to be of any effect." They state that the
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agreement of January 31, 2004 is not effective as the other family members
and family business entities are not parties thereto.
p. The plaintiffs suggest that the daughters of Brijlal Todi have all been
settled out of the family corpus and have no further claim in the family
assets or business. The first relief sought is for a declaration that the
several concerns referred to in schedules B, C, D and E to the plaint are
family concerns of the Todis. The second relief is for a declaration that the
four brothers are entitled to a quarter share each in the family assets and
business. The third relief relates to valuation of all family assets and
business and the preparation of lots thereof. The plaintiffs have thereafter
claimed partition of the family concerns and assets and specifically of two
immovable properties at Queens Park and at Sarat Bose Road. The other
reliefs claimed are ancillary to the aforesaid principal reliefs.
The family settlement that the parties refer to was recorded in the MOU of
November 1, 1989. Not only are the four brothers named in the document, all the
then members of the four branches are mentioned. In fact, six groups of
individuals are indicated in the MOU: the first defendant and his wife make up
the first group; the elder son of the first defendant and the grandchildren of the
first defendant through such elder son are included in the second group; the
younger son of the first defendant and his branch make up the third group; the
defendant no. 11 and his branch comprise the fourth group; the first plaintiff and
his branch including his then minor daughter form the fifth group; and, the
defendant no. 17 and his branch make up the sixth group. The family business
units and properties are also bunched in various other groups: for example, six
companies are indicated in the seventh group; three trusts are included in the
eighth group; five HUFs make up the ninth group, the estate of the widow of
Brijlal is the tenth group. The settlement deals with the properties, business and
other assets of the family including the named companies, partnership firms,
trusts, HUFs and other entities. The document runs into 29 pages and there is a
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14-page corrigendum thereto including a letter of authorisation appointing two
relatives "to guide and implement" the MOU. The letter of authorisation says that
if there is any difference of opinion on any point relating to the MOU in respect of
implementation thereof, the two relatives "will try to get consensus on the
matters of difference." The next three paragraphs of letter of authorisation record
that "other matters agreed between us but ... not specifically mentioned ... will
also be decided by the above persons;" that on matters where no consensus is
arrived at "we authorise them to take a decision which will be final and binding
on us;" and, that the parties "agree that the decision of the above persons will not
be taken by us in any Court of Law." The letter of authorisation which is the last
page of the MOU is signed by the first defendant on behalf of the first three
groups, by the defendant no. 11 on behalf of the fourth group, by the first
plaintiff on behalf of the fifth group and by the defendant no. 7 on behalf of the
sixth group.
One of the clauses, at the 17th page of the MOU, provides that no part
owner of the Queens Park building can sell his portion or his right, title and
interest or give possession thereof to any outsider other than the group members
without the written consent of all the persons forming the first six groups. The
general drift of the MOU is that the first defendant's branch comprising the first
three groups mentioned in the MOU would take 40 per cent of the share in the
family business and assets and the three other branches would take 20 per cent
each.
The agreement of January 31, 2004 is between the four brothers and it is
such document that contains the arbitration agreement. The parties have placed
the entirety of the agreement of January 31, 2004 and, in particular, the
following recitals indicated by Roman numerals and the first ten clauses of the
agreement:
"THIS AGREEMENT made this 31st day of January, Two Thousand
Four BETWEEN (1) SHRI NAND LAL TODI residing at 2, Queen's Park,
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Kolkata-700 019; (2) SHRI SHRAWAN KUMAR TODI residing at 2,
Queen's Park, Kolkata-700 019; (3) SHRI NIRANJAN LAL TODI residing at
2, Queen's Park, Kolkata-700 019; AND (4) SHRI GOVIND PRASAD TODI
residing at C-757, New Friends Colony, New Delhi-110 065, all sons of Late
Brijlal Todi, hereinafter referred to as the party hereto of the First Part,
Second Part, Third Part and Fourth Part respectively;
.........
"V. The said Four Groups are holding properties at various places in Kolkata in the name of one or more members of the said Groups or Companies or Partnership firms or Trusts or Association of Persons etc. VI. In order to preserve family peace and harmony and to resolve the disputes of the said four groups and to avoid future disputes, the said four groups have arrived at a family arrangement in respect of certain businesses and properties.
VII. The said Four Groups have however not been able to agree upon the mode and manner of implementation of the said family arrangement and allotment distribution and vesting of businesses and properties agreed to be shared and allotted amongst themselves;
VIII. The said Four groups have agreed that N.L. Todi Group shall have 40% share and the other Three groups will have 20% each. The parties have also agreed amongst themselves that the cut off date will be 30th September, 1988 and the expression 'Net Worth' shall mean all assets movable or immovable excluding personal jewellery and silver utensils and if any sum is payable by any party to the other the same will carry interest @ 24% per annum.
IX. In order to resolve all disputes and differences and the mode and manner of implementation of the said matters in respect of which the parties have amicably resolved, the parties herein are desirous of referring such disputes and differences and the mode and manner of implementation of the said matters, in respect of which amicable settlement has been arrived at, to the sole arbitration of Shri R.K. Choudhury, Advocate and Senior Partner of Khaitan & Co., Advocates, IB, Old Post Office Street, Kolkata-700 001.
NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:-
1. The parties hereto agreed to refer and hereby referred to the summary arbitration of Shri R.K. Choudhury, Advocate and Senior Partner of Khaitan & Co., Advocates, IB, Old Post Office Street, Kolkata-700 001, 12 all disputes and differences, mode and manner of implementation of matters in respect of which the parties have amicably resolved and all other connected and incidental issues or matters arising out of or in relation thereto.
2. In the matter of valuation of any property, the parties shall be at liberty to urge their respective contentions in regard to mode and manner of such valuation including the question as to how, in what manner and to what extent the claims, liabilities and demands in respect of such valuation and matters under arbitration shall be made.
3. The Arbitrator shall be entitled to determine and finalise the terms and conditions of the mode, manner and time of payment of any sum that may be found due and payable by any group to the other groups in respect of businesses which have been amicably allotted to and divided by and between the four groups.
4. Until the Award or Awards are made and the businesses are fully allotted and the decisions amicably taken by and between the four groups are implemented, no assets of any of the companies, partnership firms, Trusts, AOPs shall be sold, disposed of or encumbered in any manner whatsoever save and except in the ordinary course of business and after obtaining prior consent of the Arbitrator and no party shall make any change in the constitution of any company, partnership or any association of persons which are subject matters of arbitration.
5. The Arbitrator shall have summary powers and shall not be required to give reasons for his Award. The Arbitrators shall be at liberty to dispense with oral evidence. The Arbitrator shall be at liberty to take advice or assistance of Chartered Accountants or Valuers as he may in his entire discretion deem fit. Without prejudice to the generality of the summary powers of the Arbitrator, it is specifically agreed that the Arbitrator shall in particular have powers to decide all questions of law, all questions pertaining to his own jurisdiction based on law or on facts, to award interest pendente lite and/or from the date of the award as also a power to proceed ex-parte, if any of the parties after reasonable notice fails or neglects to appear before the Arbitrator. The Arbitrator shall also have power to give such directions as may be necessary for the due fulfillment and implementation of the Award of the Arbitrator. The Arbitrator shall also have power and authority to give interim awards and issue interim directions.
6. The venue of the arbitration shall be Kolkata, and the courts in Kolkata alone shall have jurisdiction in manners of the arbitration.13
7. The Arbitrator shall make and publish his Award within six months from the date of entering upon the reference under this agreement. The Arbitrator shall have absolute power to extend the said period.
8. All fees, stamp duty, costs, charges and the Capital Gains Tax, if any, for the purpose of implementation of division of the businesses among the Four groups shall be made and borne by the Four groups in the proportion of 40%:20%:20% respectively.
9. The fees and other costs and charges and expenses of the Arbitrator shall be paid by the Four groups in the proportion of 40%:20%:20%:20% respectively.
10. It is hereby agreed that from the date of this agreement, none of the members of each group shall interfere in the management of the said companies, partnership firms, Trusts and AOPs and such businesses shall be continued in the same manner as are being done or carried on as on the date hereto, unless otherwise directed by the Arbitrator."
Though the parties have not emphasised on clause 11 of the agreement, it is of some significance. Such clause envisages that the members of the four branches are also parties to the reference and would be bound by the award that may be made therein. Clause 19 of the agreement stipulates that subject to the contents of the agreement, the arbitration thereunder would be governed by the 1996 Act.
The first defendant says that the purpose of the said agreement is to give effect to the family settlement recorded in the 1989 MOU. The first defendant contends that though it is not necessary to address on the merits of the agreement at the present stage, it would be evident therefrom that the plaintiffs had accepted the fundamental position that the first defendant's branch would be entitled to 40 per cent of the share in the family business and assets and that the cut-off date for the family settlement would be September 30, 1988. The eldest brother says that the eighth recital to the agreement envisages payment of owelty money and interest at a substantial rate. The first defendant says that both a family settlement and an agreement to implement the family settlement have to be regarded with respect by court and the members of the family should 14 be left free to have their disputes resolved in accordance with their agreement. He submits that the present suit would amount to altogether scuttling the family arrangement which the court should not readily permit. He says that the named arbitrator has taken up the reference and there has been substantial progress. The first defendant urges that it would be wholly inappropriate for the first defendant to rely on what matters had already been taken up by the arbitrator since an application under Section 8 of the 1996 Act would only involve a question as to whether there is an arbitration agreement to which the plaintiffs are parties and as to whether such arbitration agreement covers the subject- matter of the suit.
The first defendant has referred to a judgment reported at (2004) 3 SCC 447 (Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd.) and has relied on several passages therefrom. This judgment was on the basis of the Rani Construction judgment [(2002) 2 SCC 388] which has since been overruled by a larger Constitution Bench in S.B.P. & Co. v. Patel Engineering Ltd [(2005) 8 SCC 618]. The first defendant has also relied on the S.B.P. & Co. judgment where the majority view was that the exercise of the authority by a Chief Justice or his designate under Section 11 of the 1996 Act was a judicial function and not an administrative function. The first defendant has placed paragraph 12 of the report where the scope of Section 16 of the 1996 Act has been discussed. The argument made by the first defendant here is that since the reference before arbitrator has commenced without recourse to Section 11 of the 1996 Act, the challenge as to the validity or efficacy of the agreement, including the arbitration clause, has to be made only before the arbitrator. The distinction that the first defendant makes is that when an application under Section 11 is carried to a Chief Justice or his designate, the validity of the arbitration agreement can be tested; but such question will not fall within the scope of an application under Section 8 of the 1996 Act to arrest the suit in view of the mandate on the judicial authority that it "shall ... refer the parties to arbitration." The answer to this question is, as the plaintiffs point out, in paragraph 19 of the report:
15"19. It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the arbitral tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (See Fair Air Engineers (P) Ltd. and another vs. N.K. Modi (1996 (6) SCC 385). When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration. Similarly, Section 9 enables a Court, obviously, as defined in the Act, when approached by a party before the commencement of an arbitral proceeding, to grant interim relief as contemplated by the Section. When a party seeks an interim relief asserting that there was a dispute liable to be arbitrated upon in terms of the Act, and the opposite party disputes the existence of an arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, or that the Court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that Court has necessarily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the Court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, "the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it". Surely, when a matter is entrusted to a Civil Court in the ordinary hierarchy of Courts without anything more, the procedure of that Court would govern the adjudication [See R.M.A.R.A. Adaikappa Chettiar and anr. vs. R. Chandrasekhara Thevar (AIR 1948 P.C. 12)]"
The first defendant has also placed a judgment reported at (2003) 6 SCC 503 (Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums) but such 16 decision was also rendered when Rani Construction held the field and before that view was upset in S.B.P. & Co.
The first defendant says that the plaintiffs cannot be heard now to insist on the continuation of the suit particularly as the first plaintiff has invoked Sections 12 and 16 of the 1996 Act to question the propriety of the arbitrator to take up the reference or continue it and to challenge his jurisdiction. He claims that the dilatory tactics adopted by the plaintiffs have caused the delay in the reference. He refers to the correspondence between advocate representing the first plaintiff and the arbitrator in such regard. The first defendant insists that it is an open and shut case in favour of the reference and against the continuation of the suit.
The appearing parties except the plaintiffs and the 84th defendant support the stand of the first defendant that the subject-matter of the suit and the reliefs sought are capable of being addressed in the reference. Three of the defendants, as noticed above, have chosen not to be represented despite notice and the 47th and 49th defendant companies say that they no longer have any truck with the Todis.
The plaintiffs contend that several of the reliefs claimed would be beyond the authority of the arbitrator. They begin by seeking to demonstrate the narrow scope of the agreement of January 31, 2004. They argue that the fifth recital limits the extent of the reference to such assets and business that were held by the family, at the highest, as on such date and submit that the principal thrust of the suit is to include the subsequent accretion to the family assets and business which are clearly not covered by the agreement. They refer to the sixth recital which records a concluded "family arrangement in respect of certain businesses and properties." They suggest that the seventh and eighth recitals to the agreement would imply that it is only the MOU of 1989 that forms the subject-matter of the reference and the companies, firms and other entities created after the MOU and the businesses and assets acquired subsequently cannot be dealt with in the reference. The plaintiffs claim that even though the 17 ninth recital speaks of "all disputes and differences," it is governed by the expression "which the parties have amicably resolved." The argument is that the arbitration agreement is for the limited purpose of implementing the terms of the MOU and the MOU is regarded as a settlement in respect of only some of the assets and business (in the sixth recital). They say that if the cut-off date is taken as September 1, 1988, the reference contemplated by the agreement cannot be a substitute for the present suit. They refer to reliefs (a) to (d), (k) to (n), (p), (q), (r) and (s) from the plaint and submit that the arbitration cannot be a meaningful platform for resolution of all disputes since the companies and other entities are not parties thereto and, in any event, a large number of the companies and other business entities were born after the MOU and even after the execution of the agreement of January 31, 2004. They insist that the arbitrator will not be able to address the basic grievance of the plaintiffs that the first defendant had actively concealed the entire extent of the family's business and assets at the time that the MOU was prepared. The plaintiffs also insinuate that the arbitrator is the first defendant's man and will act according to the first defendant's dictates.
The plaintiffs rely on a judgment reported at (2003) 5 SCC 531 (Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya) for the principle that a suit cannot be bifurcated to refer a part of it to arbitration and to allow the rest to continue. The judgment instructs that if the arbitration agreement does not cover the entire subject-matter of the suit or if some of the parties to the suit are not parties to the arbitration agreement, an application under Section 8 cannot be allowed by carving out that part of the suit which is, and those parties who are, covered by the arbitration agreement. The plaintiffs say that it is either the whole of the suit that has to go or the entirety of it has to stay in court.
The plaintiffs claim that the arbitration agreement has expired by efflux of time. They refer to Section 28 of the Arbitration Act, 1940 and show that there is no equivalent provision in the 1996 Act that would permit the court to enlarge the time to make and publish the award. They rely on a judgment reported at 18 (1962) 2 SCR 720 (Hari Shanker Lal v. Shambhu Nath) for the proposition that after the expiry of the period, the arbitrator would become functus officio. They say that since the court cannot extend the time as there is no mandate in such regard and since Section 5 of the 1996 Act limits the scope of intervention by court, there is no arbitration to which the parties can be referred. This argument does not appeal. Just as the court has no authority under the 1996 Act to enlarge time for the arbitral reference, there is nothing in the 1996 Act which is equivalent to Section 28(2) of the 1940 Act that render void any agreement between the parties that would permit the arbitrator to suo motu enlarge the time for making the award. There is a clause in the agreement of January 31, 2004 that permits the arbitrator named therein to extend the time on his own and such clause does not appear to be in derogation of the statute that governs the arbitration.
The plaintiffs suggest that not only would the correspondence between the arbitrator and some of the parties to the reference indicate that he is biased, but the stand taken by defendant no. 11 who, according to the plaintiffs, is in league with the first defendant would show that the parties understood the subject- matter of the suit to be quite distinct from the subject-matter of the reference. They refer to a submission made on behalf of the first defendant recorded in an order of June 10, 2010 passed in the present proceedings to show that the understanding of the defendant no. 11 as to the scope of the suit was not an aberration. In such context the plaintiffs cite the judgments reported at 1950 SCR 30 (Abdulla Ahmed v. Animendra Kissen Mitter) and (1975) 1 SCC 199 (Godhra Electricity Co. Ltd. v. The State of Gujarat) for the principle that the parties' contemporaneous interpretation of a document would be a key factor in construing the document.
The plaintiffs rely on a judgment reported at (2000) 4 SCC 539 (P. Anand Gajapathi Raju v. P.V.G. Raju) for the preconditions that are required to be met before the judicial authority is called upon to discharge the mandate under 19 Section 8 of the 1996 Act. Paragraph 5 of the report speaks of the four conditions: that there is an arbitration agreement; that a party to such agreement brings an action in a forum other than the agreed arbitral tribunal against another party to the arbitration agreement; that the subject-matter of the action is the same as the subject-matter of the arbitration agreement; and, the other party moves the court for referring the parties to arbitration before it submits its first statement on the substance of the dispute. Paragraph 8 of the report observes that Section 8 of the 1996 Act does not necessarily contemplate the existence of an arbitration agreement prior to the action being instituted in court. The plaintiffs comment that since the agreement of January 31, 2004 does not cover the entire subject-matter of this suit, the plaintiffs would be agreeable to an arbitration agreement being arrived at between the parties for referring the entirety of the disputes covered by the suit to such arbitration. The first defendant has, however, insisted that there is no question of any further arbitration agreement being forged since the agreement of January 31, 2004 would cover the whole of the subject-matter of the present suit.
The plaintiffs say that the object of the court in seisin of a lis would be to ensure as to how the disputes can be completely and finally resolved. They contend that the arbitration contemplated by the agreement of January 31, 2004 can neither be meaningful nor can it resolve all disputes. They argue that since the companies and other business entities are not parties to the arbitration agreement and, indeed, a number of the business entities came into being subsequent to the arbitration agreement, no meaningful purpose would be served by a reference which would cover some of the areas of dispute but not cover the rest. They suggest that even S.B.P & Co. contemplates that there would be no mechanical reference by the judicial authority receiving an application under Section 8 of the 1996 Act.
The plaintiffs have, very fairly, placed a Single Bench judgment reported at AIR 1980 Cal 28 (Tapan Kumar Paul v. Krishna Kanta Paul) where the propriety of 20 an award was questioned under Section 30 of the 1940 Act. The award and the disputes centered round a family company. A petition was filed, inter alia, under Sections 397 and 398 of the Companies Act, 1956 relating to such family company. The parties agreed to refer the disputes to arbitration. One of the grounds for assailing the award was that it sought to divide the assets of the company which, it was urged, the arbitrator was incompetent under the law to do. The argument was that the company was a separate entity and in respect of disputes between its shareholders, the assets of the company could not be bartered away. This specific challenge was dealt with at paragraph 8 of the report:
"8. It may be appropriate to bear in mind that the company was a party to the arbitration agreement and I have set out the schedule to the arbitration agreement which indicated the assets which were the subject- matters of dispute. It is indisputable that company is a separate entity than the shareholders and the assets of the company as such cannot be bartered away or parted with in liquidation of claims inter se between the shareholders and directors. But in a private limited company which is in the nature of a partnership and where the company is a party to the agreement referring the disputes to the arbitration and where, as in this case there were evidence of claims by the shareholders against the company in respect of their dues, his remuneration as director and unpaid dividends etc., there is no violation of any principle of law in distributing in specie the assets of the company in lieu of or in satisfaction of the claims of the creditors even if they are the shareholders of the company. Giving up a part of the tenancy or parting with some of the assets of the company is possible in law in liquidation of the claims against its creditors even if such creditors are the shareholders of the company and such claims perhaps originated out of the shareholdings in the company. There was evidence before the arbitrator on this point and, furthermore, the entire proceedings before the arbitrators proceeded on the basis that the parties were willing to divide the assets of the company. In such circumstances, in my opinion, the arbitrator did not commit any error of law in the award that he made on this aspect of the matter. Where certain consequences might be expected of certain adjudication if such disputes are referred for adjudication than it cannot be said that the arbitrator has acted in excess of his jurisdiction if those consequences follow. ..."
The plaintiffs remind that in Tapan Kumar Paul the company was a party to the arbitration agreement and it was couched in the widest terms. The plaintiffs further state that the considerations which are relevant in assessing a 21 challenge to an award may be completely irrelevant in deciding an application for a reference under Section 8 of the 1996 Act. They suggest that while the enforcement of an arbitration agreement is in the nature of specific performance, what the court will require to be performed can never be in excess of what the parties had agreed to.
The plaintiffs argue that the first defendant's application should fail on the basis of the contents of the first defendant's affidavit-in-reply in the Section 8 application affirmed on July 21, 2010. They refer to paragraph 5 of such affidavit where it has been stated that the agreement of January 31, 2004 is "to decide on the mode and manner of implementation of the agreement of 1989 (the MOU)." The plaintiffs place paragraph 6 of the affidavit where it speaks of the brothers other than the first plaintiff having "established their own business separate from the family hotchpotch after September 30, 1988." The plaintiffs point to paragraph 11 of the affidavit which accuses the plaintiffs of trying to delay and scuttle the arbitration proceedings and goes on to say:
"11. ... However, the three brothers (other than the first plaintiff) have proceeded before the Arbitrator and implementation of distribution of their residual proportionate share in the Todi family's assets and properties have been completed. Such assets and properties allotted to the plaintiffs have been kept with the Arbitrator which the plaintiffs have refused to take. The plaintiffs have, however, acted in terms of the agreement of 1989 and have been allotted and have taken such of their shares in the assets and properties of the Todi family, as allotted by the said agreement. ..."
The plaintiffs assert that since it is the first defendant's understanding, as is evident from his affidavit-in-reply, that the arbitration agreement is confined to the MOU of 1989 and its implementation, there is no case that the plaintiffs have to answer in the Section 8 application. The plaintiffs repeat that the two principal grounds that they canvass are that the 1989 MOU was unjust and that the family assets and business that should be divided equally between the four branches would include the several business entities formed and assets acquired after the MOU.
22The plaintiffs have also relied on a recent judgment of this Court delivered on July 16, 2010 [GA No. 379 of 2010; GA No. 906 of 2010; GA No. 2143 of 2010; CS No. 24 of 2010 (Jamuna Transport Corpn Ltd v. Ghanashyamdas Baheti)] for the observation at page 30 that despite Sections 8 and 11 of the 1996 Act not specifically conferring authority on the judicial authority or the Chief Justice or his designate receiving applications under such provisions to adjudicate upon the existence of the arbitration agreement, it is now settled that such power inheres in the judicial authority or the Chief Justice or his designate receiving such applications.
The defendant no. 11 had, at the initial stage of the hearing, taken an equivocal stand, but it is not necessary to notice the argument since the defendant nos. 11 and 17 have subsequently unconditionally supported the application for reference.
Though the defendant no. 84 has no legal existence as on date upon its name having been struck off, the submission made on its behalf may be noticed since an order for restoration of the company's name to the register would obliterate the registrar's decision to strike the name of the company off the register. Admittedly, a period of 20 years has not elapsed from the date that the company's name was struck off and Section 560(6) of the Companies Act permits an application for restoration of the name of the company to be made within such time.
The defendant no. 84 says that it was incorporated in April, 1998 and the plaintiffs were its first subscribers. A married daughter of the first plaintiff holds a fifth of its shareholding and the other shares are held by persons outside the Todi family. The only asset of the defendant no. 84 is its undivided 1/6th share in the Queens Park property which it obtained pursuant to a consent decree in 2002. This defendant refers to the affidavit used by the first defendant in GA No. 1596 of 2010 where, at paragraph 137, the first defendant has referred to the 23 defendant no. 84 in the context that the plaintiffs have no right to the Queens Park property after having transferred their interest therein to the defendant no.
84. This defendant contends that the Queens Park property is central not only to the claim in the suit but it is also at the core of the disputes between the brothers. It says that since it is neither a party to the MOU (it was incorporated many years later) nor is it a signatory to the arbitration agreement, its right in the Queens Park property cannot be adjudicated upon in the reference. This defendant submits that even if it is accepted that the Todi brothers had the authority to bind the family companies to the arbitration agreement, as at the date of such agreement, none of the Todi brothers directly or indirectly controlled this defendant for the arbitration agreement to be binding on it.
The defendant no. 84 refers to the Sukanya Holdings case and says that since it cannot be said to be directly or constructively bound by the arbitration agreement, the application for the reference has to fail. Another judgment reported at (2007) 5 SCC 510 (India Household and Healthcare Ltd v. L.G. Household and Healthcare Ltd) is placed which has relied on Sukanya Holdings to hold that if some of the reliefs claimed in the suit fall outside the arbitration agreement, there can be no reference of the suit to arbitration. The defendant no. 84 refers to several prayers in the plaint relating to the Queens Park property and suggests that if an adjudication in such aspect is made in the reference, the defendant no. 84 would be seriously prejudiced thereby as it cannot be made to participate in the reference.
The defendant no. 84 submits that since the plaintiffs have alleged fraud, inter alia, at paragraphs 93 and 94 of the plaint, it is desirable that the application for reference be declined. A judgment reported at (2010) 1 SCC 72 (N. Radhakrishnan v. Maestro Engineers) has been placed in such context. This defendant submits that the second prayer made in the application under Section 8, for a direction on the four Todi brothers to proceed with the arbitration, would indicate the limited scope of the arbitration agreement.
24Section 8 of the 1996 Act mandates that a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration. Sub-section (1) imposes a condition that the applicant seeking a reference should have applied not later than when submitting his first statement on the substance of the dispute. In the context of a suit, the expression "first statement on the substance of the disputes" would imply the written statement. An affidavit used in an interlocutory matter would not amount to a first statement on the substance of the dispute since interlocutory matters are supplemental or incidental proceedings. Sub-section (2) of Section 8 imposes the technical requirement of either the original arbitration agreement or a duly certified copy thereof to accompany the application. Sub- section (3) permits an arbitration to be "commenced or continued and an arbitral award made" notwithstanding the pendency of an application under Section 8 before a judicial authority. The word "continued" in sub-section (3) would imply that an application under Section 8 of the 1996 Act may be made if either an action governed by an arbitration agreement is brought before a judicial authority after the commencement of the reference or the reference has commenced after the action is instituted but before the application under Section 8 is made.
The two essential duties that the judicial authority receiving an application under Section 8 of the 1996 Act has to perform are to assess whether there is in existence a valid arbitration agreement and to ascertain whether the dispute that is sought to be raised before it is covered by the arbitration agreement. If either is answered in the negative, the application for a reference has to fail.
Though the nature of exercise required of a judicial authority under Section 8 of the 1996 Act and of a Chief Justice or his designate under Section 11 of the 1996 Act may loosely be said to be similar, there would arise several other considerations in an application under Section 8. In an application under 25 Section 11 of the Act, it would generally be one or more parties to the arbitration agreement seeking to compel the other or more parties thereto to the reference to have the disputes covered by the arbitration agreement to be adjudicated upon by an arbitral tribunal. It is irrelevant in the present context that the procedure for appointment for arbitral tribunal may or may not be covered by the arbitration agreement itself. The Chief Justice or his designate under Section 11 of the Act have to adjudicate upon his own jurisdiction to entertain the request and, thereafter, assess whether there is a valid arbitration agreement. In the regular request under Section 11 there would be no dispute as to the parties to the arbitration agreement since it is only a party to the arbitration agreement which can compel the other parties to the agreement to go to reference. In an application under Section 8 of the 1996 Act there may be other parties who may be impleaded deliberately by the plaintiff to avoid the arbitration agreement. It is also for the judicial authority to assess the subject-matter of the action. If the subject-matter of the action is covered by the arbitration agreement, merely because a few parties, who are not parties to the arbitration agreement, have been impleaded in the action would not entitle the claimant to avoid the arbitration agreement. What is of paramount importance is that the bargain between the parties should be enforced by the judicial authority on a meaningful assessment of the subject-matter of the action. Doubtless, a claimant seeking to deliberately avoid the arbitration agreement would add a twist to the cause of action or implead a party which is not bound by the arbitration agreement, but the judicial authority receiving the application under Section 8 of the 1996 Act must be alive to the same.
The essential grievance of the plaintiffs here is that the first plaintiff was given a raw deal in the MOU and that several business and assets have been formed and acquired from out of the family corpus subsequent to the MOU and the plaintiffs should get their share of such added business and assets. The arbitration agreement has used words of the widest import. Not only is the arbitration agreement for the purpose of determining the mode and manner of 26 implementation of the MOU, but it would also cover "all other connected and incidental issues or matters arising out or in relation thereto."
Whatever may be contained in the recitals leading up to the terms of the agreement of January 31, 2004 between the four brothers and their branches, the habendum clause is wide. In any event, it appears that the second "and" in the first line of the ninth recital is disjunctive and covers the situations envisaged by the immediate phrases preceding and following it. That is to say, that the ninth recital implies that the twin purposes of the arbitration are to resolve all disputes and differences; and, to arrive at the mode and manner of implementation of the matters in respect of which the parties have amicably resolved. Even if the ninth recital is seen to give colour to the first clause of the agreement, the expression "all disputes and differences" in the ninth recital would imply the same thing as in the first clause of the agreement which is also in two distinct parts and uses words of the widest amplitude. The first part of the opening clause of the agreement envisages that the reference would take care of "all disputes and differences, mode and manner of implementation of matters in respect of which the parties have amicably resolved..." The word "and" thereafter leads to the residuary part to be covered by the reference and is very wide as it encompasses "...all other connected and incidental issues or matters arising out of or in relation thereto."
Surely, the plaintiffs' grievance that the MOU was unfair to the plaintiffs would be a matter that is connected to the MOU or incidental thereto. Again, the plaintiffs' claim that the family assets and business not included in the MOU or which were formed or acquired after the MOU should also be up for partition, is a matter arising out of or in relation to the MOU.
It is possible that some of the defendants in the suit may not be compelled to participate in the reference, but it is not necessary to express a final opinion on such matter since it would fall within the arbitrator's domain. Assume, for the 27 moment, that a company was formed by the family and it acquired substantial assets from out of funds made available by the family corpus; and that the entirety of the shares in such company was subsequently transferred to outsiders. It would be well within the arbitrator's jurisdiction, notwithstanding the company and its assets being out of the reach of the arbitrator since it is no longer in the family, to provide for owelty in lieu of the assets alienated. In Sukanya Holdings, the cause of action against the defendant who was not a party to the arbitration agreement was real and integral to the claim in the suit. In that case the suit was for dissolution of a partnership firm and for accounts together with a challenge to a deed of conveyance executed by the partnership firm in favour of a third party. Such other party was not a partner of the firm. The application under Section 8 of the 1996 Act was filed by another partner of the firm who was a party to the suit. The order under appeal before the Supreme Court rejected the plea for the reference on the ground that there were reliefs claimed in the suit that were not covered by the arbitration agreement and that all the defendants to the suit were not partners of the firm or bound by the arbitration clause contained in the partnership deed. The Supreme Court held that despite an application under Section 8 of the 1996 Act, the matter would not be required to be referred to arbitration if the parties to the arbitration agreement had not made a request therefor; or, if the application was not filed before submitting the first statement on the substance of the dispute; or, such application was not accompanied by the original arbitration agreement or a duly certified copy thereof. In essence, the view expressed by the Supreme Court was that the mere existence of an arbitration agreement would not oust the jurisdiction of the forum before which an action had been brought in respect of matters covered by the arbitration agreement if such forum otherwise had authority to receive the action. That is obvious. Arbitration, by its very nature, is consensual and parties thereto may waive it. The other aspect covered by the decision was that when the subject-matter of a suit includes the subject-matter of the arbitration agreement as well as other disputes, the matter is not required to be referred to arbitration. There is, according to the Supreme Court, "no 28 provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators."
If the real cause for the plaintiff coming to court is gleaned from the plaint, it would be evident that it is connected to the MOU, whether by reason of the failure to implement the terms thereof or the unfairness of the division contemplated thereby. There is no additional cause of action in the suit which is beyond the sweep of the arbitration agreement.
There is, then, the other aspect of Sukanya Holdings that the plaintiffs and the 84th defendant have emphasised on - that there are parties to the suit who are not parties to the arbitration agreement. There are two facets to this aspect. The first is that a claimant who is a party to an arbitration agreement may needlessly implead persons in an action who are not parties to the arbitration agreement in an attempt to avoid the reference or to ensure the continuation of the action. The other feature could be that the parties to the action who are not parties to the arbitration agreement may be, constructively or otherwise, bound by the arbitration agreement. Sukanya Holdings is not an authority for the proposition that if some parties have been impleaded in an action with a view to avoid the enforcement of the arbitration agreement, the judicial authority in seisin of the action has to reject the application under Section 8 of the 1996 Act merely on such ground. That is not to suggest that some of the defendants in the present action have been deliberately impleaded with a view to avoid the arbitration agreement or scuttle the ongoing reference. Notwithstanding the identity of a company being distinct from its shareholders or even the principal persons in control thereof, family-owned and run companies in this country are treated as assets of the family capable of division. The Tapan Kumar Paul judgment has recognised such position. What must be appreciated is that this family intended its companies to be bound by the MOU of 1989. Though the MOU contained words to the effect that the companies would be bound by the terms thereof, it does not appear to have been executed or signed on behalf of the 29 companies. What can be said then is that the four brothers understood that their signing the agreement would bind the companies. Though, in the strict sense it may be said that the companies are not bound by the MOU since the document was not signed on their behalf, but that is not how a family settlement is read or understood in this country. To the extent necessary to assess at the present stage, it is evident on a reading of the two primary documents and the plaint that the family companies are bound by the MOU and the four brothers or branches are accountable for the family companies and their assets in the matter of division thereof whether by barter or by some other equitable adjustment like owelty.
The suit is essentially for partition of the family business and assets between the four branches by including not only what is mentioned in the MOU but also the other business and assets of the family not included therein. Such matter is covered by the wide words of the arbitration agreement.
GA No. 1756 of 2010 is allowed in terms of prayer (a) of the notice of motion dated May 17, 2010. CS No. 121 of 2010 and all interlocutory applications therein, including GA No. 1596 of 2010, stand disposed of. All interim orders subsisting in the suit stand vacated. There will be no order as to costs.
Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.) Later:
The plaintiffs pray for a stay of operation of this order. Though such prayer is declined, the subsisting interim orders will continue for a period of a fortnight from date.30
(Sanjib Banerjee, J.)