Bombay High Court
Shri Basant Lall Shaw S/O Late vs Shri Manoj Kumar Jayaswal S/O Shri on 28 July, 2011
Author: R.M. Savant
Bench: R.M. Savant
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
WRIT PETITION NO.2438 OF 2011
1) Shri Basant Lall Shaw s/o late
Jagbandhanram Shaw, aged about
78 years, occupation : business,
r/o 264, Usha Sadan, Pandit
Ravishankar Shukla Marg,
Civil Lines, Nagpur.
2) Shri Arbind Kumar Jayaswal s/o
Shri Basant Lall Shaw, aged
about 57 years, occupation :
business, r/o 264, Usha Sadan,
Pandit Ravishankar Shukla Marg,
Civil Lines, Nagpur. ... Petitioners
- Versus -
Shri Manoj Kumar Jayaswal s/o Shri
Basant Lall Shaw, aged about
56 years, occupation : business,
r/o 264, Usha Sadan, Pandit
Ravishankar Shukla Marg, Civil
Lines, Nagpur. ... Respondent
-----------------
Shri A.S. Mardikar, Advocate for the petitioners.
Shri S.P. Dharmadhikari, Senior Advocate assisted by
Shri D.V. Chauhan, Advocate for the respondent.
----------------
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2
Date of reserving the judgment : 6/7/2011
Date of pronouncing the judgment : 28/7/2011
CORAM : R.M. SAVANT, J.
DATED : JULY 28, 2011
JUDGMENT :
Rule, with the consent of the learned Counsel for the parties made returnable forthwith and heard.
2) The above petition filed under Articles 226 and 227 of the Constitution of India takes exception to the order dated 13/5/2011 passed by the learned 3rd Joint Civil Judge, Senior Division, Nagpur whereby the application (Exh. 13) filed by the petitioners herein under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 (for the sake of brevity, hereinafter referred to as "the said Act") came to be rejected.
::: Downloaded on - 09/06/2013 17:34:07 ::: 33) The issue, which arises for consideration in the above petition, is as to whether the dispute as regards implementation of the directions of the Escrow Agent appointed under the Indenture of Family Settlement dated 31/7/2008 is arbitrable and has to be referred to the Arbitrator ?
4) The factual matrix involved in the above petition can be stated thus :
The petitioner no.1 is the father of the petitioner no.2 as well as the respondent. The petitioner no.1 has established a business empire, which is popularly known, according to the petitioners, as 'NECO Group of Industries". The petitioner no.1 as the head of the family commenced business with incorporation of the Nagpur Engineering Company (Pvt.) Ltd. and later on with the growth of other businesses, all connected with iron foundry, a merged Company came into being, which was known as Jayaswal Neco Ltd. The said Jayaswal Neco Ltd. was ::: Downloaded on - 09/06/2013 17:34:07 ::: 4 subsequently merged into other two Companies, which amalgamated entity, is known as Jayaswal Neco Industries Ltd. The said Jayaswal Neco Industries Ltd.
under the leadership of petitioner no.1 set up a number of manufacturing units, factories and foundries involved in the business of iron, steel and aluminium metal, iron scrap processing, road construction and toll collection and manufacturing of ferro alloys, auto components, steel valves and steel. The business empire of the petitioner no.1 is spread throughout India with major activities being carried on from Nagpur in Maharashtra, Bhilai, Anjora and Siltara (Raipur) in Chhattisgarh, Durgapur in West Bengal, Ranchi in Jharkhand, Bangalore in Karnataka and Chennai in Tamil Nadu. With passage of time, the petitioner no.2 and respondent joined business of the petitioner no.1.
5) It appears that on account of differences and disputes, which had arisen between petitioners and the ::: Downloaded on - 09/06/2013 17:34:07 ::: 5 respondent, the petitioner no.1 with a view to maintain family peace and harmony and to avoid any future friction in the family or misunderstandings and to arrive at an amicable settlement between the brothers, i.e. petitioner no.2, Rameshkumar Jayaswal and the respondent, decided to have a family settlement, which was arrived ig at with the assistance and intervention of relatives and well wishers, as a result of which the business empire of the petitioner no.1 was divided into two groups, namely, BLS group, which was to consist of the petitioners and Rameshkumar Jayaswal and the MKJ Group consisting of the respondent. The said family settlement was reduced into writing and accordingly an Indenture of the Family Settlement (for the sake of brevity, hereinafter referred to as "IFS") was executed on 31/7/2008. The said family settlement was executed by the petitioners and Rameshkumar Jayaswal forming part of the BLS Group and the respondent signed the family settlement for himself and on behalf of his family ::: Downloaded on - 09/06/2013 17:34:07 ::: 6 members, who constituted the MKJ Group.
6) The said family settlement resulted in the separation of the joint interest of the petitioners and the respondent in the shareholding of the different business Companies, other family Companies and assets and properties held jointly or individually in the name of any family member between BLS Group and MKJ Group in the ratio of 3:1 wherein each of the four parties was to get equal and near equal share therein.
The relevant clauses of the said Family Settlement from the point of view of the above petition are Clauses 7(l), 19 and 27. The same are, therefore, reproduced hereunder :
"7. It is hereby agreed by and between the parties hereto as follows :
(l) Notwithstanding anything herein contained, it has been expressly agreed and confirmed by the Parties hereto that all pending loan agreements and personal guarantees in respect of the loans already sanctioned/to be sanctioned by CIAL - Strip Mill (Siltara) and Inertia Rolling ::: Downloaded on - 09/06/2013 17:34:07 ::: 7 Mill and JNIL - working capital shall be signed by MKJ. MKJ will also procure and ensure that additional Term Loans are sanctioned by the banks to CIAL for the Strip Mill and to INERTIA for Rolling Mills at Siltara and sanctioned funds are released for improvising the Strip Mill and repayment of the advances given by JNIL for the Strip Mill so that it is commissioned at the earliest. For this purpose, BLS Group shall extend its reasonable cooperation to MKJ Group for release of the funds for the Strip Mill out of the funds disbursed. MKJ shall deduct a sum of Rs.593 lacs as stated in Clause 7(d) and any similar sums paid by CIAL/MKJ Group and transfer the balance fund to the Units. All these Units referred above are being run by Jayaswal Neco Industries Limited under Lease on payment of monthly rentals and as per the understanding monthly/quarterly instalments along with interest thereon payable to respective Bank/ Institutions are being provided by JNIL out of accrual of monthly lease rentals, barring only for the Strip Mill acquired by CIAL as the Strip Mill's improvisation is still not complete due to lack of funds and once the additional sanctioned Term Loan is released by Bankers for completion of ::: Downloaded on - 09/06/2013 17:34:07 ::: 8 improvisation, the same shall be operated under lease from CIAL and the accrued lease rent provided by JNIL shall be paid to the Bankers/Institutions funding the CIAL - Strip Mill towards part payment of principal and interest till the date of merger of the Units with JNIL.
Once all the units are merged with JNIL, the liability for payment of the balance loans and its interest shall be on JNIL. Till merger of the units with JNIL, the system of running the units on lease rental basis shall continue and out of the lease rental accruals, instalments and interests shall continue to be provided for payment to the Lenders of the Units by JNIL through a designated account to be operated by the nominees of both the Groups. It is hereby clarified and accepted by the Parties that the system of Lease of Units has been adopted by BLS Family for commercial convenience and the lease rentals are no way connected to the actual repayment of interest and principle of the Units.
BLS Group agrees to pay total interest and principle payments in priority in accordance with the Sixth Schedule, including all other incidental amounts due to the Bankers of the Units on due dates."
::: Downloaded on - 09/06/2013 17:34:07 ::: 9"19. As per the Settlement recorded herein, which is to be implemented in stages, the parties hereto have decided, on their free will and accord, to appoint Messrs Kanga and Company, Advocates and Solicitors, Mumbai hereinafter referred to as "the Escrow Agent" to be duly assisted by Shri B.K. Agarwal, Chartered Accountant, Nagpur and Shri Sohan Chaturvedi, Chartered Accountants, Mumbai and the Escrow Agreement shall be executed within 7 (seven) days from the date of execution of these presents. A photocopy of this executed Indenture shall be provided to the Escrow Agent for full and final implementation of the terms of this Indenture and on completion/non- completion of this Indenture, the Escrow Agent shall submit its Report to both the Groups, which shall be prepared with the assistance of Shri B.K. Agarwal and Shri Sohan Chaturvedi, on the Final Date as provided in this Indenture. The Provisions of the escrow mechanism are mentioned below :
a. Each Group shall, within 10 (Ten) days from the date of execution of this Indenture, i.e. the ::: Downloaded on - 09/06/2013 17:34:07 ::: 10 Effective Date, deposit the following instruments with the Escrow Agent to be held in Escrow as provided herein :
(i) Duly filled in, signed and executed share transfer forms together with the originals of the share certificates of the companies representing shareholders of the respective Parties in the Compan(ies) duly completed in favour of the parties to whom the concerned shares of the Companies are being given/allotted under Terms of this Indenture (hereinafter referred to as the "Allottee Parties") to enable the Allottee Parties to get those shares registered/endorsed in their/ their Nominee's names. In case of Shares mortgaged with the Lenders, the transfer forms along with a request letter for the transfer shall be submitted and in case of shares in demat forms the relevant forms shall be executed and submitted.
(ii) A Power of Attorney executed by each of the Groups hereto in favour of the Escrow Agent to do all such acts, deeds, matters are things as may be necessary for the purpose mentioned in
(i) hereinabove. The Power of Attorney executed ::: Downloaded on - 09/06/2013 17:34:07 ::: 11 in favour of the Escrow Agent shall have wide powers to enable the Escrow Agent to ensure effective implementation of this Indenture including powers to consult Advocates, Chartered Accountants and such other Consultants, if necessary, and to incur such expenditure as the Escrow Agent may deem fit.
(iii) Letter of Resignation of a blank date executed by the members of each of the Groups hereto and their Nominees on the Boards of various companies, tendering their resignation as Directors of the Companies allotted to other parties/Groups.
(iv) It has also been agreed by and between the parties that all actions, acts and deeds shall be performed by both the Groups, viz. BLS Group and MKJ Group simultaneously and the Escrow Agent shall permit both Groups to examine all the documents in his office with prior appointment and confirm in writing that the required documents and necessary Board Resolutions have been adopted and executed in proper form and order so as to avoid future disputes. The other compliances/defects pointed ::: Downloaded on - 09/06/2013 17:34:07 ::: 12 out by the other Group shall be rectified within 7 (Seven) days.
(b) In the event one of the two Group or both Groups do not cooperate with each other in the implementation of this Indenture of Family Settlement and/or in the event of any of the party's default, delay or failure to carry out his obligation hereunder, the Parties hereby agree that the Escrow Agent shall have power to take binding decision on behalf of the non-
cooperating and/or defaulting Group and cause the same to be implemented, including power to transfer shares of Business and Other Family Companies, by such Group and/or to release to the other Group such of the documents and papers as the Escrow Agent shall, in his absolute discretion, deem fit and proper.
(c) The Escrow Agent shall, (i) on such date prior to the Final Date or (ii) on the Final Date (failing fixation of mutual date prior to Final Date), hand over the above documents to the respective Allottee Parties only after compliances of the following :
::: Downloaded on - 09/06/2013 17:34:07 ::: 13(i) Fulfillment of all the conditions as specified under Clause 19(a)(i), (ii), (iii) and (iv),
(ii) On full compliance of the provisions as per Clause 18 above.
(d) On handing over of the documents to the respective Allottee Parties along with a Compliance Certificate for compliance of all the terms of this Indenture, the Escrow Agent shall stand fully discharged of his obligations as such Escrow Agent and neither party shall have any claim of any nature whatsoever against the Escrow Agent by virtue of this Indenture or otherwise.
(e) The parties agree that the obligations of the Escrow Agent under this Indenture shall not be affected by any disputes or contentions between the parties hereto and that the Escrow Agent shall be entitled to carry out its obligations as set out herein regardless of any such disputes or conventions that may be raised.
(f) The Escrow Agent shall not be liable for any action taken or omitted to be taken pursuant to ::: Downloaded on - 09/06/2013 17:34:07 ::: 14 this Indenture, except in the case of gross negligence or willful misconduct.
(g) In consideration of the Escrow Agent having agreed to hold the documents in Escrow, as provided in this Indenture, the Escrow Agent shall be paid necessary fees to be shared between the BLS Group and MKJ Group in the proportion of 3:1 (Three is to One), respectively and such payment shall be made within Seven (07) days from the Escrow Agent raising its invoices on the parties hereto."
"27. Each party shall fully co-operate with the others or other of them to implement and give full effect to the provisions of this Indenture. It is agreed that in case there is any difference of opinion between the two groups or any of the parties hereto in any way relating to or arising under this Indenture or the separation agreed hereunder or otherwise relating to any of the Companies, Businesses or Properties of the BLS Family, the parties hereby agree to refer, except the disputes referred under Clause 7(i) and 27, all such disputes and difference to Arbitration in accordance with the provisions of the Arbitration ::: Downloaded on - 09/06/2013 17:34:07 ::: 15 and Conciliation Act, 1996. None of the parties hereto shall resort to, initiate or threaten to initiate or cause to be initiated, any legal proceedings in any Court of Law, to resolve any dispute, etc. relating to Family Businesses or any matter covered by this Indenture. The place of the Arbitration shall be at Mumbai. The language of the Arbitration shall be English. The decision of the Arbitrator shall be final and binding upon the Parties hereto."
7) Pursuant to the said IFS, a separate Escrow Agreement dated 26/12/2008 was entered into by the parties. The parties also executed a Power of Attorney in favour of the Escrow Agent, one M/s. Sohan Chaturvedi and Company, Chartered Accountants, Mumbai. In terms of the IFS, mutual obligations were cast upon both the groups, i.e. BLS Group and MKJ Group. It is for the smooth implementation and execution of the IFS that the Escrow Agent, namely, M/s. Sohan Chaturvedi and Company came to be appointed. The Escrow Agent was given powers under ::: Downloaded on - 09/06/2013 17:34:08 ::: 16 the said Clause 19, which are reflected in sub-clauses
(b) and (c) thereof. The said powers can also be seen from the Escrow Agreement as well as from the Power of Attorney, which the parties executed in favour of Escrow Agent. The cause of filing the present proceedings has arisen on account of the alleged non-
fulfillment of the obligations by the petitioners under Clause 7(l), which is in respect of the demerger of the Strip Mill. The said Strip Mill was to be demerged from the Company known as CIAL and to be merged with the Company known as JNIL, i.e. the group Company of the petitioners. The same was to be done within 90 days from the date of the execution of the IFS.
Further, in terms of the obligations cast by the IFS, the petitioners were liable to make payment against the loan to the Bankers simultaneously on the transfer of the ownership rights. It is the case of the petitioners that after execution of the IFS, the respondent continued to delay the process of demerger and merger of Strip Mill with JNIL on one pretext or the ::: Downloaded on - 09/06/2013 17:34:08 ::: 17 other, whereas it is the case of the respondent that during the pendency of the procedure of merger of the Units with JNIL, BLS Group is under an obligation to continue to pay regular instalments and interest to the Banker of the Unit through a designated Account to be operated by the nominees of both the Groups. It is the case of the respondent that the petitioners have stopped the payment since August 2010 whereas it is the case of the petitioners that in spite of making payment of about Rs.150 crores against the Bank loans, the ownership has not been transferred from CIAL to JNIL, resulting into the Strip Mill not being commissioned as the ownership of the said plant has remained vested with the respondent and hence, without having ownership of the plant, the same could not be commissioned by the petitioners' Company. It is the case of the petitioners that the amount of Rs.150 crores approximately, which they have invested in the said Strip Mill on account of repayment of loan and renovation is lying idle for more than three years.
::: Downloaded on - 09/06/2013 17:34:08 ::: 188) As regards the said dispute, the parties charted different paths. Insofar as the respondent is concerned, he approached the Escrow Agent against non-fulfillment of the obligations by the petitioners, as a consequence of which the Escrow Agent issued directions on 7/11/2009, in respect of payment of instalments by the petitioners towards the loan of the said Strip Mill and the Escrow Agent made observations about the default being continued by the BLS Group while issuing the said directions. The Escrow Agent thereafter issued further directions on 14/4/2011 and by the said order, directed the BLS Group, i.e. petitioners to make the payment of the instalments to the Bankers of the Strip Mill.
9) Insofar as petitioners are concerned, the petitioners issued a notice to the respondent on 23/2/2011 calling upon him in view of the dispute between the parties as regards the Strip Mill, to give consent for appointment of Shri B.V. Bhargava, ::: Downloaded on - 09/06/2013 17:34:08 ::: 19 Ex-Vice Chairman and Managing Director of the ICICI Bank as the sole Arbitrator to adjudicate upon the said dispute along with other disputes that may be detailed out once the arbitration commences and modalities as suggested by the agreement are agreed. The respondent replied to the said notice by his letter dated 26/3/2011. The sum and substance of the reply of the respondent was that the disputes in question as regards the directions of the Escrow Agent, were not arbitrable since they were not covered by Clause 27 of the IFS.
10) The petitioners having received the said reply and seeing that the respondent was not cooperating in the resolution of the disputes, filed Miscellaneous Civil Application No.325/2011 under Section 11(6) of the said Act in this Court. The case of the petitioners was that the disputes between the parties more specially the dispute regarding demerger of the Strip Mill was arbitrable in terms of Clause 27 of the IFS. The said ::: Downloaded on - 09/06/2013 17:34:08 ::: 20 Miscellaneous Civil Application had come up for hearing before a learned Judge of this Court, who by order dated 1/4/2011 was pleased to issue notice to the respondent. The said notice has been served upon the respondent thereafter.
11) The respondent herein, after the said notice came to be issued in the said Miscellaneous Civil Application, on 9/5/2011 filed Special Civil Suit No. 584/2011, inter alia for the following substantive reliefs:
"Prayer : It is, therefore, most humbly prayed that this Hon'ble Court be pleased to -
(a) pass a Decree of Declaration in favour of the plaintiff and against the defendants, declaring therein that the act of the defendants in stopping the payment of the monthly instalments of the banker of Strip Mill with effect from August 2010, in the peculiar facts and circumstances of the case is contrary to the Deed of Family Settlement executed between the parties and the directives dated 07.11.2009 and 14.04.2011 ::: Downloaded on - 09/06/2013 17:34:08 ::: 21 of Escrow Agent interpreting the same;
(b) pass a Decree of Permanent Mandatory injunction in favour of the plaintiff and against the defendants, their servants, agents and other persons claiming through or under them, directing them to follow the directives of the Escrow Agent dated 14.4.2011 in relation to the reimbursement ig of the amount of Rs.30,82,04,954/- from August 2010 to March 2011, to the plaintiff;
(c) pass a Decree of Permanent Mandatory injunction directing the defendants their agents, servants and persons claiming through or under them to start repayment of the monthly instalments to the bankers of Strip Mill regularly on due dates with effect from April 2011 in compliance of their obligations to do so, under the Deed of Family Settlement and the directives dated 14.4.2011, which are in continuation of directives dated 7.11.2009;
(d) cost of the suit be saddled on the
defendants;
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22
(e) And the Hon'ble Court may pass any other
order as this Hon'ble Court deems fit in the interest of justice;
And for which act of kindness, the plaintiff shall remain duly bound and ever pray."
12) It was the case of the respondent that the petitioners have not complied with the directions issued by the ig Escrow Agent on 7/11/2009 and 14/4/2011 in respect of payment of the instalments in respect of the loan relating to the Strip Mill, which was to be demerged. It was the further case of the respondent that the petitioners were under an obligation to comply with the directions given by the Escrow Agent by his communication dated 14/4/2011.
13) The petitioners after receipt of the suit summons, appeared before the trial Court and filed an application under Sections 5 and 8 of the said Act. In the said application, the substratum of the case of the petitioners was that the dispute raised by the ::: Downloaded on - 09/06/2013 17:34:08 ::: 23 respondent/plaintiff being arbitrable in view of Clause 27 of the IFS should be referred to the Arbitrator. It was further averred by the petitioners that the issue raised in the suit is the subject matter of the application made by the petitioners under Section 11(6) of the said Act, which is pending before this Court and hence, the suit was not maintainable.
14) To the said application, the respondent filed a reply, inter alia, contending that the directions of the Escrow Agent are independent of Clause 27 of the IFS and are not arbitrable. It was the case of the respondent that the parties have vested the Escrow Agent with powers under Clause 19 to see that the IFS is implemented and executed and the orders dated 7/11/2009 and 14/4/2011 are, therefore, the orders, which are passed by the Escrow Agent in terms of the power vested in him. The respondent, therefore, contended that the application filed by the petitioners could not be entertained.
::: Downloaded on - 09/06/2013 17:34:08 ::: 2415) The said application was considered by the learned Civil Judge, Senior Division and by the impugned order dated 13/5/2011, the said application came to be rejected. The gist of the finding of the learned Judge was that the dispute in the said suit is in respect of the directions given by the Escrow Agent in terms of the agreement dated 26/12/2008 and in terms of Clause 19 of the said agreement, it is specifically mentioned that the parties agreed that the rights provided in Clause 27 of the IFS are in addition to this Clause and not by way of dilution or substitution. The learned Judge further held that since in terms of Clause 5 of the Escrow Agreement dated 26/12/2008, the parties agreed that the obligation of the Escrow Agent under the said Family Settlement shall not be affected by any dispute or difference between the parties to the said IFS and that the Escrow Agent shall be entitled to carry out his obligation as set out herein regardless of any dispute or contention that may be raised as well as due to unwillingness of the parties to implement the ::: Downloaded on - 09/06/2013 17:34:08 ::: 25 Deed in accordance with the interpretation of the Escrow Agency provided in Clause 4 of the agreement.
The trial Court, therefore held that the subject matter of the present suit is not a subject matter of the arbitration agreement since powers of the Escrow Agent described in the agreement are above all the disputes between the parties.
ig The learned Judge further held that if the petitioners herein, who are defendants, have followed the directions of the Escrow Agent till July 2010, then the petitioners cannot take shelter of the arbitration clause in the IFS to overcome totally separate agreement whereby Escrow Agent is appointed.
16) As mentioned hereinabove, it is the said order, which is impugned in the present petition.
SUBMISSIONS ON BEHALF OF THE PETITIONERS :
i) That, since notice of arbitration has already ::: Downloaded on - 09/06/2013 17:34:08 ::: 26 been given on 23/2/2011 and thereafter the Miscellaneous Civil Application has already been filed wherein notice has been issued to the respondent on 1/4/2011 by this Court, the arbitration proceedings are deemed to have commenced and, therefore, it was not open for the respondent to file a suit for the reliefs claimed. For the said purpose, the learned Counsel for the petitioners relied upon the judgment of the Apex Court in Milkfood Ltd. vs. M/s. GMC Ice Cream (P) Ltd.
(AIR 2004 SC 3145).
ii) That, the dispute in question as regards demerger of the Strip Mill is covered by Clause 27 of the IFS. The appointment of the Escrow Agent is part of the IFS and, therefore, the Escrow Agreement dated 26/12/2008 cannot be considered independently and would be governed by Clause 27 of the main agreement. In support of the said submission, the learned Counsel for the petitioners relied upon the judgments of the Apex Court in Olympus ::: Downloaded on - 09/06/2013 17:34:08 ::: 27 Superstructures Pvt. Ltd. vs. Meena Vijay Khetan and others {(1999) 5 SCC 651}, Owners and Parties interested in the Vessel M.V. Baltic Confidence and another v. State Trading Corporation of India Ltd. and another (AIR 2001 SC 3381).
iii) That, the respondent could not have resorted to filing of the suit. However, if he was claiming any directions, then it was open for him to file an appropriate application under the provisions of the said Act.
SUBMISSIONS ON BEHALF OF THE RESPONDENT :
i) That, reading of Clause 19 of the IFS relating to the Escrow Agent and the Escrow Agreement dated 26/11/2008 discloses that the parties have provided for an interim arrangement so that the IFS can be executed and complied with and for the said purpose have vested the Escrow Agent with powers, which can ::: Downloaded on - 09/06/2013 17:34:08 ::: 28 be seen from Clause 19(b) of the IFS. The said Escrow Agreement, therefore, stands independently or apart from the main IFS. In support of the said submission, the learned Senior Counsel for the respondent relied upon the judgment of the Apex Court in the matter of Siddhivinayak Realities (P) Ltd. vs. Tulip Hospitality Services Ltd. and others {(2007) 4 SCC 612}.
ii) That, the trial Court on a consideration of Clauses 19 and 27 of the IFS and the relevant Clauses of the Escrow Agreement having come to a conclusion that the dispute is not arbitrable under Clause 27 of the IFS in view of the powers conferred on the Escrow Agent by Clause 19 of the IFS, this Court should not exercise its writ jurisdiction. The learned Senior Counsel referred to the guidelines, which have been laid down by the Apex Court in the judgment in the matter of Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others {(2011) 5 SCC 532} and especially para (19) thereof was relied upon.::: Downloaded on - 09/06/2013 17:34:08 ::: 29
iii) The learned Senior Counsel contended that for non compliance of the directions of the Escrow Agent, the respondent was entitled to approach the Civil Court for a mandatory order directing the petitioners to comply with the said directions dated 7/11/2009 and 14/4/2011.
CONSIDERATION
17) Having heard the learned Counsel for the parties, I have given my anxious consideration to the rival contentions. In the instant case, it is relevant to note that the petitioners in view of the dispute as regards the mutual obligations under Clause 7(l) of the IFS and the dispute as regards fulfillment of obligations and binding promises as set out in the IFS had issued a notice dated 23/2/2011 to the respondent for appointment of an Arbitrator under Section 11 of the said Act for resolving the said disputes, which had arisen out of the said IFS dated 31/7/2008. The ::: Downloaded on - 09/06/2013 17:34:08 ::: 30 petitioners had called upon the respondent by the said notice to give consent for appointment of Shri B.V. Bhargava, Ex-Vice Chairman and Managing Director of the ICICI Bank as the sole Arbitrator to adjudicate upon the disputes mentioned in the notice along with others, which will be detailed out once the arbitration has commenced. The said notice has been replied to by the respondent by his letter dated 26/3/2011. The respondent has denied the claims and contentions of the petitioners and in fact, has taken a stand that it is the petitioners, who have not fulfilled the obligations under the said IFS. The respondent in the concluding paragraph of the reply has stated that he does not agree with the petitioners that the matter requires to be referred to an Arbitrator and more particularly, Shri B.V. Bhargava, which name was referred to in the notice. In view of the said stand of the respondent, the petitioners herein filed a Miscellaneous Civil Application bearing No.325/2011 under Section 11(6) of the said Act for appointment of an Arbitrator. This ::: Downloaded on - 09/06/2013 17:34:08 ::: 31 Court in the said Miscellaneous Civil Application was pleased to issue notice to the respondent on 1/4/2011.
The respondent thereafter on 9/5/2011, i.e. after a period of one month has filed the said Special Civil Suit No. 584/2011 inter alia for the reliefs, which have been referred to in the earlier part of this judgment.
18) In the context of the aforesaid facts, it would be apposite to refer to the judgment of the Apex Court in the case of Milkfood Ltd. vs. M/s. GMC Ice Cream (P) Ltd. (supra). The question before the Apex Court was as to when the arbitration proceedings can be said to have commenced. The Apex Court held that service of notice for appointment of an Arbitrator by one party to another is the relevant date for commencement of the arbitral proceedings. Paragraph (73) of the said judgment is material and is reproduced hereunder :
"73. Keeping in view the fact that in all the decisions referred to hereinbefore, this Court has applied the meaning given to the expression `commencement of the arbitral proceeding' as ::: Downloaded on - 09/06/2013 17:34:08 ::: 32 contained in Section 21 of the 1996 Act for the purpose of applicability of the 1940 Act having regard to Section 85(2)(a) thereof, we have no hesitation in holding that in this case also, service of a notice for appointment of an arbitrator would be the relevant date for the purpose of commencement of the arbitration proceeding."
In the light of the judgment of the Apex Court, there is merit in the contention of the learned Counsel for the petitioners that since in the instant case, apart from notice, the petitioners have also filed Miscellaneous Civil Application No.325/2011 wherein a notice came to be issued by this Court on 1/4/2011, the arbitration proceedings are deemed to have been commenced and, therefore, it was not open for the respondent to file the said Special Civil Suit No.584/2011 and the parties were, therefore, obliged to refer the disputes to arbitration.
19) The question is whether in respect of non-
compliance of the directions of the Escrow Agent, a ::: Downloaded on - 09/06/2013 17:34:08 ::: 33 suit is maintainable for enforcement of the same or whether the parties have to be relegated to the Arbitrator in terms of Clause 27 of the IFS ?
20) No doubt, in terms of Clause 19(b) of the IFS, the parties have vested the Escrow Agent with the powers to take binding decisions on behalf of non-
cooperating and/or defaulting Group and cause the same to be implemented, including power to transfer shares of Business and Other Family Companies, by such Group and/or to release to the other Group such of the documents and papers as the Escrow Agent shall, in his absolute discretion, deem fit and proper.
As rightly contended by the learned Senior Counsel for the respondent, the Escrow Agent arrangement is by way of an interim measure to facilitate the compliance and implementation of the IFS. Insofar as the Escrow arrangement is concerned, it is now a common practice to appoint an Escrow Agent to see that the parties are performing their obligations in terms of the ::: Downloaded on - 09/06/2013 17:34:08 ::: 34 agreement that is arrived at between the parties.
21) In the instant case, as mentioned hereinabove, the issue is as to whether the Escrow Agreement is to be considered independent of the IFS and, therefore, for implementation of the directions of the Escrow Agent, a suit is maintainable. There can be no dispute as regards the fact that the Escrow Agent has been appointed to facilitate the implementation of the IFS and in furtherance thereof, the Escrow Agreement dated 26/12/2008 has been executed as well as a Power of Attorney has been executed by the parties in favour of the Escrow Agent. The present dispute is mainly on account of alleged non-fulfillment of the mutual obligations under Clause 7(l) of the IFS, which is in respect of demerger of the Strip Mill.
Allegations and counter-allegations have been made by the parties against each other in respect of non-
fulfillment of the obligations. However, there cannot be any dispute that the directions given by the Escrow ::: Downloaded on - 09/06/2013 17:34:08 ::: 35 Agent for which the respondent has filed the said suit, are referable to Clause 7(l), which is part of the IFS.
Hence, though there is a separate Escrow Agreement as well as a Power of Attorney executed in favour of the Escrow Agent and though the Escrow Agent has the power under Clause 19(b) of the IFS, Clause 27 of the IFS, which provides for arbitration, can be said to be over imposing itself over the said documents. As the said Clause unequivocally states that in case there is any difference of opinion between the two groups or any of the parties hereto in any way relating to or arising under this Indenture or the separation agreed hereunder or otherwise relating to any of the Companies, Businesses or Properties of the BLS Family, the parties have agreed to refer, except the disputes referred under Clause 7(i) and 27, all such disputes and differences to Arbitration in accordance with the provisions of the said Act. It was further agreed by the parties that none of them shall resort to, initiate or threaten to initiate or cause to be initiated, any legal ::: Downloaded on - 09/06/2013 17:34:08 ::: 36 proceedings in any Court of Law, to resolve any dispute relating to family businesses or matters covered by the said Indenture. The said Clause 27, therefore, insofar as the IFS is concerned wherein Clause 19(b) is a part, is omniscient, omnipresent and omnipotent and looming large over any dispute that may arise in respect of the implementation of the IFS.
It is also required to be noted that by way of prayer clauses (a) to (c) of the suit, what the respondent in fact is claiming is the compliance of the obligations by the petitioners imposed upon them by the IFS. In the light of the above, the impugned order of the trial Court holding that the Escrow Agreement being a separate and independent Agreement and, therefore, Clause 27 of the IFS would not cover the same is, therefore, unsustainable and is required to be quashed and set aside.
22) In the said context, the judgment cited on behalf of the petitioners in the matter of Olympus ::: Downloaded on - 09/06/2013 17:34:08 ::: 37 Superstructures Pvt. Ltd. (supra) is relevant. The Apex Court held that where disputes and differences in connection with the main agreement and also disputes in respect of any other matter in any way connected with the subject matter of the main agreement exist, the situation would be governed by the general Arbitration Clause in the main agreement under which disputes connected therewith can be referred to the Arbitral Tribunal.
23) As observed hereinabove, the dispute being in respect of the directions issued by the Escrow Agent, which are referable to Clause 7(l) of the IFS, would, therefore, be a dispute, which is arbitrable under Clause 27 of the IFS.
24) Now coming to the judgment of the Apex Court in the case of Siddhivinayak Realities (P) Ltd.
(supra), the issue before the Apex Court was as regards the powers conferred on the Escrow Agent in ::: Downloaded on - 09/06/2013 17:34:08 ::: 38 terms of the agreement in question therein and whether the Escrow Agent should be entrusted with deciding the question as to which party is in default, which the Escrow Agent had undoubtedly the power to determine in terms of the agreement, as it was the case of one of the parties to the said Escrow Agreement that the Escrow Agent is likely to be biased. Though the Apex Court held that since the parties have jointly agreed to the appointment of the Escrow Agent, he should be allowed to determine the issue in question. In the facts of the said case where there was likelihood of one of the Escrow Agents being a Judge in his own cause, the Apex Court declined to interfere with the order of the High Court upholding the Arbitral Tribunal's order restraining the Escrow proceedings pending the arbitration. However, the facts in the instant case can be distinguished from the facts in the case before the Apex Court. The question in the instant case is as regards enforceability of the directions issued by the Escrow Agent. The ::: Downloaded on - 09/06/2013 17:34:08 ::: 39 Escrow Agent in terms of the powers conferred by Clause 19 of the IFS has already issued directions on 7/11/2009 and 14/4/2011 and, therefore, it is not a case where the Escrow Agent has not determined the issue in question. The question is as regards enforceability of the directions. Hence, the judgment relied upon by the learned Senior Counsel for the respondent would not aid the respondent in the facts of the present case.
25) Insofar as the judgment of the Apex Court in the case of Booz Allen and Hamilton Inc. (supra) is concerned, though the said judgment lays down the guidelines for the Court whilst considering an application under Section 8 of the said Act filed by a party, it has also been held in the said judgment that generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration. Paragraphs (38) and (39) of the said judgment are material in the context of the present ::: Downloaded on - 09/06/2013 17:34:08 ::: 40 controversy and are, therefore, reproduced hereunder :
"38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not relating however a rigid or inflexible rule.
to subordinate rights in
Disputes
personam
arising from rights in rem have always been considered to be arbitrable.
39) The Act does not specifically exclude any category of disputes as being not arbitrable.
Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if the court finds that "the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force."
Hence, considering the fact that the two directions of the Escrow Agent, which are the subject matter of the suit are referable to Clause 7(l) of the IFS, even on the ::: Downloaded on - 09/06/2013 17:34:08 ::: 41 application of the above judgment, the same are arbitrable.
26) As observed hereinabove, in view of the notice given by the petitioners dated 23/2/2011, the arbitration proceedings in terms of the law laid down by the Apex Court in the case of Milkfood Ltd. (supra) are deemed to have commenced. Since Clause 27 of the IFS can be said to be an all-encompassing Clause, the dispute regarding enforceability of the directions of the Escrow Agent, which are referable to Clause 7(l) would fall within the ambit of said Clause 27 and would, therefore, be arbitrable. It would, therefore, be for the respondent to file proceedings under Section 9 of the said Act seeking appropriate directions against the petitioners either pre-arbitration or during pendency of the arbitration. However, the suit filed for the reliefs sought as mentioned hereinabove, is not maintainable in the light of Clause 27 of the IFS.
::: Downloaded on - 09/06/2013 17:34:08 ::: 4227) In the light of what has been stated hereinabove, the impugned order of the trial Court is required to be set aside and is accordingly set aside and the application filed by the petitioners under Sections 5 and 8 of the said Act is required to be allowed.
28) Rule is accordingly made absolute in terms of prayer clause (1) of the above petition with parties to bear their respective costs.
JUDGE khj ::: Downloaded on - 09/06/2013 17:34:08 :::