Bombay High Court
Gurukripa Communications Private ... vs Nutan Gupta And 2 Ors on 18 June, 2019
Author: G.S.Kulkarni
Bench: G.S. Kulkarni
pvr 1 34arbap60-19.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Arbitration Application NO. 60 OF 2019
Gurukripa Communications Pvt.Ltd. ...Applicant
Versus
Nutan Gupta & Anr. ...Respondents
----
Ms.Shruti Sardesai with Prashant Beri I/b. Beri & Co., for the Applicant.
Mr.Akash Rebello I/b. Pariket Shah, for Respondent Nos.1 and 2.
-----
CORAM : G.S. KULKARNI, J.
DATE : 18 June 2019
---
P.C.;
1. Heard the learned Counsel for the applicant and the learned
Counsel for the respondents.
2. This is an application filed under Section 11 of the Arbitration and
Conciliation Act,1996 whereby the applicant has prayed for appointment
of a sole arbitrator to adjudicate the disputes and differences between the
parties, which have arisen under the Sellers' Deed of Indemnity dated 13
April 2010 (for short the 'Deed of Indemnity'). The arbitration agreement
between the parties is contained in clause 14 of the Deed of Indemnity
which incorporates clause 8 of another agreement namely the Binding
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 2 34arbap60-19.doc
Memorandum of Understanding (for short 'the Binding MOU') being made
applicable. Clause 14 of the Sellers Deed of Indemnity reads thus:-
"14. Governing Law and Dispute Resolution.
The provisions of clause 8 of the Binding MOU shall apply mutatis
mutandis to this Deed."
3. Clause 8 as contained in Binding Memorandum Of Understanding
(for short "the Binding MOU") to which the applicant is a party reads
thus:-
"8. This Binding MOU is subject to Indian law and subject to
the provisions for arbitration, the courts of Mumbai will have
exclusive jurisdiction thereon. Any dispute, disagreement or
difference arising between the parties hereto touching or
concerning this Binding MOU in any manner shall be referred to the
arbitration of a sole arbitrator to be appointed by the parties jointly,
failing which the sole arbitrator shall be appointed in accordance
with the Arbitration & Conciliation Act,1996. Such arbitration will
be held in accordance with the Arbitration & Conciliation Act,1996
or any statutory modification thereof for the time being in force.
Arbitration shall be held in Mumbai and shall be held in the English
language. The arbitrator shall have power to direct specific
performance."
4. It is the applicant's case that a show cause notice was issued by the
Income Tax authorities stating that the applicant has failed to deposit TDS
for the A.Y. 2009-10. Another show cause notice was issued for the A.Y.
2010-11. In September 2013 the applicant filed a compounding
application under Section 279(2) of the Income Tax Act for the said
assessment years. Thereafter on 2 August 2017 another notice was issued
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 3 34arbap60-19.doc
by the Income Tax officer making tax claims in relation to financial years
2007-08, 2008-09 and 2009-10 against the applicant, which was replied
by the applicant. Again a notice dated 6 October 2017 was issued to the
applicant on the compounding application, proposing to levy fees on the
applicant. The applicant ultimately paid the compounding fees in
November 2017.
On the above backdrop the applicant's advocates issued a notice to
the respondent dated 30 November 2018 making a claim for an amount of
Rs.21,17,239/- being the amount of the aggregate tax claim alongwith
interest at the rate of 18% p.a. The relevant paragraphs of this notice read
thus:-
"6. As the Aggregate Tax Claim relates to the taxable period
prior to the BTA Closing, pursuant to the provisions of the aforesaid
Sellers's Indemnity, you are liable to indemnify our Client for the
same, together with all and any other losses, liabilities, damages,
claims, fines, fees, penalties, interest obligations and expenses (as
detailed in the Sellers' Indemnity) that have been incurred by our
Client in connection with the Aggregate Tax Claim. In spite of
receiving the Notice of Claim, you have failed to replay the
Aggregate Tax Claim within the time period stipulated in the
Sellers' Indemnity.
7. Additionally, kindly note that while the amount held in the
escrow account created pursuant to the Escrow Agreement dated
June 10, 2010 between yourselves, Turmeric Advisory Private
Limited and our Client, has been released to Nutan Gupta, the
Aggregate Tax Claim is pending satisfaction and the escrow amount
was also released as a good faith gesture with the condition that
any future assessment of taxes/penalties will be duly satisfied b
you. Further, the rights and obligations of the parties under the
Seller's Indemnity continue to subsist.
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 4 34arbap60-19.doc
8. Accordingly, we are instructed to call upon you to repay our
Client the total sum of Rs.21,17,239 (Rupees Twenty One lakhs
Seventeen Thousand Two Hundred and thirty Nine), along with
interest at the rate of 18% per annum, within 7 (seven) days of
receipt of this notice, failing which our Client will be constrained to
initiate such legal proceedings (including arbitration), as deemed fit
for recovery of the amount together with the said interest, at your
sole risk as to the costs and consequences thereof, which you may
please note.
9. You also remain liable to our Client for payment of any
other losses, liabilities, damages, claims, fines, fees, penalties,
interest obligations and expenses (as detailed in the Sellers'
Indemnity) that have been or may be incurred in connection with
the Aggregate Tax Claim or any other tax claims for the period prior
to and up to the BTA Closing and our Client reserves their right to
claim the same from you.
10. Additionally, kindly note that certain compounding fee
related demands relating to the taxable period prior to the BTA
Closing, are pending final assessment by the tax authorities, as on
date. Therefore, you will be liable, pursuant to the provisions of the
aforesaid Sellers' Indemnity, to indemnify us for such further
amounts, if any, paid by us going forward.
11. Further, please note that this notice has been issued without
prejudice to the rights and contentions of our Client under
applicable law or the Sellers' Indemnity. Our client expressly
reserves all their rights in the matter.
5. As the above advocates' notice was not responded, the applicant's by
their advocate's notice dated 2 January 2019 invoked the arbitration
agreement and called upon the respondent to appoint an arbital tribunal
to adjudicate the disputes between the parties. As the respondents failed
to respond to the said invocation notice, the present application has been
filed.
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 5 34arbap60-19.doc
6. Learned Counsel for the respondents at the outset has opposed
appointment of a sole arbitrator to arbitrate the disputes between the
parties referring to clause 4(b) of the Sellers Indemnity Agreement, which
reads thus:-
"4. Time Limit for Claims
The right of the Buyer to claim indemnity in terms of this
Deed will be available in relation to all claims made under the
Binding MOU or the Letter of Assignment and notified to the
Indemnifying Parties:
(a) .............
(b) for any claim relating to tax, within eight years and 3
months from the Closing Date under the Binding MOU; and
(c) ............ " (emphasis supplied)
7. The principal contention as urged by the learned Counsel for the
respondent is that the Sellers Indemnity Agreement itself ceases to exist in
view of the clause 4(b) above, and hence, the arbitration agreement as
contained therein, would also cease to exist. In support of this contention,
learned Counsel for the respondents has placed reliance on the decision in
"Union of India Vs. Kishorilal Gupta & Bros."1
8. On a reading of clause 4(b), I am not persuaded to accept the
submission as made on behalf of the respondents. Clause 4(b) of Sellers'
Deed of Indemnity provides for a right of the buyer to claim indemnity in
terms of the deed, to be available in relation to all claims made under the
1 AIR 1959 SC 1362
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 6 34arbap60-19.doc
Binding MOU or the Letter of Assignment and notified to the indemnifying
parties, for any claim relating to tax within eight years and three months,
from the closing date which was extended to 30 June,2010 under the
binding MOU. It appears from the record that the disputes between the
parties under these agreements in question have arisen on account of the
tax liability, which was ultimately met by the applicant on 18 November
2018 and thereafter the applicant had made a claim against the
respondent. Thus the contention as urged on behalf of the respondent
referring to clause 4(b) (supra) to oppose this application, prima facie
appears to be not well founded. At the most this can be a defence of the
respondents to deny liability to make any payment and indemnify the
applicant under the Deed of Indemnity. An interpretation that the said
clause extinguishes the existence of the arbitration agreement between the
parties, cannot be accepted, and more so considering the plain language of
the said clause.
9. It is now well settled that when a contract contains an arbitration
agreement, it is a collateral term whereby the parties agree to resolution
of dispute under the contract by taking recourse to arbitration. The
arbitration agreement is required to be considered as a stand-alone
agreement independent from its underlying contract. In Reva Electric Car
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 7 34arbap60-19.doc
Co.(P) Ltd. Vs. Green Mobil2 the Supreme court held that the arbitration
agreement continues to be enforceable notwithstanding a declaration of
the contract being held to be null and void. In Today Homes &
Infrastructure Pvt.Ltd. Vs. Ludhiana Improvement Trust and Anr. 3 the
Supreme Court reiterating the above principles observed thus:-
"14. The same reasoning was adopted by a member of this Bench
(S.S.Nijjar, J.), while deciding Reva Electric Car Co.(P)Ltd vs. Green
Mobil, wherein the provisions of Section 16(1) in the backdrop of
the doctrine of kompetenz kompetenz were considered and it was
inter alia held that under Section 16(1), the legislature makes it
clear that while considering any objection with regard to the
existence or validity of the arbitration agreement, the arbitration
clause, which formed part of the contract, had to be treated as an
agreement independent of the other terms of the contract.
Reference was made in the said judgment to the provisions of
Section 16(1)(b) of the 1996 Act, which provides that even if the
Arbitral Tribunal concludes that the contract is null and void, it
should not result, as a matter of law, in an automatic invalidation of
the arbitration clause. It was also held that Section 16(1)(a) of the
1996 Act presumes the existence of a valid arbitration clause and
mandates the same to be treated as an agreement independent of
the other terms of the contract. By virtue of Section 16(1)(b) of the
1996 Act, the arbitration clause continues to be enforceable,
notwithstanding a declaration that the contract was null and void.
10. In "Enercon (India) Limited V. EnerconGmbh"4 the Supreme Court
in this context has observed as under:-
"83. The concept of separability of the arbitration clause/
agreement from the underlying contract is a necessity to ensure that
the intention of the parties to resolve the disputes by arbitration
does not evaporate into thin air with every challenge to the legality,
validity, finality or breach of the underlying contract. The Indian
Arbitration Act,1996, as noticed above under Section 16 accepts the
2 (2012)2 SCC 93
3 (2014)5 SCC 68
4 (2014)5 SCC 1
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 8 34arbap60-19.doc
concept that the main contract and the arbitration agreement form
two independent contracts. Commercial rights and obligations are
contained in the underlying, substantive, or the main contract. It is
followed by a second contract, which expresses the agreement and
the intention of the parties to resolve the disputes relating to the
underlying contract through arbitration. A remedy is elected by
parties outside the normal civil court remedy. It is true that support
of the national courts would be required to ensure the success of
arbitration, but this would not detract from the legitimacy or
independence of the collateral arbitration agreement, even if it is
contained in a contract, which is claimed to be void or voidable or
unconcluded by one of the parties."
11. In "Ashapura Mine-Chem Ltd. Vs. Gujarat Mineral Development
Corporation"5 in paragraphs 21 and 27 the Supreme Court has observed thus:-
"21. In Today Homes and Infrastructure (p) Ltd., this Court
approved the statement of law stated by the learned Judge of this
Court in Reva Electric Car Co. (P) Ltd., para 14 can be usefully
referred to which reads as under:
(Today Homes and Infrastructure (P) Ltd. Vase, SCC p.73)
"14. The same reasoning was adopted by a member of this Bench
(S.S.Nijjar, J.), while deciding Reva Electric Car Co.(P)Ltd vs. Green
Mobil, wherein the provisions of Section 16(1) in the backdrop of
the doctrine of kompetenz kompetenz were considered and it was
inter alia held that under Section 16(1), the legislature makes it
clear that while considering any objection with regard to the
existence or validity of the arbitration agreement, the arbitration
clause, which formed part of the contract, had to be treated as an
agreement independent of the other terms of the contract. Reference
was made in the said judgment to the provisions of Section 16(1)
(b) of the 1996 Act, which provides that even if the Arbitral
Tribunal concludes that the contract is null and void, it should not
result, as a matter of law, in an automatic invalidation of the
arbitration clause. It was also held that Section 16(1)(a) of the
1996 Act presumes the existence of a valid arbitration clause and
mandates the same to be treated as an agreement independent of
the other terms of the contract. By virtue of Section 16(1)(b) of the
1996 Act, the arbitration clause continues to be enforceable,
notwithstanding a declaration that the contract was null and void.
...............
27. Having gone through the said paragraphs, we do not find any
5 (2015)8 SCC 193
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 9 34arbap60-19.doc
position in law contrary to what has been stated in Today Homes and
Infrastructure (P) Ltd., Reva Electric Car Co.(P) Ltd. And Enercon
(India) Ltd."
12. The decision of the Supreme Court in Union of India Vs. Kishorilal
Gupta & Bros. (supra) as relied on behalf of the respondents, in the facts
of the case is not applicable inasmuch as the present case is not a case
where the Sellers Deed of Indemnity is superseded by the parties by
entering into a fresh agreement and which would give rise to a situation
that the original agreement itself is not in existence. In fact in paragraph
10 of the said decision, the Supreme Court has clearly recognised that the
arbitration clause is a collateral term in a contract as distinguished from
its substantive terms, although it is an integral part of the contract.
13. Considering the clear position that both the agreements namely
binding MOU and Sellers Deed indemnity are required to be read together
in view of the incorporation of the arbitration agreement as contained in
Clause 8 of the MOU in Clause 14 of the Deed of Indemnity, I am clearly
of the opinion that there exists an arbitration agreement between the
parties. The applicant has lawfully invoked the arbitration agreement by
its advocate's notice dated 2 January 2019, however, unsuccessfully. In
these circumstances arbitral tribunal needs to be appointed by allowing
::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::
pvr 10 34arbap60-19.doc
this application.
14. At this stage, Mr.Rebello, learned Counsel for the respondents
makes suggestion that already an arbitration between the parties under
another agreement between the parties (EMGEE Communications Pvt.Ltd.
And Gurukripa Communications Pvt.Ltd.) is already in progress before a
learned sole arbitrator and considering the facts and circumstances, it is
his suggestion that the disputes between the parties under the present
proceedings be also referred to the same arbitrator for effective
adjudication of the disputes. Learned Counsel for the applicant would also
fairly concede to this suggestion as urged on behalf of the respondents.
The application is therefore, required to be disposed of in the following
terms:-
ORDER
(i) Ms.Gulnar Mistry, Advocate of this Court is appointed as a prospective sole arbitrator to arbitrate the disputes and differences between the parties under the Sellers' Deed of Indemnity dated 13 April 2010;
(ii) The learned prospective sole Arbitrator, fifteen days before entering the arbitration reference, shall forward a statement of disclosure as per ::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 ::: pvr 11 34arbap60-19.doc the requirement of Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act,1996, to the Prothonotary & Senior Master of this Court, to be placed on record of this application with a copy to be forwarded to both the parties;
(iii) The fees payable to the arbitral tribunal shall be governed in accordance with the fees prescribed under the Bombay High Court (Fees Payable to Arbitrators) Rules,2018;
(iv) At the first instance, the parties shall appear before the prospective sole arbitrator within 10 days from today on a date which may be mutually fixed by the prospective sole arbitrator;
(v) All contentions of the parties are expressly kept open;
(vi) The application is disposed of in the above terms. No costs.
(vii) Office to forward a copy of this order to the learned Arbitrator on the following address:-
First Floor, Ramnimi, Fort, Cawasji Patel Streel, Mumbai.
Mobile: 9820776272 E-mail: [email protected] (G.S.Kulkarni, J.) ::: Uploaded on - 04/07/2019 ::: Downloaded on - 14/07/2019 04:45:52 :::