Bombay High Court
Pamvi Consultancy Services Ltd. vs Global Syntex (Bhilwara) Ltd. on 4 June, 2002
Equivalent citations: 2003(1)ARBLR204(BOM)
Author: F.I. Rebello
Bench: F.I. Rebello
JUDGMENT F.I. Rebello, J.
1. The plaintiffs have filed the present Summary Suit on the Memorandum of Understanding ('MOU') dated 20-2-1996 entered into between the plaintiff and the defendants. It is the case of the plaintiffs that the defendants were interested to procure public subscription for 46,60,000 equity shares. The defendants accordingly approached the plaintiffs to procure the said subscription. The plaintiffs accepted the said arrangement. The said arrangement was the subject-matter of the 'MOU'. Relevant clauses of the MOU for the purpose of answering the issues in controversy are 3(d) 4, 5 and 6, which read as under :--
"3(d) Fees of 17.50 per cent (amounting to Rs. 89,70,500 only) would be paid to the second party by the first party and the said amount shall be payable by Post-dated cheque payable in Bombay. Out of the above-mentioned amount of Rs. 89,70,500. Rs. 4,48,525 shall be payable at the time of signing this agreement and Rs. 22,42,625 shall be payable on the closure of the issue and the second party having obtained confirmation from the Registrars/bankers to the issue of the required funds been collected. The first party shall provide to the second party a Bank Guarantee for the amount of Rs. 22,42,625 to be paid to the second party. The balance amount of Rs. 62,79,350 shall be payable by the first party within 30 days of the closure of the above-mentioned Public Issue. The first party shall honour the cheques so given to the second party.
4. The second party undertakes to ensure that the funds are arranged as mentioned in Clause (2) subject to the first party complying to each of the clauses as mentioned above. Further, in the event of any discrepancy or difference between the parties concerning the meaning or interpretation of these presents or the rights and obligations of the parties, the same shall be referred to the arbitrators appointed each by the first party and the second party and in the event of difference of opinion of any of the said arbitrators, accordingly, they shall appoint another person who shall be the sole arbitrator whose decision will be final and binding on the first party and the second party.
6. That the second party would ensure, that the public issue of 46.60 lacs shares is fully subscribed by way of NRI/Mutual Funds/OCBs and the Public. In the event of any shortfall in subscription the second party shall be responsible and shall make good the shortfall subject to observance of terms of this memorandum of understanding."
It is the case of the plaintiffs that the public issue was fully subscribed and in terms of the MOU the plaintiffs were entitled to in so far as the present subject-matter of the suit is concerned in a sum of Rs. 62,79,350. As the defendants failed to pay the amount in terms of the MOU the plaintiffs caused the notice to be served by Registered Assessing Officer, which notice is dated 2-8-1996. The defendants did not reply to the said notice. By the said notice the plaintiffs also informed the defendants that on the request of the defendants two cheques aggregating to Rs. 62,79,350 had not been deposited and to ensure funds so that the plaintiffs could encash the two cheques. The said two cheques when presented were not honoured as the defendants had issued instructions of stop payment. It is the case of the plaintiffs that thereafter they issued another legal notice on 13-8-1996 setting out the various facts. The said notice was issued in terms of section USA of the Negotiable Instruments Act. At this stage it may be pointed out that the defendants denied receipt of the said notice. The plaintiffs, therefore prayed for reliefs in the principal amount of Rs. 62,79,350 along with interest at 18 per cent per annum from 8th August, 1996 to 5th August, 1999 and also further interest thereafter at the same rate.
2. On summons being served defendants have put in appearance. Consequently the plaintiffs have taken out Summons for Judgment with an affidavit in support thereof of one Vivek Gupta, Director. The defendants have filed affidavit in reply contending that the suit as filed is not maintainable. It is further set out that the defendants have a good and bona fide defence and there are several triable issues and as such they ought to be granted unconditional leave to defend. A further plea raised is that it was the defendants who had arranged to get subscribers for the equity shares as the plaintiffs were unable to fulfil their commitment in terms of the MOU. That being the case the plaintiffs would not be entitled to the amounts as claimed by them under the MOU. It is lastly contended that the MOU contains a provision for arbitration. The plaintiffs could have resorted to arbitration, which they have not done. Even otherwise once there is an arbitral clause a judicial authority before whom the proceedings are filed can suo motu direct the parties to arbitration considering Section 8 of the Arbitration & Conciliation Act, 1996 ('the Act'). The learned Counsel in support of that proposition has placed reliance on two unreported judgments of the learned single Judges of this Court, namely in the case of Jivan Service Centre v. Hindustan Petroleum Corpn. Ltd. of 7-10-1998 in Appeal from Order No. 897 of 1998 in Notice of Motion No. 4279 of 1998 in Suit No. 5101 of 1998 and in the case of Hindustan Petroleum Corpn, Ltd. v. Labhasing Sohan Singh of 30-1-2002 in Appeal from Order No. 797 of 2001. It may be pointed out that in so far as this submission is concerned learned Counsel for the plaintiffs has drawn my attention to the judgment of another learned single Judge of this Court in Garden Finance Ltd. v. Prakash Industries Ltd. 2001 (4) Comp. LJ. 223, which has considered the judgment of the Apex Court in P. Anand Gajapathi Raju v. P. KG. Raju .
With the above background it will have to be seen whether based on said defences there are issues arises which would result in the defendants being entitled for unconditional leave to defend.
3. We may, therefore, first consider whether the plaintiffs are not entitled to the amount claimed for reasons set out by the defendants in their reply. The entire submission follows from the contention that it is the defendants who procured the subscription and as such there was failure on the part of the plaintiffs to perform their part of the MOU. As they had failed to perform their part of the MOU they would not be entitled to any payment. Relying on Clause 3(d) it was contended that the amount would be payable only after the defendants had obtained confirmation of the Registrars/bankers to the issue of the required funds being collected. It was sought to be contended that no such confirmation was produced before the defendants. Clause 3(d) of the Memorandum provides for payments under 3 different situations. Firstly there was due and payable a sum of Rs. 4,48,525 at the time of signing the agreement There is no dispute that this amount had been paid. The second was a sum of Rs. 22,42,625 on the closure of the issue on the second party having obtained confirmation from the Registrars/bankers to the issue of the required funds being collected. The defendants were to provide a bank guarantee for the said sum of Rs. 22,42,625. The defendants were unable to furnish the bank guarantee and in respect of the said amounts a different arrangement was arrived at whereby the defendants gave to the plaintiffs some cheque. The third amount which is the balance amount of Rs. 62,79,350 was payable within 30 days of the closure of the public issue. It is, therefore clear from the reading of the said clause that the amounts were payable on different dates. The present suit is in respect of the amount which was due and payable within 30 days of the closure of the public issue.
It is, therefore, clear from a reading of the clause that the confirmation clause would not apply insofar as the last instalment is concerned. It was applicable to the second instalment. There is also no dispute from the material on record that the issue was fully subscribed. The only limited issue raised by the defendant is that it is the defendant who procured the entire subscription on failure of the plaintiffs to get subscribers for the issue. Let us refer to the correspondence and the terms of the MOU for that purpose. As set out earlier there is some dispute about receipt of letter dated 13-8-1996. There is, however, no dispute about the receipt of letter dated 2-8-1996. By that letter the plaintiffs informed the defendants that they had marketed the public issue extensively and the issue had been over-subscribed. It was also pointed out that the defendants have failed to perform their part of the MOU as the amount was payable within 30 days of the closure. This letter was not replied nor receipt of the letter has been denied by the defendants. At least, therefore, there is nothing on record to show that the defendants indicated to the plaintiffs that the issue had been over-subscribed on account of their marketing of the said issue on failure by the plaintiffs to get the subscription. Assuming for a moment that it is the defendants who had also procured subscription, will it result in holding that the defendants are not entitled to claim the third instalment of Rs. 62,69,520. A reading of Clause 6 reproduced earlier would indicate that in the event the issue was not fully subscribed it was the plaintiffs who had to make good the shortfall. Therefore, the plaintiff had committed to the defendants that in the event of shortfall in subscription to make good the shortfall. Once this clause was there and in the absence of any other clause in the agreement providing that if the defendants had brought subscription, the plaintiffs would not be entitled to the amount mentioned in the MOU, clearly the plea or defence as raised by the defendants is clearly an after-thought to avoid payment. There has been no correspondence exchanged between the parties between the period and until filing of the reply setting out that there was a subsequent agreement whereby it was agreed that the plaintiffs could not claim the third instalment. In fact prima facie falsity of the defence can be seen from the fact that inspite of receipt of letter dated 2-4-1996 wherein all these facts have been set out and the demand of Rs. 62,69,350 the defendants chose not to reply to the same. To my mind, therefore, there is absolutely no merit at least at this stage to hold that the plaintiffs are not entitled to the said amount. Clearly the defendants at this stage have not made out a case that there is any serious triable issue on that count.
4. We then come to the next contention whether by virtue of Section 5 of the Act, the jurisdiction of this Court is ousted and the Court suo motu is bound to refer the parties to arbitration. There is an arbitral clause as set out in Clause 4 of the MOU which has been earlier reproduced. Section 8 of the Act requires a judicial authority which includes Court, in respect of subject-matter where there is an arbitration clause to direct the parties to arbitration (a) if a party so applies no letter than when submitting his first statement on the subsistence of the dispute and (b) to make an application accompanied by the original arbitration agreement or a duly certified copy thereof. It is only on the satisfaction of these two requirements that the judicial authority is bound to refer the parties to arbitration. The judicial authority will refer the parties to arbitration if the entire subject-matter of the suit will fall under the arbitration clause and the Arbitral Tribunal will be able to dispose of the entire subject-matter which is the subject-matter of the suit. Section 5 of the Act is an embargo on the judicial authority in intervening in a matter where there is an arbitration clause except where so provided by the Act, Section 5 is not an ouster of jurisdiction of Civil Court to try a civil suit even if there be an arbitral clause. Section 5 is an embargo on the authorities entertaining objection/ applications under the Arbitration Act not to intervene unless a power has been conferred on the judicial authority to intervene. We will, therefore, examine whether the two judgments cited and on which reliance has been placed have considered the scope of Section 8, Before considering the judgment it may be stated that what the Court has to consider is the ratio of the judgments. The ratio of the judgment will arise in the event firstly the matter was directly in issue, the matter needed to have been decided and has been decided by reasons. If these three basic predicates are satisfied and met, then only can it be said that there is a ratio decidendi which a co-ordinate bench must consider. We will first, therefore, examine the order in the case of Jivan Service Centre (supra). In that case a suit had been filed before the City Civil Court and Notice of Motion was taken out for injunction. Reliefs were granted, against which appeal was preferred before the Court. Before this Court it was sought to be canvassed that the agreement between the parties contained an arbitration clause namely Clause 66 and in view of that the parties had to be referred to arbitration. The learned Judge after considering the arguments advanced and also the judgment of the Kerala High Court ultimately observed as under :--
"I am of the opinion that considering Clause 66 of the Dealership Agreement, the parties should approach the appropriate Court for referring the matter for arbitration and also for appropriate reliefs under Section 9 of the said Act.....
It is only fair that when the parties go in for arbitration, they should not be prejudiced by the said observations. It is, therefore, necessary to clarify that while considering any application made by either parties in this behalf, the appropriate Court shall do so independent of any observations....."
It is, therefore, clear from this order that the learned Judge refused to exercise discretion of granting injunction, in view of the arbitral clause and that the same reliefs would be available under Section 9 of the Act. It is further clear that the learned Judge took into consideration the language of Section 8 by directing the parties to make an application before the appropriate Court. In other words the order does not support the contention as raised on behalf of the defendant. On the contrary it is in conformity with the language of Section 8 that the parties must make an application. It is true that the learned Court directed the parties to apply. That by itself cannot mean that there should not be an application accompanied by the certified copy of the agreement containing the arbitral clause. That judgment, therefore, is of no assistance. In so far as the judgment in Hindustan Petroleum Corpn. Ltd. (supra) again when the matter was in appeal before this Court an arbitrator was appointed. It is in the context of an arbitrator being appointed, that the learned Judge declined to grant any interim relief. It is, therefore, clear that both the judgments do not really deal with the contention based on Section 8 as raised by the defendant.
5. On the other hand on behalf of the plaintiffs their learned counsel has drawn my attention to the judgment of another learned single Judge of this Court in Garden Finance Ltd.'s case (supra) wherein the learned Judge has considered the provisions of Section 8 and the judgment of the Apex Court in P. Anand Gajapalhi Raju's case (supra). In fact in the case of P. Anand Gajapathi Raju (supra) the real issue before the Apex Court was whether in appeal the Court could refer the parties to arbitration under the new Act. During the pendency of the appeal before the Apex Court the parties entered into an arbitration agreement and agreed to refer those disputes in appeal for arbitration. The arbitration agreement was in the form of an application and signed by all the parties. This was the application for consideration before the Apex Court. Construing the language of Section 8 the Apex Court held that not only the trial Court, but also the Apex Court on an application made to it in writing could refer the parties to arbitration. In other words even in appeal the power of referring the parties to arbitration, if the arbitral clause was invoked was available. At this stage the question or issue whether the Court is bound to refer the parties to arbitration at the instance of the party invoking the arbitral clause at this appellate stage against a judgment of the Trial Court deciding the controversy is not being considered nor decided. The view of the learned single Judge of this Court in Garden Finance Ltd. 's case (supra) is in conformity with the judgment of the Apex Court. I may reproduce that part of the observation of the Apex Court dealing with the issue of application to the judicial authority :--
"All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in Clause (a) of Section 2 of the New Act and not the court to which an application under Section 8 of the new Act is made. An application before a court under Section 8 merely brings to the court's notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement....."
Clearly, therefore, it must be an application to the court. The application must be in writing to point out to the Court that the party was invoking the arbitral clause, by annexing the relevant documents and that the application was being made before filing of the written statement and more importantly that the clause pertaining to arbitration would cover the entire subject-matter of the suit. The defendants at the time of filing their reply nor even at the stage of arguments have filed an application along with certified copy of the MOU nor have moved this Court, to refer the parties to arbitration. Considering that to my mind, at least at this stage there being no such application there is no question of the Courtswo motu directing the parties to arbitration by invoking the arbitral clause. The second contention, therefore, must be rejected.
6. However, considering the judgment of the Apex Court in Mechalec Engineers Manufacturers v. Basic Equipments Corporation as the defendants desire to go for trial, purely as an act of mercy in terms of condition No. 5 in the words of the Apex Court conditional leave is granted to the defendants to defend the suit on the defendants depositing in this Court a sum of Rs. 60 lakhs within eight weeks from today with a further condition that on such amount being deposited liberty to the plaintiff to withdraw the amount on furnishing bank guarantee. In Suraj Sanghi finance Ltd. v. Credential Finance Ltd. Summons for Judgment No. 164 of 2000 in Summary Suit No. 5502 of 1999 dated on 3-6-2002 a view has been taken that while granting leave purely as an act of mercy as a condition for granting leave it is open to the Judge as an additional condition in granting leave, to permit withdrawal of the amount deposited against bank guarantee or security or otherwise as the Court may direct also bearing in mind Original Side Rule 222.
On deposit of the above amount suit transferred to list of commercial causes. Defendants to file written statement within 8 weeks from deposit. Discovery, inspection, etc., to be done within 8 weeks thereafter.