Calcutta High Court
Priyanka Gupta And Ors vs Anil Chowdhury And Ors on 23 April, 2025
Author: Sugato Majumdar
Bench: Sugato Majumdar
OD - 23, 24 & 25
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
IA NO. GA/1/2021
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
IA NO. GA/3/2022
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
IA NO. GA/4/2024
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
BEFORE:
THE HON'BLE JUSTICE SUGATO MAJUMDAR
Date: 23rd April, 2025 Appearance:
Mr. Amitava Mukherjee, Sr. Adv.
Mr. Janesh Jana, Adv.
Ms. Arpita Saha, Adv.
Ms. Antara Das, Adv.
...for the Plaintiff.
Ms. Sulagna Mukherjee, Adv.
Mr. Yash Vardhan Deora, Adv.
...for Def. nos. 1 & 2.
Mr. Zeeshan Haque, Adv.
Ms. Aishwarya Aswasthi, Adv.
...for Def. nos. 3, 4 & 5.
2|Page The Court: G.A.3 of 2022 is filed by the Defendant No.3 being M/s Asian Tea & Exports Ltd., a company registered under the Companies Act, 1956, praying for referring the instant dispute to arbitration.
The sum and substance of the application may be summarized as follow:
i. A Share Transfer Agreement was executed on 12/09/2014 between Late Devrat Gupta (the original Plaintiff No.1, who left for heavenly abode during pendency of the suit), Smt. Kashmira Gupta (Plaintiff No.4), Sri Devansh Gupta (Plaintiff No.3), Smt. Priyanka Gupta (Plaintiff No.2) and Smt. Mridula Gupta (Plaintiff No.5), who were the Sellers, on the one hand and M/s Asian Tea & Exports Ltd. (Defendant No.3) and Sri Hariram Garg (Defendant No.4), on the other hand, who were the Buyers. This agreement was executed for transfer by the Sellers in favor of the Buyers 9,50,000 number of fully paid up equity shares of Rs.10/- each in the Defendant.5, namely, M/s Indong Tea Comp. Pvt. Ltd.
ii. In course of transfer of shares, an escrow account was required to be created appointing Escrow Holders. The Defendant Nos.1 & 2 were appointed as the Escrow Holders in terms of the Escrow Agreement dated 12/09/2014. In terms of the Escrow Agreement dated 12/09/2014, a sum of Rs.30,00,000/- was deposited with the Escrow Holders to meet up any unclaimed gratuity liability and further statutory liabilities. The Escrow Holders were to hold on the said sum of Rs. 30,00,000/- in an account to be maintained in ICICI Bank, Ballygunge Branch.
3|Page iii. The Escrow Agreement indicated that out of Rs.30,00,000/-, a sum of Rs.15,00,000/- would be earmarked for meeting liabilities of the unclaimed amount of gratuity dues, if any, while the remaining amount will be utilized for meeting up statutory liabilities. iv. The entire share transfer took effect and the Defendant Nos.3 & 4 took control and management of the Defendant No.5. v. The Share Transfer Agreement contained an arbitration clause to refer any present or future dispute to arbitration. There is specific reference of the arbitration clause in the Escrow Agreement. vi. In terms of the Share Transfer Agreement, the escrow amount or any remaining balance was to be released by the Escrow Holders upon utilization for payment towards statutory liabilities and outstanding gratuity dues of the Defendant No.5.
vii. The parties raised disputes regarding quantum of amount to be released by the Escrow Holders, namely, the Defendant Nos.1 & 2 and the parties are entitled to payment by the Escrow Holders. The Plaintiffs claimed refund of the escrow amount but the same was refuted by the Defendant Nos.3 & 4 on the premises that the escrow amount was paid by the Asian Group and it is entitled to refund of the said amount. Existence of the Share Transfer Agreement as well as the Escrow Agreement are not disputed. In view of the arbitration clause, the instant dispute should be referred to arbitration. Hence, the instant application is filed.
Affidavit was filed by the Defendant Nos.1 & 2 in support of the instant application.
4|Page The Plaintiffs filed affidavit-in-opposition against the instant application. The sum and substance of the affidavit-in-opposition, filed by the Plaintiffs may be summarized as follow:
a. The Plaintiffs have filed the instant suit praying for recovery of money wrongly withheld in an escrow account by the Defendant Nos.1 & 2. The reliefs claimed in the suit are also directed against the Defendant Nos.1 & 2 who are advocates.
b. The Defendant Nos.1 & 2 are entitled to hold the said amount in the escrow account to meet alleged claims which had to be made within 30/09/2016. Neither any claim nor any dispute had been raised till that date.
c. There is no arbitration agreement between the Plaintiff and the Defendant Nos.1 & 2. Reference of purported arbitration agreement contained in the Share Transfer Agreement does not imply existence of any arbitrable dispute between the Plaintiff and the Defendant Nos.1 & 2. Therefore, Section 8 of the Arbitration & Conciliation Act, 1996 has no application and cannot be invoked.
d. Denying all other allegations, the Plaintiffs pleaded that the instant application is liable to be dismissed.
Affidavit-in-reply was filed on behalf of the Defendant No.3, denying the allegations and refuting the contentions made in the affidavit-in-opposition filed by the Plaintiff.
Principal point of argument made by the Learned Counsel for the Defendant No.3 is that it is case of both the parties that the Share Transfer Agreement as well as
5|Page the Escrow Agreement had been executed for the purpose of transferring shares of the Defendant No.5 by the Plaintiffs to the Defendant Nos.3 & 4. Both the agreements are interconnected and had been simultaneously executed between the same parties. All the obligations and terms thereof were interconnected and were meant for a common purpose. Accordingly, it is the case of the Defendant Nos.1 & 2 that both these interconnected agreements were executed for a single commercial project. It is basically a single commercial project/single commercial understanding between the parties which had been executed through two agreements. Disputes involved in the present suit revolves round the Escrow Agreement, which, in terms of the referral agreement being the Share Transfer Agreement should be adjudicated upon by an arbitral tribunal. The Leaned Counsel referred to Ameet Lal Chand Sha & Ors. Vs Rishab Enterprises & Ors. [(2018) 15 SCC 678] and NBCC (India) Ltd. vs Zillion Infraprojects Pvt. Ltd. [(2024) 7 SCC 174].
In course of the argument, the Learned Counsel for Defendant No.3 submitted that the named arbitrators are the Defendant Nos.1 & 2 and the principal reliefs claimed are against them. In that case suitable and neutral arbitrator or arbitrators may be appointed by this Court.
The Learned Counsel for the Defendant Nos.1 & 2 argued in tandem with the Learned Counsel for the Defendant No.3 and submitted the same argument which need not be repeated here.
The Learned Counsel for the Plaintiff, referring to the agreements, submitted that the Defendant Nos.1 & 2 were under obligation to hold the sum of Rs.30,00,000/- in the escrow account to meet any claim related to payment of gratuity or other statutory liability. Time line for such claims was 30/09/2016. Since there was no claim made within the stipulated date and there arose no dispute
6|Page in the meanwhile, the Escrow account Holders are lawfully bound to release the amount held in the escrow account. There is no provision of referring this dispute to arbitration. Escrow Agreement does not provide for or contemplates referring such dispute to arbitration. Therefore, according to the Learned Counsel, the application should be dismissed.
It is further argued that the principal allegations in the instant suit are against the Defendant Nos.1 & 2, the named arbitrators. No person can be judge of his own cause flouting the principle of natural justice: "nemo debet esse judex in propia causa". On that score too, as argued, the instant application is liable to be dismissed.
I have heard rival submissions.
Chapter II of the Arbitration & Conciliation Act, 1996 deals with arbitration agreement. Section 7 states as follow:
"7. Arbitration agreement. (1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
7|Page (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."
Section 6 of the Arbitration Act, 1996, as prevalent in England and Wales or Northern Ireland defines arbitration agreement as an agreement submit present or future disputes to arbitration whether they are contractual or not.
In K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 the Supreme Court of India considered the essential requisites as follow:
"21. Therefore our courts have laid emphasis on (1) existence of disputes as against intention to avoid future disputes; (2) the tribunal or forum so chosen is intended to act judicially after taking into account relevant evidence before it and the submissions made by the parties before it; and (3) the decision is intended to bind the parties. Nomenclature used by the parties may not be conclusive. One must examine the true intent and purport of the agreement. There are, of course, the statutory requirements of a written agreement, existing or future disputes and an intention to refer them to arbitration. (Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration and Conciliation Act, 1996.)"
In Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd., [(2003) 7 SCC 418], the Supreme Court of India again considered the essential elements of arbitration agreement and observed:
"13. The essential elements of an arbitration agreement are as follows:
(1) There must be a present or a future difference in connection with some contemplated affair.
(2) There must be the intention of the parties to settle such difference by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of such tribunal.
(4) The parties must be ad idem."
8|Page Essential requirements of an arbitration agreement are, among others either existing or a contemplated dispute, as may arise in course of transactions and agreement of the parties to refer the dispute or disputes to arbitration. The parties must be ad idem to refer their disputes to arbitration, which must be expressly or impliedly evidenced from the arbitration agreement.
Section 7(5) should also be considered to appreciate the arguments made by the Learned Counsels. Principle of incorporation by reference to an arbitration clause existing in another document was well accepted by the Indian Courts. The same principle is embodied in Section 7(5) of the Arbitration & Conciliation Act, 1996. In M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., [(2009) 7 SCC 696] the Supreme Court of India observed that Section 7(5) therefore requires a conscious acceptance of the arbitration clause from another document, by the parties, as a part of their contract, before such arbitration clause could be read as a part of the contract between the parties. But the Act does not contain any indication or guidelines as to the conditions to be fulfilled before a reference to a document in a contract can be construed as a reference incorporating an arbitration clause contained in such document into the contract. In the absence of such statutory guidelines, the normal rules of construction of contracts will have to be followed. Scope of Section 7(5) was summarised by the Supreme Court of India in the following way:
"24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:
(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (1) the contract should contain a clear reference to the documents containing arbitration clause,
9|Page (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.
(ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties."
10 | P a g e In NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd., (2024) 7 SCC 174, referring to M.R. Engineers & Contractors (P) Ltd.'s case (supra), the Supreme Court of India expressed and reiterated the principles laid down therein:
"19. A perusal of sub-section (5) of Section 7 of the Arbitration Act itself would reveal that it provides for a conscious acceptance of the arbitration clause from another document, by the parties, as a part of their contract, before such arbitration clause could be read as a part of the contract between the parties.
20. It is thus clear that a reference to the document in the contract should be such that shows the intention to incorporate the arbitration clause contained in the document into the contract."
Next Section 8 of the Act should be considered since the instant application is for reference of the present dispute to arbitration. Section 8 provides:
"8. Power to refer parties to arbitration where there is an arbitration agreement.
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
11 | P a g e (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made." Section 8 of the Act is based on Article 8 (1) of the UNCITRAL Model Law. In use of the word "judicial authority" this provision shows a significant departure from Article 8(1) of the Model Law where the word "court" was used. Secondly, it cast a duty upon the Court to see whether prima facie a valid arbitration agreement exists. In fact, Section 8 provides with a mechanism to bring to the notice of the judicial authority that an arbitration agreement exists and the judicial authority should refer the mater to arbitration. Scope of the judicial authority, as a referral court, under Section 8 of the Act was considered at length by the seven Judges Bench of the Supreme Court of India in Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899, In re, [(2024) 6 SCC 1], wherein it was observed that Section 8 provides that when an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, such judicial authority shall refer the parties to arbitration on an application made by a party to the arbitration agreement or any person claiming through or under him not later than the date of submitting their first statement on the substance of the dispute. Section 8 mandates the judicial authority to refer the parties to arbitration "unless it finds that prima facie no valid arbitration agreement exists". It was further observed:
"164. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the Referral Court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the Court's jurisdiction to the examination of the existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the Referral Courts under the said provisions is intended to be
12 | P a g e different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an Arbitral Tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11."
It is now apt to come to the case in hand.
Clause 6.10 of the Share Transfer Agreement is an arbitration clause. It states as follow:
"Arbitration: In the event of any dispute or difference arising by and between the parties hereto either concerning or touching upon any of the terms and conditions of the contract, the same shall be referred to the Arbitral Tribunal (the "Tribunal"). The Tribunal shall consist of three arbitrators, Mr. Anil Choudhury, Advocate to be appointed as an Arbitrator by the Sellers and the Company on the one hand and Mr. Sandip Agarwal, advocate to be appointed as an Arbitrator by the Buyers on the other. The third Arbitrator shall be appointed by the said two nominee arbitrators of the parties. The arbitration proceedings shall be conducted in accordance with the Arbitration and Conciliation Act, 1996. The decision of such Tribunal in the matter shall be final and binding. The arbitration sittings shall be held at Kolkata and the Courts at Kolkata alone shall have jurisdiction."
Clause 6 of the Escrow Agreement is invoked by the Petitioner herein for the purpose of reference to arbitration. Clause 6 may be quoted below:
"In the event of any dispute or difference arising in implementation of this agreement, the decision of the Escrow holders shall be final and binding on the parties. However, if any dispute is referred to any of the parties to Arbitration in accordance with the Arbitration Clause contained in the said Document Recording Share Transfer, in that event the Escrow holders shall keep the escrow amount with them till the disposal of the arbitration proceedings and shall abide by the result or decision of the arbitration."
Prima facie, reading of the clause gives clear impression that any dispute or difference should be decided by the Escrow Holders and that decision shall be final 13 | P a g e and binding on the parties. In continuation to this it is clarified that if any dispute is referred to arbitration in accordance with the arbitration clause of the Share Transfer Agreement, the Escrow Holders shall keep the escrow amount with them till the disposal of the arbitration proceeding and shall abide by the results/decisions of the arbitrator. Reference may be made to IN RE CARUS-WILSON AND GREENE. ([L.R.] 18 Q.B.D. 7; [1886] 18 QBD 7, 9). The following observations of LORD ESHER are very relevant:
"If it appears from the terms of the agreement by which a matter is submitted to a person's decision, that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry, and hear the respective cases of the parties, and decide upon evidence laid before him, then the case is one of an arbitration. The intention in such cases is that there shall be a judicial inquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of settling them when they have arisen, and where the case is not one of arbitration but of a mere valuation. There may be cases of an intermediate kind, where, though a person is appointed to settle disputes that have arisen, still it is not intended that he shall be bound to hear evidence or arguments. In such cases it may be often difficult to say whether he is intended to be an arbitrator or to exercise some function other than that of an arbitrator. Such cases must be determined each according to its particular circumstances. I think that this case was clearly not one of arbitration, and that it falls within the class of cases where a person is appointed to determine a certain matter, such as the price of goods, not for the purpose of settling a dispute which has arisen, but of preventing any dispute."
In State of Uttar Pradesh vs Tipper Chand [(1980) 2 SCC 341], the Supreme Court of India considered a clause in the agreement whereunder the decision of the Superintending Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, design, drawing and instructions. It was observed:
14 | P a g e "After perusing the contents of the said clause and hearing learned Counsel for the parties we find ourselves in complete agreement with the view taken by the High Court. Admittedly the clause does not contain any express arbitration agreement. Nor can such an agreement be spelled out from its terms by implication, there being no mention in it of any dispute, much less of a reference thereof. On the other hand, the purpose of the clause clearly appears to be to vest the Superintending Engineer with supervision of the execution of the work and administrative control over it from time to time." In Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd., [(1999) 2 SCC 166] the Supreme Court of India considered similar clauses in a contract where decisions of the Executive or Superintendent Engineer shall be final. It was held that there was no intention of the parties to refer the matters for arbitration. Referring to Hudson's Building and Engineering Contracts, it was observed:
"8. In Hudson's Building and Engineering Contracts, 11th Edn., Vol. 1, in para 6.065, while making a distinction between a certifier and an arbitrator in a building contract, it has been emphasised that essentially the certifier in a construction contract will often be performing an administrative rather than a judicial function, and when doing so, there may often be no formulated dispute before him at all. He has been described as a "preventer of disputes" in contradistinction to an arbitrator whose function can only arise once a dispute is in existence. He is not under the same obligation to afford the parties or their representatives a full hearing and receive evidence from them. Thus each contractual provision may need to be carefully scrutinised to see into which category the person named falls."
Dismissal of the application filed under Section 8 of the Arbitration Act, 1940 was upheld, considering the concerned clauses which did not contemplate reference of disputes to arbitration. In P. Dasaratharama Reddy Complex v. Govt. of Karnataka, [(2014) 2 SCC 201] the Supreme Court of India considered similar clause where it was provided that the decision of the concerned engineer should be final. Three Judges' Bench of the Supreme Court of India negatived the contention that the said clause was arbitration clause. In this case the Supreme Court of India 15 | P a g e made a distinction between arbitration clause and expert determination clause and observed that a valid arbitration clause invites judicial determination with aid of evidence.
These decisions are considered for one reason. Clause 6 of the Escrow Agreement states that the decision of the Defendant Nos.1 & 2, as Escrow Holders, shall be binding on the parties. In the cases referred to above, the Supreme Court of India decided on almost similar types of clauses with different phraseologies, whereby, the parties agreed that decision of one person should be final in case of any dispute or difference. Whether these persons were valuers or engineers or otherwise, presence of such type of clauses negate any scope of arbitration. All these types of clauses rule out referring any dispute to arbitration. In this case too, the parties consciously accepted that the decisions of the Escrow Holders should be binding, whereby they rule out scope of referring any dispute to arbitration. Rather it appears that the Clause 6 of the Escrow Agreement was incorporated for "preventing any dispute". Clause 6.10 of the Share Transfer Agreement is referred to in this clause only to make it clear that if a dispute is referred to arbitration by the parties to the Share Transfer Agreement pursuant to the arbitration clause then the escrow amount shall be kept deposited with the Escrow Holders. By no stretch of imagination Clause 6 of the Escrow Agreement convey a meaning or contain any intention of the parties to refer any dispute on decision of the Escrow Holders shall be referred to arbitration.
For the reasons stated above, the instant petition is not tenable and stands dismissed. It is made clear that observations, made above are tentative and has no bearing on the merit of the suit.
16 | P a g e The suit along with other application shall appear in the list as to be mentioned on 7th May, 2025.
(Sugato Majumdar, J.)