Bombay High Court
Atul Chandrakant Kirloskar And Ors vs Sanjay Chandrakant Kirloskar And Ors on 3 May, 2021
Equivalent citations: AIRONLINE 2021 BOM 3155
Author: A. K. Menon
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL (ST) NO.1661 OF 2021
1) Atul Chandrakant Kirloskar
residing at Radha, 453, Gokhale Road,
Shivajinagar, Pune-411 016.
2) Rahul Chandrakant Kirloskar
3) Arti Atul Kirloskar
4) Gauri Atul Kirloskar
5) Aditi Atul Kirloskar
6) Alpana Rahul Kirloskar
7) Alika Rahul Kirloskar
8) Aman Rahul Kirloskar
9) Jyotsna Gautam Kirloskar
10) Nihal Gautam Kirloskar
11) Shruti Nihal Kulkarni
12) Gargi Nihal Kulkarni
13) Ambar Gautam Kulkarni
14) Komal Ambar Kulkarni .. Appellants
v/s.
1) Sanjay Chandrakant Kirloskar
residing at Plot no.22 & 23,
270 Pallod Farms, Baner,
Pune - 411 045.
2) Kirloskar Brothers Limited
Duly incorporated Company
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Having registered office at
Udyog Bhavan, Tilak Road, Pune-411 002.
3) Vikram Shreekant Kirloskar
4) Geetanjali Vikram Kirloskar
5) Manasi Vikram Kirloskar
6) Pratima Sanjay Kirloskar
7) Alok Sanjay Kirloskar
8) Rama Sanjay Kirloskar
9) Kirloskar Oil Engines Limited
10) La Gajjar Machineries Private Limited
11) Kirloskar Proprietary Limited
12) Anil C. Kulkarni
13) Chandrashekar H. Naniwadekar
14) Mahesh Chhabria .. Respondents
Mr. Dinyar Madon, Sr. Advocate, a/w Mr. Kunal Katariya, Ziyad Madon,
Tushar Ajinkya, Ms. Sukanya Sehgal i/b. Think Law for the appellants.
Mr. Aspi Chinoy, Sr. Advocate, a/w Mr. Ashish Kamat i/b. Rustam Gagrat
& Zeeshan Farooqui, Shruti Dasondi of M/s. Gagrats for the respondent
no.2.
Mr. Rafique Dada, Sr. Advocate, a/w Jehan Mehta i/b. Mr. Rustam
Gagrat & Ipshita Sen, Meghna Talwar of M/s. Gagrats for respondent
nos.1, 6, 7 & 8.
Ms. Ashmita Goradia i/b. Aagam Doshi for respondent nos.11-14.
Mr. Kunal Kanungo a/w Rahul Punjabi i/b. Mr. S. Venkateshwar for
respondent nos.9 & 10.
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Mr. Aditya Mehta a/w Anup Khaitan & Ms. Sonal Satve i/b. M/s. Anup
Khaitan & Co. for Kirloskar Industries Ltd.
CORAM : A. K. MENON, J.
RESERVED ON : 1ST APRIL, 2021
PRONOUNCED ON : 3RD MAY, 2021.
(THROUGH VIDEO CONFERENCE)
JUDGMENT:
1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 assails an order dated 7 th December, 2020 passed by the Civil Judge, Senior Division, Pune, rejecting three applications filed under Section 8 of the Arbitration and Conciliation Act. The applications were filed in Special Civil Suit no.798 of 2018 filed by two plaintiffs who are respondent nos.1 and 2 in this appeal. Respondent no.1 is one Sanjay Chandrakant Kirloskar, respondent no.2 is Kirloskar Brothers Ltd. The appellants are 14 in number and were all defendants in the suit. Respondent nos.3 to 14 are also defendants in the suit but some of these defendants support the appellants. Others are agreeable to refer the disputes to arbitration although they contend that they are not parties to the agreement containing the arbitration clause and which is the subject matter of the present appeal.
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2. The arbitration clause is contained in a Deed of Family Settlement ("DFS") dated 11th December, 2009 entered into amongst members of the Kirloskar Family. All the 14 appellants and the respondents nos.1 and 3 to 8 are all members of that family and are parties represented by heads of respective branches of the family. The "DFS" was executed by and between appellant nos.1, 2, respondent nos.1, 3 and late Gautam Kulkarni. According to the appellants, the DFS was entered into to ensure that differences that may arise within the family in relation to the businesses are not subject to scrutiny outside the family. The family members of each branch and represented by the five individuals who execute the DFS have been described in a tabulated form in the appeal. The aforesaid Sanjay Kirloskar of the Sanjay Kirloskar Branch is plaintiff no.1 in this suit. Plaintiff no.2 being a company which forms part of the Kirloskar Group of Companies. Respondent nos.9 and 11 are companies which are part of the Kirloskar Group whereas respondent nos.12, 13 & 14 are Directors of respondent no.11 company. The plaintiffs seek specific performance of the DFS against all the appellants and respondent nos.3 to 8 and 11. In addition, the plaintiffs seek damages in a sum of Rs.750 crores against the appellant nos.1 to 5 and 4/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: respondent nos.3 to 5 and 9 to 14. Several interim reliefs pertaining to the constitution of the Board of Directors, representation of the Board and for permanent and temporary injunctions in connection therewith are also sought. The appellants and respondents are also referred to in their capacities as plaintiffs and defendants for the sake of convenience.
3. On 10th July, 2018 the appellants filed applications under Section 8 seeking reference to arbitration. Clause 20 of the DFS was the arbitration clause that was in contemplation. In the reply filed on behalf of the plaintiffs, they contended that Clause 20 of the DFS was not applicable and the arbitrators could not entertain a reference except under Clause 13 which related to functioning of two institutions viz. the Kirloskar Institute of Advance Management Studies and the Kirloskar Foundation promoted by the parties to the DFS.
4. According to the plaintiffs, the subject matter of the suit was not capable of resolution by arbitration and hence the suit could not be referred to arbitration. The plaintiffs had sued parties who are not signatories to the DFS and hence, the cause of action to the extent it concerns, those defendants could not be referred to 5/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: arbitration. It is also contended that the controversy in the suit was not arbitrable. In a rejoinder filed the appellants reiterated their stand that the arbitration agreement was binding and still in force. On interpretation of Clauses 13 and 20, the appellants contended that the suit must be referred to arbitration.
5. After hearing the rival contentions, the Civil Judge passed an order on 7th December, 2020. He rejected the applications. The only substantial point for determination framed by the learned judge reads as follows;
(i) Whether it is just and legal to refer this matter to arbitration as asked for?
SUBMISSIONS
6. Mr. Madon submitted that disputes and differences having arisen within the family, the provisions of Clause 20 of the DFS would justify reference to arbitration. He submitted that the original plaintiffs i.e. respondent nos.1 & 2 filed the suit on or about 5 th June, 2018 claiming specific performance of the DFS and consequential reliefs of declaration and injunction, all of which pertained to differences that have arisen within the scope of the DFS and Clause 20 in particular. He submitted that even as far as 6/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: the exceptions provided under Clause 13 are concerned, the two entities Kirloskar Institute of Advance Management Studies ("KIAMS") and Kirloskar Foundation ("KF") are promoted and managed by the parties to the DFS and disputes pertaining to those are also to be entertained by a Tribunal to be constituted in accordance with Clause 20. Referring to the provisions of Clause 20, Mr. Madon submitted that the arbitrators were entitled to entertain all disputes and differences under the DFS within a period of three years but if the two entities BVH and Asara had not been dissolved, the period of 3 years would stand extended till dissolution of BVH and Asara. Since these two entities were still admittedly not dissolved, the arbitration clause could still be invoked and is accordingly being invoked by seeking reference of this suit to arbitration under Section 8.
7. The respondents had in their reply dated 13 th July, 2018 objected to the application on the ground that Clause 20 does not cover the disputes in the suit and that disputes referable to arbitration are restricted to Clause 13 which related to control and functioning of KIAMS and KF. The reply was common to the applications filed by the appellants as well as respondent nos.3, 4 and 5. The appellants have since filed a rejoinder and reiterated 7/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: that the subject matter of the suit is covered by the arbitration agreement in the DFS and therefore any claim under the DFS would be arbitrable. It is contended that the District Judge should have referred the suit to arbitration. Highlighting the limited scope of an application under Section 8, Mr. Madon submitted that a Judicial authority is required to refer disputes to arbitration in cases where an arbitration clause exists and once the court comes to that conclusion, it was incumbent upon the judicial authority to make the reference. While Mr. Madon in support of the appeal canvassed the point that the suit must be referred to arbitration and the court really did not have much of a choice, he submitted that the learned Judge had erred in concluding that this was not a "fit" case for reference to arbitration without providing any reasons. Mr. Madon invited my attention to the order of the Civil Judge which he submitted was bereft of any reasoning. Prima facie, it does appear that the order has been passed without assigning reasons. In support of his contentions, Mr. Madon relied upon the following judgments;
1) Mahanagar Telephone Nigam Limited v/s. Canara Bank and Ors. 1
2) R V Solutions Pvt. Ltd. v/s. Ajay Kumar Dixit & Ors.2 1 (2020) 12 SCC 767 2 CS (COMM)745/2017 dated 15/01/2019 of Delhi High Court 8/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 :::
3) Hindustan Petroleum Corpn. Ltd. v/s. Pinkcity Midway Petroleums3
4) Ameet Lalchand Shah & Ors. v/s. Rishabh Enterprises & Anr.4
5) Cheran Properties Limited v/s. Kasturi & Sons Limited & Ors. 5
6) Narayan Prasad Lohia v/s. Nikunj Kumar Lohia & Ors. 6
8. The appeal is opposed by Mr. Dada on behalf of the respondent nos.1 & 2 & 6 to 8. He submitted that respondent nos.2 & 9 to 14 in the appeal were not signatories to the DFS. According to him, relief was sought by respondent nos.1 & 2 against all the defendants in the suit which includes respondent nos.9 to 14 (defendant nos.21 to 26 in the suit) who are not signatories to the DFS. According to Mr. Dada, defendant nos.1 to 21 and 23, were required to perform the DFS and defendant nos.1 to 6 and 10 to 26 were also liable to pay damages in a sum of Rs.750 crores. The declarations sought in the suit pertain to directorships of defendant nos.24 to 26 on the board of defendant no.23 company. That declaration sought is to the effect that the claim to directorship is against the provisions of the DFS. He also stressed upon the fact that the plaintiffs are seeking to restrain defendant nos.1 to 3, 16 and 24 to 26, by a permanent injunction 3 (2003) 6 SCC 503 4 (2018) 15 SCC 678 5 (2018) 16 SCC 413 6 (2002) 3 SCC 572 9/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: from performing their functions as Directors of defendant no.23 which would otherwise adversely affect the right of the plaintiff no.1 and companies which are within the control directly or indirectly of the plaintiff no.1 or his branch of the family. He therefore submitted that the plaint clearly discloses disputes that could not be referred to arbitration.
9. According to Mr. Dada the three applications under Section 8 of the Arbitration Act are based on Clause 20 of the DFS while suppressing the effect of Clause 13. Several of the parties in the suit are not parties to the DFS and therefore disputes are not arbitrable and the ingredients required for a reference to arbitration are absent in the present case. According to him the impugned order correctly rejects the applications for reference to arbitration. He therefore submitted that the provisions of Clauses 13 and 20 will clearly reveal that the suit seeks reliefs which cannot be referred to arbitration. Inviting my attention to Clause 13, Mr. Dada highlighted the separate provision pertaining to differences of opinion in relation to matters referred to in Clause 13 which were necessarily to be resolved by arbitration since all the parties to the DFS had agreed not to resort to any litigation in court or otherwise. However this clause was restricted to the functioning and running of KIAMS and KF. 10/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 :::
10. Save and except for these disputes nothing else could be referred to arbitration. Referring to Clause 20 of the DFS, Mr. Dada submitted that the clause contemplates making a valid reference strictly within three years of its execution. After expiry of three years, no dispute other than those under clause 13 could be referred to arbitration. The appellants had failed to make out any case for referring the suit to arbitration under Section 8. Mr. Dada then submitted that the respondent nos.9, 10 & 11 were limited Companies. These companies had all taken up identical stands in their affidavits in reply to the application. These three companies were obviously not signatories to the DFS and reference to the averments in the affidavit clearly reveals that they had expressed their willingness to submit to arbitration and had consented to the suit being referred to arbitration without prejudice to their rights and contentions in the matter. Since they were not signatories to the DFS they had contended that the DFS is not binding on the respondent no.9 company as they were not signatories. Apart from these three respondents, Mr. Dada also invited my attention to the affidavit filed by respondent nos.12, 13 & 14 who are all Directors of respondent no.11 company. These gentlemen had also filed similar affidavits stating that while they were not signatories to the DFS, they 11/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: had no objection to the disputes being referred to arbitration on behalf of respondent no.11 company. Mr. Dada submitted that there was no question of making a valid reference to arbitration since all of these respondents had conveyed their consent for reference to the disputes to arbitration, without prejudice to their contentions that the DFS is not binding upon them. In such circumstances, he submitted that no valid reference could be made. Mr. Dada then relied on the following judgments;
1) United India Insurance Company Limited & Anr. v/s. Hyundai Engineering and Construction Company Limited & Ors.7
2) Indowind Energy Limited v/s. Wescare (India) Limited & Anr. 8
3) Vidya Drolia & Ors. v/s. Durga Trading Corporation9.
11. Mr. Chinoy appearing for respondent no.2 likewise supported the submissions made on behalf of respondent no.1 by Mr. Dada. In support of his contentions, Mr. Chinoy also relied upon the decision of this Court in Essar Steel India Ltd. v/s. The New India Assurance Co.Ltd.10 Inviting my attention to the observations of the Supreme Court in paragraph 8 of Essar 7 (2018) 17 SCC 607 8 (2010) 5 SCC 306 9 2020 SCC Online 1018 10 2016 SCC Only Bom 9472 12/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Steel(supra). Mr. Chinoy submitted that the suit contains matters which are excluded from the scope of arbitration and once that is established, the disputes in the suit cannot be referred to arbitration under Section 8. He supported the order passed by the Civil Judge and contended that the appeal has no merit. He invited my attention to the provisions of Clauses 13 and 20 of the DFS and submitted that the dispute in the suit will give rise to issues which were clearly not be covered by Clause no.13 and cannot be referred to arbitration under Clause no.20. This is an express exclusion of all these disputes which the suit alone can cover and therefore the order rejecting the application made under Section 8 is justifiable. He stressed upon the non-arbitrability of these disputes which were subject matter of the suit and invited my attention to the observations of the Supreme Court in the case of Vidya Drolia (supra).
12. Drawing support from the judgment of the Supreme Court in Duro Felguera and as referred in Vidya Drolia Mr. Chinoy submitted that an arbitration agreement must be capable of resolving the disputes and that court must examine whether the agreement contains a clause which provides for arbitration of the 13/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: disputes which have arisen. He submitted that a proper interpretation of the clause and upon scrutiny of the disputes in the suit, it would be clear that the suit relates to disputes and differences which are excluded from the purview of arbitration and in this respect he submitted that the decisions of the Supreme Court in Garware Wall Ropes Ltd., Narbheram Power Steel and Hyundai Engineering and Construction Ltd. had all observed that where the claims are excluded and not covered by the arbitration clause no reference could be made to arbitration since the arbitration clause itself would not apply and govern the disputes. According to Mr. Chinoy, there was no merit in the applications under Section 8. He therefore submitted that the learned Civil Judge has correctly rejected the applications and therefore no interference was called for in the present appeal.
13. While considering the rival contentions, I was also informed that the respondent nos.1 & 2 had filed written submissions before the Civil Judge at Pune. In these written submissions, the original plaintiffs have reiterated the fact that the suit is filed for specific performance of the DFS. Reference is made to clauses 20 and 13 and the submission of the exclusive 14/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: areas of operation of these clauses has been referred to. It was contended that the submissions were without prejudice to one another and that the arbitration under clause 20 was not workable. The arbitral tribunal was to consent of two members. The provisions of Section 10 of the Arbitration Act grants liberty to the parties to determine a number of arbitrators who in any event cannot be in even number. According to the plaintiffs / respondent no.1 & 2 the arbitration cannot proceed. It is contended that in the event of an inter se disagreement between the two arbitrators, the proceedings will be frustrated and there would be no adjudication. Clause 20 is therefore said to be inherently defective and inoperative. It is further contended that the expression "the matter" is not specified anywhere in the DFS and hence, it is vague and it is not possible to ascertain what "matters" are required to be submitted to arbitration. The clause records that in the event of disagreement between the two arbitrators, the matter would be referred to one Shri Shrikrishna Inamdar but there is no clarity as to the stage at which Mr. Inamdar would assume charge. It is further contended that the provisions of Clause 20 disabled the two arbitrators from adjudicating the matter in certain situations and therefore clause 15/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: 20 does not qualify to be an arbitration agreement at all. That the event of a disagreement between the arbitrators and if the matter is referred, the third arbitrator, would most likely have two distinct awards authored by two arbitrators and this would not be in the interest of the parties. Clause and 13 & 20 do not cover the controversy in the suit and the arbitration clause is ambiguous and clearly the disputes in the suit are not amenable to arbitration.
14. Furthermore, the contesting respondents have reiterated that the suit is maintainable mainly because defendant nos.22 and 24 to 26 are not parties to the DFS and the alleged arbitration agreement. This is a composite cause of action against the aforesaid persons and other defendants and therefore cannot be referred to arbitration since these persons are not parties to the arbitration agreement contained in the DFS. My attention is also invited to the fact that defendant no.23 had taken up a position that it was not a party to the DFS and therefore not bound by the same. Identical submissions are filed in the other applications as well.
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15. On behalf of the appellants, brief written submissions are seen to have been filed before the Civil Judge in which the appellants have contended that the execution of the DFS not being in dispute, the relief claimed in the suit is on the basis of DFS. It seeks specific performance, declarations in terms of the DFS and in relation thereto and a permanent and temporary injunction as well. Contents of clause 20 of the DFS are highlighted. The plaintiffs having admitted the existence of an arbitration clause in their reply to the applications and the contention that the arbitration clause will not cover the controversy in the suit cannot be decided at this stage. The suit is filed to enforce an agreement containing an arbitration clause and therefore there can be no doubt that a judicial authority viz. the court before which the suit appears must refer the suit to arbitration. The appellants have relied upon an analysis of section 8 in support of their submissions. It is further submitted that judicial intervention should be restricted in matters such as these and the defendants have already produced the original deed before the court and are thus in compliance with the provisions of section 8. It is contended that the original plaintiffs viz. respondent nos.1 & 2 have not suggested that BVH and Asara have been dissolved. In the event these two entities have been dissolved and a period of 3 years had 17/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: passed by, the arbitration agreement would cover only disputes in matters of KIAMS and KF. The appellants have also contended that the suit seeks to enforce clauses of the DFS against all the defendants and the reliefs are claimed on the basis of the DFS and in particular the paragraphs of the plaint and the prayer clauses which clearly establish that the suit seeks relief which are all subject matter in respect of DFS and would be subject matter of arbitration and that is an aspect that could be decided under Section 16 by the arbitral tribunal. It is therefore contended that the applications be allowed and the appeal be allowed.
16. It is in this back ground that I have proceeded to consider the rival submissions. Let us first consider the scope of the suit itself. A copy of the plaint is annexed at Exhibit 'C' to the appeal. The plaintiffs in Special Civil Suit no.798 of 2018 are Sanjay Chandrakant Kirloskar and Kirloskar Brothers Ltd. respondent nos.1 & 2 herein. The defendants are all the parties and they are 26 in number. It includes defendant nos.21, 22 & 23 which are companies managed by the family members. Defendant nos.24, 25 and 26 are individuals who are not family members and were said to be Directors of defendant no.23 Kirloskar Proprietary Ltd. The plaint sets out that the plaintiff no.2 is the flagship company of the 18/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Kirloskar Group. Defendant no.21 is the successor in interest of one Kirloskar Oil Engines Ltd. Defendant no.22 is a subsidiary of defendant no.21 and defendant no.23 is the company holding all trademarks and logos pertaining to the Kirloskar Group of Companies. Defendant no.23 is said to be incorporated as a quasi partnership with equal control ownership and participation of all branches of the Kirloskar family and defendant nos.24 to 26 are Directors of that company.
17. The plaintiffs have averred that the family members had envisaged an agreement whereby ownership and management control of each branch of the Kirloskar family gets defined for smooth functioning of the businesses. This was reflected in several documents including the Will of the Patriarch. There is no dispute about the execution of the DFS. All members of the Kirloskar family are admittedly bound by the DFS along with companies owned, managed and controlled by them including defendant nos.21 and 23. This is evident from the averment in paragraph 16 of the plaint which reads thus;
"16. It is submitted that the promoters of the Kirloskar group companies as mentioned in the Deed of Family Settlement dated September 11, 2009 are all members of Kirloskar family and are bound by the said Deed of Family Settlement along with the companies owned, managed and controlled by 19/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: them including the defendant nos.21 and 23. Under the terms thereof, the parties to the Deed of Family Settlement are obliged to ensure that there is no competition between them, directly or even indirectly, including through the companies under their ownership, management and control." (Emphasis supplied)
18. The plaintiffs plead that under the terms of the DFS the parties are obliged to ensure that there is no competition between them directly or indirectly including through companies under their ownership, management and control. It is further stated that the DFS is in force, has been implemented and has been taken advantage of and is valid, subsisting and is binding upon the defendants.
19. Plaintiff no.1 and his branch of the family had complied with all obligations that the DFS as set out in paragraph 18 of the plaint. However as set out in paragraph 20, the plaintiffs were shocked to learn that defendant nos.1, 3 and 16 and late Gautam Kulkarni had through defendant no.21 (Respondent no.9) ventured into a business which was competing and hence acted in breach. The conduct of these persons is said to be in the teeth of Clause 5(xv) of the DFS, against the family traditions and understanding of non- compete. In paragraph 22, the plaint sets out that Clause 15 of the DFS prohibits any party thereto or any Kirloskar Group company 20/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: under control of such parties from engaging in directly competitive business with one another. The concept of group companies and the non-compete provisions have been referred to in paragraph 23 of the plaint and according to the plaintiff it was incumbent on the defendant nos.3 & 16 and the late Gautam Kulkarni to ensure that there is no breach of the provisions of the DFS.
20. The cause of action to file the suit is said to have arisen on 21st June, 2017 when the plaintiffs learnt of the press release by defendant no.21 which acquired 76% stake in defendant no.22 viz. respondent no.10 which was a company engaged in the manufacturing and sale of electric submersible pumps in direct competition with the business of the plaintiff no.2. The continued sale of such submersible pumps by defendant no.21 and by defendant no.22 upon acquisition is in contravention of Clause 15 of the DFS and therefore the plaintiffs are entitled to reliefs in the suit. Since the family members had agreed not to enter competing businesses as a matter of policy and tradition which has been formally recorded in the DFS, allegations are that persons in charge of defendant no.21 and thus, all defendants except defendant nos.7 to 9 who are family members of plaintiff no.1 have directly and through their group entities engaged in malafide transactions to 21/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: undermine the DFS and had committed gross and fundamental violations of the DFS by systematically attempting to erode the basic tenets of the DFS.
21. In paragraph 31 the plaint sets out that part cause of action that had arisen at the 267 th Board Meeting of defendant no.23 when defendant no.25 Chairman of the company announced that 1/3 rd of the Board of Directors were liable for retirement by rotation and that lots would have to be drawn.
22. According to the plaintiffs, the cause of action arose in June 2017 they learnt of the breach for the first time and thereafter once again when the plaintiff no.1 was removed as a Director of defendant no.23 and not re-appointed. Defendant no.26 was meanwhile wrongly appointed as Director. In conclusion, the plaint states that all the plaintiffs have all along performed and are ready to perform their part of the DFS and that the defendants have been in breach which if it allowed to continue will cause irreparable loss and therefore defeat the basic objective of the DFS. The plaintiffs have therefore sought injunctive reliefs.
23. The application under Section 8 is to be found at Exhibit D- 22/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: 2 to the appeal memo. The application is filed on behalf of defendant nos.3 to 6, 12 & 14 in the suit. Similar applications have also been filed by defendant nos.15 to 20. The applications set out the fact that the suit has been filed for specific performance of the DFS and for damages seeking declarations relating to non-appointment of plaintiff no.1. All of the disputes in the suit are subject matter of the arbitration agreement embodied in Clause 20 of DFS and therefore the suit be referred to arbitration. The original agreement was in possession of late Gautam Kulkarni and his family but that had been produced in court and therefore the matter may be referred to arbitration along with the applications for injunction. The applications by defendant nos.15 to 20 are also on identical basis. The appellants state that mere filing of the suit cannot frustrate the arbitration clause and the provisions of the Act and therefore the suit is required to be referred to arbitration.
24. I find that the original plaintiff no.1 has filed an additional affidavit dated 30th March, 2021 placing on record an amendment application filed in the suit and seeking to amend paragraphs 5 to 10 and the prayer clause in the suit in terms of the application. I must note that the applicant has averred that the proposed amendment does not change the nature of the suit. Essentially what 23/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: is sought to be done is that certain supplementary averments are sought to be included and consequentially some prayers but in essence the applicant is clear that the substance in the suit has not been altered. At the hearing of the appeal, certain additional affidavits have also been filed by the other respondents who are prima facie agreeable for the disputes in the suit referred to arbitration.
25. Since the respondents are the successful party in the trial court, let me first consider the judgments relied upon by them in the first instance so as to examine the applicable law. In United India Insurance (supra), Mr. Dada had relied upon paragraph 10 laying emphasis on the fact that in an arbitration clause contained in an insurance policy, the court had found that there is a specific exclusion of certain disputes. If the insurer had disputed or had not accepted liability, no difference or dispute arising could be referred to arbitration. The court observed that as held by several earlier judgments that an arbitration clause has to be interpreted strictly. The clause in question pertaining to the insurance policy had already been considered in an earlier decision in Oriental Insurance Company11 and the court observed that such an arbitration clause 11 (2018) 6 SCC 543 24/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: would only be activated if the dispute between the parties was limited to quantum under the policy. Liability should have been unequivocally accepted by the insurer. The arbitration clause would come alive only if the insurer admits liability under the policy and not otherwise. The High Court in that case had made no effort to examine this aspect at all, and therefore misread and misapplied the case of Vulcan Insurance Company Limited v/s. Maharaj Singh12. The High court had also relied upon Duro Felguera S.A. v/s. Gangavaram Port Ltd.13 The High Court had after considering clause 7 of the Insurance policy relied mainly on the decision of Duro Felguera and Jumbo Bags Ltd. v/s. New India Assurance Co.Ltd. 14 and allowed the petition by appointing a Sole Arbitrator. Clause no.7 did contain the exclusion referred to above and hence the Supreme Court found that reliance upon Duro Felguera will be of no avail because in that case the court had not been called upon to consider a clause of the kind that was involved in the case before it, whereas the issue had already been considered by three Judge Bench in Oriental Insurance Co. Ltd. following Vulcan Insurance Co. Ltd. (supra). In Vulcan Insurance Co.Ltd. (supra) after considering a clause of that nature, it was found that the insurance company had 12 (1976) 1 SCC 943 13 (2017) 9 SCC 729 MAD 1941 14 2016 SCC Online 25/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: repudiated its liability to pay any amount towards loss or damage and that dispute raised pertain to liability and the court held that the dispute was not covered by the arbitration clause since a clause excluded any aspect of liability and it was restricted to quantum. In my view this judgment will not come to the assistance of the respondents since in the case of United India there was an express exclusion whereas in the present case on facts I do not find the any express exclusion canvassed by Mr. Dada and Mr. Chinoy on a fair reading of clauses 13 and 20 except conditionally upon expiry of time.
26. In Indowind Energy (supra), the court observed in paragraph 13 of that judgment it was fundamental that a provision for arbitration to constitute an arbitration agreement for the purposes of Section 7 should satisfy two conditions (i) it should be between the parties to the dispute and (ii) it should relate to or be applicable to the dispute. On facts it had been found that the respondent therein Wescare had not entered into any agreement with Indowind referring to an agreement dated 24 th February, 2006 which contain the arbitration clause with the intention of making such an arbitration clause as part of their agreement. Wescare did not make out a case that there had been exchange of statements of 26/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: claim and defence in which it had alleged the existence of an arbitration agreement and the same had been accepted and was not denied by Indowind in defence. It was also not a case where a Wescare had relied upon exchange of letters or correspondence which provided a record of the arbitration agreement between the parties and thus provisions of Section 7 of the Arbitration Act had not been complied. Wescare had put forth the agreement of 24 th February, 2006 as an agreement signed by the parties and containing an arbitration clause but that agreement was between Wescare and one Subuthi and not Indowind. It was not in dispute that an appointment of an arbitrator could have taken place if there had been a dispute between Wescare and Subuthi but when Indowind was not a signatory to the agreement, the agreement cannot be said to be binding on Indowind since it was not a party to the agreement. Relying upon this, Mr. Dada contended that since several of the parties especially respondent nos.2, 21, 22 and 23 were not parties to the DFS. In these circumstances, Mr. Dada had contended that the present arbitration clause would not cover the disputes in the suit which related to parties other than those entities who are parties to the DFS.
27. Mr. Chinoy on behalf of respondent no.2 placed reliance 27/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: on paragraph 20 of Indowind (supra) to canvass the point that Wescare had in that case referred to several transactions and conduct of Indowind to enable the drawing of an inference that Indowind was party to that agreement or that in some way it had affirmed and approved the agreement which would therefore make it binding upon Indowind. The Court had found that existence of such an oral agreement was insufficient that although contract can be entered into even orally or spelt out from correspondence, an arbitration agreement is different from a contract. An arbitration agreement can come into existence only in the manner contemplated in Section 7 and that states that an arbitration agreement should be in writing. It will not be sufficient for the petitioner in an application under Section 11 to show that any oral contract existed between the parties and therefore the contention of Wescare was required to be rejected. The respondents seek to draw advantage from these observations.
28. Mr. Dada and Mr. Chinoy both laid considerable emphasis on the judgment in Vidya Drolia & Ors. (supra) in which the court observed that they were bound by dictum of the Constitution Bench Judgment in the case of S.B.P. & Co. v/s. Patel Engineering Ltd. (supra) which held that the scope and ambit of the courts' jurisdiction under 28/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Sections 8 and 11 are similar. The application under Section 11 did not set out in detail the disputes or claim but briefly referred to them. There was a difference between a non-arbitrable claim and a non- arbitrable subject matter. It was submitted that the claims in the suit were not arbitrable ones. The learned counsel also submitted that in Mayavati Trading v/s. Pradyuat Deb Burman 15 a three Judge Bench had held that the legislature by inserting sub-section (6-A) to Section 11 and making amendments by the 2016 Act had legislatively introduced a new regime so as to dilute and legislatively overrule the effect and ratio of the judgment in Patel Engineering.
29. Reliance was also placed in that on paragraphs 48 and 59 of Duro Felguera. Mayavati held that in view of legislatively overruling of the prior position in law as laid down by the Supreme Court, it was difficult to agree with the reasoning contained in Duro Felguera / Patel Engineering Ltd. since Section 11 (6-A) is confined to the examination of the existence of an arbitration agreement, and has to be understood in the narrow sense laid down in Duro Felguera.
30. Mr. Chinoy referred to paragraph 97 to 99 of Vidya Drolia and highlighted the fact that in Narbheram Power and Steel Private 15 (2019) 8 SCC 714 29/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Limited, a three Judges' Bench had decided a Civil Appeal from an application under Section 11(6) in an insurance contract and relying upon Vulcan Insurance (supra) the court held that the disputes were not arbitrable in terms of the arbitration clause since the insurer had not accepted the liability. The decision in Narbheram(supra) was followed in Hyundai Engineering (supra) wherein a similar arbitration clause had come into play. By virtue of Narbheram and Hyundai, the three Judges' Bench of the Supreme Court had affirmatively and in categorical terms held that the question of non-arbitrability relating to the enquiry whether the dispute was governed by the arbitration clause can be examined by the courts at the stage of reference and may not be left unanswered to be examined by the arbitral tribunal. In the present case I am invited to find that the disputes in the suit were not arbitrable
31. Reliance was also placed by Mr. Chinoy on the observations of the Supreme Court in paragraph 131 (ix) of Vidya Drolia. In Duro Felguera the court had held that the Memorandum of Understanding in question did not incorporate an arbitration clause. Reference was made specifically to Patel Engineering and Boghara Polyfab Private Limited to observe that the legislative policy was essentially to 30/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: minimize the courts' interference at the pre-arbitral stage and this was the intention of sub-section (6) of Section 11 of the Act. Reference was once again made to paragraph 48 in Duro Felguera which specifically stated that the arbitration agreement must have within it a provision for resolution of dispute and it is for the court to see if the agreement contains a clause which provides for arbitration of the disputes which have arisen between the parties. Whereas paragraph 59 of that judgment was found to be more restrictive and required the court to see whether an arbitration agreement exists nothing more, nothing less.
32. Vidya Drolia then observed that read with other findings it would be appropriate to read the two paragraphs in Duro Felguera as laying down the ratio that the court is required to see if the underlying contract contains an arbitration clause for arbitration of the disputes that had arisen between the parties nothing more and nothing less. In paragraph 131(x) the court observed that in addition to Garware Wall Ropes Ltd., Narbheram Power and Hyundai Engineering had also rejected the application for reference in Insurance Contracts holding that the claim was beyond the arbitration agreement and not covered by it.
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33. In those cases, the decision in Vulcan Insurance was found to apply early in the case of PSA Mumbai Investments PTE Ltd. The Supreme Court had found that at the stage of reference that the arbitration clause would not be applicable or govern the disputes between the parties and the reference to arbitral tribunal was set aside. Relying upon these aspects, the learned counsels for the respondents have canvassed the non-arbitrability of the issues in the suit.
34. In Essar Steel India Ltd. (supra), a single Judge of this Court was considering an application under Section 11 for appointment of an Arbitrator. The clause in the agreement reiterated that there would be no arbitration where liability had been disputed. The reference to arbitration was to be restricted only to those situations where liability had been accepted and if the dispute related only to quantum. This clause was similar to the other insurance contracts to which I have referred above and contained a clear and unequivocal stand on behalf of the insurance company that only if liability was admitted, differences and disputes could be referred to arbitration. It was clearly agreed that no difference of dispute would be referable to arbitration if the insurance company had disputed or had otherwise not accepted 32/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: liability under the policy. Essar had sought to contend that in the event of a mixed dispute relating to liability and quantum, it was necessary to refer the disputes to arbitration but the court found on facts that this contention was contrary to what the parties had agreed to. The clause in question did not contemplate three situations. It contemplated only a situation where disputes related to quantum and if disputes related to liability and quantum, it is only the dispute relating to quantum that could be referred to arbitration. Relying upon these observations Mr. Chinoy had sought to contend that in the present case even if some disputes in the plaint are found to be referable to arbitration, and for that reason the suit cannot be referred under Section 8 to arbitration only if a part of the relief are referable to arbitration. However, I am of the view that the facts at hand do not demonstrate any exclusion canvassed by Mr. Dada or Mr. Chinoy. The only exclusion is spelt out in Clause 20 and are driven by expiry of time and dissolution of BVH and Asara.
35. In Mahanagar Telephone Nigam (supra), the Supreme Court was considering the existence of an arbitration agreement by inference through documents and proceedings before the arbitrator and the court examined the effect of the principle of 33/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: estoppel qua denial of such an agreement once the party consents to refer to disputes before the court. It was held in that case that MTNL after participating in the proceedings conducted by the sole arbitrator filed its claim and counter claim and no objection was raised before the sole arbitrator. There was no arbitration agreement in writing between the parties. Appellant MTNL had consented to refer the disputes to arbitration before the Delhi High Court and was therefore estopped from contending that there was no written agreement to refer disputes to arbitration.
36. The doctrine of "Group of Companies" had been invoked by the court in that case and following that case in a situation where the signatories have been bound to whether under the Arbitration agreement. The group of companies' doctrine could be invoked to bind the non-signatory affiliate of a parent company or the inclusion of a third party to arbitration. If there is a direct relationship between the party which is a signatory to the agreement, direct commonality of the subject matter, the composite nature of the transaction between the parties and therefore it was contended that it was a fit case on facts which demonstrated that there was mutual intention of all the parties to bind the signatories and the non-signatory affiliates in the group. 34/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: The doctrine provided that a non-signatory may be bound by an arbitration agreement whether parent or holding company or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity in the group had been engaged in negotiations or performance of commercial contracts or had made statements indicating its intentions to be bound by the contract. Then in such case is the non-signatory will also be bound and benefited by the relevant contracts. Canara Bank had objected to joinder of CANFINA in the arbitration proceedings. On that issue, the Supreme Court found that normally in an arbitration agreement only the company that entered into the agreement would be bound by it and on principles of contract law, an agreement entered into by one of the companies in a group cannot bind the other members of the same group as each company is a separate legal entity and has separate legal rights and liabilities. However, a non-signatory was found to be bound by an arbitration agreement on the basis of the group of companies' doctrine.
37. Mr. Chinoy had contended that in paragraph 10.15 of the judgment in MTNL the court found that there was no merit in the objections of Canara Bank in opposing joinder of CANFINA since 35/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: the bank had vide its letters enclosed a draft arbitration agreement to MTNL wherein it was clearly stated that the arbitration would be between three parties viz. Canara Bank, CANFINA on one part, and MTNL as the second. Mr.Chinoy submitted that in the present case the non-signatories were not so bound. The Supreme Court did finally invoke the Group of Companies doctrine to join CANFINA i.e. the wholly owned subsidiary of Canara Bank.
38. The order of the Delhi High Court in the case of R V Solutions (supra) refers to the decision in Cheran Properties (supra) and Ameet Lalchand Shah (supra) and holds that there was a clear commonality of facts which binds the defendants together. Defendant nos.1 to 4 in that case were said to be ex- employees of the plaintiff. The five defendants were said to have caused loss and damage to the plaintiff and it was clear that there was parties' commonality of interest which would warrant that the matter be referred to arbitration. Objections were found to be lacking in merit.
39. In HPCL (supra) the Supreme Court was considering a civil appeal from an order rejecting an application under Section 8. 36/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: The Court observed that where an arbitration clause exists, the court has a mandatory duty to refer disputes to arbitration between the contracting parties and that the civil court had no jurisdiction to continue with the suit once an application had been filed. Reliance has been placed on paragraphs 14 by Mr. Madon which referred to the decision of the Supreme court in P Anand Gajapathi Raju v/s. P.V.G. Raju 16. In Raju (supra) the Supreme Court had held that the language of Section 8 was peremptory in nature. In the event of an arbitration clause was subsisting, it was obligatory for the court to refer parties to arbitration and nothing remains to be decided in the original action once an application is made. If a party to a suit moves the court contending that there was a clause for arbitration, it was mandatory for the civil court to refer the dispute.
40. In the case of HPCL, the existence of an arbitration clause was accepted by both parties but the applicability was disputed and the dispute to applicability was recognized and accepted by the lower court. The Supreme Court held that once the existence of an arbitration clause is admitted, the mandatory language of Section 8 would require reference of the dispute to arbitration. 16 (2004) SCC 539 37/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Meanwhile in Ameet Lalchand Shah (supra) the attention of the Supreme Court was considering an issue relating to the arbitration clause in the principal agreement, inter-connectivity of agreements with the principal agreement and determination of the common purpose in the context of ascertaining the existence of an arbitration agreement under Section 7. The Supreme Court allowed the appeal and all four agreements were referred to arbitration. The court observed that the language of the amendment of Section 8 of the Act, it clearly applies notwithstanding any prior judgment decree or order of the Supreme Court or any other court.
41. The High Court in that case had laid emphasis on the words "unless it finds that prima facie no valid agreement exists". The High Court while distinguishing Sukanya Holdings and Chloro Controls observed that Sukanya was not overruled by Chloro Controls. Paragraph 29 of the judgment impugned in Ameet Lalchand Shah (supra) observed that the change in Section 8 is that the court in cases where arbitration agreements are relied on is to refer disputes to the suit, notwithstanding any judgment or decree or order of the Supreme Court or any court and refer parties to arbitration unless it finds that prima facie no 38/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: valid arbitration agreement exists. The court opined that Sukanya was not per se overruled because the exercise of whether an agreement exists or not in relation to disputes that are subject matter of the suit had to be carried out. If there were causes of action that cannot be subjected to arbitration or the suit involves adjudication of the role played by parties who are not signatories to the arbitration agreement. It has to continue because prima facie no valid arbitration agreement exists between such non- parties and others, who are parties.
42. In Cheran Properties (supra), the Supreme Court reiterated that the Group of Companies doctrine is intended to facilitate the fulfillment of mutually held intention of the parties. The effort should be finding the essence of a business arrangement and to unravel from a layered structure of commercial arrangements, the intention to bind someone who is not formally a signatory but assumes obligations to be bound by the actions of a signatory. Mr. Chinoy drew my attention to the fact that in paragraph 18 the Court had considered the decision in Indowind where the fundamental requirements would be that the dispute should be between the parties to the dispute and should be related to or be applicable to the dispute at this stage were not satisfied. The 39/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: decision in Indowind was followed by a two Judge Bench in S.N. Prasad v/s. Monnet Finance Limited 17 relating to a guarantor to a loan who was not party to the loan agreement between the lender and borrower and whether such a guarantor could be made a party to a reference to arbitration in relation to the repayment of the loan.
43. In those set of circumstances, the Supreme Court held that an arbitration agreement between the lender on one hand and the borrower and one of the guarantors on the other, cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not a party to the arbitration agreement and hence there was no arbitration agreement as defined under Section 7 of the Act as between the opposing party and the applicant. English law had evolved the 'Group Companies' doctrine under which an arbitration agreement entered into by a company within a group of corporate entities can in certain circumstances bind non-signatory affiliates. The principle evolving entailed that a non-signatory party could be subjected to arbitration provided transactions were within the Group of Companies if there was a clear intention of the parties to 17 (2011) 1 SCC 320 40/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: bind both the signatory as well as the non-signatory parties. Thus, the intention of the parties who is very significant and which had to be established to hold the scope of arbitration can be said to include the signatory and non-signatory, a direct commonality of the subject matter was also a requirement. Indowind on the other hand arose from proceedings under Section 11(6).
44. Paragraph 23 of Cheran Properties (supra) to my mind is of relevance when the court observes that the law recognizes that in modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies and the circumstances in which they have entered into them may reflect an intention to bind both signatories and non-signatories. The Group Companies doctrine is essentially intended to facilitate fulfillment of a mutually held intent between parties. The question is whether such mutually held intent is to be found to exist in the facts at hand. Cheran Properties (supra) examines in some depth, the principles for holding a non-signatory to be bound by an arbitration agreement. Hence, I may refer to paragraph 23 of the plaint which affirms the Group of Companies concept.
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45. In my view, the present set of facts clearly invite a finding that all parties are bound by the arbitration clause and for referring the suit to arbitration. Indowind was a case where the Wescare desired an inference to be drawn that Indowind was a party to the contract, although admittedly, there was no agreement between Indowind and Wescare. Wescare had an agreement with Subuthi but Indowind was not a signatory. Cheran Properties was a case which was post award unlike Indowind.
46. Dealing with the objections of the respondent to the composition of the arbitral tribunal. Narayan Prasad Lohia (supra) offers a solution. The Supreme Court had held that the reference to two arbitrators in the agreement did not mean that the agreement itself is invalid. The two arbitrators should under Section 11(3) appoint a third. The appointment of a third should preferably be made at the beginning. It may be made at a later stage if and when differences occur so that the proceedings are not frustrated. Furthermore, it was held that if the two arbitrators do not disagree and issue a common award, the award would not be frustrated and the award would prevail. No party should be 42/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: permitted to resile from such an award. Hence, although Section 10 of the Arbitration Act provide that the number of arbitrators shall not be in even number, the question was whether Section 10 was a derogable provision and the answer would depend on whether a party had a right to object to the composition of the tribunal and if at all at what stage? The Court observed that the party can always take up a challenge against the composition of the tribunal before the tribunal itself under section 16. In conclusion the Supreme Court holds that even if the parties provide for appointment of only two arbitrators that would not render the agreement invalid. On facts I do not find merit in the challenge to the constitution of the tribunal at this stage.
47. Drawing out a conspectus of the contents of the plaint the applications under Section 8, the opposition in terms of affidavit and written submissions and the submissions made at the bar in the appeal, I am of the view that this is clearly a case where the impugned order is required to be set aside and the suit referred to arbitration. The plaint as I see proceeds on the basis of the DFS. Every relief sought in the plaint pertains to the DFS. There is nothing that is beyond the scope of the DFS. Prima facie I find that there is clearly a commonality of facts which binds the parties 43/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: together. The Group Companies doctrine can clearly be invoked in the present case. The facts as narrated in the plaint when read with the DFS clearly reveals that circumstances exist to establish the mutual intention of all parties to refer disputes to arbitration. I have examined the Deed of Family Settlement. Although the parties to the DFS are five in number, it is clarified that they are individually referred to as "Party" and collectively as "Parties" and each one of them represents the "respective branch" of the family and each member of the family has endorsed their consent in favour of the parties to the DFS which consents were annexed at Annexure 1 to 17.
48. All the family members are bound by the DFS. Recitals indicate, in particular recital 'D', that the family members apprehended that differences of opinion may arise between the parties in relation to ownership, management and control of the Kirloskar Group. The Group of Companies is defined in the agreement. Thus, the group company doctrine is built into the DFS itself, albeit not in the manner extracted in the judgments that I have referred to.
49. Prima facie, the entire group appears to be bound by the 44/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: DFS. "Kirloskar Family" is defined to mean and include all lineal descendants and ascendants of the parties. In my view, although the Kirloskar Group is defined under the agreement, the group companies' doctrine will apply across the board to incorporate or to cover all these entities which are before the court and any new entity under the family umbrella. The recitals and clauses refer to various group entities. The definition of "Conditional Event" also refers to respondent no.2. Respondent no.9 also finds reference in the agreement and in particular the definition of "Designated Company A".
50. Reference to respondent no.11 is to be found inter alia in Clause no.12. Prima facie it appears that it is only respondent no.10 which does not find a specific reference in the DFS probably by virtue of the acquisition of respondent no.10 being later in point of time. However, in the facts of the case, I am of the view that the intention of the DFS was clearly to capture all entities within its fold which are under the ownership and management of the parties and their family members. As far as BVH and Asara are concerned, references are to be found to these entities as well in the agreement.
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51. I am of the prima facie view that the arbitration agreement exists, is valid and it covers all the parties and there is no question of any of the disputes in the suit not being arbitrable whether in respect of subject matter or in law. It is therefore appropriate to examine Clauses 13 and 20 to see whether there is any exclusion of subject matter of arbitration. Clauses 13 and 20 are reproduced below for ease of reference;
"13. The parties agree that the control and management of Kirloskar Institute of Advance Management Studies (KIAMS) and Kirloskar Foundation (KF), which are promoted, managed and run by the parties, shall continue to be managed and run jointly by the Parties.
The Parties shall ensure smooth functioning and running of KIAMS and KF at all times. The Parties further agree that provisions of Clause 12(ii) to the extent applicable shall apply mutatis mutandis. The Parties will jointly ensure that amendments required, if any, shall be made to the relevant byelaws/articles/deeds/documents, etc. In the event of any difference of opinion in regard to matters set out in this Clause, the same shall be resolved by arbitration only and none of the Parties shall resort to any court or other litigation."
"20. Any issue arising out of interpretation of this DFS including schedules thereto shall be resolved, as far as possible, unanimously. If there is no unanimity, the issue will be referred to two arbitrators, namely, Shri Anil N. Alawani and Shri Chandrashekhar H. Naniwadekar, 46/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: whose decision will be final and binding. If there is a difference of opinion between the two, the matter will be referred to Shri Shrikrishna N. Inamdar, whose decision shall be final and binding.
Provided that the said arbitrators shall not entertain any disputes or claims under this DFS, save and except under Clause 13 hereof, after expiry of 3 years from the date of this DFS or dissolution of BVH and Asara, whichever is later."
52. The contention of the respondents 1 and 2 is that by virtue of Clause 13 in the event of differences of opinion in relation to matters pertaining to the smooth functioning and running of only KIAMS and KF can there be an arbitral reference beyond the period of three years. That in my view is an erroneous interpretation. Reference to clause 20 will reveal that "any issue"
arising out of interpretation of the DFS including that of the scheduled entities are required to be resolved unanimously and in the absence of unanimity between the parties as in the present case, it is to be decided by reference to two arbitrators who are named in clause 20.
53. As we have seen in the case of Narayan Lohia (supra), reference to two arbitrators does not render the provision non- 47/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: est or null and void. This is only an aspect which will arise in the event of disagreement between the two arbitrators. The arbitrators in question can, as contemplated in the judgment of Narayan Lohia, appoint a third right at the outset or they would choose to do so at a later stage. That is a matter which the tribunal will consider and it is not for this court to suggest a course of action. The fact remains that clause 20 is alive and operates. It will continue to operate despite the expiry of three years from execution of the DFS since the BVH and Asara are admittedly not dissolved. These two entities are not even parties to the suit but they find reference in the DFS itself in particular in clause no.4, 5 and 7 apart from clause 20. Since it is admitted that BVH and Asara are not dissolved, the arbitration agreement contained in clause 20 will certainly survive notwithstanding any interpretation that may be placed on clause 13.
54. Clause 13 relates to disputes pertaining to KIAMS and KF and there is no quarrel between the parties as far as that is concerned. The issue is relating to disputes that have arisen in management of other entities. Several other entities are also to be found in Schedule I which do not find specific reference in the body of the DFS. 18 entities in all are listed in Schedule I to the 48/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: DFS that includes respondent nos.2, 9, 11, BVH and Asara. Acquisition of another entity viz. respondent no.10 would still be encompassed within the scope of the DFS because it is a company apparently under the ownership, management and control of Kirloskar family member(s).
55. Having so found, it is necessary to mention that save and except for the plaintiffs who are respondent nos.1 and 2 and respondent nos.6 to 8, none of the other respondents or the appellants have opposed to reference to arbitration. The parties who have not filed appeals and but who had applied under Section 8 have all filed affidavits as can be seen from affidavits filed by Amit Kumar Das on behalf of respondent no.9, Pawan Kumar Agarwal on behalf of respondent no.10, Madhav Ramchandra Chandrachud on behalf of respondent no.11, all dated 15th February, 2021 and the joint affidavit of respondent no.12, 13 and 14 Sarvashree Anil C. Kulkarni, Chandrashekhar H. Naniwadekar and Mahesh Chhabria who are Directors of respondent no.11 Kirloskar Proprietary Ltd.
56. Mr. Dada had contended that the affidavits of these persons were not unqualified but were conditional. However, in my view 49/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: these are all aspects that is for the tribunal to consider. In the event of a challenge under 16 the mere fact that the affidavits states that they have no objection to reference to arbitration without prejudice to their contentions and without prejudice to the fact that they are not parties to the DFS will be considered by the tribunal. As far as the court is concerned, under section 8 all that needs to be seen is whether prima facie there exists an arbitration agreement, aspects of non-arbitrability is something that has also been considered by me and looking at the prayers in the suit, all of them clearly arise from the DFS and specific performance of the parties' obligations under the DFS. Declarations sought injunction sought and damages are all as a result of the relationship inter se the parties to the DFS, the family and the family members, all of whom are bound by the provisions of the DFS. Clause 20 will therefore operate across the board, it continues to operate even after expiry of three years for reasons set out above.
57. The contents of affidavits in reply filed on behalf of respondent no.1 dated 8th February, 2021 and the affidavit filed on behalf of respondent no.2 also dated 8 th February, 2021 are of 50/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: no avail. The mere pendency of an application for amendment also is of no consequence. It is not possible to accept a situation where parties to an arbitration agreement seek to deny the effect and operation of the arbitration agreement once an application under section 8 is filed, by moving amendment applications. This application cannot be allowed to defeat a reference to arbitration. Even otherwise it is the case of the plaintiffs that the amendment does not change the nature of the suit. The nature of the suit as I have observed is clearly something that pertains to specific performance of the parties' obligations under the DFS. Thus, even by that reasoning, pendency of the amendment application cannot affect the fate of the applications under section 8 and those must succeed.
58. The impugned order I am afraid does not consider any of these aspects and is required to be set aside. It does not decide whether there exists an arbitration agreement. It does not record a finding on the existence of the clause or the legal effect of such a clause being in operation. In paragraph 11 of the order, the learned Judge records that the applications by the defendants have to be examined to see whether they are 'just and legal to refer the suit to arbitration as asked for". Having gone through 51/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: the deed of family settlement, the court refers to the various schedules and quotes from those clauses. In paragraph 12 the order refers to BVH and Asara and states that they are not included in the present matter viz. not parties to the suit. The order also observes that the suit is "mostly filed for reliefs against defendant nos.1 to 21 and 23 and therefore company 17 and 18 are subject matter in this case" . This part of the order is not clear but it appears to refer to BVH and Asara which are described at item nos.17 and 18 of Schedule I to the DFS. The interpretation of the learned Judge on clauses 13 and 20 cannot be sustained. In paragraph 14 the order once again records that BVH and Asara are not subject matter. The order observes that the deed was executed on 11th September, 2009 and came to an end on 10 th September, 2012. The learned Judge has proceeded on the basis that the agreement had expired by passage of three years.
59. In my view this is an incorrect interpretation of clause 13.
BVH and Asara are very much operational. It is nobody's case that these companies are not functioning. If these companies were functioning there is no manner of doubt that clause 20 would continue to bind the parties. The finding to the contrary is clearly erroneous and the order is liable to be set aside. I am unable to 52/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: agree with the findings of the learned judge that the defendants had not established that the court had no jurisdiction and only the arbitrators could adjudicate upon the disputes.
60. As we have seen, the decisions in United India Insurance (supra) and Indowind (supra) do not come to the assistance of the respondents nor does the decision in Essar Steel (supra). The arbitration agreement in the present case contains no express exclusions. It in fact is all pervasive matters of the businesses of the family branches and will thus prima facie operate across the board and inclusively as contemplated by the family members.
61. In this respect, it is necessary to refer to paragraph 16 of Vidya Drolia where the Supreme Court observes that arbitration being a matter of contract, the parties are entitled to fix boundaries and limit the jurisdiction and the legal authority of the arbitrator. In the present case, all the disputes appear within the scope of the DFS. The boundaries in my view have been fixed by the DFS and not the suit. All reliefs in the suit are subsumed in the DFS. A reading of clause 13 and 20 would therefore entail that reference to arbitration is a foregone conclusion. This is not a case where there is any bifurcation of subject matter or of causes 53/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: of action. Every claim and relief in the suit prima facie falls within the scope of the proposed arbitral reference. The averment in clause 16 of the plaint is that "the companies" under ownership, management and control of family members are bound by the DFS. It is not restricted to group companies existing as on that date. It would therefore include an entity like respondent no.10.
62. The Supreme Court has in Anand Gajapathi Raju and HPCL, held that the judicial authority is bound to refer to a matter to arbitration once the existence of a valid arbitration clause is established. This in my view has clearly been established on facts. The finding of the learned Civil Judge that the clause had expired along with the DFS is erroneous. The fact that DFS survives cannot be disputed. In fact, as long as KIAMS and KF are operational, the DFS would continue to govern the relationship between parties. So, will it in respect of all other entities in the schedules in the agreement. Save and except that the reference to arbitration in respect of all entities and persons other than KIAMS and KF would be permissible only if BVH and Asara had not been dissolved and in the present case, these two entities have in fact not been dissolved.
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63. It is one thing to say that applications under Section 11 and Section 8 are similar in nature but when one considers the scope of these two sections, as drawn out in the comparison, in paragraphs 74 & 75 of Vidya Drolia, it is not difficult to see that post the amendment a party to an arbitration agreement or any person claiming through or under him, can apply for referring a suit to arbitration. A judicial authority is then bound to refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
64. In my view, provisions of Section 8(2) have also been complied with inasmuch as, the original agreement is said to have been filed in court. Upon such compliance, there is no reason why the parties ought not to be referred to arbitration. Thus, I am of the view that the District Court before whom the suit was bound to refer parties to arbitration.
65. The onus of applying is on a party to the arbitration agreement thus any party to the arbitration agreement may apply. Alternatively, any person claiming through or under such party may apply. In the present case, there is no disputing fact that the 55/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: appellants are parties to the arbitration agreement. Invoking the group doctrine, I am of the view that all other parties in the suit are also bound by the arbitration agreement.
66. Section 16 of the Arbitration Act empowers the arbitral tribunal to rule on its own jurisdiction. If the court were to decide on these aspects, at this stage of Section 8 application, powers of the arbitral tribunal under Section 16 would be prejudiced and Section 16 may be rendered infructuous and redundant That is clearly not the intention of the legislature which provides that an arbitral tribunal may rule on its own jurisdiction including ruling on objections with respect to existence or validity of the arbitration agreement. There are conditions as to when such an objection may be raised and those are provided in Section 16. For ease of reference section 16 is reproduced below:
16. Competence of arbitral tribunal to rule on its jurisdiction.--
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and 56/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 :::
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34."
67. In my view the reliance placed by respondents on judgments dealing with exclusions under insurance contracts will not come to their assistance. The observations of the Supreme 57/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: Court in Vidya Drolia in paragraph 98 and 99, are with specific reference to section 11(6). The entire controversy in this case can be said to rest by reason of paragraph 126 of Vidya Drolia. Even if it appears that a prima facie view of the arbitration agreement would be inconclusive and if it requires a detailed consideration, the matter should be left for final determination of the arbitral tribunal selected by parties. Paragraph 126 of Vidya Drolia read with paragraph 138 makes it clear that the ratio of Patel Engineering Ltd. on the scope of judicial review by the court while deciding in application under section 8 is no longer applicable. The scope of judicial review and jurisdiction of the Court under Section 8 and 11 though identical are extremely limited. In paragraph 138(d) in Vidya Drolia records as follows;
"138(a) ......
(b) .......
(c) .......
(d) Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is nonexistent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably 'non-
arbitrable' and to cut off the deadwood. The court by default 58/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: would refer the matter when contentions relating to non- arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism." Thus, at the section 8 stage, one cannot enter into a mini trial to ascertain arbitrability.
68. In conclusion, I may refer to the fact that we are not concerned with any allegations of fraud in the instant case and in paragraph 223 of Vidya Drolia the Supreme Court records at the cost of repetition section 8 mandates reference to arbitration by a court of law unless it finds prima facie that there is no valid arbitration agreement. The negative language used as observed is, required to be taken into consideration while analyzing the section and the court should refer a matter if the validity of the clause cannot be determined on a prima facie basis. Furthermore, in paragraph 225, the Supreme Court observes that courts while analyzing a case under section 8 may choose to identify the issues 59/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: which require adjudication pertaining to validity of the arbitration agreement. If the court cannot rule on the invalidity of the arbitration agreement on a prima facie basis, then the court should stop any further analysis and simply refer all the issues to arbitration.
69. Thus, the dominant purpose of Section 8 is undoubtedly to refer matters to arbitration, if prima facie, the arbitration agreement is not invalid. In paragraph 227 Vidya Drolia reiterates that although the statutory language of section 8 and 11 are different, materially they do not vary, both sections provide for limited judicial interference at the reference stage. In paragraph 229 the Supreme Court concludes that the court under Section 8 and 11 has to refer a matter to arbitration or to appoint an arbitrator as the case may be unless a party has established a prima facie case of non-existence of a valid arbitration agreement by summarily portraying a strong case that it is entitled to such a finding. Useful reference may be made to the observations of D.Y.Chandrachud, J. in A. Ayyasamy v/s. A. Paramasivam & Ors.18 that "All disputes relating to rights in personam are considered to be amenable to arbitration while 18 (2016) 10 SCC 386 60/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 ::: rights in rem are required to be adjudicated by courts and public tribunals."
70. In my view in the facts at hand, the appellants have clearly established that a valid arbitration agreement exists. On the other hand, it is not possible to hold at this stage that the arbitration clause in the DFS is invalid. Reference to arbitration is thus inevitable.
71. As far as the amendment application in the suit is concerned, the amendment in the suit can also be considered by the arbitral tribunal. Impleading of one of the named Arbitrators as a defendant in the suit will not affect the reference to arbitration and the arbitrators and parties shall act in accordance with law to take remedial steps. In that view of the matter, the appeal must succeed and I pass the following order;
(i) Appeal is allowed.
(ii) Impugned order and judgment of the Civil Judge, Senior
Divison, Pune, passed on 7th December, 2020 is hereby quashed and set aside.
(iii) Exhibit nos.98, 104, & 109 on the record of the trial court are allowed.
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(iv) The disputes in the suit are referred to arbitration.
(v) Appeal disposed in the above terms.
(vi) In view of disposal of the appeal, interim application is
also disposed.
(vii) Each party shall bear their own costs.
At this stage, Mr. Dada and Mr. Kamat appearing on behalf of defendant nos.1 and 6 to 8 seek stay of the order. Order is stayed for six weeks. In the meantime, they make a statement that they will not proceed with the suit.
(A. K. MENON, J.) 62/62 Appeal (st)-1661-20 (f).doc wadhwa ::: Uploaded on - 03/05/2021 ::: Downloaded on - 09/09/2021 22:43:13 :::