Jharkhand High Court
Kumar Sachin vs Manoj Kumar Sahu on 16 June, 2022
Author: Sujit Narayan Prasad
Bench: Sujit Narayan Prasad
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IN THE HIGH COURT OF JHARKHAND AT RANCHI
Arbitration Application No. 13 of 2021
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1.Kumar Sachin, Son of Late Harihar Prasad Sahu, aged about 44 years, resident of Golf Green Apartment, Flat No. 4, Loyala School Area, Bistupur, Jamshedpur, P.O. & P.S. Bistupur, District-East Singhbhum, Jharkhand, Pin Code- 831001.
2.Nitin Kumar Sahu, Son of Late Harihar Prasad Sahu, aged about 40 years, resident of: 5, Burdwan Compound, Sita Niwas, Ranchi, P.O. & P.S.: Lalpur, District: Ranchi, Jharkhand, Pin Code 834001.
.... ... Petitioners
Versus
Manoj Kumar Sahu, Son of Late Ambika Prasad Sahu, aged about 59 years resident of: 78/B, Burdwan Compound, Sri Ambika Apartment, Kali Mandir road, P.O. & P.S.: Lalpur, District-Ranchi, Jharkhand, Pin Code 834001.
.... Respondent
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CORAM: HON'BLE MR. JUSTICE SUJIT NARAYAN PRASAD
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For the Petitioner s : Mr. Sachin Kumar, Advocate Ms. Surabhi, Advocate For the Respondents : Mr. M.S. Mittal, Sr. Advocate
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Order No.6/Dated 16th June, 2022 The instant application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator.
2. The brief facts of the case, as per the pleadings made in the application, read as under:
The father of the applicants, namely, Late Harihar Prasad Sahu and his friend and business associate, Shri Kumud Prasad Sahu having interest in setting up business of manufacturing beer in the State of Jharkhand and 2 incorporated a company in the name and style of „Pali Hills Breweries Private Limited' in the year 2013.
The said Harihar Prasad Sahu had the technical knowledge of liquor business was the prime moving force behind setting up the said company and arranged finance from his personal resources, besides mortgaging his personal immovable properties in favour of Bank for establishing the said business. The Bank of India provided term loan facilities to the Company on the basis of security given by both Harihar Prasad Sahu and Kumud Prasad Sahu. The respondent herein is the nephew of Sri Kumud Prasad Sahu and applicants are the sons of said Harihar Prasad Sahu.
It is the case of the applicants that audited balance-
sheet of the said company as on 31st March, 2019 submitted to the Bank revealed huge accumulated losses which exceeded the paid up share capital of the company.
Under such circumstances, the Bank requested the said two Directors of the company to increase the debt equity ratio by injecting fresh capital into the company as otherwise the loan account would have to be marked as Non-Performing Asset and to further ensure repayment of the loan continues timely in future.3
The applicant no. 1 and the respondent approached the said Harihar Prasad Sahu, who was a shareholder of the Company to infuse fresh capital into the Company as was done by him on previous occasion. Said Harihar Sahu shown his inability to infuse further fund due to various reasons.
The respondent and his associate including Sri Kumud Prasad Sahu were holding majority of shares in the company. It was decided that the loan required for the company must be commensurate with their position as majority shareholders of the company. Accordingly, more than 50% of the loan should be brought by the respondent and balance loan to be provided by said Harihar Prasad Sahu and his son namely, Kumar Sachin, applicant no. 1.
But the aforesaid proposal was not accepted by the respondent and the respondent and his associate were not willing to inject further fund in the company and there being disagreement between the parties in respect of future strategies and policies of the company, the respondent decided to withdrew from the company and transfer his shares to Mr. Harihar Prasad Sahu and his associates and resign from the directorship of the company.
In view of the aforesaid developments, the
applicants and respondent entered into an
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agreement/memorandum of understanding dated
30.10.2019 at Ranchi mentioning the aforesaid fact, whereby it was agreed between the parties that the respondent will resign from the directorship of the company and also transfer his entire shareholding in the Company comprising of 46,69,300 number of equity shares of face value INR 10 each to the party of the third part (Applicant No.2) at such value as mutually decided after obtaining valuation report from a competent Chartered Accountant.
It is further case of the applicants that a Memorandum of Understanding (MoU) that was entered into between the parties specifically has a clause for arbitration. The clause 5 of the MoU states that „In the event of any dispute or differences between the parties herein, arising out of or in connection with the said memorandum of understanding and/or its scope and/or interpretation thereof, and/or relating to matters covered thereunder, the same shall be referred to arbitration of two arbitrators to be appointed by the parties herein, who shall then appoint the third arbitrator who shall be the presiding officer. The decision of arbitrators shall be final and binding on the parties. The Law governing the Arbitration shall be as under the Arbitration & Conciliation Act, 1996 and/or any statutory modifications thereof. The language in which the 5 arbitration proceeding will be conducted shall be English and substantive law will be the Indian Law. The venue of such arbitration will be at Ranchi and the courts at Jharkhand shall have exclusive jurisdiction in respect of this agreement."
The applicants being parties to the said MoU acted in terms of the said MoU, however, the respondent instead of invoking the arbitration clause in the MoU, has approached the learned National Company Law Tribunal (NCLT) with following prayers:
A.To direct the respondents 2 to 5 and 9 not to alienate or dispose or encumber assets, leases, licenses of the respondent no. 1 Company in any manner.
B.To direct the Respondents 2 to 5 and 9 not to alter shareholding of the Respondent No. 1 Company which existed as per the last filed Annual Return of the Company in 2019. C.To direct the respondent not to hold any Board meeting without the leave of this Hon‟ble Tribunal.
D.To direct the Respondents not to change the Registered office of the Company.
E.To declare the purported Board Meeting held on 02.07.20 as illegal and void ab initio.
F.To declare the purported AGM held on 20.09.20 as illegal and void ab initio.
G.To declare the purported financial statements and manipulations documents illegally filed vide e-form AOC-4 as illegal and void ab initio.
H.To direct the respondents 2 to 5 and 8 to restore Directorship of Petitioner No. 1 on the Board of Respondent no. 1 Company. I.To direct the Respondent No. 2 and 8 to remove of name of Respondent No.9 from MCA Master Data of R1 Company.6
J.To direct Respondent No. 2 to restore the funds, belonging to Respondent No.1 Company which had been siphoned off or drawn or swindled away.
K.Pass such other orders/directions as may deed just and proper."
According to applicants, the respondent had suppressed the aforesaid MoU and the arbitration clause in the said MoU from the learned NCLT.
The applicants invoked the arbitration clause in terms of Clause 5 of the MoU vide notice dated 15.01.2021 informing the respondent that since dispute has arisen between the parties, the applicants invoked arbitration clause as mentioned in the MoU dated 03.10.2019 and called upon the respondent to nominate arbitrator. In response thereto, the respondent sent a reply dated 25.01.2021 denying that he had entered into any MoU with the applicants and alleged that his signature, on MoU, is forged and fabricated. The respondent has also denied to have invoked arbitration clause or nominate any arbitrator.
Pursuant thereto, the applicant sent reply to respondent vide reply dated 02.02.2021 denying the allegation made by respondent and reiterated that MoU is legal and valid document and since the respondent has failed to act in terms of notice dated 15.01.2021, the applicants are resorting to provision contained in Section 11(6) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to 7 as 'Act, 1996'). Accordingly, the instant application has been filed praying therein to appoint arbitrator in terms of Clause 5 of the MoU.
3. The respondent, through his counsel, appeared on 14th February, 2022 before this Court and sought for time to file counter affidavit.
Accordingly, counter affidavit was field on 04.03.2022 stating, inter alia, that the respondent has never entered into any MoU dated 03.10.2019 and has never agreed to either resign from the Directorship of the Company and/or transfer his shareholding in favour of anyone, much less in favour of either of the petitioners. It has further been submitted that MoU in question is forged document, enacted with a fraudulent purpose of cheating the respondent and in order to fraudulently take over complete control over the company including its Assets and Funds. The respondent has never entered into the arbitration agreement contained in MoU. Further, it would be evident from the subsequent paragraphs that the terms of alleged MoU, that alleged resignation and transfer of shareholding of the respondent are intrinsically related to the subject matter of dispute before the NCLT, Kolkata Bench in case no. CP/1093 (KB)2020 as such the dispute 8 between the parties is inarbitrable and the instant application is liable to be dismissed in limine.
It has been stated that certain disputes had started between the petitioners and respondent on account of differences in future business plan and perception of the status of company. However, instead of trying to sort out of the differences in the best interest of the company, the petitioner no. 1 set out to illegally oust the respondent from the company and to take complete control thereof. The MoU, in question, is also a part of the said conspiracy of petitioner no. 1 to oust the respondent from the company. It has further been stated that the respondent being a responsible Director of the company alongside being one of its major shareholders and in order to effectively carry out the day-to-day affairs and operations of the Company, had approached Canara Bank Ltd, Main Branch, Ranchi for re- activation of the Company's Current account maintained with the said Bank bearing Current Account No. 0377201004087, which had become dormant on account of the fact that no transactions had taken place for a long period of time. But to utter shock and surprise, the respondent came to know that the petitioner had been representing to third parties that vide alleged resignation letter dated 05.10.2019 the respondent had resigned from 9 the Directorship of the Company. As no resignation letter had ever been tendered by the respondent the same had manifestly been forged by the petitioners, the respondent was constrained to immediately file a case being Complaint Case No. 11306 of 2020 on 28.08.2020 before the learned Chief Judicial Magistrate, Ranchi under Sections 385, 387, 406, 420, 467, 468, 471, 34 and 120B of the Indian Penal Code.
The respondent came to know that the Current Account had been blocked pursuant to letter dated 01.09.2020 written by the petitioner to the said bank, however, the respondent vide its letter dated 25.09.2020 addressed to the Canara Bank brought out the truth and correct factual position.
In the backdrop of aforesaid fact, the respondent along with certain other shareholders filed Company Petition registered as CP/1093 (KB)2020 before the NCLT, Kolkata Bench alleging the oppression and mismanagement at the hands of the petitioners and their affiliates. The said Company Petition was admitted by the Tribunal and vide order dated 24.12.2020 interim order was passed staying the alleged resignation of respondent herein from the Board of Company and stayed the alleged transfer of shares of the respondent, which is effective till date. Subsequently, the 10 Tribunal passed order dated 10.05.2021 directing that the Board of Directors of the Company shall consist of an independent Chairperson-Mr. Justice (Retd.) R.N. Prasad; the respondent and petitioner no. 1 herein until such time that the application under Section 8 of the Act filed before the NCLT is decided.
4. Mr. M.S. Mittal, learned senior counsel for the respondent in the aforesaid backdrop has submitted that the instant application is fit to be dismissed since very basis of seeking direction for appointment of arbitrator under Clause 5 of the MoU itself is in dispute and a proceeding has been initiated before the NCLT, Kolkata Bench wherein interim orders have been passed as also a criminal case has been filed setting the criminal proceeding in motion.
5. Mr. Sachin Kumar, learned counsel for the applicant-petitioner has submitted that the ground which has been agitated on behalf of respondent for declaring the dispute to be non-arbitral is not worth to be considered and even accepting the plea of forged signature in the MoU, the same can also be looked into by the arbitrator. In support of his argument he has relied upon the judgment rendered by Hon'ble Apex Court in Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private 11 Limited [(2021) 5 SCC 671] in particular paragraph 29 and submitted that even in case whether the arbitration agreement exist between the parties must be left to an arbitrator who is to examine the documentary evidence produced before him in detail after witnesses are cross- examined on the same and as such submission has been made that herein, in the instant case also, even accepting what has been stated on behalf of respondent that dispute is not arbitral then also it requires to be adjudicated by the arbitrator and as such arbitrator is required to be appointed.
6. In rebuttal to such submission, Mr. M.S. Mittal, learned senior counsel for the respondent, putting reliance upon the judgment rendered by Hon'ble Supreme Court in Vidya Drolia & Ors Vs. Durga Trading Corporation [(2021) 2 SCC 1] referring to paragraph 77, 78, 82, 147.4 and 147.6, has submitted that proposition has been laid that the issue of non-arbitrability is required to be adjudicated at referral stage since herein the issue of non- arbitrability has been raised by raising the issue of commission of forgery as also pendency of proceeding before NCLT, Kolkata Bench having its territorial jurisdiction and institution of criminal case, therefore, the 12 same is required to be decided at this stage and not to be referred before the arbitrator for its adjudication.
7. We have heard learned counsel for the parties and gone across the relevant documents as also pleadings made in the affidavits filed on behalf of respective parties as also documents appended thereto.
8. This Court before answering the issue, as to whether in the facts and circumstances of the case, wherein allegation of commission of forgery of having no signature by the concerned respondent can the dispute be referred before the arbitrator in exercise of power conferred under Section 11(6) of the Act, 1996, deems it fit and proper to refer certain undisputed facts for proper adjudication of the case.
9. According to applicant, the dispute arose in between the petitioners-applicant and the respondent pertaining to mis-management of the company in question as such one MoU sought to have been entered in between the parties on 03.10.2019, which contains a clause as under clause 5 for arbitration.
For ready reference, clause 5 of the MoU is reproduced as under:
„In the event of any dispute or differences between the parties herein, arising out of or in connection with the said memorandum of understanding and/or its scope and/or interpretation thereof, 13 and/or relating to matters covered thereunder, the same shall be referred to arbitration of two arbitrators to be appointed by the parties herein, who shall then appoint the third arbitrator who shall be the presiding officer. The decision of arbitrators shall be final and binding on the parties. The Law governing the Arbitration shall be as under the Arbitration & Conciliation Act, 1996 and/or any statutory modifications thereof. The language in which the arbitration proceeding will be conducted shall be English and substantive law will be the Indian Law. The venue of such arbitration will be at Ranchi and the courts at Jharkhand shall have exclusive jurisdiction in respect of this Agreement."
The petitioners-applicants in terms of clause 5 of the MoU made a request to the respondent for appointment of arbitrator for resolution of dispute but the arbitrator having not been appointed the instant application has been filed.
10. While on the other hand, case of the respondent as per counter affidavit filed on 04.03.2022 wherein serious allegation of commission of forgery of his signature on MoU has been made stating that respondent had never agreed to either resign from the Directorship of the Company and/or transfer his shareholding in favour of any one. The respondent, therefore, approached to NCLT, Kolkata Bench for redressal of his grievance wherein vide order dated 24.12.2020 stay of the alleged resignation of respondent herein from the Board of the Company and for stay of 14 alleged transfer of shares of the respondent was passed.
The operative portion of said order is quoted as under:
"9.I have considered the various submissions made by the opposing counsel.
10.To my mind it does not stand to reason that a person would submit a letter of resignation which is dated 05.10.2019 but which would take effect 8 months and 27 days later on 02.07.2020. There is no way that P1 could have predicted that a Board Meeting would be held exactly 8 months 27 days later, on which date his resignation was to take effect. I also note that there is no notice of Board Meeting held or to be held on 02.07.2020. It is also not usual that when a person transfers his shareholding in favour of a 3rd party, he retains the original share certificate with him. Though it is the stand of the Respondent No. 1 company that P1 had submitted his resignation and also that he had voluntarily transferred his shareholding, this is a matter which would have to be brought into a detail after the reply in this regard are received. At this point of time I believe that a prima facie case has been made for grant of the following reliefs:-
i).Stay of the operation of the alleged resignation of the P1 from the Board of R1 Company;
ii).Stay on the functioning of Respondent No. 9 as the Director of the Respondent No. 1 Company;
iii).Stay of the alleged transfer of shares in favour of R9.
iv).There shall also be no Board meeting held without leave of this Tribunal. Liberty is however, granted to Respondent No. 1 Company to apply in this regard.
v).No General Meeting of the Company shall be held without leave of this Tribunal.
vi).There shall also be no further change in shareholding or alienate all assets on the part of the Respondent No.1 Company.
Those interim orders shall be in effect until the next date of hearing."
15Thereafter another order was passed on 10th May, 2021, which is quoted as under:
"1.Mr. Siddharta Mitra, Ld. Senior Counsel along with Mr. D.D. Sharma adn Ms. Roopa Mitra, Ld. Counsel for the applicant in CA/73(KB)2021 present Mr. Ratnanko Banerji, Ld. Senior Counsel along with Mr. Utkarsh Singh, Ms. Saumya Kapoor and Mr. Yash Badkur, Ld. Counsel for the respondent in CA/73(DB)2021 and petitioner in CP/1093(KB)2020 present Mr. Domingo Gomes, Ld. Counsel for R-3 in CP/1093(KB)2020 present Shruti Singhania, Ld. Authorised Representative for R-6 in CP/1093(KB)2020 present.
2.In continuation of orders dated 07.05.2021 respect of CA No. 73(KB)2021, both sides have given a panel of three names each from which to consider the appointment of an independent chairperson.
3.We have scrutinized the list and deem it fit to appoint Mr. Justice RN Prasad, Retired Judge, Patna High Court, residing at House No. 349A, Road No.4,Ashok Nagar, P.S. Argora, Dist. Ranchi-834002, Jharkhand (Mobile-+919431821594; Email:
[email protected]) as independent Chairperson on the board of directors of R1 Company, subject to his consent for such appointment. He shall be paid a remuneration of Rs. 3,00,000/- (Rupess three lakh only) per month for his services.
4.The board of directors of R1 Company shall consist of Mr. Justice (Retd.) RN Prasad, Mr. Manoj Kumar Sahu (Petitioner No.1) and Mr. Sachin (Respondent No.2). All matters shall be decided by majority.
5.This arrangement shall continue until the section 8 application bearing CA No. 36KB/2021 filed under the Arbitration & Conciliation Act, 1996, filed by respondent no. 2 is heard and finally decided by this Tribunal.
6.CA No. 73/KB/2021 shall stand disposed of with the above directions.
7.The respondents in CA No. 36KB/2021 are hereby directed to file their reply to the said CA within a further period of three weeks, if not already done. Copies of the reply shall be served 16 on the counsel on record for the applicant/respondent no.2, who shall have a further period of three weeks within which to file a rejoinder. Copies of the rejoinder shall be served on the counsel on record for the respondents/petitioners. No extension of time will be granted for completion of pleadings.
8.List CA No. 36KB/2021for disposal upon completion of pleadings on 05.08.2021.
It is also the case of the respondent that for commission of forgery a complaint was lodged before the Court of criminal jurisdiction being Complaint Case No. 761 of 2021 under Sections 420, 465, 467, 468, 471, 34, 120B of the Indian Penal Code, against the petitioners and their affiliates for forging the MoU in question.
The respondent, in the backdrop of aforesaid fact, has made opposition to the instant application for appointment of arbitrator on the ground that in such a disputed question of fact more particularly where the very existence of the arbitration clause, which according to petitioners-applicants is under Clause 5 of the MoU, itself is under question on the ground of commission of forgery i.e., by putting forged signature on that document, there is no question of appointment of arbitrator.
Further, the ground has been agitated that for mis- management of company proceeding is going on before the NCLT, Kolkata Bench wherein vide order dated 24.12.2020 stay has been granted of the alleged resignation of 17 respondent herein from the Board of Directorship of the Company and alleged transfer of shares of the respondent has also been stayed. The Tribunal further vide order dated 10th May, 2021 appointed Mr. Justice R.N. Prasad, Retired Judge, Patna High Court, as independent Chairperson of the Board of Directors of the Company and further directed that the Board of Directors of the Company shall consist of Mr. Justice (Retd.) RN Prasad, Mr. Manoj Kumar Sahu (Respondent no.1) and Mr. Kumar Sachin (Applicant No. 2) and all matters shall be decided by majority.
11. Admittedly, the applicants-petitioners filed application under Section 8 of the Act, 1996 before the NCLT, Kolkata Bench. By way of interim measure, order dated 10th May, 2021 was passed appointing Mr. Justice RN Prasad, Retired Judge, Patna High Court, as independent Chairperson. Therefore, question now arises that when the petitioners-applicants have filed application under Section 8 of the Act, 1996 to refer parties for arbitration where there is arbitration agreement, in such circumstance filing of the instant application during the pendency of application filed Section 8 of the Act, 1996 can be said to be correct approach of the petitioners/applicants.
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12. It requires to refer herein the Section 8 of the Act, 1996, which stipulates that 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 of order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists, meaning thereby, that Section 8 confers power upon the authority to refer the dispute before the arbitrator if there is arbitration clause.
13. The petitioners has filed the instant application on 10.02.2021 though reference about pendency of the proceeding before the NCLT, Kolkata Bench has been made at paragraph 15 of the instant application as also filing of the application under Section 8 of the Act, 1996 has also been paragraph 17 of the instant application but very surprisingly even though the petitioners- applicants has put its appearance before the NCLT, Kolkata Bench, the reference of the interim order dated 24.12.2020 wherein the very resignation of the respondent from the Directorship of the company has been kept in abeyance as 19 also the transfer of the share of the respondents has also been kept in abeyance, the said aspect of the matter has not been brought to the notice of this Court even though interim order dated 24.12.2020 was passed before filing of the Arbitration Application.
Further, the interim Board of Directors has also been constituted vide order dated 10th May, 2021 by the Tribunal under the chairmanship of Mr. Justice RN Prasad, Retired Judge, Patna High Court but the said aspect of the matter has not been brought to the notice of this Court, which is nothing but suppression of material fact to this Court.
Further, the contention has been made on behalf of petitioner that even though the signature over the aforesaid MoU, which contain arbitral clause under Clause 5, is said to be forged one then also the same is required to be referred for arbitration as to whether the signature of the concerned respondent is forged or not.
In support of submission, he has relied upon the judgment rendered in the case of Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited (supra) .
14. This Court has considered the judgment relied upon on behalf of petitioners in the case of Pravin Electricals 20 Private Limited Vs. Galaxy Infra and Engineering Private Limited (supra) and has gone through the factual aspects and found therefrom that by way of on-line tender for appointment of implementing agencies for execution of a scheme on turnkey basis for strengthening, improvement and augmentation of distribution systems' capacities of 20 towns in Bihar. The appellant therein submitted its technical and financial bid and was declared L1 bidder and was awarded the work.
The grievance of the respondent therein was that it had made substantial efforts under a consultancy agreement dated 07.07.2014 to facilitate the appellant in getting the aforesaid contract for which it was entitled to commission. It is then alleged that the appellant sent an email dated 15.07.2014 to the respondent with a draft agreement attached for comments and confirmation. On the same day, the respondent sent its reply stating that certain terms were not acceptable. Finally, vide email dated 30.06.2017, the respondent attached the final invoice to the appellant claiming an amount of Rs. 5.54 crores under the alleged consultancy agreement dated 07.07.2014, which was followed by a demand-cum-legal notice dated 09.03.2018 seeking payment of Rs. 5,54,14,318 from the appellant as being due under the alleged consultancy 21 agreement dated 07.07.2014. But the appellant vide reply dated 22.03.2018 flatly denied that any agreement dated 07.07.2014 was ever entered into between the parties.
On 26.04.2018, the respondent invoked Article 14 of the alleged consultancy agreement dated 07.07.2014, in which they nominated one Kameshwar Choudhary as sole arbitrator. On 03.05.2018, the appellant denied execution of the agreement dated 07.07.2014, and therefore, stated that the matter could not be referred to arbitration.
Subsequent thereto, the respondent filed petition under Section 11(6) of the Act, 1996 for appointment of sole arbitrator on the basis of alleged agreement dated 07.07.2014. The Delhi High Court vide order dated 28.11.2018 directed the respondent to produce the original consultancy agreement dated 07.07.2014. The appellant was then directed to produce Mr. M.G. Stephen, Managing Director of the appellant before the Registrar (Judicial) on 07.12.2018 so that he can carry with him documents which bear his original signature at the contemporaneous time. The Registrar (Judicial) was also directed to obtain specimen signatures of Mr. M.G. Stephen, which was directed to send to CFSL for obtaining a report. The report was obtained from the CFSL, copy of which was served upon the parties and after hearing the parties, the Delhi 22 High Court passed judgment dated 12.05.2020 holding therein that the documents placed on record by the petitioner clearly evidence that there exists an arbitration agreement between the parties as contained in the draft agreement exchanged by email dated 07.07.2014. The present case squarely falls within the ambit of Section 7(4)(b) of the Act. The inevitable result is that the parties must be referred to arbitration for adjudication of their disputes.
The Hon'ble Apex Court has considered the finding recorded by learned Single Judge and has come to the conclusion that the finding recorded by the learned Single Judge is incorrect insofar as it conclusively finds that there is an arbitration agreement between the parties, however, uphold the ultimate order appointment of sole arbitrator and therefore, remitted the matter to first determine as a preliminary issue as to whether an arbitration agreement exists between the parties and go on to decide the merits of the case only if it is first found that such an agreement exists.
For ready reference, relevant paragraphs of the judgment under paragraph nos. 25 to 28 are reproduced as under:
25. Since, CFSL did not express an opinion either way, it became incumbent upon the learned Single Judge to determine 23 as to whether the agreement dated 7-7-2014 could have been entered into given the surrounding circumstances of the case. As Shri Divan rightly points out, there are no negotiations which lead up to 7-7-2014 agreement that are on record. Secondly, negotiations that take place, take place only after 7-7-2014 in which a draft agreement is deliberated upon between the same parties. It would stretch incredulity to state that on the same subject-matter negotiations and a draft agreement would be spoken about after a final signed agreement has been agreed upon between the parties. Thirdly, he rightly points out that the agreement is notarised in Faridabad, Haryana, with no explanation worth the name when a contract is to be executed in Bihar by one of the parties whose registered office is in Bihar and the other party whose registered office is in Mumbai.
Fourthly, the Notary who is said to have notarised the agreement was not licensed to do the same, his licence having expired earlier, a fact that is accepted even by the respondents.
26. Even otherwise, some of the learned Single Judge's conclusions are plainly incorrect and against the record. The learned Single Judge holds [Galaxy Infra & Engg. (P) Ltd. v. Pravin Electricals (P) Ltd., 2020 SCC OnLine Del 1722] :
[Galaxy Infra & Engg. (P) Ltd. case [Galaxy Infra & Engg. (P) Ltd. v. Pravin Electricals (P) Ltd., 2020 SCC OnLine Del 1722] , SCC OnLine Del para 41] "41. ... Admittedly on 22-9-2014, LoI was awarded to the respondent and on the petitioner raising an invoice for Rs 25 lakhs on 27-9-2014, respondent actually made payment on 29-
9-2014. The counsel for the petitioner has also shown the email dated 27-9-2014 whereby the respondent had asked the petitioner to raise the invoice on its letterhead."
27. This is plainly incorrect in view of the correspondence and pleadings between the parties, as an invoice was raised on Process, Process making payment on 29-9-2014 and not the appellant. Equally, the finding that a draft consultancy agreement was sent on 15-7-2014 containing an arbitration clause, parties being ad idem regarding submission of the disputes to arbitration is also plainly incorrect in view of the fact 24 that on the same day, an email was sent back in which various terms were disputed, there being no concluded contract between the parties. Also, the finding that Process was a sub-contractor of the respondent, is contrary to the pleadings between the parties which, as we have seen, had ranged from Process being a joint venture partner of the appellant to Process having common Directors with the appellant, and to Process thereafter being described as the lead partner. Sub-contractorship is not pleaded at all by the respondent, the aforesaid arising only from written submissions made before the learned Single Judge.
28. The allegation that the consultancy agreement of 7-7-2014 had a signature that may not be that of Mr M.G. Stephen was brushed aside stating that an arbitration agreement need not be signed by the parties. That is entirely beside the point. Mr M.G. Stephen has sworn to an affidavit filed before the High Court that the signatures appearing on 7-7-2014 agreement are not his signatures, as a result of which the appellant cannot be said to have entered into an agreement at all on 7-7-2014. Again, in para 47, the learned Single Judge's finding that there exists an arbitration agreement between the parties as contained in the "draft agreement" exchanged by email dated 7-7-2014, is incorrect for two reasons. The draft agreement sent by email was exchanged on 15-7-2014 and not on 7-7-2014. Secondly, the email in reply to the email of 15-7-2014 shows that there was no concluded contract between the parties. Also, the pleading with which the parties went to Court was that there was a concluded contract between the parties on 7-7-2014. There was no pleading worthy of the name that on 15-7-2014, a draft agreement was exchanged between the parties, as a result of which a concluded contract emanated therefrom." The Hon'ble Apex Court, therefore, has laid down at paragraph 29 that a deeper consideration of whether an arbitration agreement exists between the parties must be left to an arbitrator who is to examine the documentary 25 evidence produced before him in detail after witnesses are cross-examined on the same. It is evident from the said judgment that judgment rendered by Hon'ble Apex Court in the case of Vidya Drolia & Ors Vs. Durga Trading Corporation (supra) has been taken note therein, considering the fact of the given case.
15. This Court has also considered the judgment rendered in Vidya Drolia & Ors Vs. Durga Trading Corporation (supra) upon which reliance has been placed by the concerned respondent.
It would be evident from paragraph 77 of the judgment that in case of institution of criminal case issue will be said to non-arbitrabale as they relate to sovereign functions of the State. Further, violation of criminal law is offences against the State not just against the victim. Further, matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value.
For ready reference, paragraph 77 of the judgment is quoted hereunder as:
"77. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special 26 forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem. Similarly, grant and issue of patents and registration of trade marks are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Such grants confer monopoly rights. They are non-arbitrable. Criminal cases again are not arbitrable as they relate to sovereign functions of the State. Further, violations of criminal law are offences against the State and not just against the victim. Matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights, etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value. The decisions have erga omnes effect. Matters relating to probate, testamentary matter, etc. are actions in rem and are a declaration to the world at large and hence are non-arbitrable."
Further, at paragraph 78, the effect of allegation of fraud has been taken into consideration and by doing so it has been laid down that the allegation of fraud can be made a subject matter of arbitration when they relate to a civil dispute. This is subject to the caveat that fraud, which would vitiate and invalidate the arbitration clause, is an aspect relating to non-arbitrability.
For ready reference, paragraph 78 of the judgment is quoted hereunder as:
"78. In view of the aforesaid discussions, we overrule the ratio in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] inter alia observing that allegations of fraud can (sic cannot) be made a subject-matter of arbitration when they relate to a civil dispute. This is subject to the caveat that fraud, which would 27 vitiate and invalidate the arbitration clause, is an aspect relating to non-arbitrability. We have also set aside the Full Bench decision of the Delhi High Court in HDFC Bank Ltd. [HDFC Bank Ltd. v. Satpal Singh Bakshi, 2012 SCC OnLine Del 4815 : (2013) 134 DRJ 566] which holds that the disputes which are to be adjudicated by the DRT under the DRT Act are arbitrable. They are non-arbitrable."
Further, at paragraph 82 issue of non-arbitrability has been dealt with and it has been stated that issue of non-arbitrability can be raised at three stages; firstly before the court on an application for reference under Section 11 or for stay of the pending judicial proceedings and reference under Section 8 of the Arbitration Act; secondly, before the Arbitral Tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement.
For ready reference, paragraph 82 of the judgment is quoted hereunder as:
" 82. Issue of non-arbitrability can be raised at three stages. First, before the court on an application for reference under Section 11 or for stay of pending judicial proceedings and reference under Section 8 of the Arbitration Act; secondly, before the Arbitral Tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement. Therefore, the question
-- "Who decides non-arbitrability?" and, in particular, the jurisdiction of the court at the first look stage, that is, the referral stage."28
Again, the Hon'ble Supreme Court has laid down at paragraph 147.4 that most jurisdiction accept and require prima facie review by the court on non-arbitrability aspects at the referral stage.
18. Thus, it is evident after going through the judgment rendered in the case of Vidya Drolia & Ors Vs. Durga Trading Corporation (supra) in particular paragraph 78 thereof that allegation of fraud being a subject matter of arbitration when they relate to a civil dispute, which would vitiate and invalidate the arbitration clause, and such proposition has been laid down by Hon'ble Apex Court in view of judgment rendered in the case of N. Radhakrishnan Vs. Maestro Engineers [(2010) 1 SCC 72]. Further appears that issue of non-arbitrability is to be decided at the threshold i.e., at the referral stage. It further appears from paragraph 82 that the issue of non- arbitrability can be raised at three stages; firstly before the court on an application for reference under Section 11 or for stay of the pending judicial proceedings and reference under Section 8 of the Arbitration Act; secondly, before the Arbitral Tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement. 29
Therefore, what has been contended on behalf of learned counsel for the respondent that it is at the referral stage, the issue of non-arbitrability is required to be looked into, according to considered view of this Court is required to be considered in the facts of the given case.
However, the learned counsel for the petitioner has relied upon the judgment rendered in Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited (supra) wherein it has been laid down that deeper consideration of whether an arbitration agreement exists between the parties is required to be left to an arbitrator. But, it is settled position of law that each and every judgment is required to be tested on the touchstone of the factual aspects, as has been laid down by Hon'ble Apex Court in the case of Dr. Subramanian Swamy Vs. State of Tamil Nadu and Others reported in (2014) 5 SCC 75 at paragraph 47 which is quoted hereunder as :- -
"47.It is a settled legal proposition that the ratio of any decision must be understood in the background of the facts of that case and the case is only an authority for what it actually decides, and not what logically follows from it. "The court should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed."
19. This Court, after considering both the judgments, i.e., Pravin Electricals Private Limited Vs. Galaxy Infra 30 and Engineering Private Limited (supra) and Vidya Drolia & Ors Vs. Durga Trading Corporation (supra) and looking to the factual aspect of the case in hand, is of the considered view that the instant application is not deserved to be considered at this stage for the following reasons:
(I).The applicants have not approached this Court by filing application under Section 11(6) of the Act, 1996 with clean hand since interim order dated 24.12.2020 was passed by the NCLT, Kolkata Bench, much before filing of the present arbitration application, but even though filing of case before NCLT, Kolkata Bench was mentioned in the application but passing of order dated 24.12.2020 staying the alleged resignation of respondent herein from the Board of Company and stay of alleged transfer of shares of the respondent, was not mentioned.
Therefore, according to considered view of this Court, the petitioners-applicants ought to have approached this Court with clean hand i.e. by disclosing the fact in entirety but very surprisingly, the reason best known to the petitioners-applicants as to why the order dated 24.12.2020 was not brought to the knowledge of this Court, which is a material order wherein alleged resignation of 31 respondent from the Board of Company and alleged transfer of shares of the respondent have been stayed. II. Subsequently another order was passed on 10th May, 2021 whereby Mr. Justice RN Prasad, Retired Judge, Patna High Court, was appointed as independent Chairperson of the board of directors of Company and further it was hold that Board of Director shall also consists of Mr. Manoj Kumar Sahu (Respondent No.1) and Mr. Kumar Sachin (Applicant No.2) and all matters shall be decided by majority, but the said order has also not been brought to the notice of this Court by filing supplementary affidavit as the said order was passed during pendency of this application.
It is settled position of law that if the litigant is not approaching the Court with clean hand or approaching the Court by suppressing the material fact, such litigant is not entitled to any relief, as has been held by Hon'ble Supreme Court in the case of Ray Stone and Co., Dist. Khurda Vs. Executive Engineer, Khurda Electrical Division & Ors. [2018 SCC OnLine Ori 467], the relevant paragraph 38 to 40 is quoted hereunder as:
"38. It has been held in the catena of decisions that which fact is material or is to be disclosed, it is not upto the party to chose it rather it is upto the court to consider it, meaning thereby the parties are supposed to bring entire facts in the pleading, 32 reference may be made to the judgments rendered by Hon'ble the Supreme Court in the case of S.J.S. Business Enterprises (P) Ltd. v. State of Bihar, reported in (2004) 7 SCC 166 : (AIR 2004 SC 2421) wherein their Lordships have held at paragraph 13 which is being quoted hereinbelow:--
"13. As a general rule, suppression of a material fact by a litigant disqualifies such litigant from obtaining any relief. This rule has been evolved out of the need of the courts to deter a litigant from abusing the process of court by deceiving it. But the suppressed fact must be a material one in the sense that had it not been suppressed it would have had an effect on the merits of the case. It must be a matter which was material for the consideration of the court, whatever view the court may have taken. Thus when the liability to income tax was questioned by an applicant on the ground of her non-residence, the fact that she had purchased and was maintaining a house in the country was held to be a material fact, the suppression of which disentitled her to the relief claimed. Again when in earlier proceedings before this Court, the appellant had undertaken that it would not carry on the manufacture of liquor at its distillery and the proceedings before this Court were concluded on that basis, a subsequent writ petition for renewal of the licence to manufacture liquor at the same distillery before the High Court was held to have been initiated for oblique and ulterior purposes and the interim order passed by the High Court in such subsequent application was set aside by this Court. Similarly, a challenge to an order fixing the price was rejected because the petitioners had suppressed the fact that an agreement had been entered into between the petitioners and the Government relating to the fixation of price and that the impugned order had been replaced by another order."
39. In the case of Arunima Baruah v. Union of India, reported in (2007) 6 SCC 120 : (2007 AIR SCW 4609) wherein their Lordships have held at paragraph 12 which is being quoted herein below:--
33
"12. It is trite law that so as to enable the court to refuse to exercise its discretionary jurisdiction suppression must be of material fact. What would be a material fact, suppression whereof would disentitle the appellant to obtain a discretionary relief, would depend upon the facts and circumstances of each case. Material fact would mean material for the purpose of determination of the Us, the logical corollary whereof would be that whether the same was material for grant or denial of the relief. If the fact suppressed is not material for determination of the lis between the parties, the court may not refuse to exercise its discretionary jurisdiction. It is also trite that a person invoking the discretionary jurisdiction of the court cannot be allowed to approach it with a pair of dirty hands. But even if the said dirt is removed and the hands become clean, whether the relief would still be denied is the question."
40. In the case of Prestige Lights Ltd. v. State Bank of India, reported in (2007) 8 SCC 449 : (2007 AIR SCW 5350, para 32) wherein their Lordships have held at paragraph 33 which is being quoted hereinbelow:--
"33. It is thus clear that though the appellant Company had approached the High Court under Article 226 of the Constitution, it had not candidly stated all the facts to the Court. The High Court is exercising discretionary and extraordinary jurisdiction under Article 226 of the Constitution. Over and above, a court of law is also a court of equity. It is, therefore, of utmost necessity that when a party approaches a High Court, he must place all the facts before the Court without any reservation. If there is suppression of material facts on the part of the applicant or twisted facts have been placed before the Court, the writ court may refuse to entertain the petition and dismiss it without entering into merits of the matter."
It is evident from the proposition laid down hereinabove that all the suppression of fact will not lead to 34 dismissal of the litigation but certainly the suppression of fact if it goes to the root of the issue then the litigation ought to be rejected on the ground of material suppression of fact.
In the case in hand, in the given facts of the case, the petitioners-applicants have suppressed the material fact about passing of interim order dated 24.12.2020 whereby alleged resignation of respondent herein from the Board of Company and the alleged transfer of shares of the respondent was stayed, as order dated 24.12.2020 was passed much before filing of this arbitration application. Further during pendency of this application, subsequently the Tribunal passed order dated 10.05.2021 directing that the Board of Directors of the Company shall consists of an independent Chairperson-Mr. Justice (Retd.) R.N. Prasad; the respondent and petitioner no. 1 herein until such time that the application under Section 8 of the Act, 1996 filed before the NCLT, Kolkata Bench is decided, that order was not placed by the petitioner before this Court.
The aforesaid aspect of the matter, according to considered view of this Court, is treated to be material suppression of fact since the petitioner has alleged in the application about the resignation of respondent no. 1 as also signing of MoU that after such resignation the dispute 35 of the company will be decided by the Tribunal. Since the NCLT, Kolkata Bench has stayed the alleged resignation of respondent no. 1 from the company as also interim Board of Director was constituted and the said fact goes to the root of the issue, therefore, the same is considered to be material fact, since the outcome of the proceeding pending before the N.C.L.T., Kolkata Bench is having bearing upon the prospect of the company in question, reason being that N.C.L.T., Kolkata Bench, if comes to conclusion that the alleged resignation of the concerned respondent is not actually the resignation of the concerned respondent and, as such, in that circumstance, the continuation of the petitioner-applicant by virtue of resignation of the concerned respondent, the Arbitrator is now required to be appointed for the alleged mismanagement of the company and, as such, at this stage it would not be proper for this Court to entertain the instant application for appointment of Arbitrator, otherwise, there will be likelihood of conflict of decisions.
III.The petitioners-applicants themselves have filed application under Section 8 of the Act, 1996 for referring the matter before the arbitration, however, when such application was filed before the NCLT, Kolkata Bench the date has not been disclosed but even then when the 36 petitioners have filed an application under Section 8 of the Act, 1996 for referring the dispute for arbitration then it is incumbent upon the petitioners to wait for the outcome of the said application since NCLT, Kolkata Bench has passed an order of constituting an ad hoc Board of Director consisting of independent chairmanship by Mr. Justice RN Prasad, Retired Judge, Patna High Court, as also the petitioner no. 1 and the respondent, holding that interim orders dated 24.12.2020 and 10.05.2021 will finally depend upon the application filed under Section 8 of the Act, 1996 and as also decision shall be made by majority of the Board of Directors as such in that view of the matter when such application is pending before the NCLT, Kolkata Bench it would not be appropriate to pass order for appointment of arbitrator.
IV.Clause 5 of the MoU speaks that in the event of any dispute or differences between the parties, arbitrator is to be appointed and as such as per the judgment rendered by Hon'ble Apex Court, as discussed hereinabove, this Court is of the view that the same is required to be not referred for arbitration awaiting for final outcome of the proceeding before the NCLT, Kolkata Bench.
V.The respondent is also said to have set the criminal court at motion by filing a complaint case being Complaint Case 37 No. 761 of 2021 under Sections, 420, 465, 467, 468, 471, 34, 120B of the Indian Penal Code, against the petitioners and their affiliates for forging the MoU in question, and as such applying the judgment rendered in Vidya Drolia & Ors Vs. Durga Trading Corporation (supra) wherein at paragraph 77 it has been laid down that the dispute which is said to be non-arbitral in case of pendency of criminal case, since criminal cases are not arbitrable as they relate to sovereign functions of the State, herein, a criminal case has already been instituted before the competent Court of criminal jurisdiction, and as such it would not be proper at this stage to exercise power conferred under Section 11(6) of the Act, 1996.
In the given facts of the case, the judgment as has been relied upon on behalf of petitioner rendered by Hon'ble Apex Court in the case of Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited (supra) is not applicable to the facts of the case. By putting reliance submission has been made that this Court in exercise of power conferred under Section 11(6) of the Act, 1996 can well refer the signature contained in the MoU before the handwriting expert but this Court has found that this argument is not worth to be considered taking into consideration the judgment rendered by the 38 Hon'ble Apex Court in the aforesaid case, however, in the said judgment it has been laid down that for deeper consideration as to whether an arbitration agreement exists between the parties must be left to an arbitrator who is to examine the documentary evidence produced before him in detail after witnesses are cross-examined on the same, but, the said observation of Hon'ble Apex Court is not applicable in the facts of the given case for reason that a proceeding is pending before the NCLT, Kolkata Bench wherein two material orders dated 24.10.2020 staying the alleged resignation of respondent herein from the Board of Company and stayed the alleged transfer of shares of the respondent; and order dated 10th May, 2021 whereby Mr. Justice RN Prasad, Retired Judge, Patna High Court, was appointed as independent Chairperson on the board of directors of Company and further it was hold that board of director shall also consists of Mr. Manoj Kumar Sahu (Respondent No.1) and Mr. Sachin (Petitioner No.2) and all matters shall be decided by majority, were passed, is pending.
Therefore, the judgment passed by Hon'ble Apex Court in the case of Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited (supra) is not applicable and as such the argument to refer 39 the dispute for verification of the signature before the handwriting expert is not worth to the considered.
20. This Court, on the basis of discussions made hereinabove, is of the considered view that the instant application is not maintainable at this stage.
21. Accordingly, the instant application is dismissed.
(Sujit Narayan Prasad, J.) Alankar/-