Madras High Court
S.S.M. Soundappan And 5 Ors. vs K.G. Balakrishnan And 14 Ors. on 21 July, 1997
Equivalent citations: 1997(2)CTC385
ORDER S.S. Subramani, J.
1. C.R.P. No. 1511 of 1997 is against the order in (Arbitration) O.P. No. 394 of 1994, and revision petitioners are the petitioners in the O.P. also. That O.P. was filed Under Sections 30 and 33 of the Arbitration Act, to declare that there was no reference of disputes to respondents 1 and 2 by petitioners, to declare that respondents 1 and 2 were never appointed as Arbitrators, to declare that the letter dated 24.8,1993 purporting to appoint respondents 1 and 2 as arbitrators is forged, null and void, to declare that the document dated 31.10.1994 styled as Interim Award is null and void and not binding on the petitioners, and for consequential reliefs.
2. C.R.P. No. 1661 of 1997 is against the order passed in (Arbitration) O.P.No. 425 of 1994, filed by the respondents 3 to 15 herein to pass a decree in terms of the Award of the Arbitrators who are respondents 1 and 2 therein.
3. C.M.A.No. 787 of 1997 arises from O.P. No. 50 of 1996 filed by the petitioners herein to set aside the Interim Award dated 31.10.1994.
4. All the three O.Ps. were disposed of by a common order by the Lower Court whereby it dismissed O.P. No. 394 of 1994. In O.P. No. 425 of 1994, the lower court remitted the Award to the Arbitrators directing them to pass an Award after giving notice to the petitioners herein. In O.P.No. 50 of 1994, the Court dismissed the petition.
5. Material facts which gave rise to all these proceedings may be summarised as follows:-
Petitioners 2nd respondents 3 to 15, all belong to one family and are descendants of one Mari Chettiar. So far as these matters are concerned, it is suffice to take note of the facts averred in various petitions. It is said that the ancestor Mari Chettiar promoted various companies and also started many partnership firms. Some of his children, on his death, put forward various claims, and there were misunderstandings in the family. It is said that the claims of one or two sons were settled. First petitioner herein is one of the sons of Mari Chettiar, and he became the elder member of the family. It is his case that on his becoming the elder member, the surviving members of the family who had substantial stakes in the company took a conscious decision that he should become the Chairman and Managing Director of the entire Group. It is his case that it was unanimously agreed by all the members that there should not be any misunderstanding in the family. Even though there was peace for sometime, respondents 3 to 9 had a burning desire of their own, and they did not yield to the directions of the first petitioner. They wanted to manage the Companies they chose without the fear of being voted out. First petitioner visualised the problems ahead and, therefore, it was decided to divide the business interests. It is further alleged that the first petitioner gave his consent to the proposal as he knew that it would be better to part ways when the relationship was cordial, so that a good relationship could be maintained in the family. Respondents 3 to 9 wanted to purchase the shares of the petitioners in Tan India Limited and Tan India Mines and Minerals Limited so as to enable them to have a clear majority in the voting rights in those two companies. Respondents 3 to 9 in turn agreed to transfer all the shares owned by them in Venna Textiles Limited and S.S.M. Brothers Limited. The parties agreed to these proposals. Consequently, the petitioners sold 2,70,080 shares owned and held by them in Tan India Limited and 77,350 shares in Tan India Mines" and Minerals Limited. Similarly, respondents sold 8,02,730 shares owned by them in Venna Textiles Limited and 1,37,250 shares in S.S.M. Brothers Limited. In view of the transfers, the transferees of the shares resigned from the Board of the respective companies. Thus, in Tan India Limited and Tan India Mines and Minerals limited, respondents 3 to 9 came to be the exclusive shareholders. When the transfers were effected, it was genuinely thought that atleast thereafter there will be a peaceful atmosphere, and there would be no more legal wrangles as had been in the past. To prevent any future misunderstanding also, it was decided that all the movable and immovable properties in the family could be partitioned. It was agreed in a broad sense that the properties will have to be divided into three groups, i.e., all the petitioners together in one group, respondents 3, 4, 10 and 11 in the second group, and the other respondents, i.e., respondents 5 to 9 and 12 to 15 in the third group. When talks were going on between the parties, second respondent who is a business man at Coimbatore and who was a family friend, entered into the picture and acted as a mediator. Being a family friend, everyone thought that his presence also will expedite a final settlement. Through him, when the mediation was going on, his brother, who is the first respondent herein, was also brought into the picture. The intention was, that through the mediation along with the other well-wishers, the family will get peace. It was never the intention of the family members to appoint respondents 1 and 2 as Arbitrators, nor did they receive any claim statement or counter-statements, and no oral evidence or documentary evidence was also taken. Respondents 1 and 2 agreed to act as mediators only.
6. Finally, on 24.8.1993, a Memorandum of Understanding (for short, MoU) was reached, and the same was put down in writing. It contained a host of items, and the parties liberally dealt with certain properties belonging to certain corporate bodies. Even at that time, petitioners apprehended that any agreement which they may enter into regarding the properties of corporate entities and partnership firms would lead to legal problems. It was further pointed out even at that time that the shares of all the Companies will have to be ascertained by making a just valuation of the assets and liabilities of the companies and recokon the net worth of the shares. Thus, the MoU was not a concluded contract, but was an agreement to enter into another contract. The same was signed on 24.8.1993. On that date, respondents 3 to 9 paid a sum of Rs. 95,00,000/-, being the amount payable towards the difference in the value of shares sold and purchased. On the same day, a sum of Rs. 30,00,000/- was paid by and on behalf of respondents to certain corporate bodies which were in no way related to the settlement of disputes. All were happy to sign the MoU, and everyone bona fide believed that finally the family was going to get peace. The MoU was a record of a broad understanding and there is a specific agreement therein that the ultimate modalities of division will have to be worked out. The net worth of the shares in the companies and firms had to be arrived at and just valuation of the assets be made to ensure a just and equitable division. Everyone knew that it was an incomplete document. It was also not stamped.
7. Even though an understanding was reached on 24.8.1993, respondents 3 to 9 did not want to act on the same. They were interested only in taking note of such of the agreed terms as would benefit them and discarded the reciprocal obligations. Even though frequent appeals and requests were made by the petitioners to respondents 3 to 9, to respect the MoU, the same were not acceded to. In the MoU, there is a clause whereby the parties agreed to appoint Arbitrators and seek the passing of Award in terms of the compromise memo. It was never the intention of the parties that respondents 1 and 2 should be appointed as Arbitrators. If there was any such intention, their names could have been mentioned in the MoU itself. Subsequent to the MoU, second petitioner addressed a letter on 3.8.1993 to one L. Dhakshinamoorthy, a family counsel complaining about the non-performance of the obligations by respondents 3 to 9, and the third respondent also sent a letter to the same counsel complaining about the non-performance of the obligations by the petitioners. Dhakshinamoorty had even written to both of them stating that he will sort out the matter. If in fact, respondents 1 and 2 were appointed as Arbitrators on 24.8.1993, the correspondence with Dhakshinamoorthy was unnecessary. In the meanwhile, even though correspondence was going on between the parties and Dhakshinamoorty, respondents 3 to 9 were proclaiming that they had taken into confidence respondents 1 and 2, and they can manage everything through them. Apprehending some mischief, petitioners wrote a registered letter on 28.10.1993 to the second respondent asking him to destroy the blank signed papers which the first petitioner, his father and other members had entrusted to him, which were intended to be made use of at the time of final settlement. Even though second respondent received the said registered letter as early as on 1.11.1993, there was no reply from him. S.S.M. Brothers Limited, a corporate entity, which came to the control of the petitioners as per the earlier understanding, was owning land at R.A. Puram, Madras-28. Respondents 3 to 9 were making use of those properties as licensees. The company wrote a letter on 16.8.1994 revoking the licence. Naturally, respondents 3 to 9 got irritated and they wanted to continue to be in the premises somehow or other. Soon after, they filed a suit as C.S. No. 1294 of 1994 on the original side of this Court, on 16.8.1994. That suit was one for injunction to restrain the petitioners from interfering with their possession. The entire claim made in that suit was on the basis of the MoU signed by both sides. On getting notice of the suit and the interim application filed therein, a detailed counter affidavit was filed by these petitioners stating that the MoU was inadmissible in evidence, and that will not confer title on respondents 3 to 9, and it is only a contract to enter into another contract, and, as per the provisions of MoU, the matter has to be referred to an Arbitrator and till the date of filing the counter affidavit, there had been no reference to Arbitrator and the suit itself is not maintainable. After counter affidavit was filed, even though the injunction application came for hearing on more than two occasions, the same was not proceeded with by respondents 3 to 9. In the meanwhile, respondents 3 to 9 also moved an application Under Section 111 of the Companies Act through some of their employees, for initiating action against the petitioners. The Company Law Board questioned the maintainability of such an application, and the same was dismissed even at the threshold. While petitioners and respondents 3 to 9 were fighting each other, they received a letter dated 8.11.1994, on 10.11.1994 along with an Interim Award purported to have been passed by respondents 1 and 2. In that Interim Award, it was stated that respondents 1 and 2 were appointed Arbitrators for the purpose of implementing the MoU said to have been signed on 24.8.1993. It is under these circumstances, petitioners have filed the petition challenging the very existence of the arbitration agreement and also the validity of the interim Award. Various reasons are stated by the petitioners to contend that there is no arbitration agreement. The following reasons are mentioned. (1) Respondents 1 and 2 have claimed that they were appointed as Arbitrators in writing. If, in fact, respondents 1 and 2 were appointed as Arbitrators at that stage, then the MoU executed on 24.8.1993 would have contained a clause that respondents 1 and 2 have been appointed as Arbitrators. (2) On 28.10.1993, petitioners informed the second respondent that they have entrusted certain signed blank papers believing him that they would be made use of at the time of final settlement. Since respondents 3 to 9 did not act in accordance with the MoU, they directed the second respondent to destroy those blank papers signed by the petitioners. Second respondent received the same on 1.11.1993, and the same is evidence from the signed postal acknowledgment. He did not send any reply, nor has he denied the allegation that blank papers were entrusted to him. (3) O.S. No. 1294 of 1994 filed by respondents 3 to 9 was one for injunction to restrain the petitioners from interfering with their possession and management of the properties allotted to them as per the MoU dated 24.8.1993. In that suit, there is no reference to the arbitration agreement. If in fact there was an arbitration agreement, the suit itself would not have been entertained. Likewise, if the Arbitrator was proceeding with the arbitration also, such a suit would not have been entertained by court. (4) The third petitioner complained to the family lawyer Dhakshinamoorthy about certain properties over which she claimed that she is entitled to one-third share. She wanted to construct a weaving shed to expand her business. She wanted the boundary to be put up, demarcating her share in the property. The family lawyer sent a reply stating that he is intending to visit the properties and put an end to the misunderstanding. He also said that he will be taking some qualified surveyors to measure the land and allot her the share due to her as provided in the MoU. This fact was also informed to respondents 3 to 9. They immediately filed O.S. No. 366 of 1994 before the Sub Court, Sankari, for injunction restraining the petitioners herein from interfering with their possession. They wanted the joint possession not to be disturbed. That suit was filed on 19.8.1994. In that suit, respondents 3 to 9 who were entitled to only one-third share on the basis of MoU, claimed 3/4th share in the property. In that case also, there was no reference to the Arbitration.
8. It is further said that the Interim Award is invalid, for, no notice was issued to the petitioners about the proposed hearing. They also relied on a telegram dated 1.11.1994 issued by learned counsel for respondents 3 to 9, asking the petitioners to abide by the MoU. If, in fact, there was an arbitration and an Award, on 1.11.1994 such a telegram would not have been issued by respondents' counsel. They also contend that the so-called Arbitrators have never issued any notice to them. It is further said that the Letter of Authorisation alleged to have been given can only be for making use of the signed papers in collusion with respondents 3 to 9. In the MoU, the Arbitrators to be appointed were to give only Award in terms of the compromise. But, in the purported authorisation, the reference is far beyond the scope of compromise. It is also contended that the authorisation letter as well as the Interim Award is the result of a fraudulent scheme in which respondents 1 to 9 conspired together. The Award also suffers from legal infirmities. It was also alleged that the Arbitrators have mis conducted themselves in rendering the Award. It is on the above allegations, the reliefs mentioned above were sought.
9. In the counter statement of respondents 1 and 2, they said that at the same time when MoU was signed, petitioners 1 and 2 and respondents 3,6 and 8 acting for themselves and on behalf of other members of the respective families, executed a letter of authorisation in their favour. It is on the basis of the said authorisation, they tried to resolve the dispute. It is their further case that it is in pursuance of the same, respondents 3 to 9 paid huge amount to the petitioners. Respondents 1 and 2 also contended that notice was issued to the petitioners asking them to be present before the Arbitrators and since they did not turn up in spite of various reminders, they were constrained to pass an Award on 31.10.1994. In the last paragraph of the statement, second respondent has admitted that he has received the letter dated 28.10.1993. But he did not think of sending any reply. It is also stated therein that he was not entrusted with any blank papers with signatures as alleged in that letter.
10. In the counter statement of respondents 3 to 15, apart from supporting the claim of respondents 1 and 2, they contended that a MoU was reached on 24.8.1993, and on the same date, they also gave a letter of authorisation authorising respondents 1 and 2 to arbitrate in the dispute between the members of the family. The various clauses in the letter of authorisation are also incorporated in the counter statement. It was further contended that it was at the instance of the Arbitrators huge amounts were paid to the petitioners, and on the petitioners having derived advantage out of the MoU, they cannot now go back from the letter of authorisation. It is further contended that subsequent to the MoU, auditors have audited the accounts and amounts due to and from the petitioners have also been calculated. They also said that they too received letters from Arbitrators informing them about the posting of the case. But, even though they were present for hearing before the Arbitrators, petitioners did not present themselves and that resulted in the passing of an interim Award. They also admitted that in C.S. No. 1294 of 1994 and O.S. No. 366 of 1994, there was no mention about the arbitration, but, according to them, it was not mentioned since it was quite unnecessary for those suits. Regarding the telegram dated 1.11.1994, it is contended that on that date, they were not aware of the contents of the Award and, therefore, it could not be informed to them. It is their case that the present claim put forward by petitioners that there is no arbitration agreement is a new story which cannot be believed.
The prior and subsequent conduct will show that there was an agreement authorising respondents 1 and 2 to arbitrate in the dispute between the family members. They also admit that there were correspondence with Advocate Mr. Dhakshinamoorthy, who a close relative and experienced lawyer. He was kept in touch with all the developments in the family and also about the various disputes. They prayed for dismissal of O.P. No. 394 of 1994.
11. In the connected matters also, similar contentions were taken.
12. In the petition to pass a decree in terms of the Award, petitioner herein have taken a defence that there was no arbitration agreement, and, for the very same reason, they sought to set aside the Award.
13. Respondents 3 to 9, in their application to pass a decree, have alleged what all they have stated in their answer to the petition O.P. No. 394 of 1994.
14. The only point that requires consideration in both the revisions and the civil miscellaneous Appeal is, whether there is a written agreement for arbitration, authorising respondents 1 and 2 to arbitrate regarding the disputes between them and respondents 3 to 15 i.e., to implement the MoU.
15. Under the Arbitration Act, an arbitration agreement is defined in Section 2(1). It means, 'a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.'
16. Both the parties agree that an MoU was reached on 24.8.1993 and the same was also put down in writing. In the preamble of the said MoU, it is said, 'The parties hereto raised disputes regarding the distribution of properties, movable, immovable, interests in profits and properties of various firms and shares in Joint Stock Companies. The parties preferred claims orally before the Arbitrators in February 1993, and the parties appeared before the Arbitration and submitted their respective arguments. Several sittings were conducted commencing from 8.2.93 and continued on 21.4.1993, 30.4.1993, 26.6.1993 and 5.8.93. The Memorandum of Understanding in all these sittings were modified from time to time. The parties hereto have after great deliberations and on the basis of wisdom gained from the Arbitrators thought it fit to enter into a comprehensive compromise encompassing every type of property including all their interest in the individual units, Firms, Joint Stock Companies. The parties hereto have entered into the following compromise.' Thereafter, schedule of properties are given, and to whom they are allotted. The properties of the companies are also dealt with therein. In Clause XI, it is said, 'The parties hereto have agreed to request the Arbitrators to pass an Award in terms of the above compromise.' In Clause XIII it is said, 'The parties hereto shall pay the fees to the Arbitrator proceedings and reimburse the expenses to the persons concerned in 1/3rd and 2/3rd ratio.' Clause XIX says that 'The persons who are in possession of properties, movable or immovable shall deliver possession of the same to the person who is entitled to the same under the Memorandum of Compromise on the completion of any dependent reciprocative obligations. The cheques handed over shall be honoured immediately at the first instance.' Clauses XX and XXI also deal with direction regarding the reconstitution of the firm and how the future conduct of the firm should be. The MoU also contemplates the liability to pay capital gains tax and how it has to be paid. Even regarding the buffaloes and cows, a settlement is reached, and finally it is said, whatever properties are left out in the compromise will also be valued and shared at the ratio of 1:2.
17. On a reading of this MoU, we find that the entire dispute has been settled and the parties intended that an Award should be passed in terms of the compromise. The parties never wanted any further reference to the Arbitrator, for, there was no dispute at all. It was resolved. A direction was also given in the MoU that regarding immovable properties, respective documents will have to be executed and the same will be done by mutual discussion so that the parties derive the maximum advantage without unnecessary expense. The MoU records the settlement of all disputes and the direction is given to the parties, to execute necessary documents, after mutual consultation. This MoU is signed by all the petitioners and also all major members in the group of respondents 3 to 15.
18. It is on the same day, another Memorandum of Undertaking was also reached whereby the shares of Tan India Limited were transferred to the Group of respondents 3 to 15. Petitioners' group undertook that they will take all steps and inform them to have the transfer effected and also to get the security offered in respect of the shares released. There was one more agreement on the same day whereby certain machineries and motor vehicles were directed to be handed over and also regarding their valuation. This was also signed by all the petitioners and all the major members in the group of respondents 3 to 15.
19. It is the case of the petitioners that even when negotiations were going on before 24.8.1993 certain blank signed papers were entrusted to the second respondent for being utilised at the time of final settlement. It is their case that making use of those signed papers, a memorandum of authorisation was prepared on 24.8.1993. I have already said that in the counter statement of respondents 1 and 2, it is said; "At the same time the Memorandum of Understanding was entered into, petitioners 1 and 2 and respondent 3,6 and 8 acting for themselves and on behalf of the other members of the respective families executed a letter of Authorisation in favour of these respondent." (i.e., respondent 1 and 2). It is the validity of this letter that is seriously challenged by petitioners. It is said to have been signed only by petitioners 1 and 2 and respondents 3,6 and 8. If simultaneously such a document was written or such an agreement was reached authorising respondents 1 and 2 to arbitrate, the same would have been signed by all the petitioners and all the respondents, and there was no necessity for such a statement that such an authorisation is given on behalf of the other members. Various other reasons are also mentioned challenging the genuineness of the said authorisation letter.
20. When a person alleges that he has affixed his signature in blank papers and the same have been used for fabricating a contract or agreement, the entire burden of proving the same is on that person. I have already referred to the definition of Arbitration Agreement. In Union of India v. G.S. Atwal & Co., (Asansole), their Lordships, in paragraph 6 of the said decision, have said thus:
"To constitute an arbitration agreement, there must be an agreement that is to say the parties must be ad idem. Arbitrability of a claim depends upon the dispute between the parties and the reference to the arbitrators. On appointment, he enters upon that dispute for adjudication..."
In the same decision in 9th paragraph, their Lordships have further said that 'It would thus be seen that appointment of an arbitrator is founded upon the agreement between the parties. The agreement need not be in any particular form. In decided cases, it has been held that it need not be even signed by the parties. The only legal requirement is, the submission must he in writing, though it need not be signed. To constitute an arbitration agreement, it is not necessary that there should be a formal agreement or compromise. All that is necessary is, the parties should agree in writing to submit the present or future differences to arbitration. It is also settled law that to constitute an arbitration agreement in writing, it is not necessary that it should be signed by the parties, and it is sufficient if the terms are reduced into writing and the agreement of the parties thereto is established.
21. In this case, when the petitioners have contended or alleged that there was no such arbitration agreement and the signatures in the blank papers were alleged to have been made use of to prepare the same, it is for the other side to prove that there was such an agreement, and it was in token of consent, the petitioners 1 and 2 signed the same. Even though signature is not necessary, since the respondents allege that the agreement was singed, they have to prove the same. As early as in Ehadut Ali v. Mohammed Fareed and Ors., A.I.R. 1916 Pat: 206 a Division Bench of that High Court held thus:-
"Execution of a document consists in signing a document written out and read over and understood and does not consist of merely signing a name upon a blank sheet of paper. To be executed, a document must be in existence; where there is no document in existence, there cannot be execution. Where an executant clearly says that he signed on a blank paper and that the' document which he had authorised is not the document which he contemplated, the statement is a denial, not an admission of execution."
22. In Abdul Hasan v. Mt. Wajih-un-nissa and Ors., A.I.R. 1948 Pat. 186 a Division Bench of that court held thus:
"... the term 'execution' in relation to a written document means the placing by the executant of his signature or other identification mark such as a thumb-print thereon in or accompanied then or later by circumstances which sufficiently demonstrate the intention of the executant to give effect and operation to the instrument signed by him,....."
23. Our High Court also had occasion to consider a similar question. In one of the earliest decisions reported in Sayyaparaju Surayya v. Koduri Kondamma, it was held thus:-
"The admission required by the section is admission of the execution of the document. It is not enough for the person, who is the ostensible executant, to admit his signature on a proper on which, it may be, the document is ultimately engrossed. The identity of the papers on which the signature occurs is not sufficient. If a man says that he signed a blank paper on the representation that it was required for presenting a petition or if a man signs a completed document on the representation that his signature or thumb impression is required as an attesting witness, that admission of the signature or thumb impression in those circumstances cannot be construed to be an admission of the execution of the document. Far from its being an admission, it is clear and unambiguous denial of the execution of the document. He must admit, in order to attract the provisions of S.35(l), that he signed the document. The admission of execution must amount to an admission that the person admitting entered into an obligation under the instrument; in other words, that he had executed the document, signed it as a sale deed, mortgage deed or a lease deed, as the case may be....."
Where, therefore, the ostensible executant of a sale deed stated that she had affixed her thumb impression to a blank paper, in order to enable the plaintiff's husband file a petition before the Tahsildar to get the contribution to the War Fund reduced and the sale deed purported to have been executed in favour of the plaintiff:
Held that the statement was a clear denial of execution of the document and not an admission of execution."
24. Similar is the case reported in Ethirajulu Naidu v. K.R.C. Chettiar, wherein it was held thus:-
"Execution of a document implies intelligent and conscious appreciation of the contents thereof. Hence where the defendant admitted only that he put his signature on a blank piece of paper which he alleged had possibly been utilised for fabricating the document the onus of proving due execution must be thrown on the plaintiff."
25. Under Section 33 of the Arbitration Act, the Court shall decide the question on affidavits. In this case, respondents 1 and 2 have not filed any affidavit. It is only a counter statement. It is only petitioners 1 and 2 along with the respondents, who have given the alleged authorisation at the same time when MoU was also signed. Why they chose petitioners 1 and 2 alone for which they sought the assistance of a witness also is not explained. Even though on the same date there are similar documents admittedly executed by petitioners and respondents 3 to 15, this is the only document wherein a witness has signed Certain other circumstances also will have to be taken into consideration. The second petitioner wrote a letter to their family counsel on 31.8.1993, i.e., seven days after the MoU and also the alleged authorisation complaining that respondents 3 to 9 are not honoring their commitments to the MoU. Copy of the same was also sent to respondents 1 and 2 and they are only named, and not described as 'Arbitrators'. In that letter, second petitioner complains that they did not receive the machineries, vehicles, textile goods, etc., for which a list has already been given to their counsel. He further says in that letter that even though they Ought to have been received on 25th, and in spite of his waiting, respondents have not honoured the commitment. At the same time, he also says that in respect of 48 looms at the Modern Textile Mills in regard to which the keys have been entrusted to the counsel, they seek the assistance of the counsel to get these items, to which they are entitled as per the MoU. The receipt of this letter by respondents 1 and 2 and also by third respondent is not disputed. One more mediator, namely, T.K. Rajaram was also informed about the non-compliance of the MoU. On 1.9.1993, i.e., on the 8th day of the MoU, third respondent himself wrote to the same counsel informing him about the memorandum of settlement and he also requested the counsel to handover all the materials which the counsel has received from the petitioners' group. The third respondent also seeks the assistance of the counsel that whatever that was deliverable to the petitioners could be delivered in his presence. The counsel sends a reply on 8.9.1993 both to the second petitioner as well as the second respondent and also the subsequent letters written by them. It is a common reply to all those letters. In all those letters, he says that he was under the impression that the entire matter has been settled and having successfully accepted the compromise, he wanted the same to be implemented in letter and spirit. He also requested both of them that in his presence, whatever exchange could be done, could be done. If, in fact, there was an arbitration agreement, there was no purpose in writing to Mr. Dhakshinamoorthy, asking to mediate for handing over the materials and for exchanging the materials as referred to in the Memorandum of Compromise. Mr. Dhakshinamoorthy is also conscious of the fact that respondents 1 and 2 are also interested in the mediation, as copies of the replies are sent to them. If respondents 1 and 2 are Arbitrators, Mr. Dhakshinamoorthy would not have interfered in the matter, and respondents 1 and 2 would have immediately objected to his interference by stating that they have entered into arbitration proceedings, and Mr. Dhakshinamoorthy had no business to intervene in the case.
26. The third petitioner Pushpa also wrote to the counsel on 27.9.1993 that she is entitled to one-third share in the property as per various sale deeds referred to in that letter. She wanted to put a boundary and the necessary markings to be made separating her share of the property, so that she may be in a position to put up a weaving shed. The property referred to in that letter is Item 24 in the Memorandum of Settlement. Over the said Item, the third respondent's Group is entitled to 2/3rd share. That is why the third petitioner says that she is entitled to one-third share over the property. A reply is sent by Mr. Dhakshinamoorthy with copies to respondents 1,2 and 3 and others that he will be visiting the property and he will divide the same by metes and bounds. He says in that letter that he will measure the entire extent and divide the properties by metes and bounds, and that for that purpose, he will seek the assistance of qualified surveyors also. He wanted the respondent's Group also to be present at the spot, and informs them that on 22.10.1993 at about 10.00 A.M. they should call on him, to survey the land. It is immediately thereafter, second petitioner writes to the second respondent stating that even though months have passed after the memorandum of agreement, respondents herein are only trying to thwart the arrangement. He also says that consequent to the conclusion of talks, he took possession of certain properties and has put up a construction. The third respondent along with his companions, disregarding the arrangement, entered into the property and removed the hut which he had put up, and the matter was also reported to the police. He informs the second respondent that the act of third respondent and his companions is unbecoming of a gentleman and that it amounts to breach of the understanding. He, therefore, says that in view of the continued hostile attitude, he has his own apprehensions and, he requests the second respondent to immediately destroy the blank singed papers entrusted by him, his father and also by other member for being utilised at the time of final settlement. The second respondent received that letter by' registered post on 1.11.1993. The signed postal acknowledgment evidences the same. If, in fact, second respondent was an Arbitrator, he would not have remained silent to this letter. If, in fact, there was such an authorisation letter, second petitioner would not have written a letter of this kind. He is specific only about the understanding that was reached and, nowhere he says the arbitration is necessary to implement the same. He also informs the second respondent that since he has his own apprehensions and wanted the second respondent to send a reply especially about the destruction of the signed blank papers. One of the items in the settlement is regarding the transfer of shares to the petitioners' group in regard to S.S.M. Brothers Limited. Third respondent's group was the licensee of the Company. When the company came to the control of the petitioners, naturally, they will be interested in getting possession. A notice was issued to them asking them to vacate. The immediate reaction of third respondent's group was filing a suit before this court a C.S. No. 1294 of 1994. The suit was filed on 10.9.1994, i.e.., more than a year after the so-called authorisation letter and the Memorandum of compromise. The subject matter of the suit was all the properties which were allotted to them under the Memorandum of compromise. The immovable properties, machineries, motor vehicles are all included in the schedule. Powerlooms in the various Textile Mills are also the subject- matter. The entire suit was based on the Memorandum of compromise, and, according to them, there were reciprocal obligations, and till both parties discharged their reciprocal obligations, their possession should not be disturbed from the items over which they had control. In the relief portion, they sought that they wanted a permanent prohibitory injunction and also a mandatory injunction to restrain the petitioners herein from interfering with their possession in relation to the properties allotted to their group as per MoU.
In paragraph 17 of the plaint, they admit that the parties agreed to a settlement with the assistance of their family lawyer Shri. L. Dhakshinamoorthy, and the same was reduced to writing in the form of a Memorandum of Understanding. It is further said that both the parties affixed their signatures in the MoU and agreed that they will honour the respective obligations as set out thereunder. If, in fact, there was an arbitration agreement as was written in the Memorandum of authorisation, the suit could not have been filed. There is no reference in the plaint about respondent 1 and 2 or about the Memorandum of authorisation. For the injunction application, a detailed counter affidavit was already filed by petitioners. They disputed the maintainability of the suit on the ground that the MoU was only an agreement to execute another agreement, and if it were to be treated as a compromise, the same has to be registered. It is legally inadmissible in evidence. One important averment made in the counter affidavit is in paragraph v (f) wherein they have said: "The Parties to the Memorandum have agreed to refer the matter before the arbitrators and obtain an award in terms of the Memorandum of Understanding. The award if and when passed has to be made a rule of the court until such a decree is obtained, no party can legally execute the decree. The parties have admittedly not referred the matter to an Arbitrator. Hence, the document does not clothe any rights on the plaintiffs. Hence, the suit is premature and cannot be maintained. This aspect has been candidly admitted by the plaintiffs in another proceedings. Hence the suit is liable to be rejected." This counter affidavit was filed in October, 1994, at any rate, before the so-called award was passed. On 1.11.1994, the third respondent's counsel Advocate Jagadeesan sends a telegram to the first petitioner informing him that the petitioners should not utilise the embroidery building situated within S.S.M. Processing Mills, Komarapalayam after that date in view of the MoU entered into in the presence of respondent 1 and 2. The date of issue of the telegram, namely, 1.11.1994 is relevant. According to respondents 1 and 2 and also the third respondent, the Arbitrators have already entered into the reference, and even the award was passed on 30.10.1994. It is their case that the case was posted on 27.10.1994, and the petitioners did not present themselves before them. When the arbitrators have already entered into reference on the basis of the authorisation, reference to the MoU alone speaks volumes. Certain affidavits are also filed to prove that there was no such discussion, nor were the parties thought of anything about any authorisation letter. One such affidavit is filed by Rajaram about whom I have already made reference. According to him, even though he was present throughout the discussions on various dates, at no point of time, they appointed respondents 1 and 2 as arbitrators. It is true that one Varadarajan has filed an affidavit stating that he was present, and it was in his presence, the Memorandum of Authorisation was singed, and he has also attested it. A counter affidavit has been filed by the petitioners stating that they do not know this Varadarajan at all, and they have never met him. The vary fact that he became a witness only in this questioned document shows that the respondents themselves are having doubt about the same. The affidavit of Varadarajan also shows that it is so artificial. He claims to be a big industrialist, and Managing Director of various companies. He is not acquainted either with the petitioners or the respondents, and he says that he saw them for the first time. He further says that immediately after the introduction at the instance of respondents 1 and 2, he signed the same as an attestor and that it was inconnection with a family dispute. The contents seem to be very artificial, and I do not think much reliance can be placed on that affidavit.
27. To decide the question whether a document was fraudulent or genuine, circumstances alone will have to be taken into consideration. That will never fail.
28. Learned counsel for the respondents submitted that the application is vague. Even the petitioners are not sure whether the blank papers are signed by first petitioner or second petitioner alone, or by the other petitioners, and there was no necessity such a big industrialist to file an affidavit that he attested it. Respondents 1 and 2 are family friends and there is no necessity for them to side with one group. When they came as mediators, their impartiality will have to be presumed. Learned counsel also submitted that the first petitioner was the Governor of a Lions Club. He is a big industrialist. Second petitioner is also in the same position, and in such circumstances, to plead that they entrusted blank signed papers is too artificial. Even though the said argument is possible, circumstances show that they might have entrusted such papers with the second respondent. It shows their absolute faith in respondents 1 and 2. In fact, the MoU itself was signed at their instance, though Mr. Dhakshinamoorthy, Advocate, was also a party to it. The said argument could be answered only by respondents 1 and 2 and not by the third respondent's group. When a notice was issued by the second petitioner to the second respondent stating that the blank papers entrusted to him may be destroyed and a reply may be sent to him (second petitioner) regarding that, though the second respondent received that notice, he simply remained silent. It is a big circumstance which goes against their case. Respondents 1 and 2 have also not filed any affidavit before this Court and this shows that the allegation made by the petitioners remained uncontroverted.
29. One important circumstance against the respondents is, when the MoU says that the arbitrators will pass an Award in accordance with the compromise, the authorisation letter goes for beyond the scope of the Understanding. Immediately after the MoU, various correspondence are going on regarding the implementation, and how for the third respondent's group has violated the terms. A suit was filed by 3rd respondents group where the petitioners challenge the admissibility of the MoU in evidence since there is no Award and nobody has made a reference to the Arbitration. The document i.e., letter of authorisation could have come into existence later only to cure the defect that is mentioned in the counter affidavit. In this connection the silence of respondents 1 and 2 from 24.8.1993 till the dispute arose is also relevant. In the so-called Letter of Authorisation, respondents 1 and 2 were permitted to pass a final Award before December, 1994 or within four months of their entering into the Reference, whichever is later. In the Interim Award, even according to respondents 1 and 2, they sent notice to parties by Certificate of Posting only on 17.10.1994, on the basis of a letter given by third respondent's group on 10.9.1994. We must understand that the litigations and various correspondence with Mr. Dhakshinamoorthy, the family lawyer, were before this period, and for all correspondence, copies were also given to respondents 1 and 2. They did not complain that they are the Arbitrators authorised to deal with the matter.
30. These circumstances show that there could not have been any authorisation letter as contended by the respondents. I have already stated that in the MoU, the Arbitrators were authorised to pass only an award in accordance with the compromise, and a reading of the memorandum of understanding shows that all the matters have been settled. There is no dispute between the parties thereafter. In such a context, there was no necessity for a further arbitration agreement and at that time, the parties never contemplated that they will not implement the MoU. Only when disputes arose thereafter, Mr. Dhakshinamoorthy had to intervene, and they subsequently evaded in implementing the MoU, and litigation also started.
31. In the decision reported in Nathani Steels Ltd. v. Associated Constructions, 1995 Supp. (3) SCC page 324 their Lordships said that 'once there is a full and final settlement in respect of any particular dispute or difference in relation to a matter covered under the arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute and the arbitration clause cannot be invoked even though for certain other matters.' In the case on hand, on 24.8.1993, on signing the MoU, there was no dispute between the parties and nobody contemplated a future dispute on that date. That also is an added reason to hold that the letter Authorisation or which is referred to as arbitration agreement would not have been executed by the petitioners. As alleged by them, the signed papers might have been utilised for the said purpose.
32. Learned counsel for the respondents also submitted that the plea of nonest faction is not available to the petitioners and even if they have signed blank papers, they have to shoulder the liability therein. In 'Pollock and Mulla -Indian Contract and Specific Relief Acts' - 11th Edition (1995), the learned Author, commenting on Section 18 of the Contract Act, has considered this argument. Learned author has said thus:-
"The plea of nonest factum applies where a party signs a document and hands it over to the other party in order to enable him to fill in details and complete the transaction and the document is not in accordance with the instructions of the executant. Even in that case he will be bound if it is not essentially different in substance or in kind from the intended transaction. The burden of proof is on the executant that the acted carefully and if he fails to show it he will be bound. But negligence on the part of the executant will be a bar to the plea on nonest factum."
Here, the petitioners have a definite case. They entrusted the papers to the mediators only to record a final settlement, though receipt of such papers is denied by respondents 1 and 2 in their counter statement. In view of my earlier discussion, the enturstment of blank papers seems to be probable. When that is found, the reason for entrustment also has to be accepted. The entrustment was for entirely a different purpose. But, by making use of the same, an agreement has been now created. Petitioners were never negligent, and, by notice dated 28.10.1993, they also informed the respondents 1 and 2 to destroy the same and not to make use of them. In Dularia Devi v. Janardhan Singh and Ors., 1990 SCC (Supp) 216 their Lordships have held that when there is a fraudulent misrepresentation as to the character of the document, it is a void transaction. A fraud is played for creating such an agreement is clear from the circumstances and that will vitiate all transactions. Respondents 1 and 2 also cannot escape their responsibility. From the circumstances, it is clear that they also played a part in the fraud.
33. In view of the above conclusion, I hold that C.R.P. No. 1511 of 1997 is to be allowed, and accordingly it is allowed. I declare that there was no reference of dispute to arbitration by respondents 1 and 2, and they were never appointed as arbitrators. The Letter of Authorisation or the purported agreement of arbitration dated 24.8.1993, is not an agreement executed by the petitioners. The fourth relief sought in the Original Petition relating to which CRP No. 1551 of 1997 has been preferred is, to declare the Interim award as null and void. I do not think I should enter a finding on that since the lower court itself has set aside the Award for some other reason, though it has held that there is an arbitration agreement. Since the Award is not in existence, such a declaration is not necessary.
34. In this connection, the finding of the lower court requires an observation. Even though voluminous evidence was presented before court, it has not chosen to discuss any of these matters, and, in one sentence, it has held that there is an arbitration agreement. The only reason that is mentioned by the lower court is that taking into consideration the position of parties, it has to be held that there could have been an arbitration agreement. Such a blind approach by the lower Court on the validity of authorisation or agreement of arbitration was not proper. A duty was cast on the lower court to discuss the point and enter a finding. It has failed to do so. Learned counsel for the respondents submitted that more than a crore of rupees was paid to the petitioners on the basis of the compromise or MoU. That would have been only on the basis of the undertaking to respondents 1 and 2. I do think the said submission is correct. The payment was in regard to transfer of shares in two companies, the control of which was with the petitioners, and the payment of money had nothing to do with the Memorandum of authorisation,
35. Once I hold that there is no arbitration agreement authorising respondents 1 and 2 to implement the Memorandum of Understanding, the remittal of the Award to respondents 1 and 2 also cannot be justified. Accordingly, C.M.A.No. 787 of 1997 is allowed.
36. C.R.P. No. 1661 of 1997 is dismissed as unnecessary.
37. Petitioners in C.R.P. No. 1511 of 1997 are entitled to costs. In C.R.P. No. 1661 of 1997 and C.M.A.No. 787 of 1997, parties are directed to suffer their costs.
38. C.M.P. No. 8618 of 1997 in C.M.A. No. 787 of 1997 for injunction, C.M.P. No. 8617 of 1997 in C.R.P. No. 1661 of 1997 for stay and C.M.P. No. 7792 of 1997 in C.R.P. No. 1511 of 1997 for injunction are all dismissed consequently.