JUDGMENT
M.K. Sharma, J.
(1) This is a petition filed by the petitioner under Section 8 read with Section 20 of the Arbitration Act for filing of agreement dated 23.11.1989 and 16.3.1990 and also for referring the disputes arising between the parties to an independent Arbitrator for making an award in terms of the provisions of the Arbitration Act. On 23.11.1989 an agreement was executed between the petitioner and respondents 1 to 5 for sale of 41,51,890 equity shares of the Company of Rs. 10.00 each fully paid up at par as a spot delivery contract i.e. at the aggregate price of Rs. 4,15,18,900.00 . The aforesaid agreement was subject to the conditions that the permission for transfer of shares from financial institutions namely Idbi should be obtained and permission from Central Government under Section 30-C of Monopolies & Restrictive Trade Practices Act, 1969 is also obtained. The said agreement also provided for the payment schedule. It is stated that in pursuance of the said agreement payment of Rs. 20.75 lacs was made by the petitioner to the respondent. On 28.11.1989 respondent No.1 wrote a letter to the Industrial Development Bank of India seeking permission for transfer of the shares to the petitioner. The Idbi however, vide its letter dated 4.12.1989 expressed their inability to agree to the transfer of shares as above. The said letter dated 4.12.1989 is placed on record and is marked Annexure-2. Subsequent thereto a Supplemental Agreement was executed on 16.3.1990 between the petitioner and respondents 1 to 5 for transfer of same number of equity shares of the Company of Rs. 10.00 each fully paid up at par i.e. aggregate price of Rs. 4,15,18,900.00 . The Supplemental Agreement dated 16.3.1990 was signed by the petitioner and respondent No. 6 who was authorised to sign on behalf of respondents 1 to 5. On 16.3.1990 the respondent No.1 sent to Idbi the supplemental agreement for its approval. The Idbi however, vide its letter dated 4.12.1990 did not approve the transfer of shares to the petitioner. The respondent No. 6 thereafter wrote a letter to the petitioner on 25.8.1990 stating that the supplemental agreement has not been approved by IDBI. It was, however, stated that further negotiations between the parties were going on.
(2) It is stated that the respondents assured the petitioner that the permission would be granted and that they would manage the permission from both Idbi and Central Government and asked the petitioner to part with a sum of Rs. 1,03,79,725 .00 towards payment of 41,51,890 equity shares of the Company calculated at Rs. 2.50 per share. It is further stated that the respondents further assured the petitioner that in case permission is not granted within a period of six months they would refund the entire amount with interest @ 18% per annum. On this assurance the petitioner, through M/s. Maxworth Techno Projects Limited, instructed M / s. Bhupendra Champak Lal Devi Das, Share and Stock Brokers to make payment of Rs. l,03,79,725.00 to respondent No. 1 representing part payment of towards 41,51,890 equity shares of the Company calculated at Rs. 2.50 per share. The aforesaid payment of an amount of Rs. l,03,79,725.00 was made to the respondent No. I by the aforesaid Share and Stock Brokers by cheque No. 049239 dated 21.1.1991, and the aforesaid amount was received by the respondent No.1 on its own behalf and also on behalf of respondents No. 2 to 5. It is stated that the aforesaid amount was received by respondents 1 to 5 in continuation of payment of Rs. 20,75.945.00 received by them earlier on 23.11.1989. The respondents however, have failed to refund the aforesaid total amount of Rs. l,24,55,615.00 received by them pursuant to agreement dated 23.11.1989 and 16.3.1990 and therefore, disputes have arisen between the parties under the agreement dated 16.3.1990 and 23.11.1989. The disputes arising between the parties have been set out in paragraph 15 of the petition and accordingly the petitioner has sought for filing of the aforesaid two agreements in this Court and for reference of the aforesaid disputes to an independent Arbitrator for making an award.
(3) The respondents have filed their reply, contending inter alia that earlier agreement dated 23.11.1989 executed between the petitioner and respondents for the sale and transfer of the shares held by the respondents fell through as the permission sought from the financial institutions could not be obtained and accordingly the same stood terminated and lapsed automatically. It is further stated that subsequent thereto a draft agreement was prepared and initialed by petitioner and respondent No. 6 which was subsequently forwarded to financial institutions led by Idbi for their approval. It is stated that no formal agreement was ever executed between the parties. According to the respondents in that view of the matter the only agreement which was executed and which has been given effect to, so far as the rights of the respondents are concerned, is the agreement dated 23.11.1989 and as per the agreement it is the respondents who are entitled to receive huge amount from the petitioner. The respondents stated that the price of the share as per the agreement is Rs. 10.00 per share and at that rate the total sale consideration comes to Rs. 4,11,58,900.00 . The respondents further stated that the sum of Rs. I crore and odd which was paid by the petitioner was subsequent to the termination and/ or lapse of the agreement dated 23.11.1989 and the same in any case was an ad hoc and part amount.
(4) On the pleadings of the parties the following issues were framed : (1) Whether the disputes as mentioned in paragraph 15 of the petition could be referred to Arbitration within the ambit of Clause (19) of the agreement dated 23.11.1989 and Clause (2) of the agreement dated 16.3.1990, and if so, to whom? (2) Whether the agreement dated 23.11.1989 and agreement dated 16.3.1990 still survive and if not, what would be its effect on the suit? (3) Relief. The parties were allowed to adduce their evidence by way of affidavits which have since been filed and are on record.
(5) I have heard the learned Counsel appearing for the parties. Mr. Chandra, the learned Counsel appearing for the respondents raised a preliminary objection that the present petition is barred by limitation. He submitted that Rs. 20,75,890/ – was paid by the petitioner to respondent No.1 on 23.11.1989 in pursuance of the agreement dated 23.11.1989. The said agreement, according to the respondents fell through and stood terminated and lapsed automatically with the failure on the part of the petitioner to obtain the required permission from the financial institutions namely – IDBI. The refusal from Idbi was intimated by letter dated 4.12.1989 on which date the aforesaid amount paid to the respondent No. 1 became refundable and accordingly, the present suit ought to have been instituted within a period of 3 years from the aforesaid date, the provisions of Article 137 of the Limitation Act being applicable to the facts and circumstances of the present case.
(6) I have also heard Mr. Hansaria, the learned Counsel appearing for the petitioner on this issue. It appears that subsequent thereto a supplemental agreement was executed between the petitioner and respondents No. 1 to 5 which stipulated transfer of 41,51,890 equity shares of the Company of Rs. 10.00 each fully paid at par. The said supplemental agreement dated 16.3.1990 was admittedly signed by the petitioner and respondent No. 6. It further appears from the records that in pursuance of the aforesaid supplemental agreement a sum of Rs. 1,03,79,725.00 was paid to the respondent No. 1 and so received by him. It is stated that the amount was received by respondents 1 to 5 in continuation of payment of Rs. 20,75,945.00 received by the respondents earlier on 23.11.1989 pursuant to the agreements dated 23.11.1989 and 16.3.1990. Therefore, the issue that arises before me is to examine whether the subsequent supplementary agreement executed between the parties on 16.3.1990 was in continuation of the earlier agreement dated 23.11.1989 or not. In this context another submission of the learned counsel for the respondents is material and is required to be considered. The learned Counsel submitted that since the permission sought from the financial institutions could not be obtained by the petitioner and as a result of such failure on the part of the petitioner to obtain the required permission the agreement dated 23.11.1989 fell through and stood terminated and lapsed automatically. According to him the subsequent supplemental agreement was only a draft agreement and therefore, the only agreement which was executed and which has been given effect to so far as the rights of the respondents are concerned, the agreement dated 23.11.1989. That being so, according to the learned Counsel payment made by the petitioner to respondent No. 1 to the extent of Rs. 1,03,79,725.00 was out side and de hors the said contract of 1989 and therefore, the disputes even if any arising thereto cannot be referred to arbitration. The said draft agreement could at best be termed as an oral agreement and as to such an oral agreement no arbitration clause could be attached and accordingly, the petition is required to be dismissed.
(7) Since the contentions advanced by the learned Counsel for the parties revolve around the issue as to whether the arbitration clause remained in existence and/or subsisted at the time when the present petition has been filed, it is also necessary to consider the same in the light of the facts of the present case. Admittedly, the agreement dated 23.11.1989 contained an arbitration clause being Clause No. 19. The supplemental agreement dated 16.3.1990 also contained a similar arbitration clause being Clause No. 20. I am, therefore, to consider as to whether the agreement dated 23.11.1989 lapsed and/or terminated and the arbitration clause incorporated in the agreement dated 16.3.1990 was totally inoperative. In Union of India v. Kishori Lal Gupta and Brothers; Air 1996 Sc 1362, the Supreme Court laid down six principles in that regard, one of which was that howsoever, comprehensive the terms of an arbitration clause might be the existence of the contract is a necessary condition for its operation otherwise it perishes with the contract. A.nother important principle laid down therein is that though the contract was validly executed the parties may put an end to it as if it had never existed and substituted a new contract for solely governing their rights and liabilities therein.
(8) The Supreme Court in M/s. Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. and Others; Mr 1996 Sc 543 noticed the aforesaid decision of Kishori Lal Gupta’s case (supra) as also the decision in Damodar Valley Corporation v. K.K. Kar and on consideration thereof held that the arbitration clause would perish in case where either there is substitution of a new contract or rescission or alteration of the original contract. On consideration of the facts of that case the Court held that the said case apparently and admittedly is not a case where either there is a substitution of a new contract or rescission or alteration of the original contract and on the basis thereof held that the ratio of Kishori Lal Gupta’s case (supra) squarely applies.
(9) When I notice the facts of the present case I find that it is the admitted case of the parties that in pursuance of the agreement dated 23.11.1989, which contained an arbitration clause being Clause No. 19, payment of a sum of Rs. 20,75,890.00 was made by the petitioner to the respondents. Since however, permission could not be obtained from the Idbi the parties entered into another agreement on 16.3.1990 which is signed by the petitioner and respondent No. 6. The said agreement also contains an arbitration clause being Clause No. 20. The said agreement also contains similar clauses of stipulation of transfer of 41,51,890 equity shares of the Company of Rs. 10.00 each fully paid up at par of Rs. 10.00 per share i.e. the aggregate price of Rs. 4,15,81,900.00 which also was a stipulation in the earlier agreement dated 23.11.1989. Accordingly, the agreement entered into on 16.3.1990 supplemented the earlier agreement. Subsequent to the aforesaid supplemental agreement the petitioner paid an amount of Rs. l,03,79,725.00 on 21.1.1991 to the respondents. The aforesaid cheque was received by the respondents without any protest. The said letter by which the cheque for the aforesaid amount was forwarded to the respondents has been placed on record as Annexure 9 which is dated 21.1.1991. Since the respondents accepted the aforesaid cheque/amount forwarded under letter dated 21.1.1991 clearly disclosing to represent part payment towards 41,51,890 equity shares of Andhra Cement Limited calculated at Rs. 2.50 per share necessarily it was understood by the respondents that the said payment was made in pursuance of agreement between the parties entered into on 23.11.1989 followed by the supplemental agreement dated 16.3.1990. The respondents in para 8 of their reply have also stated that the price of the share as per agreement is Rs. 10.00 per share and at that rate the total sale consideration comes to Rs. 4,ll,58,900.00 . In paragraph 9 of the said reply it was also stated by the respondents that the sum of Rs. 1 crore and odd paid by the petitioner was subsequent to the termination and/or lapse of the earlier agreement dated 23.11.1989 and in any case was an ad hoc and part amount. The aforesaid statement makes it amply clear that the respondents received the aforesaid amount of Rs. 1 crore and odd in the nature of an ad hoc and part amount for the price of the shares as per the agreement which were valued at Rs. 10.00 per share and the total sale consideration for which came to Rs. 4,ll,58,900.00 . From the aforesaid facts it cannot be held that even the respondents considered the agreement dated 23.11.1989 to be a continuing agreement and accordingly it cannot be held that the said agreement lapsed and/or perished and that there was any rescission of the original contract. It is crystal clear that the parties did not intend to substitute and/ or rescind the earlier agreement and did not incorporate any fresh term in the subsequent agreement entered on 16.3.1990 and included therein the same terms and conditions. The supplemental agreement dated 16.3.1990 containing almost the same terms and conditions as that of the earlier agreement dated,. 23.11.1989 supplemented the earlier agreement and therefore, the earlier agreement alongwith the arbitration clause continued to be in operation to be read with Clause 20 of the subsequent supplemental agreement. Therefore, the present case-is not a case where it could be said that the arbitration clause stood perished or that there was any substitution of a new contract or rescission or alteration of the original contract. Under the said circumstances, in my considered opinion the ratio of Kishori Lal Gupta’s case (supra) squarely applies. I, therefore, hold that Clause 19 dealing with the arbitration clause did survive till the filing of the present petition.
(10) Coming to the issue of limitation, I may appropriately refer to a decision of the Supreme Court in S. Rajan v .State of Kerala & Another, , wherein it was held that application filed by parties under Section 20 for filing arbitration agreement in Court is subject to the provisions of Article 137 of the Limitation Act. In the said decision it was further held that reading Article 137 and Sub-section (1) of Section 20 together, it must be said that the right to apply accrues when the difference arises or differences arise, as the case may be between the parties, and thus it is a question of fact to be determined in each case having regard to the facts of that case. In the present case the first payment was made on 23.11.1989 and in continuation thereof payment of Rs. 1,03,79,,725 .00 was forwarded on behalf of the petitioner to the respondent No. 1 under letter dated 21.1.1991 which was stated to have been received by respondents 1 to 5 in continuation of earlier payment of Rs. 20,75,945.00 . Even if we compute the starting point of limitation as 21.1.1991. although dispute in respect of the same had arisen even thereafter the present petition having been filed on 20.1.1994 is within the period of 3 years as envisaged under Article 137 of the Limitation Act and therefore, is .within limitation. Therefore, I answer Issue No. 2 in favour of the petitioner and against the respondents holding that both the agreements dated 23.11.1989 and agreement dated 16.3.1990 still subsist and that the present petition is within the period of limitation.
(11) The petitioner has set out the area of disputes arising between the parties under the agreement dated 23.11.1989 and 16.3.1990 in paragraph 15 of the petition. The respondents, on the other hand in their reply have stated that as per the agreement dated 23.11.1989 it is the respondents who are entitled to receive huge amount of money from the petitioner. Under such circumstances, I am of the considered opinion that disputes do arise between the parties in the present case and, therefore, the said disputes are required to be referred to an Arbitrator in terms of the arbitration clause between the parties. Issue No. 1 framed in the petition is, therefore, answered accordingly in favour of the petitioner and against the respondents.
(12) Consequent to the aforesaid findings the next issue that arises for my consideration is as to whom the aforesaid disputes arising between the parties are required to be referred to. According to the petitioner the intention of the parties as stipulated in the arbitration clause was that the Sole Arbitrator shall be the Managing Director of the respondent No. 1 Company. It is submitted that since Shri Ram S.Taneja who was the Managing Director of the respondent No. 1 at the relevant time has since retired from the post of the Managing Director of respondent No. I, and in his place Mr. Samir Jam has been appointed as the Managing Director who is also one of the Vice Presidents of M/s. Bennett Coleman & Co. Limited and is the son of respondent No. 6 and is vitally interested in the disputes between the parties, the disputes cannot be referred to him and, therefore, should be referred to an independent person. Clause 19 of the agreement dated 23.11.1989 and Clause 20 of the agreement dated 16.3.1990 stipulate that in case of disputes between the parties the same shall be referred to the arbitration of Dr. Ram S. Taneja, Managing Director, M/s. Bennett Coleman & Company Ltd. It is settled law that in case of arbitration agreements the Court should generally give effect to the stipulations made in the agreements between the parties. Sub-section (4) of Section 20 says that the reference shall be made to the Arbitrator appointed by the parties. Since agreed appointment is contained in the agreement itself in the present case, as held in S. Rajan v. State of Kerala & Another; , it is obligatory upon the Court in case it is satisfied that the disputes ought to be referred, the same should be referred to the Arbitrator specified in the agreement. It was further held that it was not open to the Court to ignore such an arbitration clause in the agreement and to appoint another person as an Arbitrator. Although it is stated that Dr. Taneja has retired from service of respondent No. 1, the respondent No.1 has no objection as stated in the reply, in case it is held that the disputes, if any, are to be referred, could be referred to Dr. Tarneja. There is no allegation of any bias as against Dr. Taneja in the present case, raised by the petitioner. Under such circumstances I consider it appropriate to appoint the named Arbitrator, Dr. Ram S. Taneja, who is specified in the agreement itself to be the Arbitrator in case of disputes in the present case to act as the sole Arbitrator in the present case and accordingly refer to him the disputes as raised in the petition. The Arbitrator shall enter into the reference without any further delay after issuing notice to the parties and shall make an award in respect of the disputes arising between the parties within a period of 4 months from the date of his entering into the reference or within such reasonable period as the parties may agree upon. With the aforesaid observations and directions the petition stands allowed to the extent indicated above, but without any costs