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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
WRIT PETITION NO.2438 OF 2011
1) Shri Basant Lall Shaw s/o late
Jagbandhanram Shaw, aged about
78 years, occupation : business,
r/o 264, Usha Sadan, Pandit
Ravishankar Shukla Marg,
Civil Lines, Nagpur.
2) Shri Arbind Kumar Jayaswal s/o
Shri Basant Lall Shaw, aged
about 57 years, occupation :
business, r/o 264, Usha Sadan,
Pandit Ravishankar Shukla Marg,
Civil Lines, Nagpur. ... Petitioners
- Versus -
Shri Manoj Kumar Jayaswal s/o Shri
Basant Lall Shaw, aged about
56 years, occupation : business,
r/o 264, Usha Sadan, Pandit
Ravishankar Shukla Marg, Civil
Lines, Nagpur. ... Respondent
-----------------
Shri A.S. Mardikar, Advocate for the petitioners.
Shri S.P. Dharmadhikari, Senior Advocate assisted by
Shri D.V. Chauhan, Advocate for the respondent.
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Date of reserving the judgment : 6/7/2011
Date of pronouncing the judgment : 28/7/2011
CORAM : R.M. SAVANT, J.
DATED : JULY 28, 2011
JUDGMENT :
Rule, with the consent of the learned Counsel
for the parties made returnable forthwith and heard.
2) The above petition filed under Articles 226
and 227 of the Constitution of India takes exception to
the order dated 13/5/2011 passed by the learned 3rd
Joint Civil Judge, Senior Division, Nagpur whereby the
application (Exh. 13) filed by the petitioners herein
under Sections 5 and 8 of the Arbitration and
Conciliation Act, 1996 (for the sake of brevity,
hereinafter referred to as “the said Act”) came to be
rejected.
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3) The issue, which arises for consideration in
the above petition, is as to whether the dispute as
regards implementation of the directions of the Escrow
Agent appointed under the Indenture of Family
Settlement dated 31/7/2008 is arbitrable and has to be
referred to the Arbitrator ?
4)
The factual matrix involved in the above
petition can be stated thus :
The petitioner no.1 is the father of the
petitioner no.2 as well as the respondent. The
petitioner no.1 has established a business empire,
which is popularly known, according to the petitioners,
as ‘NECO Group of Industries”. The petitioner no.1 as
the head of the family commenced business with
incorporation of the Nagpur Engineering Company
(Pvt.) Ltd. and later on with the growth of other
businesses, all connected with iron foundry, a merged
Company came into being, which was known as
Jayaswal Neco Ltd. The said Jayaswal Neco Ltd. was
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subsequently merged into other two Companies, which
amalgamated entity, is known as Jayaswal Neco
Industries Ltd. The said Jayaswal Neco Industries Ltd.
under the leadership of petitioner no.1 set up a
number of manufacturing units, factories and foundries
involved in the business of iron, steel and aluminium
metal, iron scrap processing, road construction and toll
collection and manufacturing of ferro alloys, auto
components, steel valves and steel. The business
empire of the petitioner no.1 is spread throughout
India with major activities being carried on from
Nagpur in Maharashtra, Bhilai, Anjora and Siltara
(Raipur) in Chhattisgarh, Durgapur in West Bengal,
Ranchi in Jharkhand, Bangalore in Karnataka and
Chennai in Tamil Nadu. With passage of time, the
petitioner no.2 and respondent joined business of the
petitioner no.1.
5) It appears that on account of differences and
disputes, which had arisen between petitioners and the
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respondent, the petitioner no.1 with a view to maintain
family peace and harmony and to avoid any future
friction in the family or misunderstandings and to
arrive at an amicable settlement between the brothers,
i.e. petitioner no.2, Rameshkumar Jayaswal and the
respondent, decided to have a family settlement,
which was arrived
ig at with the assistance and
intervention of relatives and well wishers, as a result of
which the business empire of the petitioner no.1 was
divided into two groups, namely, BLS group, which was
to consist of the petitioners and Rameshkumar
Jayaswal and the MKJ Group consisting of the
respondent. The said family settlement was reduced
into writing and accordingly an Indenture of the Family
Settlement (for the sake of brevity, hereinafter
referred to as “IFS”) was executed on 31/7/2008. The
said family settlement was executed by the petitioners
and Rameshkumar Jayaswal forming part of the BLS
Group and the respondent signed the family
settlement for himself and on behalf of his family
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members, who constituted the MKJ Group.
6) The said family settlement resulted in the
separation of the joint interest of the petitioners and
the respondent in the shareholding of the different
business Companies, other family Companies and
assets and properties held jointly or individually in the
name of any family member between BLS Group and
MKJ Group in the ratio of 3:1 wherein each of the four
parties was to get equal and near equal share therein.
The relevant clauses of the said Family Settlement
from the point of view of the above petition are
Clauses 7(l), 19 and 27. The same are, therefore,
reproduced hereunder :
“7. It is hereby agreed by and between the
parties hereto as follows :
(l) Notwithstanding anything herein contained,
it has been expressly agreed and confirmed by
the Parties hereto that all pending loan
agreements and personal guarantees in respect
of the loans already sanctioned/to be sanctioned
by CIAL – Strip Mill (Siltara) and Inertia Rolling
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Mill and JNIL – working capital shall be signed by
MKJ. MKJ will also procure and ensure that
additional Term Loans are sanctioned by the
banks to CIAL for the Strip Mill and to INERTIA for
Rolling Mills at Siltara and sanctioned funds are
released for improvising the Strip Mill and
repayment of the advances given by JNIL for the
Strip Mill so that it is commissioned at the
earliest. For this purpose, BLS Group shall
extend its reasonable cooperation to MKJ Group
for release of the funds for the Strip Mill out of
the funds disbursed. MKJ shall deduct a sum of
Rs.593 lacs as stated in Clause 7(d) and any
similar sums paid by CIAL/MKJ Group and
transfer the balance fund to the Units. All these
Units referred above are being run by Jayaswal
Neco Industries Limited under Lease on payment
of monthly rentals and as per the understanding
monthly/quarterly instalments along with
interest thereon payable to respective Bank/
Institutions are being provided by JNIL out of
accrual of monthly lease rentals, barring only for
the Strip Mill acquired by CIAL as the Strip Mill’s
improvisation is still not complete due to lack of
funds and once the additional sanctioned Term
Loan is released by Bankers for completion of
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improvisation, the same shall be operated under
lease from CIAL and the accrued lease rent
provided by JNIL shall be paid to the
Bankers/Institutions funding the CIAL – Strip Mill
towards part payment of principal and interest
till the date of merger of the Units with JNIL.
Once all the units are merged with JNIL, the
liability for payment of the balance loans and its
interest shall be on JNIL. Till merger of the units
with JNIL, the system of running the units on
lease rental basis shall continue and out of the
lease rental accruals, instalments and interests
shall continue to be provided for payment to the
Lenders of the Units by JNIL through a
designated account to be operated by the
nominees of both the Groups. It is hereby
clarified and accepted by the Parties that the
system of Lease of Units has been adopted by
BLS Family for commercial convenience and the
lease rentals are no way connected to the actual
repayment of interest and principle of the Units.
BLS Group agrees to pay total interest and
principle payments in priority in accordance with
the Sixth Schedule, including all other incidental
amounts due to the Bankers of the Units on due
dates.”
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“19. As per the Settlement recorded herein,
which is to be implemented in stages, the
parties hereto have decided, on their free will
and accord, to appoint Messrs Kanga and
Company, Advocates and Solicitors, Mumbai
hereinafter referred to as “the Escrow Agent” to
be duly assisted by Shri B.K. Agarwal, Chartered
Accountant, Nagpur and Shri Sohan Chaturvedi,
Chartered Accountants, Mumbai and the Escrow
Agreement shall be executed within 7 (seven)
days from the date of execution of these
presents. A photocopy of this executed
Indenture shall be provided to the Escrow Agent
for full and final implementation of the terms of
this Indenture and on completion/non-
completion of this Indenture, the Escrow Agent
shall submit its Report to both the Groups, which
shall be prepared with the assistance of Shri B.K.
Agarwal and Shri Sohan Chaturvedi, on the Final
Date as provided in this Indenture. The
Provisions of the escrow mechanism are
mentioned below :
a. Each Group shall, within 10 (Ten) days from
the date of execution of this Indenture, i.e. the
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Effective Date, deposit the following instruments
with the Escrow Agent to be held in Escrow as
provided herein :
(i) Duly filled in, signed and executed share
transfer forms together with the originals of the
share certificates of the companies representing
shareholders of the respective Parties in the
Compan(ies) duly completed in favour of the
parties to whom the concerned shares of the
Companies are being given/allotted under Terms
of this Indenture (hereinafter referred to as the
“Allottee Parties”) to enable the Allottee Parties
to get those shares registered/endorsed in their/
their Nominee’s names. In case of Shares
mortgaged with the Lenders, the transfer forms
along with a request letter for the transfer shall
be submitted and in case of shares in demat
forms the relevant forms shall be executed and
submitted.
(ii) A Power of Attorney executed by each of the
Groups hereto in favour of the Escrow Agent to
do all such acts, deeds, matters are things as
may be necessary for the purpose mentioned in
(i) hereinabove. The Power of Attorney executed
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in favour of the Escrow Agent shall have wide
powers to enable the Escrow Agent to ensure
effective implementation of this Indenture
including powers to consult Advocates,
Chartered Accountants and such other
Consultants, if necessary, and to incur such
expenditure as the Escrow Agent may deem fit.
(iii) Letter of Resignation of a blank date
executed by the members of each of the Groups
hereto and their Nominees on the Boards of
various companies, tendering their resignation
as Directors of the Companies allotted to other
parties/Groups.
(iv) It has also been agreed by and between the
parties that all actions, acts and deeds shall be
performed by both the Groups, viz. BLS Group
and MKJ Group simultaneously and the Escrow
Agent shall permit both Groups to examine all
the documents in his office with prior
appointment and confirm in writing that the
required documents and necessary Board
Resolutions have been adopted and executed in
proper form and order so as to avoid future
disputes. The other compliances/defects pointed
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out by the other Group shall be rectified within 7
(Seven) days.
(b) In the event one of the two Group or both
Groups do not cooperate with each other in the
implementation of this Indenture of Family
Settlement and/or in the event of any of the
party’s default, delay or failure to carry out his
obligation hereunder, the Parties hereby agree
that the Escrow Agent shall have power to take
binding decision on behalf of the non-
cooperating and/or defaulting Group and cause
the same to be implemented, including power to
transfer shares of Business and Other Family
Companies, by such Group and/or to release to
the other Group such of the documents and
papers as the Escrow Agent shall, in his absolute
discretion, deem fit and proper.
(c) The Escrow Agent shall, (i) on such date
prior to the Final Date or (ii) on the Final Date
(failing fixation of mutual date prior to Final
Date), hand over the above documents to the
respective Allottee Parties only after
compliances of the following :
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(i) Fulfillment of all the conditions as specified
under Clause 19(a)(i), (ii), (iii) and (iv),
(ii) On full compliance of the provisions as per
Clause 18 above.
(d) On handing over of the documents to the
respective Allottee Parties along with a
Compliance Certificate for compliance of all the
terms of this Indenture, the Escrow Agent shall
stand fully discharged of his obligations as such
Escrow Agent and neither party shall have any
claim of any nature whatsoever against the
Escrow Agent by virtue of this Indenture or
otherwise.
(e) The parties agree that the obligations of the
Escrow Agent under this Indenture shall not be
affected by any disputes or contentions between
the parties hereto and that the Escrow Agent
shall be entitled to carry out its obligations as
set out herein regardless of any such disputes or
conventions that may be raised.
(f) The Escrow Agent shall not be liable for any
action taken or omitted to be taken pursuant to
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this Indenture, except in the case of gross
negligence or willful misconduct.
(g) In consideration of the Escrow Agent having
agreed to hold the documents in Escrow, as
provided in this Indenture, the Escrow Agent
shall be paid necessary fees to be shared
between the BLS Group and MKJ Group in the
proportion of 3:1 (Three is to One), respectively
and such payment shall be made within Seven
(07) days from the Escrow Agent raising its
invoices on the parties hereto.”
“27. Each party shall fully co-operate with the
others or other of them to implement and give
full effect to the provisions of this Indenture. It
is agreed that in case there is any difference of
opinion between the two groups or any of the
parties hereto in any way relating to or arising
under this Indenture or the separation agreed
hereunder or otherwise relating to any of the
Companies, Businesses or Properties of the BLS
Family, the parties hereby agree to refer, except
the disputes referred under Clause 7(i) and 27,
all such disputes and difference to Arbitration in
accordance with the provisions of the Arbitration
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and Conciliation Act, 1996. None of the parties
hereto shall resort to, initiate or threaten to
initiate or cause to be initiated, any legal
proceedings in any Court of Law, to resolve any
dispute, etc. relating to Family Businesses or any
matter covered by this Indenture. The place of
the Arbitration shall be at Mumbai. The
language of the Arbitration shall be English. The
decision of the Arbitrator shall be final and
binding upon the Parties hereto.”
7) Pursuant to the said IFS, a separate Escrow
Agreement dated 26/12/2008 was entered into by the
parties. The parties also executed a Power of Attorney
in favour of the Escrow Agent, one M/s. Sohan
Chaturvedi and Company, Chartered Accountants,
Mumbai. In terms of the IFS, mutual obligations were
cast upon both the groups, i.e. BLS Group and MKJ
Group. It is for the smooth implementation and
execution of the IFS that the Escrow Agent, namely,
M/s. Sohan Chaturvedi and Company came to be
appointed. The Escrow Agent was given powers under
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the said Clause 19, which are reflected in sub-clauses
(b) and (c) thereof. The said powers can also be seen
from the Escrow Agreement as well as from the Power
of Attorney, which the parties executed in favour of
Escrow Agent. The cause of filing the present
proceedings has arisen on account of the alleged non-
fulfillment of the obligations by the petitioners under
Clause 7(l), which is in respect of the demerger of the
Strip Mill. The said Strip Mill was to be demerged from
the Company known as CIAL and to be merged with
the Company known as JNIL, i.e. the group Company of
the petitioners. The same was to be done within 90
days from the date of the execution of the IFS.
Further, in terms of the obligations cast by the IFS, the
petitioners were liable to make payment against the
loan to the Bankers simultaneously on the transfer of
the ownership rights. It is the case of the petitioners
that after execution of the IFS, the respondent
continued to delay the process of demerger and
merger of Strip Mill with JNIL on one pretext or the
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other, whereas it is the case of the respondent that
during the pendency of the procedure of merger of the
Units with JNIL, BLS Group is under an obligation to
continue to pay regular instalments and interest to the
Banker of the Unit through a designated Account to be
operated by the nominees of both the Groups. It is the
case of the respondent that the petitioners have
stopped the payment since August 2010 whereas it is
the case of the petitioners that in spite of making
payment of about Rs.150 crores against the Bank
loans, the ownership has not been transferred from
CIAL to JNIL, resulting into the Strip Mill not being
commissioned as the ownership of the said plant has
remained vested with the respondent and hence,
without having ownership of the plant, the same could
not be commissioned by the petitioners’ Company. It
is the case of the petitioners that the amount of Rs.150
crores approximately, which they have invested in the
said Strip Mill on account of repayment of loan and
renovation is lying idle for more than three years.
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8) As regards the said dispute, the parties
charted different paths. Insofar as the respondent is
concerned, he approached the Escrow Agent against
non-fulfillment of the obligations by the petitioners, as
a consequence of which the Escrow Agent issued
directions on 7/11/2009, in respect of payment of
instalments by the petitioners towards the loan of the
said Strip Mill and the Escrow Agent made observations
about the default being continued by the BLS Group
while issuing the said directions. The Escrow Agent
thereafter issued further directions on 14/4/2011 and
by the said order, directed the BLS Group, i.e.
petitioners to make the payment of the instalments to
the Bankers of the Strip Mill.
9) Insofar as petitioners are concerned, the
petitioners issued a notice to the respondent on
23/2/2011 calling upon him in view of the dispute
between the parties as regards the Strip Mill, to give
consent for appointment of Shri B.V. Bhargava,
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Ex-Vice Chairman and Managing Director of the ICICI
Bank as the sole Arbitrator to adjudicate upon the said
dispute along with other disputes that may be detailed
out once the arbitration commences and modalities as
suggested by the agreement are agreed. The
respondent replied to the said notice by his letter
dated 26/3/2011. The sum and substance of the reply
of the respondent was that the disputes in question as
regards the directions of the Escrow Agent, were not
arbitrable since they were not covered by Clause 27 of
the IFS.
10) The petitioners having received the said reply
and seeing that the respondent was not cooperating in
the resolution of the disputes, filed Miscellaneous Civil
Application No.325/2011 under Section 11(6) of the
said Act in this Court. The case of the petitioners was
that the disputes between the parties more specially
the dispute regarding demerger of the Strip Mill was
arbitrable in terms of Clause 27 of the IFS. The said
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Miscellaneous Civil Application had come up for
hearing before a learned Judge of this Court, who by
order dated 1/4/2011 was pleased to issue notice to
the respondent. The said notice has been served upon
the respondent thereafter.
11) The respondent herein, after the said notice
came to be issued in the said Miscellaneous Civil
Application, on 9/5/2011 filed Special Civil Suit
No. 584/2011, inter alia for the following substantive
reliefs:
“Prayer : It is, therefore, most humbly prayed
that this Hon’ble Court be pleased to –
(a) pass a Decree of Declaration in favour of the
plaintiff and against the defendants, declaring
therein that the act of the defendants in stopping
the payment of the monthly instalments of the
banker of Strip Mill with effect from August 2010,
in the peculiar facts and circumstances of the
case is contrary to the Deed of Family
Settlement executed between the parties and
the directives dated 07.11.2009 and 14.04.2011
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of Escrow Agent interpreting the same;
(b) pass a Decree of Permanent Mandatory
injunction in favour of the plaintiff and against
the defendants, their servants, agents and other
persons claiming through or under them,
directing them to follow the directives of the
Escrow Agent dated 14.4.2011 in relation to the
reimbursement ig of the amount of
Rs.30,82,04,954/- from August 2010 to March
2011, to the plaintiff;
(c) pass a Decree of Permanent Mandatory
injunction directing the defendants their agents,
servants and persons claiming through or under
them to start repayment of the monthly
instalments to the bankers of Strip Mill regularly
on due dates with effect from April 2011 in
compliance of their obligations to do so, under
the Deed of Family Settlement and the directives
dated 14.4.2011, which are in continuation of
directives dated 7.11.2009;
(d) cost of the suit be saddled on the
defendants;
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(e) And the Hon'ble Court may pass any other
order as this Hon’ble Court deems fit in the
interest of justice;
And for which act of kindness, the plaintiff
shall remain duly bound and ever pray.”
12) It was the case of the respondent that the
petitioners have not complied with the directions
issued by the
ig Escrow Agent on 7/11/2009 and
14/4/2011 in respect of payment of the instalments in
respect of the loan relating to the Strip Mill, which was
to be demerged. It was the further case of the
respondent that the petitioners were under an
obligation to comply with the directions given by the
Escrow Agent by his communication dated 14/4/2011.
13) The petitioners after receipt of the suit
summons, appeared before the trial Court and filed an
application under Sections 5 and 8 of the said Act. In
the said application, the substratum of the case of the
petitioners was that the dispute raised by the
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respondent/plaintiff being arbitrable in view of
Clause 27 of the IFS should be referred to the
Arbitrator. It was further averred by the petitioners
that the issue raised in the suit is the subject matter of
the application made by the petitioners under
Section 11(6) of the said Act, which is pending before
this Court and hence, the suit was not maintainable.
14) To the said application, the respondent filed a
reply, inter alia, contending that the directions of the
Escrow Agent are independent of Clause 27 of the IFS
and are not arbitrable. It was the case of the
respondent that the parties have vested the Escrow
Agent with powers under Clause 19 to see that the IFS
is implemented and executed and the orders dated
7/11/2009 and 14/4/2011 are, therefore, the orders,
which are passed by the Escrow Agent in terms of the
power vested in him. The respondent, therefore,
contended that the application filed by the petitioners
could not be entertained.
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15) The said application was considered by the
learned Civil Judge, Senior Division and by the
impugned order dated 13/5/2011, the said application
came to be rejected. The gist of the finding of the
learned Judge was that the dispute in the said suit is in
respect of the directions given by the Escrow Agent in
terms of the agreement dated 26/12/2008 and in terms
of Clause 19 of the said agreement, it is specifically
mentioned that the parties agreed that the rights
provided in Clause 27 of the IFS are in addition to this
Clause and not by way of dilution or substitution. The
learned Judge further held that since in terms of Clause
5 of the Escrow Agreement dated 26/12/2008, the
parties agreed that the obligation of the Escrow Agent
under the said Family Settlement shall not be affected
by any dispute or difference between the parties to the
said IFS and that the Escrow Agent shall be entitled to
carry out his obligation as set out herein regardless of
any dispute or contention that may be raised as well as
due to unwillingness of the parties to implement the
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Deed in accordance with the interpretation of the
Escrow Agency provided in Clause 4 of the agreement.
The trial Court, therefore held that the subject matter
of the present suit is not a subject matter of the
arbitration agreement since powers of the Escrow
Agent described in the agreement are above all the
disputes between the parties.
ig The learned Judge
further held that if the petitioners herein, who are
defendants, have followed the directions of the Escrow
Agent till July 2010, then the petitioners cannot take
shelter of the arbitration clause in the IFS to overcome
totally separate agreement whereby Escrow Agent is
appointed.
16) As mentioned hereinabove, it is the said
order, which is impugned in the present petition.
SUBMISSIONS ON BEHALF OF THE PETITIONERS :
i) That, since notice of arbitration has already
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been given on 23/2/2011 and thereafter the
Miscellaneous Civil Application has already been filed
wherein notice has been issued to the respondent on
1/4/2011 by this Court, the arbitration proceedings are
deemed to have commenced and, therefore, it was not
open for the respondent to file a suit for the reliefs
claimed. For the said purpose, the learned Counsel for
the petitioners relied upon the judgment of the Apex
Court in Milkfood Ltd. vs. M/s. GMC Ice Cream (P) Ltd.
(AIR 2004 SC 3145).
ii) That, the dispute in question as regards
demerger of the Strip Mill is covered by Clause 27 of
the IFS. The appointment of the Escrow Agent is part
of the IFS and, therefore, the Escrow Agreement dated
26/12/2008 cannot be considered independently and
would be governed by Clause 27 of the main
agreement. In support of the said submission, the
learned Counsel for the petitioners relied upon the
judgments of the Apex Court in Olympus
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Superstructures Pvt. Ltd. vs. Meena Vijay Khetan and
others {(1999) 5 SCC 651}, Owners and Parties
interested in the Vessel M.V. Baltic Confidence and
another v. State Trading Corporation of India Ltd. and
another (AIR 2001 SC 3381).
iii) That, the respondent could not have resorted
to filing of the suit. However, if he was claiming any
directions, then it was open for him to file an
appropriate application under the provisions of the said
Act.
SUBMISSIONS ON BEHALF OF THE RESPONDENT :
i) That, reading of Clause 19 of the IFS relating
to the Escrow Agent and the Escrow Agreement dated
26/11/2008 discloses that the parties have provided for
an interim arrangement so that the IFS can be
executed and complied with and for the said purpose
have vested the Escrow Agent with powers, which can
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be seen from Clause 19(b) of the IFS. The said Escrow
Agreement, therefore, stands independently or apart
from the main IFS. In support of the said submission,
the learned Senior Counsel for the respondent relied
upon the judgment of the Apex Court in the matter of
Siddhivinayak Realities (P) Ltd. vs. Tulip Hospitality
Services Ltd. and others {(2007) 4 SCC 612}.
ii) That, the trial Court on a consideration of
Clauses 19 and 27 of the IFS and the relevant Clauses
of the Escrow Agreement having come to a conclusion
that the dispute is not arbitrable under Clause 27 of
the IFS in view of the powers conferred on the Escrow
Agent by Clause 19 of the IFS, this Court should not
exercise its writ jurisdiction. The learned Senior
Counsel referred to the guidelines, which have been
laid down by the Apex Court in the judgment in the
matter of Booz Allen and Hamilton Inc. vs. SBI Home
Finance Limited and others {(2011) 5 SCC 532} and
especially para (19) thereof was relied upon.
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iii) The learned Senior Counsel contended that for
non compliance of the directions of the Escrow Agent,
the respondent was entitled to approach the Civil Court
for a mandatory order directing the petitioners to
comply with the said directions dated 7/11/2009 and
14/4/2011.
CONSIDERATION
17) Having heard the learned Counsel for the
parties, I have given my anxious consideration to the
rival contentions. In the instant case, it is relevant to
note that the petitioners in view of the dispute as
regards the mutual obligations under Clause 7(l) of the
IFS and the dispute as regards fulfillment of obligations
and binding promises as set out in the IFS had issued a
notice dated 23/2/2011 to the respondent for
appointment of an Arbitrator under Section 11 of the
said Act for resolving the said disputes, which had
arisen out of the said IFS dated 31/7/2008. The
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petitioners had called upon the respondent by the said
notice to give consent for appointment of Shri B.V.
Bhargava, Ex-Vice Chairman and Managing Director of
the ICICI Bank as the sole Arbitrator to adjudicate upon
the disputes mentioned in the notice along with others,
which will be detailed out once the arbitration has
commenced. The said notice has been replied to by
the respondent by his letter dated 26/3/2011. The
respondent has denied the claims and contentions of
the petitioners and in fact, has taken a stand that it is
the petitioners, who have not fulfilled the obligations
under the said IFS. The respondent in the concluding
paragraph of the reply has stated that he does not
agree with the petitioners that the matter requires to
be referred to an Arbitrator and more particularly,
Shri B.V. Bhargava, which name was referred to in the
notice. In view of the said stand of the respondent, the
petitioners herein filed a Miscellaneous Civil
Application bearing No.325/2011 under Section 11(6)
of the said Act for appointment of an Arbitrator. This
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31
Court in the said Miscellaneous Civil Application was
pleased to issue notice to the respondent on 1/4/2011.
The respondent thereafter on 9/5/2011, i.e. after a
period of one month has filed the said Special Civil Suit
No. 584/2011 inter alia for the reliefs, which have been
referred to in the earlier part of this judgment.
18)
In the context of the aforesaid facts, it would
be apposite to refer to the judgment of the Apex Court
in the case of Milkfood Ltd. vs. M/s. GMC Ice Cream (P)
Ltd. (supra). The question before the Apex Court was
as to when the arbitration proceedings can be said to
have commenced. The Apex Court held that service of
notice for appointment of an Arbitrator by one party to
another is the relevant date for commencement of the
arbitral proceedings. Paragraph (73) of the said
judgment is material and is reproduced hereunder :
“73. Keeping in view the fact that in all the
decisions referred to hereinbefore, this Court has
applied the meaning given to the expression
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32contained in Section 21 of the 1996 Act for the
purpose of applicability of the 1940 Act having
regard to Section 85(2)(a) thereof, we have no
hesitation in holding that in this case also, service
of a notice for appointment of an arbitrator wouldbe the relevant date for the purpose of
commencement of the arbitration proceeding.”
In the light of the judgment of the Apex Court, there is
merit in the contention of the learned Counsel for the
petitioners that since in the instant case, apart from
notice, the petitioners have also filed Miscellaneous
Civil Application No.325/2011 wherein a notice came
to be issued by this Court on 1/4/2011, the arbitration
proceedings are deemed to have been commenced
and, therefore, it was not open for the respondent to
file the said Special Civil Suit No.584/2011 and the
parties were, therefore, obliged to refer the disputes to
arbitration.
19) The question is whether in respect of non-
compliance of the directions of the Escrow Agent, a
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33
suit is maintainable for enforcement of the same or
whether the parties have to be relegated to the
Arbitrator in terms of Clause 27 of the IFS ?
20) No doubt, in terms of Clause 19(b) of the IFS,
the parties have vested the Escrow Agent with the
powers to take binding decisions on behalf of non-
cooperating and/or defaulting Group and cause the
same to be implemented, including power to transfer
shares of Business and Other Family Companies, by
such Group and/or to release to the other Group such
of the documents and papers as the Escrow Agent
shall, in his absolute discretion, deem fit and proper.
As rightly contended by the learned Senior Counsel for
the respondent, the Escrow Agent arrangement is by
way of an interim measure to facilitate the compliance
and implementation of the IFS. Insofar as the Escrow
arrangement is concerned, it is now a common
practice to appoint an Escrow Agent to see that the
parties are performing their obligations in terms of the
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34
agreement that is arrived at between the parties.
21) In the instant case, as mentioned
hereinabove, the issue is as to whether the Escrow
Agreement is to be considered independent of the IFS
and, therefore, for implementation of the directions of
the Escrow Agent, a suit is maintainable. There can be
no dispute as regards the fact that the Escrow Agent
has been appointed to facilitate the implementation of
the IFS and in furtherance thereof, the Escrow
Agreement dated 26/12/2008 has been executed as
well as a Power of Attorney has been executed by the
parties in favour of the Escrow Agent. The present
dispute is mainly on account of alleged non-fulfillment
of the mutual obligations under Clause 7(l) of the IFS,
which is in respect of demerger of the Strip Mill.
Allegations and counter-allegations have been made
by the parties against each other in respect of non-
fulfillment of the obligations. However, there cannot
be any dispute that the directions given by the Escrow
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35
Agent for which the respondent has filed the said suit,
are referable to Clause 7(l), which is part of the IFS.
Hence, though there is a separate Escrow Agreement
as well as a Power of Attorney executed in favour of
the Escrow Agent and though the Escrow Agent has
the power under Clause 19(b) of the IFS, Clause 27 of
the IFS, which provides for arbitration, can be said to
be over imposing itself over the said documents. As
the said Clause unequivocally states that in case there
is any difference of opinion between the two groups or
any of the parties hereto in any way relating to or
arising under this Indenture or the separation agreed
hereunder or otherwise relating to any of the
Companies, Businesses or Properties of the BLS Family,
the parties have agreed to refer, except the disputes
referred under Clause 7(i) and 27, all such disputes
and differences to Arbitration in accordance with the
provisions of the said Act. It was further agreed by
the parties that none of them shall resort to, initiate or
threaten to initiate or cause to be initiated, any legal
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36
proceedings in any Court of Law, to resolve any
dispute relating to family businesses or matters
covered by the said Indenture. The said Clause 27,
therefore, insofar as the IFS is concerned wherein
Clause 19(b) is a part, is omniscient, omnipresent and
omnipotent and looming large over any dispute that
may arise in respect of the implementation of the IFS.
It is also required to be noted that by way of prayer
clauses (a) to (c) of the suit, what the respondent in
fact is claiming is the compliance of the obligations by
the petitioners imposed upon them by the IFS. In the
light of the above, the impugned order of the trial
Court holding that the Escrow Agreement being a
separate and independent Agreement and, therefore,
Clause 27 of the IFS would not cover the same is,
therefore, unsustainable and is required to be quashed
and set aside.
22) In the said context, the judgment cited on
behalf of the petitioners in the matter of Olympus
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37
Superstructures Pvt. Ltd. (supra) is relevant. The Apex
Court held that where disputes and differences in
connection with the main agreement and also disputes
in respect of any other matter in any way connected
with the subject matter of the main agreement exist,
the situation would be governed by the general
Arbitration Clause in the main agreement under which
disputes connected therewith can be referred to the
Arbitral Tribunal.
23) As observed hereinabove, the dispute being
in respect of the directions issued by the Escrow Agent,
which are referable to Clause 7(l) of the IFS, would,
therefore, be a dispute, which is arbitrable under
Clause 27 of the IFS.
24) Now coming to the judgment of the Apex
Court in the case of Siddhivinayak Realities (P) Ltd.
(supra), the issue before the Apex Court was as
regards the powers conferred on the Escrow Agent in
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38
terms of the agreement in question therein and
whether the Escrow Agent should be entrusted with
deciding the question as to which party is in default,
which the Escrow Agent had undoubtedly the power to
determine in terms of the agreement, as it was the
case of one of the parties to the said Escrow
Agreement that the Escrow Agent is likely to be
biased. Though the Apex Court held that since the
parties have jointly agreed to the appointment of the
Escrow Agent, he should be allowed to determine the
issue in question. In the facts of the said case where
there was likelihood of one of the Escrow Agents being
a Judge in his own cause, the Apex Court declined to
interfere with the order of the High Court upholding the
Arbitral Tribunal’s order restraining the Escrow
proceedings pending the arbitration. However, the
facts in the instant case can be distinguished from
the facts in the case before the Apex Court. The
question in the instant case is as regards enforceability
of the directions issued by the Escrow Agent. The
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39
Escrow Agent in terms of the powers conferred by
Clause 19 of the IFS has already issued directions on
7/11/2009 and 14/4/2011 and, therefore, it is not a
case where the Escrow Agent has not determined the
issue in question. The question is as regards
enforceability of the directions. Hence, the judgment
relied upon by the learned Senior Counsel for the
respondent would not aid the respondent in the facts
of the present case.
25) Insofar as the judgment of the Apex Court in
the case of Booz Allen and Hamilton Inc. (supra) is
concerned, though the said judgment lays down the
guidelines for the Court whilst considering an
application under Section 8 of the said Act filed by a
party, it has also been held in the said judgment that
generally and traditionally all disputes relating to
rights in personam are considered to be amenable to
arbitration. Paragraphs (38) and (39) of the said
judgment are material in the context of the present
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40
controversy and are, therefore, reproduced hereunder :
“38. Generally and traditionally all disputes
relating to rights in personam are considered tobe amenable to arbitration; and all disputes
relating to rights in rem are required to be
adjudicated by courts and public tribunals, beingunsuited for private arbitration. This is not
relating
however a rigid or inflexible rule.
to subordinate rights in
Disputes
personam
arising from rights in rem have always been
considered to be arbitrable.
39) The Act does not specifically exclude
any category of disputes as being not arbitrable.
Sections 34(2)(b) and 48(2) of the Act however
make it clear that an arbitral award will be setaside if the court finds that “the subject matter
of the dispute is not capable of settlement by
arbitration under the law for the time being inforce.”
Hence, considering the fact that the two directions of
the Escrow Agent, which are the subject matter of the
suit are referable to Clause 7(l) of the IFS, even on the
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41
application of the above judgment, the same are
arbitrable.
26) As observed hereinabove, in view of the
notice given by the petitioners dated 23/2/2011, the
arbitration proceedings in terms of the law laid down
by the Apex Court in the case of Milkfood Ltd. (supra)
are deemed to have commenced. Since Clause 27 of
the IFS can be said to be an all-encompassing Clause,
the dispute regarding enforceability of the directions of
the Escrow Agent, which are referable to Clause 7(l)
would fall within the ambit of said Clause 27 and
would, therefore, be arbitrable. It would, therefore, be
for the respondent to file proceedings under Section 9
of the said Act seeking appropriate directions against
the petitioners either pre-arbitration or during
pendency of the arbitration. However, the suit filed for
the reliefs sought as mentioned hereinabove, is not
maintainable in the light of Clause 27 of the IFS.
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27) In the light of what has been stated
hereinabove, the impugned order of the trial Court is
required to be set aside and is accordingly set aside
and the application filed by the petitioners under
Sections 5 and 8 of the said Act is required to be
allowed.
28)
Rule is accordingly made absolute in terms of
prayer clause (1) of the above petition with parties to
bear their respective costs.
JUDGE
khj
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