IN THE HIGH COURT OF GUJARAT AT AHMEDABAD APPEAL FROM ORDER No 245 of 2000 For Approval and Signature: Hon'ble MR.JUSTICE D.H.WAGHELA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO 1 & 2 YES; 3 to 5 NO -------------------------------------------------------------- ROYALE MANOR HOTELS & INDUSTRIES LIMITED Versus OBEROI HOTELS PRIVATE LIMITED -------------------------------------------------------------- Appearance: MR MIHIR THAKORE with MR UNMESH D SHUKLA for Petitioner MR KAMAL TRIVEDI with MR MILAN N PATEL for Respondent No. 1, 2 -------------------------------------------------------------- CORAM : MR.JUSTICE D.H.WAGHELA Date of decision: 24/08/2000 C.A.V. JUDGEMENT 1. ADMIT. Heard the learned counsel for the appellant and the respondent, who appeared on caveat. By consent, the appeal is heard and finally disposed by this judgment. 2. This appeal is preferred from the order of the learned Judge of the City Civil Court No.16, Ahmedabad below the notice of motion at Ex.16 in Civil Suit No.6390 of 1999. The appellant, who is the original plaintiff, has by its application for interim injunction prayed for the relief as under: "(a) Pending hearing and final disposal of the suit, the Hon'ble Court may be pleased to grant interim injunction restraining the defendant No.1 from commencing or participating in the arbitration proceedings in pursuance of the notice dated 18.10.1999 or 17.11.1999 or even otherwise in connection with the royalty agreement dated 5.11.1992." In the plaint of the main Civil Suit No.6390 of 1999, the appellant has mainly prayed for the reliefs as under: "(a) The Hon'ble Tribunal be pleased to declare that the Royalty Agreement dated 5.11.1992 does not subsist or survive and/or that defendant No.1 is not legally entitled to invoke arbitration and refer the claims mentioned in the notices dated 18.10.1999 and 17.11.1999 to arbitration or even otherwise. (b) The Hon'ble Court be pleased to grant permanent injunction restraining defendant No.1 from commencing or participating in the arbitration proceedings in pursuance of notices dated 18.10.1999 or 17.11.1999 or even otherwise in connection with the Royalty Agreement dated 5.11.1992." After detailed discussion of the factual position and legal contentions, the learned Judge of the trial Court has, in the impugned order, reached prima facie conclusions that the questions, such as, that of fraud or existence of a valid arbitration clause can be referred to the arbitrator and the issue about a truncated judgment in view of the pendency of the earlier suit in respect of the other agreement can also be raised before the arbitrators. And, if ultimately the award of the arbitrators is challenged, the appellant can take up the issues in the proceedings provided for under the Arbitration and Conciliation Act, 1996 (the 'Act', for short). 3. It may be necessary to briefly recount the background of the facts emerging from the rival pleadings and submissions. The appellant is a registered company running a hotel at Ahmedabad. The respondents are also two registered companies in the same business and belonging to one group. On 5.11.1992, a memorandum of understanding (MOU) was arrived at between the parties in terms whereof three separate agreements were arrived at on the same day between the appellant (RMHIL for short), EIH Ltd. (EIHL for short) and Oberoi Hotel Pvt. Ltd. (OBEROI for short). Out of the three agreements, one technical assistance agreement (TAA for short) was for constructing and commissioning a five-star hotel with the technical assistance of EIHL. The second technical services agreement (TSA for short) and the third Royalty Agreement (RA for short) were for operating the hotel by EIHL with the full control in the operational matters and for the use of the name "The Trident" by RMHIL respectively. Thus, in short, the understanding and the agreements provided for construction, commissioning and operation of, and use of a name for, a hotel at Ahmedabad between the appellant and the group companies of the respondent. As far as this case is concerned, the first technical assistance agreement is irrelevant as the dispute has arisen in the course of the operation of the other two agreements after the hotel was commissioned in the name and style of "The Trident" since 1.10.1995. 3.1 In March, 1998, RMHIL withdrew the authorisation given to EIHL to operate the bank accounts as a result of which the operation of the hotel became difficult. Hence, on 1.4.1998, EIHL filed a Civil Suit No.1629 of 1998 against RMHIL and the bankers for a permanent injunction against RMHIL, inter alia, to enable EIHL to continue to operate the bank account of the hotel in accordance with the second technical service agreement (TSA). In September 1998, EIHL issued a notice to RMHIL for arbitration in terms of the provisions contained in the agreement. But, immediately, RMHIL removed all the executives of EIHL from the hotel and issued a letter to RMHIL unilaterally terminating the TSA. After that, RMHIL filed their counter-claim in the aforesaid suit claiming that the TSA was non est in view of it being the result of misrepresentation, fraud etc. on the part of EIHL. Pursuant to this development, EIHL and OBEROI gave a public notice and a notice to RMHIL terminating the third royalty agreement. EIHL also filed an application in the Civil Court for withdrawal of the aforesaid Civil Suit No.1629 of 1998 as the TSA stood terminated and also prayed for a reference of the dispute to arbitration. The Civil Court rejected both the prayers of EIHL by its order dated 25.11.1998 from which Civil Revision Application No.298 of 1999 is preferred by EIHL and the same is admitted and pending in this Court. 3.2 On the other hand, EIHL issued a notice to RMHIL claiming damages due to the premature termination of the TSA by the latter. The other group company, i.e. OBEROI, also issued a notice to RMHIL claiming damages as well as outstanding royalty dues within a month. EIHL has invoked the provisions for arbitration by appointing an arbitrator as stated in its notice. OBEROI also invoked arbitration and appointed its arbitrator to adjudicate upon the claims as stated in its notice. RMHIL has replied to the notice of OBEROI informing about the appointment of its arbitrator in due course. However, on the same day, i.e. 17.12.1999, RMHIL also filed Civil Suit No.6390 of 1999 alongwith the notice of motion from which the present appeal arises and in which the reliefs as stated therein are prayed for. RMHIL has also, without prejudice to its contentions, appointed and nominated its arbitrator in response to the notice dated 17.11.1999 of OBEROI. 3.3 Thus, in short, the two arbitration proceedings pursuant to the two agreements between the appellant and one of the two respondents are underway even as the two civil suits are also pending in the City Civil Court and the interlocutory orders made therein are under challenge in this Court. 3.4 During the pendency of the arbitration proceedings pursuant to the TSA between EIHL and RMHIL, the latter has filed Civil Suit No.2260 of 2000 seeking stay of the arbitration proceedings and has also taken up a notice of motion which is rejected on 7.7.2000. 3.5 Against the backdrop of the facts as above, although the present case involves only the royalty agreement between the appellant-RMHIL and one of the respondents i.e. Oberoi Hotels Pvt. Ltd. (OBEROI) and seeks to stay the arbitration proceedings, the other agrement, i.e. the technical services agreement (TSA) and the other respondent i.e. EIHL are brought into picture on the premise that both the agreements were a part and result of the original composite memorandum of understanding and that the termination of the royalty agreement was the result of the termination of the technical service agreement. The nature and gist of the dispute among the parties is such that as the hotel at Ahmedabad constructed, commissioned and operated by the arrangement referred to hereinabove was not allowed to be run in terms of the technical service agreement and the agreement with EIHL was unilaterally terminated by RMHIL, the other royalty agreement between RMHIL and OBEROI for using the name "The Trident" came to be terminated by OBEROI. 4. The appellant (RMHIL) has repeatedly asserted that the RA and TSA agreements were separate and independent and not co-terminus with each other. Admittedly, RMHIL terminated the TSA and in response OBEROI terminated the RA which termination was accepted by RMHIL. In case of occurrence of any default in the working of the RA, a mechanism of arbitration is provided by an express stipulation. However, according to the agreements, the TSA can be terminated on termination of RA, but there is no provision for termination of RA on termination of TSA. But, according to RMHIL, when RA was, in fact, repudiated by OBEROI on termination by RMHIL of the TSA, OBEROI cannot invoke arbitration under the RA as the agreement itself does not survive on its repudiation by one and acceptance thereof by the other. On the other hand, it is also submitted on behalf of RMHIL that since RA is repudiated as a result of termination of TSA by RMHIL, the dispute arising from breach or termination of RA cannot be referred to arbitration for the reason that the breach of TSA is a separate but related subject-matter under adjudication in the civil suit filed by EIHL. On this basis, it is submitted that OBEROI and EIHL, which are, if their corporate veil were lifted, the same company, after resorting to civil suit in respect of TSA were invoking arbitration under RA which would involve the same disputes and issues regarding the breach of TSA. Therefore, on the grounds that double adjudication of the same issues, one in the civil suit and the other in the arbitration proceedings, is against public policy and likely to produce contradictory findings and that EIHL has already resorted to civil suit and subjected itself to the jurisdiction of the Civil Court, it is prayed by RMHIL that OBEROI may be restrained from commencing or participating in arbitration proceedings in connection with RA. 5. As seen earlier, the City Civil Court has rejected the Notice of Motion of RMHIL taking detailed note of facts and, at times, inconsistent contentions of the parties. However, the important and admitted fact remains that both arbitration proceedings pursuant to both the agreements are underway. As far as the arbitration pursuant to RA is concerned, and with which the present appeal is primarily concerned, OBEROI has invoked arbitration by appointing its arbitrator on 17.1.1999 pursuant to its notice dated 18.10.1999. RMHIL has responded by replying that it would appoint its arbitrator in due course. And, without prejudice to its contentions, and even after filing the civil suit for the reliefs reproduced hereinabove, RMHIL has also appointed and nominated its arbitrator. 6. Under these circumstances, the contentions of the appellant (RMHIL) about symbiotic relationship of the two agreements (TSA and RA), the legality of the arbitration proceedings pursuant to the RA and the likelihood of two conflicting conclusions being reached have to be examined. 7. It is true that the three agreements among the parties were arrived at on the same day on the basis of a single MOU aimed at construction, commissioning, operation and naming of a luxury hotel in collaboration with RMHIL on the one hand and the group companies on the other. However, that fact by itself is not sufficient to sustain the submission of the appellant that the corporate veil of the group companies of OBEROI group must be lifted and all the agreements must be treated as a part of a common package so as to prevent arbitration pursuant to one agreement on the ground that civil suit in respect of another agreement was pending. Instead of citing any compelling circumstances for lifting the veil, the appellant has repeatedly averred and asserted that the RA was independent and not co-terminus with TSA, that termination of TSA does not tantamount to termination of RA and that while RMHIL was justified in terminating the TSA with EIHL, the termination of RA by OBEROI was illegal . Obviously, the RA between OBEROI and RMHIL is an independent agreement with a built-in arbitration clause and the same stands without reference to or being dependent upon any other agreement or covenant. It thus follows that arbitration pursuant to the RA cannot be stayed on the ground that the agreement was illegally terminated as a sequel to termination of the TSA and the termination of TSA is a subject-matter of civil suit. The dispute arising from termination of RA has to be subjected to arbitration in which the legality or otherwise of the termination and claims and counter-claims of the parties may be decided and the basis and background of the termination of RA may also be examined, if required. 8. However, the submission in this context is that there is a strong possibility of the Civil Court holding the termination of TSA to be justified while the arbitral Tribunal may take a different view to hold that the termination of RA was legal and justified as the termination of TSA was not legal or justified. This argument is attractive but the apprehension would appear to be more imaginary than real if the arbitration clause in the RA, which reads as under, is considered: " If any controversy or dispute should arise between the parties on performance, interpretation or application of this agreement involving any matter, the same shall be submitted for arbitration under the Indian Arbitration Act. The decision of the arbitrator(s) shall be binding upon the owner and OBEROI. The arbitration proceedings shall take place in Delhi........" (emphasis supplied) As submitted on behalf of the respondent, the provisions of Sections 5 and 16 of the Arbitration and Conciliation Act, 1996 (the 'Act') completely covers the controversy. A plea that the arbitral Tribunal would not have jurisdiction or that it is exceeding the scope of its authority can be raised before the arbitral Tribunal, and it can pass appropriate order on such plea. It is submitted that, however, by virtue of the overriding provisions of Section 5, no judicial authority is permitted to intervene in such matters. In this context, the judgment of the Calcutta High Court in MAGMA LEASING LTD. v. NEPC MICON LTD. (AIR 1998 Calcutta 94) is relied upon on behalf of the appellant to submit that the party who has itself instituted a suit is not a party who can apply for a reference to arbitration under the provisions of sub-section (1) of Section 8 of the Act. Here again, the presumption was in favour of the appellant to the effect that the two opposing group companies were the same entity. But, as noted earlier, in the instant case, no compelling circumstances are cited or sufficiently established to lift the corporate veil of the two group companies. 9. As observed by the Hon'ble Supreme Court in P. ANAND GAJAPATHI RAJU v. P.V.G. RAJU [ (2000) 4 SCC 539], Section 5 brings out clearly the object of the Act, namely, that of encouraging resolution of disputes expeditiously and less expensively. When there is an arbitration agreement, the Court's involvement should be minimal. Section 21 of the Act provides that, unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commences on the date on which a request for that dispute to be referred to arbitration is received by the respondent. In the facts of the present case, even the arbitrators are appointed by the parties pursuant to both the agreements in question and hence the arbitral proceedings have already commenced in the eye of law. 10. In view of the facts and legal submissions discussed as above, it is clear that, prima facie, neither the two agreements viz. the Technical Services Agreement and the Royalty Agreement, nor the two companies with which they are entered, are so interconnected that the arbitral proceedings may have to be stayed. Besides that, the overriding bar imposed by Section 5 of the Act, and the fact that the arbitral proceedings have, in fact and in law commenced, it would be improper and unjust to grant the reliefs as prayed for by the appellant. No other ground is made out to interfere with the impugned order. Therefore, this appeal is dismissed with no order as to costs. Sd/- (KMG Thilake) $$$$$$$