HIGH COURT OF DELHI : NEW DELHI O.M.P. No. 401/2006 Judgment reserved on: May 2nd, 2007 Judgment delivered on: November 14, 2007. # Sh. Jagatjit Jaiswal & Anr. ..... Plaintiffs ! Through: Mr. P.V. Kapur, Mr. Shyam Divan, Sr. Advocates with Mr. Asim Vachher and Mr. Achal Gupta, Advocates versus $ Karmajit Singh Jaiswal & Anr. ..... Defendants ^ Through: Mr. Arun Jaitley, Sr. Advocate with Mr. Rajiv Endlaw, Ms. Malini Sud, Mr. Aman Leekha and Ms. Ashu, Advocates. *CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be reported Yes in the Digest? VIPIN SANGHI, J. 1. In this petition under Section 9 of the Arbitration and Conciliation Act, 1996 (referred to as `the Act’ hereinafter), the prelimi- nary objection raised by the respondents before me that needs to be determined is, whether Clause 9 of a Memorandum of Family Settle- OMP 401/2006 Page 1 of 43 ment (MOFS) dated 3.3.2000 entered into between the parties tanta- mount to an arbitration agreement. If it contains an Arbitration Agree- ment, as contended by the petitioners, the present petition would be maintainable, but if it does not contain an Arbitration Agreement as ar- gued by the Respondents, the present petition would fail as not being maintainable. 2. The facts giving rise to the present petition insofar as they are necessary to determine the preliminary issue may be noted. The Petitioner No. 1 and the Respondent No. 1 are brothers and the sons of Late Mr. L.P. Jaiswal. Further, Petitioner No. 2 and Respondent No. 2 are the wives of Petitioner No. 1 and Respondent No. 1 respec- tively. 3. Late Mr. L.P. Jaiswal founded M/s Jagatjit Industries Ltd. in the year 1944. The petitioner being one of the sons of late Shri L.P. Jaiswal headed the management of the said company since 1977. How- ever, it appears that in the year 1999 disputes arose between the fami- ly members of late Shri L.P. Jaiswal including petitioner No.1 and re- spondent No.1. Litigation was initiated in this Court as well as courts in Kapurthala in the year 2000. However, these suits came to be with- drawn in November, 2003. The petitioners state that the withdrawal of the suits was prompted by, inter alia, an oral agreement reached be- tween the parties herein on 2.3.2000 which was later reduced to writ- ing as the MOFS on 3.3.2000. Petitioner No.1 Mr. Jagatjit Jaiswal and OMP 401/2006 Page 2 of 43 his wife on the one hand, and respondent No.1 Mr. Karamjit S. Jaiswal and his wife on the other hand, represented themselves and their fami- ly members respectively in the MOFS and were referred to as JJ Family Group and KSJ Family group respectively. 4. As per the recitals contained in the MOFS, as per an oral settlement within the L.P. Jaiswal family, 14 companies scheduled therewith had fallen to the share of the parties, which included M/s Ja- gatjit Industries Ltd. The same was entered into with an object to avoid disputes and litigation among the parties and to maintain peace, har- mony and good relations among them. The MOFS records that the par- ties would hold equal shares in the 14 companies listed in the MOFS. They would jointly manage these companies and would enjoy equal benefits, rights and privileges. Neither party would exclude the other, either directly or indirectly from the joint management or equal bene- fits. The public limited companies were to be managed professionally with the assistance of professional managers, who were to be appoint- ed by the mutual agreement of petitioner No.1 and respondent No.1. Even their duties and responsibilities were to be assigned by mutual agreement of petitioner No.1 and respondent No.1. They also agreed to formation of an Audit Committee, of which both of them would also be members, to jointly supervise and control the management of the said companies. The MOFS provided for the equal representation of the parties on the Board of Directors of the companies, appointment of in- OMP 401/2006 Page 3 of 43 dependent directors, and put restrictions on the two groups to mort- gage, pledge, transfer or dispose off the shares of the companies or to do any act which would result in the dilution of the equal control of the two group in the companies listed in the MOFS. 5. The MOFS also contained clause 9 whereby a Dispute Resolution Committee (DRC) was to be constituted. The said clause which calls for interpretation, reads as follows: 9. The Parties agreed to nominate and consti- tute a committee hereinafter to be referred to as the Dispute Resolution Committee compris- ing of persons acceptable to them. It is agreed that the Parties shall be bound to refer all dis- putes between them relating to any matter or dealings between the Parties that have any connection to the affairs of any of the Compa- nies or otherwise and the decision of the Com- mittee shall be final and binding on the Parties. The Parties agreed and undertook to abide by all decisions of the Committee whether the Committee chooses to act as arbitrator or as umpire or referee. Accordingly, the Parties have agreed not to take recourse to litigation to resolve disputes or differences between them. 6. It appears that late Shri L.P.Jaiswal, who was the majori- ty stake holder in Jagatjit Industries Ltd. decided to divest Petitioner No.1 from the management of the said company and to institute Re- spondent No.1 at the helm of its affairs. He wrote a letter dated 10.8.2001 expressing his decision in this regard. The petitioner No.1 thereafter gave up the stewardship of the said company. A Memoran- dum of Understanding (MOU) was also executed between Shri L.P. OMP 401/2006 Page 4 of 43 Jaiswal and Respondent No.1 on 7.10.2003, whereby it was agreed to reconstitute the Board of Directors of Jagatjit Industries Ltd. Petitioner No.1 was not in the reconstituted Board of Directors, while Respondent No.1 became the Managing Director of the said company. According to the petitioners, the continued status quo with regard to their rights and privileges till sometime in the year 2006, and they did not appre- hend that the Respondents would not honour the MOFS dated 3.3.2000. 7. However, thereafter it appears that aggrieved by the threatened withdrawal of the various rights, privileges and benefits be- ing enjoyed by petitioner No.1, which he was enjoying while in the management of M/s Jagatjit Industries Ltd and also threatened by vari- ous subsequent developments which had the effect of unsettling the equilibrium sought to be established by the MOFS dated 3.3.2000, the petitioner filed this petition under Section 9 of the Arbitration and Con- ciliation Act to seek various interim protections and reliefs. 8. Since the objection to the maintainability of this petition has been raised by the respondent I may first notice the same. Respondents Contentions 9. This Court acting under Section 9 of the Act can only ex- ercise jurisdiction once it is satisfied as to the existence of a valid Arbi- tration Agreement. Reliance has been placed by Mr. Jaitley, learned se- OMP 401/2006 Page 5 of 43 nior counsel appearing for the respondents on the judgment of the Supreme Court in S.B.P and Company v. Patel Engineering Limited 2005 (8) SCC 618. The Court in para 19 held as follows: “.....Similarly, Section 9 enables a court, obvi- ously, as defined in the Act, when approached by a party before the commencement of an ar- bitral proceeding, to grant interim relief as con- templated by the section. When a party seeks an interim relief asserting that there was a dis- pute liable to be arbitrated upon in terms of the Act, and the opposite party disputes the existence of an arbitration agreement as de- fined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, or that the court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that court has necessar- ily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agree- ment....” 10. The said clause 9 of the MOFS does not constitute an Arbitration Agreement, as it does not specifically require the appoint- ment of an Arbitrator(s). The said clause envisages the appointment of a Dispute Resolution Committee (DRC) and it is upto the Committee to decide whether to function as arbitrators, or as Umpires or Referees. For it to be an arbitration agreement, the agreement should be clear and unequivocal, and the intention should only be to finally settle the disputes only through the route of arbitration. The choice to act as ar- bitrators or as umpires or referees can only be with the parties and not vest with the appointees, as provided for in clause 9. OMP 401/2006 Page 6 of 43 11. The expressions in the said clause 9 of the MOFS name- ly “Arbitrators” on the one hand and “Umpire” and “Referee” on the other hand have different meanings and connotations in law. When the DRC has been vested with the discretion to choose to act as “Arbitra- tors” or as “Umpires or Referees”, then it cannot mean that the three expressions have one and the same meaning i.e. to act as “Arbitrators” alone. Parties consciously used different expressions, i.e., “arbitrators” on the one hand and “umpires and referees” on the other hand to pro- vide a “choice” to the DRC to either act as “arbitrators” or in the con- tradistinction as “umpires or referees”. The term “Referees” has a set- tled meaning and is said to mean a person to whom parties to a dis- pute refer the matter for admission and whose statement on the dis- pute is binding on the parties as an admission. The concept of a “Ref- eree” as elucidated by the Supreme Court in Hira Chand Kothari v. State of Rajasthan (1985) Supp SCC 17 is relied upon. It is argued that the term “Umpire” though has been used extensively under the Arbi- tration Act, 1940 but an “Umpire” is not an “Arbitrator” in the sense that he is not required to undertake any quasi-judicial proceedings. The expression “Umpire or referee” has to be understood as in a game, i.e. where they are trusted to come up with a fair and honest decision on the basis of their expertise of the game and observations on the conduct of the parties and the ground realities. OMP 401/2006 Page 7 of 43 12. Since the DRC had the freedom to choose whether to act as Arbitrator, or as Umpires or Referees in the event they chose to act as Arbitrators, then the provisions of the Act would be applica- ble, whereas in case they choose to act as Referees then provisions of Section 20 of the Evidence Act would apply, and if they decide to act as Umpires, then the parties agree to be bound by their decision. 13. Respondents also place reliance on clauses 10 and 12 of the MOU dated 03.03.2000, to contend that from the clauses it is ap- parent that the scope of the decisions of the DRC was not to finally re- solve all disputes between the parties arising under the MOFS. The said clauses read as follows: “10. In the event of a breakdown of relation- ship between the parties representing the two family groups, it is agreed that all the compa- nies shall be equally divided between the par- ties in a manner as agreed and finalized by the Dispute Resolution Committee. The decision of the Committee to divide the companies equally between the parties, either by reorganization of the companies or such other manner as it deems fit, shall be binding on the parties and it shall not be challenged in any court of law or otherwise. 12. The parties confirmed that they had en- tered into the above settlement with good in- tentions and will accordingly make all endeav- ours to conduct the affairs on the terms hereof. In the event of breakdown between the parties representing the two family groups and in the event of they are unable to resolve their differ- ences amicably, it is agreed that the compa- nies as also all assets and liabilities shall be split equally between the parties. For facilitat- OMP 401/2006 Page 8 of 43 ing such split the parties agreed to be entitled to get independent valuations from two rep- utable firms of Chartered Accountants. The par- ties agreed to be bound by the scheme of ar- rangement for split as determined by such ex- perts. The decisions of the experts shall be fi- nal and shall not be subject to being chal- lenged in any form or manner.” 14. If the decision of the DRC was meant to be binding on the parties, then there would be no reason to provide for clauses 10 and 12, since there would be no occasion of a breakdown. The ques- tion of division of assets would only arise if the decisions of the DRC were not to be binding on the parties which could lead to a deadlock and a consequential breakdown. If the Committee’s decision were binding, then the affairs of the companies would be run as per its deci- sions and the question of a breakdown would never arise. It is argued that it is only the manner of division which was to be finalized by the DRC under clause 10 and not the decision to divide the assets equally. Such a decision was already taken by the parties themselves. Further- more, there exists an inconsistency in this regard also because even the manner of division by the DRC was not final, as clause 12 provides that for the facilitation of the split, the parties were entitled to get in- dependent valuations from chartered accountant firms. It also provides that the parties agree to be bound by the scheme of arrangement for split as determined by such experts and that the decisions of experts shall be final and shall not be subject to being challenged in any form or manner. The only inference that one can draw from the said clauses OMP 401/2006 Page 9 of 43 is that the Committee was to be a body entrusted with the task of sug- gesting solutions to iron out the day to day differences between the two groups. 15. A DRC comprising of one Mr. Gidwani, Mr. Majitha and Mr. Rajive was duly constituted and was know as the “well-wishers committee”. The said “well-wishers committee” was formed for the purpose of resolving disputes, not as arbitrators, but, as mediators or conciliators. The said “well-wishers committee” was formed with the in- tent to guide the parties with regard to issues connected with the man- agement of the 14 companies and cannot be considered as an Arbitral Tribunal. There is nothing to show that the “well-wishers committee” intended to act in a quasi- judicial manner. This Committee, once es- tablished, had worked itself out and consequently it abandoned its ef- forts after the execution of the letter dated 10.08.2001 by the Late Mr. L.P. Jaiswal wherein he handed over the management of Jagatjit Indus- tries Limited to Respondent No. 1. Clause 9 had been invoked and it stood exhausted and a fresh DRC could not be constituted much less as an arbitral tribunal as there no longer existed an agreement much less an arbitration agreement between the parties. 16. The MOFS dated 03.03.2000 purporting to be a family settlement cannot be construed as one, as it was not signed by the Late Mr. L.P. Jaiswal, his wife Surjit Jaiswal and the major children of the parties namely Nishaat, Ruheen or Roshni. The premise on which OMP 401/2006 Page 10 of 43 the MOFS was entered into was that the 14 companies were to fall to the share of the parties. At the relevant time, the companies were con- trolled and largely owned by the Late Mr. L.P. Jaiswal and that the Peti- tioners and Respondents held barely 5.3% of the shareholding of Ja- gatjit Industries Limited. Furthermore, in light of the letter dated 10.08.2001 handing over control and management of Jagatjit Indus- tries Limited to Respondent No. 1 and subsequently the MOU dated 07.10.2003 executed between Late Mr. L.P. Jaiswal and Respondent No. 1 wherein the Respondent No. 1 was given exclusive management of Jagatjit Industries Limited, the MOU dated 03.03.2000 was never acted upon and was given a complete go by from 10.08.2001 onwards. 17. The said clause 9 is vague and cannot be the basis of an arbitration or an interim order of protection under Section 9 of the Act. Reliance has been placed upon (2000) 4 SCC 272; Section 573; 1999 JT(1) SC 97; AIR 1955 Nag 126. Various other decisions have also been relied upon by the respondents and they would be referred to in the course of my discussion and decision in the matter. Petitioners' contentions 18. Under the said MOFS in clause 9 the parties in order to avoid litigation agreed to establish a DRC comprising of persons who would be mutually acceptable to them. This is clear from the language of the said clause which provides “the parties shall be bound to refer OMP 401/2006 Page 11 of 43 all disputes relating to any matter or dealings between the parties that have any connection to the affairs of any of the companies or other- wise”. Furthermore, finality was to attach to the decision of the Com- mittee so constituted. Thus, the intention of the parties was to resort to alternate dispute resolution method by way of arbitration proceedings. The wordings of the said clause do not leave room for any ambiguity inasmuch as, it uses the words “whether the committee chooses to act as arbitrator or as umpire or referee”. It is the Petitioners stand that the term “arbitrator” is synonymous with the terms “referee” or “um- pire”. The said clause 9 of the MOFS has to be read to mean that the DRC has to function as an arbitral tribunal. 19. The Committee was to have a continuous existence for deciding disputes as and when they arose and was not to be exhausted by a one-time reference. Thus, all future disputes as and when they were to arise between the parties were necessarily to be referred for settlement by way arbitration to the DRC. 20. In his rejoinder, learned senior counsel for the petition- er, Mr. Shyam Deewan submitted that under Section 9 only a prima fa- cie determination on existence of arbitration agreement is required. It was further submitted that the “well wishers Committee” was consti- tuted by “Rajive” and not by the parties. A “Well Wishers Committee” is not contemplated by the said clause 9 and hence, the same cannot be said to have been constituted under the said clause. Even other- OMP 401/2006 Page 12 of 43 wise, the right to refer disputes to a DRC does not get exhausted merely because one committee had been formed under the clause. The said clause covers to all disputes which may arise between the parties in future under the MOFS. Since, the words used in the said clause unequivocally proscribe resort to litigation, and mandates that the parties are bound to refer their disputes to the Committee, whose decision is final and binding on the parties, the decisions relied upon by the respondent were distinguishable on facts. The petitioners have also relied on various decisions which would be referred to and dealt with by me presently. Discussion and Decision:- 21. Before proceeding to deal with the issue pertaining to existence of arbitration agreement between the parties, it may be pointed out that Mr. P. V. Kapur, learned senior counsel appearing for the petitioner had initially argued that this court while dealing with a petition under Section 9 of the Act cannot go into the question of existence/validity of the arbitration agreement. That determination can be made by the Court only while dealing with an application under Section 11 or Section 8 of the Act. Reliance had been placed upon para 12 of the judgment in SBP (supra) to contend that since the jurisdiction of the tribunal to rule on its jurisdiction and existence of arbitration clause under Section 16 is not taken away, except when the Tribunal has been constituted by intervention of the court, the court OMP 401/2006 Page 13 of 43 while dealing with a petition under Section 9 cannot go into these issues which are for the Tribunal to decide. 22. However, subsequently, this submission was not pressed and request was made to decide the preliminary issue on the premise that the court is so empowered. Be that as it may, I am of the view that said contention was in any case fallacious, being in teeth of the observations of the Supreme Court in para 19 of the judgment in SBP(supra), the relevant portion of which has been reproduced hereinabove, which envisages that the court has to decide upon the existence of the arbitration clause even while entertaining a petition under Section 9 of the Act, in case the existence of the arbitration agreement is challenged by the opposite party. This contention is, therefore, devoid of any merit and is rejected. 23. Clause 9 of the MOFS in effect states that the DRC may choose to act as an arbitrator or as umpire or referee. If the expression “umpire or referee” was also intended to be used to mean only an “arbitrator”, Clause 9 would constitute an arbitration agreement. On the other hand, if the said expression was intended to enable the DRC to act in some other capacity, other than as an “arbitrator”, the question would be, whether the said clause is vague and uncertain and therefore, not a binding arbitration agreement. I may add that it is not the Respondents contention that the expression 'arbitrator' used in clause 9 of the MOFS was intended not to mean an OMP 401/2006 Page 14 of 43 arbitrator as understood in the law of Arbitration. Therefore, it is important to construe the expression “umpire or referee” used in clause 9 of the MOFS to decide the issue raised before me. 24. So, what are the rules of interpretation governing an arbitration agreement or an agreement which is claimed to be an arbitration agreement? In Ram Lal Jagan Nath V. Punjab State through Collector, AIR 1966 Punjab 436 the court expressed the rule of interpretation of arbitration agreements as follows: “It is in this connection worth remembering that there is nothing peculiar or extra-ordinary about arbitration agreements and the same rules of construction and interpretation apply to such agreements as apply to agreements generally. The Court has thus to seek to give effect to the intention of the parties as evidenced by the agreement itself, without being over-technical in its interpretation. In endeavouring to collect the intention of the parties, the Court must consider the whole context, even though the immediate object of the inquiry be the meaning of an isolated clause. This basic legal position has not been controverted at the bar before us.” 25. In Ranjeet Combine vs. B.N. Khanna 2000 (6)AD(Delhi) 647 it was observed that the rules of construction and interpretation of arbitration agreement are the same as apply to agreements generally. The effort must be to give effect to the intention of the parties as evidenced by the agreement itself without being over- technical in its interpretation. In Union of India vs. D.M. Ravri & Co. OMP 401/2006 Page 15 of 43 AIR 1976 SC 2257 for interpretation of agreements generally, the Apex Court recommended the adoption of