1 arbp118-07 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.118 OF 2007 Anant P. Shetye ....Petitioner V/s. Captain Pramod S. Salvi ....Respondent Mr.Kishor Jawle i/b M/s.R. & D. Legal for the Petitioner. Mr.V.P. Sawant i/b Mr.V.C. Ghosalkar for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 20TH SEPTEMBER, 2010. P.C. :- 1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 to set aside an award dated 28.6.2006 passed by the learned sole arbitrator. The arbitrator rejected the entire claim on the ground that he had no jurisdiction to entertain the same. It was clarified that in view thereof, the merits of the disputes had not been considered. The award was a decision on the preliminary issue of the jurisdiction of the arbitral tribunal. 2. The reference to the arbitrator was pursuant to an award dated 3.8.2005 made by the Hon’ble Chief Justice under section 11 of the said Act. 3. The petitioner conducted the business as a sole proprietor in the name and style of “Pen Distilleries” by manufacturing Indian made foreign liquor for which he held a licence issued under the Bombay 2 arbp118-07 Prohibition Act, 1949. In the year 1989, the petitioner was issued a licence for conducting retail business. He accordingly opened a retail vending shop. Unfortunately, the petitioner lost sight in both eyes and was therefore, unable to manage the business effectively. As a result thereof, the petitioner entered into negotiations with the respondent. An M.O.U. was entered into between the parties. The M.O.U. records that the parties would float a private limited company for conducting the said business and that the licence would be transferred in the name of such company. Clauses (c) and (d) of the M.O.U. read as under :- “(c) The terms of the said Transfer shall be that the said Private Limited Company shall pay a fixed amount of Rs.50,000/- (Rupees Fifty thousand only) per month to the said Mr.Shetye, first of such payment to be made on or before 1.2.1991 and thereafter every month. (d) Capt. Pramod S. Salvi will have the absolute majority in such a Private Limited Company and Mr.Shetye shall be the permanent Director and Chairman of the Company during the like and shall be entitled to all the perquites. On the desire of Mr.Shetye Smt.Rupali A. Shetye and/or her nominee shall have all the rights of Mr.Shetye when he was alive.” Clause 8 contains an arbitration agreement. 4. The company was ultimately incorporated. It however, did not accept the contract. The company in any event did not communicate such acceptances to the petitioner. In view thereof, Mr.Jawle, the learned counsel appearing on behalf of the petitioner submitted that the petitioner is entitled to enforce the contract and in particular clause (c) thereof against the respondent. In support of the submission, he relied upon section 19(1)(e) of the Specific Relief Act, 1963 which reads as under :- 3 arbp118-07 “19. Relief against parties and persons claiming under them by subsequent title. - Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against - ................................................................................................ (e) when the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, the company : Provided that the company has accepted the contract and communicated such acceptance to the other party to the contract.” It was contended that as the contract could not be enforced against the company in view of the company not having accepted the same, the petitioner is entitled to enforce the contract against the respondent. 5. Mr.Jawle sought to substantiate his contention on merits including by referring to the provisions of law and authorities. I however, did not permit him to do so. I am not concerned with the merits of the claim. The only question is whether the arbitrator has jurisdiction to decide the claim. In my opinion, he has. The petitioner had made a claim for the sum payable under clause (d) as well as certain other claims. The learned arbitrator observed that the M.O.U. does not make the respondent personally liable to pay the amounts. He further held that the petitioner’s remedy was not by way of the arbitration against the respondent. It is further held that the parties had not authorised the arbitrator to decide any dispute that may arise between the petitioner and the respondent in his individual capacity after formation of the company in respect of the liabilities of the company. 4 arbp118-07 6. The above finding in the award pertains to the merits of the claim. Whether the petitioner has a cause of action against the respondent inter-alia under the M.O.U. is quite different from the question as to whether the arbitrator has jurisdiction to decide the disputes. 7. Clause 8 of the M.O.U. reads as under :- “8. All the disputes and differences that may arise between the parties hereto during the currency of this Memorandum or after its determination relating to or arising out of these presents or relating to any interpretation of any of the clauses herein shall be referred to Arbitration of two Arbitrators, each one to be appointed by the parties to the dispute. Such Arbitration shall be at Bombay and shall be governed by the provisions of Indian Arbitration Act for the time being in force and the decision of the Arbitrators shall be final and binding on the parties hereto.” The arbitrator therefore had jurisdiction to decide whether the claims are tenable under the M.O.U. and in law. That the claim may not be maintainable against the respondent, pertains to the merits of the claim and not to the jurisdiction of the arbitrator. 8. In the circumstances, the award is set-aside. Unfortunately, the learned arbitrator is no more. Mr.Justice S.K. Shah (Retd.) is therefore, appointed as a sole arbitrator to decide the disputes on merits. It is clarified that the parties had no objection to Mr.Justice S.K. Shah (Retd.) being appointed as a sole arbitrator, but the same is without prejudice to the respondent’s rights to challenge this order and judgment. The respondent having agreed to, the name of the arbitrator ought not to be construed as the respondent having accepted this judgment. There shall be no order as to costs. This order is stayed upto and including 15.11.2010.