1 IN THE HIGH COURT OF BOMBAY, AT GOA. PANAJI - GOA APPLICATION FOR APPOINTMENT OF ARBITRATOR NO. 10/2008. 5. Tulip Hotels Pvt. Ltd., A Company incorporated under the Companies Act, 1956 and having its Registered Office at Chandermukhi, Nariman Point, Mumbai - 400 021. 6. Dr. Ajit B. Kerkar of Mumbai Indian Inhabitant, Residing at Flat No.31, 11 navroji Mansion Nathalal Parekh Marg, Mumbai. .... PETITIONERS. VERSUS 1. Trade Wings Ltd., a Public Limited Company Registered under the Companies Act, 1956 (1 of 1956) and having its Registered Office at 6, Mascarenhas Building, M.G. Road, Panaji – Goa – 403001 and Corporate Office at 18/20, K. Dubhash Marg, Fort, Mumbai – 400 023. 2. Dr. Shailendra P. Mittal of Mumbai, residing at Mittal Bhavan, 62-A, Peddar Road, Mumbai – 400 026. 3. Trade Wings Hotels Ltd., a Company incorporated under the Companies Act, 1956 (1 of 1956 and having its Registered Office at 6, Mascarenhas Building, M.G. Road, Panaji – Goa – 403001. ....RESPONDENTS. --------------------------- 2 Mr. S.G. Dessai, Sr. Advocate with Mr. Parag Rao, Advocate for Appellant. Mr. Harish Jagtiani, Sr. Advocate with Mr. Anil D’Souza, Ms. Priti Cjotrani, Mr. Siddesh Bhole and Mr. E.O. Mendis, Advocates for Respondents. ----------------------------- CORAM : B.P. DHARMADHIKARI, J Judgment Reserved on -- 17th July, 2009. Judgment Pronounced on -- 14th August, 2009. JUDGEMENT. 1. The matter is being argued in the background of earlier adjudication in Arbitration Application no. 4 of 2007 on 19/3/2008 by this Court holding that said application filed before it by the present Applicants was premature because as per agreement between parties the arbitration was contemplated only after failure of conciliation held in terms of Section 62 of Indian Arbitrationand Conciliation Act,1996, hereinafter referred to as 1996 Act or Arbitration Act . This Court then left present Applicants i.e. M/s Tulip free to invoke said proceedings and all other contentions raised before it open. The two appeals against orders under Section 9 of 1996 Act earlier ordered to be heard with this application have been separated with consent of parties on 17/7/2009. The respective Senior Advocates have completed their arguments after this order. 2. In view of this position and as contesting parties are before this Court 3 through their respective learned Senior Advocates and existence of the arbitration clause vide clause no. 19 in the agreement is not in dispute, I have tried to find out the areas in dispute so as to curtail unnecessary lengthy arguments. It appears that the Respondents claim a right in them to refuse to conciliate and thereby the frustration of arbitration clause itself and bar of limitation as also the non- referrability of disputes to arbitration i.e. absence of arbitrable disputes in/as their defence. In the alternative, a Civil Suit filed by them in the matter claiming reliefs against the Applicants and strangers is also being pointed out stating that strangers who are necessary parties to that Suit, being not parties to arbitration agreement, can not be subjected to the arbitration. Accordingly, I have heard both the Senior Advocates. It can not be disputed that the earlier conciliation conducted by one Mr. Om Navani is already declared to be not in terms of clause 19 of the agreement. 3. Shri Dessai, Senior Advocate for Tulips has pointed out that clause 19 envisaged completion of the conciliation proceedings within one month and failing it, the agreement presumed failure thereof leaving parties to take recourse to the arbitration. After judgment dated 19/3/2008 of this Court, the Applicants issued a notice dated 21/6/2008 calling upon the Respondents to conciliate before either of two retired Hon’ble Judges named therein and to communicate their acceptance within 10 days. Respondents replied to it on 21/6/2008 pointing out Section 62 required 30 days notice and that there were no hopes from conciliation. They also did not agree to any of the names suggested by the Applicants. The Applicants then sent their rejoinder notice on 9/7/2008 agreeing to wait for 30 days. However, on 4 10/7/2008 Respondents sent their negative response thereby making it clear that conciliation between the parties was not possible. Hence, after this failure of conciliation, Applicants again sought appointment of Arbitrators under said clause 19 and approached this Court. 4. After inviting attention to the points of disputes and in order to show that the same are covered by the agreement our attention is invited to the memorandum of understanding i. e. MOU dated 26/4/2000 and Share Holding Agreement i.e. SHA dated 24/6/2000 between the parties. Senior Counsel Shri Dessai states that the Applicants were supposed to purchase 50% share capital of M/s Trade Wings Hotels Ltd. i.e. TWHL before completion date as contemplated by the agreement between parties. He states this purchase was scheduled after paying 13.50 Crores to TWHL and against physical delivery of the shares. However, as 100% share holding and equipment of TWHL were then mortgaged/pledged with Tourism and Finance Corporation Of India i.e. TFCI the sale itself was not possible. Because of efforts made by the Applicants, OTS i.e. one time settlement of loan amount was reached between TWHL and TFCI and out of amount of Rs. 16.50 Crores paid by the Applicants, OTS amount of Rs. 12 Crores was paid. Thereafter, when Applicants demanded the necessary shares, the Respondents demanded more amount of Rs. 13.50 Crores which gave rise to this controversy. As per the MOU Applicants are entitled to run and manage the Hotel for period of 10 years i.e. upto 2010. He invites our attention to various clauses of SHA particularly clauses 14,17, clause (F) ,(G),(H) at Page 33, clause 2.1 at Page 36 , clause 3 at Page 37, clause 5 17.4 at Page 50, clause 19 at Page 51, clause 8.2 at Page 40 to show complete understanding between the parties. He also states that as per this SHA the MOU was recognised and treated as its part and parcel. Therefore for violation of any provision of the MOU also the conciliation /arbitration clause can be invoked. Clause 8.2 is pointed out to show what parties have understood as fundamental matters and it is argued that matters contemplated thereby are all after the commencement of the business after Applicants get 50% share holding of TWHL. As this stage never came, as yet there is nothing like "fundamental matters on which parties have positive vote" in the field. 5. Importance and consequence of completion date "7/9/2000" envisaged in SHA is sought to be explained by pointing out what is envisaged by the phrase "completion". The joint venture company i.e. JVC could never be constituted. It is stated that pledged shares are released on 28/7/2006 by TFCI to TWHL when it gave no dues certificate. Said certificate is at Page 162 of Appeal No. 1/2008 which was placed for hearing with this matter. It is stated that therefore transfer of shares "on spot delivery basis" as required by clause 37 of SHA could not take place. Completion date is stated to be subject to process of completion as stipulated in clause 4 and as that date could not have been fixed before 28/7/2006, completion date also stood extended automatically. Thus the bar of limitation being pointed out by the Respondents is misconceived. It is urged that thus after “no dues” certificate was issued by the TFCI, the Respondent turned around and chose to issue the notice of termination dated 27/1/2007 to put an end to all previous agreements either in 6 writing or oral and MOU dated 26/4/2000. The malafides of Respondents are sought to be shown by pointing out that even after "7/9/2000" the amounts were accepted from the Applicants and after the loan was cleared, MOU dated 26/4/2000 was terminated. It is pointed out that Applicants have paid Rs. 12 Crores directly to TFCI as OTS amount. The contention of Applicants that amount of Rs. 16.50 Crores paid by them is shown as share application money in accounts of TWHL is accepted by TWHL. Provisions of Section 77 of Arbitration Act are pointed out to show that bar mentioned therein does not apply to Section 9 Arbitration Act proceedings. The Applicants filed their application under Section 9 of arbitration Act before the court of Civil Judge, Senior Division on 7/2/2007 and within two or three days thereof, the full Bench of this High Court resolved the then prevailing controversy and declared the court of Principal District Judge to be the Principal Court of original jurisdiction. Applicants then obtained the return off matter for its presentation to competent forum which came to be granted and that application under Section 9 was then presented to the Principal District Judge. The Respondents filed their civil suit on 8/2/2007 i.e. after the Applicants. 6. It is thus urged that in view of express provision contained in Section 62(3) of the Arbitration Act, the conciliation is deemed to have failed and recourse to arbitration by the Applicants can not be faulted. The Respondents, after directly pointing out need of conciliation, can not now back out by claiming alleged right to refuse to conciliate. Such refusal ought to have been indicated to this Court in earlier Section 11(6) filed and now they are estopped. In any case, because of their refusal 7 or rejection the agreement as per its scheme has to proceed further in direction of resolution of dispute through alternate forum. Its spirit and purpose in the light of various statutory provisions need to be protected against such mischief and the Respondents cannot be allowed to further delay dispute resolution. The Respondents have accepted money even after "7/9/2000" and allowed Applicants to pay OTS amount and are now invoking the limitation. As the completion was rendered impossible within stipulated time for their fault and for no fault on part of the Applicants, they can not be allowed to take advantage of their own wrong. The JVC could not come up and as business as per MOU or SHA could never start, the stage of legal completion never arrived and said completion got extension by the conduct of parties. Hence defence of disputes being on "fundamental matters" is malafide. MOU is part and parcel of SHA and is covered by the arbitration clause no. 19. The argument about non-arbitrability of the disputes is also misconceived. There is no question of conciliator working out any "residue" here for arbitration. It is urged that the civil suit filed by the Respondents is only by way of farce and with a view to use it to delay the reference to arbitration. It is contended that the civil suit can continue effectively independently without the Applicants or then, even without so called strangers. It is stated that the so called strangers are legally bound by the agreement between Applicants and the Respondents as they are alleged to be in the field either because of Applicants or the Respondents. Lastly, it is urged that the approach of Respondents in the matter is not honest. All objections being raised at their instance are misconceived and aimed at defeating the provisions of the 1996 Act. It is urged that this Court has only to record only prima-facie conclusions and 8 all objections can be raised and finally decided in proceedings before the Arbitrator as per the scheme of Section 16 of 1996 Act. Senior Counsel Shri Dessai, therefore requests this Court to appoint the Arbitrator and leave every thing open before him/her. 7. Learned Senior counsel has urged that Cl.12 or particularly its sub- clause (4) contemplates termination only if it is at the instance of or because of non- cooperation of a 3rd party i.e. person or party whose conduct can not be controlled by the parties to SHA. He states that here because of its own fault and conduct that M/s TWHL could not complete its part and physical delivery of shares was rendered impossible and consequently, formation of JVC also could not materialize. The Applicant was in management and continued to manage the Hotel Bogmoro Beach Resort ( Resort-hereafter) and performed its obligation by depositing requisite 50% price of share capital to be purchased. He argues that this deposit was/is in furtherance of SHA only and even thereafter, some more amounts have been accepted from Applicant according to it. Time was never the essence of SHA for parties and when, M/s TWHL was/is at fault, it can not take advantage of its own wrong. He has placed reliance upon AIR 2004 S.C. 32 = (2004) 1 SCC 1--State of U.P. vs. Lalji Tandon and (1989) Suppl. (1) SCC 487= AIR 1989 S.C. 18 --Provash Chandra Dalui vs. Biswanth Banerjee to buttress his submissions that due to conduct of parties, the SHA continued and in facts here, the provision for automatic termination therein was not attracted and came into play. 9 8. Senior Counsel Shri Jagtiani, for Respondent clarified that M/s TWHL ( Mittal group) was opposing the Applicant's (i.e. A.B.K. group) prayer under S.11(6) on following 4 grounds:-- A- Clause 19 in SHA permits unwilling party to block invocation of arbitration. B- Last date of SHA was 7/9/2000 and as per Section 43 of Arbitration Act, 1996 the civil suit could have been filed only within 3 years therefrom, C- Relationship after 7/9/2000 was regulated by subsequent arrangements which lack any arbitration clause and all disputed questions between parties are not arbitrable, and D- In any case civil suit filed by M/s TWHL is more comprehensive and some individuals not party to SHA or subsequent agreements are necessary parties thereto. Separation of parties and splitting of causes is not permissible. 9. Learned Senior Counsel points out that there is no arbitration clause in MOU dated 26/4/2000 and after expiry of SHA, the recourse to arbitration is not possible. It is urged that starting of JVC to manage Resort was very essential and Applicant was then expected to bring other hotels also for management under said JVC. MOU envisaged period of 120 days therefor which expired on 7/9/2000 itself. SHA dated 9/6/2000 again contemplated period of 90 days and that period was also to expire and did expire on 7/9/2000. In this background, attention is invited to definitions or interpretation of "completion" and "completion date" in SHA which according to Counsel reveals the understanding between parties about importance of time limit. Clause 4 of SHA is pointed out to urge that conditions stipulated therein are condition precedent and only stage one therein was over as it was done by M/s 10 TWHL. Conditions 2 to 4 therein could not be fulfilled by the Applicant and language of said clause does not contemplate any extension of time. Clause 12 is argued to be ushered to take care of lapses or faults due to 3rd party role and extension of time is expressly ruled out even in that contingency. Because of the nature of the arrangement and its implications, parties gave specified time for it and maintained its sanctity throughout by highlighting it. Clause 12.5 is pointed out to show how the scheme of self destruction is embodied in agreement by parties. Clause 17.4 treats the agreement to be complete code and negates theory of any implied extension or oral agreement therefor. Because of the express provision in SHA prescribing particular procedure for its renewal or amendment, plea of its continuation by any oral understanding or by conduct the SHA can not survive after 7/9/2000. It is argued that there can not be any oral understanding extending the time and no such inference can be drawn from alleged conduct of parties. In any case, the arbitration clause cannot survive after 7/9/2000 and even if, MOU dated 26/4/2000 is presumed to survive or revive after 7/9/2000, it does not contain arbitration clause. 10. It is urged that after 7/9/2000 neither MOU dated 26/4/2000 nor SHA dated 9/6/2000 is available to Applicant in the matter. No payment is made by Applicants to M/s TWHL before 7/9/2000. Though the relationship between parties continued till 2006, it is dehors clause 17.4 of SHA and it did not contain any arbitration clause. Payment of Rs. 16.50 Crores by Applicant in excess of liability of Rs. 13.50/- Crores undertaken in SHA is urged to be for certain reasons and due to some arrangement. Attempt of Applicant to pay amount of Rs. 9,79,00,000/- on 11 1/11/2006 towards purchase of shares is also pointed out as an indication of arrangement independent of MOU or SHA but cheque therefore was dishonoured. M/s TWHL then terminated on 27/1/2007 the entire prevailing agreements or understandings and filed Special Civil Suit No. 7/2007 for declaration that MOU stood terminated, for recovery or reimbursement of money and pointing out siphoning of its huge amounts by employees of Applicant or strangers at instance of the Applicant. Thus only part of controversy in pending civil suit is sought to be raised under Section 11(6). As all parties in Civil Suit can not be parties in arbitration and Suit is more comprehensive in nature, because of judgments of Hon’ble Apex Court in Sukanya Holdings and India House, ( see below) as no bifurcation of parties or splitting of cause is permissible, present application deserves dismissal. 11. Language of clause 19 employed in SHA is stated to be with some purpose and it contains some "filters" to avoid unnecessary matters or undesired issues from reaching the arbitrator. Conciliation is therefore made condition precedent so that such matters can be sorted out privately by parties without any statutory compulsions. The matters to be referred to arbitration are required to be "set out" after conciliation and generally, represent residue left thereafter. The words "set out" are urged to be words of limitation as against words like--"in connection therewith" or "about" or " relating to" or "concerning" etc. which receive wide interpretation. The scheme of SHA to exclude fundamental matters is also relied upon for this argument. Refusal to conciliate by Respondent 12 can not in this background be construed as "rejection" but must be seen as lawful exercise of its recognised rights and as avoiding arbitration. Judgment delivered earlier by this Court on similar application of Applicant is pointed out to show how actual holding of conciliation as per S. 62 of Arbitration Act is found essential and how arbitrable issues can not legally surface till it is physically conducted. According to learned Senior Advocate Shri Jagtiani the scheme of SHA itself recognised the fact that arbitration and conciliation are the concepts warranting the consent of parties and hence, right has been given to them to block arbitration. Unlike in arbitration; in conciliation, there can be no compulsion by law. Conciliation proceedings begin only after appointment of conciliator while arbitration begins only with service of notice under Section 21 of Arbitration Act. Provisions of Sections 62 and 63 are shown in this light and Shri Desai's argument based on "fiction of failure" is stated to be misconceived. It is argued that refusal to conciliate results in "no conciliation" and not in "failure of conciliation" and the arbitration, therefore, can not be resorted to. As entire arbitration jurisprudence is consensual one, the result flowing from careful arrangement inserted vide clause 19 must be honoured as desired by the parties and when, in changed circumstances and for valid reasons, Respondent is refusing to conciliate, clause 19 itself becomes inoperative. 12. Elaborate arrangement as made in clause 4 and 12 of SHA even after taking into account the 3rd party defaults is stated to be self serving and deliberate one. Relationship continuing between Applicant and Respondent thereafter is stated 13 to be independent either of MOU or SHA. SHA died its own death after 7/9/2000 and as MOU had merged with it, it also ceased to exist. By way of abundant precaution and in alternative, it is urged that even if MOU is presumed to have survived or revived, still, there is no arbitration clause in it. Arbitration clause was in SHA and due to Section 43 of Arbitration Act r/w Article 54 of Limitation Act, any action in pursuance of SHA was permissible within 3 years. It is pointed out that in notice of termination dated 27/1/2007, Respondent has terminated all arrangements or agreements including MOU dt.26/4/2000 but it does not mention SHA. Learned Counsel contends that this is not omission either "intelligent" ( word used by Sr.Adv. Dessai) or "accidental" but as SHA had already expired, there was no need or occasion to terminate it. After 7/9/2000, the relationship between the Applicant and Respondent is regulated by subsequent agreements or arrangements and not by SHA. The management of Resort after 7/9/2000 by Applicant is not under SHA and it was due to subsequent agreements between parties. He points out that in none of the correspondence between parties after 7/9/2000, there is mention of SHA and this is on account of the fact that it had already expired and was no more in reckoning. Reliance by Applicant on tripartite agreement dated 4/12/2005 [Vol. 1, pg.154 of Section 9 Appeal] to show that SHA continued to operate is labeled as erroneous by pointing out that Resort was not managed by JVC and its clause 3 and 4 are pointed out in support. Attention is also invited to letter dated 6/2/2004 [Vol. 1, pg.152 of Section 9 Appeal] referred to in its clause 6 to urge that even then shares were pledged with TFCI and not available for sale. Therefore SHA can not be treated as revived by tripartite agreement and for same purpose, its clause 8 is also pointed 14 out. 13. Minutes of meeting dated 19/10/2005 [ p.193/189 of bound vol. in Appeal no. 4/2007] in which Applicant accepted liability to pay Rs. 13.50 Crores towards purchase of 50% share to Respondent, is also pressed into service to urge that it indicates new arrangement containing no reference to MOU or SHA. Letter of Applicant [pg. 280] inviting Respondent to arbitration is pointed out to show that it in para 5 and para 7 mentions revised understanding and not SHA. Para 9 at page 284 is also pointed out to show that it again mentions "new understanding" as source. It is pointed out that clients mentioned therein are not JVC but third persons viz. Applicants. Reasons for dishonour of cheque in this letter dated 31/7/2008 are stated as false and contrary to page 225. Letter dated 16/10/2006 at page 129 of vol. 1 of Appeal 4/2007 is also shown to reveal this falsehood with comment that it is addressed to third person i.e. Shri Om Navani and fabricated to suit the need. (The letter mentions that its writer A.B. Kerkar dictated the letter on telephone and it was then sent to Shri Navani, the person who conducted earlier conciliation between parties. Some correspondence after 7/9/2000 also mentions him as person present in joint meetings held to resolve disputes.) Notice at page 266 dated 11/6/2008 issued to Respondent to conciliate is also pointed out to urge that it contains vague description of disputes in its clause "b,c and f". It is pointed out that right to manage Resort was being claimed by "the clients" named therein while SHA extended that right to JVC. Clause "d" mentions revised agreement and not SHA while demand or grievance in clause "e" can not spring from SHA. Thus attempt is to show that the 15 relationship between parties after 7/9/2000 is regulated by the subsequent oral understanding or revised understanding and parties were aware of limited life of SHA and knew that it ceased to operate after 7/9/2000. Hence, none of the parties even refer to it after 7/9/2000 and Respondent only terminated all other understandings or agreements including MOU. The silence by both parties about SHA after 7/9/2000 is stated to be a "studied silence". The Applicant therefore has to demonstrate the arbitration clause in MOU or in subsequent agreements and if reliance is to be placed on clause 19 in SHA, the attempt ought to have been made within 3 years