Case: K.K. Modi Vs. K.N. Modi &amp; Others

parallel proceedings, one under the Arbitration Act and the other byway ofa suit. When the order of interim injunction obtained by the appellants was vacated in arbitration proceedings, they obtained an injunction in the suit. The learned Single Judge also felt that the issues in the two proceedings were identical, and the suit was substantially to set aside the award. He, therefore, held that the proceedings by way ofa suit was an abuse of the process ofCourt since it amounted to litigating the same issue in a different forum through different proceedings.47. This perception of the learned Judge may be substantially correct though not entirely so. Undoubtedly, if the plaint in the suit is viewed as challenging only the arbitration award, a suit to challenge the award would be re-litigating the issues already raised in the arbitration petition. The suit would also be barred under Section 32 of the Arbitration Act, 1940. Section 32 of the Arbitration Act, 1940 provides that not withstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence effect or validity ofan arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act.48. According to the appellants, however, the suit is not confined only to challenging the award or steps taken pursuant to the award bythe Chairman, Modipon Ltd. in order to enforce it. According to the appellants, in the suit there is an alternative plea that if the impugned decision ofthe Chairman and Managing Director, IFCI is not considered as an award, then that decision as a decision should be set aside. It is contended that the suit, insofar as it challenges the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award is maintainable. In support, the appellants have relied upon the submissions in paragraph 55 of the plaint which we have set out earlier.49. The plaint in the suit, to the limited extent that it challenges the decision as a decision, would not amount to abuse of the process of Court. We are not called upon to examine whether this alternative submission is supported by proper averments and whether there is a proper cause of action framed in the plaint in support of such an alternative plea. This is a matter which the Court hearing the suit will have to examine and decide. But in the suit, the decision cannot be challenged as if it were an award and on the same grounds as if it were an award. The Court will also have to consider the binding nature of such a decision particularly when no mala fides have been alleged against the CMD, IFCI. If ultimately it is found that even on the alternative plea, the claim is not maintainable the Court may pass appropriate orders in accordance with law. But to the limited extent that the suit raises an alternative independent plea, it cannot be considered as re-litigation of the same issue or an abuse of the process of Court.50. In a proceeding under the Arbitration Act, the appellants could not have raised an alternative plea that in case the impugned decision is treated not as an award, but as a decision, the same is bad in law. This plea could only have been raised by filing a separate suit. Similarly in the suit, the appellants could not have raised an alternative plea that in case the impugned decision is considered as an award, the same should be set aside. For this purpose an arbitration petition was required to be filed. Therefore, the suit, if and to the extent that it challenges in accordance with law the impugned decision as a decision, cannot be treated as an abuse of the process of the Court.51. Group A also contends that there is no merit in the challenge to the decision of the Chairman of IFCI which has been made binding under the Memorandum of Understanding. The entire Memorandum of Understanding including Clause 9 has to be looked upon as a family settlement between various members of the Modi family. Under the Memorandum of Understanding, all pending disputes in respect of the rights of various members of the Modi family forming part of either Group A or Group B have been finally settled and adjusted. Where it has become necessary to split any of the existing companies, this has also been provided for in the Memorandum of Understanding. It is a complete settlement, providing how assets. are to be valued, how they are to be divided, how a scheme for dividing some of the specified companies has to be prepared and who has to do this work. In order to obviate any dispute, the parties have agreed that the entire working out of this agreement will be subject to such directions as the Chairman, IFCI may give pertaining to the implementation of Memorandum of Understanding. He is also empowered to give clarifications and decide any differences relating to the implementation of the Memorandum of Understanding. Such a family settlement which settles disputes within the family should not be lightly interfered with especially when the settlement has been already acted upon by some members of the family. In the present case, from 1989 to1995, the Memorandum of Understanding has been substantially acted upon and hence the parties must be held to the settlement which is in the interest of the family and which avoids disputes between the members of the family. Such settlements have to be viewed a little differently from ordinary contracts and their internal mechanism for working out the settlement should not be lightly disturbed. The respondents may make appropriate submissions in this connection before the High Court. We are sure that they will be considered as and when the High Court is required to do so whether in interlocutory proceedings or at the final hearing.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Question No. 1:15. Mustill and Boyd in their book on, 2nd Edition, at page 30, point out that in a complex modern State there is an immense variety of tribunals, differing fundamentally as regards their compositions, their functions and the sources from which their powers are derived. Dealing with tribunals whose jurisdiction is derived from consent of parties, they list, apart from arbitral tribunals, persons (not properly called Tribunals) entrusted by consent with the power to affect the legal rights of two parties inter sein a manner creating legally enforceable rights, but intended to do so by a procedure of a ministerial and not a judicial nature (for example, persons appointed by contract to value property or to certify the compliance of building works with a specification). There are also other tribunals with a consensual jurisdiction whose decisions are intended to affect the private rights of two parties inter se, but not in a manner which creates a legally enforceable remedy (for example, conciliation tribunals of local religious communities, or persons privately appointed to act as mediators between two disputing persons or groups). Mustill and Boyd have listed some of the attributes which must be present for an agreement to be considered as an arbitration agreement, though these attributes in themselves may not be sufficient. They have also listed certain other considerations which are relevant to this question, although not conclusive on the point.16. Among the attributes which must be present for an agreement to be considered as an arbitration agreementThe arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,(2) That the jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration,(3) The agreement must contemplate that substantive rights of the parties will be determined by the agreed tribunal,(4) That the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,(5) That the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,(6) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.The authorities thus seem to agree that while there are no conclusive tests, by and large, one can follow a set of guidelines in deciding whether the agreement is to refer an issue to an expert or whether the parties have agreed to resolve disputes through arbitration.20. Therefore, our Courts have laid emphasis on : (1) existence of disputes as against intention to avoid future disputes; (2) the tribunal or forum so chosen is intended to act judicially after taking into account relevant evidence before it and the submissions made by the parties before it; and (3) the decision is intended to bind the parties. Nomenclature used by the parties may not be conclusive. One must examine the true intent and purport of the agreement. There are, or course, the statutory requirements of a written agreement, existing or future disputes and an intention to refer them to arbitration. (Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration and Conciliation Act, 1996).32. In the present case, the Memorandum of Understanding records the settlement of various disputes as between Group A and Group B in terms of the Memorandum of Understanding. It essentially records a settlement arrived at regarding disputes and differences between the two groups which belong to the same family. In terms of the settlement, the shares and assets of various companies are required to be valued in the manner specified in the agreement. The valuation is to be done by M/s. S.B. Billimoria and Co. Three companies which have to be divided between the two groups are to be divided in accordance with a scheme to be prepared by Bansi S. Mehta and Co. In the implementation of the Memorandum of Understanding which is to be done in consultation with the financial institutions any disputes or clarifications relating to implementation are to be referred to the Chairman, IFCI or his nominees whose decision will be final and binding. The purport of Clause 9 is to prevent any further disputes between Groups A and B. Because the agreement requires division of assets in agreed proportions after their valuation by a named body and under a scheme of division by another named body. Clause 9 is intended to clear any other difficulties which may arise in the implementation of the agreement by leaving it to the decision of the Chairman, IFCI. This clause does not contemplate any judicial determination by the Chairman of the IFCI. He is entitled to nominate another person for deciding any question. His decision has been made final and binding. Thus, Clause 9 is not intended to be for any different decision than what is already agreed upon between the parties to the dispute. It is meant for a proper implementation of the settlement already arrived at. A judicial determination, recording of evidence, etc. are not contemplated. The decision of the Chairman, IFCI is to be binding on the parties. Moreover, difficulties and disputes in implementation may not be between the parties to the Memorandum of Understanding. It is possible that the valuers nominated in the Memorandum of Understanding or the firm entrusted with the responsibility of splitting some of the companies may require some clarifications or may find difficulties doing the work. They can also resort to Clause 9. Looking to the scheme of the Memorandum of Understanding and the purpose behind Clause 9, the learned Single Judge, in our view, has rightly come to the conclusion that this was not an agreement to refer disputes to arbitration. It was meant to be an experts decision. The Chairman, IFCI has designated his decision as a decision. He has consulted experts in connection with valuation and division of assets. He did not file his decision in Court nor did any of the parties request him to do so.33. Undoubtedly, in the course of correspondence exchanged by various members of Groups A and B with the Chairman, IFCI, some of the members have used the wordsin connection with Clause 9. That by itself, however, is not conclusive. The intention of the parties was not to have any judicial determination on the basis of evidence led before the Chairman, IFCI. Nor was the Chairman, IFCI required to base his decision only on the material placed before him by the parties and their submissions. He was free to make his own inquiries. He had to apply his own mind and use his own expertise for the purpose. He was free to take the help of other experts. He was required to decide the question of valuation and the division of assets as an expert and not as an arbitrator. He has been authorised to nominate another in his place. But the contract indicates that he has to nominate an expert. The fact that submissions were made before the Chairman, IFCI, would not turn the decision-making process into an arbitration.34. The Chairman, IFCI has framed issues before answering them in his decision. These issues have been framed by himself for the purpose of enabling him to pin-point those issues which require his decision. There is no agreed reference in respect of any specific disputes by the parties to him.35. The finality of the decision is also indicative of it being an experts decision though of course, this would not be conclusive. But looking at the nature of the functions expected to be performed by the Chairman, IFCI, in our view, the decision is not an arbitration award. The learned Single Judge was, therefore, right in coming to the conclusion that the proceedings before the Chairman, IFCI, were not arbitration proceedings. Nor was his decision an award. Appeal arising out of Special Leave Petition No. 14905 of 1997 is, therefore, dismissed with costs.Question No. 2:36. The next question which requires to be decided relates to Suit No. 1394 of 1996. The learned Single Judge has struck off the plaint in the suit as being an abuse of the process of Court. The appellants had filed this suit in the Delhi High Court on the same day as Arbitration Petition bearing O.M.P. No. 58 of 1996. It challenges the same decision of the Chairman, IFCI which is challenged in the arbitration petition as an award.37. The learned Single Judge has compared the plaint in the suit with the petition filed under the Arbitration Act. The prayers in the arbitration petition are for a declaration: (a) that the award of the C.M.D., IFCI, dated 8.12.1995 is illegal, bad in law and null and void; (b) that the directions given and actions taken by the Chairman, Modipon Ltd. in letters dated 22.1.1996, 5.2.1996,17.4.1996, 23.4.1996 and 24.4.1996 and the scheme of arrangement drawn up by M/s. S.S. Kothari and Co. are illegal and bad in law; (c) that the said award of the Chairman and Managing Director, IFCI and the said letters and directions of the Chairman, Modipon Ltd. and the said scheme of arrangement drawn by M/s. S.S. Kothari and Co. be set aside; (d) for a perpetual injunction restraining the respondents from taking any action directly or indirectly in pursuance of or to give effect to the said award; (e) for a perpetual injunction restraining respondent No. 5 from passing any resolutions in terms of the proposed items 8 and 9 set out in the notice regarding the proposed Board Meeting of Modipon Ltd.; (f) for a perpetual injunction restraining respondents 6 and 7 from selling or disposing of shares in Godfrey Phillips India Ltd. or from dealing with the said shares in a manner contrary to the scheme prepared by M/s. Bansi S. Mehta and Co. and for further and other reliefs.38. In the plaint in the suit prayers (c), (d), (e), (f), (g) and (h) are identical with the prayers in the arbitration petition with small variations which are of no consequence. The remaining prayers are as follows : Prayer (a) is for a declaration that the Memorandum of Understanding dated 24.1.1989 is binding on both the plaintiffs and defendants and all parties are bound in law to act in conformity with the same, Prayer (b) is for a declaration that neither the Chairman, IFCI nor the Chairman, Modipon Ltd. has any power to alter, amend, or modify in any manner the scheme of separation drawn by M/s. Bansi S. Mehta and Co., Prayer (i) is for an injunction restraining the defendants from altering, amending or modifying the scheme of separation drawn up by M/s. Bansi S. Mehta and Co., Prayer (j) is for a decree ordering and directing Modipon Ltd. to be split in accordance with the scheme of separation drawn up by M/s. Bansi S. Mehta and Co., and Prayer (k) is for a decree ordering and directing the implementation of the said Memorandum of Understanding dated 24.1.1989 in respect of Modipon Ltd. in such a manner that the control and management of Chemical Division including the shares of Modi Group Company allotted to Group B held by Modipon Ltd. is vested in the plaintiff and the control and management of the remainder of the company including the Fibre Division is vested in the Group A. The paragraphs in the plaint and in the arbitration petition are verbatim the same to a substantial extent. The respondents have pointed out that paragraphs 1A to 54A in the petition are the same as paragraphs 1 to 54A in the plaint. The grounds which are set out in the petition as well as in the plaint are also substantially the same.Under Order 6, Rule 16, the Court may, at any stage of the proceeding, order to be struck out, inter alia, any matter in any pleading which is otherwise an abuse of the process of the Court. Mulla in his Treatise on the Code of Civil Procedure, (15th Edition, Volume II, Page 1179 note 7) has stated that power under Clauses (c) of Order 6, Rule 16 of the Code is confined to cases where the abuse of the process of the Court is manifest from the pleadings; and that this power is unlike the power under Section 151 whereunder Courts have inherent power to strike out pleadings or to stay or dismiss proceedings which are an abuse of their process. In the present case the High Court has held the suit to be an abuse of the process of Court on the basis of what is stated in the plaint.42. The Supreme Court Practice 1995 published by Sweet and Maxwell in paragraph 18/19/33 (para 344) explains the phraseof the process of theIn the present case, the learned Judge was ofthe view that the appellants had resorted to two parallel proceedings, one under the Arbitration Act and the other byway ofa suit. When the order of interim injunction obtained by the appellants was vacated in arbitration proceedings, they obtained an injunction in the suit. The learned Single Judge also felt that the issues in the two proceedings were identical, and the suit was substantially to set aside the award. He, therefore, held that the proceedings by way ofa suit was an abuse of the process ofCourt since it amounted to litigating the same issue in a different forum through different proceedings.47. This perception of the learned Judge may be substantially correct though not entirely so. Undoubtedly, if the plaint in the suit is viewed as challenging only the arbitration award, a suit to challenge the award would be re-litigating the issues already raised in the arbitration petition. The suit would also be barred under Section 32 of the Arbitration Act, 1940. Section 32 of the Arbitration Act, 1940 provides that not withstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence effect or validity ofan arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act.48. According to the appellants, however, the suit is not confined only to challenging the award or steps taken pursuant to the award bythe Chairman, Modipon Ltd. in order to enforce it. According to the appellants, in the suit there is an alternative plea that if the impugned decision ofthe Chairman and Managing Director, IFCI is not considered as an award, then that decision as a decision should be set aside. It is contended that the suit, insofar as it challenges the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award is maintainable. In support, the appellants have relied upon the submissions in paragraph 55 of the plaint which we have set out earlier.49. The plaint in the suit, to the limited extent that it challenges the decision as a decision, would not amount to abuse of the process of Court. We are not called upon to examine whether this alternative submission is supported by proper averments and whether there is a proper cause of action framed in the plaint in support of such an alternative plea. This is a matter which the Court hearing the suit will have to examine and decide. But in the suit, the decision cannot be challenged as if it were an award and on the same grounds as if it were an award. The Court will also have to consider the binding nature of such a decision particularly when no mala fides have been alleged against the CMD, IFCI. If ultimately it is found that even on the alternative plea, the claim is not maintainable the Court may pass appropriate orders in accordance with law. But to the limited extent that the suit raises an alternative independent plea, it cannot be considered as re-litigation of the same issue or an abuse of the process of Court.50. In a proceeding under the Arbitration Act, the appellants could not have raised an alternative plea that in case the impugned decision is treated not as an award, but as a decision, the same is bad in law. This plea could only have been raised by filing a separate suit. Similarly in the suit, the appellants could not have raised an alternative plea that in case the impugned decision is considered as an award, the same should be set aside. For this purpose an arbitration petition was required to be filed. Therefore, the suit, if and to the extent that it challenges in accordance with law the impugned decision as a decision, cannot be treated as an abuseCourt.51. Group A also contends that there is no merit in the challenge to the decision of the Chairman of IFCI which has been made binding under the Memorandum of Understanding. The entire Memorandum of Understanding including Clause 9 has to be looked upon as a family settlement between various members of the Modi family. Under the Memorandum of Understanding, all pending disputes in respect of the rights of various members of the Modi family forming part of either Group A or Group B have been finally settled and adjusted. Where it has become necessary to split any of the existing companies, this has also been provided for in the Memorandum of Understanding. It is a complete settlement, providing how assets. are to be valued, how they are to be divided, how a scheme for dividing some of the specified companies has to be prepared and who has to do this work. In order to obviate any dispute, the parties have agreed that the entire working out of this agreement will be subject to such directions as the Chairman, IFCI may give pertaining to the implementation of Memorandum of Understanding. He is also empowered to give clarifications and decide any differences relating to the implementation of the Memorandum of Understanding. Such a family settlement which settles disputes within the family should not be lightly interfered with especially when the settlement has been already acted upon by some members of the family. In the present case, from 1989 to1995, the Memorandum of Understanding has been substantially acted upon and hence the parties must be held to the settlement which is in the interest of the family and which avoids disputes between the members of the family. Such settlements have to be viewed a little differently from ordinary contracts and their internal mechanism for working out the settlement should not be lightly disturbed. The respondents may make appropriate submissions in this connection before the High Court. We are sure that they will be considered as and when the High Court is required to do so whether in interlocutory proceedings or at the final hearing.