Siddhivinayak Realities Pvt.
Ltd Vs. Tulip Hospitality Services Ltd. & Ors  Insc 287 (15 March 2007)
Dr.AR. Lakshmanan & Altamas Kabir
(Arising out of SLP (C) No.20126/2006) ALTAMAS KABIR, J.
This appeal concerns a hotel known as Centaur Hotel situated at Juhu,
Mumbai, which formerly belonged to the Hotel Corporation of India under the
control of the Union Government. Pursuant to its policy of disinvestment, the
Government of India transferred the said hotel to M/s. Tulip Hospitality
Services Private Limited, being the respondent No.1 in this appeal.
By a Master Asset Purchase Agreement ( referred to as 'MAPA') dated 31st
March, 2005, the respondent No.1 agreed to sell and the appellants agreed to
purchase the Centaur Hotel at Juhu, Mumbai, along with other assets for the
price of Rs. 349.06 crores. Under the said Agreement, the parties agreed to
make an escrow arrangement in order to secure the payment to be made by the
appellants to the respondents as per the said Agreement. Accordingly, the
advocates of the respective parties, Mr. Anand Bhatt and Mr. Suresh Talwar were
appointed as joint escrow agents and various documents were deposited by the
respondents with them.
The Agreement provided that in the event of default being committed by the
respondents, the appellants would be entitled to invoke the escrow arrangement
and the appellants would have various options, including the option to become a
50% share holder of respondent No.1-company and call upon the escrow agents to
hand over to the appellants all the escrow documents relating to the respondent
No.1- company and to transfer 22,00,000 shares of the respondent No.1-company
held by the respondent No.3 in favour of the appellants. In addition, the
appellants were entitled to receive the undated resignation letters,
resolutions for appointment of Directors and transfer of shares in favour of
the appellants with the right to appoint three Directors on the Board of the
respondent No.1- company. Apart from the above, out of the four original
Directors of the respondent No.1, two would resign and along with the three
Directors to be appointed by the respondent No.1, there would in all be five
Directors, three being the nominees of the appellants and two being the
nominees of the respondent No.2.
The appellants paid a sum of Rs.75 crores to the respondent No.1 at the time
of the signing of the Agreement.
Subsequent to the said payment, a newspaper report was published in the
"Times of India" titled "Centre refers City Centaur Deals to CBI"
. On account of such publication, Mr. Anand Bhatt representing the appellants
wrote to Mr. Suresh Talwar who was representing the respondents on 21st July,
2005 stating that in the light of the said Article a cloud had been cast on the
title of the respondents to the Centaur property till such time as the CBI
completed its probe and gave a clean chit to the transaction under which the
Hotel Corporation of India disinvested the said hotel in favour of the
respondent No.1 In his reply dated 6th October, 2005, the learned advocate for
the respondents while referring to the media reports in respect of the CBI
enquiry, also referred to an agreement entered into by the respondent No.1 with
Nirmal Lifestyle Limited for the development of a shopping mall and supermarket
in the hotel complex. It was stated that the appellants were fully aware of the
existence of the Agreement between the respondent No.1 and Nirmal Lifestyle and
that Nirmal Lifestyle was a part of the joint venture of the appellants. A
reference was made to the arbitration petition filed by Nirmal Lifestyle
against the respondent No.1 and an order of injunction dated 6th June, 2005 passed against the respondent No.1 from selling the hotel property. It was further
stated that the action taken by Nirmal Lifestyle made it impossible for the
respondent No.1 to proceed with its obligations under MAPA and that the
contract stood frustrated in view of such injunction. The respondents stated
that they stood discharged from fulfilling their obligations under MAPA and
that the amounts received by the respondents from the appellants would be
refunded to the appellants after deduction of a sum of Rs. 2 crores within a
reasonable time. The respondents requested the appellants either to agree to
such a course of action or to concur with their appointment of an arbitrator.
In reply to the aforesaid letter of 6th October, 2005, the learned advocate
for the appellants wrote back on 24th October, 2005, denying all the
allegations contained in the said letter of 6th October, 2005. It was also mentioned in the said letter that in terms of MAPA the parties had agreed that
in case of any default, the Escrow Agents would be entitled to decide jointly
the dispute involved and whether any default had been committed which could
trigger the escrow arrangement.
At this juncture, it could be profitable to refer to the escrow arrangement
contained in Clause 13 of the Terms Sheet dated 8th March, 2005, which preceded the execution of MAPA. The same reads as follows:- "13. Escrow Arrangement.
For the purpose of securing the Purchaser for the payments made/to be made
prior to the Closing Date (or the Extended Closing Date, as the case may be), a
separate Escrow Letter has been simultaneously executed on the Signing Date
pursuant to which the following documents ("Escrow Documents") are
being handed over by the Company and Tulip Star to the joint Escrow Agents i.e
Mr. Suresh Talwar and Mr.
Anand Bhatt, to be retained by them in escrow on the terms and conditions as
set out thereunder:- (a) Escrow Documents relating to the Company Undated
resignation letters of all the directors of the Company.
Circular Resolutions passed by the Board of Directors of the Company
accepting the resignation of the Directors of the Company.
Circular Resolutions passed by the Board of Directors of the Company
appointing the nominees of the Purchaser as Directors of the Company.
Circular Resolution passed by the Board of Directors of the Company
approving the transfer of 22 lakh Tulip Star Shares in favour of the Purchaser.
All statutory registers of the Company.
Irrevocable Power of Attorney authorizing the Purchaser to do all acts,
deeds, matters and things to comply with the obligations of the Company in the
event that the Company does not comply with the same.
However it is clarified that the Power of Attorney shall automatically come
to an end after the Company has complied with all its obligations under this
Common Seal of the Company.
(b) Escrow Documents relating to Tulip Star Original Allotment Letters
relating to 22 lakh Tulip Star Shares.
Undated duly executed share transfer forms in respect of the 22 lakh Tulip
Irrevocable Power of Attorney in favour of the Purchaser relating to
transfer of the 22 lakh Tulip Star Shares.
However it is clarified that the Power of Attorney shall automatically come
to an end after the Purchaser becomes the legal and beneficial owner of the 22
lakh Tulip Star Shares.
It is clarified that instead of original allotment letters in respect of the
22 lakh Tulip Star Shares referred to in (b) above, only photo copies have been
handed over to the Escrow Agents on the Signing Date, on the specific
representation and warranty given by the Company, the Shareholders and the
Promoter Group that the original allotment letters will be handed over to the
Escrow Agents immediately on receipt of the same from Saraswat Bank, which
shall be complied with within a maximum period of three working days from the
Signing Date. Further, on or before 19th March 2005, Tulip Star shall replace
the original allotment letters with the original share certificates in respect
thereof and shall hand over the said original share certificates to the escrow
It is further clarified that from and out of the initial payment of Rs.
38.00 crore being made on the Signing Date, a sum of Rs.7.50 crore has been
handed over to the Escrow Agents, which balance sum will be handed over by the
Escrow Agents to the Company only upon receipt by the Escrow Agents of the
original allotment letters in respect of the 22 lakh Tulip Star Shares.
The Escrow Agents will hold and release the Escrow Documents as per the
terms set out in the Escrow Letter."
From the aforesaid arrangements, it would be evident that the parties to the
Agreement placed reliance on their solicitors to function as the Joint Escrow
Agents and both the parties agreed to their appointment as Escrow Agents to
secure either party. In the subsequent agreement (MAPA) which followed on 31st March, 2005 the duties to be performed by the Escrow Agents have been indicated. One
of the duties to be performed by the Joint Escrow Agents is set out in clause
14 of the MAPA which reads as follows:- "14. DEFAULT PROVISIONS. In case
of an event of default being triggered, under the provisions of this Agreement,
either by the Purchaser or by the Vendor:
(a) the fact as to whether an event of default has been so triggered; and
(b) the default provisions which will come into effect on such default, as more
particularly set out hereunder, shall be decided jointly by the solicitors of
the Vendor and the Purchaser i.e. Mr. Suresh Talwar and Mr. Anand Bhatt. The
two solicitors would be free to consult any third person, if so desired and
The consequence of default as mentioned in paragraph 14 is set out in
paragraph 15.3 of the Agreement and reads as follows:- "15.3 In the event
that the Vendor and the Confirming Parties do not repay the amounts as
mentioned hereinabove, the Purchaser shall have two options as set out hereunder:-
To continue with the contemplated transaction under this Master Asset Purchase
Agreement, in which case the provisions as set out in Clause 15.3.1 below will
OR to become the 50% shareholder of the Vendor, in which case the provisions
as set out in Clause 15.3.2 below will be triggered."
In the event the purchaser (the appellants herein) chose to become 50% share
holder of the vendor company (the respondent No.1 herein), certain consequences
were to follow as contained in paragraph 15.3.2 :- "15.3.2 The Purchaser
may exercise its option to become the 50% shareholder of the Vendor, in which
case the Default Consequences shall be as under:- The Escrow Agents will hand
over to the Purchaser the Escrow Documents relating to Tulip Star Hotels Limited
and the Purchaser shall be entitled to transfer the 22 lakh shares of the
Vendor held by Tulip Star Hotels Limited in favour of the Purchaser or its
With regard to the original Escrow Documents relating to the Vendor, the
same shall be returned to the Vendor save and except the undated resignation
letters, resolutions for appointment of Directors, resignation of Directors and
transfer of shares in favour of Purchaser or its nominees which shall be handed
over to the Purchaser.
The Purchaser will nominate and the Vendor will appoint three directors on
the Board or the Vendor.
From and out of the four original directors of the Vendor, two of the
directors will resign from the Board of the Vendor.
As a result the Board of the Vendor will comprise five directors, three
being nominees of the Purchaser and two being nominees of Tulip Hotels Private
On account of the letter written on behalf of the respondents on 6th October, 2005, the appellants objected to the appointment of an arbitrator in terms of
paragraph 19 of MAPA and called upon the respondents by their advocate's letter
dated 24th October, 2005, to fix a time for appearing before the Joint Escrow
In reply to the appellants' letter dated 24th October, 2005, the respondents in their letter of 27th October, 2005 contended that though Joint Escrow
Agents had been appointed in September 2005, one of the said agents, namely,
Mr. Anand S. Bhatt representing the appellants had resigned from his position
as one of the Escrow Agents. The respondents also indicated that they were
unwilling to give consent to Mr. Bhatt's reinstatement as Escrow Agent along
with Mr. Suresh Talwar. The respondents also insisted that as the contract had
been frustrated and/or rendered impossible to implement due to change in
circumstances, the issues could not be resolved by the Escrow Agents. The
respondents once again requested the appellants to appoint and to communicate
the name of their Arbitrator.
The aforesaid contents of the letter written by the respondents on 27th October, 2005 were denied by the appellants who by their letter dated 25th November, 2005 categorically stated that at no point of time had Mr. Anand Bhatt
resigned from his position as an Escrow Agent. There was, therefore, no question
of his reinstatement as Escrow Agent. The appellants also disputed the
contention that MAPA had been frustrated. It was particularly mentioned that
the respondents could not take advantage of their own wrong and/or their
inability to perform their obligation under the MAPA. The appellants,
therefore, once again called upon the respondents to fix a meeting with the
Escrow Agents to enable them to perform their duties as contemplated under the
The respondents thereafter informed the appellants by their letter of 28th November, 2005 that since the appellants had failed to appoint an Arbitrator, the
said respondents had moved the High Court for appointment of an Arbitrator
under Section 11 of the Arbitration and
Conciliation Act, 1996. It was also contended that since the appellants had
refused to perform their obligations as a result of the CBI enquiry, the said
issue could not be decided by the Escrow Agents.
Notwithstanding the aforesaid circumstances, the appellants wrote to the
Joint Escrow Agents on 12th December, 2005 and called upon them to fix a time
for a meeting and to indicate the venue of the meeting with notice to the
respondents. The respondents by their letter of 14th December, 2005 informed
the Joint Escrow Agents that they had already applied to the High Court for the
appointment of an Arbitrator on 29th November, 2005 and that the Joint Escrow
Agents should not, therefore, take any action in terms of clause 14 of MAPA as
the fact at issue in the dispute between the parties was beyond their scope. In
view of the aforesaid letter dated 14th December, 2005 written by the
respondents, Mr. Anand Bhatt, one of the Joint Escrow Agents by his letter
dated 19th December, 2005 expressed his inability to call a meeting or to take
any action under clause 14 of MAPA. Having regard to the stand taken by Mr.
Bhatt, the appellants filed an Arbitration Petition under Section 9 of the Arbitration and
Conciliation Act for various reliefs. On 24th January, 2006, the High Court
passed the following ad- interim order in Arbitration Petition No. 434 of 2005
:- "that pending the Arbitral Proceedings between the petitioners and the
respondents and passing of the Award, the respondents, their servants and
agents be restrained from in any manner impeding or obstructing the Joint
Escrow Agents from acting in accordance with the terms of Master Assets
Purchase Agreement dated 31st March, 2005, copy whereof is annexed as Exhibit
"F" to the petition."
The aforesaid petition was disposed of on 8th March, 2006, with the order dated 24th January, 2006, being treated as final with liberty to the parties
to apply to the Arbitrator for cancellation or modification of the order.
Pursuant to the aforesaid order passed by the High Court on 24th January, 2006, the appellants' learned Advocate called upon the Escrow Agents to fix
a meeting to take action on the letter dated 12th December, 2005. The Escrow Agents by their letter dated 13th February, 2006 fixed 16th February, 2006 for passing of necessary direction. In response to the aforesaid notice given by
the Escrow Agents, the respondents' advocate by his letter dated 15th Februa ry, 2006 informed the Escrow Agents and the appellants that the respondents
had filed an appeal against the aforesaid order dated 24th January, 2006 and prayed for an adjournment for a period of six weeks. Since no one appeared for
the respondents before the Escrow Agents on 16th February, 2006, the matter was adjourned till 28th February, 2006 for direction. Once again an adjournment
was sought for by the respondents but pursuant to the direction given by the
Escrow Agents on 28th February, 2006, the appellants filed their statement of
Soon thereafter, an Arbitrator was appointed on the basis of the application
filed by the respondents under Section 11 of the Arbitration and
Conciliation Act. On the other hand, the order passed by the High Court on 24th January, 2006 in Arbitration Petition No.434 of 2005 was confirmed on 8th March, 2006 with liberty to the parties to apply before the Arbitral Tribunal for
cancellation or modification of the order dated 24th January, 2006.
Pursuant to the above on 27th March, 2006, the respondents filed an
application for interim orders before the Tribunal under Section 17 of the Arbitration and
Conciliation Act for
restraining the Escrow Agents from acting under clause 14 of MAPA.
The Tribunal, however, refused to modify the order dated 24th January, 2006 and rejected the interim application filed by the respondents by order
dated 27th April, 2006. The said order of the Tribunal was challenged by the
respondents in Arbitration Petition (L) No.218/06 and the High Court by its
order dated 4th May, 2006 set aside the order passed by the Arbitrator on 27th
April, 2006 and requested the Arbitrator to reconsider the application made by
the respondents afresh on its own merits without being influenced by the
earlier orders dated 24th January, 2006 or 8th March, 2006. The interim
application filed by the respondents under section 17 of the Arbitration and Conciliation
Act, 1996 was thereafter heard by the Tribunal on 16th June, 2006 and by
its order dated 23rd June, 2006 the Tribunal went into and decided the question
of bias which had been disregarded in the earlier orders and expedited the
arbitration proceedings upon restraining the appellants herein from proceeding
before the Escrow Agents pending the arbitration.
The aforesaid order of the Arbitral Tribunal dated 23rd June, 2006 was thereafter challenged by the appellants herein by way of Arbitration Petition
No.308 of 2006 in the Bombay High Court. Before the Bombay High Court also the
main contention of the respondent was with regard to the possibility of bias on
the part of Mr. Anand Bhatt while functioning as one of the Joint Escrow
Agents. Although it was submitted on behalf of the appellants that the Escrow
Agents had been appointed knowingly by the respective parties when the initial
agreement was signed, the High Court was of the view that since Mr. Anand Bhatt
had already expressed some views in the matter, the reasonable apprehension of
bias and/or suspicion of bias could not be overlooked. It could not be said
that Mr. Anand Bhatt was not likely to be unconsciously biased when he would be
required to examine the materials and the submissions made before him.
On the basis of the aforesaid findings, the Bombay High Court dismissed the
appellants' application under Section 37 of the Arbitration and
Conciliation Act and chose not to interfere with the finding arrived at by
The instant appeal has been filed by the appellants before the High Court
against the aforesaid judgment and order passed by the Bombay High Court on 4th September, 2006.
Appearing for the appellants, Mr. Shyam Divan submitted that the High Court
had wrongly endorsed the view expressed by the Arbitrator regarding the
possibility of bias on behalf of Mr. Anand Bhatt, one of the joint Escrow
Agents. He urged that having regard to the facts as disclosed, the High Court was
not justified in coming to a finding that it could not be said that Mr. Anand
Bhatt was not likely to be unconsciously biased when he would examine the
material and/or submissions placed before the Joint Escrow Agents. On such
erroneous construction of the Terms Sheet and MAPA, the High Court had come to
the finding that no case had been made out under Section 37 of the Arbitration
Act and even otherwise to interfere with the findings arrived at by the
Mr. Divan reiterated the case made on behalf of the appellants before the
learned Arbitrator as also the High Court and submitted that the parties had
quite willingly and consciously appointed their respective solicitors as the
Joint Escrow Agents since they were the persons who were most familiar with the
details of the transaction and could be trusted with the documents which were
to be handed over to the respective parties after the completion of the
Mr. Divan urged that the bias now being sought to be attributed to Shri Anand
Bhatt on account of the fact that he was a partner of the firm which had acted
on behalf of one Nirmal Lifestyle Ltd. with whom an agreement had been entered
into by the respondent No.1 for the development of a shopping mall and super
market in the complex, was not available to the respondent No.1 which had
knowledge of the said fact even at the time of the execution of the Terms Sheet
and MAPA. It no doubt appears from the facts as disclosed that Mr. Anand
Bhatt's firm had acted to safeguard the interests of Nirmal Lifestylel Ltd.,
but since the relationship between the said firm and Nirmal Lifestyle Ltd. was
known to the parties prior to the signing of the Terms Sheet, the allegation of
bias was unfounded and had obviously been made by the respondents to wriggle
out of the Escrow Arrangement.
Mr. Divan submitted that from the order passed by the High Court in
Arbitration Petition No.434/2005 on 24th January, 2006, it would be evident
that the High Court was also of the view that the agreement between the parties
casts an obligation on both the sides. It was observed that an Escrow
Arrangement is in place to see that both the parties are performing their
obligations as per the contract and that merely because an arbitration clause
had been invoked, the power given to the Escrow Agents by Clause 14 of the
Agreement did not get suspended and, therefore, though the arbitration clause
had been invoked, the Escrow Agents would be entitled to decide the question as
to whether a default had been committed and as to which party has committed the
default. Subsequently, when the matter was taken up by the learned Arbitrator,
he was of the view that in view of the aforesaid order of the High Court, he
could not prevent the Escrow Agents from proceeding.
Mr.Divan submitted that apart from executing the Terms Sheet on 8th March,
2005, and MAPA on 31st March, 2005, an Undertakingcum-Indemnity had also been
executed by the parties on 31st March, 2005, in favour of the Joint Escrow
Agents specifying the functions of the Joint Escrow Agents and it was
reiterated that the duties of the Joint Escrow Agents would be limited to
holding of the escrow documents and handing over the same in the circumstances
set out in the escrow letter. The decision as to whether the events contemplated
had been triggered would be independently decided by the Joint Escrow Agents.
Further the Joint Escrow Agents would not be bound by the provisions of
MAPA, as defined therein, save and except under the provisions of the escrow
letter. Mr. Divan submitted that the appellants were always ready and willing
to perform their obligations under MAPA but having regard to the newspaper
report appearing in the Times of India on 21st July, 2005, it had informed the
respondent No.1 that since a cloud had been cast on the title of the respondent
No.1, it would be in a position to complete the transaction as contemplated
under the MAPA only after the probe by the CBI was completed and the CBI
confirmed that the purchase of the Centaur property from Hotel Corporation of
India was not irregular. Without responding to the said letter immediately, the
respondent No.1 on 6th October, 2005, contended that the MAPA had stood
frustrated and that respondent No.1 stood discharged from performing their
obligations under MAPA.
Mr. Divan submitted that the said dispute involved the question of default
in complying with the terms of the Agreement which under the Agreement was a
matter to be decided only by the Joint Escrow Agents. Although in a wider
sense, the learned Arbitrator would also be entitled to decide such question,
it was left to the discretion of the parties to choose to trigger the escrow
arrangement and as had been held both by the High Court as well as by the
learned Arbitrator, the appointment of the Arbitrator would not preclude the
parties from also taking recourse to the escrow arrangement.
Referring to the decision of this Court in Oil and Natural Gas Corporation
Limited vs. Saw Pipes Limited, reported in (2003) 5 SCC 705, Mr. Divan urged
that this Court in the said decision had held that the jurisdiction or the
power of the Arbitral Tribunal is prescribed under the Act and if the award is
de hors the said provisions, it would be on the face of it, illegal. The
decision of the Tribunal must be within the bounds and its jurisdiction
conferred under the Act or the contract. In exercising jurisdiction, the
Arbitral Tribunal cannot act in breach of some provision of substantive law or
the provisions of the Act. Mr. Divan sought to contend that under Section 28 (3)
of the 1996 Act, the Arbitral Tribunal has to decide in accordance with the
Terms of the Contract, which in the instant case, included the Escrow
Arrangement. Mr. Divan urged that it was not for the Arbitral Tribunal to
invalidate the Escrow Arrangement which the parties to the agreement had
themselves agreed to.
In fact, from the various correspondence disclosed, it would be clear that
all the parties were fully aware even at the time of the signing of the
agreement, that Nirmal Lifestyle Limited was being represented by M/s. Wadia
Ghandy and Company and it was nothing but a further attempt to wriggle out of
the Escrow Arrangement that the question of bias had been raised on behalf of
the respondent No.1 but without any substance. Mr. Divan urged that the learned
Arbitrator had exceeded his jurisdiction in restraining the parties to the
Agreement from taking recourse to Clause 14 thereof, which the parties had
jointly agreed could be triggered even in spite of the arbitration agreement
contained in Clause 19.
Mr. Divan's submissions were strongly opposed by Mr.
Abhishek Manu Singhvi, learned senior advocate for the respondents. It was
urged by him that the arbitration clause was wide enough to include all
disputes within its width, including the question as to whether any default had
been committed and if so, by whom. It was urged that instead of serving any
useful purpose, the invocation of two parallel powers for deciding the same
controversy could lead to conflicting decisions which was to be avoided in the
interest of the parties. Mr. Singhvi submitted that only after a decision had
been given on the question of default, could the consequential relief follow
and such a decision should be left to the learned Arbitrator instead of the
Joint Escrow Agents who, as pointed out by the learned Arbitrator having acted
as the solicitors of the respective parties, there would be a reasonable
apprehension that Mr. Anand Bhatt would not be in a position to decide
independently and fairly.
Furthermore, since many of the correspondences had been addressed by Mr.
Anand Bhatt, he would have to be examined by the parties and, could not,
therefore, also function as an adjudicator in that regard.
Mr. Singhvi urged that bias did not necessarily mean conscious bias but would
also include bias which creeps in unconsciously without any deliberate and
wilful intention of such bias and since M/s. Wadia Ghandy had acted on behalf
of Nirmal Lifestyle Limited and had obtained an injunction against the
respondents to prevent them from completing the sale, the question of bias
assumes real proportions and could not be lightly brushed aside. It was urged
that while, on the one hand, Mr. Anand Bhatt was acting in support of the Terms
Sheet and MAPA, on the other hand, his firm was trying to prevent its
Singhvi urged that this in itself was sufficient for the learned Arbitrator
and also the High Court to arrive at a conclusion that it would not be fair to
the parties to allow the triggering of the Escrow Arrangement. It was also
urged that since two courts had decided the matter, there was all the more
reason for the parties to maintain status quo to allow the learned Arbitrator
to proceed in the matter.
In support of his aforesaid submission, Mr. Singhvi first referred to the
decision of the Court of Appeal in Metropolitan Properties Co. (F.G.C.) Ltd.
vs. Lannon And Ors., reported in (1968) 3 W.L.R. 694, wherein in considering a
question of bias it was observed that a man may be disqualified from sitting in
a judicial capacity on one of two grounds. First, a "direct pecuniary
interest" in the subject- matter. Second, "bias in favour of one side
or against the other". In that context, it was inter alia observed by Lord
Denning as follows:- "So far as bias is concerned, it was acknowledged
that there was no actual bias on the part of Mr. Lannon, and no want of good
faith. But it was said that there was, albeit unconscious, a real likelihood of
bias. This is a matter on which the law is not altogether clear: but I start
with the oft-repeated saying of Lord Hewart C.J. in Rex v. Sussex Justices, Ex
parte McCarthy,(1924) 1 KB 256 at 259 'It is not merely of some importance, but
is of fundamental importance that justice should not only be done, but should
manifestly and undoubtedly be seen to be done." (at page 707).
Reference was also made to a decision of this Court in the case of Rattan
Lal Sharma vs. Managing Committee, Dr.
Hari Ram (Co-education) Higher Secondary School And Ors., reported in (1993)
4 SCC page 10, where the maxim 'Nemo debet esse judex in propria causa' (no man
shall be a judge in his own cause) was considered and it was held that the
deciding authority must be impartial and without bias which could take the form
of an apprehend bias even though such bias had not in fact taken place.
Mr. Singhvi submitted that undoubtedly the parties had agreed to an Escrow
Arrangement, but the ground of bias arose on the basis of facts that had
transpired subsequent to the appointment of the Escrow Agents and the
subsequent correspondence entered into by Mr. Anand Bhatt. Referring to
Halsbury's Laws of England (Vol.48) 4th Edn. Paragraph 835 at page 445) Mr.
Singhvi submitted that a trustee "must not be a partisan of one of several
beneficiaries. He referred to paragraph 829 which reads as follows:- 829.
Fidelity to the trust. "A trustee must not connive at or knowingly
facilitate any act or conduct of another person which would involve a breach of
trust or occasion loss or risk to the trust property. He must not set up or abet
an adverse title or claim of another person against his beneficiaries, or
undertake a duty or put himself in a position which is inconsistent with his
duty as trustee, or act in a manner inconsistent with that duty. A trustee must
perform the trust that he has undertaken and must assume the validity of the
title of his beneficiaries, even if it is doubtful, until it is actually
negatived. At the same time, he has a right to know the title of those who
pretend to be his beneficiaries, and, if he receives notice of an adverse claim
and of an intention to hold him liable if he disregards it, he may obtain a
decision of the court as to his course of action."
Mr. Singhvi urged that having regard to the finding of the learned
Arbitrator that there was a possibility of Mr. Anand Bhatt's acting in a biased
manner which finding was accepted by the High Court, it was not open to the
appellant-company to insist that despite such findings of bias the Escrow
Arrangement should be allowed to be triggered.
On a careful consideration of the submissions made on behalf of the
respective parties, the materials on record and the law on the subject, we must
confess that there is much to be said on both sides of the spectrum. There is
no doubt that an Escrow Arrangement was agreed to between the parties and the
Joint Escrow Agents were entrusted with certain specific functions under the
Agreement. The agreement between the parties and in particular the Undertakingcum-Indemnity
Bond in favour of the Joint Escrow Agents executed by the parties on 31st
March, 2005 indicate that the decision as to whether any default had been
committed by either of the parties to the agreement, thereby triggering the
Escrow Arrangement, was to be independently decided by the Joint Escrow Agents.
It was also specified that the Joint Escrow Agents would not be bound by the
provisions of the MAPA, save and except under the provisions of the escrow
Clause 14 of MAPA makes the provision even more clear.
While it is no doubt true that the question of default can also be gone into
by the learned Arbitrator, the consequences of setting in motion the Escrow
Arrangement has certain consequences which the appellant herein are entitled to
take advantage of in order to safeguard their interests. The Escrow Arrangement
was inserted into the agreement knowingly by both the parties despite the
inclusion of a separate arbitration clause. If it was the intention of the
parties to only provide for arbitration, there would have been no need
whatsoever to include such an arrangement in the agreement. However, as has
been pointed out by Mr. Singhvi even the Escrow Arrangement could be avoided by
the parties if it could be shown that one of the Escrow Agents was biased or
was likely to be biased in deciding the question entrusted to the Escrow Agents
An escrow arrangement is normally arrived at in order to safeguard the
interest of the parties for the purpose of a contract and the Escrow Agents are
normally persons who are trusted by the parties to act fairly and without bias
notwithstanding their relationship with the respective parties.
Mr. Singhvi does not appear to be correct in saying that the question of
bias crept up long after the agreement had been signed, on account of certain
acts performed by one of the Joint Escrow Agents, who had acted on behalf of a
party whose interests were adverse to that of the parties to the present
agreement. In fact, both the parties were aware that one of the Joint Escrow
Agents was representing such 3rd party and an understanding had been given that
the said 3rd party would not proceed with the court proceedings initiated by
it. At a later stage, to contend that the said Joint Escrow Agent would be
biased in dealing with the dispute, or that there was a likelihood of bias is,
in our view, misplaced and unacceptable.
Left to the aforesaid circumstances, we would have had no hesitation in
upholding the contention of the appellant- company that it was entitled to take
recourse to the escrow arrangement. The circumstances which however dissuade us
from doing so is the possibility of Mr. Anand Bhatt, one of the Joint Escrow
Agents, being examined on the very question on which he as one of the Escrow
Agents is required to adjudicate. In this context, the letter written by him
(Anand Bhatt) on 21st July, 2005 to the other Joint Escrow Agent, Mr.
Suresh Talwar, in his capacity as the solicitor of the respondent No.1
indicating that in view of the newspaper report regarding the CBI
investigation, it would not be possible for the appellant-company to complete
the transaction as contemplated in the MAPA, assumes significance. The
disinclination of the appellant to complete the transaction in terms of the
MAPA is directly connected with the issue of default which is required to be decided
by the Joint Escrow Agents. Since the said letter has been authored by Shri
Anand Bhatt, there is little doubt that he will be subjected to extensive
cross-examination with regard to the same. He cannot, therefore, be called upon
to decide the dispute in which he himself becomes a party, in violation of the
well-known maxim that a person cannot be a judge in his own cause. It is only
on such consideration that the submissions made on behalf of the respondents
have to be accepted even though we are not inclined to fully accept the views
expressed both by the learned Tribunal and the High Court on the question of
The decisions cited on behalf of both the parties only lay down the legal
proposition relating to the concept of bias which does not require any
elaboration in the facts of this case.
In the aforesaid circumstances, we are not inclined to interfere with the
judgment of the learned Arbitral Tribunal as confirmed by the High Court and
the instant appeal stands dismissed accordingly. We, however, make it clear
that if the learned Arbitrator finds that there has been a default in working
out the MAPA by either of the parties to the agreement, the parties will be
entitled to enforce the consequences arising out of the Escrow arrangement irrespective
of the award of the learned Arbitrator on all other aspects of the disputes
between the parties.
There will be no order as to costs.