M/S. Everest Holding
Ltd. Vs. Shyam Kumar Shrivastava & Ors. [2008] INSC 1832 (24 October 2008)
Judgment
CIVIL APPELLATE
JURISDICTION ARBITRATION PETITON NO. 13 OF 2007 M/s. Everest Holding Ltd. ....
Petitioner Versus Shyam Kumar Shrivastava & Ors. .... Respondents ORDER Dr.
MUKUNDAKAM SHARMA, J.
1.
This
Order would dispose of the petition filed by the petitioner praying for
appointment of an arbitrator under Section 11(6) and (9) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as `the Act') in terms of the
Arbitration Agreement entered into between the parties.
2.
The
petitioner is a foreign company incorporated under the laws of China having its
office at Hong Kong whereas the respondent no. 1 is a citizen of India and
Chairman of respondent no. 2 - Shrivastava Group of Companies. Respondent Nos.
3 to 5 are the companies of Shrivastava Group and respondent nos. 6 and 7 are
partnership firms carrying on business under the name of Shrivastava Group. The
respondent no. 8, also arrayed as party to the petition, is a company formed
under the Joint Venture Agreement (for short `JVA') between the petitioner and
respondent no. 1. The said company was incorporated and registered under the
provisions of the Indian Companies Act, 1956. However, during the pendency of
the aforesaid proceedings the name of respondent no. 8 was deleted from the
array of parties.
3.
On
08.09.2003, an agreement of cooperation was entered into between the petitioner
on one hand and respondent no. 1 on the other hand for the purpose of providing
cooperation and also for exports of iron ore from mines belonging to
Shrivastava Group. Pursuant to the above agreement, a JVA was executed on
25.09.2003 between the petitioner and respondent no. 1 for the purpose of mining,
processing and export of iron ore. On 26.03.2004 another JVA was executed
between the parties, particularly, to iron out certain controversies in respect
of the JVA dated 25.09.2003. Article 14.3 of the said JVA, which is an
arbitration clause, reads as follows:
Page 2 of 21
"If the parties fail to resolve the matter through mutual agreement, the
dispute shall be referred to an Arbitrator appointed by mutual agreement of the
two parties. Such Arbitrator shall be a retired High Court or Supreme Court Judge;
such arbitration proceedings shall be completed and Award be given within three
months of the Arbitrator's appointment; the cost of such arbitration would be
shared equally by the two parties. The arbitration proceedings shall be in
accordance with the provisions of the Arbitration and Conciliation Act, 1996 or
any subsequent enactment or amendment thereto. The decision of the arbitrator
shall be final and binding upon the parties."
4.
The
stand of the petitioner in the petition is that the whole idea of signing the
JVA and constituting a company under the JVA was to promote the business of the
petitioner in trading the iron ore in foreign countries and to secure a firm
supply base for international trade for mining, processing and export of iron
ore. Consequent thereto on execution of the aforesaid agreement a company under
the name and style of Everest Mining & Mineral Pvt. Ltd. was incorporated
on 02.06.2004. The petitioner has stated in the petition that Focus Trading
Company Ltd., a sister concern of the petitioner company advanced an amount of
US $ 450,000 on behalf of the petitioner to respondent no. 3 company towards
capital investment on 18.02.2004. Thereafter on 29.07.2004, it is stated that
another sister concern of the petitioner, namely, AMJ Marketing paid to
respondent no. 3 on behalf of the Page 3 of 21 petitioner, further amounts of
Rs. 51,00,000/-, Rs. 50,00,000/- and Rs. 24,00,000/- totaling to Rs.
1,25,00,000/- towards interest free deposit for the benefit of the newly
incorporated company, namely, Everest Mining & Mineral Pvt. Ltd. -
respondent no. 8.
It is also the stand
of the petitioner that on 20.09.2004 the petitioner was shocked and surprised
to receive unwarranted notice for cancellation of JVA from respondent no. 3 on
the ground of reduction of FOBT price which according to respondent no. 3 had
brought about an alarming situation for the JVA. In the said notice, the
petitioner was further informed that Reserve Bank of India had hesitated to
consider reduction of aforesaid price and that the Reserve Bank of India would
never approve JVA between both the companies. The aforesaid notice was received
and rightly replied on 06.10.2004, wherein it was pointed out to respondent no.
3 that reduction of price of the consignment had not only caused loss to
respondent no. 3 but also to M/s. Focus Trading Company Ltd. It was further
pointed out to respondent no. 3 that future of the JVA should not be
jeopardized only on account of the said event, particularly, when both the
parties had invested enormous time and energy in establishing the Joint
Venture. By the said reply the respondent no. 3 was requested to withdraw the
letter of cancellation.
Page 4 of 21 On
04.11.2004, the sister concern of the petitioner, namely, M/s. Focus Trading
Company Ltd. and its director Mr. J.M. Sahai received a legal notice from the
advocate of respondent no. 2 demanding an amount of rupees US $ 5,03,319 with
14% interest towards the reduction of price in the shipment supplied through
the vessel named M.V. LUO - QUING. The petitioner pointed out in the reply to
the aforesaid notice that the petitioner is willing to cooperate and resolve
the issues provided the said issues are within the JVA. However, the said
issues could not be resolved as the respondents were not willing to resolve the
same. Consequently on 15.12.2004 the petitioner sent a request to the
respondent no. 1 to refund the amount of security deposit of US $ 725,000, US $
11,000 paid as equity contribution and Rs. 25,00,000/- paid towards working
expenses of respondent no. 8 with interest @ 18% per annum within one week from
the date of receipt of the aforesaid notice. A lawyers' notice in respect of
the same was also sent on 14.05.2005.
As no amount was
refunded, the petitioner invoked the arbitration clause as contained in the JVA
and a notice to that effect was issued requesting for appointment of an
arbitrator under letter dated 16.09.2006.
In the said letter,
the petitioner proposed the name of Justice J.C. Gupta, retired Judge of
Allahabad High Court to be the Presiding Arbitrator and Page 5 of respondent
no. 1 was requested to concur with the said name proposed by the petitioner.
The respondent no. 1, however, through his lawyer's reply dated 12.10.2006
categorically refuted the claim of the petitioner and also refused to refer the
matter to arbitration on the ground that the JVA between the petitioner and the
respondent no. 1 is not in existence as the same had been terminated by
respondent no. 2. It was stated that in view of the aforesaid position there
could be no invocation of clause 14.3 of the JVA.
5.
In
view of the aforesaid position and the stand of the parties, the present
petition was filed by the petitioner with a prayer for appointment of an
arbitrator and for referring all the disputes between the parties arising out
of JVA to the said arbitrator for adjudication and decision.
6.
Notice
was issued and on receipt the respondents entered appearance.
However, during the
pendency of the petition, the respondent no. 8 could not be served as the address
of respondent no. 8 - the JVA Company, mentioned in the petition was not
correct and therefore the name of respondent no. 8 stood deleted from the array
of parties by the order of this Court dated 28.02.2008. All the other
respondents are represented in the petition through their counsel.
7.
I
heard the counsel appearing for the parties who drew my attention to various
documents on record. According to the petitioner a Long Term Agreement of
Co-operation dated 08.09.2003 was executed between the parties, pursuant to
which a JVA was entered into and a Joint Venture Company was also incorporated
in India. My attention was drawn to the said JVA containing an arbitration
clause, in terms of which, any dispute or difference that arises between the
parties is required to be adjudicated and decided through the process of
arbitration. It was submitted by the counsel for the petitioner that since in
the present case disputes have arisen between the parties in connection with
the matters pertaining to the JVA, therefore, all the said disputes are
required to be referred for adjudication to the arbitration by appointing an
arbitrator.
8.
Upon
careful perusal of the petition filed under Section 11(6) and (9) of the Act
and upon hearing the counsel appearing for the parties it could be deduced that
the petitioner is mainly confining its claim for refund of the money
paid/deposited pursuant to and in execution of JVA and also amount paid towards
working expenses of respondent no. 8 with interest @ 18% per annum. In the petition
details of the amount as paid by the Page 7 of 21 petitioner towards JVA are
also furnished, wherein it is stated that M/s. Focus Trading Company Ltd., a
sister concern of the petitioner company even prior to the singing of JVA on
18.02.2004 advanced an amount of US $ 450,000 to respondent no. 3 company i.e.
the Deccan Minerals Pvt. Ltd. towards capital investment. The receipt of the
aforesaid amount is in fact recorded in the JVA itself, under Article 4, clause
4.2.(b)(i). It is, therefore, contended that the said payment made, also forms
part of the dispute pertaining to the JVA. The petitioner has also pleaded that
on 29.07.2004 another sister concern of the petitioner, namely, AMJ Marketing
paid to the respondent no. 3 on account of interest fee deposit an amount of
1,25,00,000/- by making payment in installments in the following manner, vide
cheque No. 004442 dated 27.7.2004 an amount of Rs. 50,00,000/-, cheque No.
004443 dated 29.7.2004 an amount of Rs. 51,00,000 and cheque No. 048815 dated 16.9.2004
an amount of Rs. 24,00,000/-.
9.
The
aforesaid claims of the petitioner are, however, refuted by the respondents
contending inter alia that some of the aforesaid claims which are mentioned in
the petition and also in the correspondences between the parties do not arise
out of the JVA and they are relatable to Page 8 of 21 other agreements and
concern dealings between the sister concerns of the petitioner and sister
concerns of the respondents, and therefore, they cannot be said to be a part of
the disputes arising out of the JVA between the parties. It was submitted on
behalf of the respondents that there could neither be bifurcation of parties
nor of matter and such bifurcation is not permissible under the existing law,
and therefore, the aforesaid petition cannot be entertained. It was also
submitted by the counsel for the respondent that the said JVA although came
into existence and in pursuance of the said agreement a company, respondent no.
8, came into existence but there was no transaction at all of the company and
the said JVA was cancelled and terminated w.e.f. 20.9.2004, and therefore,
neither the agreement was in existence nor the arbitration clause, and
therefore, invocation of clause 14.3 of the said agreement by the petitioner is
wrong and without jurisdiction.
10.
The
aforesaid submissions of the parties have been noticed by me and I have
carefully perused the various documents which are placed on record. The JVA,
which is the subject matter of the disputes between the parties was dated
26.03.2004 and the same was entered into and between M/s. Everest Holding Ltd.
and Shri Shyam Kumar Shrivastava along Page 9 of 21 with the Mining Companies
as indicated in Article 1 constituting the Shrivastava Group. In the said JVA
"Mining Companies" which are referred to in the agreement, are the
following companies owned/controlled by Shrivastava Group: (a) M/s. The Deccan
Minerals Private Limited; (b) M/s. New India Mining Corporation Pvt. Ltd. (c)
Minerals and Metals; (d) M/s. Raw and Finished Product; and (e) M/s. The
Champion India Industries Pvt. Ltd. By the aforesaid JVA the parties have
expressed their intention to form and register a Joint Venture Company with
equal equity participation at the earliest possible date for the purposes of
carrying on the business as mentioned in the said agreement. The incorporation
of the company was in the name of "Everest Mining & Mineral Pvt.
Ltd." which was incorporated with initial authorized capital of Rs.
50,00,000/-. Both the parties, namely, Shrivastava Group and M/s. Everest
Holding Ltd. agreed to capitalize the Joint Venture Company up to Rs.
10,00,000/- and that each party was required to subscribe to 50,000 equity
shares of Rs. 10/- each. In the said clause, namely, clause 3.3, the parties
also agreed that the aforesaid shares could be subscribed by either of the
parties itself or by its affiliates and that the shareholding of the affiliates
should be included in the shareholding of the party and each party should
ensure that each such Page 10 of 21 affiliates would be bound by and comply
with the terms and conditions of the agreement. Therefore, in the said JVA not
only the parties are recognized but their affiliates are also recognized as it
is intended that the affiliates also could make the subscription on behalf of
the parties.
11.
The
said JVA, which is an admitted document on behalf of the parties also
stipulates that an amount of Rs. US $ 450,000 had already been deposited by
M/s. Everest Holding Ltd. with Shrivastava Group, paid by Telegraphic Transfer
to Deccan Minerals Pvt. Ltd., which is one of the mining companies owned and
controlled by respondent no. 1 and the receipt of the said amount is also
acknowledged by respondent no. 1.
12.
There
is another clause in the Agreement, namely, 14.2 which stipulates that the
parties agreed that they would use all reasonable efforts to resolve the
dispute, controversy or claim arising out of or relating to this agreement,
other than a dispute, the resolution of which is specifically provided for in
that Agreement. I have already extracted clause 14.3 of the JVA, which
stipulates that if there is any dispute or difference between the parties and
they fail to resolve the matter through mutual agreement, the dispute shall be
referred to an arbitrator appointed by Page 11 of 21 mutual agreement of the
two parties. It is also stated that the venue for arbitration will be New Delhi
and the language used shall be English, which is clause 14.4 of the JVA.
13.
When
a petition is filed under Section 11 of the Act, particularly, under
sub-sections (6) and (8), certain preliminary matters are required to be
determined by the Chief Justice or his designate. In SBP & CP. v. Patel
Engineering Ltd. and Another reported in (2005) 8 SCC 618, per majority (6:1)
it was held that the powers to be exercised by the Chief Justice of the High
Court or the Chief Justice of India under Section 11 (6) of the Act are not an
administrative power and it is judicial power. It was also held in the said
decision that while exercising power of performing the duty under Section 11(6)
of the Act, the Chief Justice has to consider whether the conditions laid down
by the section for the exercise of that power or the performance of that duty,
exists or not and consequent thereto a Chief Justice or the person or institution
designated by him, is bound to decide whether he has jurisdiction to entertain
the request, in the sense, whether the parties making the motion has approached
the right High Court, whether there is a valid arbitration agreement in terms
of Section 7 of the Act and whether the person before Page 12 of 21 him with
the request is a party to the arbitration agreement or whether there was no
dispute subsisting which was capable of being arbitrated upon. It was also held
in the said decision that the Chief Justice can also decide the question
whether the claim was a dead one; or a long barred claim that was sought to be
resurrected and whether the parties have concluded the transaction by recording
satisfaction of their mutual rights and obligations or by receiving the final
payment without objection.
This Court, however,
issued a caution that at that stage it may not be possible to decide whether a
live claim made is one which comes within the purview of the arbitration clause
and that it would be appropriate to leave that question to be decided by the
Arbitral Tribunal on taking evidence, along with the merits of the claims
involved in the arbitration.
The decision further
laid down that on coming to a conclusion on these aspects, the Chief Justice or
his designate has to enquire whether the conditions for exercise of his power
under Section 11(6) of the Act have been fulfilled; and if an arbitrator is to
be appointed, who is the fit person, in terms of the provision.
1.
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14.
Therefore,
the present enquiry, which is entrusted to me in the present case, under the
provisions of Section 11 (6) of the Act would revolve Page 13 of 21 around the
aforesaid aspects which are dealt with in the aforesaid decision. There is no
dispute raised by the respondents that this Court has no jurisdiction to decide
the issues raised in the petition. There is also a valid arbitration agreement.
Clause 14.3 of the JVA requires that if there is any dispute between the
parties in respect of the matters relating the JVA, the same is required to be
adjudicated upon and decided through the process of arbitration and the
decision of the arbitrator shall be final and binding upon the parties. The
aforesaid clause is neither disputed nor questioned before me.
15.
The
dispute is in relation to the amount which is stated to be paid by the
petitioner or its sister concerns. It is contended on behalf of the respondents
that the said issues cannot be a part of the Arbitration Agreement and the same
are not subject matter of disputes arising out of the JVA. According to the
respondents, the said disputes relate to transactions not between the parties
to the agreement but between other parties, namely, sister concerns of the
petitioner and respondents, and therefore, they cannot form part of the dispute
arising out of or in relation to the JVA. In support of the said contention the
counsel for the respondents relied upon the decision of this Court in Sukanya
Holdings Page 14 of 21(P) Ltd. v. Jayesh H. Pandya and Another reported in
(2003) 5 SCC 531. In the said decision it was held that when the subject matter
of the suit includes subject matter of the arbitration agreement as well as
other disputes, there is no requirement under the Act that even such matter is
required to be referred to arbitration. There is also no provision for
splitting the causes of action or parties and referring the subject matter of
the suit to the arbitrators. The learned counsel appearing for the party,
particularly, relied upon paragraph 16 of the judgment which reads as under:
"The next
question which requires consideration is - even if there is no provision for
partly referring the dispute to arbitration, whether such a course is possible
under Section 8 of the Act. In our view, it would be difficult to give an
interpretation to Section 8 under which bifurcation of the cause of action,
that is to say, the subject-matter of the suit or in some cases bifurcation of
the suit between parties who are parties to the arbitration agreement and
others is possible. This would be laying down a totally new procedure not
contemplated under the Act. If bifurcation of the subject-matter of a suit was
contemplated, the legislature would have used appropriate language to permit
such a course. Since there is no such indication in the language, it follows
that bifurcation of the subject-matter of an action before a judicial authority
is not allowed".
In paragraph 17 of
the said judgment it was held as follows:
"Secondly, such
bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal
and the other to be decided Page 15 of 21 by the civil court would inevitably
delay the proceedings.
The whole purpose of
speedy disposal of dispute and decreasing the cost of litigation would be
frustrated by such procedure. It would also increase the cost of litigation and
harassment to the parties and on occasions there is possibility of conflicting
judgments and orders by two different forums".
It was also contended
that return of the amount paid by the petitioner as equity contribution towards
constitution of the JVC is a matter relating to winding up of the company, and
therefore, the arbitrator will have no jurisdiction to order winding up of a
company since such power is conferred on and vested on a court as envisaged
under the Companies Act, 1956.
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8.
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15.
16.
The
decision of this Court in Sukanya Holdings (P) Ltd. (supra), however, came to
be distinguished in a subsequent decision of this Court in Rashtriya Ispat
Nigam Ltd. v. Verma Transport Co., reported in (2006) 7 SCC 275. In order to
pinpoint the distinction drawn, it is necessary to extract paragraphs 23, 45
and 47 of the Judgment, which are as under:
"23.....Once the
conditions precedent contained in the said proceedings are satisfied, the
judicial authority is statutorily mandated to refer the matter to arbitration.
What is necessary to be looked into therefore, inter alia, would be as to
whether Page 16 of 21 the subject-matter of the dispute is covered by the
arbitration agreement or not.
45. Reliance placed
by the learned counsel on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya is
misplaced. Therein, not only a suit for dissolution of the firm was filed, but
a different cause of action had arisen in relation whereto apart from the
parties to the arbitration agreement, other parties had also been impleaded. In
the aforementioned fact situation, this Court held: (SCC p. 535, para 13)
"13. Secondly, there is no provision in the Act that when the
subject-matter of the suit includes subject-matter of the arbitration agreement
as well as other disputes, the matter is required to be referred to
arbitration. There is also no provision for splitting the cause or parties and
referring the subject-matter of the suit to the arbitrators."
47. Such a question
does not arise herein as the parties herein are parties to the arbitration
agreement and the question in regard to the jurisdiction of the arbitrator, if
any, can be determined by the arbitrator himself in terms of Section 16 of the
1996 Act".
17.
In
the light of the aforesaid factual and legal position, I am of the considered
opinion that there is a valid arbitration agreement between the parties as
contained in the JVA, which the parties are required to adhere to and are bound
by the same. In other words, if there is any dispute between the parties to the
agreement arising out of or in relation Page 17 of 21 to the subject matter of
the said JVA, all such disputes and differences have to be adjudicated upon and
decided through the process of arbitration by appointing a mutually agreed
arbitrator. Pursuant to the aforesaid JVA dated 26.03.2004 Everest Mining &
Mineral Pvt. Ltd. was incorporated and various amounts were also deposited by
the petitioner through sister concerns for the incorporation and functioning of
the said company. The said company could not function due to disputes which
arose between the parties. Such disputes which relate to the working of JVA and
various deposits made and which arose out of and in relation to the said JVA
are required to be considered and decided through the process of arbitration as
envisaged under clause 14.3 of the JVA.
Though the JVA may
have been terminated and cancelled as stated but it was a valid JVA containing
a valid arbitration agreement for settlement of disputes arising out of or in
relation to the subject matter of the JVA.
The argument of the
respondent that the disputes cannot be referred to the arbitration as the
agreement is not in existence as of today is therefore devoid of merit.
18.
It
is true that the arbitrator would have no power to order for winding up of the
company as such power is conferred on and vested with a court as Page 18 of 21
envisaged under the Companies Act in view of the decision of this Court in
Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 5 SCC 688].
But in terms of the arbitration agreement, the arbitrator can always find out
and adjudicate as to whether or not a Company is functional and if it was not
functional in that event he could always find out the nature and status of its
assets and can also issue direction and pass orders regarding dues and
liabilities and also for taking recourse to appropriate remedy.
19.
19.All
such disputes whether relating to payment towards security deposit, deposited
by the petitioner or on its behalf and also relating to contribution made
towards equity contribution or working expenses, if any, to be returned or not
and if so, what amount should be returned are to be decided and adjudicated
upon through the process of arbitration as agreed upon by the parties in the
JVA. Contributions made towards execution of the JVA and for the functioning of
the Joint Venture Company by party or on its behalf by its affiliates whether
would and should be treated as contributions made by the party in specific term
and clause in the JVA are also matters to be adjudicated upon by the
arbitrator. It is to be noted at this stage that in the JVA it was agreed to
Page 19 of 21 by the parties hereto that the equity shares of the Company
could be subscribed by either of the parties or by its affiliates and that
shareholding of its affiliates should be considered as shareholdings of the
party to the extent it is recognized. The affiliates were also made bound by
the terms and conditions of the agreement. Therefore, in my considered opinion,
the disputes which arise out of JVA, if referred to an arbitrator would not in
any manner amount to bifurcation of the causes of action or bifurcation of
parties.
20.
There
could be other disputes between the sister concerns of the appellant and the
respondent arising out of separate and independent agreements. Such disputes
would have to be decided and adjudicated upon in accordance with law. But all
such disputes which are identified and mentioned hereinbefore and which arise
out of and in relation to JVA have to be and must be decided by appointing an
arbitrator in terms of the arbitration agreement.
21.
During
the course of the arguments the parties have agreed that in case the Court
decides to refer the disputes to the arbitrator in that event the same may be
referred to Justice V.N. Khare, retired Chief Justice of this Page 20 of 21
Court for adjudication and decision. The parties mutually agreed for him as the
arbitrator for deciding these issues. Consequent to the said agreement, I
appoint Justice V.N. Khare, retired Chief Justice of this Court as the sole
arbitrator with a request to him to decide the disputes between the parties
arising out of the JVA as expeditiously as possible.
It shall be open for
the learned Arbitrator to fix his remuneration after discussing with the
parties.
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Accordingly,
the petition is disposed of. It goes without saying that the observations made
herein are only for the purpose of deciding the issue as to whether or not the
disputes should be referred to the arbitrator.
Necessarily any
observation made herein would not be construed as any views or opinion
expressed on the merit of the claims.
.................................J.
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