Bombay High Court
Atul Chandrakant Kirloskar And ... vs Sanjay Chandrakant Kirloskar And ... on 3 May, 2021
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL (ST) NO.1661 OF 2021
1) Atul Chandrakant Kirloskar
residing at Radha, 453, Gokhale Road,
Shivajinagar, Pune-411 016.
2) Rahul Chandrakant Kirloskar
3) Arti Atul Kirloskar
4) Gauri Atul Kirloskar
5) Aditi Atul Kirloskar
6) Alpana Rahul Kirloskar
7) Alika Rahul Kirloskar
8) Aman Rahul Kirloskar
9) Jyotsna Gautam Kirloskar
10) Nihal Gautam Kirloskar
11) Shruti Nihal Kulkarni
12) Gargi Nihal Kulkarni
13) Ambar Gautam Kulkarni
14) Komal Ambar Kulkarni .. Appellants
v/s.
1) Sanjay Chandrakant Kirloskar
residing at Plot no.22 & 23,
270 Pallod Farms, Baner,
Pune - 411 045.
2) Kirloskar Brothers Limited
Duly incorporated Company
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Having registered office at
Udyog Bhavan, Tilak Road, Pune-411 002.
3) Vikram Shreekant Kirloskar
4) Geetanjali Vikram Kirloskar
5) Manasi Vikram Kirloskar
6) Pratima Sanjay Kirloskar
7) Alok Sanjay Kirloskar
8) Rama Sanjay Kirloskar
9) Kirloskar Oil Engines Limited
10) La Gajjar Machineries Private Limited
11) Kirloskar Proprietary Limited
12) Anil C. Kulkarni
13) Chandrashekar H. Naniwadekar
14) Mahesh Chhabria .. Respondents
Mr. Dinyar Madon, Sr. Advocate, a/w Mr. Kunal Katariya, Ziyad Madon,
Tushar Ajinkya, Ms. Sukanya Sehgal i/b. Think Law for the appellants.
Mr. Aspi Chinoy, Sr. Advocate, a/w Mr. Ashish Kamat i/b. Rustam Gagrat
& Zeeshan Farooqui, Shruti Dasondi of M/s. Gagrats for the respondent
no.2.
Mr. Rafique Dada, Sr. Advocate, a/w Jehan Mehta i/b. Mr. Rustam
Gagrat & Ipshita Sen, Meghna Talwar of M/s. Gagrats for respondent
nos.1, 6, 7 & 8.
Ms. Ashmita Goradia i/b. Aagam Doshi for respondent nos.11-14.
Mr. Kunal Kanungo a/w Rahul Punjabi i/b. Mr. S. Venkateshwar for
respondent nos.9 & 10.
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Mr. Aditya Mehta a/w Anup Khaitan & Ms. Sonal Satve i/b. M/s. Anup
Khaitan & Co. for Kirloskar Industries Ltd.
CORAM : A. K. MENON, J.
RESERVED ON : 1ST APRIL, 2021
PRONOUNCED ON : 3RD MAY, 2021.
(THROUGH VIDEO CONFERENCE)
JUDGMENT:
1. This appeal under section 37 of the Arbitration and Conciliation
Act, 1996 assails an order dated 7 th December, 2020 passed by
the Civil Judge, Senior Division, Pune, rejecting three applications
filed under Section 8 of the Arbitration and Conciliation Act. The
applications were filed in Special Civil Suit no.798 of 2018 filed
by two plaintiffs who are respondent nos.1 and 2 in this appeal.
Respondent no.1 is one Sanjay Chandrakant Kirloskar, respondent
no.2 is Kirloskar Brothers Ltd. The appellants are 14 in number
and were all defendants in the suit. Respondent nos.3 to 14 are
also defendants in the suit but some of these defendants support
the appellants. Others are agreeable to refer the disputes to
arbitration although they contend that they are not parties to the
agreement containing the arbitration clause and which is the
subject matter of the present appeal.
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2. The arbitration clause is contained in a Deed of Family Settlement
("DFS") dated 11th December, 2009 entered into amongst
members of the Kirloskar Family. All the 14 appellants and the
respondents nos.1 and 3 to 8 are all members of that family and
are parties represented by heads of respective branches of the
family. The "DFS" was executed by and between appellant nos.1,
2, respondent nos.1, 3 and late Gautam Kulkarni. According to the
appellants, the DFS was entered into to ensure that differences
that may arise within the family in relation to the businesses are
not subject to scrutiny outside the family. The family members of
each branch and represented by the five individuals who execute
the DFS have been described in a tabulated form in the appeal.
The aforesaid Sanjay Kirloskar of the Sanjay Kirloskar Branch is
plaintiff no.1 in this suit. Plaintiff no.2 being a company which
forms part of the Kirloskar Group of Companies. Respondent
nos.9 and 11 are companies which are part of the Kirloskar
Group whereas respondent nos.12, 13 & 14 are Directors of
respondent no.11 company. The plaintiffs seek specific
performance of the DFS against all the appellants and respondent
nos.3 to 8 and 11. In addition, the plaintiffs seek damages in a
sum of Rs.750 crores against the appellant nos.1 to 5 and
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respondent nos.3 to 5 and 9 to 14. Several interim reliefs
pertaining to the constitution of the Board of Directors,
representation of the Board and for permanent and temporary
injunctions in connection therewith are also sought. The
appellants and respondents are also referred to in their capacities
as plaintiffs and defendants for the sake of convenience.
3. On 10th July, 2018 the appellants filed applications under Section
8 seeking reference to arbitration. Clause 20 of the DFS was the
arbitration clause that was in contemplation. In the reply filed on
behalf of the plaintiffs, they contended that Clause 20 of the DFS
was not applicable and the arbitrators could not entertain a
reference except under Clause 13 which related to functioning of
two institutions viz. the Kirloskar Institute of Advance
Management Studies and the Kirloskar Foundation promoted by
the parties to the DFS.
4. According to the plaintiffs, the subject matter of the suit was not
capable of resolution by arbitration and hence the suit could not
be referred to arbitration. The plaintiffs had sued parties who are
not signatories to the DFS and hence, the cause of action to the
extent it concerns, those defendants could not be referred to
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arbitration. It is also contended that the controversy in the suit
was not arbitrable. In a rejoinder filed the appellants reiterated
their stand that the arbitration agreement was binding and still in
force. On interpretation of Clauses 13 and 20, the appellants
contended that the suit must be referred to arbitration.
5. After hearing the rival contentions, the Civil Judge passed an
order on 7th December, 2020. He rejected the applications. The
only substantial point for determination framed by the learned
judge reads as follows;
(i) Whether it is just and legal to refer this matter to
arbitration as asked for?
SUBMISSIONS
6. Mr. Madon submitted that disputes and differences having arisen
within the family, the provisions of Clause 20 of the DFS would
justify reference to arbitration. He submitted that the original
plaintiffs i.e. respondent nos.1 & 2 filed the suit on or about 5 th
June, 2018 claiming specific performance of the DFS and
consequential reliefs of declaration and injunction, all of which
pertained to differences that have arisen within the scope of the
DFS and Clause 20 in particular. He submitted that even as far as
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the exceptions provided under Clause 13 are concerned, the two
entities Kirloskar Institute of Advance Management Studies
("KIAMS") and Kirloskar Foundation ("KF") are promoted and
managed by the parties to the DFS and disputes pertaining to
those are also to be entertained by a Tribunal to be constituted in
accordance with Clause 20. Referring to the provisions of Clause
20, Mr. Madon submitted that the arbitrators were entitled to
entertain all disputes and differences under the DFS within a
period of three years but if the two entities BVH and Asara had
not been dissolved, the period of 3 years would stand extended till
dissolution of BVH and Asara. Since these two entities were still
admittedly not dissolved, the arbitration clause could still be
invoked and is accordingly being invoked by seeking reference of
this suit to arbitration under Section 8.
7. The respondents had in their reply dated 13 th July, 2018
objected to the application on the ground that Clause 20 does not
cover the disputes in the suit and that disputes referable to
arbitration are restricted to Clause 13 which related to control
and functioning of KIAMS and KF. The reply was common to the
applications filed by the appellants as well as respondent nos.3, 4
and 5. The appellants have since filed a rejoinder and reiterated
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that the subject matter of the suit is covered by the arbitration
agreement in the DFS and therefore any claim under the DFS
would be arbitrable. It is contended that the District Judge should
have referred the suit to arbitration. Highlighting the limited
scope of an application under Section 8, Mr. Madon submitted
that a Judicial authority is required to refer disputes to arbitration
in cases where an arbitration clause exists and once the court
comes to that conclusion, it was incumbent upon the judicial
authority to make the reference. While Mr. Madon in support of
the appeal canvassed the point that the suit must be referred to
arbitration and the court really did not have much of a choice, he
submitted that the learned Judge had erred in concluding that this
was not a "fit" case for reference to arbitration without providing
any reasons. Mr. Madon invited my attention to the order of the
Civil Judge which he submitted was bereft of any reasoning.
Prima facie, it does appear that the order has been passed without
assigning reasons. In support of his contentions, Mr. Madon
relied upon the following judgments;
1) Mahanagar Telephone Nigam Limited v/s. Canara Bank and Ors. 1
2) R V Solutions Pvt. Ltd. v/s. Ajay Kumar Dixit & Ors.2
1 (2020) 12 SCC 767
2 CS (COMM)745/2017 dated 15/01/2019 of Delhi High Court
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3) Hindustan Petroleum Corpn. Ltd. v/s. Pinkcity Midway
Petroleums3
4) Ameet Lalchand Shah & Ors. v/s. Rishabh Enterprises & Anr.4
5) Cheran Properties Limited v/s. Kasturi & Sons Limited & Ors. 5
6) Narayan Prasad Lohia v/s. Nikunj Kumar Lohia & Ors. 6
8. The appeal is opposed by Mr. Dada on behalf of the respondent
nos.1 & 2 & 6 to 8. He submitted that respondent nos.2 & 9 to 14 in
the appeal were not signatories to the DFS. According to him, relief
was sought by respondent nos.1 & 2 against all the defendants in the
suit which includes respondent nos.9 to 14 (defendant nos.21 to 26
in the suit) who are not signatories to the DFS. According to Mr.
Dada, defendant nos.1 to 21 and 23, were required to perform the
DFS and defendant nos.1 to 6 and 10 to 26 were also liable to pay
damages in a sum of Rs.750 crores. The declarations sought in the
suit pertain to directorships of defendant nos.24 to 26 on the board
of defendant no.23 company. That declaration sought is to the effect
that the claim to directorship is against the provisions of the DFS. He
also stressed upon the fact that the plaintiffs are seeking to restrain
defendant nos.1 to 3, 16 and 24 to 26, by a permanent injunction
3 (2003) 6 SCC 503
4 (2018) 15 SCC 678
5 (2018) 16 SCC 413
6 (2002) 3 SCC 572
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from performing their functions as Directors of defendant no.23
which would otherwise adversely affect the right of the plaintiff no.1
and companies which are within the control directly or indirectly of
the plaintiff no.1 or his branch of the family. He therefore submitted
that the plaint clearly discloses disputes that could not be referred to
arbitration.
9. According to Mr. Dada the three applications under Section 8 of
the Arbitration Act are based on Clause 20 of the DFS while
suppressing the effect of Clause 13. Several of the parties in the suit
are not parties to the DFS and therefore disputes are not arbitrable
and the ingredients required for a reference to arbitration are absent
in the present case. According to him the impugned order correctly
rejects the applications for reference to arbitration. He therefore
submitted that the provisions of Clauses 13 and 20 will clearly reveal
that the suit seeks reliefs which cannot be referred to arbitration.
Inviting my attention to Clause 13, Mr. Dada highlighted the
separate provision pertaining to differences of opinion in relation to
matters referred to in Clause 13 which were necessarily to be
resolved by arbitration since all the parties to the DFS had agreed not
to resort to any litigation in court or otherwise. However this clause
was restricted to the functioning and running of KIAMS and KF.
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10. Save and except for these disputes nothing else could be
referred to arbitration. Referring to Clause 20 of the DFS, Mr. Dada
submitted that the clause contemplates making a valid reference
strictly within three years of its execution. After expiry of three years,
no dispute other than those under clause 13 could be referred to
arbitration. The appellants had failed to make out any case for
referring the suit to arbitration under Section 8. Mr. Dada then
submitted that the respondent nos.9, 10 & 11 were limited
Companies. These companies had all taken up identical stands in
their affidavits in reply to the application. These three companies
were obviously not signatories to the DFS and reference to the
averments in the affidavit clearly reveals that they had expressed
their willingness to submit to arbitration and had consented to the
suit being referred to arbitration without prejudice to their rights
and contentions in the matter. Since they were not signatories to the
DFS they had contended that the DFS is not binding on the
respondent no.9 company as they were not signatories. Apart from
these three respondents, Mr. Dada also invited my attention to the
affidavit filed by respondent nos.12, 13 & 14 who are all Directors of
respondent no.11 company. These gentlemen had also filed similar
affidavits stating that while they were not signatories to the DFS, they
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had no objection to the disputes being referred to arbitration on
behalf of respondent no.11 company. Mr. Dada submitted that there
was no question of making a valid reference to arbitration since all of
these respondents had conveyed their consent for reference to the
disputes to arbitration, without prejudice to their contentions that the
DFS is not binding upon them. In such circumstances, he submitted
that no valid reference could be made. Mr. Dada then relied on the
following judgments;
1) United India Insurance Company Limited & Anr. v/s. Hyundai
Engineering and Construction Company Limited & Ors.7
2) Indowind Energy Limited v/s. Wescare (India) Limited & Anr. 8
3) Vidya Drolia & Ors. v/s. Durga Trading Corporation9.
11. Mr. Chinoy appearing for respondent no.2 likewise
supported the submissions made on behalf of respondent no.1 by
Mr. Dada. In support of his contentions, Mr. Chinoy also relied
upon the decision of this Court in Essar Steel India Ltd. v/s. The
New India Assurance Co.Ltd.10 Inviting my attention to the
observations of the Supreme Court in paragraph 8 of Essar
7 (2018) 17 SCC 607
8 (2010) 5 SCC 306
9 2020 SCC Online 1018
10 2016 SCC Only Bom 9472
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Steel(supra). Mr. Chinoy submitted that the suit contains matters
which are excluded from the scope of arbitration and once that is
established, the disputes in the suit cannot be referred to
arbitration under Section 8. He supported the order passed by the
Civil Judge and contended that the appeal has no merit. He invited
my attention to the provisions of Clauses 13 and 20 of the DFS
and submitted that the dispute in the suit will give rise to issues
which were clearly not be covered by Clause no.13 and cannot be
referred to arbitration under Clause no.20. This is an express
exclusion of all these disputes which the suit alone can cover and
therefore the order rejecting the application made under Section
8 is justifiable. He stressed upon the non-arbitrability of these
disputes which were subject matter of the suit and invited my
attention to the observations of the Supreme Court in the case of
Vidya Drolia (supra).
12. Drawing support from the judgment of the Supreme Court
in Duro Felguera and as referred in Vidya Drolia Mr. Chinoy
submitted that an arbitration agreement must be capable of
resolving the disputes and that court must examine whether the
agreement contains a clause which provides for arbitration of the
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disputes which have arisen. He submitted that a proper
interpretation of the clause and upon scrutiny of the disputes in
the suit, it would be clear that the suit relates to disputes and
differences which are excluded from the purview of arbitration
and in this respect he submitted that the decisions of the Supreme
Court in Garware Wall Ropes Ltd., Narbheram Power Steel and
Hyundai Engineering and Construction Ltd. had all observed that
where the claims are excluded and not covered by the arbitration
clause no reference could be made to arbitration since the
arbitration clause itself would not apply and govern the disputes.
According to Mr. Chinoy, there was no merit in the applications
under Section 8. He therefore submitted that the learned Civil
Judge has correctly rejected the applications and therefore no
interference was called for in the present appeal.
13. While considering the rival contentions, I was also
informed that the respondent nos.1 & 2 had filed written
submissions before the Civil Judge at Pune. In these written
submissions, the original plaintiffs have reiterated the fact that the
suit is filed for specific performance of the DFS. Reference is
made to clauses 20 and 13 and the submission of the exclusive
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areas of operation of these clauses has been referred to. It was
contended that the submissions were without prejudice to one
another and that the arbitration under clause 20 was not
workable. The arbitral tribunal was to consent of two members.
The provisions of Section 10 of the Arbitration Act grants liberty
to the parties to determine a number of arbitrators who in any
event cannot be in even number. According to the plaintiffs /
respondent no.1 & 2 the arbitration cannot proceed. It is
contended that in the event of an inter se disagreement between
the two arbitrators, the proceedings will be frustrated and there
would be no adjudication. Clause 20 is therefore said to be
inherently defective and inoperative. It is further contended that
the expression "the matter" is not specified anywhere in the DFS
and hence, it is vague and it is not possible to ascertain what
"matters" are required to be submitted to arbitration. The clause
records that in the event of disagreement between the two
arbitrators, the matter would be referred to one Shri Shrikrishna
Inamdar but there is no clarity as to the stage at which Mr.
Inamdar would assume charge. It is further contended that the
provisions of Clause 20 disabled the two arbitrators from
adjudicating the matter in certain situations and therefore clause
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20 does not qualify to be an arbitration agreement at all. That the
event of a disagreement between the arbitrators and if the matter
is referred, the third arbitrator, would most likely have two
distinct awards authored by two arbitrators and this would not be
in the interest of the parties. Clause and 13 & 20 do not cover the
controversy in the suit and the arbitration clause is ambiguous
and clearly the disputes in the suit are not amenable to
arbitration.
14. Furthermore, the contesting respondents have reiterated
that the suit is maintainable mainly because defendant nos.22 and
24 to 26 are not parties to the DFS and the alleged arbitration
agreement. This is a composite cause of action against the
aforesaid persons and other defendants and therefore cannot be
referred to arbitration since these persons are not parties to the
arbitration agreement contained in the DFS. My attention is also
invited to the fact that defendant no.23 had taken up a position
that it was not a party to the DFS and therefore not bound by the
same. Identical submissions are filed in the other applications as
well.
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15. On behalf of the appellants, brief written submissions are seen to
have been filed before the Civil Judge in which the appellants have
contended that the execution of the DFS not being in dispute, the
relief claimed in the suit is on the basis of DFS. It seeks specific
performance, declarations in terms of the DFS and in relation thereto
and a permanent and temporary injunction as well. Contents of
clause 20 of the DFS are highlighted. The plaintiffs having admitted
the existence of an arbitration clause in their reply to the
applications and the contention that the arbitration clause will not
cover the controversy in the suit cannot be decided at this stage. The
suit is filed to enforce an agreement containing an arbitration clause
and therefore there can be no doubt that a judicial authority viz.
the court before which the suit appears must refer the suit to
arbitration. The appellants have relied upon an analysis of section 8
in support of their submissions. It is further submitted that judicial
intervention should be restricted in matters such as these and the
defendants have already produced the original deed before the court
and are thus in compliance with the provisions of section 8. It is
contended that the original plaintiffs viz. respondent nos.1 & 2 have
not suggested that BVH and Asara have been dissolved. In the event
these two entities have been dissolved and a period of 3 years had
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passed by, the arbitration agreement would cover only disputes in
matters of KIAMS and KF. The appellants have also contended that
the suit seeks to enforce clauses of the DFS against all the defendants
and the reliefs are claimed on the basis of the DFS and in particular
the paragraphs of the plaint and the prayer clauses which clearly
establish that the suit seeks relief which are all subject matter in
respect of DFS and would be subject matter of arbitration and that is
an aspect that could be decided under Section 16 by the arbitral
tribunal. It is therefore contended that the applications be allowed
and the appeal be allowed.
16. It is in this back ground that I have proceeded to consider
the rival submissions. Let us first consider the scope of the suit itself.
A copy of the plaint is annexed at Exhibit 'C' to the appeal. The
plaintiffs in Special Civil Suit no.798 of 2018 are Sanjay
Chandrakant Kirloskar and Kirloskar Brothers Ltd. respondent nos.1
& 2 herein. The defendants are all the parties and they are 26 in
number. It includes defendant nos.21, 22 & 23 which are companies
managed by the family members. Defendant nos.24, 25 and 26 are
individuals who are not family members and were said to be
Directors of defendant no.23 Kirloskar Proprietary Ltd. The plaint
sets out that the plaintiff no.2 is the flagship company of the
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Kirloskar Group. Defendant no.21 is the successor in interest of one
Kirloskar Oil Engines Ltd. Defendant no.22 is a subsidiary of
defendant no.21 and defendant no.23 is the company holding all
trademarks and logos pertaining to the Kirloskar Group of
Companies. Defendant no.23 is said to be incorporated as a quasi
partnership with equal control ownership and participation of all
branches of the Kirloskar family and defendant nos.24 to 26 are
Directors of that company.
17. The plaintiffs have averred that the family members had
envisaged an agreement whereby ownership and management
control of each branch of the Kirloskar family gets defined for
smooth functioning of the businesses. This was reflected in several
documents including the Will of the Patriarch. There is no dispute
about the execution of the DFS. All members of the Kirloskar family
are admittedly bound by the DFS along with companies owned,
managed and controlled by them including defendant nos.21 and 23.
This is evident from the averment in paragraph 16 of the plaint
which reads thus;
"16. It is submitted that the promoters of the Kirloskar group
companies as mentioned in the Deed of Family Settlement
dated September 11, 2009 are all members of Kirloskar
family and are bound by the said Deed of Family Settlement
along with the companies owned, managed and controlled by
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them including the defendant nos.21 and 23. Under the
terms thereof, the parties to the Deed of Family Settlement are
obliged to ensure that there is no competition between them,
directly or even indirectly, including through the companies
under their ownership, management and control." (Emphasis
supplied)
18. The plaintiffs plead that under the terms of the DFS the
parties are obliged to ensure that there is no competition between
them directly or indirectly including through companies under their
ownership, management and control. It is further stated that the DFS
is in force, has been implemented and has been taken advantage of
and is valid, subsisting and is binding upon the defendants.
19. Plaintiff no.1 and his branch of the family had complied
with all obligations that the DFS as set out in paragraph 18 of the
plaint. However as set out in paragraph 20, the plaintiffs were
shocked to learn that defendant nos.1, 3 and 16 and late Gautam
Kulkarni had through defendant no.21 (Respondent no.9) ventured
into a business which was competing and hence acted in breach. The
conduct of these persons is said to be in the teeth of Clause 5(xv) of
the DFS, against the family traditions and understanding of non-
compete. In paragraph 22, the plaint sets out that Clause 15 of the
DFS prohibits any party thereto or any Kirloskar Group company
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under control of such parties from engaging in directly competitive
business with one another. The concept of group companies and the
non-compete provisions have been referred to in paragraph 23 of
the plaint and according to the plaintiff it was incumbent on the
defendant nos.3 & 16 and the late Gautam Kulkarni to ensure that
there is no breach of the provisions of the DFS.
20. The cause of action to file the suit is said to have arisen on
21st June, 2017 when the plaintiffs learnt of the press release by
defendant no.21 which acquired 76% stake in defendant no.22 viz.
respondent no.10 which was a company engaged in the
manufacturing and sale of electric submersible pumps in direct
competition with the business of the plaintiff no.2. The continued
sale of such submersible pumps by defendant no.21 and by
defendant no.22 upon acquisition is in contravention of Clause 15 of
the DFS and therefore the plaintiffs are entitled to reliefs in the suit.
Since the family members had agreed not to enter competing
businesses as a matter of policy and tradition which has been
formally recorded in the DFS, allegations are that persons in charge
of defendant no.21 and thus, all defendants except defendant nos.7 to
9 who are family members of plaintiff no.1 have directly and
through their group entities engaged in malafide transactions to
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undermine the DFS and had committed gross and fundamental
violations of the DFS by systematically attempting to erode the basic
tenets of the DFS.
21. In paragraph 31 the plaint sets out that part cause of action
that had arisen at the 267 th Board Meeting of defendant no.23 when
defendant no.25 Chairman of the company announced that 1/3 rd of
the Board of Directors were liable for retirement by rotation and that
lots would have to be drawn.
22. According to the plaintiffs, the cause of action arose in June
2017 they learnt of the breach for the first time and thereafter once
again when the plaintiff no.1 was removed as a Director of
defendant no.23 and not re-appointed. Defendant no.26 was
meanwhile wrongly appointed as Director. In conclusion, the plaint
states that all the plaintiffs have all along performed and are ready to
perform their part of the DFS and that the defendants have been in
breach which if it allowed to continue will cause irreparable loss and
therefore defeat the basic objective of the DFS. The plaintiffs have
therefore sought injunctive reliefs.
23. The application under Section 8 is to be found at Exhibit D-
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2 to the appeal memo. The application is filed on behalf of defendant
nos.3 to 6, 12 & 14 in the suit. Similar applications have also been
filed by defendant nos.15 to 20. The applications set out the fact that
the suit has been filed for specific performance of the DFS and for
damages seeking declarations relating to non-appointment of
plaintiff no.1. All of the disputes in the suit are subject matter of the
arbitration agreement embodied in Clause 20 of DFS and therefore
the suit be referred to arbitration. The original agreement was in
possession of late Gautam Kulkarni and his family but that had been
produced in court and therefore the matter may be referred to
arbitration along with the applications for injunction. The
applications by defendant nos.15 to 20 are also on identical basis.
The appellants state that mere filing of the suit cannot frustrate the
arbitration clause and the provisions of the Act and therefore the suit
is required to be referred to arbitration.
24. I find that the original plaintiff no.1 has filed an additional
affidavit dated 30th March, 2021 placing on record an amendment
application filed in the suit and seeking to amend paragraphs 5 to
10 and the prayer clause in the suit in terms of the application. I
must note that the applicant has averred that the proposed
amendment does not change the nature of the suit. Essentially what
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is sought to be done is that certain supplementary averments are
sought to be included and consequentially some prayers but in
essence the applicant is clear that the substance in the suit has not
been altered. At the hearing of the appeal, certain additional
affidavits have also been filed by the other respondents who are
prima facie agreeable for the disputes in the suit referred to
arbitration.
25. Since the respondents are the successful party in the trial
court, let me first consider the judgments relied upon by them in the
first instance so as to examine the applicable law. In United India
Insurance (supra), Mr. Dada had relied upon paragraph 10 laying
emphasis on the fact that in an arbitration clause contained in an
insurance policy, the court had found that there is a specific
exclusion of certain disputes. If the insurer had disputed or had not
accepted liability, no difference or dispute arising could be referred
to arbitration. The court observed that as held by several earlier
judgments that an arbitration clause has to be interpreted strictly.
The clause in question pertaining to the insurance policy had already
been considered in an earlier decision in Oriental Insurance
Company11 and the court observed that such an arbitration clause
11 (2018) 6 SCC 543
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would only be activated if the dispute between the parties was
limited to quantum under the policy. Liability should have been
unequivocally accepted by the insurer. The arbitration clause would
come alive only if the insurer admits liability under the policy and
not otherwise. The High Court in that case had made no effort to
examine this aspect at all, and therefore misread and misapplied the
case of Vulcan Insurance Company Limited v/s. Maharaj Singh12.
The High court had also relied upon Duro Felguera S.A. v/s.
Gangavaram Port Ltd.13 The High Court had after considering clause
7 of the Insurance policy relied mainly on the decision of Duro
Felguera and Jumbo Bags Ltd. v/s. New India Assurance Co.Ltd. 14 and
allowed the petition by appointing a Sole Arbitrator. Clause no.7 did
contain the exclusion referred to above and hence the Supreme
Court found that reliance upon Duro Felguera will be of no avail
because in that case the court had not been called upon to consider
a clause of the kind that was involved in the case before it, whereas
the issue had already been considered by three Judge Bench in
Oriental Insurance Co. Ltd. following Vulcan Insurance Co. Ltd.
(supra). In Vulcan Insurance Co.Ltd. (supra) after considering a
clause of that nature, it was found that the insurance company had
12 (1976) 1 SCC 943
13 (2017) 9 SCC 729 MAD 1941
14 2016 SCC Online
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repudiated its liability to pay any amount towards loss or damage
and that dispute raised pertain to liability and the court held that the
dispute was not covered by the arbitration clause since a clause
excluded any aspect of liability and it was restricted to quantum. In
my view this judgment will not come to the assistance of the
respondents since in the case of United India there was an express
exclusion whereas in the present case on facts I do not find the any
express exclusion canvassed by Mr. Dada and Mr. Chinoy on a fair
reading of clauses 13 and 20 except conditionally upon expiry of
time.
26. In Indowind Energy (supra), the court observed in
paragraph 13 of that judgment it was fundamental that a provision
for arbitration to constitute an arbitration agreement for the
purposes of Section 7 should satisfy two conditions (i) it should be
between the parties to the dispute and (ii) it should relate to or be
applicable to the dispute. On facts it had been found that the
respondent therein Wescare had not entered into any agreement
with Indowind referring to an agreement dated 24 th February, 2006
which contain the arbitration clause with the intention of making
such an arbitration clause as part of their agreement. Wescare did
not make out a case that there had been exchange of statements of
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claim and defence in which it had alleged the existence of an
arbitration agreement and the same had been accepted and was not
denied by Indowind in defence. It was also not a case where a
Wescare had relied upon exchange of letters or correspondence
which provided a record of the arbitration agreement between the
parties and thus provisions of Section 7 of the Arbitration Act had not
been complied. Wescare had put forth the agreement of 24 th
February, 2006 as an agreement signed by the parties and containing
an arbitration clause but that agreement was between Wescare and
one Subuthi and not Indowind. It was not in dispute that an
appointment of an arbitrator could have taken place if there had
been a dispute between Wescare and Subuthi but when Indowind
was not a signatory to the agreement, the agreement cannot be said
to be binding on Indowind since it was not a party to the agreement.
Relying upon this, Mr. Dada contended that since several of the
parties especially respondent nos.2, 21, 22 and 23 were not parties to
the DFS. In these circumstances, Mr. Dada had contended that the
present arbitration clause would not cover the disputes in the suit
which related to parties other than those entities who are parties to
the DFS.
27. Mr. Chinoy on behalf of respondent no.2 placed reliance
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on paragraph 20 of Indowind (supra) to canvass the point that
Wescare had in that case referred to several transactions and
conduct of Indowind to enable the drawing of an inference that
Indowind was party to that agreement or that in some way it had
affirmed and approved the agreement which would therefore make
it binding upon Indowind. The Court had found that existence of
such an oral agreement was insufficient that although contract can
be entered into even orally or spelt out from correspondence, an
arbitration agreement is different from a contract. An arbitration
agreement can come into existence only in the manner contemplated
in Section 7 and that states that an arbitration agreement should be
in writing. It will not be sufficient for the petitioner in an application
under Section 11 to show that any oral contract existed between the
parties and therefore the contention of Wescare was required to be
rejected. The respondents seek to draw advantage from these
observations.
28. Mr. Dada and Mr. Chinoy both laid considerable emphasis
on the judgment in Vidya Drolia & Ors. (supra) in which the court
observed that they were bound by dictum of the Constitution Bench
Judgment in the case of S.B.P. & Co. v/s. Patel Engineering Ltd. (supra)
which held that the scope and ambit of the courts' jurisdiction under
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Sections 8 and 11 are similar. The application under Section 11 did
not set out in detail the disputes or claim but briefly referred to them.
There was a difference between a non-arbitrable claim and a non-
arbitrable subject matter. It was submitted that the claims in the suit
were not arbitrable ones. The learned counsel also submitted that in
Mayavati Trading v/s. Pradyuat Deb Burman 15 a three Judge Bench
had held that the legislature by inserting sub-section (6-A) to Section
11 and making amendments by the 2016 Act had legislatively
introduced a new regime so as to dilute and legislatively overrule the
effect and ratio of the judgment in Patel Engineering.
29. Reliance was also placed in that on paragraphs 48 and 59
of Duro Felguera. Mayavati held that in view of legislatively
overruling of the prior position in law as laid down by the Supreme
Court, it was difficult to agree with the reasoning contained in Duro
Felguera / Patel Engineering Ltd. since Section 11 (6-A) is confined to
the examination of the existence of an arbitration agreement, and
has to be understood in the narrow sense laid down in Duro
Felguera.
30. Mr. Chinoy referred to paragraph 97 to 99 of Vidya Drolia
and highlighted the fact that in Narbheram Power and Steel Private
15 (2019) 8 SCC 714
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Limited, a three Judges' Bench had decided a Civil Appeal from an
application under Section 11(6) in an insurance contract and
relying upon Vulcan Insurance (supra) the court held that the
disputes were not arbitrable in terms of the arbitration clause since
the insurer had not accepted the liability. The decision in
Narbheram(supra) was followed in Hyundai Engineering (supra)
wherein a similar arbitration clause had come into play. By virtue of
Narbheram and Hyundai, the three Judges' Bench of the Supreme
Court had affirmatively and in categorical terms held that the
question of non-arbitrability relating to the enquiry whether the
dispute was governed by the arbitration clause can be examined by
the courts at the stage of reference and may not be left unanswered
to be examined by the arbitral tribunal. In the present case I am
invited to find that the disputes in the suit were not arbitrable
31. Reliance was also placed by Mr. Chinoy on the observations
of the Supreme Court in paragraph 131 (ix) of Vidya Drolia. In Duro
Felguera the court had held that the Memorandum of Understanding
in question did not incorporate an arbitration clause. Reference was
made specifically to Patel Engineering and Boghara Polyfab Private
Limited to observe that the legislative policy was essentially to
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minimize the courts' interference at the pre-arbitral stage and this
was the intention of sub-section (6) of Section 11 of the Act.
Reference was once again made to paragraph 48 in Duro Felguera
which specifically stated that the arbitration agreement must have
within it a provision for resolution of dispute and it is for the court to
see if the agreement contains a clause which provides for arbitration
of the disputes which have arisen between the parties. Whereas
paragraph 59 of that judgment was found to be more restrictive and
required the court to see whether an arbitration agreement exists
nothing more, nothing less.
32. Vidya Drolia then observed that read with other findings it
would be appropriate to read the two paragraphs in Duro Felguera
as laying down the ratio that the court is required to see if the
underlying contract contains an arbitration clause for arbitration of
the disputes that had arisen between the parties nothing more and
nothing less. In paragraph 131(x) the court observed that in
addition to Garware Wall Ropes Ltd., Narbheram Power and
Hyundai Engineering had also rejected the application for reference
in Insurance Contracts holding that the claim was beyond the
arbitration agreement and not covered by it.
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33. In those cases, the decision in Vulcan Insurance was found
to apply early in the case of PSA Mumbai Investments PTE Ltd. The
Supreme Court had found that at the stage of reference that the
arbitration clause would not be applicable or govern the disputes
between the parties and the reference to arbitral tribunal was set
aside. Relying upon these aspects, the learned counsels for the
respondents have canvassed the non-arbitrability of the issues in the
suit.
34. In Essar Steel India Ltd. (supra), a single Judge of this Court
was considering an application under Section 11 for appointment
of an Arbitrator. The clause in the agreement reiterated that there
would be no arbitration where liability had been disputed. The
reference to arbitration was to be restricted only to those
situations where liability had been accepted and if the dispute
related only to quantum. This clause was similar to the other
insurance contracts to which I have referred above and contained
a clear and unequivocal stand on behalf of the insurance
company that only if liability was admitted, differences and
disputes could be referred to arbitration. It was clearly agreed that
no difference of dispute would be referable to arbitration if the
insurance company had disputed or had otherwise not accepted
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liability under the policy. Essar had sought to contend that in the
event of a mixed dispute relating to liability and quantum, it was
necessary to refer the disputes to arbitration but the court found
on facts that this contention was contrary to what the parties had
agreed to. The clause in question did not contemplate three
situations. It contemplated only a situation where disputes related
to quantum and if disputes related to liability and quantum, it is
only the dispute relating to quantum that could be referred to
arbitration. Relying upon these observations Mr. Chinoy had
sought to contend that in the present case even if some disputes in
the plaint are found to be referable to arbitration, and for that
reason the suit cannot be referred under Section 8 to arbitration
only if a part of the relief are referable to arbitration. However, I
am of the view that the facts at hand do not demonstrate any
exclusion canvassed by Mr. Dada or Mr. Chinoy. The only
exclusion is spelt out in Clause 20 and are driven by expiry of
time and dissolution of BVH and Asara.
35. In Mahanagar Telephone Nigam (supra), the Supreme
Court was considering the existence of an arbitration agreement
by inference through documents and proceedings before the
arbitrator and the court examined the effect of the principle of
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estoppel qua denial of such an agreement once the party consents
to refer to disputes before the court. It was held in that case that
MTNL after participating in the proceedings conducted by the sole
arbitrator filed its claim and counter claim and no objection was
raised before the sole arbitrator. There was no arbitration
agreement in writing between the parties. Appellant MTNL had
consented to refer the disputes to arbitration before the Delhi
High Court and was therefore estopped from contending that
there was no written agreement to refer disputes to arbitration.
36. The doctrine of "Group of Companies" had been invoked by
the court in that case and following that case in a situation where
the signatories have been bound to whether under the Arbitration
agreement. The group of companies' doctrine could be invoked to
bind the non-signatory affiliate of a parent company or the
inclusion of a third party to arbitration. If there is a direct
relationship between the party which is a signatory to the
agreement, direct commonality of the subject matter, the
composite nature of the transaction between the parties and
therefore it was contended that it was a fit case on facts which
demonstrated that there was mutual intention of all the parties to
bind the signatories and the non-signatory affiliates in the group.
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The doctrine provided that a non-signatory may be bound by an
arbitration agreement whether parent or holding company or a
member of the group of companies is a signatory to the
arbitration agreement and the non-signatory entity in the group
had been engaged in negotiations or performance of commercial
contracts or had made statements indicating its intentions to be
bound by the contract. Then in such case is the non-signatory
will also be bound and benefited by the relevant contracts. Canara
Bank had objected to joinder of CANFINA in the arbitration
proceedings. On that issue, the Supreme Court found that
normally in an arbitration agreement only the company that
entered into the agreement would be bound by it and on
principles of contract law, an agreement entered into by one of
the companies in a group cannot bind the other members of the
same group as each company is a separate legal entity and has
separate legal rights and liabilities. However, a non-signatory
was found to be bound by an arbitration agreement on the basis
of the group of companies' doctrine.
37. Mr. Chinoy had contended that in paragraph 10.15 of the
judgment in MTNL the court found that there was no merit in the
objections of Canara Bank in opposing joinder of CANFINA since
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the bank had vide its letters enclosed a draft arbitration
agreement to MTNL wherein it was clearly stated that the
arbitration would be between three parties viz. Canara Bank,
CANFINA on one part, and MTNL as the second. Mr.Chinoy
submitted that in the present case the non-signatories were not so
bound. The Supreme Court did finally invoke the Group of
Companies doctrine to join CANFINA i.e. the wholly owned
subsidiary of Canara Bank.
38. The order of the Delhi High Court in the case of R V
Solutions (supra) refers to the decision in Cheran Properties
(supra) and Ameet Lalchand Shah (supra) and holds that there
was a clear commonality of facts which binds the defendants
together. Defendant nos.1 to 4 in that case were said to be ex-
employees of the plaintiff. The five defendants were said to have
caused loss and damage to the plaintiff and it was clear that there
was parties' commonality of interest which would warrant that
the matter be referred to arbitration. Objections were found to be
lacking in merit.
39. In HPCL (supra) the Supreme Court was considering a civil
appeal from an order rejecting an application under Section 8.
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The Court observed that where an arbitration clause exists, the
court has a mandatory duty to refer disputes to arbitration
between the contracting parties and that the civil court had no
jurisdiction to continue with the suit once an application had
been filed. Reliance has been placed on paragraphs 14 by Mr.
Madon which referred to the decision of the Supreme court in P
Anand Gajapathi Raju v/s. P.V.G. Raju 16. In Raju (supra) the
Supreme Court had held that the language of Section 8 was
peremptory in nature. In the event of an arbitration clause was
subsisting, it was obligatory for the court to refer parties to
arbitration and nothing remains to be decided in the original
action once an application is made. If a party to a suit moves the
court contending that there was a clause for arbitration, it was
mandatory for the civil court to refer the dispute.
40. In the case of HPCL, the existence of an arbitration clause
was accepted by both parties but the applicability was disputed
and the dispute to applicability was recognized and accepted by
the lower court. The Supreme Court held that once the existence
of an arbitration clause is admitted, the mandatory language of
Section 8 would require reference of the dispute to arbitration.
16 (2004) SCC 539
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Meanwhile in Ameet Lalchand Shah (supra) the attention of the
Supreme Court was considering an issue relating to the
arbitration clause in the principal agreement, inter-connectivity
of agreements with the principal agreement and determination of
the common purpose in the context of ascertaining the existence
of an arbitration agreement under Section 7. The Supreme Court
allowed the appeal and all four agreements were referred to
arbitration. The court observed that the language of the
amendment of Section 8 of the Act, it clearly applies
notwithstanding any prior judgment decree or order of the
Supreme Court or any other court.
41. The High Court in that case had laid emphasis on the
words "unless it finds that prima facie no valid agreement exists".
The High Court while distinguishing Sukanya Holdings and
Chloro Controls observed that Sukanya was not overruled by
Chloro Controls. Paragraph 29 of the judgment impugned in
Ameet Lalchand Shah (supra) observed that the change in Section
8 is that the court in cases where arbitration agreements are
relied on is to refer disputes to the suit, notwithstanding any
judgment or decree or order of the Supreme Court or any court
and refer parties to arbitration unless it finds that prima facie no
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valid arbitration agreement exists. The court opined that Sukanya
was not per se overruled because the exercise of whether an
agreement exists or not in relation to disputes that are subject
matter of the suit had to be carried out. If there were causes of
action that cannot be subjected to arbitration or the suit involves
adjudication of the role played by parties who are not signatories
to the arbitration agreement. It has to continue because prima
facie no valid arbitration agreement exists between such non-
parties and others, who are parties.
42. In Cheran Properties (supra), the Supreme Court reiterated
that the Group of Companies doctrine is intended to facilitate the
fulfillment of mutually held intention of the parties. The effort
should be finding the essence of a business arrangement and to
unravel from a layered structure of commercial arrangements,
the intention to bind someone who is not formally a signatory but
assumes obligations to be bound by the actions of a signatory. Mr.
Chinoy drew my attention to the fact that in paragraph 18 the
Court had considered the decision in Indowind where the
fundamental requirements would be that the dispute should be
between the parties to the dispute and should be related to or be
applicable to the dispute at this stage were not satisfied. The
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decision in Indowind was followed by a two Judge Bench in S.N.
Prasad v/s. Monnet Finance Limited 17 relating to a guarantor to a
loan who was not party to the loan agreement between the lender
and borrower and whether such a guarantor could be made a
party to a reference to arbitration in relation to the repayment of
the loan.
43. In those set of circumstances, the Supreme Court held that
an arbitration agreement between the lender on one hand and the
borrower and one of the guarantors on the other, cannot be
deemed or construed to be an arbitration agreement in respect of
another guarantor who was not a party to the arbitration
agreement and hence there was no arbitration agreement as
defined under Section 7 of the Act as between the opposing party
and the applicant. English law had evolved the 'Group
Companies' doctrine under which an arbitration agreement
entered into by a company within a group of corporate entities
can in certain circumstances bind non-signatory affiliates. The
principle evolving entailed that a non-signatory party could be
subjected to arbitration provided transactions were within the
Group of Companies if there was a clear intention of the parties to
17 (2011) 1 SCC 320
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bind both the signatory as well as the non-signatory parties.
Thus, the intention of the parties who is very significant and
which had to be established to hold the scope of arbitration can be
said to include the signatory and non-signatory, a direct
commonality of the subject matter was also a requirement.
Indowind on the other hand arose from proceedings under
Section 11(6).
44. Paragraph 23 of Cheran Properties (supra) to my mind is of
relevance when the court observes that the law recognizes that in
modern business transactions are often effectuated through
multiple layers and agreements. There may be transactions
within a group of companies and the circumstances in which they
have entered into them may reflect an intention to bind both
signatories and non-signatories. The Group Companies doctrine
is essentially intended to facilitate fulfillment of a mutually held
intent between parties. The question is whether such mutually
held intent is to be found to exist in the facts at hand. Cheran
Properties (supra) examines in some depth, the principles for
holding a non-signatory to be bound by an arbitration agreement.
Hence, I may refer to paragraph 23 of the plaint which affirms
the Group of Companies concept.
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45. In my view, the present set of facts clearly invite a finding
that all parties are bound by the arbitration clause and for
referring the suit to arbitration. Indowind was a case where the
Wescare desired an inference to be drawn that Indowind was a
party to the contract, although admittedly, there was no
agreement between Indowind and Wescare. Wescare had an
agreement with Subuthi but Indowind was not a signatory.
Cheran Properties was a case which was post award unlike
Indowind.
46. Dealing with the objections of the respondent to the
composition of the arbitral tribunal. Narayan Prasad Lohia
(supra) offers a solution. The Supreme Court had held that the
reference to two arbitrators in the agreement did not mean that
the agreement itself is invalid. The two arbitrators should under
Section 11(3) appoint a third. The appointment of a third should
preferably be made at the beginning. It may be made at a later
stage if and when differences occur so that the proceedings are
not frustrated. Furthermore, it was held that if the two arbitrators
do not disagree and issue a common award, the award would not
be frustrated and the award would prevail. No party should be
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permitted to resile from such an award. Hence, although Section
10 of the Arbitration Act provide that the number of arbitrators
shall not be in even number, the question was whether Section 10
was a derogable provision and the answer would depend on
whether a party had a right to object to the composition of the
tribunal and if at all at what stage? The Court observed that the
party can always take up a challenge against the composition of
the tribunal before the tribunal itself under section 16. In
conclusion the Supreme Court holds that even if the parties
provide for appointment of only two arbitrators that would not
render the agreement invalid. On facts I do not find merit in the
challenge to the constitution of the tribunal at this stage.
47. Drawing out a conspectus of the contents of the plaint the
applications under Section 8, the opposition in terms of affidavit
and written submissions and the submissions made at the bar in
the appeal, I am of the view that this is clearly a case where the
impugned order is required to be set aside and the suit referred to
arbitration. The plaint as I see proceeds on the basis of the DFS.
Every relief sought in the plaint pertains to the DFS. There is
nothing that is beyond the scope of the DFS. Prima facie I find that
there is clearly a commonality of facts which binds the parties
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together. The Group Companies doctrine can clearly be invoked
in the present case. The facts as narrated in the plaint when read
with the DFS clearly reveals that circumstances exist to establish
the mutual intention of all parties to refer disputes to arbitration.
I have examined the Deed of Family Settlement. Although the
parties to the DFS are five in number, it is clarified that they are
individually referred to as "Party" and collectively as "Parties" and
each one of them represents the "respective branch" of the family
and each member of the family has endorsed their consent in
favour of the parties to the DFS which consents were annexed at
Annexure 1 to 17.
48. All the family members are bound by the DFS. Recitals
indicate, in particular recital 'D', that the family members
apprehended that differences of opinion may arise between the
parties in relation to ownership, management and control of the
Kirloskar Group. The Group of Companies is defined in the
agreement. Thus, the group company doctrine is built into the DFS
itself, albeit not in the manner extracted in the judgments that I
have referred to.
49. Prima facie, the entire group appears to be bound by the
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DFS. "Kirloskar Family" is defined to mean and include all lineal
descendants and ascendants of the parties. In my view, although
the Kirloskar Group is defined under the agreement, the group
companies' doctrine will apply across the board to incorporate or
to cover all these entities which are before the court and any new
entity under the family umbrella. The recitals and clauses refer to
various group entities. The definition of "Conditional Event" also
refers to respondent no.2. Respondent no.9 also finds reference in
the agreement and in particular the definition of "Designated
Company A".
50. Reference to respondent no.11 is to be found inter alia in
Clause no.12. Prima facie it appears that it is only respondent
no.10 which does not find a specific reference in the DFS
probably by virtue of the acquisition of respondent no.10 being
later in point of time. However, in the facts of the case, I am of the
view that the intention of the DFS was clearly to capture all
entities within its fold which are under the ownership and
management of the parties and their family members. As far as
BVH and Asara are concerned, references are to be found to these
entities as well in the agreement.
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51. I am of the prima facie view that the arbitration agreement
exists, is valid and it covers all the parties and there is no question
of any of the disputes in the suit not being arbitrable whether in
respect of subject matter or in law. It is therefore appropriate to
examine Clauses 13 and 20 to see whether there is any exclusion
of subject matter of arbitration. Clauses 13 and 20 are reproduced
below for ease of reference;
"13. The parties agree that the control and management of
Kirloskar Institute of Advance Management Studies
(KIAMS) and Kirloskar Foundation (KF), which are
promoted, managed and run by the parties, shall
continue to be managed and run jointly by the Parties.
The Parties shall ensure smooth functioning and running
of KIAMS and KF at all times. The Parties further agree
that provisions of Clause 12(ii) to the extent applicable
shall apply mutatis mutandis. The Parties will jointly
ensure that amendments required, if any, shall be made
to the relevant byelaws/articles/deeds/documents, etc. In
the event of any difference of opinion in regard to
matters set out in this Clause, the same shall be resolved
by arbitration only and none of the Parties shall resort to
any court or other litigation."
"20. Any issue arising out of interpretation of this DFS
including schedules thereto shall be resolved, as far as
possible, unanimously. If there is no unanimity, the issue
will be referred to two arbitrators, namely, Shri Anil N.
Alawani and Shri Chandrashekhar H. Naniwadekar,
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whose decision will be final and binding. If there is a
difference of opinion between the two, the matter will
be referred to Shri Shrikrishna N. Inamdar, whose
decision shall be final and binding.
Provided that the said arbitrators shall not entertain
any disputes or claims under this DFS, save and except
under Clause 13 hereof, after expiry of 3 years from the
date of this DFS or dissolution of BVH and Asara,
whichever is later."
52. The contention of the respondents 1 and 2 is that by virtue
of Clause 13 in the event of differences of opinion in relation to
matters pertaining to the smooth functioning and running of only
KIAMS and KF can there be an arbitral reference beyond the
period of three years. That in my view is an erroneous
interpretation. Reference to clause 20 will reveal that "any issue"
arising out of interpretation of the DFS including that of the
scheduled entities are required to be resolved unanimously and
in the absence of unanimity between the parties as in the present
case, it is to be decided by reference to two arbitrators who are
named in clause 20.
53. As we have seen in the case of Narayan Lohia (supra),
reference to two arbitrators does not render the provision non-
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est or null and void. This is only an aspect which will arise in the
event of disagreement between the two arbitrators. The arbitrators
in question can, as contemplated in the judgment of Narayan
Lohia, appoint a third right at the outset or they would choose to
do so at a later stage. That is a matter which the tribunal will
consider and it is not for this court to suggest a course of action.
The fact remains that clause 20 is alive and operates. It will
continue to operate despite the expiry of three years from
execution of the DFS since the BVH and Asara are admittedly not
dissolved. These two entities are not even parties to the suit but
they find reference in the DFS itself in particular in clause no.4, 5
and 7 apart from clause 20. Since it is admitted that BVH and
Asara are not dissolved, the arbitration agreement contained in
clause 20 will certainly survive notwithstanding any
interpretation that may be placed on clause 13.
54. Clause 13 relates to disputes pertaining to KIAMS and KF
and there is no quarrel between the parties as far as that is
concerned. The issue is relating to disputes that have arisen in
management of other entities. Several other entities are also to be
found in Schedule I which do not find specific reference in the
body of the DFS. 18 entities in all are listed in Schedule I to the
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DFS that includes respondent nos.2, 9, 11, BVH and Asara.
Acquisition of another entity viz. respondent no.10 would still
be encompassed within the scope of the DFS because it is a
company apparently under the ownership, management and
control of Kirloskar family member(s).
55. Having so found, it is necessary to mention that save and
except for the plaintiffs who are respondent nos.1 and 2 and
respondent nos.6 to 8, none of the other respondents or the
appellants have opposed to reference to arbitration. The parties
who have not filed appeals and but who had applied under
Section 8 have all filed affidavits as can be seen from affidavits
filed by Amit Kumar Das on behalf of respondent no.9, Pawan
Kumar Agarwal on behalf of respondent no.10, Madhav
Ramchandra Chandrachud on behalf of respondent no.11, all
dated 15th February, 2021 and the joint affidavit of respondent
no.12, 13 and 14 Sarvashree Anil C. Kulkarni, Chandrashekhar H.
Naniwadekar and Mahesh Chhabria who are Directors of
respondent no.11 Kirloskar Proprietary Ltd.
56. Mr. Dada had contended that the affidavits of these persons
were not unqualified but were conditional. However, in my view
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these are all aspects that is for the tribunal to consider. In the
event of a challenge under 16 the mere fact that the affidavits
states that they have no objection to reference to arbitration
without prejudice to their contentions and without prejudice to
the fact that they are not parties to the DFS will be considered by
the tribunal. As far as the court is concerned, under section 8 all
that needs to be seen is whether prima facie there exists an
arbitration agreement, aspects of non-arbitrability is something
that has also been considered by me and looking at the prayers in
the suit, all of them clearly arise from the DFS and specific
performance of the parties' obligations under the DFS.
Declarations sought injunction sought and damages are all as a
result of the relationship inter se the parties to the DFS, the family
and the family members, all of whom are bound by the provisions
of the DFS. Clause 20 will therefore operate across the board, it
continues to operate even after expiry of three years for reasons
set out above.
57. The contents of affidavits in reply filed on behalf of
respondent no.1 dated 8th February, 2021 and the affidavit filed
on behalf of respondent no.2 also dated 8 th February, 2021 are of
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no avail. The mere pendency of an application for amendment
also is of no consequence. It is not possible to accept a situation
where parties to an arbitration agreement seek to deny the effect
and operation of the arbitration agreement once an application
under section 8 is filed, by moving amendment applications. This
application cannot be allowed to defeat a reference to arbitration.
Even otherwise it is the case of the plaintiffs that the amendment
does not change the nature of the suit. The nature of the suit as I
have observed is clearly something that pertains to specific
performance of the parties' obligations under the DFS. Thus, even
by that reasoning, pendency of the amendment application cannot
affect the fate of the applications under section 8 and those must
succeed.
58. The impugned order I am afraid does not consider any of
these aspects and is required to be set aside. It does not decide
whether there exists an arbitration agreement. It does not record
a finding on the existence of the clause or the legal effect of such
a clause being in operation. In paragraph 11 of the order, the
learned Judge records that the applications by the defendants
have to be examined to see whether they are 'just and legal to
refer the suit to arbitration as asked for". Having gone through
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the deed of family settlement, the court refers to the various
schedules and quotes from those clauses. In paragraph 12 the
order refers to BVH and Asara and states that they are not
included in the present matter viz. not parties to the suit. The
order also observes that the suit is "mostly filed for reliefs against
defendant nos.1 to 21 and 23 and therefore company 17 and 18
are subject matter in this case" . This part of the order is not clear
but it appears to refer to BVH and Asara which are described at
item nos.17 and 18 of Schedule I to the DFS. The interpretation of
the learned Judge on clauses 13 and 20 cannot be sustained. In
paragraph 14 the order once again records that BVH and Asara
are not subject matter. The order observes that the deed was
executed on 11th September, 2009 and came to an end on 10 th
September, 2012. The learned Judge has proceeded on the basis
that the agreement had expired by passage of three years.
59. In my view this is an incorrect interpretation of clause 13.
BVH and Asara are very much operational. It is nobody's case that
these companies are not functioning. If these companies were
functioning there is no manner of doubt that clause 20 would
continue to bind the parties. The finding to the contrary is clearly
erroneous and the order is liable to be set aside. I am unable to
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agree with the findings of the learned judge that the defendants
had not established that the court had no jurisdiction and only the
arbitrators could adjudicate upon the disputes.
60. As we have seen, the decisions in United India Insurance
(supra) and Indowind (supra) do not come to the assistance of the
respondents nor does the decision in Essar Steel (supra). The
arbitration agreement in the present case contains no express
exclusions. It in fact is all pervasive matters of the businesses of
the family branches and will thus prima facie operate across the
board and inclusively as contemplated by the family members.
61. In this respect, it is necessary to refer to paragraph 16 of
Vidya Drolia where the Supreme Court observes that arbitration
being a matter of contract, the parties are entitled to fix
boundaries and limit the jurisdiction and the legal authority of the
arbitrator. In the present case, all the disputes appear within the
scope of the DFS. The boundaries in my view have been fixed by
the DFS and not the suit. All reliefs in the suit are subsumed in
the DFS. A reading of clause 13 and 20 would therefore entail that
reference to arbitration is a foregone conclusion. This is not a
case where there is any bifurcation of subject matter or of causes
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of action. Every claim and relief in the suit prima facie falls
within the scope of the proposed arbitral reference. The averment
in clause 16 of the plaint is that "the companies" under
ownership, management and control of family members are
bound by the DFS. It is not restricted to group companies existing
as on that date. It would therefore include an entity like
respondent no.10.
62. The Supreme Court has in Anand Gajapathi Raju and
HPCL, held that the judicial authority is bound to refer to a
matter to arbitration once the existence of a valid arbitration
clause is established. This in my view has clearly been established
on facts. The finding of the learned Civil Judge that the clause
had expired along with the DFS is erroneous. The fact that DFS
survives cannot be disputed. In fact, as long as KIAMS and KF are
operational, the DFS would continue to govern the relationship
between parties. So, will it in respect of all other entities in the
schedules in the agreement. Save and except that the reference to
arbitration in respect of all entities and persons other than KIAMS
and KF would be permissible only if BVH and Asara had not been
dissolved and in the present case, these two entities have in fact
not been dissolved.
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63. It is one thing to say that applications under Section 11 and
Section 8 are similar in nature but when one considers the scope
of these two sections, as drawn out in the comparison, in
paragraphs 74 & 75 of Vidya Drolia, it is not difficult to see that
post the amendment a party to an arbitration agreement or any
person claiming through or under him, can apply for referring a
suit to arbitration. A judicial authority is then bound to refer the
parties to arbitration unless it finds that prima facie no valid
arbitration agreement exists.
64. In my view, provisions of Section 8(2) have also been
complied with inasmuch as, the original agreement is said to have
been filed in court. Upon such compliance, there is no reason
why the parties ought not to be referred to arbitration. Thus, I am
of the view that the District Court before whom the suit was
bound to refer parties to arbitration.
65. The onus of applying is on a party to the arbitration
agreement thus any party to the arbitration agreement may apply.
Alternatively, any person claiming through or under such party
may apply. In the present case, there is no disputing fact that the
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appellants are parties to the arbitration agreement. Invoking the
group doctrine, I am of the view that all other parties in the suit
are also bound by the arbitration agreement.
66. Section 16 of the Arbitration Act empowers the arbitral
tribunal to rule on its own jurisdiction. If the court were to decide
on these aspects, at this stage of Section 8 application, powers of
the arbitral tribunal under Section 16 would be prejudiced and
Section 16 may be rendered infructuous and redundant That is
clearly not the intention of the legislature which provides that an
arbitral tribunal may rule on its own jurisdiction including ruling
on objections with respect to existence or validity of the
arbitration agreement. There are conditions as to when such an
objection may be raised and those are provided in Section 16. For
ease of reference section 16 is reproduced below:
16. Competence of arbitral tribunal to rule on its
jurisdiction.--
(1) The arbitral tribunal may rule on its own jurisdiction,
including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for
that purpose,--
(a) an arbitration clause which forms part of a contract
shall be treated as an agreement independent of the other
terms of the contract; and
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(b) a decision by the arbitral tribunal that the contract is
null and void shall not entail ipso jure the invalidity of the
arbitration clause.
(2) A plea that the arbitral tribunal does not have
jurisdiction shall be raised not later than the submission
of the statement of defence; however, a party shall not be
precluded from raising such a plea merely because that
he has appointed, or participated in the appointment of,
an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope
of its authority shall be raised as soon as the matter
alleged to be beyond the scope of its authority is raised
during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases
referred to in sub-section (2) or sub-section (3), admit a
later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to
in sub-section (2) or sub-section (3) and, where the
arbitral tribunal takes a decision rejecting the plea,
continue with the arbitral proceedings and make an
arbitral award.
(6) A party aggrieved by such an arbitral award may
make an application for setting aside such an arbitral
award in accordance with section 34."
67. In my view the reliance placed by respondents on
judgments dealing with exclusions under insurance contracts
will not come to their assistance. The observations of the Supreme
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Court in Vidya Drolia in paragraph 98 and 99, are with specific
reference to section 11(6). The entire controversy in this case can
be said to rest by reason of paragraph 126 of Vidya Drolia. Even if
it appears that a prima facie view of the arbitration agreement
would be inconclusive and if it requires a detailed consideration,
the matter should be left for final determination of the arbitral
tribunal selected by parties. Paragraph 126 of Vidya Drolia read
with paragraph 138 makes it clear that the ratio of Patel
Engineering Ltd. on the scope of judicial review by the court while
deciding in application under section 8 is no longer applicable.
The scope of judicial review and jurisdiction of the Court under
Section 8 and 11 though identical are extremely limited. In
paragraph 138(d) in Vidya Drolia records as follows;
"138(a) ......
(b) .......
(c) .......
(d) Rarely as a demurrer the court may interfere at the
Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is nonexistent, invalid
or the disputes are non-arbitrable, though the nature and
facet of non-arbitrability would, to some extent, determine
the level and nature of judicial scrutiny. The restricted and
limited review is to check and protect parties from being
forced to arbitrate when the matter is demonstrably 'non-
arbitrable' and to cut off the deadwood. The court by default
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would refer the matter when contentions relating to non-
arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and
inconclusive; when facts are contested; when the party
opposing arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings. This is not the stage for
the court to enter into a mini trial or elaborate review so as to
usurp the jurisdiction of the arbitral tribunal but to affirm
and uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism."
Thus, at the section 8 stage, one cannot enter into a mini trial to
ascertain arbitrability.
68. In conclusion, I may refer to the fact that we are not
concerned with any allegations of fraud in the instant case and in
paragraph 223 of Vidya Drolia the Supreme Court records at the
cost of repetition section 8 mandates reference to arbitration by a
court of law unless it finds prima facie that there is no valid
arbitration agreement. The negative language used as observed
is, required to be taken into consideration while analyzing the
section and the court should refer a matter if the validity of the
clause cannot be determined on a prima facie basis. Furthermore,
in paragraph 225, the Supreme Court observes that courts while
analyzing a case under section 8 may choose to identify the issues
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which require adjudication pertaining to validity of the
arbitration agreement. If the court cannot rule on the invalidity
of the arbitration agreement on a prima facie basis, then the court
should stop any further analysis and simply refer all the issues to
arbitration.
69. Thus, the dominant purpose of Section 8 is undoubtedly to
refer matters to arbitration, if prima facie, the arbitration
agreement is not invalid. In paragraph 227 Vidya Drolia
reiterates that although the statutory language of section 8 and 11
are different, materially they do not vary, both sections provide
for limited judicial interference at the reference stage. In
paragraph 229 the Supreme Court concludes that the court under
Section 8 and 11 has to refer a matter to arbitration or to appoint
an arbitrator as the case may be unless a party has established a
prima facie case of non-existence of a valid arbitration
agreement by summarily portraying a strong case that it is
entitled to such a finding. Useful reference may be made to the
observations of D.Y.Chandrachud, J. in A. Ayyasamy v/s. A.
Paramasivam & Ors.18 that "All disputes relating to rights in
personam are considered to be amenable to arbitration while
18 (2016) 10 SCC 386
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rights in rem are required to be adjudicated by courts and public
tribunals."
70. In my view in the facts at hand, the appellants have clearly
established that a valid arbitration agreement exists. On the other
hand, it is not possible to hold at this stage that the arbitration
clause in the DFS is invalid. Reference to arbitration is thus
inevitable.
71. As far as the amendment application in the suit is
concerned, the amendment in the suit can also be considered by
the arbitral tribunal. Impleading of one of the named Arbitrators
as a defendant in the suit will not affect the reference to
arbitration and the arbitrators and parties shall act in accordance
with law to take remedial steps. In that view of the matter, the
appeal must succeed and I pass the following order;
(i) Appeal is allowed.
(ii) Impugned order and judgment of the Civil Judge, Senior
Divison, Pune, passed on 7th December, 2020 is hereby
quashed and set aside.
(iii) Exhibit nos.98, 104, & 109 on the record of the trial
court are allowed.
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(iv) The disputes in the suit are referred to arbitration.
(v) Appeal disposed in the above terms.
(vi) In view of disposal of the appeal, interim application is
also disposed.
(vii) Each party shall bear their own costs.
At this stage, Mr. Dada and Mr. Kamat appearing on
behalf of defendant nos.1 and 6 to 8 seek stay of the
order. Order is stayed for six weeks. In the meantime,
they make a statement that they will not proceed with
the suit.
(A. K. MENON, J.)
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