M/S Spentex Industries Ltd vs Mr O.P. Lohia
2009 Latest Caselaw 3667 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   A.A. 178/2009

%                                   Date of decision:10.09.2009

M/S SPENTEX INDUSTRIES LTD                              ....Petitioner
                         Through: Mr.Sudhir Pandey, Advocate

                                Versus

MR O.P. LOHIA                                        ... Respondent
                         Through:   Mr. Rajiv Nayyar, Sr. Advocate with
                                    Mr. Ajit Warrier, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.     Whether reporters of Local papers may
       be allowed to see the judgment?                  Yes

2.     To be referred to the reporter or not?           Yes

3.     Whether the judgment should be reported          Yes
       in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The petition under Section 11(4) of the Arbitration Act, 1996 is

preferred with respect to a Share Purchase Agreement dated 17th

February, 2006. The counsel for the sole respondent appeared on

the very first date when the petition came up for admission and

sought time to file reply. Reply is shown to have been filed on 2nd

September, 2009. The counsel for the petitioner today sought time

to file rejoinder. However, considering the nature of the

proceedings and a defect found in the petition, the request for time

has been declined.

2. The Share Purchase Agreement dated 17th February, 2006

(supra) is between the petitioner on the one hand and "the persons

as detailed in Annexure-I, each of them acting through their duly

constituted attorney Mr Om Prakash Lohia" collectively referred to

as "Sellers" on the other hand. Anexure-I to the Agreement gives

particulars of 11 persons as sellers, including Mr Om Prakash Lohia.

3. The petitioner has impleaded Mr Om Prakash Lohia only as the

respondent to the present petition. The Arbitration clause in the said

agreement is for reference of the matter to arbitration with the

arbitration panel consisting of three arbitrators; one to be appointed

by each of the parties and the third arbitrator to be nominated by the

two arbitrators so appointed.

4. The petition has been preferred stating that arbitrable disputes

having arisen, the petitioner issued notice to the respondent i.e., to

Mr Om Prakash Lohia only, nominating its arbitrator and calling

upon the said Mr Lohia to appoint an arbitrator from his side within

30 days and the said Mr. Om Prakash Lohia failed to appoint the

arbitrator.

5. This court is of the opinion that once the agreement of the

petitioner was with 11 persons, this petition impleading one only of

the said 11 persons is misconceived, even if the other 10 persons had

executed the said agreement through the said Mr Om Prakash Lohia.

Thus it was felt that no purpose would be served in adjourning the

matter and the counsel for the petitioner was asked to explain. It

may also be stated that the respondent also in the reply filed by him

has inter alia taken a plea that the petition is bad for non-joinder of

necessary parties and liable to be dismissed. The respondent has

also filed an application IA.No.9268/2009 under Order 1 Rule 9 and

Order 7 Rule 11 of the CPC which has also come up before this court

today for the first time for the reason of non-joinder of necessary

parties. The counsel for the petitioner has of course contended that

advance copy of the application was not furnished to him; though

from the index of the said application on record the advance copy of

the same is shown to have been served on the counsel for the

petitioner on 23rd July, 2009 itself.

6. The counsel for the petitioner while not disputing that the

agreement of the petitioner was with 11 persons and not with the

respondent alone, first contended that he be given an opportunity to

implead the others as a party to the present petition. However, it

was informed that the same was not possible since the defect was

not only of the non-joinder in this petition of all the parties to the

agreement containing an arbitration clause but also of the petitioner

not issuing the notice required to be issued under Section 11(4) (a)

of the Act to the other parties to the agreement besides the

respondent.

7. The counsel for the petitioner next contended that if the

petitioner was required to issue notice to all the 11 persons, each of

them may appoint an arbitrator of his own making the arbitration

process inconvenient and impracticable. However, the said

contention of the counsel for the petitioner is not only untenable but

even otherwise contrary to the agreement. It is untenable because if

that be the agreement between the parties, the petitioner can act

only in consonance therewith and cannot unilaterally change the

agreement of arbitration for the reason of the same being

impracticable. The aforesaid contention of the counsel for the

petitioner is contrary to the agreement because, as pointed out by

the senior counsel for the respondent, "parties" is defined in Article

1.1 of the agreement as meaning the Purchaser and the Sellers

collectively. The senior counsel for the respondent has contended

that in the light of the said definition of "parties", the arbitration

clause is to be read as entitling the petitioner as purchaser to

appoint one arbitration and all the 11 persons described as sellers in

the agreement to together/collectively the other arbitrator and the

said two arbitrators appointing the third arbitrator. That is the

correct meaning/interpretation of the agreement and the argument

made by the counsel for the petitioner for not giving notice for

appointment of arbitrator to all the 11 persons appears to be

specious and an afterthought.

8. It is also felt by this court that once the agreement is for 11

sellers to jointly/collectively appoint an arbitrator, the notice calling

upon only one of them to appoint the arbitrator or impleading one

person only as party to this petition is not permissible in law.

9. The counsel for the petitioner next contended that the

respondent Mr. Om Prakash Lohia was the attorney of all the other

sellers in the agreement. However, that would also not change the

position. Even if the respondent was the attorney of all the others,

the same would not entitle the petitioner to institute this petition

against the respondent only. Merely because a party has appointed

another as the attorney does not permit the attorney alone to be

sued or impleaded as a party and the party to the agreement remains

a necessary party in his or her name for the purposes of the court

proceedings and these proceedings. Section 230 of the Contract Act,

in the absence of a contract to the contrary, provides that an agent is

not personally bound by he contract made on behalf of the Principal.

The arbitration clause while providing for one arbitrator to be

appointed by the sellers i.e. all of them collectively, does not say

"acting through Mr. O.P. Lohia". Thus, there is no agreement to be

contrary in the present case, i.e. by the Principals authorizing the

agent to appoint arbitrator on their behalf, in which case it could

perhaps have been urged that since Mr. O.P. Lohia was empowered

in the agreement itself to appoint arbitrator not only for himself but

for other sellers also, notice to him alone or petition against him

alone is maintainable.

10. It may also be noticed that the notice under Section 11(4) of

the Act issued by the petitioner to the respondent alone also, has not

been served on the respondent in his capacity as the attorney of all

the other sellers. Neither is there any averment in the petition that

the respondent is being sued in this proceedings on behalf of any

other person.

11. It was also enquired from the counsel for the petitioner

whether the respondent under the power of attorney under which he

had executed the agreement, was entitled to be the attorney of the

others in relation to these proceedings. The counsel for the

petitioner stated that the power of attorney had not been filed in this

court. The senior counsel for the respondent however handed over

in the court a photocopy of a power of attorney dated 14th February,

2006 i.e., of a date prior to the date of the agreement dated 17th

February, 2006 (supra) executed by other sellers in favour of the

respondent Shri Om Prakash Lohia. It is urged that there is no other

power of attorney of the others in favour of the respondent than the

said power of attorney. A perusal of the said power of attorney

shows that the same only authorizes the respondent to effect the sale

of the shares subject matter of the agreement dated 17th February,

2006 (supra) and to execute the Share Purchase Agreement and any

other agreement in respect of the sale of the said shares and to

accept the consideration from the petitioner/purchaser and to hand

over the original share certificates and duly executed share transfer

deeds to the petitioner/purchaser; the same does not contain any

authorization in favour of the respondent to represent the other

sellers in the matter of the arbitration proposed.

12. The counsel for the petitioner, in the absence of the counsel for

the respondent, at the end of the day, mentioned the matter and

drew attention to Article 16.3 of the Agreement which provides for

service of notice or other communications pursuant to the

agreement, if required to be issued/delivered to the sellers, to be

delivered to the respondent. It was contended that the notice dated

24th February, 2009 under Section 11(4) (a) of the Act was issued by

the petitioner to the respondent only for this reason. The counsel for

the petitioner also drew attention to Article 12.10 of the agreement

which provides that no claim shall be made relating to any of the

matters covered by warranties meted out by the sellers and as

contained in the agreement unless notice has been given of such

claim on or before 12 months of the earlier of the appointment date

and the closing date. It was contended that the petitioner acting on

Article 16.3 has given a notice under Article 12.10 to the respondent

Mr. Om Prakash Lohia only and if this court were to hold that the

notice was required to be given to all the sellers, the claims of the

petitioner against the others sellers, covered by the warranties may

be barred inasmuch as the period of 12 months mentioned therein

for giving the notice has expired.

13. The aforesaid argument of the counsel for the petitioner also

does not persuade me otherwise. The notice required to be given

under Article 12.10 is entirely different from the procedure required

to be followed under Section 11(4) (a) of the Act. Section 11(4) of

the Act provides that if a party fails to appoint an arbitrator within

30 days from the receipt of a request to do so from the other party,

the party giving the notice shall thereafter be entitled to approach

this court under Section 11(4) of the Act. If the petitioner has given

the notice under Article 12.10 to the sellers in accordance with the

agreement within the time in which the said notice was required to

be given, then the same will remain unaffected by the procedure, the

petitioner is required to follow under Section 11(4)(a) of the Act.

14. I may also notice that even where the parties have in the

matter of arbitration agreement acted through an attorney, the

notice under Section 11(4)(a) is required to be given to the party

only unless in the agreement itself it is provided that the notice of

arbitration may be given to the attorney.

15. The senior counsel for the respondent had also drawn attention

to Article 12.1 of the agreement whereunder each of the sellers has

indemnified the petitioner/purchaser against the losses resulting

from any breach of warranty and also permitting the claims against

particular sellers in this regard. It was argued that thus the liability

of each seller of shares to the petitioner was distinct and not joint, to

enable the petitioner to deal with the respondent Om Prakash Lohia

only in the matter of arbitration.

16. In my opinion, the rights, if any, of the petitioner under Section

12.10 shall remain unaffected by the petitioner being required to

give notice for appointment of the arbitrator to each of the sellers,

since it is not shown that they had given any authority to the

respondent Mr Om Prakash Lohia in this regard. Similarly the

petition, if any required to be filed, will have to be against each of

the sellers.

17. The petition is therefore found to be misconceived and is

dismissed. No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE)

September 10, 2009 M