M/S. Rpg Communication Holdings ... vs J. Bala Murgan & Ors.
2010 Latest Caselaw 1239 Del

.*          HIGH COURT OF DELHI : NEW DELHI

            IA No.8578/2009 in CS (OS) No.2367/2008

      M/s. RPG Communication Holdings Pvt. Ltd.  ......Plaintiff
                   Through: Mr. Atul Shankar Mathur and
                             Ms. Richa Gupta, Advs.

                                  Versus

      J. Bala Murgan & Ors.                         .....Defendants
                     Through: Mr. Rajiv Nayyar, Sr. Adv. with
                              Mr. Anish Dayal and Mr. Sidharth
                              Vaid, Advs.

Judgment decided on : 5th March, 2010

Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                                   No

2. To be referred to Reporter or not?                                Yes

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

MANMOHAN SINGH, J.

1. This order shall dispose of IA No.8578/2009 filed by the

defendant Nos. 1 and 4 under section 8 of the Arbitration and

Conciliation Act, 1996 seeking dismissal of the suit in view of the

arbitration clause in the Share Purchase Agreement relied upon by the

parties.

2. The brief facts of the present case can be stated as under:

a) That the plaintiff has filed the suit for recovery of

Rs.53,90,000/- stated in annexure to the plaint as claim.

The said claim of money arises out the sale consideration of

the shares sold by the plaintiff to defendant Nos. 1 to 3 by

way of Share Purchase Agreement dated 10th November,

2004 for the sale of shares of defendant No. 4. It is averred

in the suit that by the said agreement dated 10th November,

2004, the defendant Nos.1 to 3 acting collectively as

purchasers have the purchased from the plaintiff, the shares

upon the terms and conditions set out in the sale purchase

agreement.

b) The plaint further states that the defendant Nos. 1 to 3 have

prior to entering the agreement conducted the financial,

business, technical due diligence of defendant No. 4 and all

the known assets and liabilities of the defendant No. 4.

c) It is averred in the plaint that by way of letter to the

plaintiff, the defendant Nos. 1 to 3 had communicated the

mode of payment of the purchase consideration in respect

of the shares and the amount payable to it. The said amount

was undertaken to be paid to the plaintiff by way of two

cheques, of which one is of Rs. 40 lakhs bearing

No.021286 dated 1st March, 2005 and another Rs. 35 lakhs

bearing No.021287 dated 1st July, 2005 both drawn on

Corporation Bank, GKNM Branch, Coimbatore.

d) It is stated that the cheque bearing No. 021287 dated 1st

July, 2005 was dishonored on account of insufficient funds.

It is stated that the plaintiff has issued legal notice dated

13th July, 2005 and thereafter initiated proceedings against

the defendants under the provisions of the Negotiable

Instruments Act, 1881. It is also stated in the plaint that the

defendant Nos. 1 to 3 have filed a petition before the

District Judge seeking orders to refrain the plaintiff from

presenting the cheque of Rs.35,00,000/-.

e) The plaintiff has thus claimed the recovery of the sum of

Rs. 35 lacs and interest thereon @ 18% per annum and the

total amount calculated is Rs.53,90,000/-.

3. The suit came up for hearing on 12th November, 2008

wherein interim orders were sought by the plaintiff on the ground that

the defendant No. 4 company is likely to receive the sum of Rs. 2 crores

and thus the amount of Rs. 50 lacs may be kept in fixed deposit out of

the said amount. Thus, the interim order was passed by this court on 12 th

November, 2008 and summons were issued in the suit returnable on 13 th

March, 2009.

4. On 13th March, 2009 the defendant counsel appeared on

instructions and stated that the dispute is the subject matter of arbitration

and an application under Section 8 of the Arbitration & Conciliation

Act, 1996 shall be accordingly filed.

5. Thereafter on 13th July, 2009 the present application was

filed by the defendant Nos. 1 and 4 seeking dismissal of the suit in view

of the fact that by virtue of the arbitration clause in the agreement the

disputes between the parties were arbitral disputes.

6. In the application, the following pleas have been taken:

a) The present dispute is clearly the subject matter of

arbitration as the said dispute is pertaining the sale

consideration of the shares under the share purchase

agreement wherein there is an arbitration clause.

b) There is material suppression of facts as the plaintiff has

conspicuously evaded mentioning that the proceedings

which were pending in the Coimbatore court are not in the

nature of a civil suit but an application under Section 9 of

the Arbitration Act seeking interim measures.

c) The reason of stopping the payment of the cheque is that

the plaintiff has overstated its contingent assets about 1.12

crores and it is also averred that the first application under

section 9 of the Arbitration Act has been filed in

Coimbatore court and thus the application for appointment

of Arbitrator shall now lie to Coimbatore court in view of

the Section 42 of the Arbitration and Conciliation Act,

1996.

7. A similar application has also been filed by defendant Nos. 2

and 3 relying upon the same averments pleaded in this application.

8. The plaintiff has filed the reply to the application filed by the

defendants by denying the allegations made in the application and

stating the following in reply :

a) That the application is not maintainable as the defendants'

time to file a written statement has expired and the present

application, being filed thereafter is not maintainable.

b) The defendants' application is also not maintainable as the

Share Purchase Agreement dated 10th November, 2004 is

being relied upon to support the application. But according

to the plaintiff, the agreement was signed between the

plaintiff and defendant Nos.1 to 3 and not the defendant

No. 4 and thus the dispute is not an arbitrable one as the

suit impleads a party which was not party to the Share

Purchase Agreement and thus the same cannot be stated to

be an arbitrable dispute.

c) It is also pleaded that the defendant Nos.1 to 3 themselves

have not invoked the arbitration clause by not seeking the

appointment of arbitrator and thus the present application is

not maintainable.

9. The matter came up for hearing on 15th October, 2009 when

arguments were heard on the application. Mr. Atul Shankar Mathur

appeared on behalf of the plaintiff and Mr. Rajiv Nayyar, learned Senior

counsel appeared on behalf of the defendants.

10. Mr. Mathur firstly submitted that the present application is

not maintainable as the time for filing written statement has elapsed and

the application ought to have been filed within the time period.

11. Learned Counsel for the plaintiff relied upon judgment of

this court in GNB Bros Pvt. Ltd vs. Sudhir Gensets Ltd., CRP No.

131/2005 dated 28.05.2007 wherein it was held that where a party seeks

repeated opportunities for filing of written statement and files none and

right to file written statement is foreclosed, inevitable consequence

would be deemed legal fiction. The deemed legal fiction would be that

right to file written statement being closed would result in foreclosure of

any right to predicate an application under Section 8 which requires

invocation of the right before submitting the first statement on the

substance of the dispute.

12. I am afraid that such is not the case in the present case as

neither has any formal order of closure of right to file written statement

been passed nor the have the defendants sought time to file written

statement in the matter which is a matter of record. It is pertinent to

mention that the matter was first listed on 12 th of November, 2008 when

the interim order was passed ex-parte returnable on 13th March, 2009.

13. On 13th March, 2009 itself, the defendants have appeared and

lodged their protest as regards the dispute being an arbitrable dispute

and the order records that the learned counsel for the defendants states

that the dispute is governed by the arbitration agreement and application

to that effect shall be filed and the matter was adjourned to 13 th July,

2009 and on the said date the application was already filed and the

notices were issued on the said application. It is thus clear that the plea

regarding Section 8 has been taken at the earliest opportunity and

application thereto has also been filed and thus it is not correct to

contend waiver or submission to the jurisdiction in this case. Hence, the

submission of the learned counsel for the plaintiff as to waiver or

foreclosure of right is rejected.

14. Secondly, learned Counsel for the plaintiff Mr. Mathur has

submitted that the dispute between the parties is not arbitrable as the

parties to the suit include the defendant No. 4 Nextgen Communications

Ltd. which was not a party to the Share Purchase Agreement dated 10th

November, 2004. It was submitted by Mr. Mathur that when in a suit,

there are parties which are parties to an agreement and in addition, there

are other parties which are made defendants, in such situation, the Court

ought not to look into the arbiterability of the dispute as the dispute

becomes a composite one and bifurcation of the same is not allowed.

15. Mr. Mathur relied upon dicta of Sukanya Holdings Pvt. Ltd

Vs. Jaiyesh Pandya , (2003) 5 SCC 531 wherein it was held as under :

"14. ....there is no provision as to what is required to be done in a case where some parties to the suit are not parties to the arbitration agreement. As against this under section 24 of the Arbitration and Conciliation Act, 1996 some of the parties to the suit could apply that the matters in difference between them be referred to arbitration and the court may refer arbitration provided that the same can be separated from the rest of the subject matter of the suit. The Section also provided that the suit would continue so far as it related to the parties who have not joined in such application"

16. Reliance was also placed on para 16 where the Apex Court

observed :

"16. ....there is no provision as to what is required to be done in a case where some parties to the suit are not parties to the arbitration agreement. As against this, under Section 24 of the Arbitration Act, 1940, some of the parties to a suit could apply that the matters in difference between them be referred to arbitration and the court may refer the same to arbitration provided that the same can be separated from the rest of the subject-matter of the suit. The section also provided that the suit would continue so far as it related to parties who have not joined in such application."

17. Mr. Mathur thus submitted that the present case is squarely

covered by the observations of Sukanya Holding (Supra) and the present

application ought to be dismissed.

18. Per Contra, Mr. Nayyar, learned Senior counsel vociferously

argued that the entire dispute in the present suit is an arbitrable one and

thus the ratio of Sukanya Holding is not applicable to the present case. It

is submitted by Mr. Nayyar that no relief is claimed specifically against

the defendant No.4 who has been impleaded in the present suit only to

confer jurisdiction on this court and also to wriggle out of the arbitration

clause. Furthermore, Mr. Nayyar submitted that the court must look into

the entire dispute which is the subject matter of the suit which in the

present case is entirely governed by arbitration clause.

19. Mr. Nayyar further submitted that it is not unusual that

certain parties are arrayed in the suit to enable other parties to escape the

arbitration clause and the courts have time and again curbed this

practice. The true essence of the dispute is to be seen before coming to

the conclusion about the arbitrability of the dispute. Mr. Nayyar relied

upon the Judgment of Learned Single Judge of this court in WPIL Vs.

NTPC, 2009 (1) Arb. L.R. 378 wherein this court has analysed the dicta

of Sukanya Holdings (supra) and made a fine distinction between its

applicability in cases where it is required, the court observed :

"23. In Sukanya Holdings (supra), the Supreme Court held that:

15. The relevant language used in Section 8 is: "in a matter which is the subject of an arbitration agreement". The court is required to refer the parties to arbitration. Therefore, the suit should be in respect of "a matter" which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as

to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words "a matter" indicate that the entire subject-matter of the suit should be subject to arbitration agreement.

16. It would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act.

24. The Supreme Court in Sukanya Holdings (supra) was concerned with the correct interpretation of Section 8 of the Act, which occurs in Part-I of the enactment. No doubt, the observations do suggest that suit claims cannot be bifurcated or "split up" into arbitrable and non-arbitrable disputes. This conclusion is not only logical, but also in tune with the law that a plaint cannot be partly rejected. However, the question which confronts this Court is a bit different - the non-parties to the two sets of arbitration agreements are neither necessary, nor proper for the adjudication of disputes. No attempt is made by the plaintiff to show how Defendant Nos. 3, 4 and 5 have any concern or are connected with the dispute relating to termination of contract, or the dispute with Alstom for its alleged breach of terms of the Project Agreement. In these circumstances, the inescapable inference is that they were included in the suit, as defendant, to circumvent and possibly defeat the arbitration clause. There are no "disputes" between the plaintiff and them; in any event if any statement of any such party is required in arbitral proceedings, their officials or employees can be cited as witnesses."

20. I find that in the present case as well, the ratio of Sukanya

Holdings has no application. It is due to the reason that in the present

case, the suit dispute is for the recovery of the amount of purchase

consideration arising out of the Share Purchase Agreement dated 10th

November, 2004 and there is no other claim/ relief raised against the

defendant No. 4. Further, it would not be correct to state that the

defendant No. 4 is not party to the agreement. It is noteworthy to

mention that defendant No.4 Nextgen Communications Ltd. is company

which is mentioned in the definition of the company in the agreement.

The agreement was concerned with the transfer/ purchase of the shares

of the company (defendant No. 4) through its directors defendant Nos.

1, 2, 3, thus, it would be improper to state that the defendant No. 4 is a

party outside the agreement or that it has no concern with the agreement.

Thus, in totality this dispute is governed by the arbitration agreement

and the submission of the learned counsel for the plaintiff although

legally correct is not sustainable in the present case.

21. The Supreme Court in Sukanya Holdings interpreted Section

8 correctly and laid down the law on the subject that when the courts are

confronted with a situation where the gamut of the dispute is such which

partly falls within the domain of the arbitration and rest is triable in civil

court and also in which the parties are not the same as they were there in

the arbitration agreement, in such a situation in the absence of the

provision as to splitting of causes of action, the court should continue

with the entire suit instead of splitting of causes of action.

22. In the present case, such is not the case as the entire cause of

action is governed by the arbitration agreement and there is no separate

claim/ relief is claimed against defendant No. 4. Neither is the defendant

No. 4 an independent party, rather the defendant No. 4 is mentioned in

the body of the agreement dated 10th November, 2004 whose share were

purchased by the parties which are plaintiff and the directors of the

company. In this situation, the suit pertains to an entirely arbitrable

dispute as there is no cause left for the civil court to be tried.

23. In view of the foregoing reasons, I find that the present

dispute is governed by the arbitration clause in the Share Purchase

Agreement dated 10th November, 2004 between the parties and the

parties are at liberty to take steps for appointment of arbitrator. In such

circumstances, the plaint is rejected as being barred in view of the

arbitration clause. However, in the interest of justice, equity and fair

play the interim order dated 12th November, 2008 shall continue for a

period of four weeks from today.

MANMOHAN SINGH, J.

MARCH 05, 2010 sa