Delhi High Court
Mr Uday Bahadur vs Mr Krishan Kumar & Anr on 27 November, 2017
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 5th September, 2017
Decided on: 27th November, 2017
+ CS(COMM) 1319/2016
MR UDAY BAHADUR ..... Plaintiff
Represented by: Mr. N.B. Joshi and Mr.
P.R. Rajhans, Advocates.
versus
MR KRISHAN KUMAR & ANR ..... Defendants
Represented by: Mr. Deepak Biswas,
Advocate for Defendant
No.1.
Defendant No.2 in
person.
CORAM:
HON'BLE MS. JUSTICE MUKTA GUPTA
I.A. No. 71/2017 (under Section 8 of Arbitration and Conciliation
Act, 1996 by Defendant No.1) and 2443/2017 (under Order 1 Rule
10(2) CPC by Defendant No.2) in CS(COMM) 1319/2016
1.
Uday Bahadur, the plaintiff herein has filed the present suit inter
alia seeking a decree of declaration that the Memorandum of
Understanding (in short 'MOU') dated 15th July, 2015 and
Memorandum of Amendment dated 10th January, 2016 executed
between the plaintiff and defendant No.1, that is, Krishan Kumar
stands annulled/terminated/cancelled/rescinded due to failure,
defaults, inaction and non-performance on the part of defendant No.1
and the amount received thereunder stands forfeited, decree of
declaration that defendant No.1 has no right, title and interest in 49%
shares or part thereof in M/s Decon Lifestyle Pvt. Ltd. (in short 'M/s
Decon') and decree of mandatory and permanent injunction qua both
the defendants, that is, Krishan Kumar and Sameer Jain to return the
76% shares or part thereof held by the plaintiff which were entrusted
to defendant No.2 as Escrow agent and restraining them from creating
any third party interest thereon or alienating the same.
2. Plaintiff in the suit submits that M/s Decon was incorporated
and registered in New Delhi in 2013 with plaintiff being majority
shareholder of 76% shares and his step son Ankit Uday Bahadur being
owner of 24% shares. M/s Decon was selected as a joint venture
partner and a Memorandum of Understanding dated 12th March, 2013
was executed for and between M/s P. B. Lifestyle Limited and M/s
Decon. Pursuant to Memorandum of Understanding, joint venture
agreement dated 25th September, 2014 was executed between M/s P.B.
Lifestyle Limited with M/s Play Boy Lifestyle Ltd. and M/s Decon,
holding 51% shares and 49% shares respectively in the company.
Contribution to the shares and expenses was made only by Uday
Bahadur and Ankit Uday Bahadur did not contribute to the same.
MOU dated 15th March, 2015 was executed between Uday Bahadur
and Ankit Uday Bahadur wherein Ankit Uday Bahadur admitted the
liability of ₹1.60 crores towards Uday Bahadur, and issued a post
dated cheque in this regard. As a goodwill gesture Uday Bahadur
agreed to give his 76% shares in Decon and 90% shares in AUB
Restaurants Pvt. Limited provided Ankit Uday Bahadur fulfilled the
terms mentioned in Clause-3 of the MOU dated 15th May, 2015 and
made the payment of ₹1.60 crores. As per Clause-5 of the MOU dated
15th May, 2015, till said transfer of shares was effected, a share
certificate belonging to Uday Bahadur was to be kept in an Escrow
with defendant No.2, that is, Sameer Jain. Since Ankit Uday Bahadur
who was also a shareholder in M/s Decon did not honour his
commitment under MOU dated 15th May, 2015, MOU dated 15th July,
2015 was entered into between the Uday Bahadur and Krishan Kumar,
defendant No.1 who agreed to purchase 49% shares of 76% shares
held by Uday Bahadur/plaintiff in M/s Decon for a total sale
consideration of ₹70 Lakhs out of which ₹30 lakhs was paid by
Krishan Kumar/defendant No.1 and the balance ₹40 lakhs was to be
paid on or before 15th August, 2015.
3. MOU dated 15th July, 2015 was entered into between Uday
Bahadur, Krishan Kumar and M/s Decon, represented through Ankit
Uday Bahadur however, the same did not dilute the liability of Ankit
Uday Bahadur to pay an amount of ₹1.60 crores. It is contended that
though Uday Bahadur discharged all its obligations under the MOU
however, Krishan Kumar, failed to make balance payment of ₹40
lakhs by the stipulated date and after persistent efforts further MOU
dated 10th January, 2016 was entered into extending the time till 10th
July, 2016 to make the payment. Pursuant thereto Krishan Kumar,
issued post-dated cheque of ₹40 lakhs dated 10th July, 2016 however,
Sameer Jain, defendant No.2 was not relieved of his duties to act as an
Escrow agent nor had he ever been either orally or in writing
instructed to hand over or transfer the aforesaid share certificate
belonging to Uday Bahadur of M/s Decon to Krishan Kumar.
4. On presentation the cheque for a sum of ₹40 lakhs was returned
unpaid with the remarks 'funds insufficient' and despite being
informed, Krishan Kumar failed to make the payment. It is further
contended that since Krishan Kumar failed to discharge the
contractual obligation under the MOU rendering the MOU null and
void and the amount of ₹30 lakhs being non-refundable stood
forfeited.
5. Uday Bahadur served a legal notice dated 19th July, 2016 on
Krishan Kumar and Sameer Jain which was replied by Sameer Jain,
defendant No.2 stating that since the MOU dated 15 th July, 2015 was
amended by MOU dated 10th July, 2016, he was relieved of his duty as
an Escrow agent to which Uday Bahadur sent a reply dated 30th July,
2016 stating that 49% shares out of 76% shares of the plaintiff were to
be given to Krishan Kumar only after full payment of ₹70 lakhs was
received by Uday Bahadur. Sameer Jain further replied that 76%
shares of M/s Decon had been returned to Uday Bahadur and
transferred to various people of his own volition and allegations
against him are vexatious, derogatory and disparaging.
6. On the summons being issued to defendant Nos. 1 and 2 in the
present suit, Krishan Kumar filed an application being I.A. No.
71/2017 under Section 8 of the Arbitration and Conciliation Act, 1996
(in short 'the Arbitration Act') and Sameer Jain, defendant No. 2 filed
I.A. No. 2443/2017 under Order I Rule 10 CPC on which arguments
have been addressed by learned counsels for the parties.
7. To press his application being I.A. No. 71/2017 under Section 8
of the Arbitration and Conciliation Act, 1996 learned counsel for
Krishan Kumar contends that Clause-16 of the MOU dated 15th July,
2016 entered into between Uday Bahadur and Krishan Kumar
provided for an arbitration clause and the disputes were to be settled
by the sole arbitrator Shri Sandeep Bajaj. Response of learned counsel
for Uday Bahadur to this application is that since Sameer Jain is not a
party to the MOU dated 15th July, 2015 and the Memorandum of
Amendment dated 10th January, 2016 and since in the suit reliefs have
been sought against Sameer Jain as well, against whom arbitration
clause is not binding, hence the present suit is maintainable and the
dispute cannot be referred to the sole arbitrator. The second
contention of learned counsel for Uday Bahadur is that since the
written statement has already been filed by Krishan Kumar, hence the
present application under Section 8 of the Act would not survive.
8. In response learned counsel for Krishan Kumar relying upon the
decision of this Court reported as 2009 (108) DRJ 404:
MANU/DE/0078/2009 W.P.I.L. vs. NTPC Ltd. & Ors. submits that the
remedy under Section 8 of the Act is still available even if a third
party is involved. Reliance is also placed on the decision reported as
MANU/DE/0739/2009 Delhi Express Travels Pvt. Ltd. vs.
International Air Transport Association & Ors.
9. Addressing arguments on application under Order I Rule 10 (2)
CPC filed by defendant No. 2 for deleting him from the array of
parties, Sameer Jain who appears in person submits that he cannot be
sustained as a party in the present suit. He has been made party only
to come out of the arbitration agreement. Sameer Jain is at best a
witness to the transaction between Uday Bahadur and Krishan Kumar
and neither a necessary nor a proper party to the suit. Further legal
notice dated 19th July, 2016 issued on behalf of Uday Bahadur to
Krishan Kumar claimed rights in only 49% shares of M/s Decon and
not beyond that, however, now Uday Bahadur is coming up with the
prayer of 76% shares which too are not with Sameer Jain. It is further
stated that MOU dated 15th July, 2015 was amended vide the
Memorandum of Amendment dated 10th January, 2016 wherein
Clause-5 of MOU dated 15th July, 2015 on which Uday Bahadur
heavily relies has been specifically deleted. Reliance is placed on the
decisions reported as 1992 (2) SCC 524 Ramesh Hirachand
Kundanmal vs. Municipal Corporation of Greater Bombay & Ors. and
ILR (2007) II Delhi 1187 Anjum Nath vs. British Airways PLC & Ors.
10. Learned counsel for Uday Bahadur in response further submits
that even after the Memorandum of Amendment dated 10 th January,
2016, Sameer Jain was not absolved of his liability as an Escrow agent
and he could not have handed over the shares to Krishan Kumar
without Krishan Kumar having fulfilled his obligations. It is further
contended that even assuming as stated by Sameer Jain that he has
handed over 49% shares over Krishan Kumar, he is still answerable to
the balance 27% shares of Uday Bahadur hence no case for deleting
Sameer Jain from the array of parties is made out. Reliance is placed
on the decisions reported as 2003 (5) SCC 531 Sukanya Holdings Pvt.
Ltd. vs. Jayesh H. Pandya & Anr. and 2013 (2) RAJ 532 (Del) R.R.
Enterprises vs. C.M.D. of M/s Garware-Wall Ropes Ltd.
11. In Sukanya Holdings (supra) Supreme Court held that Section 8
of the Arbitration Act does not apply to a non-party to the Arbitration
Agreement. In the decision reported as (2013) 1 SCC 641 Chloro
Controls India Private Ltd. Vs. Severn Trent Water Purification Inc.
though Supreme Court discussed the decision in Sukanya Holdings
(supra) but did not overrule the said decision. Thus under Section 8 of
the Arbitration Act no reference to arbitration can be made when a
third party to the agreement is involved in the dispute.
12. Before proceeding to deal with the rival contentions, it would be
appropriate to note relevant portions of MOU dated 15 th May, 2015
and 15th July, 2015 and Memorandum of Amendment dated 10 th
January, 2016 as under:
MOU DATED 15TH MAY, 2015: This Memorandum of
Understanding is between Uday Bahadur and Ankit Uday
Bahadur relevant terms whereof read as:
"1. That all the Parties to the present agreement shall
abide this agreement.
2. That the parties recognize and acknowledge that the
Second Party owes to First Party ₹1,60,00,000/-
(Rupees One Crore Sixty Lakhs Only/-)
3. That Second Party undertakes to pay the First Party
an amount of ₹1,60,00,000/- (Rupees One Crore
Sixty Lakhs Only) by or before 06 July, 2015 against
the loan as described under Clause 2. As a
guarantee, the Second Party has given a Cheque of
₹1,60,00,000/- bearing number 809348 drawn on
YES Bank to the First Party. It is also agreed that
this time may be extended upon a mutual understand
to be mandatorily recorded in writing.
4. That upon fulfillment of Clause 3 above the First
Party shall, by way of a gift deed, transfer 76% of
his shares in Decon Lifestyle Private Limited and
90% Shares in AUB Restaurants Private Limited to
the Second Party.
5. That till such transfer of shares as referred to in
Clause 4 above, the Share certificate belonging to
the First Party shall be kept with an Escrow Agent
being Sameer Jain, Advocate, 1/32, Jungpura
Extension, New Delhi-110014.
6. ...
7. ...
8. ...
9. First Party agrees that in case he fails to perform
any of his obligations under this Agreement, he
would not encash the Cheque No.______ dated
809348. Further, Second Party agrees and confirms
that in case he fails to perform any of the
obligations, whether joint or individual, he would
transfer his 24% Shares in Decon Lifestyle Private
Limited to First Party."
MOU DATED 15TH JULY, 2015: This Memorandum of
Understanding is executed between Uday Bahadur, M/s Decon
represented by its Director Ankit Uday Bahadur and Krishan
Kumar, the first, second and third party respectively, relevant
portions whereof read as under:
"WHEREAS the First Party is desirous of selling his 49%
shareholding in the Third Party
AND WHEREAS the Second Party is a 49% shareholder in
the JV Company PB Lifestyle North Private Limited, which
own the exclusive right to open Playboy Locations in
North India, as defined in the JV Agreement dated
25.09.2014.
AND WHEREAS Third Party is desirous of buying the
shares owned by the First Party and further invest in the
Second Party.
AND WHEREAS the parties above-named in order to
avoid any controversy in future have decided to reduce the
said settlement in writing.
NOW THIS DEED OF MEMORANDUM OF
UNDERSTANDING WITNESSETH AS FOLLOWS:-
1. That all the Parties to the present agreement shall
abide this agreement.
2. First Party shall sell and the Third Party shall
purchase 49% shares of the Second Party at
₹70,00,000/- (Rupees Seventy Lakhs Only)
3. Third Party has already paid ₹30,00,000/- (Rupees
Thirty Lakhs only) to the First Party which is
acknowledged by the First Party. Third Party
undertakes to pay ₹40,00,000/- (Rupees Forty Lakhs
Only) to the First Party on or before 15.08.2015. It
is expressly understood between the parties that
such sale consideration paid to the First Party is
non-refundable.
4. That the First Party shall execute a Share Sale
Agreement in favour of the Third Party immediately
upon fulfillment of Clause 3 above.
5. That till such transfer of shares as referred to in
Clause 4 above, the Share certificates belonging to
the First Party shall be kept with an Escrow Agent
being Sameer Jain, Advocate, A-169, Defence
Colony, New Delhi-110024. The escrow agent shall
facilitate the sale and transfer of shares as described
above.
x x x
16. Dispute Resolution: Any and all disputes,
controversies and claims arising out of or relating to
this Agreement or concerning the respective rights
or obligations of the parties hereto shall be settled
and determined by arbitration in India before a
panel of single arbitrator. Sandeep Bajaj shall be
the sole arbitrator. The parties agree that the
arbitrators shall have the power to award damages,
injunctive relief and reasonable attorneys' fees and
expenses to any party in such arbitration. The
arbitration award shall be final and binding upon
the parties and judgment thereon may be entered in
any court having competent jurisdiction. However,
the same shall not prevent the Company to approach
the court of appropriate jurisdiction to obtain any
interim relief against the Agent."
MEMORANDUM OF AMENDMENT DATED 10TH
JANUARY, 2016: This Memorandum of Amendment was
executed between Uday Bahadur, M/s Decon through its
Director Ankit Uday Bahadur and Krishan Kumar as first,
second and third party respectively, relevant portions whereof
read as under:
"WHEREAS The Parties entered into a Memorandum of
Understanding dated 23 July 2015 (hereinafter referred to
as 'MOU")
AND WHEREAS the understanding between the Parties
have changed due to some variation in circumstances.
AND WHEREAS the parties above-named in order to
avoid any controversy in future have decided to reduce the
said understanding in writing and amend the MOU.
NOW THIS MEMORANDUM OF AMENDMENT
WITNESSETH AS FOLLOWS:-
1. That all the Parties to the present agreement shall
abide this agreement.
2. That Clause 3, 4, 5 and 6 contained in the MOU
shall be amended to read as under:
"Third party has already paid ₹30,00,000/- (Rupees
Thirty Lakhs only) to the First Party, which is
acknowledged by the First Party. Third Party is, as
a remaining consideration for the transfer of shares
of the Second Party belonging to the First Party, is
issuing a Post Dated cheque of ₹40,00,000/- being
Cheque No. 422658 dated 10/7/16 and giving
express undertakings, more specifically described
hereunder
Undertakings
Third Party expressly undertakes to settle all the
cases instituted by Baani Land Base Private Limited
against the First Party within 3 days from signing of
this agreement and transfer of shares.
Third Party also undertakes to make sure that Baani
Land Base Private Limited and/ or any other party
dealing with the Second Party, Third Party and/ or
PB Lifestyle North Private Limited shall not institute
any claim against the First Party in future. In case
any such claim is initiated against the first party, the
Third Party undertakes to indemnify and keep
harmless First Party against the same.
Third Party also undertakes to get First party
removed as a director from the board of P.B
Lifestyle North Private Limited within 7 days from
the date of signing of this agreement and transfer of
shares.
Third Party also undertakes to make the cheque
pass on or before the expiry of the cheque as
hereinabove mentioned.
3. That all other terms in the MOU shall remain the
same."
13. Thus the two issues between the parties is whether Clause-5 of
the MOU dated 15th July, 2015 stood amended by Clause-2 of the
Memorandum of Amendment dated 10th January, 2016 and whether in
view of Clause-16 of the MOU dated 15th July, 2015 remaining as it is
providing for the arbitration agreement the parties including the
Escrow agent were bound to submit to arbitration jurisdiction.
14. Vide Clause 5 of the agreement dated 15 th May, 2015, Sameer
Jain was appointed as the Escrow agent in respect of 76% shares in
M/s.Decon and 90% shares in AUB Restaurants Pvt. Ltd. of Uday
Bahadur. The agreement dated 15th May, 2015 is signed by Sameer
Jain as the Escrow Agent. Vide the agreement dated 15th July, 2015
the parties only dealt with 49% shares of M/s.Decon. Further, Clause
5 also noted that till transfer of shares the same will be in possession
of Sameer Jain who will also facilitate sale and transfer of shares.
Indubitably Clause-5 of the MOU dated 15th July, 2015 stood
amended and Uday Bahadur, the plaintiff herein vide Memorandum of
Amendment dated 10th January, 2016 admitted having received the
remaining consideration for the transfer of the shares by a post dated
cheque of ₹40 lakhs being cheque No.422658 dated 10 th July, 2016.
However, the MOUs dated 15th July, 2015 and 10th July, 2016 do not
deal with the remaining shares as mentioned in MOU dated 15th May,
2015.
15. Defendant No.2 Sameer Jain was signatory to the MOU dated
15th May, 2015 though liability of Sameer Jain was fixed by both the
MOUs dated 15th May, 2015 and 15th July, 2015 to retain the shares.
One of the salient features of Clause-16 of the MOU dated 15th July,
2015 was that despite an arbitration agreement Uday Bahadur or the
company was not prevented to approach the Court of appropriate
jurisdiction to obtain "any interim relief" against the agent which
obviously was the Escrow agent. Thus the intention of the parties was
to proceed in the Court of law against the Escrow agent if required.
16. Though subsequent dishonor of the cheque of ₹40 lakhs paid by
Krishan Kumar to Uday Bahadur would not fasten the liability of
Sameer Jain as an Escrow agent to retain the shares vide agreement
dated 15th July, 2015, however the liability of the Escrow agent was to
facilitate sale and transfer of shares, it cannot be said that Sameer Jain
was absolved of his liability merely on handing over the cheque.
Further whether the remaining shares as entrusted vide MOU dated
15th May, 2015 have been retained or not is a question to be decided
on merits after parties lead their evidence.
17. At this stage considering the prayers made in the suit and
besides defendant No.1, a claim having been raised against defendant
No.2 it cannot be said that the dispute is required to be referred to
arbitration in terms of Section 8 of the Arbitration Act or the
defendant No.2 is liable to be deleted from the array of defendants.
18. In view of the discussion aforesaid, IA Nos. 71/2017 and
2443/2017 are dismissed.
(MUKTA GUPTA)
JUDGE
NOVEMBER 27, 2017
'vn'
