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TMI Blog2010 (9) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... the first, seventh and eleventh defendants are brothers. In all, the plaintiffs claim reliefs under 30 heads spread over nine pages of the 111-page plaint in the suit instituted with leave under Clause 12 of the Letters Parent and under Order II Rule 2 of the Code of Civil Procedure. The cause title runs into 21 pages. The second plaintiff is the son of the first plaintiff. The second to the tenth defendants belong to the first defendant's branch; the twelfth to the sixteenth defendants are in the eleventh defendant's branch; and, the eighteenth to the twentieth defendants are in the seventeenth defendant's branch. The remaining defendants are mostly companies except three of them which are partnership firms. The plaintiffs claim such companies and firms to be part of the family business of the Todis and treat such business entities and their assets as part the joint family properties. 2. GA No. 1596 of 2010 is the plaintiffs' interlocutory application in aid of the reliefs claimed in the suit. GA No. 1756 of 2010 is the first defendant's application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking a reference of the disputes to arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwhelming majority of the other defendants, maintains that the disputes in the suit are liable to be referred to arbitration, it is the plaintiffs' claim that has first to be seen. The following case has been made out in the plaint: a. The four Todi brothers who are parties herein are sons of Brijlal Todi, deceased. Brijlal and his father Ganesh Narayan settled in erstwhile East Bengal in 1940. Brijlal's younger brother Ramdhan had separated from the family. Brijlal's father died in 1944 and Brijlal became the karta of the joint family governed by the Mitakshara School of Hindu law. The family, under Brijlal, carried on business of manufacturing glass and enamel and also delved in rice trading. In 1951 the family moved to India and settled in Calcutta. b. The family purchased a residential house in Ezra Street. By the time Brijlal died in 1965, the family had a sizable business spread over divers areas. When Brijlal died, the first defendant was aged 35, the eleventh defendant was aged 20, the first plaintiff was 19 and the seventeenth defendant was 17. The family continued to remain joint and the first defendant came to be the karta thereof. c. In course of time the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constrained to accept the same since the first defendant was in complete control of the assets and business. h. A memorandum of understanding was executed by the four brothers on November 1, 1989 on the basis of a networth statement said to have been prepared by the first defendant but retained by him. The plaintiffs say that the plaintiffs received a copy of the MOU of November 1, 1989 only in the year 2006. The MOU provided for division of the assets and business as at September 30, 1988 and as disclosed by the first defendant. Such MOU, according to the plaintiffs, remained unimplemented and the joint family was not disrupted. The three Calcutta brothers separated only in mess but remained joint in residence and worship. The plaintiffs suggest that though the two other Calcutta brothers were allowed to manage some of the HUFs, trusts, Nidhis and Koshes independently to permit them to take care of their individual needs, the overall control and management of the family companies and business continued to be exercised by the first defendant. i. In September, 1991 the four brothers appointed two close relatives of the family to implement the MOU but the first defendant did not coo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtition and distribution. The plaintiffs have referred to several properties and some business ventures in such regard. They say that some of the valuable assets which were come to the first plaintiff's branch have subsequently been alienated by the first defendant with the connivance of the eleventh defendant. They suggest that several companies and firms that had substantial operations in 1989 had been rendered defunct in the interregnum and insinuate that the MOU was neither just nor would it now be equitable to allot a meagre part of the family assets and business to the first plaintiff's branch in terms of the MOU which does not include the substantial accretion to the family business and assets over the twenty years thereafter. They furnish particulars in furtherance of their contention that the new business ventures continue with old family employees and share offices with the other Todi concerns. They say that the members of the branches of the other three brothers have been shown as shareholders and directors of the new concerns to the exclusion of the plaintiffs' branch. They suggest that what ought to have been given to the first plaintiff under the MOU, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal reliefs. 5. The family settlement that the parties refer to was recorded in the MOU of November 1, 1989. Not only are the four brothers named in the document, all the then members of the four branches are mentioned. In fact, six groups of individuals are indicated in the MOU: the first defendant and his wife make up the first group; the elder son of the first defendant and the grandchildren of the first defendant through such elder son are included in the second group; the younger son of the first defendant and his branch make up the third group; the defendant No. 11 and his branch comprise the fourth group; the first plaintiff and his branch including his then minor daughter form the fifth group; and, the defendant No. 17 and his branch make up the sixth group. The family business units and properties are also bunched in various other groups: for example, six companies are indicated in the seventh group; three trusts are included in the eighth group; five HUFs make up the ninth group, the estate of the widow of Brijlal is the tenth group. The settlement deals with the properties, business and other assets of the family including the named companies, partnership firms, trusts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sons of Late Brijlal Todi, hereinafter referred to as the party hereto of the First Part, Second Part, Third Part and Fourth Part respectively; .... V. The said Four Groups are holding properties at various places in Kolkata in the name of one or more members of the said Groups or Companies or Partnership firms or Trusts or Association of Persons etc. VI. In order to preserve family peace and harmony and to resolve the disputes of the said four groups and to avoid future disputes, the said four groups have arrived at a family arrangement in respect of certain businesses and properties. VII. The said Four Groups have however not been able to agree upon the mode and manner of implementation of the said family arrangement and allotment distribution and vesting of businesses and properties agreed to be shared and allotted amongst themselves; VIII. The said Four groups have agreed that N.L. Todi Group shall have 40% share and the other Three groups will have 20% each. The parties have also agreed amongst themselves that the cut off date will be 30th September, 1988 and the expression 'Net Worth' shall mean all assets movable or immovable excluding personal jewellery and silver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers and shall not be required to give reasons for his Award. The Arbitrators shall be at liberty to dispense with oral evidence. The Arbitrator shall be at liberty to take advice or assistance of Chartered Accountants or Valuers as he may in his entire discretion deem fit. Without prejudice to the generality of the summary powers of the Arbitrator, it is specifically agreed that the Arbitrator shall in particular have powers to decide all questions of law, all questions pertaining to his own jurisdiction based on law or on facts, to award interest pendente lite and/or from the date of the award as also a power to proceed ex-parte, if any of the parties after reasonable notice fails or neglects to appear before the Arbitrator. The Arbitrator shall also have power to give such directions as may be necessary for the due fulfillment and implementation of the Award of the Arbitrator. The Arbitrator shall also have power and authority to give interim awards and issue interim directions. 6. The venue of the arbitration shall be Kolkata, and the courts in Kolkata alone shall have jurisdiction in manners of the arbitration. 7. The Arbitrator shall make and publish his Award within six mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitrator has taken up the reference and there has been substantial progress. The first defendant urges that it would be wholly inappropriate for the first defendant to rely on what matters had already been taken up by the arbitrator since an application under Section 8 of the 1996 Act would only involve a question as to whether there is an arbitration agreement to which the plaintiffs are parties and as to whether such arbitration agreement covers the subject-matter of the suit. 10. The first defendant has referred to a judgment reported at (2004) 3 SCC 447 (Secur Industries Ltd. v. Godrej Boyce Mfg. Co. Ltd.) and has relied on several passages therefrom. This judgment was on the basis of the Rani Construction judgment (2002) 2 SCC 388 which has since been overruled by a larger Constitution Bench in S.B.P. Co. v. Patel Engineering Ltd. (2005) 8 SCC 618. The first defendant has also relied on the S.B.P. Co. judgment where the majority view was that the exercise of the authority by a Chief Justice or his designate under Section 11 of the 1996 Act was a judicial function and not an administrative function. The first defendant has placed paragraph 12 of the report where the scope of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, as defined in the Act, when approached by a party before the commencement of an arbitral proceeding, to grant interim relief as contemplated by the Section. When a party seeks an interim relief asserting that there was a dispute liable to be arbitrated upon in terms of the Act, and the opposite party disputes the existence of an arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, or that the Court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that Court has necessarily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the Court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it . Surely, when a matter is entrusted to a Civil Court in the ordinary hierarchy of Courts without anything more, the procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently cannot be dealt with in the reference. The plaintiffs claim that even though the ninth recital speaks of all disputes and differences, it is governed by the expression which the parties have amicably resolved. The argument is that the arbitration agreement is for the limited purpose of implementing the terms of the MOU and the MOU is regarded as a settlement in respect of only some of the assets and business (in the sixth recital). They say that if the cut-off date is taken as September 1, 1988, the reference contemplated by the agreement cannot be a substitute for the present suit. They refer to reliefs (a) to (d), (k) to (n), (p), (q), (r) and (s) from the plaint and submit that the arbitration cannot be a meaningful platform for resolution of all disputes since the companies and other entities are not parties thereto and, in any event, a large number of the companies and other business entities were born after the MOU and even after the execution of the agreement of January 31, 2004. They insist that the arbitrator will not be able to address the basic grievance of the plaintiffs that the first defendant had actively concealed the entire extent of the family's busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the plaintiffs, is in league with the first defendant would show that the parties understood the subject-matter of the suit to be quite distinct from the subject-matter of the reference. They refer to a submission made on behalf of the first defendant recorded in an order of June 10, 2010 passed in the present proceedings to show that the understanding of the defendant No. 11 as to the scope of the suit was not an aberration. In such context the plaintiffs cite the judgments reported at 1950 SCR 30 (Abdulla Ahmed v. Animendra Kissen Mitter) and (1975) 1 SCC 199 (Godhra Electricity Co. Ltd. v. The State of Gujarat) for the principle that the parties' contemporaneous interpretation of a document would be a key factor in construing the document. 18. The plaintiffs rely on a judgment reported at (2000) 4 SCC 539 (P. Anand Gajapathi Raju v. P.V.G. Raju) for the preconditions that are required to be met before the judicial authority is called upon to discharge the mandate under Section 8 of the 1996 Act. Paragraph 5 of the report speaks of the four conditions: that there is an arbitration agreement; that a party to such agreement brings an action in a forum other than the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any which, it was urged, the arbitrator was incompetent under the law to do. The argument was that the company was a separate entity and in respect of disputes between its shareholders, the assets of the company could not be bartered away. This specific challenge was dealt with at paragraph 8 of the report: 8. It may be appropriate to bear in mind that the company was a party to the arbitration agreement and I have set out the schedule to the arbitration agreement which indicated the assets which were the subject-matters of dispute. It is indisputable that company is a separate entity than the shareholders and the assets of the company as such cannot be bartered away or parted with in liquidation of claims inter se between the shareholders and directors. But in a private limited company which is in the nature of a partnership and where the company is a party to the agreement referring the disputes to the arbitration and where, as in this case there were evidence of claims by the shareholders against the company in respect of their dues, his remuneration as director and unpaid dividends etc., there is no violation of any principle of law in distributing in specie the assets of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff) have proceeded before the Arbitrator and implementation of distribution of their residual proportionate share in the Todi family's assets and properties have been completed. Such assets and properties allotted to the plaintiffs have been kept with the Arbitrator which the plaintiffs have refused to take. The plaintiffs have, however, acted in terms of the agreement of 1989 and have been allotted and have taken such of their shares in the assets and properties of the Todi family, as allotted by the said agreement.... 23. The plaintiffs assert that since it is the first defendant's understanding, as is evident from his affidavit-in-reply, that the arbitration agreement is confined to the MOU of 1989 and its implementation, there is no case that the plaintiffs have to answer in the Section 8 application. The plaintiffs repeat that the two principal grounds that they canvass are that the 1989 MOU was unjust and that the family assets and business that should be divided equally between the four branches would include the several business entities formed and assets acquired after the MOU. 24. The plaintiffs have also relied on a recent judgment of this Court delivered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory to the arbitration agreement, its right in the Queens Park property cannot be adjudicated upon in the reference. This defendant submits that even if it is accepted that the Todi brothers had the authority to bind the family companies to the arbitration agreement, as at the date of such agreement, none of the Todi brothers directly or indirectly controlled this defendant for the arbitration agreement to be binding on it. 28. The defendant No. 84 refers to the Sukanya Holdings case and says that since it cannot be said to be directly or constructively bound by the arbitration agreement, the application for the reference has to fail. Another judgment reported at (2007) 5 SCC 510 (India Household and Healthcare Ltd. v. L.G. Household and Healthcare Ltd.) is placed which has relied on Sukanya Holdings to hold that if some of the reliefs claimed in the suit fall outside the arbitration agreement, there can be no reference of the suit to arbitration. The defendant No. 84 refers to several prayers in the plaint relating to the Queens Park property and suggests that if an adjudication in such aspect is made in the reference, the defendant No. 84 would be seriously prejudiced thereby as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the nature of exercise required of a judicial authority under Section 8 of the 1996 Act and of a Chief Justice or his designate under Section 11 of the 1996 Act may loosely be said to be similar, there would arise several other considerations in an application under Section 8. In an application under Section 11 of the Act, it would generally be one or more parties to the arbitration agreement seeking to compel the other or more parties thereto to the reference to have the disputes covered by the arbitration agreement to be adjudicated upon by an arbitral tribunal. It is irrelevant in the present context that the procedure for appointment for arbitral tribunal may or may not be covered by the arbitration agreement itself. The Chief Justice or his designate under Section 11 of the Act have to adjudicate upon his own jurisdiction to entertain the request and, thereafter, assess whether there is a valid arbitration agreement. In the regular request under Section 11 there would be no dispute as to the parties to the arbitration agreement since it is only a party to the arbitration agreement which can compel the other parties to the agreement to go to reference. In an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the agreement which is also in two distinct parts and uses words of the widest amplitude. The first part of the opening clause of the agreement envisages that the reference would take care of all disputes and differences, mode and manner of implementation of matters in respect of which the parties have amicably resolved.... The word and thereafter leads to the residuary part to be covered by the reference and is very wide as it encompasses ...all other connected and incidental issues or matters arising out of or in relation thereto. 35. Surely, the plaintiffs' grievance that the MOU was unfair to the plaintiffs would be a matter that is connected to the MOU or incidental thereto. Again, the plaintiffs' claim that the family assets and business not included in the MOU or which were formed or acquired after the MOU should also be up for partition, is a matter arising out of or in relation to the MOU. 36. It is possible that some of the defendants in the suit may not be compelled to participate in the reference, but it is not necessary to express a final opinion on such matter since it would fall within the arbitrator's domain. Assume, for the moment, that a company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court, no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators. 37. If the real cause for the plaintiff coming to court is gleaned from the plaint, it would be evident that it is connected to the MOU, whether by reason of the failure to implement the terms thereof or the unfairness of the division contemplated thereby. There is no additional cause of action in the suit which is beyond the sweep of the arbitration agreement. 38. There is, then, the other aspect of Sukanya Holdings that the plaintiffs and the 84th defendant have emphasised on - that there are parties to the suit who are not parties to the arbitration agreement. There are two facets to this aspect. The first is that a claimant who is a party to an arbitration agreement may needlessly implead persons in an action who are not parties to the arbitration agreement in an attempt to avoid the reference or to ensure the continuation of the action. The other feature could be that the parties to the action who are not parties to the arbitration agreement may be, constructively or otherwise, bound by the arbitration agreement. Sukanya Holdings is not an author ..... X X X X Extracts X X X X X X X X Extracts X X X X
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