1998 (2) TMI 566 - SC - Companies Law

Clause 9 not an arbitration agreement; chairman's expert determination binding, challenge as award struck, non-award suit may proceed

KK. MODI Versus KN. MODI

SC held Clause 9 of the MOU did not constitute an arbitration agreement and the Chairman's decision under it was not an arbitral award but an ... Arbitration Agreement and Award - Memorandum of Understanding records the settlement of various dispute as between Group A and Group B in terms of the Memorandum of Understanding - shares and assets of various companies are required to be valued in the manner specified in the agreement - Whether Clause 9 of the Memorandum of Understanding dated 24th of January, 1989 constitutes an arbitration agreement; and whether the decision of the Chairman, IFCI dated 8th December, 1995 constituted an award? - purport of Clause 9 is to prevent any further disputes between Groups A and B - Learned Single Judge has struck off the plaint in the suit as being an abuse of he process of court - Challenges the same decision of the Chairman, IFCI which is challenged in the arbitration petition as an award. Held that:- Clause 9 does not contemplate any judicial determination by the Chairman of he IFCI. He is entitled to nominate another person for deciding any question. His decision has been made final and binding. Thus, Clause 9 is not intended to be for any different decision that what is already agreed upon between the parties to the dispute. It is meant for a proper implementation of settlement already arrived at. A judicial determination, recording of evidence etc. are not contemplated. The decision of the Chairman IFCI is to be binding on the parties. Looking to the scheme of the Memorandum of Understanding and the purpose behind Clauses 9, the learned Single Judge, in our view, has rightly come to the conclusion that this was not an agreement to refer disputes to arbitration. Undoubtedly, in the course of correspondence exchanged by various members of Groups A and B with the Chairman, IFCI, some of the members have used the words 'arbitration' in connection with Clause 9. That by itself, however, is not conclusive. The intention of the parties was not to have any judicial determination on the basis of evidence led before the Chairman, IFCI. Nor was the Chairman, IFCI required to base his decision only on the material placed before him by the parties and their submissions. He was free to make his own inquiries. The finality of the decision is also indicative of it being an expert's decision though of course, this would not be conclusive. But looking at the nature of the functions expected to be performed by the Chairman, IFCI, in our view, the decision is not an arbitration award. The learned Single Judge was, therefor, right in coming to the conclusion that the proceedings before the Chairman, IFCI, were not arbitration proceedings. Nor was his decision an award. Appeal, therefore, dismissed with costs. Abuse of he process of court - In the present case, the learned Judge was of the view that the appellants had resorted to two parallel proceedings, one under the Arbitration Act and the other by way of a suit. When the order of interim injunction obtained by the appellants was vacated in arbitration proceedings, they obtained an injunction in the suit. The learned Single Judge also felt that the issues in the two proceedings were identical, and the suit was substantially to set aside the award. He, therefore, held that the proceeding by way of a suit was an abuse of the process of court since it amounted to litigating the same issue in a different forum through different proceedings. It is contended that the suit, in so far as it challenges the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award is maintainable. In support, the e appellants have relied upon the submissions in paragraph 55 of the plaint which were have set out earlier. In a proceeding under the Arbitration Act, the appellants could not have raised an alternative plea that in case the impugned decision is treated not as an award. but as a decision, the same is bad in law. This plea could only have been raised by filing a separate suit. Similarly in the suit, the appellants could not h ave raised an alternative plea that in case the impugned decision is considered as an award, the same should be set aside. For this purpose an arbitration petition was required to be filed. Therefor, the suit, if and to the extent that it challenges in accordance with law, the impugned decision as a decision, cannot be treated as an abuse of the process of the court. In the present case, from 1989 to 1995 the Memorandum of Understanding has been substantially acted upon and hence the parties must be held to the settlement which is in the interest of the family and which avoids disputes between the members of the family. Such settlements have to be viewed a little differently from ordinary contracts and their internal mechanism for working out the settlement should not be lightly disturbed. The respondents may make appropriate submissions in this connection before the High Court. We are sure that they will be considered as and when the High Court is required to do so whether in interlocutory proceedings or at the final hearing. We make it clear that we are not examining the merits of the claim nor whether the plaint in the suit discloses a cause of action in this regard. The plaint leaves much to be desired and it is for the trial court to decide these and allied questions. The plaint in so far as it challenges the decision as an award and on the same grounds as an award; or seeks to prevent the enforcement of that award by the Chairman, Modipon Ltd. or in any other way has been rightly considered as an abuse of the process of court since the same reliefs have already been asked for in the arbitration petition. The Transfer Case No.13 of 1997 is, therefore, partly allowed. Issues Involved:1. Whether Clause 9 of the Memorandum of Understanding dated 24th January 1989 constitutes an arbitration agreement and whether the decision of the Chairman, IFCI dated 8th December 1995 constituted an award.2. Whether Suit No. 1394/1996 is an abuse of the process of court.Issue-wise Detailed Analysis:Issue 1: Arbitration Agreement and AwardThe court examined whether Clause 9 of the Memorandum of Understanding (MoU) constituted an arbitration agreement and whether the decision of the Chairman, IFCI, constituted an award. The court referred to established legal principles and precedents to determine the nature of the agreement and the decision.1. Attributes of Arbitration Agreement:- The decision of the tribunal must be binding.- Jurisdiction must derive from consent, court order, or statute.- The tribunal must determine substantive rights impartially and judicially.- The decision should be enforceable in law.- The tribunal must decide on a pre-existing dispute.2. Relevant Legal Precedents:- Rukmanibai Gupta v. Collector, Jabalpur: Emphasized the finality of the decision in arbitration.- State of U.P. v. Tipper Chand: Differentiated between administrative control and arbitration.- Cursetji Jamshedji Ardaseer Wadia v. Dr. R.D. Shiralee: Distinguished between avoiding disputes and resolving disputes.- State of Orissa v. Damodar Das: Discussed the finality and binding nature of decisions in arbitration.3. Court's Analysis:- Clause 9 aimed to prevent disputes rather than resolve them judicially.- The Chairman, IFCI, was to provide clarifications and decisions for implementation, not judicial determinations.- The decision was not intended to be an arbitration award but an expert's decision.- The Chairman, IFCI, was free to make inquiries and consult experts.4. Conclusion:- The court concluded that Clause 9 did not constitute an arbitration agreement, and the decision of the Chairman, IFCI, was not an arbitration award.- Appeal arising from Special Leave Petition No. 14905 of 1997 was dismissed with costs.Issue 2: Abuse of Process of CourtThe court examined whether Suit No. 1394/1996 constituted an abuse of the process of court.1. Comparison of Pleadings:- The prayers in the arbitration petition and the suit were substantially identical.- The suit was filed as an alternative to challenge the decision of the Chairman, IFCI, if it was not considered an award.2. Legal Principles on Abuse of Process:- Abuse of process includes re-litigation of the same issue, frivolous or vexatious proceedings, and using court machinery for improper purposes.- Greenhalgh v. Mallard: Re-litigation of the same cause of action is an abuse of process.- Mcllkenny v. Chief Constable of West Midlands Police Force: Re-litigating a decided issue is an abuse of process.3. Court's Analysis:- The suit was seen as an attempt to litigate the same issue in a different forum.- The suit was considered an abuse of process to the extent it challenged the decision as an award.- However, the suit was maintainable to the extent it independently challenged the decision as a decision, not as an award.4. Conclusion:- The appeal was partly allowed. The suit could proceed to the extent it challenged the decision as a decision.- The court directed necessary amendments to the suit and imposed conditions regarding the sale of shares in Godfrey Phillips India Ltd.Final Orders:- The appeal arising from Special Leave Petition No. 14905/1997 was dismissed.- The appeal from the judgment striking out the plaint was partly allowed.- The suit was maintainable to the extent it challenged the decision as a decision.- Conditions were imposed regarding the sale of shares and the holding of meetings of the Modipon Board.- Appeals arising from Special Leave Petition Nos. 14905/97, 18711/97, and Transfer Case No. 13/97 were disposed of accordingly.