TaxTMI 
TaxTMI 
2010 (9) TMI 1298
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....suit is in the nature of partition. The first plaintiff and 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 Conciliatio....
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.... the circumstances in which the first defendant, supported by the overwhelming 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 ....
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....ted to each of the other brothers. The plaintiffs claim that though the other brothers found the suggestion disagreeable, they were 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. ....
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.... that several assets of the family had been kept out of the MOU of 1989 and the subsequent assets and business ventures acquired out of the family corpus were not included for partition 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 shareho....
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....ntiffs have thereafter claimed partition of the family concerns and assets and specifically of two immovable properties at Queens Park and at Sarat Bose Road. The other reliefs claimed are ancillary to the aforesaid principal 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 ....
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.... (2) SHRI SHRAWAN KUMAR TODI residing at 2, Queen's Park, Kolkata-700 019; (3) SHRI NIRANJAN LAL TODI residing at 2, Queen's Park, Kolkata-700 019; AND (4) SHRI GOVIND PRASAD TODI residing at C-757, New Friends Colony, New Delhi-110 065, all 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 G....
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....d, disposed of or encumbered in any manner whatsoever save and except in the ordinary course of business and after obtaining prior consent of the Arbitrator and no party shall make any change in the constitution of any company, partnership or any association of persons which are subject matters of arbitration. 5. The Arbitrator shall have summary powers 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 fulfillmen....
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....ant says that both a family settlement and an agreement to implement the family settlement have to be regarded with respect by court and the members of the family should be left free to have their disputes resolved in accordance with their agreement. He submits that the present suit would amount to altogether scuttling the family arrangement which the court should not readily permit. He says that the named arbitrator 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 l....
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....ther, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration. Similarly, Section 9 enables a Court, obviously, 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 ....
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....iness which are clearly not covered by the agreement. They refer to the sixth recital which records a concluded "family arrangement in respect of certain businesses and properties." They suggest that the seventh and eighth recitals to the agreement would imply that it is only the MOU of 1989 that forms the subject-matter of the reference and the companies, firms and other entities created after the MOU and the businesses and assets acquired subsequently 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 ....
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....me for making the award. There is a clause in the agreement of January 31, 2004 that permits the arbitrator named therein to extend the time on his own and such clause does not appear to be in derogation of the statute that governs the arbitration. 17. The plaintiffs suggest that not only would the correspondence between the arbitrator and some of the parties to the reference indicate that he is biased, but the stand taken by defendant No. 11 who, according 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 ....
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....t AIR 1980 Cal 28 (Tapan Kumar Paul v. Krishna Kanta Paul) where the propriety of an award was questioned under Section 30 of the 1940 Act. The award and the disputes centered round a family company. A petition was filed, inter alia, under Sections 397 and 398 of the Companies Act, 1956 relating to such family company. The parties agreed to refer the disputes to arbitration. One of the grounds for assailing the award was that it sought to divide the assets of the company 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 int....
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....r of implementation of the agreement of 1989 (the MOU)." The plaintiffs place paragraph 6 of the affidavit where it speaks of the brothers other than the first plaintiff having "established their own business separate from the family hotchpotch after September 30, 1988." The plaintiffs point to paragraph 11 of the affidavit which accuses the plaintiffs of trying to delay and scuttle the arbitration proceedings and goes on to say: 11. ...However, the three brothers (other than the first 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....
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....6 of 2010 where, at paragraph 137, the first defendant has referred to the defendant No. 84 in the context that the plaintiffs have no right to the Queens Park property after having transferred their interest therein to the defendant No. 84. This defendant contends that the Queens Park property is central not only to the claim in the suit but it is also at the core of the disputes between the brothers. It says that since it is neither a party to the MOU (it was incorporated many years later) nor is it a signatory 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 S....
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....reference or the reference has commenced after the action is instituted but before the application under Section 8 is made. 31. The two essential duties that the judicial authority receiving an application under Section 8 of the 1996 Act has to perform are to assess whether there is in existence a valid arbitration agreement and to ascertain whether the dispute that is sought to be raised before it is covered by the arbitration agreement. If either is answered in the negative, the application for a reference has to fail. 32. 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 arbitr....
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....covers the situations envisaged by the immediate phrases preceding and following it. That is to say, that the ninth recital implies that the twin purposes of the arbitration are to resolve all disputes and differences; and, to arrive at the mode and manner of implementation of the matters in respect of which the parties have amicably resolved. Even if the ninth recital is seen to give colour to the first clause of the agreement, the expression "all disputes and differences" in the ninth recital would imply the same thing as in the first clause 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 matt....
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....greement would not oust the jurisdiction of the forum before which an action had been brought in respect of matters covered by the arbitration agreement if such forum otherwise had authority to receive the action. That is obvious. Arbitration, by its very nature, is consensual and parties thereto may waive it. The other aspect covered by the decision was that when the subject-matter of a suit includes the subject-matter of the arbitration agreement as well as other disputes, the matter is not required to be referred to arbitration. There is, according to 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....