IMPORTANT POINT
Agreement did not intending that disputes be decided by arbitration cannot be treated as an arbitration clause.

JUDGMENT :

R.F. Nariman, J.

1. Leave granted.

2. The present dispute arises out of a Memorandum of Understanding (MoU)/Agreement executed between the parties dated 08.12.2005 for sale and purchase of shares of a Company called M/s Mancherial Cement Company Private Limited of which all the parties are Directors. The bone of contention in the present proceedings is as to whether Clause 12 of the said Agreement can be stated to be an arbitration clause.

3. Heard the learned Senior Counsel appearing for the parties at considerable length.

4. Mr. Guru Krishnakumar, learned Senior Advocate, appearing on behalf of the Appellant has brought to our notice the said MOU in which he relies, in particular, upon Clause 12. According to him, the language of the said clause is language that leads inevitably to the conclusion that the said clause is an arbitration agreement. The word “decision” is used; the word “Mediators/Arbitrators” is used; the expression “any breaches” is used; and the “decision” is to be final and binding on all parties to the said Agreement. Based on these words, in particular, the learned Senior Advocate argues that the three essentials of an arbitration clause have been met, namely, that there must be disputes between the parties which have to be adjudicated upon by giving the parties a hearing, at the end of which there is a decision which is final and binding between the parties. He also argued that the MOU read as a whole would not militate against his argument given the words used in Clause 12.

5. The learned Senior Advocate then relied upon a judgment of this Court in P. Dasaratharama Reddy Complex vs. Government of Karnataka and Another, (2014) 2 SCC 201, and distinguished judgments cited therein by stating that in the arbitration clause that was considered in that case, it was clear that clauses of earlier judgments of this Court either spoke of a preliminary decision which was then subject to a final decision by a Court or spoke of decisions that had to be rendered only “for the time being”. According to him, his case was entirely different, and therefore, he would squarely fall within the parameters laid down by the judgment in K.K. Modi vs. K.N. Modi, (1998) 3 SCC 573.

6. Mr. Amit Sibal, learned Senior Advocate on behalf of the Respondent Nos. 1 to 4, is at pains to point out that the MOU, read as a whole, makes it clear that the expression “Mediators/Arbitrators” is used loosely. In fact, the two gentlemen said to be arbitrators, Mr. K. Sudhakar Rao and Mr. Gone Prakash Rao, are escrow agents who have with them the custody of three sets of documents to ensure successful implementation of the MOU. He relied strongly upon Clauses 6, 8, 10 and 11 and stated that these must be read along with Clause 12 so that it is clear that the expression “decision” must be read only with “during the period of entire transaction” and has reference to breaches that may occur under Clause 10, as parties of the first part undertake to substitute personal guarantees given by parties of the second part with personal guarantees of their associates, and that if this is not done, then a “decision” is to be taken by the escrow agents as to what to do next.

7. Mr. Sibal also pointed out that three other purchasers of shares, who were sailing in the same boat as the present Appellant, had gone to the Civil Court and had filed O.S. No. 241 of 2017, which has since been dismissed in default. He also points out that the entire exercise before us is a mala fide exercise by the Appellant to hedge his bets by first issuing a notice in 2007 under the said MOU as if the said MOU contained an arbitration clause, but following it up only two and a half years later by filing a Section 11 petition in December 2009. He also stated that while the Section 11 petition was pending, the Appellant had filed a Company Petition No. 49 of 2011 on 16.06.2011 in