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2014 Supreme(Bom) 1075
In the High Court of Bombay at Goa
U.V. BAKRE, J.
Dr. Ajit B. Kerkar & Another
Versus
Dr. Shailendra P. Mittal & Others
Civil Revision Application No. 35 of 2012
Decided on : 08-05-2014
For the Petitioners:S.G. Dessai, Senior Advocate with P. Rao, Advocate.
For the Respondents:Haresh Jagtiani, Senior Advocate with E.O. Mendes, Anil D'Souza, Siddhesh Bhole, Suprash Jain, Mahadji Prabhudesai, Gina Almeida, Advocates.
An arbitration clause in an agreement does not apply to disputes arising out of a separate agreement that does not contain an arbitration clause, even if the two agreements are related.
Headnote:
ARBITRATION - SECTION 8 - APPLICATION FOR REFERENCE OF DISPUTES TO ARBITRATION - MOU AND SHAREHOLDERS AGREEMENT - ARBITRATION CLAUSE - INTERPRETATION - APPLICABILITY TO MOU - CLARIFICATION BY COUNSEL BEFORE SUPREME COURT - BINDING EFFECT - DISPUTES RELATING TO MOU NOT ARBITRABLE - TRIAL COURT'S ORDER REJECTING APPLICATION UNDER SECTION 8 - VALIDITY.
Fact of the Case:
Petitioners filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for referring the parties to arbitration in a suit filed by the respondents. The disputes arose out of a Memorandum of Understanding (MOU) and a Shareholders Agreement (SHA) entered into between the parties. The SHA contained an arbitration clause. The petitioners contended that the MOU was made a part of the SHA and that the arbitration clause in the SHA applied to the MOU as well. However, the trial court rejected the application, holding that the disputes relating to the MOU were not arbitrable as there was no arbitration clause in the MOU and that the petitioners had given an undertaking before the Supreme Court that they would not seek arbitration in regard to the disputes relating to the MOU.
Finding of the Court:
The High Court held that the arbitration clause in the SHA did not apply to the MOU and that the disputes relating to the MOU were not arbitrable. The Court relied on the order of the Supreme Court in a related appeal, in which the petitioners had clarified that they would not seek arbitration in regard to the disputes relating to the MOU. The Court also held that the trial court had not erred in rejecting the application under Section 8 of the Arbitration Act.
Issues: 1. Whether the arbitration clause in the SHA applied to the MOU? 2. Whether the disputes relating to the MOU were arbitrable? 3. Whether the trial court erred in rejecting the application under Section 8 of the Arbitration Act?
Ratio Decidendi: 1. The arbitration clause in the SHA did not apply to the MOU because the MOU did not contain an arbitration clause and the SHA did not incorporate the MOU by reference. 2. The disputes relating to the MOU were not arbitrable because there was no arbitration agreement between the parties in respect of those disputes. 3. The trial court did not err in rejecting the application under Section 8 of the Arbitration Act because the petitioners had given an undertaking before the Supreme Court that they would not seek arbitration in regard to the disputes relating to the MOU.
Final Decision: The High Court dismissed the revision petition filed by the petitioners.
1. Heard Mr. Dessai, learned Senior Counsel appearing on behalf of the petitioners and Mr. Jagtiyani, learned Senior Counsel appearing on behalf of the respondents.
2. By this revision application, the petitioners have taken exception to the order dated 23/05/2012, passed by the learned Civil Judge, Senior Division, Vasco-da-Gama, Goa ('trial Court'), on an application under Section 8 of the Arbitration and Conciliation Act, 1996 ('the Arbitration Act', for short), filed by the petitioners, in Special Civil Suit No. 07/2007/A.
3. A Memorandum of Understanding dated 26/04/2000 (MOU, for short) was executed between the petitioner no. 2-Company (THPL, for short) represented by the petitioner no.1 (ABK, for short) and respondent no.1 (SM, for short) whereby it was proposed to incorporate a Private Limited Company i.e. Joint Venture Company (JVCO, for short) for the purpose of managing and running Bogmolo Beach Resort (BBR, for short) belonging to the respondent no. 3Company (TWHL, for short) and for operating the resorts of THPL and all other hotels (both resorts and city hotels) which SM may introduce to JVCO for operation, for a minimum period of 10 years. Inter alia, 50 % equity shares in the TWHL were agreed to be sold to THPL or its nominee. Subsequently, a Shareholders' Agreement dated 09/06/2000 (SHA, for short) was entered into between the petitioners (ABK and THPL) on one side and the respondent no. 1(SM), respondent no. 2 (TWL, for short) and TWHL, on the other side, inter alia, for transfer of said 50% shareholding in the TWHL, in favour of THPL. The SHA contained an arbitration clause being clause no. 19. The MOU was referred to in the said SHA.
4. The petitioners claim that on 15/06/2000, they took over the possession, control and management of BBR and that on 27/01/2007, SM, TWL and TWHL tried to dispossess them from BBR. Disputes arose between the parties with regard to the management of BBR governed by MOU and sale of shares of TWHL, under the SHA. Some of the disputes related to the SHA with regard to non-transfer of 50% shareholding in THWL in favour of THPL. Other disputes related to the management of BBR covered by MOU. Some incidental and consequential disputes were also there relating to accounts, etc..
5. The petitioners applied for interim relief under Section 9 of the Arbitration Act by filing an application dated 07/02/2007 before the Principal District Judge, South Goa, Margao, which came to be registered as Arbitration Application No. 3/2007. By order dated 26/11/2007, the learned Principal District Judge, South Goa, Margao allowed the Arbitration Application No. 3/2007. Some clarifications were sought from the learned District Judge which were issued subsequently by order dated 17/01/2008. The respondents no. 1 to 3 challenged the said orders of the Principal District Judge before this Court and by order dated 05/08/2013, passed in Appeal Under Arbitration No. 4 of 2007, a learned single Judge of this Court, in view of the order dated 23/09/2010 passed by the Apex Court in Civil Appeal No. 9165 of 2010, quashed and set aside both the said orders of the District Judge and restored the Arbitration Application No. 3 of 2007 to the file of the learned District Judge, South-Goa, Margao. The undertaking of the learned counsel for the present respondents no. 1 to 3 recorded in the said Appeal Under Arbitration No. 4/2007, on 07/02/2007, has been ordered to continue to be in operation until the disposal of the Arbitration Application No. 3/2007. It appears that the said Arbitration Application No. 3/2007 is still pending.
6. On 08/02/2007, the respondents no.1, 2 and 3 filed Special Civil Suit No. 07/2007 against the petitioners and the respondents no. 4 to 7 for following reliefs:
(a) for a declaration that the Memorandum of Understanding dated 26/04/2000 stood terminated and rendered inoperative with effect from 01/11/2006;
(b) for a direction to the defendants to surrender the MOU dated 26/0
