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1999 Supreme(Cal) 526
IN THE HIGH COURT AT CALCUTTA
Ronojit Kumar Mitra, J.
Peerless General Finance & Investment Company Limited – Plaintiff
Versus
Mohon Gold Water Breweries Limited – Defendant
G.A. No. 4627, 3294 & 2894 of 1997 and C.S. No. 262 of 1997
Decided On: October 1, 1999
Mr. B. Gupta, A. Chatterjee & Chowdhury for the Plaintiff.
Mr. D. Shome, D. Sen & A. Sarkar for the Defendant No.1
Mr. V. Raja Rao & Ms. A. Rao for the Indian Overseas Bank.
An arbitration clause in an earlier contract can be validly incorporated into a subsequent contract if the language is appropriate, unambiguous, and clear, the subject matter of the two contracts is the same, and the parties are aware of the arbitration clause and agree to incorporate it into the subsequent contract.
Headnote:
ARBITRATION - INCORPORATION OF ARBITRATION CLAUSE - INTERPRETATION OF ARBITRATION CLAUSE - VALIDITY OF INCORPORATION - JURISDICTION - BIFURCATION OF SUIT.
Fact of the Case:
The petitioner, Peerless General Finance & Investment Company Limited, filed three applications: two for attachment before judgment, injunction, and receiver, and one for judgment upon admission. The respondent, Mohon Gold Water Breweries Limited, filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to stay the suit and refer the disputes to arbitration as per an arbitration agreement between the parties.
Finding of the Court:
1. The arbitration clause in the Memorandum of Understanding (MOU) was clear and unambiguous, and it was validly incorporated into the subsequent agreements between the parties. 2. The parties' agreement to confer jurisdiction on the Calcutta High Court did not contradict the arbitration clause, as the arbitration clause applied to disputes arising before, during, and even after the completion of the arbitration proceedings. 3. The suit filed by the respondent was not a mortgage suit, and the bank was not a necessary party. 4. The circumstances of the case warranted an order for bifurcation, allowing the arbitration proceedings between the petitioner and the respondent to continue while the respondent proceeded with the suit against the guarantor.
Issues: 1. Whether the arbitration clause in the MOU was validly incorporated into the subsequent agreements between the parties. 2. Whether the parties' agreement to confer jurisdiction on the Calcutta High Court contradicted the arbitration clause. 3. Whether the suit filed by the respondent was a mortgage suit and whether the bank was a necessary party. 4. Whether the circumstances of the case warranted an order for bifurcation.
Ratio Decidendi: 1. The incorporation of the arbitration clause into the subsequent agreements was valid because: a) The language in the subsequent agreements incorporating the clauses contained in the MOU was appropriate, unambiguous, and clear. b) The subject matter of the MOU and the subsequent agreements was the same, being a loan. c) The parties were aware of the arbitration clause in the MOU and agreed to incorporate it into the subsequent agreements. 2. The parties' agreement to confer jurisdiction on the Calcutta High Court did not contradict the arbitration clause because: a) The arbitration clause applied to disputes arising before, during, and even after the completion of the arbitration proceedings. b) The parties could still approach the Calcutta High Court in the event they were required to go to Court either before, during, or after the arbitral proceedings. 3. The suit filed by the respondent was not a mortgage suit because: a) A mortgage is defined as a transfer of an interest in specific immovable property, and a charge on fixed assets does not fall within this definition. b) The respondent had not claimed any relief against the bank. 4. The circumstances of the case warranted an order for bifurcation because: a) The arbitration clause was not binding on the guarantor, and the respondent could proceed with the suit against the guarantor. b) There was no absolute rule as to bifurcation, and the Court could decide whether to allow bifurcation based on the facts and circumstances before it.
Final Decision: 1. The petition for attachment before judgment, injunction, and receiver was allowed. 2. The petition for judgment upon admission was dismissed. 3. The application under Section 8 of the Arbitration and Conciliation Act, 1996, was allowed, and the suit was stayed. 4. The suit was bifurcated, allowing the arbitration proceedings between the petitioner and the respondent to continue while the respondent proceeded with the suit against the guarantor.
1. Three applications appeared in the cause list marked under one number for analogous hearing. There were two applications marked G.A. No. 2894 and G.A. No. 3294, made by The Peerless General Finance & Investment Company Limited. In the first application, the petitioner had prayed for an order for attachment before judgment, injunction and receiver. The prayer in the second application was for judgment upon admission. The third application, which had appeared in the cause list, was made by Mohon Gold Water Breweries Limited, the only contestant in these applications and shall be referred as the respondent hereafter. This application had been made under Section 8 of the Arbitration and Conciliation Act, 1996 with a prayer to stay the suit and, in terms of an arbitration agreement between the parties, refer the disputes to the arbitrator named in the agreement. A joint prayer was made by Counsels for the parties, and the third application mentioned above was taken up for hearing.
2. The facts of the matter of course were strictly not necessary to be gone into by Court in deciding this application. In order to appreciate the true scope of this application however, it would in my view be convenient to be appraised of the bare facts of the case. Pursuant to a Memorandum of Understanding dated May 5, 1992, which shall be referred hereinafter as M.O.U., the parties had subsequently entered into two agreements dated May 26, 1992 and June 4, 1992. In terms of the two agreements, it had been alleged by the respondent that it had paid and the petitioner had received, between June 5, 1992 and March 30, 1995, diverse sums of money which together with interest amounted to an aggregate sum of Rs. 11,76,37,138.67p. Except for a sum of Rs. 10,86,272.00p. according to the respondent no part of its dues had been paid by the petitioner in spite of demands. In those circumstances, the respondent had called back the advance and instituted this suit on July 7, 1997 before this Court, which has been marked C.S. No. 262 of 1997.
3. It had been alleged by the petitioner, that there was an arbitration agreement between the parties and the alleged disputes and differences in respect to which the respondent had instituted the suit ought to be referred to the agreed arbitrator for his decision. The arbitration clause being part of Clause 7 in the M.O.U., Contended counsel for the petitioner, had been clearly and specifically incorporated in the two agreements by reason of the fact that in the agreement dated May 26, 1992, the parties had agreed that the M.O.U. would form part of the agreement. Therefore, he submitted that by valid incorporation of the M.O.U. the arbitration clause contained in the M.O.U. must be read into each of the two agreements. He interpreted the arbitration clause in the M.O.U. to be applicable, not just to all disputes and differences between the parties prior to documentation but, as stated in the petition, was also meant to apply to all disputes and differences arising out of or in connection with the said M.O.U. and the said agreements dated May 26, 1992 and June 4, 1992 at all subsequent stages thereafter. In support of his submissions, he cited and relied on the decisions reported in Dwarkadas and Co. vs. Daluram Goganmoll, AIR 1951 Cal 10; The Abu Road Electricity and Industries Co. Ltd. vs. Industrial Gases Ltd., AIR 1977 Cal 482; and Alimenta S.A. vs. National Agricultural Co-operative Marketing Federation of India Ltd. & another, AIR 1987 SC 643. The alleged claim, according to him, had been made in the plaint against the petitioner and not against the guarantor who had however, been impleaded as the defendant No. 2, and that though no claim admittedly had been made against the bank, it had been implead as the defendant No. 3 in the plaint for no apparent reason. He submitted that both the defendant Nos. 2 and 3 were unnecessary parties, who had been impleaded only for the purpose of and with intent to avoid the arb
