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PETITIONER:

K.K. MODI

Vs.

RESPONDENT:

K.N. MODI & ORS.

DATE OF JUDGMENT: 04/02/1998

BENCH:

SUJATA V. MANOHAR, D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:

[WITH C.A.No. 614 Of 1998 (Arising out of S.L.P. (C) No.

18711 of 1997} and T.C.{C} No. 13.97]

J U D G M E N T

Mrs. Sujata V.Manohar. J.

Leave granted in Special Leave Petition Nos. 14905 and

18711 of 1997.

The present litigation has arisen on account of dispute

between Seth Gujjar Mal Modi's five sons - K.K.Modi, V.K.

Modi, S.K.Modi. B.K.Modi and U.K.Modi on the one hand

(hereinafter referred to as `Group B') and Kedar Nath Modi,

the younger brother of Seth Gujjar Mal Modi and his three

sons - M.K.Modi and D.K.Modi (hereinafter referred to as

`Group A') on the other hand. The Modi family owns or has a

controlling interest in a number of public limited

companies. They also own various assets. Differences and

disputes have arisen between Kedar Nath Modi and his sons

constituting Group A and the sons of late Gujjar Mal Modi

constituting Group B on the other hand. To resolve these

differences, negotiations tool place with the help of the

financial institutions which had lent money to these

companies, and through whom substantial public funds had ben

invested in the companies owned and/or controlled by these

two groups. Representatives of several banks, Reserve Bank

of India and financial institutions were also invited to

participate. Ultimately, on 24th of January, 1989, a

Memorandum of Understanding was arrived at between Group A

and Group B. Under the Memorandum of Understanding so

arrived at, it is agreed between the parties that Group A

will manage and/or control the various companies enumerated

in Clause 1. One of the companies so included is Modipon

Ltd. minus Indofil (chemical division) and selling agency.

Under Clause 2, Group B is entitled to manage, own and/or

control the companies enumerated in that clause. One of the

companies so included is Modipon Ltd. minus Modipon Fibre

Division. The agreement also provides for division of assets

which are to be valued and divided in the ration of 40:60 -

Group A getting 40% of the assets and Group B getting 60% of

the assets. The shares of the companies are required to be

transferred to the respective groups after their valuation.

Under Clause 3, valuation has to be done by M/s S.B.

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Billimoria & Company, Bombay. Clause 5 provides for

companies which are to be split between the two groups as

per the Memorandum of Understanding. The division has to be

done under Clause 5 by a scheme of arrangement to be

formulated by M/s Bansi S. Mehta & Company, Bombay after

taking into consideration the valuation done by M/s. S.B.

Billimoria & Company, Bombay. Units of a company to be

given to each group are to be given along with assets ad

liabilities. Clause 6 provides for interim arrangements

which are to be made in respect of the three companies which

are being sp[lit - these being Modi Industries Ltd., Modipon

Ltd. and Modi Spinning and Weaving Mills Company Ltd. We are

not concerned with the other clauses, except to note that

the date for carrying out valuation, the date of transfer

the appointment of independent Chairmen of these companies

which are to be split and certain other matters specified in

the Memorandum of Understanding shall be done consultation

with the Chairman, Industrial Finance Corporation of India

(IFCI).

Clause 9 provides as follows:-

"Implementation will be done in

consultation with the financial

institutions. For all disputes,

clarifications etc, in respect of

implementation of this agreement,

the same shall be referred to the

Chairman, IFCI or his nominees

whose decisions will be final and

binding on both the groups."

Pursuant to the Memorandum of Understanding, M/s S.B.

Billimoria & Company gave reports between January and March

1991. M/s Bansi S. Mehta & Company who were required to

provide a scheme for splitting of the three companies by

taking into account the valuation fixed by M/s S.B.

Billimoria & Company, also sent various reports between

November 1989 and December, 1994. The members of both the

Groups were dissatisfied with these reports. They sent

various representations to the Chairman and Managing

Director of the Industrial Finance Corporation of India Ltd.

in view of Clause 9 of the Memorandum of Understanding.

The Chairman and Managing Director, Industrial Finance

Corporation of India formed a Committee of experts to assist

him in deciding the questions that arose. The Committee of

Experts and the Chairman, IFCI had discussions with both the

groups. Meetings were also held with the Chairman of the

concerned companies who were independent Chairmen. The

discussions took place form 12th of March 1995 to 8th of

December, 1995.

On 8th of December 1995, the Chairman, IFCI gave his

detailed decision/report. In his covering letter of 8th of

December, 1995, the Chairman and Managing Director,

Industrial Finance Corporation of India Ltd. has described

this report as his decision on each dispute raised or

clarification sought. He has quoted in his covering letter

that since that memorandum of Understanding has already been

implemented to a large extent during 1989 to 1995, with the

decisions on the disputes/clarifications gives by him now in

the enclosed report, he has hoped that it would be possible

to implement the remaining part of the Memorandum of

Understanding. He has drawn attention to paragraph 9 of his

report where he has said that it is now left to the members

of Groups A and B to settle amongst themselves the family

matter without any further reference to the Chairman and

Managing Director of the Industrial Finance Corporation of

India. In paragraph 7 of the letter he has stated that on

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the basis of the total valuation of Modi Group assets and

liabilities and allocation thereof between Groups A and B

the decisions given by him in dated 8.12.1995. The averments

and prayers in this suit were substantially the same as

those in the arbitration petition. In one paragraph,

however, in the plaint, it was stated that the same reliefs

were being claimed in a suit in the event of it being held

that the decision of the Chairman and Managing Director,

IFCI was not an arbitration award but was just a decision.

In arbitration petition O.M.P. No. 58 of 1996 the

present appellants also applied for interim relief by I.A

4550 of 1996. By an ad-interim order in O.M.P. No. 58 of

1996 and I.A 4550 of 1996 dated 24th of May, 1996, the Delhi

High Court stated the operation of the "award" dated

8.12.1995 and directions of the Chairman, Modipon Ltd. as

set out in the said order. The High Court also restrained

respondents 6 and 7 (Group A) from selling and/or

transferring and/or disposing of, in any manner, the shares

held by them in Godfrey Phillips India Limited until further

orders. From this ad-interim order a special leave petition

was preferred by the respondents which was dismissed by this

Court on 3.6.1996 on the ground that it was only an ad

interim order.

Interim application I.A 4550 of 1996 in Arbitration

Petition O.M.P. No. 58 of 1996 was heard and disposed of by

the Delhi High Court by its impugned judgment dated 11th of

February, 1997. A learned Single of the Delhi High Court

held b y the said judgment that the decision of the Chairman

and Managing Director, IFCI dated 8.12.1995 cannot be

considered as an award in arbitration proceedings. The

parties did not have any intention to refer any disputes to

arbitration. All the disputed were settled by the Memorandum

of Understanding dated 24th of January, 1989 and what

remained was only the valuation of shares and division of

the three companies as agreed to in the Memorandum of

Understanding. In order to avoid any disputes, the parties

had agreed that the Chairman and Managing Director, IFCI

would issue all clarifications and give his decision in

relation to the valuation under Clause 9 of the Memorandum

of Understanding. The arbitration petition, according to the

learned Single Judge, was, therefor, not maintainable, since

the decision impugned was not award within the meaning of

the Arbitration Act, 1940. Under the circumstances he

dismissed the interim application I.A 4550 of 1996 in

arbitration petition O.M.P. No.58 of 1996. By t he said

order he posted the hearing of a similar interim application

I.A 5112 of 1996 in Suit No. 1394 of 1996 on 26th of March,

1997.

Another interim application being I.A 2293 of 1997 in

arbitration petition O.M.P. No. 58 of 1996 was heard by the

learned Single Judge on 13th of March, 1997. The learned

Single Judge passed an interim order to the effect that

until further orders, no testing of the Modipon Board shall

be held for considering any matter.

On 6th of September, 1997 Suit No. 1394 of 1996 filed

by Group B, interim application in the suit being I.A. 5112

of 1996 in arbitration petition O.M.P. No. 58 of 1996 were

heard together and decided by the learned Single Judge b y

his judgment and order of the same date i.e. 6th of

September, 1997. The learned Single Judge held that the

entire exercise of filling Suit No. 1394 was an abuse of the

process of the Court. According to him the allegations in

the arbitration petition and in the plaint in the suit were

identical. Both proceedings were instituted on the same

date. The learned Single Judge struck down the plaint under

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order VI Rule XVI of the code of Civil Procedure and

dismissed the suit. By the same order, he also dismissed

I.A. 5112 of 1996 in the suit and I.A. 2293 of 1997 in the

arbitration petition.

Being aggrieved b y the above judgment and order dated

6th of September, 1997, the present appellants filed an

appeal before the Division Bench of the Delhi High Court

being R.F.A. (OS) 41 of 1997. The appellants also made an

interim application being C.M. 1270 of 1997 in R.F.A (OS) 41

of 1997. The Division Bench of the Delhi High Court, by its

order dated 15th of September, 1997, admitted the appeal

being R.F.A (OS) 41 of 1997. It also disposed of by the same

order, C.M. 1270 of 1997 by passing an order reviving the

order passed by the learned Single Judge on 13.3.1997 by

which the learned Single Judge had directed that pending

further orders no meeting of the Modipon Board should b e

held to consider any matter.

S.L.P.(Civil) No. 18711/1997 is filed before us from

this impugned order of 15th of September, 1997. Thus we have

before us S.L.P. (Civil) No. 14905/1997 from the judgment

and order of the learned Single Judge of the Delhi High

Court dated 11.2.1997 in I.A 4550 of 1996 in arbitration

petition O.M.P. No. 58 of 1996. We h ave also before us

S.L.P. (Civil) No. 18711 of 1997 from the order of the

Division Bench of the Delhi High Court dated 15.9.1997 in

C.M. 1270 of 1997 under which the interim order of 13.3.1997

is revived. By consent of parties, R.F.A. (OS) 41 of 1997

has also been transferred to us being T.C.(civil) No. 30 of

1997 for consideration. All these three proceedings have

been heard together. During the pendency of S.L.P. (Civil)

No. 18711 of 1997, in I.A. No.3 we have b y our ad-interim

order dated 18.11.1997 varied t he interim order of 13th of

March, 1997 to the following effect:

"Until further orders no meeting of

the Modipon Board shall be held for

considering any matter relating to

decision of the C.M.D., IFCI dated

8.12.1995 or concerning the sale of

shares held in Godfrey Philip India

Limited."

Thereafter, on 7th of January, 1998 after hearing both

sides, the following order has been passed in I.A.No.3 in

S.L.P (Civil) No. 18711/97, in terms of the minutes :-

"For a period of eight weeks

from today, neither Mr. K.K. Modi

nor Mr. M.K. Modi will acquire

directly or indirectly any further

shares of Modipon Limited nor take

any steps that would in any way

directly or indirectly destablise

the control and management of the

Fibre Division of Modipon Limited

by Mr. K.K.Modi and of the Chemical

Division of Modipon Limited by Mr.

M.K.Modi.

Liberty to apply for variation if

circumstances change."

The present proceedings raise two main question :

Question 1: 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? and

Question 2: Whether Suit No. 1394/1996 is an abuse of

the process of court?

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Question No.1:

Mustill and Boyd in their book on "Commercial

Arbitration", 2nd Edition, at page 30, point out that in a

complex modern State there is an immense variety of

tribunals, differing fundamentally as regards their

compositions, their functions and the sources from which

their powers are derived. Dealing with tribunals whose

jurisdiction is derived from consent of parties, t hey list,

apart from arbitral tribunals, persons (not properly called

Tribunals) entrusted by consent with the power to affect the

legal rights of two parties inter see in a manner creating

legally enforceable rights, but intended to do so by a

procedure of ministerial and not a judicial, nature (for

example, persons appointed by contract to value property or

to certify the compliance of building works with a

specification). There are also other tribunals with a

consensual jurisdiction whose decisions are intended to

affect the private rights of two parties inter see, but not

in a manner which creates a legally enforceable remedy (for

example, conciliation tribunals of local religious

communities, or persons privately appointed to act as

mediators between two disputing persons or groups). Mustill

and Boyd have listed some of he attributes which must be

present for an agreement to be considered as an arbitration

agreement, though these attributes in themselves may not be

sufficient. They have also listed certain other

consideration which are relevant to this question, although

not conclusive on the point.

Among the attributes which must be present for an

agreement to be considered as an arbitration agreement are :

(1) The arbitration agreement must contemplate that the

decision of the tribunal will be binding on the

parties to t he agreement,

(2) That the jurisdiction of the tribunal to decide the

rights of parties must derive either from the

consent of the parties or from an order of the

Court or from a statute, the terms of which make

it clear that the process is to be an arbitration,

(3) The agreement must contemplate that substantive

rights of parties will be determined by the agreed

tribunal,

(4) That the tribunal will determine the rights of the

parties in an impartial and judicial manner with

the tribunal owing an equal obligation of fairness

towards both sides,

(5) That the judgment of the parties to refer their

disputes to the decision of the tribunal must be

intended to be enforceable in law and lastly,

(6) The agreement must contemplate that the tribunal

will make a decision upon a dispute which is

already formulated at the time when a reference is

made to the tribunal.

The other factors which are relevant include, whether

the agreement contemplates that the tribunal will receive

evidence from both sides and hear their contentions or at

least give the parties an opportunity to put them forward;

Whether the wording of the agreement is consistent or

inconsistent with the view that the process was intended to

be an arbitration, and whether the agreement requires the

tribunal to decide the dispute according to law.

In Russell on Arbitration, 21st Edition, at page 37,

paragraph 2-014, the question : How to distinguish between

an expert determination and arbitration, has been examined.

It is stated, "Many cases have been fought over whether a

contract's chosen form of dispute resolution is expert

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determination or arbitration. This is a matter of

construction of the contract, which involves an objective

enquiry into the intentions of the parties. First, there are

the express words of the disputes clause. If specific words

of the disputes clause. If specific words such as

'arbitrator', 'arbitral tribunal', 'arbitrator' are used to

describe the manner in which the dispute resolver is to act,

they are likely to be persuasive although not always

conclusive.......... Where there is no express wording, the

court will refer to certain guidelines. Of these, the most

important used to, whether there was an 'issue' between the

parties such as the value of an asset on which they had not

taken defined positions, in which case the procedure was

held to be expert determination; or a 'formulated dispute'

between the parties where defined positions had been taken,

in which case the procedure was held to be an arbitration.

This imprecise concept is still being relied on. It is

unsatisfactory because some parties to contract deliberately

chose expert determination for dispute resolution. The next

guideline is the judicial function of an arbitral tribunal

as opposed to the expertise of the expert'........... An

arbitral tribunal arrives at its decision on the evidence

and submission of the parties and must apply the law or if

the parties agree, on other consideration; an expert, unless

it is agreed otherwise, makes his own enquiries, applies his

own expertise and decides on his own expert opinion......"

The authorities thus seem to agree that while there are

no conclusive tests, by and large, one can follow a set of

guidelines in deciding whether the agreement is to refer an

issue to an expert or whether the parties have agreed to

resolve disputes through arbitration.

Therefore our courts have laid emphasis on (1)

existence of disputes as against intention to avoid future

disputes; (2) the tribunal or forum so chosen is intended to

act judicially after taking into account relevant evidence

before it and the submissions made by the parties before it;

and (3) the decision is intended to bind the parties.

Nomenclature used by the parties may not be conclusive. One

must examine the true intent and support of the agreement.

There are, of course, the statutory requirements of a

written agreement, existing or future disputes and an

intention to refer them to arbitration. (Vide Section 2

Arbitration Act 1940 and Section 7 Arbitration and

Conciliation Act, 1996).

In the case of Smt. Rukmanibai Gupta v. Collector,

Jabalpur & Ors. [(1980) 4 SCC 556], this Court dwelt upon

the fact that disputes were referred to arbitration and the

fact that the decision of the person to whom the disputes

were referred was made final, as denominative of the nature

of the agreement which the court held was an arbitration

agreement.

In the case of State of U.P. v. Tipper Chand [(1980) 2

SCC 341], a clause in the contract which provided that the

decision of the Superintending Engineer shall be final,

conclusive and binding on all parties to the contract upon

all questions relating to the meaning of the specifications,

designs, drawings and instructions was contoured as not

being an arbitration clause. This Court said the there was

no mention in this clause of any dispute, much less of a

reference thereof. The purpose of the clause was clearly to

vest the Superintending Engineer with supervision of the

execution of the work and administrative control over it

from time to time.

In the case of Cursetji Jamshedji Ardaseer Wadia & Ors.

v. Dr. R.D.Shiralee [AIR 1943 Bombay 32] the test which

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was emphasised was whether the intention of the parties was

to avoid disputes or to resolve disputes. In the case of

Vadilal Chatrabhuj Gandhi v. Thakorelal Chimanlal Munshaw

[55 Bombay Law Reporter 629] the emphasis was on judicial

enquiry and determination as indicative of an arbitration

agreement as against an expert opinion. The test of

preventing disputes or deciding disputes was also resorted

to for the purpose of considering whether the agreement was

a reference to arbitration or not. In that case, the

agreement provided that the parties had agreed to enter into

a compromise for payment of a sum up to, but not exceeding,

Rs. 20 lacs, "which shall be borne and paid by the parties

in such proportions or manner as Sir Jamshedji B.Kanga

shall, in his absolute discretion, decide as a valuer and

not as an arbitrator after giving each of us summary

hearing." The court said that the mere fact that a judicial

enquiry had been held is not sufficient to make the ultimate

decision a judicial decision. The court held that Sir

Jamshedji Kanga had not to decide upon the evidence led

before him. He had to decide in his absolute discretion.

There was not to be judicial enquiry worked out a judicial

manner. Hence this was not an arbitration.

In the case of State of West Bengal & Ors. v. Haripada

Santra [AIR 1990 Calcutta 83], the agreement the

Superintending Engineer of the Circle shall be final The

court relied upon the fact that the reference was to

disputes between the parties on which a decision was

required to be given by the Super intending Engineer.

Obviously, such a decision could b e arrived at b y the

Superintending Engineer only when the dispute was referred

to him by either party for decision. He was also required to

act judicially and decide the disputes after hearing both

parties and after considering the material before him. It

was, therefore, an arbitration agreement.

In the case of Jammu and Kashmir State Forest

Corporation v. Abdul Karim Wani & Ors. [(1989) 2 SCC 701

para 24], this Court considered the agreement as an

agreement of reference to arbitration. It has emphasised

that (1) the agreement was in writing; (2) It was a contract

at present time to refer the dispute arising out of the

present contract; and (3) There was a valid agreement to

refer the dispute to arbitration of the Managing Director,

Jammu and Kashmir State Forest Corporation. The Court

observed that endeavor should always be made to find out the

intention of the parties, and that intention has to be found

out by reading the terms broadly and clearly without being

circumscribed.

The decision in the case of Rukmanibai Gupta (supra)

has been followed by this Court in the case of M.Dayanand

Reddy v. A.P. Industrial Infrastructure Corporation Limited

& Ors. [(1993) 3 SCC 137 para 8], Commenting on the special

characteristics of an arbitration agreement this court h as

further observed in the above case that arbitration

agreement embodies an agreement between the parties that in

case of a dispute such dispute shall be settled by

arbitrator or umpire of their own constitution or by an

arbitrator to be appointed by the court in an appropriate

case. "It is pertinent to mention that there is a material

difference in an arbitration agreement inasmuch as in an

ordinary contract the obligation of the parties to each

other cannot, in general, be specifically enforced and

breach of such terms of contract results only in damages,

The arbitration clause, however, can b e specifically

enforced by the machinery of the Arbitration Act.........".

The Court has further observed that it is to b e

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decided whether the existence of an agreement to refer the

dispute to arbitration can be clearly ascertained in the

facts and circumstances of the case. This, in turn, depends

on the intention of the parties to be gathered from the

relevant documents and surrounding circumstances.

The decisions in the case of State of U.P. Tipper Chand

(supra) and Rukmanibai Gupta (supra) have also been cited

with approval by this Court in the case of State of Orissa &

Anr. v. Damodar Das [(1996) 2 SCC 216]. In this case, t his

Court considered a clause in the contract which made the

decision of the Public Health Engineer, "final, conclusive

and binding in respect of all questions relating to the

meaning of specifications, drawings, instructions...... or

as to any other question claim, right, matter of thing

whatsoever in any way arising out of or relating to the

contract, drawings, specifications, estimates...... or

otherwise concerning the works or the execution or failure

to execute the same whether arising during the progress of

the work or after the completion or the sooner determination

thereof the contract." This Court held that this was not an

arbitration clause. It did not envisage that any difference

or dispute that may arise in execution of the works should

be referred to the arbitration of an arbitrator.

A long line of English cases starting with In Re Carus-

Wilson and Greene [1986 (18) Queen's Bench Division 7]

have also been cited before us. In Re Carus-Wilson and

Green, on the sale of land, one of the conditions of sale

was that the purchaser should pay for the timber on the land

at a valuation for which purpose, each party should appoint

a valuer and the valuers should, before they proceed to act,

appoint an umpire. The court said that such valuation was

not in the nature of an award. The court applied the tests

which we have already referred to, namely, (1) Whether the

terms of the agreement contemplated that the intention of

the parties was for the person, to hold an enquiry in the

nature of a judicial enquiry, hear the respective case of

the parties and decide upon evidence laid before him, (2)

Whether the person was appointed to prevent differences from

arising and not for settling them when they had arisen. The

court held the agreement to be for valuation. It said that

the fact that if the valuers could not agree as to price, an

umpire was to be appointed would not indicate that there

were any disputes between the parties.

In the case of Sutcliffe v. Thackrah [1974 (1) AER

859], the clause in question provided that at specified

intervals the architect should issue interim certificates

stating the amount due tot he builders in respect of work

properly executed. There was a separate arbitration clause.

The question was whether the function of the architect was

sufficiently judicial in character for him to escape

liability in negligence. The House of Lords was not directly

concerned with the question whether the architect was acting

as an arbitrator or a valuer. It was required to decide

whether the architect, who had not taken sufficient care in

certifying the amount payable, should be held liable in

negligence. And the court said that when a professional man

was employed to make a valuation, and to his knowledge, that

valuation was to be binding on his principal and another

party under an agreement between them, it did not follow

that because he was under a duty to act fairly in making

his valuation, he was immune from liability for negligent

valuation. A similar question arose in connection with

valuation of shares by auditors in the case of Arenson v.

Casson Beckman Rutely & Co. [1975 (3) AER 901]. The House of

Lords said that an auditor of a private company who, on

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request, valued the shares in the company in the knowledge

that his valuation was to determine the price to be paid for

the shares under a contract of sale, was liable to be sued

by the seller or the buyer if he made the valuation

negligently. These two case do not directly assist us in the

present case.

In the case of Imperial Metal Industries (Kynoch) Ltd.

v. Amalgamated Union of Engineering Workers [1979 (1) AER

847], the contract between the parties included a clause to

the effect that persons in the employment of the contractor

were required to be paid fair wages as per Fair Wages

Resolution. A trade union complained that the conditions of

the Fair Wages Resolution were not being observed b y the

employers. This dispute was referred to the Central

Arbitration Committee. The Court said that even though the

Committee was acting as arbitrators, they were not doing so

pursuant to arbitration agreement as defined in the Act

because the arbitration was required to be between the

parties to the parties to the agreement about a matter which

they had agreed to refer to arbitration. In the present

case, the Union was not a party to the contract.

In the present case, the Memorandum of Understanding

records the settlement of various dispute as between Group A

and Group B in terms of the Memorandum of Understanding. In

terms of the settlement, the shares and assets of various

companies are required to be valued in the manner specified

in the agreement. The valuation is to be done by M/s S.B.

Billimoria & Co. Three companies which have to be divided

between the two groups are to be divided in accordance with

a scheme to be prepared by Bansi S. Mehta & Co. In the

implementation of the Memorandum of Understanding which is

to be done in consultation with the financial institutions,

any disputes or clarifications relating to implementation

are to be referred to the Chairman, IFCI or his nominees

whose decision will be final and binding. The purport of

Clause 9 is to prevent any further disputes between Groups A

and B. Because the agreement requires division of assets in

agreed proportions after their valuation by a named body and

under a scheme of division by another named body. Clause 9

is intended to clear any other difficulties which may arise

in the implementation of the agreement by leaving it to the

decision of the Chairman, IFCI. This clause 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. Moreover, difficulties and disputes

in implementation may not be between the parties disputes in

implementation may not be between the parties to the

Memorandum of Understanding. It is possible that the Valuers

nominated in the Memorandum of Understanding or the firm

entrusted with the responsibility of splitting some of the

companies may require some clarifications or may find

difficulties in doing the work. They can also escort to

Clause 9. 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. It was meant to be an expert's decision. The

Chairman, IFCI has designated his decision as a decision. He

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has consulted experts in connection with valuation and

division of assets. He did not file his decision in court

nor did any of the parties request him to do so.

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. He had to apply his own mind and use his own

expertise for the purpose. He was free to take the help of

other experts. He was required to decide the question of

valuation and the division of assets as an expert and not as

an arbitrator. He had been authorise to nominate another in

his place. But the contract indicates that he has to

nominate an expert. The fact that submissions were made

before the Chairman, IFCI, would not turn the decision-

making process into an arbitration.

The Chairman, IFCI has framed issues before answering

them in his decision. These issues have been framed by

himself for the purpose of enabling him to pinpoint those

issues which require his decision. There is no agreed

reference in respect of any specific disputes by the parties

to him.

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 arising out of Special

Leave Petition No. 14905 of 1997 is, therefore, dismissed

with costs.

Question No. 2:

The next question which requires to be decided related

to Suit No. 1394 of 1996. The learned Single Judge has

struck off the plaint in the suit as being an abuse of he

process of court. The appellants had filed this suit in the

Delhi High Court on the same day as Arbitration Petition

bearing O.M.P. No.58 of 1996. It challenges the same

decision of the Chairman, IFCI which is challenged in the

arbitration petition as an award.

The learned Single Judge has compared the plaint in the

suit with the petition filed under the Arbitration Act. The

prayers in the arbitration petition are for a declaration

(a) that the award of the C.M.D., IFCI, dated 8.12.1995 is

illegal, bad in law and null and void; (b) that the

directions given and actions taken by the Chairman, Modipon

Ltd, in letters dated 22-1-1996, 5.2.1996, 17.4.1996 and

24.4.1996 and the scheme of arrangement drawn up by M/s S.S.

Kothari & Co. are illegal and bad in law; (c) that the said

award to the Chairman and Managing Director, IFCI and the

said letters and directions of the Chairman, Modipon Ltd,

and the said scheme of arrangement drawn by M/s S.S. Kothari

& Co. be set aside; (d) for a perpetual injection

restraining the respondents from taking any action directly

or indirectly in pursuance of or to give effect to the said

award; (e) for a perpetual injection restraining respondent

no .5 from passing any resolutions in terms of the proposed

items 8 and 9 set out in the notice regarding the proposed

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Board Meeting of Modipon Ltd.; (f) for a perpetual injection

restraining respondents 6 and 7 from selling or disposing of

shares in Godfrey Phillips India Ltd. or from dealing with

the said shares in a manner contrary to the scheme prepared

by M/s Bansi S. Mehta & Co. and for further and other

reliefs.

In the plaint in the suit, prayers (c), (d), (e), (f),

(G) & (h) are identical with the prayers in the arbitration

petition with small variations which are of no consequence.

The remaining prayers are as follows: Prayer (a) is for a

declaration that the Memorandum of Understanding dated

24.1.1989 is binding on both the plaintiffs and defendants

and all parties are bound in law to act in conformity with

the same. Prayer (b) is for a declaration that neither the

Chairman, IFCI nor the Chairman, Modipon Ltd. had any power

to alter, amend, or modify in any manner the scheme of

separation drawn by M/s Bansi S. Mehta & Co. Prayer (i) is

for an injection restraining the defendants from altering,

amending or modifying the scheme of separation drawn up by

M/s Bansi S.Mehta & Co. Prayer (j) is for a decree ordering

and directing Modipon Ltd. to be split in accordance with

the scheme of separation drawn up by M/s Bansi S. Mehta &

Co. and prayer (k) is for a decree ordering and directing

the implementation of the said Memorandum of Understanding

dated 24.1.1989 in respect of Modipon Ltd, in such a manner

that the control and a management of Chemical Division

including the shares of Modi Group Company allotted to Group

B held by Modipon Ltd, is vested in the plaintiff and the

control and management of the remainder of the company

including the Fibre Division is vested in the Group A. The

paragraphs in the plaint and in the arbitration petition are

verbatim that same to a substantial extent. The respondents

have pointed out that paragraphs 1A to 54A in the petition

are the same as paragraphs 1 to 54A in the plaint. The

grounds which are set out in the petition as well as in the

plaint are also substantially the same.

Mr. Nariman, learned senior counsel for the appellants,

however, has drawn our attention to paragraph 55 of the

plaint. In paragraph 55 it is stated as follows:

"The plaintiff says and submits

that as the said Ruling/Decision of

the CMD, IFCI is an Arbitration

Award within the meaning of the

Arbitrator Act, 1940, the legality

and validity of the same can be

questioned and a prayer can be made

for setting aside that said award

only in an arbitration petition

filed under Section 33 of the

Arbitration Act, 1940. The

Plaintiff is, therefore, filing

along with the present suit an

Arbitration Petition under the

provisions of he Arbitration Act,

challenging the legality and

validity of the said award.

However, the present suit is also

being filed in respect of he

actions of third parties in

pursuance of and to give effect to

the said Award. Further, in the

event of it being contended by any

of the defendants herein, or it

being held by this Hon'ble Court

for any reason that the said

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Ruling/Decision of the CMD, IFCI is

not an Arbitration Award, the

legality and validity of the said

Ruling/Decision is also being

challenged in the present suit."

He has submitted that in the event of it being held

that Clause 9 of the Memorandum of Understanding is not an

arbitration clause and the decision of the Chairman, IFCI,

is not an award, it is open to the appellants to file a suit

to challenge the decision. This is the reason why along with

the arbitration petition, a suit has also been filed as an

alternative method of challenging the decision of the

Chairman and Managing Director, IFCI, is not an award. He

has contended that filling a separate proceeding in this

context cannot be considered as an abuse of he process of

the court; and the learned Single Judge was not right in

striking out the plaint under Order 6 Rule 16 of the Code of

Civil Procedure.

Under Order 6 Rule 16, the Court may, at any state of

he proceeding, order to b e struck out, inter alia, any

matter in any pleading which is otherwise an abuse of the

process of the court. Mulla in his treatise on the Code of

Civil Procedure. (15th Edition, Volume II, page 1179 note 7)

has stated that power under clause (c) of Order 6 Rule 16 of

the Code is confined to cases where the abuse of he process

of the Court is manifest from the pleadings; and that this

power is unlike the power under Section 151 whereunder

Courts have inherent power to strike out pleadings or to

stay or dismiss proceedings which are an abuse of their

process. In the present case the High Court has held the

suit to be an abuse of he process of Court on the basis of

what is stated in the plaint.

The Supreme Court Practice 1995 published by Sweet &

Maxwell in paragraph 18/19/33 (page 344) explains the phrase

"abuse of the process of the court" thus: "This term

connotes that the process of the court must be used bona

fide and properly and must not be abused. The court will

prevent improper use of its machinery and will in a proper

case, summarily prevent its machinery from being used as a

means of vexation and oppression in the process of

litigation........ The categories of conduct rendering a

claim frivolous, vexatious or an abuse of process are not

closed but depend on all the relevant circumstances. And

for this purpose considerations of public policy and the

interests of justice may be very material."

One of the examples cited as an abuse of the process of

court is re-litigation. It is an abuse of the process of the

court and contrary to justice and public policy for a party

to re-litigate the same issue which h as already been tried

and decided earlier against him. The re-agitation may or may

not be barred as res judicata. But if the same issue is

sought to be re-agitated, it also amounts to an abuse of the

process of court. A proceeding being filed for a collateral

purpose, or a spurious claim being made in litigation may

also in a given set of facts amount to an abuse of the

process of the court. Frivolous or vexatious proceedings may

also amount to an abuse of the process of court especially

where the proceedings are absolutely groundless. The court

then has the power to stop such proceedings summarily and

prevent the time of the public and t he court from being

wasted. Undoubtedly, it is a matter of courts' discretion

whether such proceedings should be stopped or not; and this

discretion has to be exercised with circumspection. It is a

jurisdiction which should be sparingly exercised, and

exercised only in special cases. The court should also be

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satisfied that there is no chance of the suit succeeding.

In the case of Greenhalgh v. Mallard [19147 (2) AER

255] the e court had to consider different proceedings on

the same cause of action for conspiracy, but supported by

different averments. The Court, held that if the plaintiff

has chosen to put his case in one way, he cannot thereafter

bring the same transaction before the court, put his case in

another way and say that he is relying on a new cause of

action. In such circumstances he can be met with the plea of

res judicata or the statement or plaint may be struck out on

the ground that the action is frivolous and vexation and an

abuse of the process of court.

In Mcllkenny v. Chief Constable of West Midlands Police

Force and another [1980 (2) AER 227], the Court of Appeal in

England struck out the pleading on the ground that the

action was an abuse of the process of the court since it

raised an issue identical to that which had been finally

determined at the plaintiffs' earlier criminal trial. The

court said even when it is not possible to strike out the

plaint on the ground of issue estoppel, the action can be

struck out as an abuse of the process of the court because

it is an abuse for a party to re-litigate a question or

issue which has already been decided against him even though

the other party cannot satisfy the strict rule of res

judicata or the requirement of issue estoppel.

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.

The perception of the Learned Judge may be

substantially correct throughout entirely so. Undoubtedly,

if the plaint in the suit is viewed as challenging only the

arbitration award, a suit to challenge the award would be

re-litigating the issues already raised in the arbitration

petition. The suit would also be barred under Section 32 of

the Arbitration Act, 1940. Section 32 of the Arbitration

Act, 1940 provides that notwithstanding any law for the time

being in force, no suit shall lie on any ground whatsoever

for a decision upon the existence effect or validity of an

arbitration agreement or award, nor shall any arbitration

agreement or award b e set aside, amended, modified or in

any way affected otherwise than as provided in this Act.

According to the appellants, however, the suit is not

confined only to challenging the award or steps taken

pursuant to the award by the Chairman, Modipon Ltd. in order

to enforce it. According to the appellants, in the suit

there is an alternative plea that if the impugned decision

of the Chairman and Managing Director, IFCI is not

considered as an awards, then that decision as a decision

should be set aside. 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.

The plaint in the suit, tot he limited extent that it

challenges the decision as a decision, would not amount to

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abuse of the process of Court. We are not called upon to

examine whether this alternative submission is supported by

proper averments and whether there is a proper cause of

action framed in the plaint in Support of such an

alternative plea. This is a matter which the court hearing

the suit will have to examine and decide. But in the suit,

the decision cannot be challenged as if it were an award and

on the same grounds as if it were an award. The court will

also have to consider the binding nature of such a decision

particularly when no mala fides have been alleged against

the CMD, IFIC. If ultimately it is found that even on the

alternative plea, the claim is not maintainable the court

may pass appropriate orders in accordance with law. But to

the limited extend that the suit erased an alternative

independent plea, it cannot be considered as re-litigation

of the same issue or an abuse of the process of court.

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.

Group A also contends that there is no merit in the

challenge to the decision of the Chairman of IFCI which has

been made binding under the Memorandum of Understanding. The

entire Memorandum of Understanding including Clause 9 has to

be looked upon as a family settlement between various

members of the Modi family. Under the Memorandum of

Understanding, all pending the Modi family forming part of

either Group A or Group B have been finally settled and

adjusted. Where it has become necessary to split any of the

existing companies, this has also been provided for in

Memorandum of Understanding. It is a complete settlement,

providing how assets are to be valued, how they are to be

dividing some of the specified companies has to be prepared

and who has to do this work. In order to obviate any

dispute, the parties have agreed that the entire working out

of this agreement will b e subject to such directions as the

chairman, IFCI may give pertaining to the implementation of

Memorandum of Understanding. He is also empowered to give

clarifications and decide any differences relating tot he

implementation of the Memorandum of Understanding. Such a

family settlement which settled disputes within the family

should not be lightly interfered with especially when the

settlement has been already acted upon by some members of

the family. 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.

The appeal of the appellants from the judgment of the

Learned Judge striking out the plaint is, therefore, partly

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allowed and the suit, to the extent that it challenges

independently the decision of the Chairman and Managing

Director, IFCI as a decision and not as an award, is

maintainable in the sense that it is not an abuse of the

process of the court. 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.

We also direct that all the defendants in he said suit

who are supporting the Plaintiffs shall be transposed as

plaintiffs along with the original plaintiffs since they

have a common cause of action. For this purpose, the

plaintiffs shall carry out necessary amendments in he causer

title and any consequential amendments in he suit with four

weeks of this order.

Pending the hearing and final disposal of the suit in

he Delhi High Court and/or until any further orders are

passed by the trial court if the exigencies of the situation

then prevailing so require, no meeting of the Modipon Board

shall be held for considering any matter relating to the

decision of the CMD, IFCI dated 8.12.1995. Also the

defendants in eh said suit (Group A) shall not sell any

shares held in Godfrey Phillips India Ltd. provided the

plaintiffs in the suit deposit in the Delhi High Court a sum

of Rs.5 crores (Five Crores) within four weeks from the date

of this order. In the event of their failure to deposit the

said amount within the aforesaid period, the order

restraining the defendants (Group A) from selling the said

shares shall stand vacated. The amount so deposited shall be

invested by the High Court in Fixed Deposits within

Nationalised Banks pending further orders. The interim order

of 7th January, 1998 will continue to operate in terms

thereof. In the event of any change in the circumstances,

the parties will be at liberty to apply to the High Court

for any variation of this order. Appeals arising from

Special Leave Petition Nos. 14905/97, 18711/97 and Transfer

Case No. 13/97 are disposed of accordingly together with all

interim applications.