M/S. Everest Holding Ltd vs Shyam Kumar Shrivastava & Ors

M/s. Everest Holding Ltd. .... Petitioner

Versus

Shyam Kumar Shrivastava & Ors. .... Respondents

ORDER

Dr. MUKUNDAKAM SHARMA, J.

1. This Order would dispose of the petition filed by the petitioner praying

for appointment of an arbitrator under Section 11(6) and (9) of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as `the

Act') in terms of the Arbitration Agreement entered into between the

parties.

2. The petitioner is a foreign company incorporated under the laws of

China having its office at Hong Kong whereas the respondent no. 1 is a

citizen of India and Chairman of respondent no. 2 - Shrivastava Group of

Companies. Respondent Nos. 3 to 5 are the companies of Shrivastava Group and respondent nos. 6 and 7 are partnership firms carrying on

business under the name of Shrivastava Group. The respondent no. 8,

also arrayed as party to the petition, is a company formed under the Joint

Venture Agreement (for short `JVA') between the petitioner and

respondent no. 1. The said company was incorporated and registered

under the provisions of the Indian Companies Act, 1956. However,

during the pendency of the aforesaid proceedings the name of respondent

no. 8 was deleted from the array of parties.

3. On 08.09.2003, an agreement of cooperation was entered into between

the petitioner on one hand and respondent no. 1 on the other hand for the

purpose of providing cooperation and also for exports of iron ore from

mines belonging to Shrivastava Group. Pursuant to the above

agreement, a JVA was executed on 25.09.2003 between the petitioner

and respondent no. 1 for the purpose of mining, processing and export of

iron ore. On 26.03.2004 another JVA was executed between the parties,

particularly, to iron out certain controversies in respect of the JVA dated

25.09.2003. Article 14.3 of the said JVA, which is an arbitration clause,

reads as follows:

Page 2 of 21

"If the parties fail to resolve the matter through mutual agreement, the dispute shall be referred to an Arbitrator appointed by mutual agreement of the two parties. Such Arbitrator shall be a retired High Court or Supreme Court Judge; such arbitration proceedings shall be completed and Award be given within three months of the Arbitrator's appointment; the cost of such arbitration would be shared equally by the two parties. The arbitration proceedings shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any subsequent enactment or amendment thereto. The decision of the arbitrator shall be final and binding upon the parties."

4. The stand of the petitioner in the petition is that the whole idea of

signing the JVA and constituting a company under the JVA was to

promote the business of the petitioner in trading the iron ore in foreign

countries and to secure a firm supply base for international trade for

mining, processing and export of iron ore. Consequent thereto on

execution of the aforesaid agreement a company under the name and

style of Everest Mining & Mineral Pvt. Ltd. was incorporated on

02.06.2004. The petitioner has stated in the petition that Focus Trading

Company Ltd., a sister concern of the petitioner company advanced an

amount of US $ 450,000 on behalf of the petitioner to respondent no. 3

company towards capital investment on 18.02.2004. Thereafter on

29.07.2004, it is stated that another sister concern of the petitioner,

namely, AMJ Marketing paid to respondent no. 3 on behalf of the

Page 3 of 21 petitioner, further amounts of Rs. 51,00,000/-, Rs. 50,00,000/- and Rs.

24,00,000/- totaling to Rs. 1,25,00,000/- towards interest free deposit for

the benefit of the newly incorporated company, namely, Everest Mining

& Mineral Pvt. Ltd. - respondent no. 8.

It is also the stand of the petitioner that on 20.09.2004 the petitioner

was shocked and surprised to receive unwarranted notice for cancellation of

JVA from respondent no. 3 on the ground of reduction of FOBT price which

according to respondent no. 3 had brought about an alarming situation for

the JVA. In the said notice, the petitioner was further informed that Reserve

Bank of India had hesitated to consider reduction of aforesaid price and that

the Reserve Bank of India would never approve JVA between both the

companies. The aforesaid notice was received and rightly replied on

06.10.2004, wherein it was pointed out to respondent no. 3 that reduction of

price of the consignment had not only caused loss to respondent no. 3 but

also to M/s. Focus Trading Company Ltd. It was further pointed out to

respondent no. 3 that future of the JVA should not be jeopardized only on

account of the said event, particularly, when both the parties had invested

enormous time and energy in establishing the Joint Venture. By the said

reply the respondent no. 3 was requested to withdraw the letter of

cancellation.

Page 4 of 21 On 04.11.2004, the sister concern of the petitioner, namely,

M/s. Focus Trading Company Ltd. and its director Mr. J.M. Sahai received a

legal notice from the advocate of respondent no. 2 demanding an amount of

rupees US $ 5,03,319 with 14% interest towards the reduction of price in

the shipment supplied through the vessel named M.V. LUO - QUING. The

petitioner pointed out in the reply to the aforesaid notice that the petitioner

is willing to cooperate and resolve the issues provided the said issues are

within the JVA. However, the said issues could not be resolved as the

respondents were not willing to resolve the same. Consequently on

15.12.2004 the petitioner sent a request to the respondent no. 1 to refund the

amount of security deposit of US $ 725,000, US $ 11,000 paid as equity

contribution and Rs. 25,00,000/- paid towards working expenses of

respondent no. 8 with interest @ 18% per annum within one week from the

date of receipt of the aforesaid notice. A lawyers' notice in respect of the

same was also sent on 14.05.2005.

As no amount was refunded, the petitioner invoked the arbitration

clause as contained in the JVA and a notice to that effect was issued

requesting for appointment of an arbitrator under letter dated 16.09.2006.

In the said letter, the petitioner proposed the name of Justice J.C. Gupta,

retired Judge of Allahabad High Court to be the Presiding Arbitrator and

Page 5 of 21 respondent no. 1 was requested to concur with the said name proposed by

the petitioner. The respondent no. 1, however, through his lawyer's reply

dated 12.10.2006 categorically refuted the claim of the petitioner and also

refused to refer the matter to arbitration on the ground that the JVA between

the petitioner and the respondent no. 1 is not in existence as the same had

been terminated by respondent no. 2. It was stated that in view of the

aforesaid position there could be no invocation of clause 14.3 of the JVA.

5. In view of the aforesaid position and the stand of the parties, the present

petition was filed by the petitioner with a prayer for appointment of an

arbitrator and for referring all the disputes between the parties arising out

of JVA to the said arbitrator for adjudication and decision.

6. Notice was issued and on receipt the respondents entered appearance.

However, during the pendency of the petition, the respondent no. 8 could

not be served as the address of respondent no. 8 - the JVA Company,

mentioned in the petition was not correct and therefore the name of

respondent no. 8 stood deleted from the array of parties by the order of

this Court dated 28.02.2008. All the other respondents are represented in

the petition through their counsel.

Page 6 of 21

7. I heard the counsel appearing for the parties who drew my attention to

various documents on record. According to the petitioner a Long Term

Agreement of Co-operation dated 08.09.2003 was executed between the

parties, pursuant to which a JVA was entered into and a Joint Venture

Company was also incorporated in India. My attention was drawn to the

said JVA containing an arbitration clause, in terms of which, any dispute

or difference that arises between the parties is required to be adjudicated

and decided through the process of arbitration. It was submitted by the

counsel for the petitioner that since in the present case disputes have

arisen between the parties in connection with the matters pertaining to

the JVA, therefore, all the said disputes are required to be referred for

adjudication to the arbitration by appointing an arbitrator.

8. Upon careful perusal of the petition filed under Section 11(6) and (9) of

the Act and upon hearing the counsel appearing for the parties it could

be deduced that the petitioner is mainly confining its claim for refund of

the money paid/deposited pursuant to and in execution of JVA and also

amount paid towards working expenses of respondent no. 8 with interest

@ 18% per annum. In the petition details of the amount as paid by the

Page 7 of 21 petitioner towards JVA are also furnished, wherein it is stated that M/s.

Focus Trading Company Ltd., a sister concern of the petitioner company

even prior to the singing of JVA on 18.02.2004 advanced an amount of

US $ 450,000 to respondent no. 3 company i.e. the Deccan Minerals Pvt.

Ltd. towards capital investment. The receipt of the aforesaid amount is

in fact recorded in the JVA itself, under Article 4, clause 4.2.(b)(i). It is,

therefore, contended that the said payment made, also forms part of the

dispute pertaining to the JVA. The petitioner has also pleaded that on

29.07.2004 another sister concern of the petitioner, namely, AMJ

Marketing paid to the respondent no. 3 on account of interest fee deposit

an amount of 1,25,00,000/- by making payment in installments in the

following manner, vide cheque No. 004442 dated 27.7.2004 an amount

of Rs. 50,00,000/-, cheque No. 004443 dated 29.7.2004 an amount of Rs.

51,00,000 and cheque No. 048815 dated 16.9.2004 an amount of Rs.

24,00,000/-.

9. The aforesaid claims of the petitioner are, however, refuted by the

respondents contending inter alia that some of the aforesaid claims

which are mentioned in the petition and also in the correspondences

between the parties do not arise out of the JVA and they are relatable to

Page 8 of 21 other agreements and concern dealings between the sister concerns of the

petitioner and sister concerns of the respondents, and therefore, they

cannot be said to be a part of the disputes arising out of the JVA between

the parties. It was submitted on behalf of the respondents that there

could neither be bifurcation of parties nor of matter and such bifurcation

is not permissible under the existing law, and therefore, the aforesaid

petition cannot be entertained. It was also submitted by the counsel for

the respondent that the said JVA although came into existence and in

pursuance of the said agreement a company, respondent no. 8, came into

existence but there was no transaction at all of the company and the said

JVA was cancelled and terminated w.e.f. 20.9.2004, and therefore,

neither the agreement was in existence nor the arbitration clause, and

therefore, invocation of clause 14.3 of the said agreement by the

petitioner is wrong and without jurisdiction.

10.The aforesaid submissions of the parties have been noticed by me and I

have carefully perused the various documents which are placed on

record. The JVA, which is the subject matter of the disputes between the

parties was dated 26.03.2004 and the same was entered into and between

M/s. Everest Holding Ltd. and Shri Shyam Kumar Shrivastava along

Page 9 of 21 with the Mining Companies as indicated in Article 1 constituting the

Shrivastava Group. In the said JVA "Mining Companies" which are

referred to in the agreement, are the following companies

owned/controlled by Shrivastava Group: (a) M/s. The Deccan Minerals

Private Limited; (b) M/s. New India Mining Corporation Pvt. Ltd. (c)

Minerals and Metals; (d) M/s. Raw and Finished Product; and (e) M/s.

The Champion India Industries Pvt. Ltd. By the aforesaid JVA the

parties have expressed their intention to form and register a Joint

Venture Company with equal equity participation at the earliest possible

date for the purposes of carrying on the business as mentioned in the said

agreement. The incorporation of the company was in the name of

"Everest Mining & Mineral Pvt. Ltd." which was incorporated with

initial authorized capital of Rs. 50,00,000/-. Both the parties, namely,

Shrivastava Group and M/s. Everest Holding Ltd. agreed to capitalize

the Joint Venture Company up to Rs. 10,00,000/- and that each party was

required to subscribe to 50,000 equity shares of Rs. 10/- each. In the

said clause, namely, clause 3.3, the parties also agreed that the aforesaid

shares could be subscribed by either of the parties itself or by its

affiliates and that the shareholding of the affiliates should be included in

the shareholding of the party and each party should ensure that each such

Page 10 of 21 affiliates would be bound by and comply with the terms and conditions

of the agreement. Therefore, in the said JVA not only the parties are

recognized but their affiliates are also recognized as it is intended that

the affiliates also could make the subscription on behalf of the parties.

11.The said JVA, which is an admitted document on behalf of the parties

also stipulates that an amount of Rs. US $ 450,000 had already been

deposited by M/s. Everest Holding Ltd. with Shrivastava Group, paid by

Telegraphic Transfer to Deccan Minerals Pvt. Ltd., which is one of the

mining companies owned and controlled by respondent no. 1 and the

receipt of the said amount is also acknowledged by respondent no. 1.

12.There is another clause in the Agreement, namely, 14.2 which stipulates

that the parties agreed that they would use all reasonable efforts to

resolve the dispute, controversy or claim arising out of or relating to this

agreement, other than a dispute, the resolution of which is specifically

provided for in that Agreement. I have already extracted clause 14.3 of

the JVA, which stipulates that if there is any dispute or difference

between the parties and they fail to resolve the matter through mutual

agreement, the dispute shall be referred to an arbitrator appointed by

Page 11 of 21 mutual agreement of the two parties. It is also stated that the venue for

arbitration will be New Delhi and the language used shall be English,

which is clause 14.4 of the JVA.

13.When a petition is filed under Section 11 of the Act, particularly, under

sub-sections (6) and (8), certain preliminary matters are required to be

determined by the Chief Justice or his designate. In SBP & CP. v.

Patel Engineering Ltd. and Another reported in (2005) 8 SCC 618, per

majority (6:1) it was held that the powers to be exercised by the Chief

Justice of the High Court or the Chief Justice of India under Section 11

(6) of the Act are not an administrative power and it is judicial power. It

was also held in the said decision that while exercising power of

performing the duty under Section 11(6) of the Act, the Chief Justice has

to consider whether the conditions laid down by the section for the

exercise of that power or the performance of that duty, exists or not and

consequent thereto a Chief Justice or the person or institution designated

by him, is bound to decide whether he has jurisdiction to entertain the

request, in the sense, whether the parties making the motion has

approached the right High Court, whether there is a valid arbitration

agreement in terms of Section 7 of the Act and whether the person before

Page 12 of 21 him with the request is a party to the arbitration agreement or whether

there was no dispute subsisting which was capable of being arbitrated

upon. It was also held in the said decision that the Chief Justice can also

decide the question whether the claim was a dead one; or a long barred

claim that was sought to be resurrected and whether the parties have

concluded the transaction by recording satisfaction of their mutual rights

and obligations or by receiving the final payment without objection.

This Court, however, issued a caution that at that stage it may not be

possible to decide whether a live claim made is one which comes within

the purview of the arbitration clause and that it would be appropriate to

leave that question to be decided by the Arbitral Tribunal on taking

evidence, along with the merits of the claims involved in the arbitration.

The decision further laid down that on coming to a conclusion on these

aspects, the Chief Justice or his designate has to enquire whether the

conditions for exercise of his power under Section 11(6) of the Act have

been fulfilled; and if an arbitrator is to be appointed, who is the fit

person, in terms of the provision.

14.Therefore, the present enquiry, which is entrusted to me in the present

case, under the provisions of Section 11 (6) of the Act would revolve

Page 13 of 21 around the aforesaid aspects which are dealt with in the aforesaid

decision. There is no dispute raised by the respondents that this Court

has no jurisdiction to decide the issues raised in the petition. There is

also a valid arbitration agreement. Clause 14.3 of the JVA requires that

if there is any dispute between the parties in respect of the matters

relating the JVA, the same is required to be adjudicated upon and

decided through the process of arbitration and the decision of the

arbitrator shall be final and binding upon the parties. The aforesaid

clause is neither disputed nor questioned before me.

15.The dispute is in relation to the amount which is stated to be paid by the

petitioner or its sister concerns. It is contended on behalf of the

respondents that the said issues cannot be a part of the Arbitration

Agreement and the same are not subject matter of disputes arising out of

the JVA. According to the respondents, the said disputes relate to

transactions not between the parties to the agreement but between other

parties, namely, sister concerns of the petitioner and respondents, and

therefore, they cannot form part of the dispute arising out of or in

relation to the JVA. In support of the said contention the counsel for the

respondents relied upon the decision of this Court in Sukanya Holdings

Page 14 of 21 (P) Ltd. v. Jayesh H. Pandya and Another reported in (2003) 5 SCC

531. In the said decision it was held that when the subject matter of the

suit includes subject matter of the arbitration agreement as well as other

disputes, there is no requirement under the Act that even such matter is

required to be referred to arbitration. There is also no provision for

splitting the causes of action or parties and referring the subject matter of

the suit to the arbitrators. The learned counsel appearing for the party,

particularly, relied upon paragraph 16 of the judgment which reads as

under:

"The next question which requires consideration is - even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action before a judicial authority is not allowed".

In paragraph 17 of the said judgment it was held as follows:

"Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided

Page 15 of 21 by the civil court would inevitably delay the proceedings.

The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums".

It was also contended that return of the amount paid by the petitioner

as equity contribution towards constitution of the JVC is a matter relating to

winding up of the company, and therefore, the arbitrator will have no

jurisdiction to order winding up of a company since such power is conferred

on and vested on a court as envisaged under the Companies Act, 1956.

16.The decision of this Court in Sukanya Holdings (P) Ltd. (supra),

however, came to be distinguished in a subsequent decision of this Court

in Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., reported in

(2006) 7 SCC 275. In order to pinpoint the distinction drawn, it is

necessary to extract paragraphs 23, 45 and 47 of the Judgment, which are

as under:

"23.....Once the conditions precedent contained in the said proceedings are satisfied, the judicial authority is statutorily mandated to refer the matter to arbitration. What is necessary to be looked into therefore, inter alia, would be as to whether

Page 16 of 21 the subject-matter of the dispute is covered by the arbitration agreement or not.

45. Reliance placed by the learned counsel on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya is misplaced. Therein, not only a suit for dissolution of the firm was filed, but a different cause of action had arisen in relation whereto apart from the parties to the arbitration agreement, other parties had also been impleaded. In the aforementioned fact situation, this Court held: (SCC p. 535, para 13)

"13. Secondly, there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators."

47. Such a question does not arise herein as the parties herein are parties to the arbitration agreement and the question in regard to the jurisdiction of the arbitrator, if any, can be determined by the arbitrator himself in terms of Section 16 of the 1996 Act".

17.In the light of the aforesaid factual and legal position, I am of the

considered opinion that there is a valid arbitration agreement between

the parties as contained in the JVA, which the parties are required to

adhere to and are bound by the same. In other words, if there is any

dispute between the parties to the agreement arising out of or in relation

Page 17 of 21 to the subject matter of the said JVA, all such disputes and differences

have to be adjudicated upon and decided through the process of

arbitration by appointing a mutually agreed arbitrator. Pursuant to the

aforesaid JVA dated 26.03.2004 Everest Mining & Mineral Pvt. Ltd. was

incorporated and various amounts were also deposited by the petitioner

through sister concerns for the incorporation and functioning of the said

company. The said company could not function due to disputes which

arose between the parties. Such disputes which relate to the working of

JVA and various deposits made and which arose out of and in relation to

the said JVA are required to be considered and decided through the

process of arbitration as envisaged under clause 14.3 of the JVA.

Though the JVA may have been terminated and cancelled as stated but it

was a valid JVA containing a valid arbitration agreement for settlement

of disputes arising out of or in relation to the subject matter of the JVA.

The argument of the respondent that the disputes cannot be referred to

the arbitration as the agreement is not in existence as of today is

therefore devoid of merit.

18. It is true that the arbitrator would have no power to order for winding up

of the company as such power is conferred on and vested with a court as

Page 18 of 21 envisaged under the Companies Act in view of the decision of this Court

in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 5

SCC 688]. But in terms of the arbitration agreement, the arbitrator can

always find out and adjudicate as to whether or not a Company is

functional and if it was not functional in that event he could always find

out the nature and status of its assets and can also issue direction and

pass orders regarding dues and liabilities and also for taking recourse to

appropriate remedy.

19.All such disputes whether relating to payment towards security deposit,

deposited by the petitioner or on its behalf and also relating to

contribution made towards equity contribution or working expenses, if

any, to be returned or not and if so, what amount should be returned are

to be decided and adjudicated upon through the process of arbitration as

agreed upon by the parties in the JVA. Contributions made towards

execution of the JVA and for the functioning of the Joint Venture

Company by party or on its behalf by its affiliates whether would and

should be treated as contributions made by the party in specific term and

clause in the JVA are also matters to be adjudicated upon by the

arbitrator. It is to be noted at this stage that in the JVA it was agreed to

Page 19 of 21 by the parties hereto that the equity shares of the Company could be

subscribed by either of the parties or by its affiliates and that

shareholding of its affiliates should be considered as shareholdings of

the party to the extent it is recognized. The affiliates were also made

bound by the terms and conditions of the agreement. Therefore, in my

considered opinion, the disputes which arise out of JVA, if referred to an

arbitrator would not in any manner amount to bifurcation of the causes of

action or bifurcation of parties.

20.There could be other disputes between the sister concerns of the

appellant and the respondent arising out of separate and independent

agreements. Such disputes would have to be decided and adjudicated

upon in accordance with law. But all such disputes which are identified

and mentioned hereinbefore and which arise out of and in relation to

JVA have to be and must be decided by appointing an arbitrator in terms

of the arbitration agreement.

21.During the course of the arguments the parties have agreed that in case

the Court decides to refer the disputes to the arbitrator in that event the

same may be referred to Justice V.N. Khare, retired Chief Justice of this

Page 20 of 21 Court for adjudication and decision. The parties mutually agreed for him

as the arbitrator for deciding these issues. Consequent to the said

agreement, I appoint Justice V.N. Khare, retired Chief Justice of this

Court as the sole arbitrator with a request to him to decide the disputes

between the parties arising out of the JVA as expeditiously as possible.

It shall be open for the learned Arbitrator to fix his remuneration after

discussing with the parties.

22.Accordingly, the petition is disposed of. It goes without saying that the

observations made herein are only for the purpose of deciding the issue

as to whether or not the disputes should be referred to the arbitrator.

Necessarily any observation made herein would not be construed as any

views or opinion expressed on the merit of the claims.

.................................J. (Dr. Mukundakam Sharma)

New Delhi October 24, 2008

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