Sirajuddin Kasim & Anr vs M/S Paramount Investment Ltd

2. The first petitioner (hereinafter, P1) is

Sirajuddin Kasim, an Indian, who is the

Director, Promoter and shareholder of the

second petitioner holding 75% of issued share

capital of the second petitioner (hereinafter

P2). P2 is a company incorporated under the

laws of the Republic of Singapore and inter

alia deals and trades in cotton, timber,

logging, acquisition, operation and sale of

oil and gas assets, mining of Manganese and

other metals. The respondent on the other

hand is a company incorporated under the Laws

of Mauritius. The respondent is engaged inter

alia in the business of making investments by

way of equities in private and public

companies on a negotiated basis.

3. The petitioners' case is that the

understanding between the parties was that

the respondent would procure farm out

transactions of oil and gas blocks for P2.

For such farm out transactions, the

respondent would be paid a commission

separately. On the date of the Shareholders' 2 Agreement (SHA), P2 was allotted oil and gas

blocks in the Republic of Gabon. There were

proposed oil blocks to be procured by

execution of Production Sharing Contract

("PSC") in Brunei as well as in Tajikistan.

In their affidavit the respondent admitted

this arrangement between the petitioners and

the respondent and also admitted the receipt

in the name of Valpro, a sum of US $ 625,000,

claiming that the same was paid by the

petitioners for services rendered in relation

to the farm out contracts.

4. In March, 2006 the respondent was successful

in farming out the oil blocks of P2 through

Oil India Limited and Indian Oil Corporation

Limited for which their company Valpro

Private Limited was paid a commission of US $

625,000 i.e. 5% of the value of the farm out.

Subsequently, attempts were purported to be

made by the respondent to farm out oil and

gas blocks for P2, but the respondent could

not procure any farm out transaction. Between

March, 2006 and 23rd April, 2008 3 correspondence was exchanged between the

parties i.e. P1 and P2 and the respondent.

From that correspondence, it will appear that

disputes and differences cropped up between

the parties. Allegations were made by the

respondent that P1 was allegedly falsifying

and manipulating the accounts of P2. There

were several other allegations which are not

required to be discussed in detail.

5. The petitioners' case is that the respondent

was deliberately postponing and delaying the

holding of the AGMs of P2 and was thereby

delaying the finalization of accounts which

was absolutely necessary for submission of

proposals to foreign Governments for

procuring oil block. The petitioners' further

case is that the respondent through its

representatives, Anshuman Khanna, Santosh

Gadia and their company Seana Energy Pte.

Ltd. were making presentations to prospective

purchasers/operators for farming out assets

of P2 in breach of the Shareholders'

Agreement and was unjustifiably demanding 4 remittances without the desired business for

P2. The correspondence exchanged between the

petitioners and the respondent between 28th

August, 2006 and 22nd April, 2008 would show

that disputes were brewing between the

parties.

6. On 23rd April, 2008 a Settlement Agreement

(Annexure-P8 pg. 116 Vol.1) was executed

between P1 and the respondent; Clause C

thereof stipulates that there have been

disputes and differences between P1 and the

respondent in relation to SHA and the

management of the company and with a view to

amicably resolve the same, P1 agreed to

purchase the entire interest of the

respondent in P2.

7. Clause 2(c)(i) and (ii) of the Settlement

Agreement stipulates:

"2(c) An amount equal to 10% of the gross amount received by Marvis or any other company in which Siraj Kasim holds an equity interest, whether directly, indirectly or deemed (Marvis and such company being referred to herein as the Siraj Kasim Investments) 5 in relation to or arising or accruing from the farm-out of part or whole of the participating interest in oil & gas assets of the Siraj Kasim Investments. The amounts payable under this clause 2(c) shall be paid within 5 business days of actual receipt of the gross amount by the Siraj Kasim Investments save and except that

(i) if, for any reason whatsoever, the farm-out does not take place on or before 23rd February 2009, or

(ii) 10% of the gross receipts on account of such farm-outs as on 23rd February 2009, aggregates to less then USD 1,500,000 (USD One Million Five Hundred Thousand only) the amounts payable under this clause 2(c) shall be USD 1,500,000 (USD One Million Five Hundred Thousand only) which shall he payable in cash by way of irrevocable wire transfer to PIL's account set out in Schedule I the wire transfer being for value on a date which is on or before 28th February, 2009.

Where full payment of any of the above amounts is not received in the due date for such payment, the amount unpaid shall bear simple interest at the rate of 12% p.a. from the due date of payment to the date of actual payment, as well after as before judgment (the interest)."

8. It is submitted by the petitioners that all

rights of P1 and the respondent under the SHA 6 were to remain operative despite the

Settlement Agreement.

9. Clause 4C of the Settlement Agreement gave an

option to the respondent to acquire 10%

participating interest of P2 in the asset

named Shakthi in Gabon.

10. Further disputes cropped up between the

parties out of the SHA between 23rd April,

2008 and 17th April, 2009. To various letters

written by the petitioners, the respondent by

its letter dated 8th May, 2009 replied to the

petitioners' letter dated 15th April, 2009

and 17th April, 2009; and the respondent by

its letter dated 8th May, 2009 called upon

the petitioners to appoint an independent

accounting firm for a thorough investigation

of the accounts.

11. The notice invoking the arbitration clause

was given by the petitioner No.1 on 15th

April, 2009 and in the said letter, it was

contended by petitioner No.1 that the name of

Mr. Gadia be deleted as an arbitrator from 7 the SHA, as he has acted on behalf of the

respondent. Therefore, a prayer was made for

the appointment of an impartial arbitrator.

12. Another letter dated 17th April, 2009 was

written by the advocate of petitioner No.1 to

the respondent and Mr. Anshuman Khanna,

representative of the respondent. In the said

letter a further request was made for the

appointment of an independent arbitrator and

it was reiterated that petitioner No.1, by

its previous letter dated 15th April, 2009

terminated the Settlement Agreement dated

23rd April, 2008 and the Power of Attorney of

the same date.

13. Thereafter, on 14th May, 2009 the respondent

filed a suit against P1 before the High Court

of Republic of Singapore, claiming damages to

the extent of USD 4,850,000/- and interest at

the rate of 12% and prayed for specific

performance of the Settlement Agreement dated

23rd April, 2008.

8

14. The case of the Respondent is that the

Settlement Agreement has no arbitration

clause. On the other hand, Clause 10 of the

said agreement provides as follows:

"This Agreement shall be governed by the Singapore law. Notwithstanding any provision in the Shareholders Agreement, the parties agree that in relation to any legal action or proceedings arising out of or in connection with this Agreement, each of the parties hereby irrevocably submits to the non-exclusive jurisdiction of the courts of Singapore and any party who is not resident or in the case of a corporation, not incorporated, in Singapore hereby consents to service of process by post or in other manner permitted by the relevant law."

15. It may be noted that the said Settlement

Agreement is between petitioner No.1 and

respondent and petitioner No.2 is not a party

to this Agreement.

16. The respondent's case is that only after the

Singapore Court decreed the suit and the same

was confirmed in appeal, the petitioner

sought to invoke the arbitration clause under

the SHA.

9

17. In the conspectus of these facts, the

question is whether the arbitration clause in

the SHA still survives. The arbitration

clause in SHA runs as under:

"If any dispute, difference or question shall, at any time

hereinafter arise between the parties in respect of the construction of this Agreement, or concerning anything contained or arising out of these presents as to rights, liabilities or duties of the said parties hereunder, which cannot be mutually resolved by the parties within a period of thirty days, the same shall be referred to arbitration in accordance with ... ... shall be resolved by a sole arbitrator in accordance with the provisions of the Model Law of Arbitration adopted by the United Nations Commission on International Trade Laws. The sole arbitrator shall be Mr. Santosh Gadia, Chartered Accountant having address at F-45, Bhagat Singh Market, New Delhi- 110001, India or in case of his inability to act as such, such sole arbitrator shall be appointed jointly by the parties. The seat of arbitration shall be New Delhi. The arbitration proceedings shall be conducted in English."

18. From a perusal of clause 10 of the Settlement

Agreement and the Arbitration Clause in SHA,

both set out hereinabove, it does not appear

10 prima facie that the rights of the

petitioners - both petitioner Nos.1 and 2,

under SHA have been superseded by the

settlement agreement. In any event the

question whether the rights of the

petitioners under SHA have been superseded is

an arbitrable dispute.

19. Admittedly, petitioner No.2 is not a party to

the settlement agreement. Therefore, its

rights under the arbitration clause are prima

facie not superseded by the settlement

agreement. Under Section 2 (h) of the

Arbitration and Conciliation Act, 1996 party

means a party to an arbitration agreement.

The petitioner No.2 is a party to an

arbitration agreement within the meaning of

Section 2(h) but he is not a party to the

settlement agreement. Therefore, whether his

rights have been superseded by the settlement

agreement also may be an arbitrable dispute.

20. From the sequence of events discussed above,

prima facie, it appears that respondent filed

11 a suit on 14th May 2009 before the High Court

of Republic of Singapore, inter alia,

claiming damages after receiving the letters

of the petitioner dated 15th April, 2009 and

17th April, 2009, whereunder the arbitration

clause has been invoked. It also appears that

prior to the filing of the suit, the

settlement agreement dated 23rd April, 2008,

as also the Power of Attorney dated 23rd

April, 2008, were revoked by the letters

dated 15th and 17th April, 2009 and the

request to appoint an impartial arbitrator in

terms of clause 8.4 of SHA was made in the

letter dated 15.4.2009 and then reiterated in

the letter dated 17.04.2009.

21. The learned counsel for the respondent, in

view of the facts stated above and in view of

his subsequent suit filed by them, argued

that the rights of the petitioners under the

arbitration agreement does not survive and in

support of his contention reliance was placed

on the decision rendered in Sukanya Holdings

12 (P) Ltd. vs. Jayesh H. Pandya and another

reported in (2003) 5 SCC 531.

22. This Court is of the opinion that the

reliance by the respondent on Sukanya

Holdings (supra) is not of much help to the

respondent in the facts and circumstances of

the case. First of all in the instant case

Section 8 of Arbitration and Conciliation Act

is not attracted. It is nobody's case that

matter was placed before the judicial

authority before invoking the arbitration

clause. In the instant case arbitration

clause was invoked earlier than the filing of

a suit as noted above. On the other hand the

ratio in the case of Sukanya Holdings (supra)

is against the contention of the respondent

in as much as it has been held, in paragraph

16 at 536 of the report, that it would be

difficult to give an interpretation to

Section 8 of the Act for bifurcation of the

cause of action between the Civil Court and

the arbitral forum.

13

23. In the case of Sukanya Holdings (supra) the

dispute was over dissolution of the

partnership firm and over accounts filed by

one partner against the defendants who were

admittedly not partners in the firm.

Therefore, the Court held that the meaning of

the term "in a matter" must indicate that the

entire subject matter of the suit should be

subject to arbitration agreement.

24. In the instant case admittedly petitioner

No.2 is neither a party to the settlement

agreement nor was he impleaded in the suit.

Therefore, the ratio in Sukanya Holdings

(supra) does not help the respondent.

25. In the instant case the petitioners have

alleged that there was economic duress in the

matter of execution of the settlement

agreement. Therefore, following the ratio of

this Court in the case of National Insurance

Company Ltd. vs. Boghara Polyfab Pvt. Ltd.

reported in (2009) 1 SCC 267, this Court is

of the opinion whether rights of the parties

14 under SHA have been superseded by the

subsequent settlement agreement may be an

arbitrable issue and that issue can be

examined by the arbitrator.

26. In this case there are disputes between the

parties and there is a valid arbitration

clause and the clause has been invoked prior

to the filing of the suit. It is also not in

dispute that the arbitration procedure

between the parties has failed. Therefore,

this Court cannot accept the contention of

the respondent as there is valid invocation

of the arbitration clause prior to the filing

of suit by the respondent.

27. In that view of the matter, this Court

appoints Justice S.B. Sinha, a former Judge

of this Court, the sole learned arbitrator in

this case. The learned arbitrator is

requested to decide the dispute as early as

possible and preferably within a period of

four months from the date of entering upon

the reference. The remuneration of the

15 learned arbitrator and all the incidental

costs are left to be decided by learned

arbitrator and are to be jointly shared by

the parties.

28. The petition for appointment of an arbitrator

is thus allowed. No order as to costs.

.......................J. (ASOK KUMAR GANGULY) New Delhi August 02, 2010

16