B.P. Dharmadhikari, J.@mdashChallenge in both these Writ Petitions is to identical orders passed below Exhibit 13 on 29-6-2004 by Third Joint Civil Judge, Senior Division, Nagpur in Special Civil Suits 422 and 423 of 2003 filed by respective respondents against Petitioners. Both suits are for recovery of the money and in it present respondent filed identical applications u/s 8 of the Arbitration and Conciliation Act, 1996 (hereinafter mentioned as Arbitration Act for short) for directing the parties to take recourse to arbitration in view of agreement dated 29-5-2000 between them. Said applications are rejected on 29-6-2004.
2. As the matters are pending for admission since last more than two and half years, I have heard parties finally at the stage of admission itself. Accordingly, Rule made returnable forthwith and heard finally by consent. Advocate Chauhan for Petitioners has contended that moment it was shown that there exists agreement containing arbitration clause between parties, it was not open to lower Court to find out whether the subject-matters of suits are covered under arbitration clause and it was duty bound to refer the matter to arbitration by leaving said exercise to be undertaken by Arbitrators. He has relied upon the judgment reported at -
3. It will be essential to first understand the document on which Petitioners are placing reliance to point out arbitration agreement/clause. Said document is dated 29-5-2000 and is styled as "Minutes Of The Conciliation Meeting Between Dr. Bais Group Represented by Dr. Vijaychandra Singh Bais And Shri Ulhas Kelkar And Pande Group Represented By Shri Dhananjay Pande". It mentions that Ekvira Heart Institute built by Dr Bais was multi speciality hospital and because of financial trouble Shri Pande working in the field of marketing of surgical instruments and medical equipments agreed to join the project and to provide necessary finance because of his desire to provide advanced and well equipped cardiac unit to the City i.e Nagpur. The minutes cull down broad terms of collaboration and as per clause (d) Share holding in project between Dr. Bais group and Shri Pande group was agreed at 50-50%. As per Clause (i) at page No. 4 of the document it appears that parties deliberated between 27th May to 29th May, 2004 and agreed on certain terms. Sub-clause (a) decides to forget all previous differences and to work collectively for success of project. Sub-clause
(b) states that influential citizens at Nagpur should be taken on Board of Directors of Company and their names are also given. Sub-clause (c) requires Dr. Bais group to withdraw unconditionally certain letters. As per sub-clause (d) appearing at page No. 5 of the minutes, the general administration of hospital and its technical or medical administration was divided between representatives of two groups. Sub-clause (e) which appears at page No. 6 records that one Shri Deepak Saptarshi agreed to co-ordinate restructuring of hospital and then comes sub-clause (f) on which Petitioners rely as arbitration clause. Sub-clause (g) again speaks of making best efforts for future success and sub-clause (h) entrusts responsibility to two persons to help in raising finances. Sub-clauses (i) and (ii) which appear on page No. 8 speaks of quantification and proportion of total shares of each group in the stock of Company. From sequence of alphabets it appears that these sub-clauses are in fact sub-clause (i) and sub-clause (j) respectively. Sub-clause (k) at page No. 9 again contemplates adjustment of loan amount. These sub-clauses of clause (i) are reproduced below for convenience:-
"d) It was agreed between the parties that the Board of Directors of the Company should be reconstituted so that people connected with the project would not differentiate between the stake of both the groups. It was agreed that Shri Dhananjay Pande of Pande group and Shri Ulhas Kelkar of Dr. Bais group should be appointed as Directors on the Board and should be designated equally by whatever designation ultimately agreed and should be given two different areas and responsibilities. It was agreed that while Shri Dhananjay Pande would look after the marketing, acquisition of surgical/medical instruments and/or other material, disposable or otherwise, required for the medical set up in the project. It was also agreed that Shri Pande would co-ordinate with the doctors and would generally be in charge of medical operations in the Institute. The area of administration, establishment and management other than allotted to Shri Dhananjay Pande was decided to be given to Shri Ulhas Kelkar as area under his charge. It was also decided that a person in the capacity of Chief Executive Officer (an officer to implement the instructions of the management) who has requisite qualification, ability and experience to look after the set up should be appointed. It was agreed that such CEO be appointed by public invitation. It was also agreed that the selection of CEO shall be done by the entire Board of Directors or by such committee as may be appointed by the entire Boarde) It was decided that Shri Deepak Saptarshi who has requisite experience of operation of commercial establishments complex operation shall help co-ordinate in restructuring of the hospital which would include defining and creating separate departments and the method of their operations and interaction amongst such departments. It was decided that system has to be made absolutely accountable and for this record keeping, accounting system of the project be defined, discussed and improved. Shri Deepak Saptarshi kindly agreed to look after this aspect of the matter and it was decided that such system shall be made operational as early as possible.
f) It was decided that although Shri Pande and Shri Kelkar have been made in-charge of their respective areas of responsibilities they would interact with each other in respect of all major decisions and none of them shall take major decision without consulting each other. Should there be any difference between Shri Pande and Shri Kelkar with regard to any such decision it shall be referred to Shri Deepak Saptarshi and Shri S. P. Dharmadhikari assisted by a responsible person in the set up other than Shri Kelkar and Shri Pande and their decision shall be final.
i) There was no serious dispute with regard to accounts between parties and the parties arrived at the respective contributions of each group. Accordingly, the parties agree that investment made up till now by Dr. Bais group comes to Rs. 436.49 lakhs while investment by Shri Pande group comes to Rs. 265.50 lakhs. On the basis of this, share of each group in the stock of Company comes to 62.15% in case of Bais group and 37.85 % in case of Pande group.
ii) [perhaps sub-clause "j"-?]:- It was agreed that liability of the loan arranged by Dr. Bais for Shri Dhananjay Pande in USA should be quantified today at The US $ 1,81,249.24 equal to Rs. 81,56,215/-. It was agreed to give an option to Dr. Bais to adjust this amount against investment of Shri Pande group. If he exercises this option it was agreed that investment of Shri Pande group would be reduced by amount of Rs. 81,56,215/-and investment of Dr. Bais would be enhanced by the same amount. On this basis, in case such adjustment is opted for by Dr Bais the holding of Dr. Bais group would become 70% while that of Shri Pande group would become 30%. Dr. Bais informed that he would communicate his firm decision in this behalf to Shri S. P. Dharmadhikari latest by 10.00 PM on 30-5-2004 who in turn would communicate it to Shri Deepak Saptarshi for being communicated to Shri Dhananjay Pande.
k) It was agreed that in case Dr. Bais does not opt for said liability of loan amount being adjusted against the investment made by Shri Dhananjay Pande then Shri Dhananjay Pande would give Dr. Bais a schedule of repayment of said amount with the additional interest that may accrue to Dr. Bais and would make payment of that amount accordingly as per that schedule. The parties would sit down and decide as to what should be done in case Shri Pande does not adhere to that schedule of payment."
4. After noticing relevant clauses of the agreement mentioned above, it is necessary to have a look at controversy filed before Civil Court in his suits by respondents. Perusal of plaint forming subject-matter of W.P. 2902/2004 i.e. Special Civil Suit No. 422/2003 filed by respondent therein Shri Dhananjay Pande reveals that Dr. Bais Surgical and Medical Institute Private Limited is defendant No. 1 and and Dr. Vijay Chandra Singh Bais is defendant No. 2 therein. Suit is for recovery of Rs. 2,76,71,652.54/ only. Grievance made is about interference by unauthorised persons in administration of hospital and displacement of plaintiff from it. It is also stated that though on paper defendant No. 1 a separate entity, on piercing the veil it would be seen that defendant No. 1 and defendant No. 2 are same. It is stated that though money advanced by plaintiff to defendant No. 1 has not been disputed, allotment of shares to him is being denied. Respondent plaintiff has stated that he was allotted 14,75,998 shares of defendant No. 1 Company in meeting of Board of Directors dated 15-7-1999. He has also pointed out the minutes of meeting drawn between parties mentioned above. He has further pointed out proceedings instituted by him before Company Law Board and has further stated that defendants have in said proceedings denied allotment of any shares to him. He points out that he has contributed Rs. 148 lakhs in the form of equity participation and has advanced sum of Rs. 41 lakhs as unsecured loans. He has further alleged that defendants have taken a false and dishonest plea of fraud by him to point out amount of Rs. 222.55 lakhs as allegedly recoverable from him. He has stated that defendants are adjusting his amount of Rs. 189.00 lakhs against it and further claiming balance amount of Rs. 36.55 as outstanding and recoverable from him. In paragraph 9 of plaint he states that because of unreasonable delay in allotment of shares he has revoked his offer to purchase said shares and has called upon defendant No. 1 to return his amount with interest by sending telegram and letter both on 4-6-2003 and by another telegram dated 6-6-2003. In paragraph 11 of plaint he has also added interest calculated at 18.5% and made total demand of Rs. 2,76,71,652.00/ only. He has accordingly sought decree for recovery of this amount with future interest. In Special Civil Suit 423/2003, respondent in Writ Petition 2903 of 2004 is plaintiff. Said plaintiff is Ekvira Surgical Company, stated to be a partnership firm through its partner Shri Dhananjay Pande. The plaintiff there has stated that it has supplied various medical/surgical disposables to defendant No. 1 during period from 1-4-1998 to 31-3-2000. It is further stated that plaintiff also made payments to various suppliers at Mumbai for supplies of medicines and surgical goods by them to defendant No. 1 during period 7-7-1998 to 31-3-1999. The plaintiff has also given details of supplies made by it to defendant No. 1 between 1-4-1999 to 31-3-2000. It is further stated that in minutes of conciliation drawn on 29-5-2000, defendants admitted investment made by Partner of plaintiff as Rs. 265.50 lakhs and plaintiff states that this amount includes an amount of Rs. 77,05,823.78/ payable by defendant No. 1 to plaintiff firm and claimed in this special civil suit. Again respondent No. 1 herein or original plaintiff points out that defendants have repeated story of dishonest and false claim of making supplies of expired consumables/disposables and contention of said defendant that it has to recover amount of Rs. 11.43 lakhs from plaintiff. The plaintiff therefore has claimed decree for above amount of Rs. 77,05,823.00/ only with 18% interest on it. Thus suit filed is for recovery of Rs. 1,12,82,161.68/ with future interest.
5. It is apparent that differences between two groups have been sought to be resolved by the above agreement dated 29-5-2000. The restoration of hospital as successful establishment is the goal sought to be achieved through it. All clauses in the agreement show arrangement worked out for success of joint venture, for forgetting past and to commence new beginning. For that purpose various angles necessary to administer the Company and hospital are taken care of in it. Discontinuation of joint venture is not even dreamt of Division of jurisdiction between two representatives is only part of entire exercise contemplated in these minutes. Sub-clause (f) which is stated to contain requirement of arbitration specifically restricts reference to two persons stated therein only in case of major decisions to be taken by representatives of parties jointly to further goal of smooth running of hospital when said representatives are not in position to reach consensus. Administration of hospital for its smooth and efficient functioning has been distributed between Shri Pande and Shri Kelkar and in respect of major decisions they are expected to interact with each other. Said sub-clause (f) expressly states that none of them is authorised to take major decision individually. As they have to take such decision jointly, the sub-clause also contemplates situation in which they may differ with each other and hence carries a provision for reference in such circumstances to two independent persons. It is apparent that this sub-clause contemplates major decisions to be reached for the purposes of functioning or working of hospital and difference only between two persons authorised in their respective spheres in relation thereto. "Major decision" has not been defined anywhere but the particular sentence requiring reference to outsiders again speaks of "such decision". Again it is to be noted that this sub-clause does not use the word "dispute". It is therefore, clear that if for running of hospital any major decision is required to be taken, it is to be taken jointly by Shri Pande and Shri Kelkar and if they are not in position to reach it, this sub-clause necessitates reference to Shri Deepak Saptarshi and Shri S. P. Dharmadhikari. Sub-clause also makes provision for assistance to Shri Deepak Saptarshi and Shri S. P. Dharmadhikari by a responsible person in the hospital other than Shri Kelkar and Shri Pande and their decision has been made final. Such assistance is obviously provided to these two persons to enable them to understand effect of their decision on working or administration of hospital. Thus, this provision for reference is made only in interest of better and efficient functioning or administration of hospital. The tenor of document and language of sub-clause itself reveals its very limited import and it is not possible to give it a wider interpretation. It is subordinate to entire scheme provided for in the document and subservient to it. Any other difference or dispute arising between two parties to these minutes/document and out of arrangement mentioned therein is not envisaged to be covered under this sub-clause (f)- It is apparent, in any case that representatives of parties namely Shri Pande and Shri Kelkar are not competent to take any decision on the subject of such payments towards shares or supplies as claimed by original plaintiffs in their respective Suits. The agreement between two groups itself speaks of amounts claimed by original plaintiffs vide its sub-clauses (i), (ii) or (j-?) and (k) as mentioned above. These clauses do not contemplate any such demand by one party to it against the other. I''m unable to construe this sub-clause as requiring such a dispute between two groups who are parties to document or minutes to be referred to arbitration.
6. In P. Anand Gajapathi Raju vs. P. V. G. Raju (supra) Hon''ble Apex Court has pointed out the conditions to be satisfied for attracting section 8 of Arbitration Act. Accordingly, the conditions which are required to be satisfied under sub-sections (1) and (2) of section 8 before the Court can exercise its power to refer parties to arbitration are : (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject-matter of the action is same as the subject-matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the Court after submission of his statement and the party who has brought the action does not object, there is no bar on the Court referring the parties to arbitration. As per the judgment the phrase "which is the subject of an arbitration agreement" does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in the Court. The phrase also connotes an arbitration agreement being brought into existence while action is pending. In Motilal s/o Kanhayalal Bharadiya vs. Kedarmal Jainarayan Bharadiya and ors. (supra) learned Single Judge of this Court has held in paragraph 7 as under :
"7. Following observations from
"It is no doubt permissible u/s 11 to decide a question as to the existence or otherwise of the arbitration agreement but when the correspondence or exchange of documents between the parties are not clear as to existence or non-existence of arbitration agreement, in terms of section 7 the appropriate course would be that the arbitrator should decide such a question u/s 16 rather the Chief Justice of India or his nominee u/s 11.
" Relying upon these observations, Advocate Shri Totla faintly proposed that even issue whether the document is or is not arbitration agreement can be and should be considered by the named Arbitrators.
The reason why the Hon ''ble the Apex Court was inclined to refer such an issue also to the Arbitrators when there were two forum available, one u/s 16 i.e. Arbitrators themselves and one u/s 11 i.e. nominee of the Chief Justice, is available in the same judgment it is observed by the Supreme Court that the power that is exercised by the nominee of Chief Justice u/s 11 is in the nature of administrative order and, therefore, unless the nominee can be absolutely sure regarding existence of arbitration agreement, it would be difficult for him to say that there should be no reference to arbitration. In the same judgment, the Supreme Court has referred to its observations in earlier judicial pronouncement in the matter of
7. Senior Advocate Shri Bhangde has relied upon - Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya and another (supra) where in paragraph 7 the Hon''ble Apex Court observes:-
"7. The High Court by its judgment and order dated 18- 9-2001 rejected application u/s 8 of the Act. The Court arrived at the conclusion that in the suit apart from the relief of dissolution and accounts, plaintiff has prayed for other reliefs. All the defendants to the suit are not parties or partners in the partnership firm and the terms of the partnership deed including the arbitration clause are not binding to them. Only part of the subject-matter could at the most be referred to the arbitration. Further, there is no power conferred on the Court to add parties who are not parties to the agreement in the arbitration proceedings. The Court also negatived the alternative prayer for referring part of the subject-matter in respect of those parties who are parties to the partnership agreement which contains arbitral clause. The Court arrived at the conclusion that such procedure is not contemplated under the Act. The object and purpose of the Act is to avoid multiplicity of the proceedings and not to allow two forums simultaneously to proceed with the matter. That judgment and order is challenged in this appeal."
I find the following observations of Hon''ble Apex Court important:-
"15. The relevant language used in section 8 is - "in a matter which is the subject-matter of an arbitration agreement." Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of "a matter" which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of section 8. The words ''a matter'' indicates entire subject-matter of the suit should be subject to arbitration agreement.
16. 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 u/s 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 brought before a judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided 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.
18. Reliance was placed on section 89, CPC in support of the argument that the matter should have been referred to arbitration. In our view, section 89, CPC cannot be resorted to for interpreting section 8 of the Act as it stands on a different footing and it would be applicable even in cases, where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the Court has to apply its mind to the condition contemplated u/s 89, CPC and even if application u/s 8 of the Act is rejected, the Court is required to follow the procedure prescribed under the said section."
8. I therefore, find that Court below was justified in undertaking scrutiny to find out whether subject-matter of Suits before it was covered by clause in agreement between parties providing for arbitration. I also find that its conclusion that subject-matter of said clause and Suits before it are quite distinct does not suffer from any perversity or jurisdictional error. No case is made out for interference in writ jurisdiction. Writ Petitions are accordingly dismissed, however without any order as to costs. Rule discharged.
