k.k modi v. k n modi

K.K. Modi vs. K.N. Modi & Ors AIR 1998 SC 1297

FACTUAL BACKGROUND

In the instant case, the family tree of Modi family is as follows-

K.K MODI M.K MODI S.K MODI, U.K.MODI Y.K.MODI B.K MODI, V K MODI D.K.MODI

(GROUP B) (GROUP A)

The complete family was owner in number of Public Limited Companies and owns

various assets.

Dispute arose between both the groups. To resolve the dispute negotiations took place

with the help of financial institutions.

Finally, Memorandum of Understanding was arrived on 24TH January 1989.

According to MoU

Clause 1 companies will be managed by Group A.

Clause 2 Group B is entitled to manage, own and/or control the companies enumerated in that

clause. Certain companies were excluded.

Clause 3- assets to be valued and then the assets to be divided in 40:60 ratio. After

valuation shares will be transferred. This valuation will be done by S.B.

Billimoria & Co.

MODI FAMILY

SETH GUJJAR MAL MODI KEDARNATH MODI

-K.K MODI V. K.N MODI- 2

Clause 5- companies to be split between both the groups. Splitting will be by

Bansi Mehta & Co. after the valuation of assets is done by Billimoria Co.

Clause 6 – arrangements to be made in respect of splitting companies.

The date for carrying valuation, date of transfer, appointment of Chairman of

Companies which are to be split and other matters in MoU shall be done in

consultation with the Chairman, Industrial Finance Corporation of India (IFCI)

Clause 9 of the MoU between the parties provided 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.”

So in relation to the splitting of the three companies, the Billimoria & Co. and M/s.

Bansi S. Mehta & Company gave their reports for valuation and splitting.

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.

Chairman, IFCI after discussion with the experts committee decided the questions and

made a report.

On cover letter he described the report as his decisions raised by groups for

clarification.

He said –“since that major part of memorandum of Understanding has already been

implemented during 1989 to 1995, he expects to implement the remaining as per

MoU.” He further said to settle the family matter amongst them.

On the basis of valuation reports, he decided to, a sum of Rs. 2135.55 lakhs would be

payable by Group B to Group A.

This report was not filed in Court as an award nor was any application filed by

Group B to make the Report a rule or decree of the Court.


MATTER BEFORE THE DELHI HIGH COURT

Same day-

Group B filed an arbitration petition

under Section 33 of the Arbitration Act,

1940, in the Delhi High Court disputing

the legality and validity of the said

decision of the Chairman and Managing

Director, IFC on the basis that it was an

award in arbitration proceedings

between Group A and Group B.

On the same day Group B also filed a

Civil Suit No. in the Delhi High Court to

challenge the same decision of the

Chairman and Managing Director, IFCI.

The 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.

The Single Judge stayed the operation of award and other restrains.

Decision – the decision of the Chairman and Managing Director, IFCI cannot be

considered as an award in arbitration proceedings.

Reasoning - The parties did not have any intention to refer any disputes to

arbitration.

All the disputed were settled by the Memorandum of Understanding 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.


Held-The arbitration petition, according to the learned Single Judge, was, therefore,

not maintainable, since the decision impugned was not an award within the meaning

of the Arbitration Act, 1940.

So, Group B placed the matter before Supreme Court.

MATTER BEFORE THE SUPREME COURT

Questions before the Supreme Court –

Whether Clause 9 of the Memorandum of Understanding constitutes an arbitration

agreement; and whether the decision of the Chairman, IFCI dated constitutes an

award?

Whether the suit filed simultaneously is an abuse of the process of court?

Decision – Clause 9 of the MoU neither constitutes an arbitration agreement nor is

the decision of Chairman an award.

Suit was not an abuse of power.

Reasoning- the court looked into some of the attributes for judging the arbitrability of

certain agreement in Mustill and Boyd.1

Supreme Court looked into the intentions of party, looked whether it was apparent

from the clause that party wanted the arbitrator to resolve, to submit their

contentions, whether they wanted tribunal to decide. Court said this should be visible

from the clause which is contended to be arbitration clause.

1 Mustill and Boyd in their book on "Commercial Arbitration", 2nd Edition, at page 301. The arbitration agreement must contemplate that the decision of the tribunal will be binding on the

parties to the 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,

The agreement must contemplate that substantive rights of parties will be determined by the agreed

tribunal, 3. 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, 4.That the agreement of the

parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law

and lastly, 5. 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.


On the point of differentiating between contracts containing words like expert

determination on one hand while specific words like arbitration, court quoted Russel2

which talks of the contracts construction and party’s intention. Express words related

to arbitration like - 'arbitrator', 'arbitral tribunal', 'arbitration'. It says arbitrator arrives

at decision on the basis of evidences and contentions of party while the expert makes

his own enquiry.

Supreme court relying on this said authorities and case laws that although there is no

conclusive test for deciding but certain guidelines can be looked so court said in spite

of the Statutory requirements3 it should be clear that –

There was a dispute

Intention was evident to avoid future dispute4

Intention to choose arbitrator5, tribunal, submitting evidences6.

Nomenclature7 used by the parties.

Court looked into Clause 9 of MoU and uttered that it does not show that the parties

intended the judicial determination, evidences, and recordings of dispute nor was the

Chairman bound to rely on evidences by the parties, he was more of clothed as expert

rather an arbitrator, his functions clearly make him expert and the words ‘expert

determination’ used in the clause also is supportive to this fact.

They agreed with the High Court’s view that it was not an agreement to refer to

arbitration.

So, the Supreme Court upheld the High Court’s view on the issue of arbitration .

The court allowed the simultaneous suit looking into the case laws putting it as not an

abuse of power, so on this issue Supreme Court made High Court’s decision

substantially correct not entirely.

RATIO OF THE CASE

2 Russell on Arbitration, 21st Edition, at page 37, paragraph 2-0143 Section 2 Arbitration Act 1940 and Section 7 Arbitration and Conciliation Act, 1996, State of Jammu and Kashmir State Forest Corporation v. Abdul Karim Wani and Ors.[1989]2SCR3804 Cursetji Jamshedji Ardaseer Wadia and Ors. v. Dr. R.D. Shiralee, AIR1943Bom325 M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Limited and Ors., [1993]2SCR6296 Smt. Rukmanibai Gupta v. Collector, Jabalpur and Ors.AIR1981SC4797 State of U.P. v. Tipper Chand, AIR1980SC1522, State of Orissa and Anr. v. Damodar Das, AIR1996SC942


“In order to decide the arbitrability of certain agreement, the intention of parties for

judicial determination of future dispute is the most important criteria along with the

nomenclature and the statutory requirements.”

k.k modi v. k n modi

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