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-

M!"I 0AMI,$
S<'2 4#33AR MA, M!"I

K<"AR=A'2 M!"I

K K M!"I S K M!"I, # K M!"I % K M!"I, & K M!"I (GROUP B)

M K M!"I $ K M!"I " K M!"I (GROUP A)

'he com(lete family was owner in n)m*er of +)*lic ,imited Com(anies and owns -ario)s assets "is()te arose *etween *oth the .ro)(s 'o resol-e the dis()te ne.otiations too/ (lace with the hel( of financial instit)tions 0inally, Memorand)m of #nderstandin. was arri-ed on 21 '2 3an)ary 1989 Accordin. to Mo# Cla)se 1 com(anies will *e mana.ed *y 4ro)( A
Cla)se 2 4ro)( % is entitled to mana.e, own and5or control the com(anies en)merated in that cla)se Certain com(anies were e6cl)ded

Cla)se 7- assets to *e -al)ed and then the assets to *e di-ided in 189:8 ratio After -al)ation shares will *e transferred 'his -al)ation will *e done *y S % %illimoria ; Co

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Cla)se >- com(anies to *e s(lit *etween *oth the .ro)(s S(littin. will *e *y %ansi Mehta ; Co after the -al)ation of assets is done *y %illimoria Co Cla)se : ? arran.ements to *e made in res(ect of s(littin. com(anies 'he date for carryin. -al)ation, date of transfer, a((ointment of Chairman of Com(anies which are to *e s(lit and other matters in Mo# shall *e done in cons)ltation with the Chairman, Ind)strial 0inance Cor(oration of India @I0CIA Cla)se 9 of the Mo# *etween the (arties (ro-ided as follows9BImplementation will *e done in cons)ltation with the financial instit)tions 0or all dis()tes, clarifications etc, in res(ect of im(lementation of this a.reement, the same shall *e referred to the Chairman, I0CI or his nominees whose decisions will *e final and *indin. on *oth the .ro)(s C So in relation to the s(littin. of the three com(anies, the %illimoria ; Co and M5s %ansi S Mehta ; Com(any .a-e their re(orts for -al)ation and s(littin. 'he mem*ers of *oth the 4ro)(s were dissatisfied with these re(orts 'hey sent -ario)s re(resentations to the Chairman and Mana.in. "irector of the Ind)strial 0inance Cor(oration of India ,td in -iew of Cla)se 9 of the Memorand)m of #nderstandin. Chairman, I0CI after disc)ssion with the e6(erts committee decided the D)estions and made a re(ort !n co-er letter he descri*ed the re(ort as his decisions raised *y .ro)(s for clarification 2e said ?Esince that maFor (art of memorand)m of #nderstandin. has already *een im(lemented d)rin. 1989 to 199>, he e6(ects to im(lement the remainin. as (er Mo# C 2e f)rther said to settle the family matter amon.st them !n the *asis of -al)ation re(orts, he decided to, a s)m of Rs 217> >> la/hs wo)ld *e (aya*le *y 4ro)( % to 4ro)( A This report was not filed in Court as an award nor was any application filed by Group to !a"e the #eport a rule or decree of the Court

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MATTER BEFORE THE DELHI HIGH COURT Same day4ro)( % filed an ar*itration (etition !n the same day 4ro)( % also filed a )nder Section 77 of the Ar*itration Act, Ci-il S)it =o in the "elhi 2i.h Co)rt to 1918, in the "elhi 2i.h Co)rt dis()tin. challen.e the same decision of the the le.ality and -alidity of the said Chairman and Mana.in. "irector, I0CI decision of the Chairman and Mana.in. "irector, I0C on the basis that it was an award in arbitration proceedin$s between Group % and Group 'he (rayers in this s)it were s)*stantially the same as those in the ar*itration (etition In one (ara.ra(h, howe-er, in the (laint, it was stated that the same reliefs were *ein. claimed in a s)it in the e-ent of it *ein. held that the decision of the Chairman and Mana.in. "irector, I0CI was not an ar*itration award *)t was F)st a decision The i!"#e $%d"e s&'(ed &he o)er'&io! o* '+'rd '!d o&her res&r'i!s. De,isio! ? the decision of the Chairman and Mana.in. "irector, I0CI cannot *e considered as an award in ar*itration (roceedin.s Re'so!i!" - 'he (arties did not ha&e any intention to refer any dis()tes to ar*itration All the dis()ted were settled *y the Memorand)m of #nderstandin. and what remained was only the -al)ation of shares and di-ision of the three com(anies as a.reed to in the Memorand)m of #nderstandin. In order to a-oid any dis()tes, the (arties had a.reed that the Chairman and Mana.in. "irector, I0CI wo)ld iss)e all clarifications and .i-e his decision in relation to the -al)ation )nder Cla)se 9 of the Memorand)m of #nderstandin.

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He#d-'he ar*itration (etition, accordin. to the learned Sin.le 3)d.e, was, therefore, not maintaina*le, since the decision im().ned was not an award within the meanin. of the Ar*itration Act, 1918 'o( Group placed the !atter before 'upre!e Court. MATTER BEFORE THE UPREME COURT

.%es&io!s /e*ore &he %)re0e Co%r& 1 Ghether Cla)se 9 of the Memorand)m of #nderstandin. constit)tes an ar*itration a.reementH and whether the decision of the Chairman, I0CI dated constit)tes an awardI Ghether the s)it filed sim)ltaneo)sly is an a*)se of the (rocess of co)rtI

De,isio! 1 Cla)se 9 of the Mo# neither constit)tes an ar*itration a.reement nor is the decision of Chairman an award S)it was not an a*)se of (ower

Re'so!i!"- the co)rt loo/ed into some of the attri*)tes for F)d.in. the ar*itra*ility of certain a.reement in M)still and %oyd 1 S)(reme Co)rt loo/ed into the intentions of (arty, loo/ed whether it was a((arent from the cla)se that (arty wanted the ar*itrator to resol-e, to s)*mit from the cla)se which is contended to *e ar*itration cla)se their contentions, whether they wanted tri*)nal to decide Co)rt said this sho)ld *e -isi*le

M)still and %oyd in their *oo/ on BCommercial Ar*itrationB, 2nd <dition, at (a.e 78 'he ar*itration a.reement m)st contem(late that the decision of the tri*)nal will *e *indin. on the (arties to the a.reement, 2 'hat the F)risdiction of the tri*)nal to decide the ri.hts of (arties m)st deri-e either from the consent of the (arties or from an order of the Co)rt or from a stat)te, the terms of which ma/e it clear that the (rocess is to *e an ar*itration, 'he a.reement m)st contem(late that s)*stanti-e ri.hts of (arties will *e determined *y the a.reed tri*)nal, 7 'hat the tri*)nal will determine the ri.hts of the (arties in an im(artial and F)dicial manner with the tri*)nal owin. an eD)al o*li.ation of fairness towards *oth sides, 1 'hat the a.reement of the (arties to refer their dis()tes to the decision of the tri*)nal m)st *e intended to *e enforcea*le in law and lastly, > 'he a.reement m)st contem(late that the tri*)nal will ma/e a decision )(on a dis()te which is already form)lated at the time when a reference is made to the tri*)nal

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>

!n the (oint of differentiatin. *etween contracts containin. words li/e e6(ert determination on one hand while s(ecific words li/e ar*itration, co)rt D)oted R)ssel 2 which tal/s of the contracts construction and party)s intention. <6(ress words related to ar*itration li/e - Jar*itratorJ, Jar*itral tri*)nalJ, Jar*itrationJ It says ar*itrator arri-es at decision on the *asis of e-idences and contentions of (arty while the e6(ert ma/es his own enD)iry

S)(reme co)rt relyin. on this said a)thorities and case laws that altho).h there is no concl)si-e test for decidin. *)t certain .)idelines can *e loo/ed so co)rt said in s(ite of the Stat)tory reD)irements7 it sho)ld *e clear that ? 'here was a dis()te Intention was e-ident to a-oid f)t)re dis()te1 Intention to choose ar*itrator>, tri*)nal, s)*mittin. e-idences: =omenclat)re7 )sed *y the (arties

Co)rt loo/ed into Cla)se 9 of Mo# and )ttered that it does not show that the (arties intended the F)dicial determination, e-idences, and recordin.s of dis()te nor was the Chairman *o)nd to rely on e-idences *y the (arties, he was more of clothed as e6(ert rather an ar*itrator, his f)nctions clearly ma/e him e6(ert and the words Ke6(ert determinationL )sed in the cla)se also is s)((orti-e to this fact

'hey a.reed with the 2i.h Co)rtLs -iew that it was not an a.reement to refer to ar*itration 'o( the 'upre!e Court upheld the *i$h Court)s &iew on the issue of arbitration. 'he co)rt allowed the sim)ltaneo)s s)it loo/in. into the case laws ()ttin. it as not an a*)se of (ower, so on this iss)e S)(reme Co)rt made 2i.h Co)rtLs decision s)*stantially correct not entirely RA'I! !0 '2< CAS<

2 7

R)ssell on Ar*itration, 21st <dition, at (a.e 77, (ara.ra(h 2-811 Section 2 Ar*itration Act 1918 and Section 7 Ar*itration and Conciliation Act, 199:, 'tate of +a!!u and Kash!ir 'tate ,orest Corporation &. %bdul Kari! -ani and Ors..1989M2SCR788 1 Curset/i +a!shed/i %rdaseer -adia and Ors. &. Dr. #.D. 'hiralee, AIR1917%om72 > M. Dayanand #eddy &. %.0. Industrial Infrastructure Corporation 1i!ited and Ors.( N1997M2SCR:29 : '!t. #u"!anibai Gupta &. Collector( +abalpur and Ors AIR1981SC179 7 'tate of 2.0. &. Tipper Chand( %I#3456'C3788( 'tate of Orissa and %nr. &. Da!odar Das, AIR199:SC912

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9In order to decide the arbitrability of certain a$ree!ent( the intention of parties for /udicial deter!ination of future dispute is the !ost i!portant criteria alon$ with the no!enclature and the statutory re:uire!ents.;