Sayaji Mills Ltd v. Aradhana Investments Ltd. — 1979 DIGILAW 258 (CAL)

Judgment Ghose, J. 1. This appeal arises out of a Judgment and order dated March 5, 1979 made by the court of first instance. By the said judgment and order, the court of first instance directed the filing of an arbitration agreement contained in a memorandum dated 22nd December, 1977 executed by the Chairman and Managing Director of the appellant Sayaji Mills Ltd. and the Chairman and Managing Director of one Punalur Paper Mills. Ltd. And directed the reference of the disputes in regard to the agreement recorded in the said memorandum to be referred to the arbitration of the named arbitrator I.M. Nanavati. 2. The suit under S. 20 of the Indian Arbitration Act, 1940 was instituted in this Court not by any of the purported parties to the said memorandum, but by a nominee of Punalur Paper Mills Ltd. described as the purchaser in the said memorandum being the respondent Aradhana Investments Ltd. 3. The facts leading to the filing of the suit may be briefly stated. On 22nd December, 1977 the respective Chairman and Managing Director of the appellant (defendant in the suit) Sapaji Mills Ltd. and one Punalur Paper Mills Ltd. signed a memorandum at Bombay. The said memorandum confirmed the discussions and recorded the broad terms of an agreement for the sale and purchase of Sayaji Mill No. 2. Bombay by and between this appellant referred to in the said memorandum as the vendor and Punalur Paper Mills Ltd referred to in the said memorandum as the purchaser. Clause 1 of the said memorandum inter alia provided as follows: "The vendor agrees to sell transfer and convey in favour of purchaser, its nominee or nominees, its block of Sayaji Mills Nos. 2 at Bombay free from all charges encumbrances and lis pendens comprising of lands measuring 51176.81 Sq. Meters. all factory and other building constructed therein, composite textile mills............................................and goodwill and tenancy rights of the shops in Mulji Jetha Market and a rented flat on the 7th floor of Mount Unique building flat No. 51................................for a sum of Rs. 1.53.00,000 (Rupee. one crore fifty three lacs only)”. The said memorandum appears at pages 12 to 18 of the Paper Book. 4. 1.53.00,000 (Rupee. one crore fifty three lacs only)”. The said memorandum appears at pages 12 to 18 of the Paper Book. 4. The memorandum stipulated that the consideration money would be paid inter alia by deduction and adjustment from the consideration or the price of (i) "Statutory Liabilities" such as municipal and other taxes upto the date of conveyance, the sales tax and excise duty outstanding as on the date of the conveyance and other statutory payments outstanding and related to the property upto 31.l.78. (ii) employees' dues such as (a) arrears bonus, if any, (b) bonus from 1-1-1977 to 31.1.1978 as Per Bonus Act, (c) arrears of Provident Fund, B.S.I., If any, (d) Provident Fund and E.S.I. contribution upto 31. 1.1978, (e) arrears of unpaid wages if any, and wages (including D.A. upto 3l.1.1978) (f) leave with wages due in respect of leave not hitherto enjoyed and leave wages accruing due upto 31.1.1978; (iii) dues of Trade creditors and other various liabilities of the vendor. The purchaser was to adjust and set off total liabilities to the extent of Rs. 1,45,50,000/: (Rupees one crore: forty five lacs fifty thousands) and pay only a sum of Rs. 7,50.000/- (Rupees seven lacs and fifty thousands) in cash. For the purpose of this appeal we reproduce hereunder some: of the material terms contained in the said memorandum: "Clause 4 To facilitate smooth change-over and consequential accounting. 1,45,50,000/: (Rupees one crore: forty five lacs fifty thousands) and pay only a sum of Rs. 7,50.000/- (Rupees seven lacs and fifty thousands) in cash. For the purpose of this appeal we reproduce hereunder some: of the material terms contained in the said memorandum: "Clause 4 To facilitate smooth change-over and consequential accounting. (a) the Purchaser will enter on de facto management control and possession of the mills as from 1.2.1978 to the date of conveyance; (b) inventory will be taken of the stocks of cotton, stores, colours, chemicals waste and goods unprocessed (on machines) so as to make it upto date all on 31.1.1978, and the Purchaser will pay to the account of the Vendor the margin money in respect thereof to the Vendor's Bank; (c) the purchaser will supply to the extent of Margin money required for purchase of raw materials stores colours, chemicals from 1.2.1978 to the dated of conveyance to be adjusted in price of block and current assets; (d) the Pur-:h4ser will supply wages and other labour dues and take sale proceeds of the produce for the period from 1st February, 1978; (e) the profit and loss in the running of the mills from 1.2.1978 till the date of conveyance will be of the: Purchaser and a separate account will be kept for this purpose "8. The Vendor has created "Sayaji Mills Limited Employees Gratuity Trust Fund" with the L.I.C and since the said trust funds pertain to employees of all the three units of the Vendor the L.I.C and Commissioner of Income tax will be forthwith approached by the Vendor to split up the said G.T.F. for employees of Sayaji Mill No. 2 (under sale) and the remaining employees of the Vendor in respect of their units at Kathawada and ChalaKudi and the benefits of the said G.T.F. on its being split-up for the employees of Sayaji Mill No 2 will stand transferred for the benefit of those employees and will be managed by the Trustees nominated by the Purchaser. The splitting up of and the transfer of the G.T.F. in respect or Sayaji Mill No.2 is a necessary condition of this transaction. The Vendor has indicated that on splitting up the G.T.F. amount pertaining to employees of Sayaji Mill No.2 is approximately Rs 60/65 lacs" Clause. 9. The splitting up of and the transfer of the G.T.F. in respect or Sayaji Mill No.2 is a necessary condition of this transaction. The Vendor has indicated that on splitting up the G.T.F. amount pertaining to employees of Sayaji Mill No.2 is approximately Rs 60/65 lacs" Clause. 9. The stages for completion of transaction will be as follows: (i) the respective Vendor and Purchaser companies will get the approval of their respective Board of Directors on or before 1.1.1978. (ii) the Vendor will call the Extra-ordinary General Meeting of their Members on or before 3U.1.1978 for approving the sale of their undertaking of Sayaji Mill No.2 as required by S. 293(1)(a) of the Companies Act; (iii) the conveyance will be executed on or before 1.4.1978 and the Vendor will obtain the permission of the competent authority under the Urban Ceiling Act and the Income-tax Clearance Certificate and complete other formalities and obtain other permissions before that date From now onwards the Vendor shall not dispose off any machineries of any part of Block. Clause 12. On the requisite Board Resolutions being passed by the respective Companies. the Purchase will give as and by way of earnest money a sum of Rs. 7,50 000/-(Rupees seven lacs fifty thousand only) to the Vendor to be adjusted in the said consideration. In the event of sale being not completed, the Vendor shall return the earnest money." . 5. The said memorandum also provided for execution of Indemnity Bonds by Vendor in favour of purchaser against any claim or liability of the said property agreed to be sold relating to the period prior to the date of conveyance in excess of a sum of Rs. 1,45,50,000/- (Rupees one crore fourty five lacs and fifty thousands). Likewise the purchaser also would indemnify the vendor against the claim of the trade creditors taken over by the purchaser and deducted from the price. The Said memorandum contained an arbitration clause which reads as follows, to with: "If there is any difference of opinion arising on the interpretation, implementation of this Agreement and in carrying out all the details of the bargain, the same will be referred to the sole arbitration of Shri I. M. Nanavati. Advocate, and the parties agree to abide by his decision by way of summary arbitration.” On January 3, 1978 the Punalur Paper Mils Ltd. wrote to the appellant as follows: "Dear Sir. Advocate, and the parties agree to abide by his decision by way of summary arbitration.” On January 3, 1978 the Punalur Paper Mils Ltd. wrote to the appellant as follows: "Dear Sir. Sub: Memorandum of Agreement dated 22.12 77. Our Board of Directors bas considered the above at its meeting, held on 2nd inst., and decided to take over your Sayaji Mills No.2, subject to permission of I.C.I.C.I and I.F.C. However, since this is likely to take some time our Board bas nominated Aradhana Investments Ltd, as our Nominee as per Clause 1, of Memorandum. Please let us have your Board Resolution to proceed further." 6 On January 5. 1978 the respondent Aradhana Investments Ltd. wrote to the appellant in the following terms : 'Dear Sir, Sub :-Memorandum of Agreement dated 22.12.77 between you and Punalur Paper Mills Ltd. We have been nominated as purchaser by Punalur Paper Mills Ltd., under Clause 1 of the Memorandum. Please let us have your Board resolution, to enable us to proceed further in the matter." 7. On January 16. 1978 the Board of Directors of the appellant company passed certain resolutions certified true copies w hereof appear at pages 28 to 34 of the Paper Book. By the said resolutions the Board of the appellant company did not unconditionally approve of the memorandum dated 22nd December, 1977; but only approved of it in principle subject to the clarifications and conditions mentioned in the said resolutions. 8. The Board of the appellant company further Inter alia, resolved on 16th January, 1978 as mentioned hereinbefore as follows: "RESOLVED the if Aradhana Investment Ltd nominated by Punalur Paper Mills Ltd increases its paid up capital upto Rs 60 lakhs and obtains fixed deposits for one year in their company to the extent of Rs. 40 lakhs on or before the 1st March 1978 and statisfies the company in that behalf and the said nominee also agrees to the clarifications mentioned hereinabove, the company would be willing to complete the sale in favour of the said nominee but otherwise Punalur Paper Mills Ltd. shall complete the sale with the above clarification" 9. 40 lakhs on or before the 1st March 1978 and statisfies the company in that behalf and the said nominee also agrees to the clarifications mentioned hereinabove, the company would be willing to complete the sale in favour of the said nominee but otherwise Punalur Paper Mills Ltd. shall complete the sale with the above clarification" 9. The appellant along with its letter dated January 18, 1978 written to Punalur enclosed the copies of the resolutions mentioned hereinbefore and appearing at pages 28 to 34 of the Paper Book passed by the Board of Director a of the appellant on January 16, 1978. By its letter dated January 25, 1978 Punalur wrote to the appellant staling that Punalur had already nominated the respondent Aradhana Investment Ltd, as the Purchaser and that all the future correspondence should be done by the appellant directly with Aradhana. By its letter dated February 2, 1978 the respondent referred to the appellant's above• mentioned letter dated January 18, 1978 addressed to Punalur and stated that the laid letter bad come to the respondent as a complete surprise and that it was an attempt on the part of the appellant to resile from the agreement dated December 22, 1977. On February 3, 1978 the Board of Directors of the appellant passed another resolution. Copies of minutes of the Slid Board meeting appear at page 156 of the Paper Book. From the said minutes of the said meeting it appears that there were further discussions with the representatives of the purchaser at Bombay by the appellant relating to the memorandum dated December 22. 1977 It appears from copies of minutes of the meeting held between the appellant and Punalur on January 31 and February l.1978 at Bombay that the parties failed to arrive at a consensus in regard to the working out of the memorandum dated December 22. 1977. 10. Mr. Bhatt the learned counsel appearing on behalf of the: appellant, drew our attention to the copies of the said minutes of the said meeting held at Bombay which were used in the interlocutory proceedings in the appeal and with the consent of the parties were included in a supplementary Paper book and filed in the appeal 11. By their letter dated February 11, 1978 Messrs Chiwanlal Shah and Company. By their letter dated February 11, 1978 Messrs Chiwanlal Shah and Company. Advocates of the appellant wrote to Aradhana that the memorandum dated December 22, 1977 did not record a complete agreement. Thereafter, certain correspondence passed between Messrs Chiwanlal Shah and Company and Messers Khaitan and Company. Ultimately the Suit No. 82 of 1978 (In the matter of the Arbitration Act etc. Between Aradhna Investments Ltd And Sayaji Mills Ltd) was filed on September 14, 1978 by the respondent. Aggrieved by the judgment passed in the said suit the present appeal has been preferred by the appellant. 12. Mr. Bhatt, the learned Advocate appearing on behalf of the appellant submitted first, that the respondent had or has no locus standi to institute the suit inasmuch as the respondent was not a party to the memorandum dated December 22. 1977 and as such was not a party to the arbitration agreement contained in the said memorandum and thus cannot apply under S, 20 of the Arbitration Act. Section 20(1) of the Arbitration Act requires one to be a party to the arbitration agreement in order to take recourse to the provisions of S. 20 of the said Act. Mr. Bhatt in this connection drew our attention to the express words in S. 20 of the Arbitration Act and its various subsections in contrast to the terms and expressions used in Ss. 33 and 34 of the Arbitration Act. It is not disputed that there had been no assignment of the agreement recorded in the memorandum dated December 22, 1977 in favour of the respondent. The respondent cannot therefore, claim even to be a party to the agreement Mr. Bhatt drew our attention to the case of Lovegrove v Nelson 40 ER page 1 at page 8 and Page v. Cox 90 RR 314 at 319 Mr. Bhatt also cited Byrne v. Reid (1902) 2 Ch. 73 which followed the ratio decidendi in Page v. Cox Mr. Bhatt submitted that the above-mentioned cases relied on by the respondent in the court of first Instance wore decided on the basis of the principle of trust Mr. Bhatt relied on In: Res Franklin and Swathling's Arbitration reported in 1929(1) Ch 238 where it was held that the nominee of a party to an arbitration agreement was not entitled to enforce the arbitration agreement. In support of the proposition. Mr. Bhatt relied on In: Res Franklin and Swathling's Arbitration reported in 1929(1) Ch 238 where it was held that the nominee of a party to an arbitration agreement was not entitled to enforce the arbitration agreement. In support of the proposition. Mr. Bhatt also relied on a passage in Russel on Arbitration 18th Edition at page 114 and Halsbury's Laws of England 3rd Edition Vol. 28 at page 528 para 1023 and at page 529 para 1024. Mr. Bhatt’s main emphasis was on the point that in all, the above mentioned cues cited on behalf of the respondent in the court of the first instance, relief was granted to the nominee on the basis that the nominee was a cestul que trust. Mr. Bhatt next submitted that the agreement. In the instant case excluded the idea of trust inasmuch as it was not. The intention of the parties or Punalur to exclude altogether Punalur from having the benefit under the contract. In other words. Mr. Bhatt submitted that the relevant terms in the memorandum whereby the appellant agreed to sell the Sayaji Mill. No. 2 to Punalur, its nominee or nominee does not exclude, the possibility of the benefit of Sayaji's promise going to Punalur. 13. The next aspect of the submission of Mr. Bhatt was that the nature of the contract implies the approval by the Vendor of the nominee. Mr. Bhatt submitted that under the memorandum dated December 22, 1977 only Rs. 7,50.000/- was to be paid by the purchaser to the vendor and the balance of the consideration of Rs 1.53.00,000/-, that is to say, a sum of Rs 1,45,50,000/- would remain with the purchaser and if the nominee be a man of straw then the vendor would remain liable to its creditors statutory or otherwise for its liabilities if the nominee was unable to pay up the liabilities agreed to be paid by the purchaser in the memorandum. Mr, Bhatt drew our attention in this connection to the relevant clauses contained in the said memorandum dated December 22, 1977 and submitted that the court should import an implied term in the contract to the effect that the nominee must not be a man of straw and must be a proved of by the Promissory. Mr. Bhatt further submitted that the agreement evidenced by the memorandum dated December 22. Mr. Bhatt further submitted that the agreement evidenced by the memorandum dated December 22. 1977 was not a concluded contract but was subject to the compliance of conditions precedents namely, "(i) the respective vendor and purchaser companies will get the approval of their respective Board of Directors on or before 1.1.1978" and (ii) "The vendor will call an extra-ordinary general meeting of their members on or before 30.1.1978 for approving the sale of their undertaking of Sayaji Mill No. 2 as required by S. 293(1)(a) of the Companies Act.” None of the aforesaid two conditions precedents have been compiled with and thus according to Me. Bhatt no concluded contact between the appellant and Punalur ever Came into existence. The vendor company was selling a complete undertaking which it had no power to sell unless S. 293(1)(a) of the Companies Act was complied with. 14 Mr. Bhatt further submitted that the decision to sell must include power to sell and there was no power to enter into any agreement to sell the undertaking being the Sayaji Mill No. 2 without the approval of the shareholders of the company under S. 293(1)(a) of the Companies Act. Various terms remained to be agreed upon and there were merely negotiations going on between the parties according to Mr. Bhatt . Lastly Mr. Bhatt drew our attention to Clause 4 at page 14 of the Paper Book and various other clauses, to which we shall refer later and submitted that this was indeed a contract for sale and delivery of Possessions of immovable property and therefore this court has no Jurisdiction to direct the filing of the arbitration agreement under S. 20 of the Arbitration Act and direct a reference to the named Arbitrator. In summing up his submissions Mr. Bhatt submitted that: (1) There is no privity of contract between the plaintiff if and the defendant. (2) The petition or the planet does not allege that the plaintiff respondent is a cestui que trust; (3) The court should imply a term as a matter of law that in the background of memorandum dated December 22. 1977 nomination was subject to the approval of the appellant; (4) There was no Consent to the nomination by the appellant and (5) There is no assignment of the contract in favour of the respondent, In the premises the respondent cannot enforce the arbitration agreement. 15 Mr R.C. Den. 1977 nomination was subject to the approval of the appellant; (4) There was no Consent to the nomination by the appellant and (5) There is no assignment of the contract in favour of the respondent, In the premises the respondent cannot enforce the arbitration agreement. 15 Mr R.C. Den. the learned counsel appearing on behalf of the respondent submitted on the other hand that First the memorandum dated December 22, 1977 is a concluded contract between the parties. The parties described the same as a n agreement (Su Clauses 12 and 15 of, the memorandum Secondly, the parties did not contemplate execution of any other agreement between the parties. The broad terms entered into between them have been recorded Further they have laid down by way of instruction of the arbitration clause in the agreement the method or formula for working out the details of the agreement. In support of his submission Mr. Deb relied on F and G, Sykes (Wessex) Limited v. Finefare Limited 1967(I) Lloyds List Law Report page 53; Thirdly. Clause 9 does not contain the conditions precedents to the agreement at all but merely provides for stages for completion of the transactions; and lastly the patties acted on the basis of the nomination. Mr. Deb drew our attention in this connection to page 21, 26 and 88 of the Paper Book and emphasised that the parties treated it as a sale. According to Mr. Deb it would appear from the above documents appearing in the above-mentioned page that it was a concluded agreement and parties were trying to implement it, In fact, the submission of Mr. Deb it that appellant Sayaji agreed to sell the Mill No.2 to Punalur. its nominee or nominees. Punalur nominated Aradhana, the respondent in be its nominee. Aradhana accepted such nomination and thus Aradhana got itself substituted in the place and stead of Punalur in the agreement contained in the memorandum dated December 22. 1977 and there took place by way of novation. The English cases referred to above according to Mr. Deb proceeded on the basis of property right or trust for the simple reason that in English Court no suit for specific performance of a partnership agreement could lie. Mr. Deb relied on Byrne v. Reid (1902) 2 Ch 735. Mr. 1977 and there took place by way of novation. The English cases referred to above according to Mr. Deb proceeded on the basis of property right or trust for the simple reason that in English Court no suit for specific performance of a partnership agreement could lie. Mr. Deb relied on Byrne v. Reid (1902) 2 Ch 735. Mr. deb, submitted that S. 293(1)(a) of the Companies Act did not make the contract ultra vires the Board to sell the undertaking of the company but merely put a restriction on the power of the Board or the company to sell. Mr. Deb submitted that no point was taken in the court of first instance that the dispute involved the possession of land and thus the point should not be followed to be taken in the appeal, Mr. Deb drew our attention to the grounds of appeal being No 29 and 30 appearing at page 128 of the Paper Book. According to Mr. Deb the respondent by virtue of the tripartite agreement between the appellant, Punalur and the respondent has become substituted in the contract in the place and stead of Punalur and Punalur has gone out of the picture. Thus the respondent is entitled to enforce the arbitration clause contained in the contract. 16. Novation takes place where the two contracting parties agree that a third shall stand in the relation of either of (ht m to the other. It is a new contract and, therefore, essential that the consent of all parties shall be obtained and in this necessity for consent lies an essential difference between novation and assignment. l7. The consent of select a nominee by Punalur was given prospectively by the appellant, according to Mr. Deb, when under the said memorandum agreed to sell Sayaji Mill No.2 to Punalur its nominee or nominees. The said prospective consent was attracted to the nomination made by Punalur to Aradhana and acceptance of the nomination by Aradhana. Thus, according to Mr. Deb, was the creation of a new contract by way of tripartite agreement which extinguished the Old contract between Punalur and the appellant by substituting the respondent to the place and stead of Punalur in the agreement recorded in the Memorandum dated 22nd December 1977. Thus, according to Mr. Deb, was the creation of a new contract by way of tripartite agreement which extinguished the Old contract between Punalur and the appellant by substituting the respondent to the place and stead of Punalur in the agreement recorded in the Memorandum dated 22nd December 1977. 18 It should be noted that novation or a new contract in extinguishment or rescission of an of original contract is a question of fact and we have to look to the pleadings filed by the plaintiff on this question according to Mr. Deb the case or novation has been made out by the respondent in paras 6 and 7 of the petition. They are in the following terms: "6. Pursuant to the said agreement and in terms thereof the said Punalur by its letter dated January 3. 1978 to the defendant with a copy sent to and duly received by the plaintiff at Calcutta within the said jurisdiction assigned the same and duly nominated the plaintiff in the place and stead of the said Punalur. The plaintiff duly accepted the said assignment and nomination at Calcutta within the said jurisdiction and by a letter dated January 5, 1978 from Calcutta within to said jurisdiction the plaintiff informed the defendant outside the said jurisdiction. Its acceptance of the said assignment and nomination and duly called upon the defendant to proceed to implement the said agreement in term thereof by convening a meeting of its Board of Directors for approving the said agreement Copies of the said two letters dated January 3, 1978 and January 5, 1978 are filed herewith and maked. ‘B' and 'C' respectively 7. The plaintiff in terms of the said agreement duly held a meeting of its Board of Directors at Calcutta within the said jurisdiction of January 4, 1978 whether the Board of Directors duly approved the said Agreement for sale. A copy of the resolution of the Board of Directors of the plaintiff passed at the said meeting of January 4, 1978 is filed herewith and maked ‘D•." 19. Thus no express plea of novation was taken in the plaint or the petition. A copy of the resolution of the Board of Directors of the plaintiff passed at the said meeting of January 4, 1978 is filed herewith and maked ‘D•." 19. Thus no express plea of novation was taken in the plaint or the petition. It is to be noted at the outset the under Clause 9 of the above mentioned memorandum dated 22.1277, the first stage for completion of the transaction was that the respective vendor and purchaser would get the approval of their respective Board of Director on or before January 1, 1978. That clause, provided that the Board of Directors of the vendor as well as the purchaser company must approve of the transaction set out in the memorandum dated 22.12.77 on or before January 1, 1978. The Board of Directors of the appellant company did not approve of the agreement contained in the memorandum on or before January 1, 1978. But by the said resolution dated January 16, 1978 the said Board of Directors approved of the transaction mentioned in the said memorandum only subject to the conditions and/or the clarifications mentioned in the said resolution. The said conditions and clarifications as stated hereinabove appear 28 to 34 of the Paper Book. It is evident from annexure 'B' appearing at pages 21 of the Paper Book, that is to Say the letter dated January 3, 1978 that even Punalur's Board of Directors did not approve of the transactions unconditionally on or before January 1, 1978. Punalur by their letter dated January 3, 1978 merely stated that their Board of Directors had considered the memorandum of agreement dated 22.12.1977 at its meeting held on 2nd of January, 1978 and decided to take over the Sayaji Mill No. 2 subject to permission of the Industrial Credit and Investments Corporation of India and the Industrial Finance Corporation. The aforesaid term namely clause 9(i) of the said agreement was thus not complied with or performed by either the vendor or the purchaser. Clause 9(ii) was also not Complied with and no extra ordinary general meeting of the members of the appellant company was called on or before 30th January, 1978 for approving the sale of their undertaking Sayaji Mill No. 2 in terms of S, 293 (1)(a) of the companies Act. Clause 9(ii) was also not Complied with and no extra ordinary general meeting of the members of the appellant company was called on or before 30th January, 1978 for approving the sale of their undertaking Sayaji Mill No. 2 in terms of S, 293 (1)(a) of the companies Act. Section 293(1)(a) impose a restriction on the powers of the Board of Direction of a public company or of a private company which is a subsidiary of a public company to. inter alia sell, lease or otherwise dispose of the whole or substantially the whole the undertaking of the company or where the company owns more than one undertaking to the whole or substantially the whole of any such undertaking except with the consent of such public company or the private company which is a subsidery of a public company in a general meeting. Thus it is clear that it was clear ultra vires the Board of directors of the appellant to sell the Sayaji Mill No. 2 without obtaining consent in a general meeting of the shareholder of the company. The term agreement under the Indian contract Act is every promise and every set of promise forming the consideration for each other (See S.2(e) of the Indian Contract Act) But an agreement enforeceable by law is a contract. (see S.2(h) of the Indian Contract Act) By reason of the premises we are unable to accept the submission of Mr. Deb that since the parties have described the memorandum dated 22-12-77 as an agreement the same is enforceable by either of the parties even in the absence of compliance with clause 9(i) of the said memorandum or Clauses 9(ii) of the said memorandum. Clause 9(i) clearly shows that the agreement recorded in the said memorandum was not entered into by virtue of resolution passed by the board of Directors of the appellant or the Punalur. There is nothing on record to show that the Managing Director of the appellant had power to enter into such an agreement. In the premises, we are, of the opinion that the said agreement recorded in the said memorandum is not binding on the appellant company. Moreover the Board of Directors of the appellant company did not approve of the said transaction contained in the said memorandum in the resolution passed by the Board of Director on 16th January, 1978. 20. In the premises, we are, of the opinion that the said agreement recorded in the said memorandum is not binding on the appellant company. Moreover the Board of Directors of the appellant company did not approve of the said transaction contained in the said memorandum in the resolution passed by the Board of Director on 16th January, 1978. 20. An analysis of the agreement contained in the said memorandum shows that the purchaser was to pay only a sum of Rs. 7,50,000/• and undertook the liability for payment of various liabilities of the appellant aggregating Rs. 14550000/• mentioned in the earlier part of the judgment. 21 By paying Rs. 7.50,000/ the purchaser was to get possession, management and control of the Mill with effect from 1.2.1978 even before the execution of the conveyance. The appellants in their affidavit filed in opposition to the petition under s. 20 of the Arbitration Act have stated in paragraph 17 : "With reference to paragraph 12 of the plaint I deny that the defendant bas illegally refused to be bound by the nomination made by Punalur. The defendant was not bound to accept the nomination of the plaintiffs unless the Board of Directors of the defendant were satisfied that Plaintiffs are in a position to discharge the various obligations on the part of purchaser as set out in the memorandum dated 22nd December, 1977. the Board of Directors of the defendant Company however was wining to consider the nomination of the Plaintiff if they fulfilled the conditions set out in the resolution dated 16th January. 1978. The said point was also urged be fore the court or first instance and dealt with in the judgment as will appear from last few lines of page 115 and from first few lines of page 116 of the Paper Book. 1978. The said point was also urged be fore the court or first instance and dealt with in the judgment as will appear from last few lines of page 115 and from first few lines of page 116 of the Paper Book. The said submissions of the appellant was noted by the learned Trial Judge in the following words: "It was however submitted that in executing the agreement, the defendant must have relied up an the credit worthiness or solvency of Punalur which would mean that it was not intended that Punalur could pass, on rights and liabilities under the agreement to a man of straw." The lame contentions have been raised in the grounds of appeal being ground No 72 appearing at page 134 of the Paper Book and the grounds No. 103 and 104 of the grounds of appral at pages 139 and 140 of the Paper Book. 22. The said grounds of appeal are set out hereunder: 72. The Learned Judge erred in holding that with open eyes the Appellants had entered into a memorandum whereby any nominee of Punalur would be entitled to all the benefits and would be subject to all the liabilities under the contract." "103. The learned Judge failed to appreciate that. If Punalur were to assign the rights and obligation under the memorandum in favour of any one else Punalur could assign such benefits and obligations under the memorandum to a man of straw or a man in insolvent circumstances or a company on the verge of winding up and thereby defeat the rights conferred on the Appellants to enforce the obligations undertaken by Punalur." "104. The learned Judge failed to appreciate that the memorandum dated 22nd December 1917 clearly showed that the Appellants relied upon the credit worthiness or solvency of Punalur." 23. To us it appears that although not stated in so many words the contentions before the learned Judge, in the above mentioned grounds of appeal on behalf of the appellant as well as in Para 17 of the affidavit in opposition was that one of the implied term of agreement contained in the said memorandum was that the nominee of punalur must be approved of by the appellant although such approval could not be unreasonably withheld, and the nominee must not be a man of straw. Whether a term will be implied is a question of law for the Court. 24 A term will not be implied so as to contradict any express term and in fact, a term ought not to be implied unless on considering the whole matter in a reasonable manner, it is clear that the parties must have intended that there should be imported such a term. A court will only import a term by implication into it contract between the parties in the particular facts and circumstances of a case when the court comes to the conclusion that the parties probably bad in mind, the said term but did not express or even if the parties did not actually have the term in mind would probably have expressly stated the term if the question had been brought to, their attention. (See Halsbury's Laws of England (4th Edn.) Paras 351,355 and 356 at pages 224, 229 and 230,) In the facts and circumstances of the case as already stated above under the memorandum dated 22.12.77 possession of Sayaji Mill No.2 was to be made over with effect from 1st February, 1978. even prior to the execution of the conveyance only on receipt of a sum of Rs. 7,50,000/- and or the basis of too purchaser's or its nominee bare promise to discharge the liability of the appellant out of the balance of the consideration money of Rs. 1,45.50000/- which would be deducted from the consideration money and retained by the purchaser, or its nominees. It is, in our opinion. not only logical but also fair to give business efficacy to the agreement to import an implied term in the agreement that the nominee of the purchaser would not be a man of straw and must be approved by the vendor. The appellant on receiving the intimation of the purchaser nominating the defendant did not unreasonable disapprove of the nomination forthwith but passed the above mentioned resolutions by its Board of Directors on l6th January, 1978 approving the agreement contained in the memorandum date 22.12.77 executed by the Managing Director of the appellant subject to the various conditions mentioned in the resolutions dated 16th January, 1978. One of such conditions was that the respondent would increase its paid up capital upto Rs 60,00,000/- and obtain fixed deposits for one year in their company to the extent of Rs. One of such conditions was that the respondent would increase its paid up capital upto Rs 60,00,000/- and obtain fixed deposits for one year in their company to the extent of Rs. 40.00,000/- on or before 1st March, 1978 and satisfy the appellant in that behalf and the respondent also must agree to the conditions mentioned in the said resolution dated 16th January, 1978, in that event the appellant was willing to complete the sale in favour of the respondent. 25. Punalur did not accept nor comply with the conditions mentioned in the said resolutions quoted in the earlier part of the judgment the respondent also did not comply with the conditions mentioned in the said resolutions stated hereinbefore. 26 From the following documents, being the Income-tax Assessment Order of the respondent for the assessment year 1978-79, Annual Report of 1978 of the respondent company, copy of the Board of Directors report to the shareholders of the respondent; a copy of the Auditor's Report and Balance Sheet of the respondent company at 31st January. 1978 appearing at pages 73 to 87 of the Paper Book it appears to us that the respondent was or is a company of very small means and was incapable of carrying out the obligation which Punalur was to perform under the agreement recorded in the memorandum dated and December, 1977, The appellant was Justified in not approving or accepting the respondent as the nominee. 27. In the premises the appellant was or is not obliged to sell Sayaji Mill No. 2 to the respondent as it was not a 'nominee' within the meaning of the term 'nominee' as intended by the parties to the agreement recorded in the memorandum dated 22nd December, 1977, the respondent thus did not become substituted In the place and stead of punalur by way of novation in the original agreement and could not enforce the agreement contained in the said memorandum nor could enforce the arbitration clause contained therein. 28. On the question whether the respondent could enforce the agreement contained in the memorandum dated 22.12.77 various authorities were cited by either side from the Bar. The case of Scruttons Limited and Midland Sillicones Limited reported in (1962), AC 446 relied on by Mr. Bhatt merely stated the fundamental principle that only a person who is a party to the contract can sue upon it. The case of Scruttons Limited and Midland Sillicones Limited reported in (1962), AC 446 relied on by Mr. Bhatt merely stated the fundamental principle that only a person who is a party to the contract can sue upon it. A stranger to a Contract cannot take advantage of the provisions of the contract even where it is clear from the contract that some provision in it were intended to benefit him This case indeed was the sheet anchor of Mr. Bhatt. 29, Mr. Deb on the other hand relied mainly on Love grove in Nelson 40 E.R. page I, Page v. Cox 90 RR 314 and Byrne v. Reid reported in (1902) 2 Ch 735 Lovegrove v. Nelson decided that of persons choose to agree that any of them shal1 be at liberty to introduce and her person into partnership, there is no reason is no reason why they should not nor why having so agreed they should not be bound by the agreement persons who entered into such agreement consent prospectively and once for all to admit into partnership any person who is willing to take advantage of their agreement and to observe the stipulations if any, which may be conditions of his admission. In Page Cox (supra) the above principle was sought to be applied to an agreement between two partners that on the death of one, his widow would succeed him. One of the partners was dead. The other surviving partner contended that the widow had no right to succeed. But it was held that the agreement between the partners contained in the Articles of Partnership had "created a valid trust in favour of the widow. In Byrne v. Reid (supra) one partner had under the agreement, the right to nominate and introduce his son into the firm for the whole or a part of his share. In exercise of this right be nominated his son to a part of his share. His son accepted the nomination, but others partner refused to recognize him a partner. In Byrne v. Reid (supra) one partner had under the agreement, the right to nominate and introduce his son into the firm for the whole or a part of his share. In exercise of this right be nominated his son to a part of his share. His son accepted the nomination, but others partner refused to recognize him a partner. The father having filed an action to enforce the son’s right the court held that neither the father nor the son was entitled to sue for specific performance of that agreement But none the less the son on accepting nomination had become in the eye of a Court of Equity a partner and entitled to such relief as the court of equity grants to partners. It should be noted that all the above mentioned cases were decided on the basis of a trust having been created in favour-of the nominee or the third person. In Re : Franklin and Swathling's Arbitration (1929) I Ch. 238 it wall held that a nominee of a deceased person had no right to apply for the appointment of an arbitrator in term of an arbitration agreement contained in the deed of partnership when he had been refused by the surviving partners to be admitted into the partnership. This Case was decided on the principle first, that the nominee was not a party to the submission and secondly, that when the partners had properly refused to admit him he was not in the position of a cestul que trust. 30. F & G Sykes (Wessex) Limited v. Fine Fare Limited (1967) I Lloyd. List Law Report page 53 was relied on by Mr. Deb for the proposition that in commercial contract the further the parties have gone on with their contract the more ready are the courts to imply any reasonable term so as to give effect to their intention. In the said case there was a contract whereby plaintiffs undertook to raise broker chicks and supply them to the Dominated growers for eventual sale to the defendant. The number of chicks to be supplied in the first vear has mentioned in the contract. But the number of chicks to be supplied for subsequent 4 years was not mentioned but was stated to be such other figures as may be agreed between the parties hereto............................" The contract contained an arbitration clause. The number of chicks to be supplied in the first vear has mentioned in the contract. But the number of chicks to be supplied for subsequent 4 years was not mentioned but was stated to be such other figures as may be agreed between the parties hereto............................" The contract contained an arbitration clause. The parties acted upon the agreement first two years and it was held although the number of chicks to be supplied for the subsequent years was not mentioned in the contract, the contract was not such uncertain as to render it void. It was held that effect could be given to the contract by laying that to default of agreement the number of chick to be supplied during the subsequent years would be such reasonable number as might be ascertained by an arbitrator in terms of the arbitration clause. We are of the opinion that the ratio of the above mentioned case is of no assistance to Mr. Deb as the facts in the said case are not similar to those of the present one. 11. The arbitration clause of the agreement of memorandum dated 220d December 1971 is contained in Clause 15 of the memorandum. The said clause reads as follows to wite: "If there is any difference of opinion arising on the interpretation, implementation of this agreement and in carrying out all the details of the bargain, the same will be referred to the sole arbitration of Shri I.M. Nanavati, Advocate and the parties agree to abide by his, decision by way of summary arbitration." The respondent filed the suit under S. 20 of the Indian Arbitration Act in this court on the grounds mentioned in paragraph 10, 11 and 12 of the plaint appearing at page 7 and 8 of the Paper Book. The main grounds alleged are violation of the said agreement recorded in the memorandum dated 22.12.77 and refusal to perform by the appellant of its part of the said agreement. According to the respondent as seated in paragraph 14 of the plaint filed by the respondent in the said suit filed under S. 20 of the Arbitration Act. "14. The main grounds alleged are violation of the said agreement recorded in the memorandum dated 22.12.77 and refusal to perform by the appellant of its part of the said agreement. According to the respondent as seated in paragraph 14 of the plaint filed by the respondent in the said suit filed under S. 20 of the Arbitration Act. "14. In the premises mentioned hereinbefore disputes and difference have arisen between the parties on the interpretation implementation and carrying out the details of the agreement and the bargain between them and more particularly the following: Whether the defendant is bound to sell, transfer and convey the Sayaji Mills No. 2 at Bombay to the plaintiff in terms of and as specified in the agreement dated December 22. 1917." 32. It was held by the court of the first instance that this court bad jurisdiction to entertain this Special Suit filed under S. 20 of the Indian Arbitration Act on the ground that the; letter dated 15th January, 1978 by the plaintiff to the defendant was dispatched from within the jurisdiction of this Court. Further intimation of the nomination by the Punalur to the plaintiff in terms of the letter dated 3rd January, 1978 was received within the jurisdiction of this court and thirdly appellant refusal to perform the agreement was received within the jurisdiction of this Court and lastly appellant carries on business within the: jurisdiction of this Court under the name and style of Maize Product at No. 286. Bepin Behai Ganguly street, Calcutta. 33, The disputes which are the subject mater of the Special Suit and are sought to be referred to arbitration of the named arbitrator as has been noted earlier in the judgment are relating to "interpretation implementation and carrying out of the details of the agreement and the bargain" between the parties and in particular "whether the appellant is bound to sell transfer and convey the Sayaji Mill No. 2 at Bombay to the plaintiff in terms of and as specified in the agreement dated December 22, 1977." This Special .Suit under S. 20 may be filed in any "Court" as defined in S. 2(c) of the Arbitration Act. Section 2(c) of the Act defines "court" to mean". Section 2(c) of the Act defines "court" to mean". civil court having jurisdiction to decide the questions forming the subject matter of the reference if the same had been the subject matter of a suit but does not except for the purpose of arbitration proceeding under S. 21 include a Small Cause Court." By the said agreement recorded in the said memorandum dated 22.12.77 the appellant agreed to sell transfer and convey to the purchaser its nominee or nominees the bloc of Sayaji Mill No. 2 at Bombay comprising of land measuring 51176.81 sq. mts., all factory and other buildings constructed thereon, all machinery attached and or fixed in the said factory together with tenancy right of the shop in Mulji jetha Market and a rented flat at 7th floor of Mount Unique Building, Flat No 51, besides other articles mentioned in the said memorandum. Under the said memorandum possession was to be given to the purchaser of the said Mill al from 1.2.1978 and even prior to the execution of the conveyance. Conveyance was to be executed on or before 1.4.78. We are aware that a suit for specific performance of an agreement for sale of land situated outside the original jurisdiction of this court may be filed in this court if a part of the cause of action arises within the jurisdiction of this court with leave under Clause 12 of the Letters Patent and with leave under Order 11 rule 2 of C.P.C. But in the said suit merely execution of the conveyance has to be claimed. No possession of the property can be claimed in the said suit. In the instant case the disputes and difference which are the subject matter of the reference according to the respondent itself as stated in the plaint filed have arisen with regard to the interpretation. implementation and carrying out the details of the agreement and the bargain. This includes, in our opinion, all the disputes between the parties including the appellant's alleged Obligation under the said memorandum to deliver possession of the above mentioned factory buildings lands, shop room and flats. implementation and carrying out the details of the agreement and the bargain. This includes, in our opinion, all the disputes between the parties including the appellant's alleged Obligation under the said memorandum to deliver possession of the above mentioned factory buildings lands, shop room and flats. A suit the subject matter where of would be inter alia, possession of lands and buildings as mentioned above in our opinion would be indeed a suit for land situated wholly outside the jurisdiction of this court and cannot be filed in this court even with leave under Clause 12 of the Letters Patent and even though parts of the cause of action arise or the defendant lives or curies on business within the jurisdiction of this court. 34. The subject matter of the Special Suit filed under S. 20 of the Arbitration Act by the respondent is inter alia, Possession of immoveable properties situated wholly in Bombay outside the original jurisdiction of this Court. If the said subject matter forms the subject matter of a suit such suit cannot be filed in this court and thus this Court is not a 'court' within" the meaning of S. 2(c) of the Indian Arbitration Act for the purpose of filing the arbitration agreement contained in the said memorandum dated 22.12.77. This court has no jurisdiction to entertain or try this Special Suit. 35. Par the reasons stated in the earlier part of the judgment in our opinion the respondent did not become a party to the agreement recorded in the memorandum dated December 22-12-77 in the place and stead of Punalur by way of novation and so was or is not a party to the arbitration agreement contained therein. Further as we have stated earlier this court has no jurisdiction to entertain this Special Suit. 36. Par the reasons stated hereinbefore this appeal must succeed. The judgment and order under appeal are set aside. The Special Suit filed by the respondent under S. 20 of the Indian Arbitration Act is dismissed with costs. R.M. Datta J: I agree. Appeal allowed. Suit dismissed.