Rajendra Nath Mukherjee v. Kedar Nath Fatephuria — 1999 DIGILAW 367 (CAL)

JUDGMENT This is an application under Section 20 of the Arbitration Act, 1940. 2. It appears that an agreement was entered into by or between the parties on 5th August, 1985. Clause A of such agreement speaks as follows :- “A. The party of the Second Part have bought 4.49,149 number of shares of Martin Burn Limited from the party of the First Part and his Associates.” 3. Save the Clause A as above other two Clauses are important. One relates to the subject-matter of the dispute and other relates reference of the dispute to arbitration. First of such clause is Clause 1 of the agreement which provides as follows :- “The party of the First Part (which expression shall unless excluded by or repugnant to the subject or context be deemed or mean and include their respective heirs, executors, administrators, nominees and representatives) shall have the right to re-purchase all or any of the above shares in one or more instalments, but such right cannot be exercised before 1st August, 1990 and thereafter can be exercised upto 1st August, 1995 at a price to be mutually agreed between the parties but not less than the purchase price per share.” 4. The Arbitration Clause being Clause 5 speaks as below:- “In the event of any dispute arising out of this agreement, the same shall be referred to arbitration of the arbitrators, one to be appointed by each party and the Arbitrators before entering on the reference, shall appoint an Umpire. The arbitration will be an accordance with the provisions of the Indian Arbitration Act, 1940.” 5. The petitioner contended that by the said agreement, the predecessor-in-interest of the petitioners sold 4, 49, 149 shares of M/s Martin Burn Limited to the respondents with a right to re-purchase of said share. Such right was required to be exercised between 1st August, 1990 and 1st August, 1995. The predecessor-in-interest of the petitioners died on 20th February, 1993. The petitioners being legal heirs and representatives expressed their desire to re-purchase the shares from the respondents when the respondents have quotted their price at Rs. 144/- per share as on 13th March, 1995. 6. The petitioner quoted their price at Rs. 30/- as per Calcutta Stock Exchange being the average price of share of Martin Burn Limited for the last six months and stated the purported offer to sell the shares at Rs. 144/- per share as on 13th March, 1995. 6. The petitioner quoted their price at Rs. 30/- as per Calcutta Stock Exchange being the average price of share of Martin Burn Limited for the last six months and stated the purported offer to sell the shares at Rs. 144/- was inflated, arbitrary, unreasonable and unjustified. 7. Therefore, the petitioners applied under Section 20 of the Arbitration Act, 1940 to resolve the following disputes by intervention of the Arbitrator or Arbitrators. The disputes are as follows :- “1. Are the defendants obliged to re-sell the shares being the subject-matter of the said agreement to the plaintiffs ? 2. Is the price of Rs. 144/- per share justified for the purpose of re-purchase of the said 4,49,149 shares of Martin Burn Limited ? 3. What would be reasonable price for re-purchase by the plaintiffs of the said 4,49,149 shafts of Martin Burn Limited ? 4. Are the plaintiffs liable to pay a price higher than the quoted price at the relevant point of time for re-purchase of the said 4,49,149 shares of Martin Burn Limited ? 5. To what relict, is the plaintiffs entitled ?” 8. The respondents opposed such application basically on two points :- I. The respondents never purchased any share from the predecessor-in-interest or from any of the petitioners and they are not willing to sell any shares of M/s. Martin Burn Limited to the petitioners; II. The agreement never entered through any recognized Stock Broker because the agreement is in respect of purchase shares in future and consequently not a spot delivery transaction and without having any permission of Central Government as provided under relevant Sections 13, 14, 16 and 20 of the Securities Contract (Regulation) Act, 1956, as such illegal and due to such illegality, the agreement, arbitrations Clauses cannot service. 9. On the other hand the petitioners mate with the last point, first by saying that the agreement does not deal with option in securities and in any case Section 20 of the Securities Contract (Regulations) Act, 1956 has been repealed with effect from 25th January, 1995. The other Sections deal with contract for sale and purchase of shares. The present contract only gives a right to purchase contemplating a contract to be concluded later after the price is agreed. The other Sections deal with contract for sale and purchase of shares. The present contract only gives a right to purchase contemplating a contract to be concluded later after the price is agreed. In any event, the same contract cannot be hit by all the four Sections at the same time. 10. So far the first point is concerned, the petitioners contended that even for the sake of argument if it is accepted that the Securities Contract (Regulations) Act, 1956 is applicable in the instant case, the controversy does not render the entire contract void and the question can be decided by the Arbitrator. The petitioners submitted that the real dispute is not with regard to right to purchase of the shares but the dispute is with regard to price at which the shares would be re-purchased which can be adjudicated by the learned Arbitrator as per the agreement. 11. Mr. Pratap Chatterjee, learned Senior Counsel, appearing on behalf of the petitioners cited various judgments in support of their points agitated on that score. Firstly, he relied upon (1) AIR 1982 Delhi 93, M/s. Jagan Nath Phool Chand v. Union of India & Ors., to establish that Court has to see whether there is an arbitration agreement as between the parties and whether the dispute disclosed by the parties is covered by such arbitration agreement or not. It is tried chat the Arbitrator derives his power from the reference which furnishes the source and prescribes the limit of his authority. He cannot enlarge the scope of the reference by construing the agreement in a particular manner. 12. Mr. Sudipta Sarkar, learned Senior Counsel, appearing on behalf of the respondents contended that they have not dispute with regard to such proposition but, in fact, this case supports the petitioner's contention. The petitioner’s case is that such dispute as mentioned is Section 20 of the petition is covered by the arbitration agreement. 13. Secondly, Mr. Chatterjee cited a decision reported in (2) 64 Company Cases 259, East Indian Produce Ltd. v. Naresh Acharyya Bhaduri & Ors, to establishing the applicability of the Securities Contract (Regulations) Act, 1956 in the present case. 14. Mr. 13. Secondly, Mr. Chatterjee cited a decision reported in (2) 64 Company Cases 259, East Indian Produce Ltd. v. Naresh Acharyya Bhaduri & Ors, to establishing the applicability of the Securities Contract (Regulations) Act, 1956 in the present case. 14. Mr. Sarkar, on the other hand, also joined issue therein by saying that in the instant case the price at which the shares would be re-purchased, has not been fixed and has to be agreed upon to be adjudicated by the Arbitrator. Therefore, the act is not applicable in this case. Moreover, Section 20 of the Act has been repealed with effect from 25th January, 1995. 15. So far the citation of (3) AIR 1959 Cal 526 , Damodar Shah v. Union of India, by the respondent is concerned, the petitioner contended that the existence of arbitration clause of the agreement survived by the termination of the substantive agreement by virtue of the doctrine of reparability. It was further contended that there is no factual denial of the execution and existence of the agreement. The plea as taken by the respondents is that the agreement as to whether the substantive agreement is void or not is a question to be decided in arbitration. In any event, the basis for the respondents contentions that the substantive agreement as void is erroneous. 16. So far the other decision as cited by the respondents being (4) AIR 1956 Cal 280 , Jyoti Brothers v. Shree Durga Mining Co., with regard to the point of no clear or unequivocal obligation to go to the arbitration. In the instant case, the respondents have an obligation to sell their shares to the petitioners. 17. Thereafter, the respondents also cited another decision being (5) AIR 1991 Patna 192, Rabindra Nath Sahu v. Maya Devi & Anr., by saying that the consideration is not fixed for an agreement, the same will only amount to an agreement to agree and not a binding contract. The petitioners contended that it is normal that price of the shares are not ascertainable and then again, this is a question with regard to merit and under the domain of the Arbitrator. 18. Relying upon Paragraph 7 of another judgment, reported in (6) AIR 1996 SC 543 , M/s. Indian Drugs & Pharmaceuticals, Ltd. v. M/s Indo Swiss Synthetics Gem Manufacturing Co. 18. Relying upon Paragraph 7 of another judgment, reported in (6) AIR 1996 SC 543 , M/s. Indian Drugs & Pharmaceuticals, Ltd. v. M/s Indo Swiss Synthetics Gem Manufacturing Co. Ltd. & Ors., the respondents contended that the Court and not the Arbitrator has to decide on the validity of the agreement. To which the respondents contended that no such proposition is laid down by this case. 19. So for the other judgment being (7) 1996(3) SCC 568 , Union of India v. G.S. Aiwal & Co. (Asansole), as cited by the respondents is concerned, it was decided that Arbitrator’s decision of its jurisdiction to arbitrate is not final but subject to satisfaction of the Court. The petitioners contended that jurisdiction of the Arbitrator was not in issue but where the Arbitrator unilaterally enlarged the disputes which in effect, has no application in this case. 20. Lastly, the petitioners contended, by relying upon the judgment being (8) AIR 1997 Bombay, 337, Lloyds Steel Industries Limited v. Oil & Natural Gas Corporation Ltd., that the question of validity of the agreement has to be determined by the Court and not by the Arbitrator. Petitioners contended that the cited decision cannot support the contention of the respondents. Moreover, the subject-matter of challenge was with regard to Arbitration and Conciliation Act, 1996, and inapplicable in the facts and circumstances of the case. 21. Before parting with the issues as agitated before this Court, I am of the view that a further scrutinisation of the agreement is necessary. It appears from Paragraph (a) of the agreement that the second pare i.e. the respondents herein have bought 4, 49, 149 shares of the Company from the First part and Associates i.e. petitioners herein. Therefore, the words “have bought” clearly indicates that the transfer of shares by sale occurred by execution of the agreement. 22. Secondly, by virtue of Clause 1 of the self-name agreement, right to re-purchase the shares was given to the petitioners or their predecessors-in-interest provided this made an offer in between 1st August, 1990 and 1st August, 1995. The petitioners have complied with such Clause but the respondents have or any of them has refused only disputing the rate. Therefore, parties have acted upon on the basis of such Clause of the agreement. 23. The petitioners have complied with such Clause but the respondents have or any of them has refused only disputing the rate. Therefore, parties have acted upon on the basis of such Clause of the agreement. 23. Therefore, it is very difficult to ignore the petitioners contention that the real dispute in between the parties is not with regard to price of the shares but with regard to right to purchase of the shares simplicitor. 24. Therefore; the case herein is essentially fit into the following essential ingredients to invoke the jurisdiction under Section 20 of the Arbitration Act, 1940 :- (a) The parties must have entered into an arbitration agreement ; (b) The agreement must have entered into before a suit with respect to the subject-matter is filed in Court; (c) A difference, contemplated in the agreement, must have arisen ; (d) The Court has jurisdiction in the matter. 25. Under the circumstances, I am of the view that there should be an order directing the parties to file the arbitration agreement dated 5th August, 1985 in this Hon’ble Court. 26. Considering the gravity of the dispute, I appoint Mr. Justice Manoj Kumar Mukherjee, a retired Judge of the Hon'ble Supreme Court of India to act as an Arbitrator in respect of the difference and disputes in between the parties arising out of the arbitration agreement specially referred in Paragraph (9) of the petition. The remuneration of the Arbitrator is fixed at 300 G. Ms. per sitting to be shared equally by the parties for the time being subject to future enhancement, if any, depending upon the volume of work by the consent of the parting or by an order of the Court. 27. The Arbitrator will be entitled to engage one Stenographer and a Clerk and fix their remunerations. Remunerations of such persons so fixed by the learned Arbitrator will also be shared equally by the parties. 28. Arbitrator will enter upon the reference within a period of fortnight from the date of communication of the order and make and publish the award within a period of four months from the date of entering upon the reference. The parties are directed to reader all co-operations to the Arbitrator for an effective adjudication. The Arbitrator will have summary power in adjudicating the arbitration proceedings. Prayer for stay is made, considered and refused. The parties are directed to reader all co-operations to the Arbitrator for an effective adjudication. The Arbitrator will have summary power in adjudicating the arbitration proceedings. Prayer for stay is made, considered and refused. Arbitrators and all parties are to act on a signed copy of the minutes of the operative part of the order.