http://JUDIS.NIC.

IN SUPREME COURT OF INDIA Page 1 of 15

Vs.

RESPONDENT:
K.N. MODI & ORS.

DATE OF JUDGMENT: 04/02/1998

BENCH:
SUJATA V. MANOHAR, D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:
[WITH C.A.No. 614 Of 1998 (Arising out of S.L.P. (C) No.
18711 of 1997} and T.C.{C} No. 13.97]
J U D G M E N T
Mrs. Sujata V.Manohar. J.
Leave granted in Special Leave Petition Nos. 14905 and
18711 of 1997.
The present litigation has arisen on account of dispute
between Seth Gujjar Mal Modi’s five sons - K.K.Modi, V.K.
Modi, S.K.Modi. B.K.Modi and U.K.Modi on the one hand
(hereinafter referred to as ‘Group B’) and Kedar Nath Modi,
the younger brother of Seth Gujjar Mal Modi and his three
sons - M.K.Modi and D.K.Modi (hereinafter referred to as
‘Group A’) on the other hand. The Modi family owns or has a
controlling interest in a number of public limited
companies. They also own various assets. Differences and
disputes have arisen between Kedar Nath Modi and his sons
constituting Group A and the sons of late Gujjar Mal Modi
constituting Group B on the other hand. To resolve these
differences, negotiations tool place with the help of the
financial institutions which had lent money to these
companies, and through whom substantial public funds had ben
invested in the companies owned and/or controlled by these
two groups. Representatives of several banks, Reserve Bank
of India and financial institutions were also invited to
participate. Ultimately, on 24th of January, 1989, a
Memorandum of Understanding was arrived at between Group A
and Group B. Under the Memorandum of Understanding so
arrived at, it is agreed between the parties that Group A
will manage and/or control the various companies enumerated
in Clause 1. One of the companies so included is Modipon
Ltd. minus Indofil (chemical division) and selling agency.
Under Clause 2, Group B is entitled to manage, own and/or
control the companies enumerated in that clause. One of the
companies so included is Modipon Ltd. minus Modipon Fibre
Division. The agreement also provides for division of assets
which are to be valued and divided in the ration of 40:60 -
Group A getting 40% of the assets and Group B getting 60% of
the assets. The shares of the companies are required to be
transferred to the respective groups after their valuation.
Under Clause 3, valuation has to be done by M/s S.B.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 15
Billimoria & Company, Bombay. Clause 5 provides for
companies which are to be split between the two groups as
per the Memorandum of Understanding. The division has to be
done under Clause 5 by a scheme of arrangement to be
formulated by M/s Bansi S. Mehta & Company, Bombay after
taking into consideration the valuation done by M/s. S.B.
Billimoria & Company, Bombay. Units of a company to be
given to each group are to be given along with assets ad
liabilities. Clause 6 provides for interim arrangements
which are to be made in respect of the three companies which
are being sp[lit - these being Modi Industries Ltd., Modipon
Ltd. and Modi Spinning and Weaving Mills Company Ltd. We are
not concerned with the other clauses, except to note that
the date for carrying out valuation, the date of transfer
the appointment of independent Chairmen of these companies
which are to be split and certain other matters specified in
the Memorandum of Understanding shall be done consultation
with the Chairman, Industrial Finance Corporation of India
(IFCI).
Clause 9 provides 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."
Pursuant to the Memorandum of Understanding, M/s S.B.
Billimoria & Company gave reports between January and March
1991. M/s Bansi S. Mehta & Company who were required to
provide a scheme for splitting of the three companies by
taking into account the valuation fixed by M/s S.B.
Billimoria & Company, also sent various reports between
November 1989 and December, 1994. 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.
The Chairman and Managing Director, Industrial Finance
Corporation of India formed a Committee of experts to assist
him in deciding the questions that arose. The Committee of
Experts and the Chairman, IFCI had discussions with both the
groups. Meetings were also held with the Chairman of the
concerned companies who were independent Chairmen. The
discussions took place form 12th of March 1995 to 8th of
December, 1995.
On 8th of December 1995, the Chairman, IFCI gave his
detailed decision/report. In his covering letter of 8th of
December, 1995, the Chairman and Managing Director,
Industrial Finance Corporation of India Ltd. has described
this report as his decision on each dispute raised or
clarification sought. He has quoted in his covering letter
that since that memorandum of Understanding has already been
implemented to a large extent during 1989 to 1995, with the
decisions on the disputes/clarifications gives by him now in
the enclosed report, he has hoped that it would be possible
to implement the remaining part of the Memorandum of
Understanding. He has drawn attention to paragraph 9 of his
report where he has said that it is now left to the members
of Groups A and B to settle amongst themselves the family
matter without any further reference to the Chairman and
Managing Director of the Industrial Finance Corporation of
India. In paragraph 7 of the letter he has stated that on
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 15
the basis of the total valuation of Modi Group assets and
liabilities and allocation thereof between Groups A and B
the decisions given by him in dated 8.12.1995. The averments
and 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.
In arbitration petition O.M.P. No. 58 of 1996 the
present appellants also applied for interim relief by I.A
4550 of 1996. By an ad-interim order in O.M.P. No. 58 of
1996 and I.A 4550 of 1996 dated 24th of May, 1996, the Delhi
High Court stated the operation of the "award" dated
8.12.1995 and directions of the Chairman, Modipon Ltd. as
set out in the said order. The High Court also restrained
respondents 6 and 7 (Group A) from selling and/or
transferring and/or disposing of, in any manner, the shares
held by them in Godfrey Phillips India Limited until further
orders. From this ad-interim order a special leave petition
was preferred by the respondents which was dismissed by this
Court on 3.6.1996 on the ground that it was only an ad
interim order.
Interim application I.A 4550 of 1996 in Arbitration
Petition O.M.P. No. 58 of 1996 was heard and disposed of by
the Delhi High Court by its impugned judgment dated 11th of
February, 1997. A learned Single of the Delhi High Court
held b y the said judgment that the decision of the Chairman
and Managing Director, IFCI dated 8.12.1995 cannot be
considered as an award in arbitration proceedings. The
parties did not have any intention to refer any disputes to
arbitration. All the disputed were settled by the Memorandum
of Understanding dated 24th of January, 1989 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. The arbitration petition, according to the
learned Single Judge, was, therefor, not maintainable, since
the decision impugned was not award within the meaning of
the Arbitration Act, 1940. Under the circumstances he
dismissed the interim application I.A 4550 of 1996 in
arbitration petition O.M.P. No.58 of 1996. By t he said
order he posted the hearing of a similar interim application
I.A 5112 of 1996 in Suit No. 1394 of 1996 on 26th of March,
1997.
Another interim application being I.A 2293 of 1997 in
arbitration petition O.M.P. No. 58 of 1996 was heard by the
learned Single Judge on 13th of March, 1997. The learned
Single Judge passed an interim order to the effect that
until further orders, no testing of the Modipon Board shall
be held for considering any matter.
On 6th of September, 1997 Suit No. 1394 of 1996 filed
by Group B, interim application in the suit being I.A. 5112
of 1996 in arbitration petition O.M.P. No. 58 of 1996 were
heard together and decided by the learned Single Judge b y
his judgment and order of the same date i.e. 6th of
September, 1997. The learned Single Judge held that the
entire exercise of filling Suit No. 1394 was an abuse of the
process of the Court. According to him the allegations in
the arbitration petition and in the plaint in the suit were
identical. Both proceedings were instituted on the same
date. The learned Single Judge struck down the plaint under
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 15
order VI Rule XVI of the code of Civil Procedure and
dismissed the suit. By the same order, he also dismissed
I.A. 5112 of 1996 in the suit and I.A. 2293 of 1997 in the
arbitration petition.
Being aggrieved b y the above judgment and order dated
6th of September, 1997, the present appellants filed an
appeal before the Division Bench of the Delhi High Court
being R.F.A. (OS) 41 of 1997. The appellants also made an
interim application being C.M. 1270 of 1997 in R.F.A (OS) 41
of 1997. The Division Bench of the Delhi High Court, by its
order dated 15th of September, 1997, admitted the appeal
being R.F.A (OS) 41 of 1997. It also disposed of by the same
order, C.M. 1270 of 1997 by passing an order reviving the
order passed by the learned Single Judge on 13.3.1997 by
which the learned Single Judge had directed that pending
further orders no meeting of the Modipon Board should b e
held to consider any matter.
S.L.P.(Civil) No. 18711/1997 is filed before us from
this impugned order of 15th of September, 1997. Thus we have
before us S.L.P. (Civil) No. 14905/1997 from the judgment
and order of the learned Single Judge of the Delhi High
Court dated 11.2.1997 in I.A 4550 of 1996 in arbitration
petition O.M.P. No. 58 of 1996. We h ave also before us
S.L.P. (Civil) No. 18711 of 1997 from the order of the
Division Bench of the Delhi High Court dated 15.9.1997 in
C.M. 1270 of 1997 under which the interim order of 13.3.1997
is revived. By consent of parties, R.F.A. (OS) 41 of 1997
has also been transferred to us being T.C.(civil) No. 30 of
1997 for consideration. All these three proceedings have
been heard together. During the pendency of S.L.P. (Civil)
No. 18711 of 1997, in I.A. No.3 we have b y our ad-interim
order dated 18.11.1997 varied t he interim order of 13th of
March, 1997 to the following effect:
"Until further orders no meeting of
the Modipon Board shall be held for
considering any matter relating to
decision of the C.M.D., IFCI dated
8.12.1995 or concerning the sale of
shares held in Godfrey Philip India
Limited."
Thereafter, on 7th of January, 1998 after hearing both
sides, the following order has been passed in I.A.No.3 in
S.L.P (Civil) No. 18711/97, in terms of the minutes :-
"For a period of eight weeks
from today, neither Mr. K.K. Modi
nor Mr. M.K. Modi will acquire
directly or indirectly any further
shares of Modipon Limited nor take
any steps that would in any way
directly or indirectly destablise
the control and management of the
Fibre Division of Modipon Limited
by Mr. K.K.Modi and of the Chemical
Division of Modipon Limited by Mr.
M.K.Modi.
Liberty to apply for variation if
circumstances change."
The present proceedings raise two main question :
Question 1: Whether Clause 9 of the Memorandum of
Understanding dated 24th of January, 1989 constitutes an
arbitration agreement; and whether the decision of the
Chairman, IFCI dated 8th December, 1995 constituted an
award? and
Question 2: Whether Suit No. 1394/1996 is an abuse of
the process of court?
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 15
Question No.1:
Mustill and Boyd in their book on "Commercial
Arbitration", 2nd Edition, at page 30, point out that in a
complex modern State there is an immense variety of
tribunals, differing fundamentally as regards their
compositions, their functions and the sources from which
their powers are derived. Dealing with tribunals whose
jurisdiction is derived from consent of parties, t hey list,
apart from arbitral tribunals, persons (not properly called
Tribunals) entrusted by consent with the power to affect the
legal rights of two parties inter see in a manner creating
legally enforceable rights, but intended to do so by a
procedure of ministerial and not a judicial, nature (for
example, persons appointed by contract to value property or
to certify the compliance of building works with a
specification). There are also other tribunals with a
consensual jurisdiction whose decisions are intended to
affect the private rights of two parties inter see, but not
in a manner which creates a legally enforceable remedy (for
example, conciliation tribunals of local religious
communities, or persons privately appointed to act as
mediators between two disputing persons or groups). Mustill
and Boyd have listed some of he attributes which must be
present for an agreement to be considered as an arbitration
agreement, though these attributes in themselves may not be
sufficient. They have also listed certain other
consideration which are relevant to this question, although
not conclusive on the point.
Among the attributes which must be present for an
agreement to be considered as an arbitration agreement are :
(1) The arbitration agreement must contemplate that the
decision of the tribunal will be binding on the
parties to t he 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,
(3) The agreement must contemplate that substantive
rights of parties will be determined by the agreed
tribunal,
(4) 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,
(5) That the judgment of the parties to refer their
disputes to the decision of the tribunal must be
intended to be enforceable in law and lastly,
(6) 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.
The other factors which are relevant include, whether
the agreement contemplates that the tribunal will receive
evidence from both sides and hear their contentions or at
least give the parties an opportunity to put them forward;
Whether the wording of the agreement is consistent or
inconsistent with the view that the process was intended to
be an arbitration, and whether the agreement requires the
tribunal to decide the dispute according to law.
In Russell on Arbitration, 21st Edition, at page 37,
paragraph 2-014, the question : How to distinguish between
an expert determination and arbitration, has been examined.
It is stated, "Many cases have been fought over whether a
contract’s chosen form of dispute resolution is expert
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 15
determination or arbitration. This is a matter of
construction of the contract, which involves an objective
enquiry into the intentions of the parties. First, there are
the express words of the disputes clause. If specific words
of the disputes clause. If specific words such as
’arbitrator’, ’arbitral tribunal’, ’arbitrator’ are used to
describe the manner in which the dispute resolver is to act,
they are likely to be persuasive although not always
conclusive.......... Where there is no express wording, the
court will refer to certain guidelines. Of these, the most
important used to, whether there was an ’issue’ between the
parties such as the value of an asset on which they had not
taken defined positions, in which case the procedure was
held to be expert determination; or a ’formulated dispute’
between the parties where defined positions had been taken,
in which case the procedure was held to be an arbitration.
This imprecise concept is still being relied on. It is
unsatisfactory because some parties to contract deliberately
chose expert determination for dispute resolution. The next
guideline is the judicial function of an arbitral tribunal
as opposed to the expertise of the expert’........... An
arbitral tribunal arrives at its decision on the evidence
and submission of the parties and must apply the law or if
the parties agree, on other consideration; an expert, unless
it is agreed otherwise, makes his own enquiries, applies his
own expertise and decides on his own expert opinion......"
The authorities thus seem to agree that while there are
no conclusive tests, by and large, one can follow a set of
guidelines in deciding whether the agreement is to refer an
issue to an expert or whether the parties have agreed to
resolve disputes through arbitration.
Therefore our courts have laid emphasis on (1)
existence of disputes as against intention to avoid future
disputes; (2) the tribunal or forum so chosen is intended to
act judicially after taking into account relevant evidence
before it and the submissions made by the parties before it;
and (3) the decision is intended to bind the parties.
Nomenclature used by the parties may not be conclusive. One
must examine the true intent and support of the agreement.
There are, of course, the statutory requirements of a
written agreement, existing or future disputes and an
intention to refer them to arbitration. (Vide Section 2
Arbitration Act 1940 and Section 7 Arbitration and
Conciliation Act, 1996).
In the case of Smt. Rukmanibai Gupta v. Collector,
Jabalpur & Ors. [(1980) 4 SCC 556], this Court dwelt upon
the fact that disputes were referred to arbitration and the
fact that the decision of the person to whom the disputes
were referred was made final, as denominative of the nature
of the agreement which the court held was an arbitration
agreement.
In the case of State of U.P. v. Tipper Chand [(1980) 2
SCC 341], a clause in the contract which provided that the
decision of the Superintending Engineer shall be final,
conclusive and binding on all parties to the contract upon
all questions relating to the meaning of the specifications,
designs, drawings and instructions was contoured as not
being an arbitration clause. This Court said the there was
no mention in this clause of any dispute, much less of a
reference thereof. The purpose of the clause was clearly to
vest the Superintending Engineer with supervision of the
execution of the work and administrative control over it
from time to time.
In the case of Cursetji Jamshedji Ardaseer Wadia & Ors.
v. Dr. R.D.Shiralee [AIR 1943 Bombay 32] the test which
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 15
was emphasised was whether the intention of the parties was
to avoid disputes or to resolve disputes. In the case of
Vadilal Chatrabhuj Gandhi v. Thakorelal Chimanlal Munshaw
[55 Bombay Law Reporter 629] the emphasis was on judicial
enquiry and determination as indicative of an arbitration
agreement as against an expert opinion. The test of
preventing disputes or deciding disputes was also resorted
to for the purpose of considering whether the agreement was
a reference to arbitration or not. In that case, the
agreement provided that the parties had agreed to enter into
a compromise for payment of a sum up to, but not exceeding,
Rs. 20 lacs, "which shall be borne and paid by the parties
in such proportions or manner as Sir Jamshedji B.Kanga
shall, in his absolute discretion, decide as a valuer and
not as an arbitrator after giving each of us summary
hearing." The court said that the mere fact that a judicial
enquiry had been held is not sufficient to make the ultimate
decision a judicial decision. The court held that Sir
Jamshedji Kanga had not to decide upon the evidence led
before him. He had to decide in his absolute discretion.
There was not to be judicial enquiry worked out a judicial
manner. Hence this was not an arbitration.
In the case of State of West Bengal & Ors. v. Haripada
Santra [AIR 1990 Calcutta 83], the agreement the
Superintending Engineer of the Circle shall be final The
court relied upon the fact that the reference was to
disputes between the parties on which a decision was
required to be given by the Super intending Engineer.
Obviously, such a decision could b e arrived at b y the
Superintending Engineer only when the dispute was referred
to him by either party for decision. He was also required to
act judicially and decide the disputes after hearing both
parties and after considering the material before him. It
was, therefore, an arbitration agreement.
In the case of Jammu and Kashmir State Forest
Corporation v. Abdul Karim Wani & Ors. [(1989) 2 SCC 701
para 24], this Court considered the agreement as an
agreement of reference to arbitration. It has emphasised
that (1) the agreement was in writing; (2) It was a contract
at present time to refer the dispute arising out of the
present contract; and (3) There was a valid agreement to
refer the dispute to arbitration of the Managing Director,
Jammu and Kashmir State Forest Corporation. The Court
observed that endeavor should always be made to find out the
intention of the parties, and that intention has to be found
out by reading the terms broadly and clearly without being
circumscribed.
The decision in the case of Rukmanibai Gupta (supra)
has been followed by this Court in the case of M.Dayanand
Reddy v. A.P. Industrial Infrastructure Corporation Limited
& Ors. [(1993) 3 SCC 137 para 8], Commenting on the special
characteristics of an arbitration agreement this court h as
further observed in the above case that arbitration
agreement embodies an agreement between the parties that in
case of a dispute such dispute shall be settled by
arbitrator or umpire of their own constitution or by an
arbitrator to be appointed by the court in an appropriate
case. "It is pertinent to mention that there is a material
difference in an arbitration agreement inasmuch as in an
ordinary contract the obligation of the parties to each
other cannot, in general, be specifically enforced and
breach of such terms of contract results only in damages,
The arbitration clause, however, can b e specifically
enforced by the machinery of the Arbitration Act.........".
The Court has further observed that it is to b e
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 15
decided whether the existence of an agreement to refer the
dispute to arbitration can be clearly ascertained in the
facts and circumstances of the case. This, in turn, depends
on the intention of the parties to be gathered from the
relevant documents and surrounding circumstances.
The decisions in the case of State of U.P. Tipper Chand
(supra) and Rukmanibai Gupta (supra) have also been cited
with approval by this Court in the case of State of Orissa &
Anr. v. Damodar Das [(1996) 2 SCC 216]. In this case, t his
Court considered a clause in the contract which made the
decision of the Public Health Engineer, "final, conclusive
and binding in respect of all questions relating to the
meaning of specifications, drawings, instructions...... or
as to any other question claim, right, matter of thing
whatsoever in any way arising out of or relating to the
contract, drawings, specifications, estimates...... or
otherwise concerning the works or the execution or failure
to execute the same whether arising during the progress of
the work or after the completion or the sooner determination
thereof the contract." This Court held that this was not an
arbitration clause. It did not envisage that any difference
or dispute that may arise in execution of the works should
be referred to the arbitration of an arbitrator.
A long line of English cases starting with In Re Carus-
Wilson and Greene [1986 (18) Queen’s Bench Division 7]
have also been cited before us. In Re Carus-Wilson and
Green, on the sale of land, one of the conditions of sale
was that the purchaser should pay for the timber on the land
at a valuation for which purpose, each party should appoint
a valuer and the valuers should, before they proceed to act,
appoint an umpire. The court said that such valuation was
not in the nature of an award. The court applied the tests
which we have already referred to, namely, (1) Whether the
terms of the agreement contemplated that the intention of
the parties was for the person, to hold an enquiry in the
nature of a judicial enquiry, hear the respective case of
the parties and decide upon evidence laid before him, (2)
Whether the person was appointed to prevent differences from
arising and not for settling them when they had arisen. The
court held the agreement to be for valuation. It said that
the fact that if the valuers could not agree as to price, an
umpire was to be appointed would not indicate that there
were any disputes between the parties.
In the case of Sutcliffe v. Thackrah [1974 (1) AER
859], the clause in question provided that at specified
intervals the architect should issue interim certificates
stating the amount due tot he builders in respect of work
properly executed. There was a separate arbitration clause.
The question was whether the function of the architect was
sufficiently judicial in character for him to escape
liability in negligence. The House of Lords was not directly
concerned with the question whether the architect was acting
as an arbitrator or a valuer. It was required to decide
whether the architect, who had not taken sufficient care in
certifying the amount payable, should be held liable in
negligence. And the court said that when a professional man
was employed to make a valuation, and to his knowledge, that
valuation was to be binding on his principal and another
party under an agreement between them, it did not follow
that because he was under a duty to act fairly in making
his valuation, he was immune from liability for negligent
valuation. A similar question arose in connection with
valuation of shares by auditors in the case of Arenson v.
Casson Beckman Rutely & Co. [1975 (3) AER 901]. The House of
Lords said that an auditor of a private company who, on
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 15
request, valued the shares in the company in the knowledge
that his valuation was to determine the price to be paid for
the shares under a contract of sale, was liable to be sued
by the seller or the buyer if he made the valuation
negligently. These two case do not directly assist us in the
present case.
In the case of Imperial Metal Industries (Kynoch) Ltd.
v. Amalgamated Union of Engineering Workers [1979 (1) AER
847], the contract between the parties included a clause to
the effect that persons in the employment of the contractor
were required to be paid fair wages as per Fair Wages
Resolution. A trade union complained that the conditions of
the Fair Wages Resolution were not being observed b y the
employers. This dispute was referred to the Central
Arbitration Committee. The Court said that even though the
Committee was acting as arbitrators, they were not doing so
pursuant to arbitration agreement as defined in the Act
because the arbitration was required to be between the
parties to the parties to the agreement about a matter which
they had agreed to refer to arbitration. In the present
case, the Union was not a party to the contract.
In the present case, the Memorandum of Understanding
records the settlement of various dispute as between Group A
and Group B in terms of the Memorandum of Understanding. In
terms of the settlement, the shares and assets of various
companies are required to be valued in the manner specified
in the agreement. The valuation is to be done by M/s S.B.
Billimoria & Co. Three companies which have to be divided
between the two groups are to be divided in accordance with
a scheme to be prepared by Bansi S. Mehta & Co. In the
implementation of the Memorandum of Understanding which is
to be done in consultation with the financial institutions,
any disputes or clarifications relating to implementation
are to be referred to the Chairman, IFCI or his nominees
whose decision will be final and binding. The purport of
Clause 9 is to prevent any further disputes between Groups A
and B. Because the agreement requires division of assets in
agreed proportions after their valuation by a named body and
under a scheme of division by another named body. Clause 9
is intended to clear any other difficulties which may arise
in the implementation of the agreement by leaving it to the
decision of the Chairman, IFCI. This clause does not
contemplate any judicial determination by the Chairman of he
IFCI. He is entitled to nominate another person for deciding
any question. His decision has been made final and binding.
Thus, Clause 9 is not intended to be for any different
decision that what is already agreed upon between the
parties to the dispute. It is meant for a proper
implementation of settlement already arrived at. A judicial
determination, recording of evidence etc. are not
contemplated. The decision of the Chairman IFCI is to be
binding on the parties. Moreover, difficulties and disputes
in implementation may not be between the parties disputes in
implementation may not be between the parties to the
Memorandum of Understanding. It is possible that the Valuers
nominated in the Memorandum of Understanding or the firm
entrusted with the responsibility of splitting some of the
companies may require some clarifications or may find
difficulties in doing the work. They can also escort to
Clause 9. Looking to the scheme of the Memorandum of
Understanding and the purpose behind Clauses 9, the learned
Single Judge, in our view, has rightly come to the
conclusion that this was not an agreement to refer disputes
to arbitration. It was meant to be an expert’s decision. The
Chairman, IFCI has designated his decision as a decision. He
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 15
has consulted experts in connection with valuation and
division of assets. He did not file his decision in court
nor did any of the parties request him to do so.
Undoubtedly, in the course of correspondence exchanged
by various members of Groups A and B with the Chairman,
IFCI, some of the members have used the words "arbitration"
in connection with Clause 9. That by itself, however, is not
conclusive. The intention of the parties was not to have any
judicial determination on the basis of evidence led before
the Chairman, IFCI. Nor was the Chairman, IFCI required to
base his decision only on the material placed before him by
the parties and their submissions. He was free to make his
own inquiries. He had to apply his own mind and use his own
expertise for the purpose. He was free to take the help of
other experts. He was required to decide the question of
valuation and the division of assets as an expert and not as
an arbitrator. He had been authorise to nominate another in
his place. But the contract indicates that he has to
nominate an expert. The fact that submissions were made
before the Chairman, IFCI, would not turn the decision-
making process into an arbitration.
The Chairman, IFCI has framed issues before answering
them in his decision. These issues have been framed by
himself for the purpose of enabling him to pinpoint those
issues which require his decision. There is no agreed
reference in respect of any specific disputes by the parties
to him.
The finality of the decision is also
indicative of it being an expert’s decision though of
course, this would not be conclusive. But looking at the
nature of the functions expected to be performed by the
Chairman, IFCI, in our view, the decision is not an
arbitration award. The learned Single Judge was, therefor,
right in coming to the conclusion that the proceedings
before the Chairman, IFCI, were not arbitration proceedings.
Nor was his decision an award. Appeal arising out of Special
Leave Petition No. 14905 of 1997 is, therefore, dismissed
with costs.
Question No. 2:
The next question which requires to be decided related
to Suit No. 1394 of 1996. The learned Single Judge has
struck off the plaint in the suit as being an abuse of he
process of court. The appellants had filed this suit in the
Delhi High Court on the same day as Arbitration Petition
bearing O.M.P. No.58 of 1996. It challenges the same
decision of the Chairman, IFCI which is challenged in the
arbitration petition as an award.
The learned Single Judge has compared the plaint in the
suit with the petition filed under the Arbitration Act. The
prayers in the arbitration petition are for a declaration
(a) that the award of the C.M.D., IFCI, dated 8.12.1995 is
illegal, bad in law and null and void; (b) that the
directions given and actions taken by the Chairman, Modipon
Ltd, in letters dated 22-1-1996, 5.2.1996, 17.4.1996 and
24.4.1996 and the scheme of arrangement drawn up by M/s S.S.
Kothari & Co. are illegal and bad in law; (c) that the said
award to the Chairman and Managing Director, IFCI and the
said letters and directions of the Chairman, Modipon Ltd,
and the said scheme of arrangement drawn by M/s S.S. Kothari
& Co. be set aside; (d) for a perpetual injection
restraining the respondents from taking any action directly
or indirectly in pursuance of or to give effect to the said
award; (e) for a perpetual injection restraining respondent
no .5 from passing any resolutions in terms of the proposed
items 8 and 9 set out in the notice regarding the proposed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 15
Board Meeting of Modipon Ltd.; (f) for a perpetual injection
restraining respondents 6 and 7 from selling or disposing of
shares in Godfrey Phillips India Ltd. or from dealing with
the said shares in a manner contrary to the scheme prepared
by M/s Bansi S. Mehta & Co. and for further and other
reliefs.
In the plaint in the suit, prayers (c), (d), (e), (f),
(G) & (h) are identical with the prayers in the arbitration
petition with small variations which are of no consequence.
The remaining prayers are as follows: Prayer (a) is for a
declaration that the Memorandum of Understanding dated
24.1.1989 is binding on both the plaintiffs and defendants
and all parties are bound in law to act in conformity with
the same. Prayer (b) is for a declaration that neither the
Chairman, IFCI nor the Chairman, Modipon Ltd. had any power
to alter, amend, or modify in any manner the scheme of
separation drawn by M/s Bansi S. Mehta & Co. Prayer (i) is
for an injection restraining the defendants from altering,
amending or modifying the scheme of separation drawn up by
M/s Bansi S.Mehta & Co. Prayer (j) is for a decree ordering
and directing Modipon Ltd. to be split in accordance with
the scheme of separation drawn up by M/s Bansi S. Mehta &
Co. and prayer (k) is for a decree ordering and directing
the implementation of the said Memorandum of Understanding
dated 24.1.1989 in respect of Modipon Ltd, in such a manner
that the control and a management of Chemical Division
including the shares of Modi Group Company allotted to Group
B held by Modipon Ltd, is vested in the plaintiff and the
control and management of the remainder of the company
including the Fibre Division is vested in the Group A. The
paragraphs in the plaint and in the arbitration petition are
verbatim that same to a substantial extent. The respondents
have pointed out that paragraphs 1A to 54A in the petition
are the same as paragraphs 1 to 54A in the plaint. The
grounds which are set out in the petition as well as in the
plaint are also substantially the same.
Mr. Nariman, learned senior counsel for the appellants,
however, has drawn our attention to paragraph 55 of the
plaint. In paragraph 55 it is stated as follows:
"The plaintiff says and submits
that as the said Ruling/Decision of
the CMD, IFCI is an Arbitration
Award within the meaning of the
Arbitrator Act, 1940, the legality
and validity of the same can be
questioned and a prayer can be made
for setting aside that said award
only in an arbitration petition
filed under Section 33 of the
Arbitration Act, 1940. The
Plaintiff is, therefore, filing
along with the present suit an
Arbitration Petition under the
provisions of he Arbitration Act,
challenging the legality and
validity of the said award.
However, the present suit is also
being filed in respect of he
actions of third parties in
pursuance of and to give effect to
the said Award. Further, in the
event of it being contended by any
of the defendants herein, or it
being held by this Hon’ble Court
for any reason that the said
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 15
Ruling/Decision of the CMD, IFCI is
not an Arbitration Award, the
legality and validity of the said
Ruling/Decision is also being
challenged in the present suit."
He has submitted that in the event of it being held
that Clause 9 of the Memorandum of Understanding is not an
arbitration clause and the decision of the Chairman, IFCI,
is not an award, it is open to the appellants to file a suit
to challenge the decision. This is the reason why along with
the arbitration petition, a suit has also been filed as an
alternative method of challenging the decision of the
Chairman and Managing Director, IFCI, is not an award. He
has contended that filling a separate proceeding in this
context cannot be considered as an abuse of he process of
the court; and the learned Single Judge was not right in
striking out the plaint under Order 6 Rule 16 of the Code of
Civil Procedure.
Under Order 6 Rule 16, the Court may, at any state of
he proceeding, order to b e struck out, inter alia, any
matter in any pleading which is otherwise an abuse of the
process of the court. Mulla in his treatise on the Code of
Civil Procedure. (15th Edition, Volume II, page 1179 note 7)
has stated that power under clause (c) of Order 6 Rule 16 of
the Code is confined to cases where the abuse of he process
of the Court is manifest from the pleadings; and that this
power is unlike the power under Section 151 whereunder
Courts have inherent power to strike out pleadings or to
stay or dismiss proceedings which are an abuse of their
process. In the present case the High Court has held the
suit to be an abuse of he process of Court on the basis of
what is stated in the plaint.
The Supreme Court Practice 1995 published by Sweet &
Maxwell in paragraph 18/19/33 (page 344) explains the phrase
"abuse of the process of the court" thus: "This term
connotes that the process of the court must be used bona
fide and properly and must not be abused. The court will
prevent improper use of its machinery and will in a proper
case, summarily prevent its machinery from being used as a
means of vexation and oppression in the process of
litigation........ The categories of conduct rendering a
claim frivolous, vexatious or an abuse of process are not
closed but depend on all the relevant circumstances. And
for this purpose considerations of public policy and the
interests of justice may be very material."
One of the examples cited as an abuse of the process of
court is re-litigation. It is an abuse of the process of the
court and contrary to justice and public policy for a party
to re-litigate the same issue which h as already been tried
and decided earlier against him. The re-agitation may or may
not be barred as res judicata. But if the same issue is
sought to be re-agitated, it also amounts to an abuse of the
process of court. A proceeding being filed for a collateral
purpose, or a spurious claim being made in litigation may
also in a given set of facts amount to an abuse of the
process of the court. Frivolous or vexatious proceedings may
also amount to an abuse of the process of court especially
where the proceedings are absolutely groundless. The court
then has the power to stop such proceedings summarily and
prevent the time of the public and t he court from being
wasted. Undoubtedly, it is a matter of courts’ discretion
whether such proceedings should be stopped or not; and this
discretion has to be exercised with circumspection. It is a
jurisdiction which should be sparingly exercised, and
exercised only in special cases. The court should also be
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 15
satisfied that there is no chance of the suit succeeding.
In the case of Greenhalgh v. Mallard [19147 (2) AER
255] the e court had to consider different proceedings on
the same cause of action for conspiracy, but supported by
different averments. The Court, held that if the plaintiff
has chosen to put his case in one way, he cannot thereafter
bring the same transaction before the court, put his case in
another way and say that he is relying on a new cause of
action. In such circumstances he can be met with the plea of
res judicata or the statement or plaint may be struck out on
the ground that the action is frivolous and vexation and an
abuse of the process of court.
In Mcllkenny v. Chief Constable of West Midlands Police
Force and another [1980 (2) AER 227], the Court of Appeal in
England struck out the pleading on the ground that the
action was an abuse of the process of the court since it
raised an issue identical to that which had been finally
determined at the plaintiffs’ earlier criminal trial. The
court said even when it is not possible to strike out the
plaint on the ground of issue estoppel, the action can be
struck out as an abuse of the process of the court because
it is an abuse for a party to re-litigate a question or
issue which has already been decided against him even though
the other party cannot satisfy the strict rule of res
judicata or the requirement of issue estoppel.
In the present case, the learned Judge was of the view
that the appellants had resorted to two parallel
proceedings, one under the Arbitration Act and the other by
way of a suit. When the order of interim injunction obtained
by the appellants was vacated in arbitration proceedings,
they obtained an injunction in the suit. The learned Single
Judge also felt that the issues in the two proceedings were
identical, and the suit was substantially to set aside the
award. He, therefore, held that the proceeding by way of a
suit was an abuse of the process of court since it amounted
to litigating the same issue in a different forum through
different proceedings.
The perception of the Learned Judge may be
substantially correct throughout entirely so. Undoubtedly,
if the plaint in the suit is viewed as challenging only the
arbitration award, a suit to challenge the award would be
re-litigating the issues already raised in the arbitration
petition. The suit would also be barred under Section 32 of
the Arbitration Act, 1940. Section 32 of the Arbitration
Act, 1940 provides that notwithstanding any law for the time
being in force, no suit shall lie on any ground whatsoever
for a decision upon the existence effect or validity of an
arbitration agreement or award, nor shall any arbitration
agreement or award b e set aside, amended, modified or in
any way affected otherwise than as provided in this Act.
According to the appellants, however, the suit is not
confined only to challenging the award or steps taken
pursuant to the award by the Chairman, Modipon Ltd. in order
to enforce it. According to the appellants, in the suit
there is an alternative plea that if the impugned decision
of the Chairman and Managing Director, IFCI is not
considered as an awards, then that decision as a decision
should be set aside. It is contended that the suit, in so
far as it challenges the decision of the Chairman and
Managing Director, IFCI, as a decision and not as an award
is maintainable. In support, the e appellants have relied
upon the submissions in paragraph 55 of the plaint which
were have set out earlier.
The plaint in the suit, tot he limited extent that it
challenges the decision as a decision, would not amount to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 15
abuse of the process of Court. We are not called upon to
examine whether this alternative submission is supported by
proper averments and whether there is a proper cause of
action framed in the plaint in Support of such an
alternative plea. This is a matter which the court hearing
the suit will have to examine and decide. But in the suit,
the decision cannot be challenged as if it were an award and
on the same grounds as if it were an award. The court will
also have to consider the binding nature of such a decision
particularly when no mala fides have been alleged against
the CMD, IFIC. If ultimately it is found that even on the
alternative plea, the claim is not maintainable the court
may pass appropriate orders in accordance with law. But to
the limited extend that the suit erased an alternative
independent plea, it cannot be considered as re-litigation
of the same issue or an abuse of the process of court.
In a proceeding under the Arbitration Act, the
appellants could not have raised an alternative plea that in
case the impugned decision is treated not as an award. but
as a decision, the same is bad in law. This plea could only
have been raised by filing a separate suit. Similarly in the
suit, the appellants could not h ave raised an alternative
plea that in case the impugned decision is considered as an
award, the same should be set aside. For this purpose an
arbitration petition was required to be filed. Therefor, the
suit, if and to the extent that it challenges in accordance
with law, the impugned decision as a decision, cannot be
treated as an abuse of the process of the court.
Group A also contends that there is no merit in the
challenge to the decision of the Chairman of IFCI which has
been made binding under the Memorandum of Understanding. The
entire Memorandum of Understanding including Clause 9 has to
be looked upon as a family settlement between various
members of the Modi family. Under the Memorandum of
Understanding, all pending the Modi family forming part of
either Group A or Group B have been finally settled and
adjusted. Where it has become necessary to split any of the
existing companies, this has also been provided for in
Memorandum of Understanding. It is a complete settlement,
providing how assets are to be valued, how they are to be
dividing some of the specified companies has to be prepared
and who has to do this work. In order to obviate any
dispute, the parties have agreed that the entire working out
of this agreement will b e subject to such directions as the
chairman, IFCI may give pertaining to the implementation of
Memorandum of Understanding. He is also empowered to give
clarifications and decide any differences relating tot he
implementation of the Memorandum of Understanding. Such a
family settlement which settled disputes within the family
should not be lightly interfered with especially when the
settlement has been already acted upon by some members of
the family. In the present case, from 1989 to 1995 the
Memorandum of Understanding has been substantially acted
upon and hence the parties must be held to the settlement
which is in the interest of the family and which avoids
disputes between the members of the family. Such settlements
have to be viewed a little differently from ordinary
contracts and their internal mechanism for working out the
settlement should not be lightly disturbed. The respondents
may make appropriate submissions in this connection before
the High Court. We are sure that they will be considered as
and when the High Court is required to do so whether in
interlocutory proceedings or at the final hearing.
The appeal of the appellants from the judgment of the
Learned Judge striking out the plaint is, therefore, partly
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 15
allowed and the suit, to the extent that it challenges
independently the decision of the Chairman and Managing
Director, IFCI as a decision and not as an award, is
maintainable in the sense that it is not an abuse of the
process of the court. We make it clear that we are not
examining the merits of the claim nor whether the plaint in
the suit discloses a cause of action in this regard. The
plaint leaves much to be desired and it is for the trial
court to decide these and allied questions. The plaint in so
far as it challenges the decision as an award and on the
same grounds as an award; or seeks to prevent the
enforcement of that award by the Chairman, Modipon Ltd. or
in any other way has been rightly considered as an abuse of
the process of court since the same reliefs have already
been asked for in the arbitration petition. The Transfer
Case No.13 of 1997 is, therefore, partly allowed.
We also direct that all the defendants in he said suit
who are supporting the Plaintiffs shall be transposed as
plaintiffs along with the original plaintiffs since they
have a common cause of action. For this purpose, the
plaintiffs shall carry out necessary amendments in he causer
title and any consequential amendments in he suit with four
weeks of this order.
Pending the hearing and final disposal of the suit in
he Delhi High Court and/or until any further orders are
passed by the trial court if the exigencies of the situation
then prevailing so require, no meeting of the Modipon Board
shall be held for considering any matter relating to the
decision of the CMD, IFCI dated 8.12.1995. Also the
defendants in eh said suit (Group A) shall not sell any
shares held in Godfrey Phillips India Ltd. provided the
plaintiffs in the suit deposit in the Delhi High Court a sum
of Rs.5 crores (Five Crores) within four weeks from the date
of this order. In the event of their failure to deposit the
said amount within the aforesaid period, the order
restraining the defendants (Group A) from selling the said
shares shall stand vacated. The amount so deposited shall be
invested by the High Court in Fixed Deposits within
Nationalised Banks pending further orders. The interim order
of 7th January, 1998 will continue to operate in terms
thereof. In the event of any change in the circumstances,
the parties will be at liberty to apply to the High Court
for any variation of this order. Appeals arising from
Special Leave Petition Nos. 14905/97, 18711/97 and Transfer
Case No. 13/97 are disposed of accordingly together with all
interim applications.