O.M.P.(I) (COMM.)/281/2021 of SAPNA GUPTA Vs AJAY KUMAR GUPTA & ORS.

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*IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of Decision: 07[th]December, 2021

+O.M.P.(I) (COMM.) 281/2021, I.As. 10492/2021 & 13499/2021

SAPNA GUPTA.....PetitionerThrough:Ms. Geeta Luthra, Senior Advocatewith Mr. Siddharth Bhatti,Ms.LashitaDingra,Ms.AsmitaNarula, Ms. Apoorv Maheshwari andMs.ShivaniLuthraLohiya,Advocates.Through:Ms. Geeta Luthra, Senior Advocatewith Mr. Siddharth Bhatti,Ms.LashitaDingra,Ms.AsmitaNarula, Ms. Apoorv Maheshwari andMs.ShivaniLuthraLohiya,Advocates.

versus

AJAY KUMAR GUPTA & ORS.

..... Respondents

Through:Mr. Pawanjit Singh Bindra, SeniorAdvocate with Mr. Chetan Lokur andMr. Vaibhav Kaul, Advocates for D-1& 2.Advocate with Mr. Chetan Lokur andMr. Vaibhav Kaul, Advocates for D-1& 2.

CORAM:HON’BLE MR. JUSTICE SANJEEV NARULA

JUDGMENT

[VIA HYBRID MODE]SANJEEV NARULA, J (Oral):

1. The present petition under Section 9 of the Arbitration and ConciliationAct, 1996 [hereinafter the ‘Act’] seeks interim measures to preserve andprotect the rights of the Petitioner in partnership firm – Metal CansCompany, New Delhi, pending constitution of arbitral tribunalforadjudication of disputes inter se partners of the firm.

2. Vide an ex-parte order dated 23[rd]August, 2021, Respondents have beenrestrained from alienating or creating third party interest in respect of

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immovable properties of the partnership firm and have further been directedto maintain status quo in respect of property that is stated to have beenpurchased by siphoning off monies of the firm. The said order is currently inforce.

3. The Respondents, at the outset, raised preliminary issue regardingmaintainability of the present petition on the ground that the clausecontained in the partnership deed falls short of the essential requirementscontemplated under law to constitute an arbitration agreement. On this issue,Ms. Geeta Luthra, Senior Counsel for the Petitioner and Mr. Pawanjit SinghBindra, Senior Counsel for the Respondents have been heard extensively.

4. In order to appreciate the controversy, it would be apposite to note theclause contained in the Partnership Deed dated 1[st]April 2011, on which thepetition is premised. The same reads as follows:

“Clause 21

Any other matter for which there is no provision in the Deed and dispute relatingto the affairs of the Firm shall be mutually decided by the partners. The provisionsof the Indian Partnership Act, 1932 which are not in consistent or repugnant to theprovisions of this Deed shall apply to all matters not specifically mentioned herein.However the dispute can also be decided under the provisions of the IndianArbitration Act.”

CONTENTIONS

5. Ms. Geeta Luthra, Senior Counsel for the Petitioner has made thefollowing submissions:

5.1. The objection of Respondents regarding maintainability is frivolous andcompletely misconceived.

5.2. The clause has all the necessary ingredients for qualifying as anarbitration agreement between the parties.

5.3. There is no specific form of arbitration agreement provided under theAct and existence of the same has to be decided based on the facts andcircumstances of particular case.

5.4. For deciding the validity of an arbitration agreement, intention of theparties is to be gathered from the agreement, as well as conduct of parties,correspondences exchanged, and the surrounding circumstances.

5.5. As long as there is clear intention of parties to opt for arbitration forsettlement of disputes, no party should be allowed to take advantage ofinartistic drafting of an arbitration agreement, as it would defeat validclaim.

5.6 The intention of the parties in the present case can be gathered from thefact that the first Partnership Deed dated 01[st]April, 1997 between AjayKumar Gupta, Shashi Gupta, Amit Kumar Gupta and Sapna Gupta, providedfor settlement of disputes by way of arbitration, by way of the followingclause:

“23.That all the disputes relating to the Partnership Business shall bedecided by an Arbitrator and his decision shall be final and binding.”

5.7. Upon the proposal of Respondent No. 1, the Petitioner allowedinduction of Respondent No. 2, pursuant to which the Partnership was re-

constituted on 01[st]April, 2011. The new partnership deed also provides fordispute resolution by way of arbitration. Relevant clause thereof has alreadybeen reproduced in paragraph no. 4 hereinabove.

5.8. Thereafter, on 30[th]May, 2011, family members entered into asettlement whereby the partnership business devolved onto the families ofthe Petitioner and her brother-in-law, i.e., the Respondent No. 1 andRespondent No. 2. The said family settlement also provides for disputeresolution by way of arbitration, as under:

“Settlement of Dispute:- The Parties agree that any disputes arising.between them under this Memorandum of Family Settlement shall bereferred for arbitration proceeding in accordance with the provisions of theIndian Arbitration and Conciliation Act 1996. The decision of the saidarbitrator shall be final and binding on the parties.”

5.9. It is thus evident that the Parties had clear and unequivocal intentionto refer the disputes between them to arbitration from the very inception i.e.,since the year 1997 till the very last Agreement dated 30[th]May, 2011.

5.10. Reliance was placed upon the judgment in Visa International Ltd. v.

Continental Resources (USA) Ltd.,[1]Powertech World Wide Ltd. v. DelvinInternational General Trading LLC,[2]Suresh Tulshan Trustee of K.P.Foundation & Ors. v. Marco Polo Restaurant Pvt. Ltd.,[3]and Vidya Drolia& Ors. v. Durga Trading Corp.[4]

1 (2009) 2 SCC 55.

2 (2012) 1 SCC 361.

3 2015 SCC Online Cal 6582.

4 (2021) 2 SCC 1.

6. Per contra, Mr. Pawanjit Singh Bindra’s submissions for the Respondentsare summarised as follows:

6.1. Clause 21 does not reflect an unequivocal intention of the parties toresolve their disputes by way of arbitration and is therefore not validarbitration agreement.

6.2. The word “can” used in the clause merely expresses an intention thatparties can opt for resolution of their disputes by way of arbitration. It is notan arbitration agreement in itself, but only empowers the parties to possiblyenter into an arbitration agreement at later stage. As such, there is no validarbitration agreement and as necessary corollary, the petition is notmaintainable.

6.3. In support of his submissions, reliance is placed on K.K. Modi v. KNModi,[5]Mysore Construction Company v. Karnataka Power Corporation,[6]Rukmanibai Gupta v. Collector,[7]Wellington Associates Ltd. v. KiritMehta,[8]Food Corporation of India v. National Collateral Management,[9]and Jagdish Chander v. Ramesh Chander.[10]

ANALYSIS

7. Before dealing with the contentions on the preliminary objections, it mustbe noted that both the counsel have addressed arguments on the merits of the

5 AIR 1998 SC 1297.

6 2001 (2) Kar. LJ 411.

7 AIR 1981 SC 479.

8 AIR 2000 SC 1379.

9 2019 (178) DRJ 462.

case as well. However, since preliminary objection had been raisedregarding maintainability, the said issue is being taken up first, and meritsthereof shall only be gone into if the petition is found to be maintainable.

8. The question of maintainability, as noted above, hinges on theconstruction of the clause which has been relied upon as an arbitrationagreement by the Petitioner.

9. Needless to say, arbitration is creature of consensus. It is completelydependent on party autonomy and the intention expressed in the agreement[See: Vidya Drolia (supra)]. In Visa International Ltd. (supra), the Courtheld that no party can be allowed to take advantage of inartistic drafting ofan arbitration clause; as long as clear intention of parties to go for arbitrationfor future disputes is evident from the agreement, the material on record, aswell as surrounding circumstances. Keeping this principle in mind, we nowproceed to analyse the clause.

10. The clause herein is ex-facie ambiguous. It can be split-up into threeparts for convenience and better understanding of the intention of theparties. The first part provides that for matters where there is no provision inthe deed and dispute arises relating to affairs of the firm, the same has tobe mutually decided by the partners. The second part provides forapplicability of Indian Partnership Act, 1932 which has actually nocorrelation to the preceding or succeeding parts. The third part stipulates -

“however the dispute can also be decided under the provisions of Indian

10 (2007) 5 SCC 719.

Arbitration Act”.

11. It is noted that the third part, which refers to ‘arbitration’, begins withthe expression “however” and further stipulates that “disputes can also bedecided” under the provisions of the “Indian Arbitration Act”. It is, inessence, proviso to the first part which provides for dispute resolution bymutual discussions amongst the partners. Thus, the first and third parts,when read together, imply that parties can resolve disputes mutually or ifthey so desire, can also take recourse to “Indian Arbitration Act”. There isno binding agreement for arbitration. It does not use the phrase ‘agree’ or‘reference’. However, even if we were to construe the clause to be case ofinartistic drafting and give the benefit of the doubt to the Petitioner, on aplain reading it manifests the requirement of fresh consent for arbitrationfrom the usage of the phrase “can also be decided”, meaning thereby thatthe parties may agree to refer the disputes to arbitration in the future. Thisclause, thus, merely indicates desire or hope to have the disputes settledthrough arbitration, or at best, tentative arrangement to explore arbitrationas mode of settlement if and when dispute arises. Respondent’s consentfor arbitration, in the instant case, is absent. Therefore, as the clausecontemplates further consent or consensus for reference to arbitration, it isnot an arbitration agreement, but at the highest, only an agreement to enterinto an arbitration agreement in the future.

12. Both the parties have relied upon several case laws on this issue.However, the Court does not feel the need to discuss each and everyjudgment. The principles enshrined in the case laws unanimously hold that

the main attribute of an arbitration agreement is consensus ad idem to referthe disputes to arbitration. In case the same is missing, it is not an arbitrationagreement as defined under Section 7 of the Act, and in the absence thereof,the present petition cannot be entertained.

13. That apart, the case laws relied upon by the Petitioner are of noassistance to them as the judgments are clearly distinguishable and, in fact,do not support the case of the Petitioner. In Visa International (supra), thearbitration clause which came up for consideration is as follows:

“Any dispute arising out of this agreement and which cannot be settled amicableshall be finally settled in accordance with the Arbitration and Conciliation Act,1996.”

14. The ambiguity in the aforesaid clause arose because it also stipulates thatdisputes arising out of the agreement could be settled amicably. In the saidjudgment, though one of the questions that arose for consideration was withrespect to the existence of valid agreement, the Respondent therein neverdisputed the same. Instead, plea was taken that the agreement whichcontained the arbitration clause itself was not valid and was incapable ofbeing enforced. Further, it must also be noted that the Respondent therein, inresponse to the notice of invocation, merely objected to the names suggestedby the other party and contended that suggested arbitration would not becost effective and demand for arbitration itself was premature. In thisbackground, the Respondent therein took the plea that the disputes should besettled through conciliation and relied upon the clause contained in anotheragreement which was actually not between the same parties. Rejecting suchcontention(s), the Court observed that the intent of the parties can be

gathered from the surrounding circumstances including their conduct and thecorrespondence exchanged between them. In that light, the Court observedthat the absence of the word “reference” may not clinch the issue in as muchas and the whole clause has to be interpreted in order to gather the intentionof the parties. In such circumstances, the Court stressed that no party can beallowed to take advantage of inartistic drafting of arbitration clause andinstead emphasised on the intention of the parties. Clearly, the afore-notedjudgment is wholly inapplicable, having regard to the distinguishing factsnoted above and the marked distinction between the arbitration clause thatcame up for consideration in the said case with the one in the instant case.

15. In Suresh Tulshan (supra), again, the arbitration clause in question wasextensive, however, ambiguity arose because of the phrase “may” usedtherein. The Court refer to the judgments in Wellington Associates (supra)and Jagdish Chander v. Ramesh Chander (supra) but found markeddistinguishing factors and observed that the arbitration clause contained anoption that the parties either resort to arbitration or file suit. The filing ofan application under Order 7 Rule 11 of the CPC by the defendant thereinwas noted to be evident of its intent to submit to the jurisdiction of ordinarycourts. Thus, on facts, the clause was found to be an invalid arbitrationagreement.

16. In Enercon (India) v. Enercon GMBH,[11]the arbitration clause that fellfor consideration was entirely different. The question regarding validity ofarbitration agreement arose on account of workability of the arbitration

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clause in dispute. Hence, this judgment is also distinguishable.

17. Next, in Powertech (supra), the arbitration clause that fell forconsideration was as under:

“Any dispute arising out of this purchase contract shall be settled amicablybetween both the parties to through an arbitrator in India/UAE.”

18. The aforesaid judgment is also distinguishable. The afore-noted clause,on plain reading, made arbitration optional in view of the use of theconjunction“or”.However,theSupremeCourt,onthebasisofcorrespondence between the parties on record, as well as on the basis ofattending circumstances, held that parties had an arbitration agreement inwriting and were ad idem in their intention to refer disputed matters to anArbitrator in accordance with the provisions of the Act. This was concludedon the basis of letters exchanged between the parties as is evident from thefollowing observation:

“[…] thus any ambiguity in the arbitration clause contained in the purchasecontract stood extinct by the correspondence between the parties […]”

19. Next, we come to the contentions urged by Ms. Luthra regardingsurrounding circumstances in the instant case. considerable emphasis hasbeen laid on the fact that the Partnership Deed dated 1[st]April, 1997 whichtoo contained an arbitration clause. The same was also found in the familysettlement of 30[th]May, 2011, thereby indicating unequivocal intention torefer the disputes to arbitration. This presumption is not correct. Eachagreement has to be considered independently. One cannot take intoconsideration the terms of other contracts, especially when the parties to the

11 (2014) 5 SCC 1.

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contracts are different. Further, since the subsequent document does notspecifically contain an arbitration clause when compared to the previousones, it can also lead to the conclusion that the parties have, by intention, notopted for arbitration. Pertinently, apart from the afore-noted partnershipdeeds, no other surrounding circumstances, correspondences, or conduct ofparties has been shown to evidence an arbitration agreement.

20. Lastly, the Court also does not find merit in the contention of Ms. Luthrathat the question regarding existence of arbitration agreement should be leftopen for decision of the Arbitral Tribunal. On this issue, reliance has beenplaced on the judgment of the Supreme Court in Vidya Drolia (supra), andin particular paragraphs No. 150 and 151. In the opinion of the Court,reliance on Vidya Drolia (supra), though correct, is misplaced. Ordinarily,in case of doubt regarding existence of an arbitration agreement, the Courtwould refer said disputes for arbitration having regard to the principles ofkompetenz-kompetenz, however, at the same time, where the Court can ex-facie notice that there is no arbitration agreement, the parties need not bereferred to arbitration. The existence of arbitration agreement, as definedunder Section 7 of the Act, is condition precedent for exercise of theCourt’s power to appoint an Arbitrator.

21. In view of the above, since existence of the arbitration agreement isabsent, the necessary corollary is that the present petition under Section 9 ofthe Act would not be maintainable.

22. Accordingly the present petition is dismissed, along with all pending

applications.

23. The interim order dated 23[rd]August, 2021 stands vacated.

24. At this stage, Ms. Luthra requests for extension of the interim protectionfor short period to enable her to take appropriate remedy in accordancewith law. Although Mr. Bindra strongly opposes the request and argues thatthe interim order has been obtained by misleading the court and should notbe extended once the court has held that it has no jurisdiction, however,without prejudice to his rights and contentions, and on instruction, he saysthat for period of 10 days from today, the Respondents shall refrain fromalienating any of the assets of the partnership firm. His statement is taken onrecord.

25. The Petitioner shall be at liberty to invoke other remedies as areavailable under law. The observations made hereinabove and in the previousorders, are only tentative view of the Court which shall not influence anyfurther adjudication on the merits of the dispute before any other court oflaw. The Respondents shall remain bound by such undertaking.

26. Dismissed along with pending applications.

DECEMBER 07, 2021nk

SANJEEV NARULA, J

O.M.P.(I) (COMM.) 281/2021