Logical Developers Private Limited & Amardeep Buildcon Private Limited v Muthoot Mini Financiers Private Limited & Muthoot Hotels Private Limited & Roy M Mathew & Nizzy Mathew

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V** **WEDNESDAY, THE 11TH DAY OF MARCH 2020 / 21ST PHALGUNA, 1941** ## **AR.No.80 OF 2018** ## **PETITIONERS:** **1 M/S.LOGICAL DEVELOPERS PRIVATE LIMITED,** **REGISTERED OFFICE AT 306-308, SQUARE ONE, C-2 DISTRICT COURT, SACKET NEW DELHI-110017( PREVIOUSLY AT 17-B, MGF HOUSE, ASAF ALI ROAD, NEW DELHI110002), REPRESENTED BY ITS AUTHORIZED SIGNATORY JOSE JOSEPH, S/O. OUSEPH, AGED 56 YEARS, RESIDING AT CHANGAMPUZHA ROAD, EDAPPALLY, KOCHI-24** **2 M/S. AMARDEEP BUILDCON PRIVATE LIMITED,** **REGISTERED OFFICE AT 306-308, SQUARE ONE, C-2 DISTRICT COURT, SACKET NEW DELHI-110017,** **(PREVIOUSLY AT 17-B, MGF HOUSE, ASAF ALI ROAD,** **NEW DELHI-110002),** **REPRESENTED BY ITS AUTHORIZED SIGNATORY JOSE JOSEPH, S/O. OUSEPH, AGED 56 YEARS, RESIDING AT CHANGAMPUZHA ROAD, EDAPPALLY, KOCHI-24** **BY ADVS.** **SRI.G.CHANDRASEKHAR** **SRI.SIJO GEORG** Arb. Request No.80 of 2018 2 ## **RESPONDENTS:** **1 M/S.MUTHOOT MINI FINANCIERS PRIVATE LIMITED,** **MUTHOOT BUILDING, KOZHENCHERRY POST, PATHANAMTHITTA DISTRICT, PIN-689641 REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR MR. ROY M MATHEW** **2 M/S. MUTHOOT HOTELS PRIVATE LIMITED,** **MUTHOOT BUILDING, KOZHENCHERRY POST, PATHANAMTHITTA DISTRICT, PIN-689641, REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR MR. ROY M MATHEW.** - **3 MR. ROY M MATHEW, AGED 68 YEARS,** **S/O. MATHEW, RESIDING AT MUTHOOT HOUSE, KOZHENCHERRY POST, PATHANAMTHITTA DISTRICT** **PIN-689641** - **4 MRS. NIZZY MATHEW, AGED 64 YEARS,** **W/O. ROY M MATHEW, RESIDING AT MUTHOOT HOUSE, KOZHENCHERRY POST, PATHANAMTHITTA DISTRICT,** **PIN-689641** **R1-3 BY ADV. SRI.RAM MOHAN.G.** **R1-3 BY ADV. SRI.GOVIND PADMANAABHAN** **R1-3 BY ADV. SRI.AJIT G.ANJARLEKAR** **R1-3 BY ADV. SRI.G.P.SHINOD** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 11.03.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** Arb. Request No.80 of 2018 3 **“CR”** ## **ORDER** This application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 with a prayer to appoint an arbitrator to resolve the disputes which has arisen between the parties pursuant to Annexure-1 Memorandum of Understanding ( “MOU” for short ) dated 8.3.2007 entered into between the parties. 2. The petitioners are Companies registered under the Companies Act, 1956 and are represented by its authorised signatory. It is contended that they form part of a group of companies and are engaged in real estate business. 3. The respondents 3 and 4 are husband and wife respectively. They are the Chairman and Director respectively of two private limited Companies which are arrayed as respondents 1 and 2. 4. Annexure 1 MOU was entered into on 8.3.2007 between the 2nd petitioner on one hand and respondents 3 and 4, representing respondents 1 and 2. As per the terms of understanding certain items of immovable property which have been scheduled as item A to D owned by the respondents were agreed to be sold to the petitioners or to their person or nominee for a total Arb. Request No.80 of 2018 4 consideration of Rs.1,65,000/- per cent. As per the same MOU, an item of property owned by the petitioners herein and scheduled as item F in the MOU was agreed to be sold to the respondents for the very same price and to be adjusted towards the sale consideration to be paid by the petitioners. The vendors asserted that they had absolute right and title over the properties and if some defect was noticed at a later stage, they would indemnify the other party. 5. The MOU also provided for resolution of disputes. Clause 8 is the relevant provision which reads as follows:- “Any dispute arising out of this MOU whether it be regarding the interpretation of clauses or disputes arising under this MOU shall be referred to the arbitration of a mutually agreed sole arbitrator constituted under the arbitration and conciliation Act, 1996. The award of the arbitrator shall be final and binding on the parties. In the event of parties failing to arrive at the appointment of an arbitrator mutually the parties shall have(sic) subject to the provisions of the arbitration and conciliation Act, 1996. The arbitration proceedings shall be carried in English language. The seat of arbitration shall be in Cochin. 6. In terms of the provisions of the MOU, the respondents executed seperate sale deeds in favour of the petitioners herein. However, in respect of Annexure-2 Sale Deed vide No 3797/2007 of the Chengamanad SRO, it is contended that the respondents had no right title or possession of the entire extent of properties conveyed as per the said deed. By alleging otherwise, the respondents induced the petitioners to transfer the entire consideration of Arb. Request No.80 of 2018 5 Rs.4,36,66,260/-. It is further alleged that the respondents received a sum of Rs 2,18,33,130/- in excess of which they were actually entitled to, not to mention the sum of Rs 21,83,350/- towards excess stamp duty and a sum of Rs.4,36,666/- paid towards excess registration fee. 7. The petitioners therefore approached the respondents and requested them to make good the loss suffered and also to convey the deficiency in the area, but the same was not heeded to . 8. Immediately thereafter, alleging that the respondents were trying to alienate the immovable properties lying adjacent to the properties conveyed to the petitioners with a view to cause wrongful loss to them, the petitioners approached the District Court, Ernakulam and filed Original Petition (Arbitration) No.708 of 2015 . They secured Annexure-5 order of attachment which is dated 12.6.2018. Thereafter, Annexure-6 notice was issued by the petitioners invoking the arbitration clause and requesting for the appointment of an arbitrator to resolve the dispute between the parties. When they failed to heed to the request, they have approached this Court with this petition. 9. The respondents have filed a counter refuting the contentions of the petitioners. It is contended that the 2nd petitioner does not have any privity of 6 Arb. Request No.80 of 2018 contract with the respondents either by virtue of the MOU or on the strength of the sale deed executed on its basis. It is further contended that the arbitral clauses in the original MOU stood finally determined by the execution of the sale deed, and hence the petitioners cannot be permitted to invoke the clause and seek for the appointment of an arbitrator. The rights and liabilities of the parties will be governed by the subsequent sale deeds and if the petitioners have any grievance, their remedy lies elsewhere and not under the Act 26 of 1996. It is further contended that the petitioners had issued a notice initially on 12.08.2016 and later on 4.7.2018, but they failed to seek for the appointment of an arbitrator. If that be the case, their claim will be barred by limitation and this application has to be rejected on that ground as well, contends the respondents. 10. The petitioners have filed a reply affidavit asserting that the petitioners in the arbitration request are companies included in the group of companies represented by the 2nd party in Annexure-2 Sale deed. It is also contended that the terms of the MOU provides that the 2nd party would include the group of companies as well. Refuting the contention that the MOU as well as the arbitration clause contained therein stood determined by the execution of the sale deed, it is contended that it is pursuant to Annexure-1 MOU that the properties were sold and therefore the MOU would continue to govern the Arb. Request No.80 of 2018 7 transaction between the parties. 11. I have anxiously considered the submissions advanced by Sri.Chandrasekhar G., the learned counsel appearing for the petitioners and Sri.G.P. Shinod, the learned counsel appearing for the respondents. 12. In this petition, this Court is called upon to decide whether the dispute between the parties to this lis is to be resolved by recourse to Arbitration in view of the Arbitration clause in Annexure-1 MOU. Before venturing to decide on the questions raised, it may have to be stated that certain changes were introduced to the Arbitration and Conciliation Act, 1996 by the Arbitration and Conciliation (Amendment) Act, 2015. Section 11 (6-A) **,** which we are concerned with, was introduced which states that the Supreme Court or, as the case may be, the High Court, while considering any application under sub section (4) of sub section (5), shall notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement. 13. In **Duro Felguera,S.A, vs Gangavaram Port Limited[1]** , the Hon’ble Supreme Court has held that the court before which an application under section 11 (6) of the Act comes up need only look into one aspect - the existence of an arbitration agreement. As to the question as to the factors for deciding as 1 [2017(9) SCC 729] Arb. Request No.80 of 2018 8 to whether there is an arbitration agreement, it was held that all that needs to be seen is whether the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. 14. In **Mayavati Trading Private Limited vs Pradyut Deb Burman[2]** , the Hon'ble Supreme Court went on to hold that the position of law that prevails after the insertion of Section 11 (6 – A) is that the Supreme Court, or as the case may be, the High Court, while considering an application under Section 11 (4) to 11 (6) is to confine itself to examination of existence of arbitration agreement, nothing more, nothing less, and leave all other preliminary issues to be decided by the arbitrator. 15. In **Uttarakhand Purv Sainik Kalyan Nigam Limited vs Northern Coal Field Limited[3]** , it was held by the Hon'ble Supreme Court that by virtue of the non obstante clause incorporated in Section 11(6-A), previous judgments rendered in **Patel Engg. [SBP & Co. v. Patel Engg. Ltd.[4] ,** and **Boghara Polyfab Pvt. Ltd. v. National Insurance Co. Ltd.[5] ,** were legislatively overruled. It was reiterated that the scope of examination should be > 2 [2019 (8) SCC 714] > 3 [2020 (2) SCC 455] > 4 [(2005) 8 SCC 618] > 5 [(2009) 1 SCC 267] Arb. Request No.80 of 2018 9 confined to the existence of the arbitration agreement at the Section 11 stage, and nothing more. Insofar as judicial intervention at the stage of section 11 is concerned, it was held as follows by the Hon’ble Supreme Court in para 7.13 of the report. “In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.” 16. It was also held that by the doctrine of “kompetenz-kompetenz”, also referred to as “compétence-compétence”, the Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues, and the existence or validity of the arbitration agreement. This would also include the question of limitation or the existence or validity of the arbitration agreement. 17. Armed with the above principles let us now consider the objection raised Arb. Request No.80 of 2018 10 by the respondents. The first objection is with regard to the competence of the 2nd respondent to approach this Court under Section 11 (6) of the Act. The 1st petitioner is Logical Developers Pvt. Limited and the 2nd petitioner is Amardeep Buildcon Private Limited. It is asserted in the petition that the 2nd petitioner is a nominee of the 1st petitioner and one of the companies in the group of companies, which has come forward to purchase an item of property as per the MOU between the 1st petitioner and the respondents. A perusal of the MOU would reveal that it has been specifically stated that the expression “second party” would mean and include their group companies , its successors in title, assignees,nominees and or their lawful attorneys. Though ordinarily, an arbitration takes place between parties who have been parties to both the arbitration agreement and the substantive contract underlying it, The English law has evolved the “Group of companies doctrine” under which an arbitration agreement entered into by a company within a group of corporate entities can in certain circumstances bind nonsignatory affiliates. This principle was approved by the Hon’ble Supreme Court in **Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.[6] ,** wherein it was held as follows : “71. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the “group of companies doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates 6 [(2013) 1 SCC 641] Arb. Request No.80 of 2018 11 or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.)] 72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.” ## 18. In **Cheran Properties Ltd. v. Kasturi & Sons Ltd.[7] ,** the Hon'ble Supreme Court has reiterated the principles and has observed as follows: 23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to 7 [(2018) 16 SCC 413] Arb. Request No.80 of 2018 12 the agreement, the commonality of subject-matter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfilment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory. 19. In view of the principles laid above concerning the jurisdiction of the Arbitrator, it is for Arbitrator to examine the facts of the case on the touchstone of the existence of a direct relationship with a party which is a signatory to the arbitration agreement, a “direct commonality” of the subject matter and on whether the agreement between the parties is a part of a composite transaction. In that view of the matter, I am not impressed with the contention of the respondents that this application is vitiated on account of misjoinder or parties. 20. The next contention raised by the respondents is that the memorandum of understanding having been determined by the execution of sale deeds, the arbitration clause contained therein would cease to exist. They also have a contention that the request is barred by the principles of limitation. 21. However, in view of the law laid down by the Apex Court in **Duro Felguera, Mayavati and Uttarakhand Purva Sainik Kalyan Nigam** Arb. Request No.80 of 2018 13 **Limited** (supra), the said contentions are to be considered and decided by the Arbitrator, in view of Section 16 of the Act, and the legislative policy to restrict judicial intervention at the pre-reference stage. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator. 22. In that view of the matter, I am inclined to appoint an arbitrator to resolve the dispute. (a) I nominate Sri.K.George Oommen, Kalamannil, 11/284-(1), Crash Road, (Near) Noel Touchstone Apts, Vazhakkala, Thrikkakara P.O., Kochi – 682 031, as Sole Arbitrator to decide the dispute and differences between the parties arising from Annexure-1 agreement dated 8.3.2007. (b) A copy of this order shall be communicated to the learned Arb. Request No.80 of 2018 14 Sole Arbitrator by the Advocate of the applicant within a period of one week from today. A copy of the order shall also be forwarded to the learned Sole Arbitrator in the address shown in the list of panel of Arbitrators. (c) The Arbitrator is requested to forward her statement of disclosure under Section 11(8) r/w. Section 12(1) of the Act 3 of 2016. The disclosure statement shall be placed before this Court for confirmation of the appointment of the Arbitrator. The Registry shall retain a copy of the original. (d) The Arbitrator's fees shall be governed by the Kerala High Court (Fee Payable to Arbitrators) Rules, 2017. Both parties agree that the Arbitration costs and fees shall be shared equally. ## This Arbitration Request is allowed as above. ## **Sd/-** ## **RAJA VIJAYARAGHAVAN V** ## **JUDGE** **ps/25/4/2020** Arb. Request No.80 of 2018 15 ## **APPENDIX** ## **PETITIONERS EXHIBITS:** ## **ANNEXURE 1** **TRUE COPY OF THE MEMORANDUM OF UNDERSTANDING DATED 08.03.2007 CONTAINING ARBITRATION CLAUSE.** - **ANNEXURE 2 TRUE COPY OF THE SALE DEED NO. 3797/2007 OF THE SUB REGISTER OFFICE, CHENGAMANADU.** - **ANNEXURE 3 TRUE COPY OF SALE DEED NO. 5452/2005 OF THE SUB REGISTER OFFICE, CHENGAMANADU.** - **ANNEXURE 4 A DETAILED STATEMENT OF INTEREST CALCULATED ON THE SAID AMOUNT AS ON 13.09.2018.** ## **ANNEXURE 5** **TRUE COPY OF THE ORDER OF THE HON'BLE DISTRICT COURT, ERNAKULAM IN THE OP (ARBITRATION) NO. 708 /2016 DATED 12.06.2018.** Arb. Request No.80 of 2018 16 **ANNEXURE 6 TRUE COPY OF THE NOTICE DATED 04/07/2018 ISSUED TO THE RESPONDENT NUMBERS 1 TO 4** **ANNEXURE 7 (A TRUE COPY OF ACKNOWLEDGEMENT CARDS 4 NOS TO D) SIGNED BY THE RESPONDENTS 1 TO 4 RESPECTIVELY AKNOWLEDGING RECEIPT OF ANNEXURE-6 NOTICE.** **RESPONDENTS EXHIBITS:NIL** //True copy// PS to Judge