Calcutta High Court
Priyanka Gupta And Ors vs Anil Chowdhury And Ors on 23 April, 2025
Author: Sugato Majumdar
Bench: Sugato Majumdar
OD - 23, 24 & 25
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
IA NO. GA/1/2021
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
IA NO. GA/3/2022
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
IA NO. GA/4/2024
In CS/89/2024
PRIYANKA GUPTA AND ORS
Vs
ANIL CHOWDHURY AND ORS
BEFORE:
THE HON'BLE JUSTICE SUGATO MAJUMDAR
Date: 23rd April, 2025
Appearance:
Mr. Amitava Mukherjee, Sr. Adv.
Mr. Janesh Jana, Adv.
Ms. Arpita Saha, Adv.
Ms. Antara Das, Adv.
…for the Plaintiff.
Ms. Sulagna Mukherjee, Adv.
Mr. Yash Vardhan Deora, Adv.
…for Def. nos. 1 & 2.
Mr. Zeeshan Haque, Adv.
Ms. Aishwarya Aswasthi, Adv.
…for Def. nos. 3, 4 & 5.
2|Page
The Court: G.A.3 of 2022 is filed by the Defendant No.3 being M/s Asian Tea
& Exports Ltd., a company registered under the Companies Act, 1956, praying for
referring the instant dispute to arbitration.
The sum and substance of the application may be summarized as follow:
i. A Share Transfer Agreement was executed on 12/09/2014 between
Late Devrat Gupta (the original Plaintiff No.1, who left for heavenly
abode during pendency of the suit), Smt. Kashmira Gupta (Plaintiff
No.4), Sri Devansh Gupta (Plaintiff No.3), Smt. Priyanka Gupta
(Plaintiff No.2) and Smt. Mridula Gupta (Plaintiff No.5), who were
the Sellers, on the one hand and M/s Asian Tea & Exports Ltd.
(Defendant No.3) and Sri Hariram Garg (Defendant No.4), on the
other hand, who were the Buyers. This agreement was executed for
transfer by the Sellers in favor of the Buyers 9,50,000 number of
fully paid up equity shares of Rs.10/- each in the Defendant.5,
namely, M/s Indong Tea Comp. Pvt. Ltd.
ii. In course of transfer of shares, an escrow account was required to be
created appointing Escrow Holders. The Defendant Nos.1 & 2 were
appointed as the Escrow Holders in terms of the Escrow Agreement
dated 12/09/2014. In terms of the Escrow Agreement dated
12/09/2014, a sum of Rs.30,00,000/- was deposited with the
Escrow Holders to meet up any unclaimed gratuity liability and
further statutory liabilities. The Escrow Holders were to hold on the
said sum of Rs. 30,00,000/- in an account to be maintained in ICICI
Bank, Ballygunge Branch.
3|Page
iii. The Escrow Agreement indicated that out of Rs.30,00,000/-, a sum
of Rs.15,00,000/- would be earmarked for meeting liabilities of the
unclaimed amount of gratuity dues, if any, while the remaining
amount will be utilized for meeting up statutory liabilities.
iv. The entire share transfer took effect and the Defendant Nos.3 & 4
took control and management of the Defendant No.5.
v. The Share Transfer Agreement contained an arbitration clause to
refer any present or future dispute to arbitration. There is specific
reference of the arbitration clause in the Escrow Agreement.
vi. In terms of the Share Transfer Agreement, the escrow amount or any
remaining balance was to be released by the Escrow Holders upon
utilization for payment towards statutory liabilities and outstanding
gratuity dues of the Defendant No.5.
vii. The parties raised disputes regarding quantum of amount to be
released by the Escrow Holders, namely, the Defendant Nos.1 & 2 and
the parties are entitled to payment by the Escrow Holders. The
Plaintiffs claimed refund of the escrow amount but the same was
refuted by the Defendant Nos.3 & 4 on the premises that the escrow
amount was paid by the Asian Group and it is entitled to refund of the
said amount. Existence of the Share Transfer Agreement as well as
the Escrow Agreement are not disputed. In view of the arbitration
clause, the instant dispute should be referred to arbitration. Hence,
the instant application is filed.
Affidavit was filed by the Defendant Nos.1 & 2 in support of the instant
application.
4|Page
The Plaintiffs filed affidavit-in-opposition against the instant application. The
sum and substance of the affidavit-in-opposition, filed by the Plaintiffs may be
summarized as follow:
a. The Plaintiffs have filed the instant suit praying for recovery of
money wrongly withheld in an escrow account by the Defendant
Nos.1 & 2. The reliefs claimed in the suit are also directed against the
Defendant Nos.1 & 2 who are advocates.
b. The Defendant Nos.1 & 2 are entitled to hold the said amount in the
escrow account to meet alleged claims which had to be made within
30/09/2016. Neither any claim nor any dispute had been raised till
that date.
c. There is no arbitration agreement between the Plaintiff and the
Defendant Nos.1 & 2. Reference of purported arbitration agreement
contained in the Share Transfer Agreement does not imply existence
of any arbitrable dispute between the Plaintiff and the Defendant
Nos.1 & 2. Therefore, Section 8 of the Arbitration & Conciliation Act,
1996 has no application and cannot be invoked.
d. Denying all other allegations, the Plaintiffs pleaded that the instant
application is liable to be dismissed.
Affidavit-in-reply was filed on behalf of the Defendant No.3, denying the
allegations and refuting the contentions made in the affidavit-in-opposition filed by
the Plaintiff.
Principal point of argument made by the Learned Counsel for the Defendant
No.3 is that it is case of both the parties that the Share Transfer Agreement as well as
5|Page
the Escrow Agreement had been executed for the purpose of transferring shares of
the Defendant No.5 by the Plaintiffs to the Defendant Nos.3 & 4. Both the
agreements are interconnected and had been simultaneously executed between the
same parties. All the obligations and terms thereof were interconnected and were
meant for a common purpose. Accordingly, it is the case of the Defendant Nos.1 & 2
that both these interconnected agreements were executed for a single commercial
project. It is basically a single commercial project/single commercial understanding
between the parties which had been executed through two agreements. Disputes
involved in the present suit revolves round the Escrow Agreement, which, in terms of
the referral agreement being the Share Transfer Agreement should be adjudicated
upon by an arbitral tribunal. The Leaned Counsel referred to Ameet Lal Chand
Sha & Ors. Vs Rishab Enterprises & Ors. [(2018) 15 SCC 678] and NBCC
(India) Ltd. vs Zillion Infraprojects Pvt. Ltd. [(2024) 7 SCC 174].
In course of the argument, the Learned Counsel for Defendant No.3 submitted
that the named arbitrators are the Defendant Nos.1 & 2 and the principal reliefs
claimed are against them. In that case suitable and neutral arbitrator or arbitrators
may be appointed by this Court.
The Learned Counsel for the Defendant Nos.1 & 2 argued in tandem with the
Learned Counsel for the Defendant No.3 and submitted the same argument which
need not be repeated here.
The Learned Counsel for the Plaintiff, referring to the agreements, submitted
that the Defendant Nos.1 & 2 were under obligation to hold the sum of
Rs.30,00,000/- in the escrow account to meet any claim related to payment of
gratuity or other statutory liability. Time line for such claims was 30/09/2016.
Since there was no claim made within the stipulated date and there arose no dispute
6|Page
in the meanwhile, the Escrow account Holders are lawfully bound to release the
amount held in the escrow account. There is no provision of referring this dispute to
arbitration. Escrow Agreement does not provide for or contemplates referring such
dispute to arbitration. Therefore, according to the Learned Counsel, the application
should be dismissed.
It is further argued that the principal allegations in the instant suit are against
the Defendant Nos.1 & 2, the named arbitrators. No person can be judge of his own
cause flouting the principle of natural justice: “nemo debet esse judex in propia
causa”. On that score too, as argued, the instant application is liable to be dismissed.
I have heard rival submissions.
Chapter II of the Arbitration & Conciliation Act, 1996 deals with arbitration
agreement. Section 7 states as follow:
“7. Arbitration agreement. (1) In this Part, arbitration agreement
means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of
a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause
in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication [including communication through
electronic means] which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which
the existence of the agreement is alleged by one party and not
denied by the other.
7|Page
(5) The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing
and the reference is such as to make that arbitration clause part of the
contract.”
Section 6 of the Arbitration Act, 1996, as prevalent in England and Wales or
Northern Ireland defines arbitration agreement as an agreement submit present or
future disputes to arbitration whether they are contractual or not.
In K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 the Supreme Court of India
considered the essential requisites as follow:
“21. 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
purport 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 Bihar State Mineral Development Corpn. v. Encon Builders (I) (P)
Ltd., [(2003) 7 SCC 418], the Supreme Court of India again considered the
essential elements of arbitration agreement and observed:
“13. The essential elements of an arbitration agreement are as follows:
(1) There must be a present or a future difference in connection with
some contemplated affair.
(2) There must be the intention of the parties to settle such difference
by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of
such tribunal.
(4) The parties must be ad idem.”
8|Page
Essential requirements of an arbitration agreement are, among others either
existing or a contemplated dispute, as may arise in course of transactions and
agreement of the parties to refer the dispute or disputes to arbitration. The parties
must be ad idem to refer their disputes to arbitration, which must be expressly or
impliedly evidenced from the arbitration agreement.
Section 7(5) should also be considered to appreciate the arguments made by
the Learned Counsels. Principle of incorporation by reference to an arbitration
clause existing in another document was well accepted by the Indian Courts. The
same principle is embodied in Section 7(5) of the Arbitration & Conciliation Act,
1996. In M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.,
[(2009) 7 SCC 696] the Supreme Court of India observed that Section 7(5)
therefore requires a conscious acceptance of the arbitration clause from another
document, by the parties, as a part of their contract, before such arbitration clause
could be read as a part of the contract between the parties. But the Act does not
contain any indication or guidelines as to the conditions to be fulfilled before a
reference to a document in a contract can be construed as a reference incorporating
an arbitration clause contained in such document into the contract. In the absence
of such statutory guidelines, the normal rules of construction of contracts will have
to be followed. Scope of Section 7(5) was summarised by the Supreme Court of
India in the following way:
“24. The scope and intent of Section 7(5) of the Act may therefore be
summarised thus:
(i) An arbitration clause in another document, would get incorporated into
a contract by reference, if the following conditions are fulfilled:(1) the contract should contain a clear reference to the documents
containing arbitration clause,
9|Page
(2) the reference to the other document should clearly indicate an
intention to incorporate the arbitration clause into the contract,(3) the arbitration clause should be appropriate, that is capable of
application in respect of disputes under the contract and should not be
repugnant to any term of the contract.
(ii) When the parties enter into a contract, making a general reference to
another contract, such general reference would not have the effect of
incorporating the arbitration clause from the referred document into the
contract between the parties. The arbitration clause from another contract
can be incorporated into the contract (where such reference is made), only
by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or
performance of that contract shall be in terms of another contract (which
contains the terms and conditions relating to performance and a provision
for settlement of disputes by arbitration), then, the terms of the referred
contract in regard to execution/performance alone will apply, and not the
arbitration agreement in the referred contract, unless there is special
reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and
conditions of an independent trade or professional institution (as for
example the standard terms and conditions of a trade association or
architects association) will bind them or apply to the contract, such
standard form of terms and conditions including any provision for
arbitration in such standard terms and conditions, shall be deemed to be
incorporated by reference. Sometimes the contract may also say that the
parties are familiar with those terms and conditions or that the parties have
read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the
conditions of contract of one of the parties to the contract shall form a part
of their contract (as for example the general conditions of contract of the
Government where the Government is a party), the arbitration clause
forming part of such general conditions of contract will apply to the
contract between the parties.”
10 | P a g e
In NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd., (2024) 7 SCC
174, referring to M.R. Engineers & Contractors (P) Ltd.‘s case (supra), the
Supreme Court of India expressed and reiterated the principles laid down therein:
“19. A perusal of sub-section (5) of Section 7 of the Arbitration Act itself
would reveal that it provides for a conscious acceptance of the arbitration
clause from another document, by the parties, as a part of their contract,
before such arbitration clause could be read as a part of the contract
between the parties.
20. It is thus clear that a reference to the document in the contract should
be such that shows the intention to incorporate the arbitration clause
contained in the document into the contract.”
Next Section 8 of the Act should be considered since the instant application is for
reference of the present dispute to arbitration. Section 8 provides:
“8. Power to refer parties to arbitration where there is an
arbitration agreement.
(1) A judicial authority, before which an action is brought in a matter which
is the subject of an arbitration agreement shall, if a party to the arbitration
agreement or any person claiming through or under him, so applies not
later than the date of submitting his first statement on the substance of the
dispute, then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless it finds
that prima facie no valid arbitration agreement exists.(2) The application referred to in sub-section (1) shall not be entertained
unless it is accompanied by the original arbitration agreement or a duly
certified copy thereof.
Provided that where the original arbitration agreement or a certified copy
thereof is not available with the party applying for reference to arbitration
under sub-section (1), and the said agreement or certified copy is retained
by the other party to that agreement, then, the party so applying shall file
such application along with a copy of the arbitration agreement and a
petition praying the Court to call upon the other party to produce the
original arbitration agreement or its duly certified copy before that Court.
11 | P a g e
(3) Notwithstanding that an application has been made under sub-section
(1) and that the issue is pending before the judicial authority, an arbitration
may be commenced or continued and an arbitral award made.”
Section 8 of the Act is based on Article 8 (1) of the UNCITRAL Model Law. In use of
the word “judicial authority” this provision shows a significant departure from
Article 8(1) of the Model Law where the word “court” was used. Secondly, it cast a
duty upon the Court to see whether prima facie a valid arbitration agreement exists.
In fact, Section 8 provides with a mechanism to bring to the notice of the judicial
authority that an arbitration agreement exists and the judicial authority should refer
the mater to arbitration. Scope of the judicial authority, as a referral court, under
Section 8 of the Act was considered at length by the seven Judges Bench of the
Supreme Court of India in Interplay Between Arbitration Agreements under
Arbitration, 1996 & Stamp Act, 1899, In re, [(2024) 6 SCC 1], wherein it
was observed that Section 8 provides that when an action is brought before a
judicial authority in a matter which is the subject of an arbitration agreement, such
judicial authority shall refer the parties to arbitration on an application made by a
party to the arbitration agreement or any person claiming through or under him not
later than the date of submitting their first statement on the substance of the
dispute. Section 8 mandates the judicial authority to refer the parties to arbitration
“unless it finds that prima facie no valid arbitration agreement exists”. It was
further observed:
“164. The 2015 Amendment Act has laid down different parameters for
judicial review under Section 8 and Section 11. Where Section 8 requires
the Referral Court to look into the prima facie existence of
a valid arbitration agreement, Section 11 confines the Court’s jurisdiction
to the examination of the existence of an arbitration agreement.
Although the object and purpose behind both Sections 8 and 11 is to
compel parties to abide by their contractual understanding, the scope of
power of the Referral Courts under the said provisions is intended to be
12 | P a g e
different. The same is also evident from the fact that Section 37 of the
Arbitration Act allows an appeal from the order of an Arbitral Tribunal
refusing to refer the parties to arbitration under Section 8, but not from
Section 11.”
It is now apt to come to the case in hand.
Clause 6.10 of the Share Transfer Agreement is an arbitration clause. It
states as follow:
“Arbitration: In the event of any dispute or difference arising by and
between the parties hereto either concerning or touching upon any of the
terms and conditions of the contract, the same shall be referred to the
Arbitral Tribunal (the “Tribunal”). The Tribunal shall consist of three
arbitrators, Mr. Anil Choudhury, Advocate to be appointed as an Arbitrator
by the Sellers and the Company on the one hand and Mr. Sandip Agarwal,
advocate to be appointed as an Arbitrator by the Buyers on the other. The
third Arbitrator shall be appointed by the said two nominee arbitrators of
the parties. The arbitration proceedings shall be conducted in accordance
with the Arbitration and Conciliation Act, 1996. The decision of such
Tribunal in the matter shall be final and binding. The arbitration sittings
shall be held at Kolkata and the Courts at Kolkata alone shall have
jurisdiction.”
Clause 6 of the Escrow Agreement is invoked by the Petitioner herein for the purpose
of reference to arbitration. Clause 6 may be quoted below:
“In the event of any dispute or difference arising in implementation of this
agreement, the decision of the Escrow holders shall be final and binding on
the parties. However, if any dispute is referred to any of the parties to
Arbitration in accordance with the Arbitration Clause contained in the said
Document Recording Share Transfer, in that event the Escrow holders shall
keep the escrow amount with them till the disposal of the arbitration
proceedings and shall abide by the result or decision of the arbitration.”
Prima facie, reading of the clause gives clear impression that any dispute or
difference should be decided by the Escrow Holders and that decision shall be final
13 | P a g e
and binding on the parties. In continuation to this it is clarified that if any dispute is
referred to arbitration in accordance with the arbitration clause of the Share Transfer
Agreement, the Escrow Holders shall keep the escrow amount with them till the
disposal of the arbitration proceeding and shall abide by the results/decisions of the
arbitrator. Reference may be made to IN RE CARUS-WILSON AND GREENE.
([L.R.] 18 Q.B.D. 7; [1886] 18 QBD 7, 9). The following observations of LORD
ESHER are very relevant:
“If it appears from the terms of the agreement by which a matter is submitted
to a person’s decision, that the intention of the parties was that he should hold
an inquiry in the nature of a judicial inquiry, and hear the respective cases of
the parties, and decide upon evidence laid before him, then the case is one of
an arbitration. The intention in such cases is that there shall be a judicial
inquiry worked out in a judicial manner. On the other hand, there are cases in
which a person is appointed to ascertain some matter for the purpose of
preventing differences from arising, not of settling them when they have
arisen, and where the case is not one of arbitration but of a mere valuation.
There may be cases of an intermediate kind, where, though a person is
appointed to settle disputes that have arisen, still it is not intended that he
shall be bound to hear evidence or arguments. In such cases it may be often
difficult to say whether he is intended to be an arbitrator or to exercise some
function other than that of an arbitrator. Such cases must be determined each
according to its particular circumstances. I think that this case was clearly not
one of arbitration, and that it falls within the class of cases where a person is
appointed to determine a certain matter, such as the price of goods, not for the
purpose of settling a dispute which has arisen, but of preventing any dispute.”
In State of Uttar Pradesh vs Tipper Chand [(1980) 2 SCC 341], the Supreme
Court of India considered a clause in the agreement whereunder the decision of the
Superintending Engineer for the time being shall be final, conclusive and binding on
all parties to the contract upon all questions relating to the meaning of the
specifications, design, drawing and instructions. It was observed:
14 | P a g e
“After perusing the contents of the said clause and hearing learned Counsel for
the parties we find ourselves in complete agreement with the view taken by the
High Court. Admittedly the clause does not contain any express arbitration
agreement. Nor can such an agreement be spelled out from its terms by
implication, there being no mention in it of any dispute, much less of a
reference thereof. On the other hand, the purpose of the clause clearly appears
to be to vest the Superintending Engineer with supervision of the execution of
the work and administrative control over it from time to time.”
In Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd., [(1999) 2
SCC 166] the Supreme Court of India considered similar clauses in a contract where
decisions of the Executive or Superintendent Engineer shall be final. It was held that
there was no intention of the parties to refer the matters for arbitration. Referring to
Hudson’s Building and Engineering Contracts, it was observed:
“8. In Hudson’s Building and Engineering Contracts, 11th Edn., Vol. 1, in
para 6.065, while making a distinction between a certifier and an arbitrator
in a building contract, it has been emphasised that essentially the certifier in
a construction contract will often be performing an administrative rather
than a judicial function, and when doing so, there may often be no
formulated dispute before him at all. He has been described as a “preventer
of disputes” in contradistinction to an arbitrator whose function can only
arise once a dispute is in existence. He is not under the same obligation to
afford the parties or their representatives a full hearing and receive evidence
from them. Thus each contractual provision may need to be carefully
scrutinised to see into which category the person named falls.”
Dismissal of the application filed under Section 8 of the Arbitration Act, 1940 was
upheld, considering the concerned clauses which did not contemplate reference of
disputes to arbitration. In P. Dasaratharama Reddy Complex v. Govt. of
Karnataka, [(2014) 2 SCC 201] the Supreme Court of India considered similar
clause where it was provided that the decision of the concerned engineer should be
final. Three Judges’ Bench of the Supreme Court of India negatived the contention
that the said clause was arbitration clause. In this case the Supreme Court of India
15 | P a g e
made a distinction between arbitration clause and expert determination clause and
observed that a valid arbitration clause invites judicial determination with aid of
evidence.
These decisions are considered for one reason. Clause 6 of the Escrow
Agreement states that the decision of the Defendant Nos.1 & 2, as Escrow Holders,
shall be binding on the parties. In the cases referred to above, the Supreme Court of
India decided on almost similar types of clauses with different phraseologies,
whereby, the parties agreed that decision of one person should be final in case of any
dispute or difference. Whether these persons were valuers or engineers or otherwise,
presence of such type of clauses negate any scope of arbitration. All these types of
clauses rule out referring any dispute to arbitration. In this case too, the parties
consciously accepted that the decisions of the Escrow Holders should be binding,
whereby they rule out scope of referring any dispute to arbitration. Rather it appears
that the Clause 6 of the Escrow Agreement was incorporated for “preventing any
dispute”. Clause 6.10 of the Share Transfer Agreement is referred to in this clause
only to make it clear that if a dispute is referred to arbitration by the parties to the
Share Transfer Agreement pursuant to the arbitration clause then the escrow amount
shall be kept deposited with the Escrow Holders. By no stretch of imagination Clause
6 of the Escrow Agreement convey a meaning or contain any intention of the parties
to refer any dispute on decision of the Escrow Holders shall be referred to
arbitration.
For the reasons stated above, the instant petition is not tenable and stands
dismissed. It is made clear that observations, made above are tentative and has no
bearing on the merit of the suit.
16 | P a g e
The suit along with other application shall appear in the list as to be
mentioned on 7th May, 2025.
(Sugato Majumdar, J.)
[ad_1]
Source link