# K.K. MODI v. K.N. MODI AND ORS

- **Citation:** [1998] 1 S.C.R. 601
- **Court:** Supreme Court of India
- **Decided:** 1998-02-04
- **Case number:** Civil Appeal No. 613of1998
- **Bench:** Mrs. Sujata V. Manohar, D.P. Wadhwa
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/k-k-modi-v-k-n-modi-and-ors-16139
- **Pages:** 28

## Headnote

B
Arbitration Act, 1940: Section 2(p).
Arbitration agreement-Attributes of~Decision or AwardMemi:Jrandum of Understanding (MOU)-Recorded family settlement of C
.disputes as regard division of assets between two groups of the same family-
&perts were appointed for valuation and preparing a scheme for division
· · of companies owned by the family between the two groups-Clause 9 of the
MOU provided that disputes, clarifications etc. in respect of implementation
of MOU would be referred to the Chairman, Industrial Finance Corporation
of India Ltd. (IFCI), whose decision would be final and binding-Accordingly, D
the Chairman gave his decision-Held: Attributes of arbitration agreement
are: &istence of disputes; choosing of tribunal or forum; binding nature of
its decision and judicial determination of decision-MOU is not an arbitration
agreement but only a reference of disputes for decision by an expert-Hence,
such a decision is not an arbitration award-Arbitration and Conciliation E
Act, 1996, S.7.
Code of Civil Procedure 1908: Order 6 Rule 16.
Abuse of process of court-Meaning of-Two parallel proceedings were
instituted by a party on the same day-One under S.33 of Arbitration Act and F
the other by way of a suit challenging the said decision in case it was held
in the first proceeding that the decision was not an arbitration awardSeveral prayers were identical in both the proceedings-Held: Re-litigation
on the same issue, whether or not barred as res judicata, is an abuse of the
process of court-Court has discretion to strike out the pleadings if it is G
satisfied that there is no chance of the suit succeeding-However, court
should exercise its jurisdiction sparingly only in special cases-Hence, the
plaint in the suit to the limited extent that it raised an alternative independent ·
plea, is not an abuse of the process of the court-But the plaint insofar as
it challenged the decision as an arbitration award is an abuse of the process
1 of the court-Arbitration Act, 1940, S.32.
601
H
602
SUPREME COURT REPORTS
[1998] 1 S.C.R.
A
Hindu Law:
B
c
F amity settlement-MOU arrived at between two groups of same family
regard to division of assets-Held: The family settlement is different from an
ordinary contract-Court should not lightly interfere with such a family
settlement especially when it has been acted upon by the parties.
Words Phrases:
"Abuse of the process of the court"-Meaning of-In the context of 0.6
Rule 6 of the Code of Civil Procedure, 1908.
The appellant and respondents belong to the same family and own or
have controlling interest in a number of public limited companies and also
own various assets. Differences and disputes has arisen between the appellant
and his. sons constituting on the one hand Group B and respondent
constifuting Group A on the other. To resolve these differences, negotiations
D took place with the help of the financial instifutions which had lent money
to these companies, representatives of several banks, RBI etc. and ultimately
a Memorandum of Understanding (MOU) was arrived at between Group A and
Group R The MOU recorded a settlement arrived at between the two Groups
in terms of which the shares and assets of various companies were required
to be valued in the manner specified in the agreement. The valuation was to
E be done by a private company. Three companies, which have to be divided
between the two groups were to be divided in accordance with a scheme to
be prepared by another private compllJly. l'un1lant to the MOU the two private
companies gave their reports. In the implementation of the MOU which was .
to be done in consultation with the financial institutions, Clause 9 of the
F MOU stipulated that disputes or clarifications relating to implementation.
were to be referred to the Chairman, Indusbial Finance Corporation of India
Ltd. (IFCI) or his nominees whose decision would be final and binding.
The members of both the Groups were dissatisfied with the report of
the private companies. They se

## Text

_Characters 0–39,986 of 72,559. This is a partial read: ask again with offset=39986 for what follows._

K.K. MODI
A
v.
K.N. MODI AND ORS.
FEBRUARY 4, 1998
[MRS. SUJATA V. MANOHAR AND D.P. WADHWA, JJ.]
B
Arbitration Act, 1940: Section 2(p).
Arbitration agreement-Attributes of~Decision or AwardMemi:Jrandum of Understanding (MOU)-Recorded family settlement of C
.disputes as regard division of assets between two groups of the same family-
&perts were appointed for valuation and preparing a scheme for division
· · of companies owned by the family between the two groups-Clause 9 of the
MOU provided that disputes, clarifications etc. in respect of implementation
of MOU would be referred to the Chairman, Industrial Finance Corporation
of India Ltd. (IFCI), whose decision would be final and binding-Accordingly, D
the Chairman gave his decision-Held: Attributes of arbitration agreement
are: &istence of disputes; choosing of tribunal or forum; binding nature of
its decision and judicial determination of decision-MOU is not an arbitration
agreement but only a reference of disputes for decision by an expert-Hence,
such a decision is not an arbitration award-Arbitration and Conciliation E
Act, 1996, S.7.
Code of Civil Procedure 1908: Order 6 Rule 16.
Abuse of process of court-Meaning of-Two parallel proceedings were
instituted by a party on the same day-One under S.33 of Arbitration Act and F
the other by way of a suit challenging the said decision in case it was held
in the first proceeding that the decision was not an arbitration awardSeveral prayers were identical in both the proceedings-Held: Re-litigation
on the same issue, whether or not barred as res judicata, is an abuse of the
process of court-Court has discretion to strike out the pleadings if it is G
satisfied that there is no chance of the suit succeeding-However, court
should exercise its jurisdiction sparingly only in special cases-Hence, the
plaint in the suit to the limited extent that it raised an alternative independent ·
plea, is not an abuse of the process of the court-But the plaint insofar as
it challenged the decision as an arbitration award is an abuse of the process
1 of the court-Arbitration Act, 1940, S.32.
601
H
602
SUPREME COURT REPORTS
[1998] 1 S.C.R.
A
Hindu Law:
B
c
F amity settlement-MOU arrived at between two groups of same family
regard to division of assets-Held: The family settlement is different from an
ordinary contract-Court should not lightly interfere with such a family
settlement especially when it has been acted upon by the parties.
Words Phrases:
"Abuse of the process of the court"-Meaning of-In the context of 0.6
Rule 6 of the Code of Civil Procedure, 1908.
The appellant and respondents belong to the same family and own or
have controlling interest in a number of public limited companies and also
own various assets. Differences and disputes has arisen between the appellant
and his. sons constituting on the one hand Group B and respondent
constifuting Group A on the other. To resolve these differences, negotiations
D took place with the help of the financial instifutions which had lent money
to these companies, representatives of several banks, RBI etc. and ultimately
a Memorandum of Understanding (MOU) was arrived at between Group A and
Group R The MOU recorded a settlement arrived at between the two Groups
in terms of which the shares and assets of various companies were required
to be valued in the manner specified in the agreement. The valuation was to
E be done by a private company. Three companies, which have to be divided
between the two groups were to be divided in accordance with a scheme to
be prepared by another private compllJly. l'un1lant to the MOU the two private
companies gave their reports. In the implementation of the MOU which was .
to be done in consultation with the financial institutions, Clause 9 of the
F MOU stipulated that disputes or clarifications relating to implementation.
were to be referred to the Chairman, Indusbial Finance Corporation of India
Ltd. (IFCI) or his nominees whose decision would be final and binding.
The members of both the Groups were dissatisfied with the report of
the private companies. They sent various representations to the Chairman,
G IFCI in view of Oause 9 of the MOU. The Chairman, IFCI formed a Comlliittee
of Experts to assist him in deciding the questions that arose and gave his
detailed decisiontreport. The Chairman, IFCI described this report as his
decision on each dispute raised or clarification sought and quoted in his
covering letter that since the MOU had already been implemented to a large
extent it was left to the members of both the groups to settle amongst
H themselves the family matter without any further reference to IFCL Acconling
•.
•
•.
-ii
'
. ..J--
, .
K.K. MODI v. K.N. MODI
603
to the decision a certain sum was payable by Group B to Group A.
A
This report was not filed in Court as an award nor was any application
filed by Group B to make the Report a rule or decree of tlie Court. The
appellants (Group B) filed an arbitration petition under Section 33 of the
Arbitration Act, 1940 before the High Court challenging the legality and
validity of the said decision of the Chairman, IFCI on the basis that it was B
an award in arbitration proceedings between Groups A and Group B. On the
same day Group B also filed a Civil Suit in the High Court challenging the
same decision of the Chairman, IFCI. 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 C
being claimed in a suit in the event of it being held that the decision of the
Chairman, IFCI was not an arbitration award but was just a decision.
The High Court held that the decision of the Chairman, IFCI was not
an award in arbitration proceedings and, therefore, the arbitra,ion petition
was not maintainable. As regards the suit the High Court held that it was D
an abuse of the process of the court since the allegations in the arbitration
petition, and the plaint in the suit were identical and both the proceedings
were instituted on the same day. The High Court, therefore, struck down the
paint under Order 6 Rule 16 of the Code of Civil Procedure, 1908 and
dismissed the suit. Hence this appeal.
The following questions arose before this Court for determination:-
(1) Whether Clause 9 of the MOU constituted an arbitration agreement;
and whether the decision of ihe Chairman, IFCI constituted an award?
(2) Whether the Suit was an abuse of the process of the court?
Disposing of the appeal, this Court
HELD: 1.1. Among the attributes, which must be present for an
agreement to be considered as and arbitration agreement, are: [614~F]
(1) The arbitration agreement must contemplate that decis.ion of the
tribunal will be binding on the parties to the agreement. (614-F]
E
F
G
(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 H
604
SUPREME COURT REPORTS
[1998] l S.C.R.
A is to be an arbitration. [614-G)
(3) The agreement must contemplate that substantive rights of l>arties
will be determined by the agreed tribunal. [614-H)
(4) That the tribunal will determine the rights of the parties in an
B impartial and judicial manner with the tribunal owing an equal obligation of
fairness towards both sides. [615-AJ
c
(5) That the agreement of the parties to refer their disputes to the
decision of the tribunal must be intended to be enforceable in law and lastly.
[615-B]
(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. [615-B]
1.2. The other factors which· are relevant include, whether the
D 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
E according to law. [615-C)
'
Mustil/ and Body: "Commercial Arbitration," 2nd Edn., p.30 and
Russell on Arbitration, 21st Edn., p. 37, para 2-014, referred to.
2.1. While there arc no conclusive tests, by and large, one can follow
F 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. [616-A-B]
2.2. Therefore, Indian Courts have laid emphasis on (1) existence of
disputes as against intention to avoid future disputes; (2) the tribunal or
G forum so chosen is intended to act judicially after taking into account
relevant evidence before it and the submission made by the parties before it;
(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 requirement of a
H written agreement, existing or future disputes and an intention to refer them
K.K. MODI v. K.N. MODI
605
to arbitration. (Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration A
,
.~
and Conciliation Act, 1996). [616-C-D)
Smt. Rukmanibai Gupta v. Collector Jabalpur, [1980] 4 SCC 556;
State of UP. v. Tipper Chand, [1980) 2 SCC 341; Cursetji Jamshedji Ardaseer
Wadia v. Dr. R.D. Shriralee, AIR (1943) Born 32; Vadilal Chatrabhuj Gandhi
v. Thakorelal Chimanlal Munshaw, 55 BLR 629; State of West Bengal v. B
.J...
Haripada Santra, AIR (1990) Cal. 83; Jammu and Kashmir State Forest
Corporation v. Abdul Karim Wani, [1989) 2 SCC 701; MDayanand Reddy
v. A.P. Industrial lnfarstraucture Corporation Ltd., [1983) 3 SCC 137 and
State of Orissa v. Damodar Das, [1996) 2 SCC 216, relied on.
Carus-Wilson and Greene, [1896) 18 QB~ 7; Sutcliffe v. Thackrah, C
[1974] 1AER859; Arenson v. Casson Beckman,Rutley .& Co, [1975] 3 AER
901 and imperial Metal Industries (Kynoch) Ltd. v. Amalgamted Union of
Enginerring Workers, (1979] AER 847, referred to.
3.1. Clause 9 of the Memorandum of Understanding (MOU) is intended D
to clear any other difficulties, which may arise in the implemeqtation of the
agreement leaving it to the decision of the Chairman, Industrial Finance
Corporation of India Ltd. This Clause does not contemplate any judicial
determination by the Chairman, IFCL He is entitled to nominate another
person for deciding any question. His decision has been made final and
binding. This, Clause 9 is not intended to be for any different decision than E
what is already agreed upon between the parties to the dispute. The Chairman,
IFCI has designated his decision as a decisio.n. He has consulted experts in
connection with valuation arid division of assets. He did not file his decision
in Court nor did any of the parties request him to do so. [620-E-G]
3.2. In the course of correspondence exchanged by various members F
of Groups A and B with the Chairman, IFCI, some of the members have used
the words "arbitration" in connection with Clause 9. That bf 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, IFCL Nor .
was the Chairman, IFCI required to base bis decision only on the material G
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 has been authorised to nominate another
in his place. But the contact indicates that he has to nominate an expert. The H
606
SUPREME COURT REPORTS
[1998) 1 S.C.R.
A fact that submissions were made before the Chairman, JFCI, would not tum
the decision-making process into arbitration. (620-H; 621-A-C]
3.3. The Chairman, JFCI has framed issues before answering them in
his decision. These issues have been framed by himself for the purposes of
enabling him to pinpoint those issues, which require his decision. There is
B no agrct>d reference in respect of any specific disputes by the parties to him.
.
(621-C-D]
3.4. The finality of the decision is also indicative of it being an expert's
decision though course, this would not be conclusive. But looking at the
nature of the functions expected to be performed by the Chairman, JFCI, the
C decision is not an arbitration award. The High Court was, therefore, right
in coming to the conclusion that the proceedings before the Chairman, IFCI
were not arbitration proceedings. Nor was his decision an award.
(623-D-E)
4.1. Under Order 6 Rule 16 of the Code of Civil Procedure. 1908, the
D Court may, at any stage of the proceeding, order to be strm.:k out, inter alia,
any matter in any pleading which is otherwise an abuse of the 1>rocess of the
Court. Power under clause(c) of Order 6 Rule 16 of the Code is confined
to cases where the abuse of the process of the Court is manifest from the
pleadings. (623-F)
E
Mull : "Code of Civil Procedure " 15th Edn., Vol. II, p. 1179 note 7;
referred to.
4.2. It is an abuse of the process of the court and contrary to justice
and public policy for a party to re-illigate the same issue, which has aready
F 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 \o an abuse of the process of court. A proceeding being filed
for a collateral purpose, or a given set of facts amount to an abuse of the
process of the court. Firvolous or vexations proceedings may also amount to
an abuse of the process of the court especially where the proceedings are
G absolutely groundless. The court then has the power to stop such proceedings
summarily and prevent the time of the public and the court from being
wasted. Undoubtedly, it is a matter of courts' discretion whether such
proceedings should be sto1>ped 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 satisfied that
H there is no chance of the suit succeeding. [624-C-E)
K.K. MODI v. K.N. MODI
607
Gree;1halaghv. Mallard, (1947) 2 AER 255 and Mc/lkenny v. Chief A
Constable of West Midlands Police Force and another, (1980) 2 AER 227,
referred to.
Sweet & Maxwell: The Supreme Court Practice" 1995 paras 18, 19
and 33, p. 344, referred to.
;;.-:i5.1. H 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
rnised in the arbitration petition. The suit would also be barred under
Section 32 of the Arbitration Act, 1940. (625-D]
B
5.2. The plaint in the ~'Uit, to the limited extent that it challenges the C
decision as a decision would not amount to abuse of the process of the court.
But to the limited extent that the suit raises an alternative independent plea,
it cannot be considered as re-litigation of the same issue or an abuse of the
process of the court. (626-B; 625-H]
5.3. In a proceeding under the Arbitration Act, 1940 the appellants D
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 filling a separate suit. Similarly .in the
suit, the appellants could not have raised an alternative plea that in case the
impugned decision is considered_ as an award, the same should be set aside. E
For this purpose an arbitr~tion Jetition was required to be filed. Therefore,
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. (626-C-E]
6. The entire MOU including clause 9 has to be looked upon as a F
~-
family settlement between various members of the Modi family. It is a complete
settlement, providing how assets are to he valued, how they are to be divided,
how a scheme for 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 he subject to such G
directions as the Chairman, IFCI may give pertaining to the implementation
of MOU. He is also empowered to give clarifications and decide any differences
relating to the implementation of the MOU. Such a family settlement, which
settles 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 MOU has been H
,
608
SUPREME COURT REPORTS
[1998] 1 S.C.R
A substantially acted upon and hence the parties mu~1 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 workin~ out the
settlement should not be lightly disturbed. The respondents may make
B apprnpriate submissions in this connection before the High Court. They will
be considered as and when the High Court is required to do so whether in
interlocutory proceedings or at the final hearing. [626-E-H; 627-A-C)
7. The appeal of the appellants from the judgment of the High Court
striking out the plaint is, therefore, party allowed and the suit, to the extent
C that it challenges independently the decision of the Chairman, 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. However, it is not necessary to examine
the merits of the claim not 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 JJlaint insofar as it
D challenges the decision as an award or seeks to prevent the enforcement of
that award in any other way has been rightly considered as an abuse of the
process of the court since the same reliefs have dready been asked for in
the arbitration petition. [627-D-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 613of1998
E Etc.
From the Judgment and Order dated 11.2.97 of the Delhi High Court in
I.A. No. 4550of1996 in O.M.P. No. 58of1996.
F.S. Nariman, A.B. Diwan, Dushyant A. Dave, Rajeev Sawhney, R.K.P.
F Shankar Das, S. Ganesh, Ravinder Narain, Ashok Sagar, Ms. Punita Singh,
Sajan Narain, Ms. Manisha Nigam, Rakesh Sahni, C.K. Sasi, Kailash Vasdev,
Manmohan, O.P. Khaitan, Ms. Mukti Choudhary, Ms. Sandhya Kohli, Surnant
Batra, Ms. Nandini Gore, Ms. Deepa Lal, Ms. Puja, Neeraj Sharma, Ms. Nina
Gupta, Ms. Kiran, Vmeet Kumar, Ratnji Srinivasan, R. Sasiprabhu, Shaju Francis,
G Ms. Aditya Madan, Arvind Minocha, Ms. Veena Minocha, Ms. Meenakshi
Arora for the Respondent.
The Judgment of the Court Wa.s delivered by
MRS. SUJATA V. MANOHAR, J. Leave granted in Special Leave
H Petition Nos. 14905 and 18711of1997.
•
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.]
609
The present litigation has arisen on account of disputes between Seth A
Guijar 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, Y.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 B
and disputes have arisen between Kedar Nath Modi and his sons constituting
Group A and the sons of late Guijar Mal Modi constituting Group B on the
other hand. To resolve these differences, negotiations took place with the
help of the financial institutions which had lent money to these companies
and through whom substantial public funds had been invested in the C
companies owned and/or controlled by these two groups. Representatives of
several banks, Reserve Bank of India and financial institutions wert 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 D
in Clause I. One of the companies so included is Modiporr Ltd. minus lndofil
(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 ratio of 40: 60-Group A getting 40% of the assets and
Group B getting 60% of th'e 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 Mis S.B. Billimoria & Company, Bombay._
Clause 5 provides for companies which are to be split between the two groups
E
as per the Memorandum of Understanding. The division has to be done under
Clause 5 by a scheme of arrangement to be formulated by Mis Bansi S. Mehta F
& Company, Bombay after taking into consideration the valuation done by .
Mis. S.B. Billimoria & Company, Bombay. Units of a company to be given to
each group are to be given along with assets and liabilities. Clause 6 provides
for interim arrangements which are to be made in respect of the three companies
which are being split - these being Modi Industries Ltd., Modipon Ltd. and G
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).
H
610
SUPREME COURT REPORTS
[1998) 1 S.C.R.
A
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
B
binding on both the groups."
~t
to the Memorandnm of Understanding, Mis S.B. Billimoria & Company
gave reports between January and March 1991. Mis 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
C & Company, also sent various reports between November 1989 and December,
1994. The members of both the Groups were dissatisfied with these reports.
TI1ey sent various representations to the Chairman and Managing Director of
the Industrial Finance Corp9ration of India Ltd. in view of Clause 9 of the
Memorandum of Understanding.
D
The Chairman and Managing Director, Industrial Finance Corporation of
E
India formed a Committee of experts to assist him in deciding the questions
that arose. The Committee of Experts and the Chaimlall, 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 from 12th of March 1995 to 8th of December, 1995.
On 8th of December 1995, the Chairman, IFCI gave his detailed decision/
report. fa 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 memorandnm of Understanding
F 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
G A and 8 to settle amongst themselves the family matter without any further
reference to the Chairman and Managing Director of the Industrial Finance
Corpbration of India. In paragraph 7 of the letter he has stated that on the
basis of the total valuation of Modi Group assets and liabilities and allocation
thereof between Groups A and Band the decisions given by him in the report,
a sum of Rs. 2135.55 lakhs would be payable by Group B to Group A. The
H said amount should be deposited by Group 8 with IFCI at its Delhi Regional
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.)
611
Office by 15th ofJanuary, 1996 failing which Group B will be liable to pay A
·~ .)--
interest at the prevailing prime lending rate of the State Bank oflndia (which
was then 16.5% p.a.).
This report was not filed in Court as an award nor was any application
filed by Group B to make the Report a rule or decree of the Court. The
Chairman, Modipon Ltd., who was an independent Chairman nominated by B
IFCI, however, issued a series of directions for implementing or giving effect
to the Report of 8th of December, 1995.
On 18th of May, 1996 the present appellants (Group B) filed an arbitration
petition under Seciton 33 of the Arbitration Act, 1940, bearing O.M.P. No. 58
of 1996 in the Delhi High Court challenging the legality and validity of the C
said decision of the Chairman and Managing Director, IFCI dated 8.12.1995
on the basis that it was an award in arbitration proceedings between Group
A and Group B. In the petition other directions were also sought against the
Chairman, Modipon Ltd.
On the same day Group B also filed a Civil Suit No. 1394 of 1996 in the D
Delhi High Court to challenge the same decision of the Chairman and Managing
Director, IFCI 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 E
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 4550of1996. By an ad-interim order in O.M.P.
No. 58of1996 and I.A 4550of1996 dated 24th of May, 1996, the Delhi High
Court stayed the operation of the "award" dated 8.12.1995 and directions of F
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.
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Interim application I.A 4550of1996 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 I Ith of February, 1997. A learned Single of the
Delhi High Court held by the said judgment that the decision of the Chairman
and Managing Director, IFCI dated 8.12.1995 cannot be considered as an H
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SUPREME COURT REPORTS
[ 1998] 1 S:C.R.
A 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,
B 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, therefore, not maintainable,
since the decision impugned was not an award within the meaning of the
Arbitration Act, 1940. Under the circumstances he dismissed the interim
C application I.A 4550of1996 in arbitration petition O.M.P. No.58of1996. By
the 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
D March, 1997. The learned Single Judge passed an interim order to the effect
that until further orders, no meeting 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. 5112of1996 as also interim application
E I.A. 2293 of 1997 in arbitration petition O.M.P. No. 58 of 1996 were heard
together and decided by the learned Single Judge by 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 of 1996 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
F instituted on the same date. The learned Single Judge struck down the plaint
under 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 by the above judgment and order dated 6th of September,
G 1997, the present appellants filed an appeal before the Division Bench of the
Delhi High Court being R.F.A. (OS) 41of1997. The appellants also made an
interim application being C.M. 1270of1997 in R.F.A (OS) 41of1997. 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
H the same order, C.M. 1270 of 1997 by passing an order reviving the order
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K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.]
613
passed by the learned Single Judge on 13. 3 .1997 by which the learned Single A
Judge had directed that pending further orders no meeting of the Modipon
Board should be held to consider any matter.
S.L.P. (Civil) No. 1871l/l997is 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 B
. High Court dated 11.2.1997 in I.A 4550 of 1996 in atbitration petition O.M.P.
No. 58 of 1996. We have 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, RF.A (OS) 41 of 1997 has also been transferred to us C
being T.C.(civil) No. 30of1997 for consideration. All these tl1ree proceedings
have been heard together. During t11e pendency of S.L.P. (Civil) No. 18711 of
1997, in I.A No.3 we have by our ad-interim order dated 18.11.1997 varied t11e
interim order of 13th of March, 1997 to the following effect:
"Until further orders no meeting of the Modipon Board shall be held D
for considering any matter relating to decision of the C.M.D., IFCI
dated 8.12.1995 or concerning t11e sale of shares held in Godfrey Philip
India Limited."
Thereafter, on 7tl1 of January, 1998 after hearing botll sides, tlle following
order has been passed in I.A.No.3 in S.L.P (Civil) No. 18711/97, in terms of E
tlle minutes :-
"For a period of eight weeks from today, neitller Mr. K.K. Modi
nor Mr. M.K. Modi will acquire directly or indirectly any further
share~ of Modipon Limited nor take any 'steps that would in any way
directly or indirectly destab!ise tlle control and management of fue F
Fibre Division of Modipon Limited by Mr. K.K. Modi and of tlle
Chemical Division ofModipon Limited by Mr. M.K. Modi.
Liberty to apply for variation if circumstances change."
The present proceedings raise two main questions :
Question 1 : Whether Clause 9 of tlle Memorandum of Understanding
dated 24tl1 of January, 1989 constitutes an arbitration agreement; and whetller
tlle decision of tlle Chairman, IFCI dated 8tl1 December, 1995 constitutes an
award? and
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SUPREME COURT REPORTS
(1998] I S.C.R
A
Question 2: Whether Suit No. 1394/1996 is an abuse of the process of
court?
•
Question No. 1 :
Mustill and Boyd in their book on "Commercial Arbitration", 2nd Edition,
B 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 fro in which their powers are derived. Dealmg
witl1 tribunals whose jurisdiction is .derived from consent of parties, they list,
apart from arbitral tribunals, persons (not properly called Tribunals) entrusted
C by consent with the power to affect the legal rights of two parties inter se
in a manner creating legally enforceable rights, but intended to do so by a
procedure of a 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
D rights of two parties inter se, 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 the
attributes which must be present for an agreement to be considered as an
E arbitration agreement, though these attributes in themselves may not be
sufficient. They have also listed certain other considerations 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 :
F
(1) The arbitration agreement must contemplate that the decision of the
tribunal will be binding on the parties to the agreement,
(2) That tlie jurisdiction of the tribunal to decide tlle rights of parties
must derive eitller from tlle consent of tlle parties or from an order
G
of the Court or from a statute, tlle terms of which make it clear tllat
the process is to be an arbitration, ·
(3) The agreement must contemplate that substantive rights of parties
will be determined by tlle agreed tribunal,
H
(4) That t,he tribunal will determine the rights of tlle parties in an
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K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.]
615
impartial and judicial manner with the tribunal owing an equal A ,
obligation of fairness towards both sides,
(5) That the agreement of the parties to refer L..eir 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.
B
The other factors whkh are relevant include, whether the agreement
contemplates that the tribunal will receive evidence from both sides and hear C
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 lav:.
In Russell on Arbitration, 21st Edition, at page 37, paragraph 2-014, the D
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 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 E
express words of the disputes clause. If specific words such as 'arbitrator',
'arbitral tribunal', 'arbitration' or the formula 'as an expert and not as an
'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 then, is no express wording, the court will refer to certain guidelines .
Of these, the most important used to be, whether there was an 'issue' between F
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 elqJert 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 G
parties to contract deliberately choose expert determination for dispute
resolution. The nex1 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 t11e 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 H
616
SUPREME COURT REPORTS
[1998] 1 S.C.R.
A decides on his own expert opinion ...... "
B
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 (I) existence of disputes as
against iii.ten~ion 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
C conclusive. One must examine the true intent and Purport of the agreement.
D
E
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 .sec 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 di 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
F the there was no mention in this clause of any dispute, much less of a
reference thereof.