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Judgment
D.H. Waghela, J.—ADMIT.
Heard the learned counsel for the appellant andthe respondent, who appeared on caveat. By consent, theappeal is heard and finally disposed by
this judgment.
This appeal is preferred from the order of thelearned Judge of the City Civil Court No.16, Ahmedabadbelow the notice of motion at Ex.16 in
Civil Suit No.6390of 1999. The appellant, who is the original plaintiff,has by its application for interim injunction prayed for the relief as under:
(a) Pending hearing and final disposal of thesuit, the Hon''ble Court may be pleased to grantinterim injunction restraining the defendant No.1from
commencing or participating in thearbitration proceedings in pursuance of thenotice dated 18.10.1999 or 17.11.1999 or evenotherwise in
connection with the royaltyagreement dated 5.11.1992.
In the plaint of the main Civil Suit No.6390 of1999, the appellant has mainly prayed for the reliefs asunder:
(a) The Hon''ble Tribunal be pleased todeclare that the Royalty Agreement dated5.11.1992 does not subsist or survive and/or thatdefendant
No.1 is not legally entitled to invokearbitration and refer the claims mentioned in thenotices dated 18.10.1999 and 17.11.1999 toarbitration or
even otherwise.
(b) The Hon''ble Court be pleased to grantpermanent injunction restraining defendant No.1from commencing or participating in thearbitration
proceedings in pursuance of noticesdated 18.10.1999 or 17.11.1999 or even otherwisein connection with the Royalty Agreement
dated5.11.1992.
After detailed discussion of the factual position andlegal contentions, the learned Judge of the trial Courthas, in the impugned order, reached prima
facieconclusions that the questions, such as, that of fraud orexistence of a valid arbitration clause can be referredto the arbitrator and the issue
about a truncatedjudgment in view of the pendency of the earlier suit inrespect of the other agreement can also be raised beforethe arbitrators.
And, if ultimately the award of thearbitrators is challenged, the appellant can take up theissues in the proceedings provided for under theArbitration
and Conciliation Act, 1996 (the ''Act'', forshort).
It may be necessary to briefly recount thebackground of the facts emerging from the rival pleadingsand submissions. The appellant is a registered
companyrunning a hotel at Ahmedabad. The respondents are alsotwo registered companies in the same business andbelonging to one group. On
5.11.1992, a memorandum ofunderstanding (MOU) was arrived at between the parties interms whereof three separate agreements were arrived
aton the same day between the appellant (RMHIL for short),EIH Ltd. (EIHL for short) and Oberoi Hotel Pvt. Ltd.(OBEROI for short). Out of
the three agreements, onetechnical assistance agreement (TAA for short) was forconstructing and commissioning a five-star hotel with thetechnical
assistance of EIHL. The second technicalservices agreement (TSA for short) and the third RoyaltyAgreement (RA for short) were for operating
the hotel byEIHL with the full control in the operational matters andfor the use of the name ""The Trident"" by RMHILrespectively. Thus, in short,
the understanding and theagreements provided for construction, commissioning andoperation of, and use of a name for, a hotel at
Ahmedabadbetween the appellant and the group companies of therespondent. As far as this case is concerned, the firsttechnical assistance
agreement is irrelevant as thedispute has arisen in the course of the operation of theother two agreements after the hotel was commissioned inthe
name and style of ""The Trident"" since 1.10.1995.
3.1 In March, 1998, RMHIL withdrew the authorisationgiven to EIHL to operate the bank accounts as a result ofwhich the operation of the hotel
becamedifficult. Hence, on 1.4.1998, EIHL filed a Civil SuitNo.1629 of 1998 against RMHIL and the bankers for apermanent injunction against
RMHIL, inter alia, to enableEIHL to continue to operate the bank account of the hotelin accordance with the second technical service
agreement(TSA). In September 1998, EIHL issued a notice to RMHILfor arbitration in terms of the provisions contained inthe agreement. But,
immediately, RMHIL removed all theexecutives of EIHL from the hotel and issued a letter toRMHIL unilaterally terminating the TSA. After
that,RMHIL filed their counter-claim in the aforesaid suitclaiming that the TSA was non est in view of it being theresult of misrepresentation, fraud
etc. on the part ofEIHL. Pursuant to this development, EIHL and OBEROI gavea public notice and a notice to RMHIL terminating thethird royalty
agreement. EIHL also filed an applicationin the Civil Court for withdrawal of the aforesaid CivilSuit No.1629 of 1998 as the TSA stood
terminated and alsoprayed for a reference of the dispute to arbitration.The Civil Court rejected both the prayers of EIHL by itsorder dated
25.11.1998 from which Civil RevisionApplication No.298 of 1999 is preferred by EIHL and thesame is admitted and pending in this Court.
3.2 On the other hand, EIHL issued a notice to RMHILclaiming damages due to the premature termination of theTSA by the latter. The other
group company, i.e.OBEROI, also issued a notice to RMHIL claiming damages aswell as outstanding royalty dues within a month. EIHLhas
invoked the provisions for arbitration by appointingan arbitrator as stated in its notice. OBEROI alsoinvoked arbitration and appointed its
arbitrator toadjudicate upon the claims as stated in its notice.RMHIL has replied to the notice of OBEROI informing aboutthe appointment of its
arbitrator in due course.However, on the same day, i.e. 17.12.1999, RMHIL alsofiled Civil Suit No.6390 of 1999 alongwith the notice ofmotion
from which the present appeal arises and in whichthe reliefs as stated therein are prayed for. RMHIL hasalso, without prejudice to its contentions,
appointed andnominated its arbitrator in response to the notice dated17.11.1999 of OBEROI.
3.3 Thus, in short, the two arbitration proceedingspursuant to the two agreements between the appellant andone of the two respondents are
underway even as the twocivil suits are also pending in the City Civil Court andthe interlocutory orders made therein are under challengein this
Court.
3.4 During the pendency of the arbitrationproceedings pursuant to the TSA between EIHL and RMHIL,the latter has filed Civil Suit No.2260 of
2000 seekingstay of the arbitration proceedings and has also taken upa notice of motion which is rejected on 7.7.2000.
3.5 Against the backdrop of the facts as above,although the present case involves only the royaltyagreement between the appellant-RMHIL and
one of therespondents i.e. Oberoi Hotels Pvt. Ltd. (OBEROI) andseeks to stay the arbitration proceedings, the otheragreement, i.e. the technical
services agreement (TSA)and the other respondent i.e. EIHL are brought intopicture on the premise that both the agreements were apart and
result of the original composite memorandum ofunderstanding and that the termination of the royaltyagreement was the result of the termination of
thetechnical service agreement. The nature and gist of thedispute among the parties is such that as the hotel atAhmedabad constructed,
commissioned and operated by thearrangement referred to hereinabove was not allowed to berun in terms of the technical service agreement and
theagreement with EIHL was unilaterally terminated by RMHIL,the other royalty agreement between RMHIL and OBEROI forusing the name
The Trident"" came to be terminated byOBEROI.
The appellant (RMHIL) has repeatedly assertedthat the RA and TSA agreements were separate andindependent and not co-terminus with each
other.Admittedly, RMHIL terminated the TSA and in responseOBEROI terminated the RA which termination was acceptedby RMHIL. In case
of occurrence of any default in theworking of the RA, a mechanism of arbitration is providedby an express stipulation. However, according to
theagreements, the TSA can be terminated on termination ofRA, but there is no provision for termination of RA ontermination of TSA. But,
according to RMHIL, when RAwas, in fact, repudiated by OBEROI on termination byRMHIL of the TSA, OBEROI cannot invoke arbitration
underthe RA as the agreement itself does not survive on itsrepudiation by one and acceptance thereof by the other.On the other hand, it is also
submitted on behalf ofRMHIL that since RA is repudiated as a result oftermination of TSA by RMHIL, the dispute arising frombreach or
termination of RA cannot be referred toarbitration for the reason that the breach of TSA is aseparate but related subject-matter under adjudication
inthe civil suit filed by EIHL. On this basis, it issubmitted that OBEROI and EIHL, which are, if theircorporate veil were lifted, the same company,
afterresorting to civil suit in respect of TSA were invokingarbitration under RA which would involve the samedisputes and issues regarding the
breach of TSA.Therefore, on the grounds that double adjudication of thesame issues, one in the civil suit and the other in thearbitration
proceedings, is against public policy andlikely to produce contradictory findings and that EIHLhas already resorted to civil suit and subjected
itselfto the jurisdiction of the Civil Court, it is prayed byRMHIL that OBEROI may be restrained from commencing orparticipating in arbitration
proceedings in connectionwith RA.
As seen earlier, the City Civil Court hasrejected the Notice of Motion of RMHIL taking detailednote of facts and, at times, inconsistent
contentions ofthe parties. However, the important and admitted factremains that both arbitration proceedings pursuant toboth the agreements are
underway. As far as thearbitration pursuant to RA is concerned, and with whichthe present appeal is primarily concerned, OBEROI hasinvoked
arbitration by appointing its arbitrator on17.1.1999 pursuant to its notice dated 18.10.1999. RMHILhas responded by replying that it would
appoint itsarbitrator in due course. And, without prejudice to itscontentions, and even after filing the civil suit for thereliefs reproduced hereinabove,
RMHIL has also appointedand nominated its arbitrator.
Under these circumstances, the contentions of theappellant (RMHIL) about symbiotic relationship of the twoagreements (TSA and RA), the
legality of the arbitrationproceedings pursuant to the RA and the likelihood of twoconflicting conclusions being reached have to beexamined.
It is true that the three agreements among theparties were arrived at on the same day on the basis of asingle MOU aimed at construction,
commissioning,operation and naming of a luxury hotel in collaborationwith RMHIL on the one hand and the group companies on theother.
However, that fact by itself is not sufficient tosustain the submission of the appellant that thecorporate veil of the group companies of OBEROI
groupmust be lifted and all the agreements must be treated asa part of a common package so as to prevent arbitrationpursuant to one agreement
on the ground that civil suitin respect of another agreement was pending. Instead ofciting any compelling circumstances for lifting the veil,the
appellant has repeatedly averred and asserted thatthe RA was independent and not co-terminus with TSA, thattermination of TSA does not
tantamount to termination ofRA and that while RMHIL was justified in terminating theTSA with EIHL, the termination of RA by OBEROI
wasillegal . Obviously, the RA between OBEROI and RMHIL isan independent agreement with a built-in arbitrationclause and the same stands
without reference to or beingdependent upon any other agreement or covenant. It thusfollows that arbitration pursuant to the RA cannot bestayed
on the ground that the agreement was illegallyterminated as a sequel to termination of the TSA and thetermination of TSA is a subject-matter of
civil suit.The dispute arising from termination of RA has to besubjected to arbitration in which the legality orotherwise of the termination and claims
andcounter-claims of the parties may be decided and thebasis and background of the termination of RA may also beexamined, if required.
However, the submission in this context is thatthere is a strong possibility of the Civil Court holdingthe termination of TSA to be justified while
the arbitralTribunal may take a different view to hold that thetermination of RA was legal and justified as thetermination of TSA was not legal or
justified. Thisargument is attractive but the apprehension would appearto be more imaginary than real if the arbitration clausein the RA, which reads
as under, is considered:
If any controversy or dispute should arisebetween the parties on performance,interpretation or application of this agreementinvolving any matter,
the same shall be submittedfor arbitration under the Indian Arbitration Act.The decision of the arbitrator(s) shall bebinding upon the owner and
OBEROI.Thearbitration proceedings shall take place inDelhi........"" (emphasis supplied)
As submitted on behalf of the respondent, the provisionsof Sections 5 and 16 of the Arbitration and ConciliationAct, 1996 (the ''Act'') completely
covers the controversy.A plea that the arbitral Tribunal would not havejurisdiction or that it is exceeding the scope of itsauthority can be raised
before the arbitral Tribunal, andit can pass appropriate order on such plea. It issubmitted that, however, by virtue of the overridingprovisions of
Section 5, no judicial authority ispermitted to intervene in such matters.
In this context, the judgment of the CalcuttaHigh Court in Magma Leasing Limited Vs. NEPC Micon Limited and Another, is relied upon on behalf
of theappellant to submit that the party who has itselfinstituted a suit is not a party who can apply for areference to arbitration under the provisions
ofsub- section (1) of Section 8 of the Act. Here again, thepresumption was in favour of the appellant to the effectthat the two opposing group
companies were the sameentity. But, as noted earlier, in the instant case, nocompelling circumstances are cited or sufficientlyestablished to lift the
corporate veil of the two groupcompanies.
As observed by the Hon''ble Supreme Court in P. Anand Gajapathi Raju and Others Vs. P.V.G. Raju (Died) and Others, , Section 5 brings out
clearly the object of the Act,namely, that of encouraging resolution of disputesexpeditiously and less expensively. When there is anarbitration
agreement, the Court''s involvement should beminimal. Section 21 of the Act provides that, unlessotherwise agreed by the parties, the arbitral
proceedingsin respect of a particular dispute commences on the dateon which a request for that dispute to be referred toarbitration is received by
the respondent. In the factsof the present case, even the arbitrators are appointedby the parties pursuant to both the agreements inquestion and
hence the arbitral proceedings have alreadycommenced in the eye of law.
In view of the facts and legal submissionsdiscussed as above, it is clear that, prima facie,neither the two agreements viz. the Technical
ServicesAgreement and the Royalty Agreement, nor the twocompanies with which they are entered, are sointerconnected that the arbitral
proceedings may have tobe stayed. Besides that, the overriding bar imposed bySection 5 of the Act, and the fact that the arbitralproceedings have,
in fact and in law commenced, it wouldbe improper and unjust to grant the reliefs as prayed forby the appellant. No other ground is made out
tointerfere with the impugned order. Therefore, thisappeal is dismissed with no order as to costs.