Uday Bahadur vs Krishan Kumar & Anr

Mukta Gupta, J

I.A. No. 71/2017 (under Section 8 of Arbitration and Conciliation Act, 1996 by Defendant No.1) and 2443/2017 (under Order 1 Rule

10(2) CPC by Defendant No.2) in CS(COMM) 1319/2016

Uday Bahadur, the plaintiff herein has filed the present suit inter alia seeking a decree of declaration that the Memorandum of Understanding (in

short ‘MOU’) dated 15th July, 2015 and Memorandum of Amendment dated 10th January, 2016 executed between the plaintiff and defendant

No.1, that is, Krishan Kumar stands annulled/terminated/cancelled/rescinded due to failure, defaults, inaction and non-performance on the part of

defendant No.1 and the amount received thereunder stands forfeited, decree of declaration that defendant No.1 has no right, title and interest in 49%

shares or part thereof in M/s Decon Lifestyle Pvt. Ltd. (in short ‘M/s Decon’) and decree of mandatory and permanent injunction qua both the

defendants, that is, Krishan Kumar and Sameer Jain to return the 76% shares or part thereof held by the plaintiff which were entrusted to defendant

No.2 as Escrow agent and restraining them from creating any third party interest thereon or alienating the same.

Plaintiff in the suit submits that M/s Decon was incorporated and registered in New Delhi in 2013 with plaintiff being majority shareholder of 76%

shares and his step son Ankit Uday Bahadur being owner of 24% shares. M/s Decon was selected as a joint venture partner and a Memorandum of

Understanding dated 12th March, 2013 was executed for and between M/s P. B. Lifestyle Limited and M/s Decon. Pursuant to Memorandum of

Understanding, joint venture agreement dated 25th September, 2014 was executed between M/s P.B. Lifestyle Limited with M/s Play Boy Lifestyle

Ltd. and M/s Decon, holding 51% shares and 49% shares respectively in the company. Contribution to the shares and expenses was made only by

Uday Bahadur and Ankit Uday Bahadur did not contribute to the same. MOU dated 15th March, 2015 was executed between Uday Bahadur and

Ankit Uday Bahadur wherein Ankit Uday Bahadur admitted the liability ofR s. 1.60 crores towards Uday Bahadur, and issued a post dated cheque in

this regard. As a goodwill gesture Uday Bahadur agreed to give his 76% shares in Decon and 90% shares in AUB Restaurants Pvt. Limited provided

Ankit Uday Bahadur fulfilled the terms mentioned in Clause-3 of the MOU dated 15th May, 2015 and made the payment ofR s. 1.60 crores. As per

Clause-5 of the MOU dated May, 2015, till said transfer of shares was effected, a share certificate belonging to Uday Bahadur was to be kept in an

Escrow with defendant No.2, that is, Sameer Jain. Since Ankit Uday Bahadur who was also a shareholder in M/s Decon did not honour his

commitment under MOU dated 15th May, 2015, MOU dated 15th July, 2015 was entered into between the Uday Bahadur and Krishan Kumar,

defendant No.1 who agreed to purchase 49% shares of 76% shares held by Uday Bahadur/plaintiff in M/s Decon for a total sale consideration ofR s.

70 Lakhs out of which Rs. 30 lakhs was paid by Krishan Kumar/defendant No.1 and the balance Rs. 40 lakhs was to be paid on or before 15th

August, 2015.

MOU dated 15th July, 2015 was entered into between Uday Bahadur, Krishan Kumar and M/s Decon, represented through Ankit Uday Bahadur

however, the same did not dilute the liability of Ankit Uday Bahadur to pay an amount of Rs. 1.60 crores. It is contended that though Uday Bahadur

discharged all its obligations under the MOU however, Krishan Kumar, failed to make balance payment of Rs. 40 lakhs by the stipulated date and

after persistent efforts further MOU dated 10th January, 2016 was entered into extending the time till 10th July, 2016 to make the payment. Pursuant

thereto Krishan Kumar, issued post-dated cheque of Rs. 40 lakhs dated 10th July, 2016 however, Sameer Jain, defendant No.2 was not relieved of his

duties to act as an Escrow agent nor had he ever been either orally or in writing instructed to hand over or transfer the aforesaid share certificate

belonging to Uday Bahadur of M/s Decon to Krishan Kumar.

On presentation the cheque for a sum of Rs. 40 lakhs was returned unpaid with the remarks ‘funds insufficient’ and despite being informed,

Krishan Kumar failed to make the payment. It is further contended that since Krishan Kumar failed to discharge the contractual obligation under the

MOU rendering the MOU null and void and the amount of Rs. 30 lakhs being non-refundable stood forfeited.

Uday Bahadur served a legal notice dated 19th July, 2016 on Krishan Kumar and Sameer Jain which was replied by Sameer Jain, defendant No.2

stating that since the MOU dated 15th July, 2015 was amended by MOU dated 10th July, 2016, he was relieved of his duty as an Escrow agent to

which Uday Bahadur sent a reply dated 30th July, 2016 stating that 49% shares out of 76% shares of the plaintiff were to be given to Krishan Kumar

only after full payment of Rs. 70 lakhs was received by Uday Bahadur. Sameer Jain further replied that 76% shares of M/s Decon had been returned

to Uday Bahadur and transferred to various people of his own volition and allegations against him are vexatious, derogatory and disparaging.

On the summons being issued to defendant Nos. 1 and 2 in the present suit, Krishan Kumar filed an application being I.A. No. 71/2017 under

Section 8 of the Arbitration and Conciliation Act, 1996 (in short ‘the Arbitration Act’) and Sameer Jain, defendant No. 2 filed I.A. No.

2443/2017 under Order I Rule 10 CPC on which arguments have been addressed by learned counsels for the parties.

To press his application being I.A. No. 71/2017 under Section 8 of the Arbitration and Conciliation Act, 1996 learned counsel for Krishan Kumar

contends that Clause-16 of the MOU dated 15th July, 2016 entered into between Uday Bahadur and Krishan Kumar provided for an arbitration clause

and the disputes were to be settled by the sole arbitrator Shri Sandeep Bajaj. Response of learned counsel for Uday Bahadur to this application is that

since Sameer Jain is not a party to the MOU dated 15th July, 2015 and the Memorandum of Amendment dated 10th January, 2016 and since in the

suit reliefs have been sought against Sameer Jain as well, against whom arbitration clause is not binding, hence the present suit is maintainable and the

dispute cannot be referred to the sole arbitrator. The second contention of learned counsel for Uday Bahadur is that since the written statement has

already been filed by Krishan Kumar, hence the present application under Section 8 of the Act would not survive.

In response learned counsel for Krishan Kumar relying upon the decision of this Court reported as 2009 (108) DRJ 404: MANU/DE/0078/2009

W.P.I.L. vs. NTPC Ltd. & Ors. submits that the remedy under Section 8 of the Act is still available even if a third party is involved. Reliance is also

placed on the decision reported as MANU/DE/0739/2009 Delhi Express Travels Pvt. Ltd. vs. International Air Transport Association & Ors.

Addressing arguments on application under Order I Rule 10 (2) CPC filed by defendant No. 2 for deleting him from the array of parties, Sameer

Jain who appears in person submits that he cannot be sustained as a party in the present suit. He has been made party only to come out of the

arbitration agreement. Sameer Jain is at best a witness to the transaction between Uday Bahadur and Krishan Kumar and neither a necessary nor a

proper party to the suit. Further legal notice dated 19th July, 2016 issued on behalf of Uday Bahadur to Krishan Kumar claimed rights in only 49%

shares of M/s Decon and not beyond that, however, now Uday Bahadur is coming up with the prayer of 76% shares which too are not with Sameer

Jain. It is further stated that MOU dated 15th July, 2015 was amended vide the Memorandum of Amendment dated 10th January, 2016 wherein

Clause-5 of MOU dated 15th July, 2015 on which Uday Bahadur heavily relies has been specifically deleted. Reliance is placed on the decisions

reported as 1992 (2) SCC 524 Ramesh Hirachand Kundanmal vs. Municipal Corporation of Greater Bombay & Or. sand ILR (2007) II Delhi 1187

Anjum Nath vs. British Airways PLC & Ors.

Learned counsel for Uday Bahadur in response further submits that even after the Memorandum of Amendment dated 10th January, 2016,

Sameer Jain was not absolved of his liability as an Escrow agent and he could not have handed over the shares to Krishan Kumar without Krishan

Kumar having fulfilled his obligations. It is further contended that even assuming as stated by Sameer Jain that he has handed over 49% shares over

Krishan Kumar, he is still answerable to the balance 27% shares of Uday Bahadur hence no case for deleting Sameer Jain from the array of parties is

made out. Reliance is placed on the decisions reported as 2003 (5) SCC 531 Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya & An r.and 2013 (2)

RAJ 532 (Del) R.R. Enterprises vs. C.M.D. of M/s Garware-Wall Ropes Ltd.

In Sukanya Holdings (supra) Supreme Court held that Section 8 of the Arbitration Act does not apply to a non-party to the Arbitration Agreement.

In the decision reported as (2013) 1 SCC 641 Chloro Controls India Private Ltd. Vs. Severn Trent Water Purification Inc t.hough Supreme Court

discussed the decision in Sukanya Holdings (supra) but did not overrule the said decision. Thus under Section 8 of the Arbitration Act no reference to

arbitration can be made when a third party to the agreement is involved in the dispute.

Before proceeding to deal with the rival contentions, it would be appropriate to note relevant portions of MOU dated 15th May, 2015 and 15th July,

2015 and Memorandum of Amendment dated 10th January, 2016 as under:

MOU DATED 15TH MAY, 2015: This Memorandum of Understanding is between Uday Bahadur and Ankit Uday Bahadur relevant terms whereof

read as:

“1. That all the Parties to the present agreement shall abide this agreement.

That the parties recognize and acknowledge that the Second Party owes to First Party Rs. 1,60,00,000/-(Rupees One Crore Sixty Lakhs

Only/-)

That Second Party undertakes to pay the First Party an amount ofR s. 1,60,00,000/- (Rupees One Crore Sixty Lakhs Only) by or before

06 July, 2015 against the loan as described under Clause 2. As a guarantee, the Second Party has given a Cheque ofR s. 1,60,00,000/-

bearing number 809348 drawn on YES Bank to the First Party. It is also agreed that this time may be extendedu pon a mutual understand to

be mandatorily recorded in writing.

That upon fulfillment of Clause 3 above the First Party shall, by way of a gift deed, transfer 76% of his shares in Decon Lifestyle Private

Limited and 90% Shares in AUB Restaurants Private Limited to the Second Party.

That till such transfer of shares as referred to in Clause 4 above, the Share certificate belonging to the First Party shall be kept with an

Escrow Agent being Sameer Jain, Advocate, 1/32, Jungpura Extension, New Delhi-110014.

…

…

…

First Party agrees that in case he fails to perform any of his obligations under this Agreement, he would not encash the Cheque

No.______ dated 809348. Further, Second Party agrees and confirms that in case he fails to perform any of the obligations, whether joint

or individual, he would transfer his 24% Shares in Decon Lifestyle Private Limited to First Party.â€​

MOU DATED 15TH JULY, 2015: This Memorandum of Understanding is executed between Uday Bahadur, M/s Decon represented by its Director

Ankit Uday Bahadur and Krishan Kumar, the first, second and third party respectively, relevant portions whereof read as under:

“WHEREAS the First Party is desirous of selling his 49% shareholding in the Third Party

AND WHEREAS the Second Party is a 49% shareholder in the JV Company PB Lifestyle North Private Limited, which own the exclusive

right to open Playboy Locations in North India, as defined in the JV Agreement dated 25.09.2014.

AND WHEREAS Third Party is desirous of buying the shares owned by the First Party and further invest in the Second Party.

AND WHEREAS the parties above-named in order to avoid any controversy in future have decided to reduce the said settlement in writing.

NOW THIS DEED OF MEMORANDUM OF UNDERSTANDING WITNESSETH AS FOLLOWS:-

That all the Parties to the present agreement shall abide this agreement.

First Party shall sell and the Third Party shall purchase 49% shares of the Second Party at Rs. 70,00,000/- (Rupees Seventy Lakhs Only)

Third Party has already paid Rs. 30,00,000/- (Rupees Thirty Lakhs only) to the First Party which is acknowledged by the First Party.

Third Party undertakes to pay Rs. 40,00,000/- (Rupees Forty Lakhs Only) to the First Party on or before 15.08.2015. It is expressly

understood between the parties that such sale consideration paid to the First Party is non-refundable.

That the First Party shall execute a Share Sale Agreement in favour of the Third Party immediately upon fulfillment of Clause 3 above.

That till such transfer of shares as referred to in Clause 4 above, the Share certificates belonging to the First Party shall be kept with an

Escrow Agent being Sameer Jain, Advocate, A-169, Defence Colony, New Delhi-110024. The escrow agent shall facilitate the sale and

transfer of shares as described above.

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Dispute Resolution: Any and all disputes, controversies and claims arising out of or relating to this Agreement or concerning the

respective rights or obligations of the parties hereto shall be settled and determined by arbitration in India before a panel of single

arbitrator. Sandeep Bajaj shall be the sole arbitrator. The parties agree that the arbitrators shall have the power to award damages,

injunctive relief and reasonable attorneys’ fees and expenses to any party in such arbitration. The arbitration award shall be final and

binding upon the parties and judgment thereon may be entered in any court having competent jurisdiction. However, the same shall not

prevent the Company to approach the court of appropriate jurisdiction to obtain any interim relief against the Agent.â€​

MEMORANDUM OF AMENDMENT DATED 10TH JANUARY, 2016: This Memorandum of Amendment was executed between Uday Bahadur,

M/s Decon through its Director Ankit Uday Bahadur and Krishan Kumar as first, second and third party respectively, relevant portions whereof read

as under:

“WHEREAS The Parties entered into a Memorandum of Understanding dated 23 July 2015 (hereinafter referred to as ‘MOUâ€​)

AND WHEREAS the understanding between the Parties have changed due to some variation in circumstances. AND WHEREAS the parties

above-named in order to avoid any controversy in future have decided to reduce the said understanding in writing and amend the MOU.

NOW THIS MEMORANDUM OF AMENDMENT WITNESSETH AS FOLLOWS:-

That all the Parties to the present agreement shall abide this agreement.

That Clause 3, 4, 5 and 6 contained in the MOU shall be amended to read as under:

“Third party has already paid Rs. 30,00,000/- (Rupees Thirty Lakhs only) to the First Paryt, which is acknowledged by the First Party.

Third Party is, as a remaining consideration for the transfer of shares of the Second Party belonging to the First Party, is issuing a Post

Dated cheque of Rs. 40,00,000/- being Cheque No. 422658 dated 10/7/16 and giving express undertakings, more specifically described

hereunder

Undertakings

Third Party expressly undertakes to settle all the cases instituted by Baani Land Base Private Limited against the First Party within 3 days

from signing of this agreement and transfer of shares.

Third Party also undertakes to make sure that Baani Land Base Private Limited and/ or any other party dealing with the Second Party,

Third Party and/ or PB Lifestyle North Private Limited shall not institute any claim against the First Party in future. In case any such claim is

initiated against the first party, the Third Party undertakes to indemnify and keep harmless First Party against the same.

Third Party also undertakes to get First party removed as a director from the board of P.B Lifestyle North Private Limited within 7 days

from the date of signing of this agreement and transfer of shares.

Third Party also undertakes to make the cheque pass on or before the expiry of the cheque as hereinabove mentioned.

That all other terms in the MOU shall remain the same.â€​

Thus the two issues between the parties is whether Clause-5 of the MOU dated 15th July, 2015 stood amended by Clause-2 of the Memorandum

of Amendment dated 10th January, 2016 and whether in view of Clause-16 of the MOU dated 15th July, 2015 remaining as it is providing for the

arbitration agreement the parties including the Escrow agent were bound to submit to arbitration jurisdiction.

Vide Clause 5 of the agreement dated 15th May, 2015, Sameer Jain was appointed as the Escrow agent in respect of 76% shares in M/s.Decon

and 90% shares in AUB Restaurants Pvt. Ltd. of Uday Bahadur. The agreement dated 15th May, 2015 is signed by Sameer Jain as the Escrow

Agent. Vide the agreement dated 15th July, 2015 the parties only dealt with 49% shares of M/s.Decon. Further, Clause 5 also noted that till transfer

of shares the same will be in possession of Sameer Jain who will also facilitate sale and transfer of shares. Indubitably Clause-5 of the MOU dated

15th July, 2015 stood amended and Uday Bahadur, the plaintiff herein vide Memorandum of Amendment dated 10th January, 2016 admitted having

received the remaining consideration for the transfer of the shares by a post dated cheque of Rs. 40 lakhs being cheque No.422658 dated 10th July,

2016. However, the MOUs dated 15th July, 2015 and 10th July, 2016 do not deal with the remaining shares as mentioned in MOU dated 15th May,

2015.

Defendant No.2 Sameer Jain was signatory to the MOU dated 15th May, 2015 though liability of Sameer Jain was fixed by both the MOUs dated

15th May, 2015 and 15th July, 2015 to retain the shares. One of the salient features of Clause-16 of the MOU dated 15th July, 2015 was that despite

an arbitration agreement Uday Bahadur or the company was not prevented to approach the Court of appropriate jurisdiction to obtain “any interim

relief†against the agent which obviously was the Escrow agent. Thus the intention of the parties was to proceed in the Court of law against the

Escrow agent if required.

Though subsequent dishonor of the cheque of Rs. 40 lakhs paid by Krishan Kumar to Uday Bahadur would not fasten the liability of Sameer Jain

as an Escrow agent to retain the shares vide agreement dated 15th July, 2015, however the liability of the Escrow agent was to facilitate sale and

transfer of shares, it cannot be said that Sameer Jain was absolved of his liability merely on handing over the cheque. Further whether the remaining

shares as entrusted vide MOU dated 15th May, 2015 have been retained or not is a question to be decided on merits after parties lead their evidence.

At this stage considering the prayers made in the suit and besides defendant No.1, a claim having been raised against defendant No.2 it cannot be

said that the dispute is required to be referred to arbitration in terms of Section 8 of the Arbitration Act or the defendant No.2 is liable to be deleted

from the array of defendants.

In view of the discussion aforesaid, IA Nos. 71/2017 and 2443/2017 are dismissed.