Holding

Clause 9 of the MOU is not an arbitration agreement and the Chairman’s decision is not an arbitration award; the suit is not an abuse of process when it challenges the decision as a decision, but is abusive when it seeks to set aside the decision as an award.

Summary

The dispute arose between two branches of the Modi family over the division of assets and companies following a 1989 Memorandum of Understanding (MOU). Clause 9 of the MOU referred any implementation disputes to the Chairman of the Industrial Finance Corporation of India (IFCI), whose decision was final and binding. The appellant filed both an arbitration petition under Section 33 of the Arbitration Act, 1940 and a civil suit on the same day, challenging the Chairman's decision as an arbitration award. The High Court held that the Chairman's decision was not an award and struck out the suit as an abuse of process. The Supreme Court affirmed that Clause 9 was not an arbitration agreement and the Chairman's decision was an expert determination, not an award. It held that the suit is not an abuse of process to the extent it challenges the decision as a decision, but is abusive when it seeks to set aside the decision as an award. Consequently, the appeal was partly allowed, the arbitration petition dismissed, and the suit partially reinstated. The Court also issued interim directions regarding the enforcement of the MOU and the parties' conduct pending trial.

Issues considered

The nature of Clause 9 of the MOU: whether it constitutes an arbitration agreement under Section 2(p) of the Arbitration Act, 1940.
Whether the Chairman, IFCI's decision is an arbitration award within the meaning of the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996.
Whether the civil suit filed concurrently with the arbitration petition amounts to an abuse of the process of the court under Order 6 Rule 16 of the Code of Civil Procedure, 1908.
Whether the suit, insofar as it challenges the decision as a decision rather than an award, is permissible.

Legislation cited

Arbitration Act, 1940s. 2(p), s. 32, s. 33
Arbitration and Conciliation Act, 1996s. 7
Code of Civil Procedure, 1908s. Order 6 Rule 16

Subjects

arbitration agreementarbitration awardexpert determinationabuse of processres judicatafamily settlementMemorandum of UnderstandingSection 32 Arbitration ActSection 33 Arbitration ActSection 7 Arbitration and Conciliation ActOrder 6 Rule 16 CPCIFCI Chairman decisionasset division

Judgment

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 Award-
Memi: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
ofMOU would be referred to the Chairman, Industrial Finance Corporation
ofIndia 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 ofdecision-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 ofprocess of court-Meaning of-Two parallel proceedings were
instituted by a party on the same day-One under S.33 ofArbitration 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 award-
Several 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. H
601
602 SUPREME COURT REPORTS [1998] 1 S.C.R.

A Hindu Law:

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.
B
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.

c 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
•.

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.
E
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? F
Disposing of the appeal, this Court

HELD: 1.1. Among the attributes, which must be present for an
-ii agreement to be considered as and arbitration agreement, are: [614~F]
'
G
(1) The arbitration agreement must contemplate that decis.ion of the
. ,..J--
.
tribunal will be binding on the parties to the agreement. (614-F]

(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

(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]
c
(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.
B
;;.-:i- 5.1. 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]

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 E
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
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
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.
E
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. G
> 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
-
612 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
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
> t 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 : G

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
H
614 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
\

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,
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.

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...... "

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.
B
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.
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).
D 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.
E 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. The purpose of the clause was clearly to vest the
Superintending Engineer with supervision of the execution of the work and
administrative control over it from time to time.

In the case of Cursetji Jamshedji Ardaseer Wadia & Ors. v. Dr.
G R.D.Shiralee, AIR (1943) Bombay 32 the test which was emphasised was
whether the intention of the parties was to avoid disputes or to resolve
disputes. In the case of Vadilal Chatrabhuj Gandhi v. Thakore/a/ Chimanlal
Munshaw, [55 Bombay Law Reporter 629] the emphasis was on judicial enquiry
and determination as indicative of an arbitration agreement as against an
H expert opinion. The test of preventing disputes or deciding disputes was also
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.] 617

resorted to for the purpose of considering whether the agreement was a A
..:. -. reference to arbitration or not. In that case, the agreement provided that the
parties had agreed to enter into a compromise for payment of a sum up to,
but not exceeding, Rs. 20 lacs, "which shall be borne and paid by the parties
in such proportions or manner as Sir Jamshedji B .Kanga shall, in his absolute
discretion, decide as a valuer and not as an arbitrator after giving each of us
summary hearing." The court said that the mere fact that a judicial enquiry B
had been held is not sufficient to make the ultimate decision a judicial
decision. The court held that Sir Jamshedji Kanga had not to decide upon the
evidence led before him. He had to decide in his absolute discretion. There
was not to be judicial enquiry worked out a judicial manner. Hence this was
not an arbitration. C
In the case of State of West Bengal & Ors. v. Haripada Santra, AIR
(1990) Calcutta 83, the agreement provided that in the event of a dispute, the
decision of the Superintending Engineer of the Circle shall be fmal. The court
relied upon the fact that the reference was to disputes between the parties
. on which a decision was required to be given by the Super intending Engineer. D
Obviously, such a decision could be arrived at by the Superintending Engineer
only when the dispute was referred to him by either party for decision. He
was also required to act judicially and decide the disputes after hearing both
parties and after considering the material before him. It was, therefore, an
arbitration agreement.
E
In the case of Jammu and Kashmir State Forest Corporation v. Abdul
Karim Wani & Ors., (1989] 2 SCC 701 para 24 this Court considered the
agreement as an agreement of reference to arbitration. It has emphasised that
(1) the agreement was in writing; (2) It was a contract at present time to refer
the dispute arising out of the present contract; and (3) There was a valid F
agreement to refer the dispute to arbitration of the Managing Director, Jammu
and Kashmir State Forest Corporation. The Court observed that endeavor
should always be made to find out the intention of the parties and that
intention has to be found out by reading the terms broadly and clearly
without being circumscribed. •
G
The decision in the case of Rukmanibai Gupta (supra) has been followed
by this Court in the case of MDayanand Reddy v. A.P. Industrial Infrastructure
Corporation Limited & Ors., [1993] 3 SCCl37 para 8 Commenting on the
special characteristics of an arbitration agreement this court has further
observed in the above case that arbitration agreement embodies an agreement H·
618 SUPREME COURT REPORTS [1998] l S.C.R.

A between the parties that in case of a dispute such dispute shall be settled by
arbitrator or umpire of their own constitution or by an arbitrator to be appointed
by the court in an appropriate case. "It is pertinent to mention that there is
a material difference in an arbitration agreement inasmuch as in an ordinary
contract the obligation of the parties to each other cannot, in general, be
specifically enforced and breach of such terms of contract results only in
B damages, The arbitration clause, however, can be specifically enforced by the
machinery of the Arbitration Act. ........ ".

The Court has further observed that it is to be decided whether the
existence of an agreement to refer the dispute to arbitration can be clearly
C ascertained in the facts and circumstances of the case. This, in tum, depends
on the intention of the parties to be gathered from the relevant documents
and surrounding circumstances.

The decisions in the case of State of U.P. Tipper Chand (supra) and
Rukmanibai Gupta (supra) have also been cited with approval by this Court
D in the case of State of Orissa & Anr. v. Damodar Das, [1996] 2 SCC 216. 1n
this case, this Court considered a clause in the contract which made the
decision of the Public Health Engineer, "final, conclusive and binding in
respect of all questions. relating to the meaning of specifications, drawings,
instructions ...... or as to any other question claim, right, matter of thing
whatsoever in any way arising out of or relating to the contract, drawings,
E specifications, estimates...... or otherwise concerning the works or the execution
or failure to execute the same whether arising during the progress of the work
or after the completion or: the sooner determination thereof the contract." This
Court held that this was not an arbitration clause. It did not envisage that any
difference or dispute that may arise in execution of the works should be
F referred to the arbitration of an arbitrator.

A long line of English cases starting with In Re Carus-Wilson and
Greene [ 1986 (18) Queen's Bench Division 7] have also been cited before
us. In Re Carus-Wilson and Green, on the sale ofland, one of the conditions
of sale was that the purchaser should pay for the timber on the land at a
G valuation for which purpose, each party should appoint a valuer and the
valuers should, before they proceed to act, appoint an umpire. The court said
that such valuation was not in the nature of an award. The court applied the
tests which we have already referred to, namely, (1) Whether the terms of the
agreement contemplated that the intention of the parties was for the person,
to hold an enquiry in the nature of a judicial enquiry, hear the respective case
H of the parties and decide upon evidence laid before him, (2) Whether the
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.] 619
'
person was appointed to prevent differences from arising and not for settling A
them when they had arisen. The court held the agreement to be for valuation.
It said that the fact that if the valuers could not agree as to price, an umpire
was to be appointed would not indicate that there were any disputes between
the parties.

In the case of Sutcliffe v. Thackrah, (1974) l AER 859, the clause in B
question provided that at specified intervals the architect should issue interim
certificates stating the amount due to the builders in respect of work properly
executed. There was a separate arbitration clause. The question was whether
the function of the architect was sufficiently judicial in character for him to
escape liability in negligence. The House of Lords was not directly concerned C
with the question whether the architect was acting as an arbitrator_ or a valuer.
It was required to decide whether the architect, who had not taken sufficient
care in certifying the amount payable, should be held liable in negligence.
And the court said that when a professional man was employed to make a
valuation and to his knowledge, that valuation was to be binding on his
principal and another party under an agreement between them, it did not D
follow that because he was under a duty to act fairly in making his valuation,
he was immune from liability for negligent valuation. A similar question arose
in connection with valuation of shares by auditors in the case of Arenson v.
Casson Beckman Rutely & Co., (1975) 3 AER 901. The House of Lords said
that an auditor of a private company who, on request, valued the shares in
the company in the knowledge that his yaluation was to determine the price E
to be paid for the shares under a contract of sale, was liable to be sued by
the seller or the buyer if he made the valuation negligently. These two case
do not directly assist us in the present case.

In the case of Imperial Metal Industries (Kynoch) Ltd. v. Amalgamated p
Union of Engineering Workers, (1979) 1 AER 847, the contract between the
parties included a clause to the effect that persons in the employment of the
contractor were required to be paid fair wages as per Fair Wages Resolution.
A trade union complained that the conditions of the Fair Wages Resolution
were not being observed by the employers. This dispute was referred to the
Central Arbitration Committee. The Court said that even t11ough the Committee G
was acting as arbitrators, they were not doing so pursuant to arbitration
agreement as defined in the Act because the arbitration was required to be
between the parties to the parties to the agreement about a matter which they
had agreed to refer to arbitration. In the present case, the Union was not a
party to the contract. H
' -
620 SUPREME COURT REPORTS (1998] l S.C.R.

A In the present case, the Memorandum of Understanding records the
settlement of various disputes as between Group A and Group Bin terms of
the Memorandum of Understanding. It essentially records a settelement arrived
at regarding disputes and differences between the two groups which belong
to the same family. In terms of the settlement, the shares and assets of various
companies are required to be valued in the manner specified in the agreement.
B The valuation is to be done by Mis S.B. Billimoria & Co. Three companies
which have to be divided between the two groups are to be divided in
accordance with a scheme to be prepared by Bansi S. Mehta & Co. In the
implementation of the Memorandum of Understanding which is to be done in
consultation with the financial institutions, any disputes or clarifications
C relating to implementation are to be referred to the Chairman, IFCI or his
nominees whose decision will be final and binding. The purport of Clause 9
is to prevent any further disputes between Groups A and B. Because the
agreement requires division of assets in agreed proportions after their valuation
by a named body and under a scheme of division by another named body.
Clause 9 is intended to clear any other difficulties which may arise in the
D implementation of the agreement by leaving it to the decision of the Chairman,
IFCI. This clause does not contemplate any judicial determination by tl1e
Chairman of the IFCI. He is entitled to nominate another person for deciding
any question. His decision has been made final and binding. Thus, Clause 9
is not intended to be for any different decision than what is already agreed
E upon between the parties to the dispute. It is meant for a proper implementation
of settlement already arrived at. A judicial determination, recording of evidence
etc. are not contemplated. The decision of the Chairman IFCI is to be binding
on the parties. Moreover, difficulties and disputes in implementation may not
be between the parties to the Memorandum of Understanding. It is possible
that the Valuers nominated in the Memorandum of Understanding or the firm
F entrusted· with the responsibility of splitting some of the companies may
require some clarifications or may find difficulties in doing the work. They can
also escort to Clause 9. Looking to the scheme of tl1e Memorandum of
Understanding and the purpose behind Clauses 9, tl1e learned Single Judge,
in our view, has rightly come to the conclusion that this was not an agreement
G to refer disputes to arbitration. It was meant to be an expert's decision. The
Chairman, IFCI has designated his decision as a decision. He has consulted
experts in connection with valuation and division of assets. He did not file
his decision in court nor did any of the parties request him to do so.

Undoubtedly, in tl1e course of correspondence exchanged by various
H members of Groups A and B with the Chairman, IFCI, some of the members
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.J 621

have used the words "arbitration" in connection with Clause 9. That by itself, A
however, is not conclusive. The intention of the parties was not to have any
judicial determination on the basis of evidence led before the Chainnan, IFCI.
Nor was the Chaim1an, IFCI required to base his decision only on the material
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 B
for the plllJlose. 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 had been authorise to nominate another in his
place. But the contract indicates that he has to nominate an expert. The fact
that submissions were made before the Chairman, IFCI, would not tum the
decision-making process into an arbitration. c
The Chairman, IFCI has framed issues before answering them in his
decision. These issues have been framed by himself for the purpose of
enabling him to pinpoint those issues which require his decision. There is no
agreed reference in respect of any specific disputes by the parties to him.
' D
The finality of the decision is also indicative of it being an expert's
decision though of course, this would not be conclusive. But looking at the
nature of the functions exJlected to be perfom1ed by the Chairman, IFCI, in
our view, the decision is not an arbitration award. The learned Single Judge
was, therefor, right in coming to the conclusion that the proceedings before
the Chairman, IFCI, were not arbitration proceedings. Nor was his decision an E
award. Appeal arising out of Special Leave Petition No. 14905 of 1997 is,
therefore, dismissed with costs.

Question No. 2: The nex1 question which requires to be decided related
to Suit No. 13 94 of 1996. The learned Single Judge has struck off the plaint
in the suit as being an abuse of the process of court. The appellants had filed F
the suit in the Delhi High Court on the same day as Arbitration Petition
bearing O.M.P. No.58of1996. It challenges the same decision of the Chairman,
IFCI which is challenged in the arbitration petition as an award.

The learned Single Judge has compared the plaint in the suit with the
petition filed under the Arbitration Act. The prayers in the arbitration petition G
-. are for a declaration (a) that the award of the C.M.D., IFCI, dated 8.12.1995
is illegal, bad in law and null and void; (b) that the directions given and
actions taken by the Chairman, Modipon Ltd, in letters dated 22-1-1996,
5.2.1996, 17.4.1996 23.4.96 and 24.4.1S'96 and the scheme ofammgementdrawn
up by Mis S.S. Kothari & Co. are illegal and bad in law; (c) that the said award H
"'
\
·' -

622 SUPREME COURT REPORTS [1998] l S.C.R.

A to the Chairman and Managing Director, IFCI and the said letters and directions
-;.-- .
of the Chairman, Modipon Ltd and the said scheme of arrangement drawn by
Mis S.S. Kothari & Co. be set aside; (d) for a perpetual injection restraining
the respondents from taking any action directly or indirectly in pursuance of
or to give effect to the said award; (e) for a perpetual injection restraining
respondent no .5 from passing any resolutions in terms of the proposed items
B 8 and 9 set out in the notice regarding the proposed Board Meeting of
Modipon Ltd.; (f) for a perpetual injection restraining respondents 6 and 7
from selling or disposing of shares in Godfrey Phillips India Ltd. or from
dealing with the said shares in a manner contrary to the scheme prepared by
Mis Bansi S. Mehta & Co. and for further and other reliefs.
c In the plaint in the suit, prayers (c), (d), (e), (f), (g) & (h) are identical
with the prayers in the arbitration petition with small variations which are of
no consequence. The remaining prayers are as follows: Prayer (a) is for a
declaration that the Memorandum of Understanding dated 24.1.1989 is binding
on both the plaintiffs and defendants and all parties are bound in law to act
D in conformity witl1 the same. Prayer (b) is for a declaration that neither the
Chairman, IFCI nor the Chairman, Modipon Ltd. had any power to alter,
amend, or modify in any manner the scheme of separation drawn by Mis
Bansi S. ,Mehta & Co. Prayer (i) is for an injection restraining the defendants
from altering, amending or modifying the scheme of separation drawn up by
E Mis Bansi S.Mehta & Co. Prayer G) is for a decree ordering and directing
Modipon Ltd. to be split in accordance with the scheme of separation drawn
up by Mis Bansi S. Mehta & Co. and prayer (k) is for a decree ordering and
directing the implementation of the said Memorandum of Understanding dated
24. l .1989 in respect of Modipon Ltd, in such a mamler that the control and
a management of Chemical Division including the shares of Modi Group
F Company allotted to Group B held by Modipon Ltd, is vested in the plaintiff
and the control and management of the remainder of the company including
the Fibre Division is vested in the Group A. The paragraphs in the plaint and
in the arbitration petition are verbatim that same to a substantial extent. The
respondents have pointed out that paragraphs lA to 54A in the petition are
G the same as paragraphs 1 to 54A in the plaint. The grounds which are set out
in the petition as well as in the plaint are also substantially the same.

Mr.; Nariman, learned senior counsel for the appellants, however, hljs
drawn our attention to paragraph 55 of the plaint. In paragraph 55 it is stated
as follows:

H "The plaintiff says and subntits that as the said Ruling/Decision of
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.) 623
the CMD, IFCI is an Arbitration Award within the meaning of the A
Arbitrator Act, 1940, the legality and validity of the same can be
questioned and a prayer can be made for setting aside that said award
only in an arbitration petition filed under Section 33 of the Arbitration
Act, 1940. The Plaintiff is, therefore, filing along with t11e present suit
an Arbitration Petition under the provisions of the Arbitration Act,
challenging the legality and validity of the said award. However, the . B
present sui~ is also being filed in respect of the actions of third parties
in pursuance of and to give effect to the said Award. Further, in the
event of it being contended by any of the defendants herein, or it
being held by this Hon 'ble Court for any reason that the said Ruling/
Decision of the CMD, IFCI is not an Arbitration Award, the legality C
and validity of the said Ruling/Decision is also being challenged in
the present suit."

He has submitted that in the event of it being hdd that Clause 9 of the
Mernoraildlirn of Understanding is not an arbitration clause and the decision
of the Chairman, IFCI, is not an award, it is open to the appellants to file a D
suit to challenge the decision. This is the reason why along with the· arbitration
petition; a suit has also been filed as an alternative method of challenging the
decision in the event of it being held that the decision of the Chairn1an and
Managing Director, IFCI, is not an award. He has contended that filling a
separate proceeding in this context cannot be considered as an abuse of he E
process of the court; and the learned Single Judge was not right in striking
out the plaint under Order 6 Rule 16 of the Code of Civil Procedure.

Under Order 6 Rule 16, the Court may, at any state of the proceeding,
order to be struck out, inter alia, any matter in any pleadirig which is otherwise
an abuse of the process of the court. MuIIa in his treatise on the Code of Civil F
. Procedure. (15th Edition, Volume II, page 1179 note 7) has stated tliat 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; and that
this power is unlike the power under Section 151 whereunder Courts have
inherent power to strike out pleadings or to stay or dismiss proceedings
which are an abuse of their process. In the present case the High Court has G
held the suit to be an abuse of t11e process of Court on tlle basis of what
is stated in the plaint.

The Supreme Court Practice 1995 published by Sweet & MaxweII in
paragraph 18/19/33 (page 344) explains the phrase "abuse· of the process of
tlle court" tllus: "This term connotes tllat tlle process of the court must be H
624 SUPREME COURT REPORTS [1998] l S.C.R.

A used bona fide and properly and must not be abused. The court will prevent
improper use of its machinery and will in a proper case, summarily prevent
its machinery from being used as a means of vexation and oppression in the
process of litigation ........ The categories of conduct rendering a claim frivolous,
vexatious or an abuse of process are not closed but depend on all the relevant
B circumstances. And for this purpose considerations of public policy and the
interests of justice may be very material."

One of the examples cited as an abuse of the process of court is re-
litigation. It is an abuse of the process of the court and contrary to justice
and public policy for a party to re-litigate the same issue which has already
C 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 to an abuse of the process of court. A proceeding being filed
for a collateral pmpose, or a spurious claim being made in litigation may also
in a given set of facts amount to an abuse of the process of the court.
Frivolous or vexatious proceedings may also amount to an abuse of the
D process of court especially where the proceedings are 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
stopped or not; and this discretion has to be exercised with circumspection.
E It is a jurisdiction which shoulq be sparingly exercised and exercised only in
special cases. The court should also be satisfied that there is no chance of
the suit succeeding.
In the case of Greenhalgh v. Mallard, (1947) 2 AER 255 the court had
to consider different proceedings on the same cause of action for conspiracy,
F but supported by different averments. The Court, held that if the plaintiff has
chosen to put his case in one way, he cannot thereafter bring the same
transaction before the court, put his case in another wa~,and say that he is
relying on a new cause of action. In such circumstances he can be met with
the plea of res judicata or the statement or plaint may be struck out on the
ground that the action is frivolous and vexations and an abuse of the process
G of court.
In Mcllkenny v. Chief Constable of West Midlands Police Force and
another, (1980) 2 AER 227, the Court of Appeal in England struck out the
pleading on the ground that the action was an abuse of the process of the
court since it raised an issue identical to that which had been finally determined
H at the plaintiffs' earlier criminal trial. The court said even when it is not
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.] 625
possible to strike out the plaint on the ground of issue estoppel, the action A
+ 't" can be struck out as an abuse of the process of the court because it is an
• abuse for a party to re-litigate a question or issue which has already been
decided against him even though the other party cannot satisfy the strict rule
of res judicata or the requirement of issue estoppel.

J,
In the present case, the learned Judge was of the view that the appellants B
had resorted to two parallel proceedings, one under the Arbitration Act and
the other by way of a suit. When the order of interim injunction obtained by
the appellants was vacated in arbitration proceedings, they obtained an
injunction in the suit. The learned Single Judge also felt that the issues in the
two proceedings were identical and the suit was substantially to set aside the
award. He, therefore, held that the proceeding by way of a suit was an abuse
c
of the process of court since it amounted to litigating the same issue in a •
different forum through different proceedings.

The perception of the Learned Judge may be substantially correct
though not entirely so. Undoubtedly, if the plaint in the suit is viewed as
··J. D
challenging only the arbitration award, a suit to challenge the award would
be re-litigating the issues already raised in the arbitration petition. The suit
would also be barred under Section 32 of the Arbitration Act, 1940. Section
32 of the Arbitration Act, 1940 provides that notwithstanding any law for the
time being in force, no suit shall lie on any ground whatsoever for a decision
upon the existence effect or validity of an arbitration agreement or award, nor E
shall any arbitration agreement or award be set aside, amended, modified or
in any way affected otherwise than as provided in this Act.

According to the appellants, however, the suit is not confined only to
challenging the award or steps taken pursuant to the award by the Chairman,
~ Modipon Ltd. in order to enforce it. According to the appellants, in the suit F
'f there is an alternative plea that if the impugned decision of the Chairman and
Managing Director, IFCI is not considered as an awards, then that decision
as a decision should be set aside. It is contended that the suit, in so far as
it challenges the decision of the Chairman and Managing Director, IFCI, as
a decision and not as an award is maintainable. In support, the appellants G
have relied upon the submissions in paragraph 55 of the plaint which we have
~ set out earlier.

The plaint in the suit, to the limited extent that it challenges the decision
as a decision, would not amount to abuse of the process of Court. We are
not called upon to examine whether this alternative submission is supported H
626 SUPREME COURT REPORTS (1998] l S.C.R.

A by proper averments and whether there is a proper cause of action framed in
the plaint in support of such an alternative plea. This is a matter which the
court hearing the suit will have to examine and decide. But in the suit, the
decision cannot be challenged as if it were an award and on the same grounds
as if it were an award. The court will also have to consider the binding nature
B of such a decision particularly when no ma/a jides have been alleged against
the CMD, IFCI. If ultimately it is found that even on tl1e alternative plea, the
claim is not maintainable the court may pass appropriate orders in accordance
with law. But to the limited e"tend 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 court.
c In a proceeding under the Arbitration Act, tl1e appellants 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 filing a separate suit. Similarly in the suit, the
appellants could not have raised an alternative plea that in case the impugned
D decision is considered as an award, the same should be set aside. For this
purpose an arbitration petition 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 tlle
court.
E Group A also contends tllat there is no merit in the challenge to the
decision of the Chairman of IFCI which has been made binding under tlle
Memorandum of Understanding. The entire Memorandum of Understanding·
including Clause 9 has to be looked upon as a family settlement between
various members of the Modi family. Under the Memorandum of 1
F Understanding, all pending disputes in respect of the rights of various members
of the Modi family forming part of either Group A or Group B have been
finally settled and adjusted. Where it has become necessary to split any of
the existing companies, this has also been provided for in tlle Memorandum
of Understanding. It is a complete settlement, providing how assets are to be
G valued, how tlley 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 be subject to such directions as the Chairman, IFCI may
give pertaining to tlle implementation of Memorandum of Understanding. He
is also empowered to give clarifications and decide any differences relating
H to tlle implementation of the Memorandum of Understanding. Such a family
K.K. MODI v. K.N. MODI [SUJATA V. MANOHAR, J.] 627

settlement which settles disputes within the family should not be lightly A
interfered with especially when the settlement has been already acted upon
by some members of the family. In the present case, from 1989 to l 995 the
Memorandum of Understanding has been substantially acted upon and hence
the parties must be held to the settlement which is in the interest of the family
and which avoids disputes between the members of the family: Such B
settlements have to be viewed a little differently from ordinary contracts and
their internal mechanism for working out the settlement should not be lightly
disturbed. The respondents may make appropriate submissions in this
connection before the High Court. We are sure that they will be considered
as and when the High Court is required to do so whether in interlocutory
proceedings or at the final hearing. C

The appeal of the appellants from the judgment of the Learned Judge
striking out the plaint is, therefore, partly allowed and the suit, to the extent
that it challenges independently the decision of the Chairman and Managing
Director, 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. We make it clear that we D
~ are not examining the merits of the clain\ nor 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
plaint in so far as it challenges the decision as an award and on the same
grounds as an award; or seeks to prevent the enforcement of that award by E
the Chairman, Modipon Ltd. or in any other way has been rightly considered
as an abuse of the process of court since the same reliefs have already been
asked for in the arbitration petition. The Transfer Case No.13 of 1997 is,
therefore, partly allowed.

We also direct that all the defendants in the said suit who are supporting F
the Plaintiffs shall be transposed as plaintiffs along with the original plaintiffs
since they have a common cause of action. For this purpose, the plaintiffs
shall carry out necessary amendments in the cause title and any consequential
amendments in the suit within four weeks of this order.

G
Pending the hearing and final disposal of the suit in the Delhi High
Court and/or until any further orders are passed by the trial court if the
exigencies of the situation then prevailing so require, no meeting of the
Modipon Board shall be held for considering any matter relating to the
decision of the CMD, IFCI dated 8.12.1995. Also the defendants in the said
suit (Group A) shall not seH any shares• held in Godfrey Phillips India Ltd. H
628 SUPREME COURT REPORTS [1998] l S.C.R.

A provided the plaintiffs in the suit deposit in the Delhi High Court a sum of
Rs.5 crores (Five Crores) within four weeks from the date of this order. In the
event of their failure to deposit the said amount within the aforesaid period,
the order restraining the defendants (Group A) from selling the said shares
shall stand vacated. The amount so deposited shall be invested by the High
B Court in Fixed Deposits within Nationalised Banks pending further orders.
The interim order of 7th January, 1998 will continue to operate in terms
thereof. In the event of any change in the circumstances, the parties will be
at liberty to apply to the High Court for any variation of this order. Appeals
arising from Special Leave Petition Nos. 14905/97, 18711/97 and Transfer Case
No. 13191 are disposed of accordingly together with all interim applications.
c
v.s.s. Appeals and Transfer case disposed of.

T