SHYAM SUNDER AGARWAL versus P. NAROTHAM RAO AND ORS.

Citation: [2018] 7 S.C.R. 1135 · Decided: 23-07-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

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Judgment (excerpt)

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SHYAM SUNDER AGARWAL
v.
 P. NAROTHAM RAO AND ORS.
(Civil Appeal No. 6872 of 2018)
    JULY 23, 2018
[R. F. NARIMAN AND INDU MALHOTRA, JJ.]
Arbitration and Conciliation Act, 1996 – Memorandum of
Understanding (MoU)/Agreement executed between the parties for
sale and purchase of shares of a Company – Issue as to whether
Clause 12 of the said Agreement can be stated to be an arbitration
clause – Held: On reading of various clauses it is clear that two
persons though, styled as Mediators/Arbitrators, are escrow agents
who were appointed to keep certain vital documents in escrow, and
to ensure a successful completion of the transaction contained in
the MOU – The very fact that they were referred to as “Mediators/
Arbitrators” and as “Mediators and Arbitrators” would show that
the language used is loose – The idea really was that the two named
persons do all things necessary during the implementation of the
transaction between the parties to see that the transaction gets
successfully completed – Clause 8 makes it clear that the idea was
to prevent disputes from occurring and to ensure smooth
implementation of the Agreement – Object was not to adjudicate
disputes but to prevent them – Clause 12 has to be read in the light
of Clauses 8 and 11 of the MOU, and therefore, the expression
“decision” used in Clause 12 is only a pro tem decision, namely,
that the two escrow agents were to make decisions only during the
period of the transaction and not thereafter – They were “functus
officio” after the transaction got completed – Wording of the
Agreement, is clearly inconsistent with the view that the Agreement
intended that disputes be decided by arbitration – Further, indeed,
three of the four purchasers of shares did not read Clause 12 as an
arbitration clause, but approached the Civil Court instead –
Discretionary jurisdiction u/Art.136 not exercised – Constitution of
India – Art.136.
Disposing of the appeal, the Court
HELD: 1.1 On a conspectus of reading of Clauses 6, 8, 10,
11 and 12 it emerges that Mr. SR and Mr. GPR, though styled as
  [2018] 7 S.C.R. 1135
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SUPREME COURT REPORTS
[2018] 7 S.C.R.
Mediators/Arbitrators, were without doubt escrow agents who
were appointed to keep certain vital documents in escrow, and
to ensure a successful completion of the transaction contained in
the MOU. Indeed, the very fact that they were referred to as
“Mediators/Arbitrators” and as “Mediators and Arbitrators”
would show that the language used was loose – the idea really
was that the two named persons do all things necessary during
the implementation of the transaction between the parties to see
that the transaction gets successfully completed. Clause 8
expressly declared and confirmed “that for successful completion
of this transaction in order to avoid any further unforeseen
litigations”,  the two escrow agents were appointed. Clause 11
further made it clear that these two gentlemen were escrow
agents but shall not handover certain documents till the total
transaction is satisfactorily completed. Clause 12 has to be read
in the light of these Clauses of the MOU, and that, therefore, the
expression “decision” used in Clause 12 is only a pro tem decision
– namely, that the two escrow agents were to make decisions
only during the period of the transaction and not thereafter.  They
were “functus officio” after the transaction got completed.
Further, the “breaches” that were referred to in Clause 12 refer,
inter alia, to an undertaking given by the party of the first part
which was contained in Clause 10, which, if breached, the escrow
agents have necessarily to decide on before going ahead with
the transaction.  Therefore, when viewed as a whole, it is clear
that the two escrow agents were not persons who were to decide
disputes that may arise between the parties, whether before or
after the transaction is completed, after hearing the parties and
observing the principles of natural justice, in order to arrive at
their decision.  A reading of the MOU as a whole leaves no manner
of doubt that the said MOU only invests the two gentlemen named
therein with powers as escrow agents to smoothly implement
the transaction mentioned in the MOU and not even remotely to
decide the disputes between the parties as Arbitrators. [Paras 9,
10] [1142-H; 1143-A-F]
1.2 In the present case, it is clear that the wording of the
Agreement was clearly inconsistent with the view that the
Agreement intended that dispu

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