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CASE NO.: Appeal (civil)  1403 of 2007

PETITIONER: SIDDHIVINAYAK REALITIES PVT. LTD

RESPONDENT: TULIP HOSPITALITY  SERVICES LTD. & ORS

DATE OF JUDGMENT: 15/03/2007

BENCH: Dr.AR. Lakshmanan & Altamas Kabir

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No.20126/2006)

ALTAMAS KABIR, J.

       Leave granted.         This appeal concerns a hotel known as Centaur Hotel  situated at Juhu, Mumbai, which formerly belonged to the  Hotel Corporation of India under the control of the Union  Government.  Pursuant to its policy of disinvestment, the  Government of India transferred the said hotel to M/s.  Tulip  Hospitality Services Private Limited, being the respondent  No.1 in this appeal.         By a Master Asset Purchase Agreement ( referred  to as  ’MAPA’)  dated 31st  March, 2005, the respondent No.1 agreed  to sell  and the  appellants agreed to purchase the Centaur  Hotel at Juhu, Mumbai, along with other assets for the price  of Rs. 349.06 crores.  Under the said Agreement, the parties  agreed to make an escrow arrangement in order to secure   the payment to be made by the appellants to the respondents  as   per the said Agreement.  Accordingly, the advocates of  the respective parties, Mr. Anand Bhatt and Mr. Suresh  Talwar were appointed as joint escrow agents and various  documents were deposited by the respondents with them.   The Agreement provided that in the event of default being  committed by the respondents, the appellants would be  entitled to invoke the escrow arrangement and the appellants  would have various options, including the option to become a  50% share holder of respondent No.1-company and call   upon the escrow agents to hand over  to the appellants all  the escrow documents relating to the respondent No.1-  company and to transfer 22,00,000 shares of the respondent  No.1-company held by the respondent No.3 in favour of the  appellants.  In addition, the appellants were entitled    to  receive the undated resignation letters, resolutions for  appointment of Directors and transfer of shares in favour of  the appellants with the right to appoint three Directors on  the Board of the respondent No.1- company.  Apart from the  above, out of the four original Directors of the respondent  No.1, two would resign and along with the three Directors to  be appointed by the respondent No.1, there would in all be  five Directors, three being the nominees of the appellants and  two being  the nominees of the respondent No.2.         The appellants paid a sum of Rs.75 crores to the  respondent  No.1 at the time of the signing of the Agreement.   Subsequent  to the said payment,  a newspaper report was

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published in the  "Times of India" titled  "Centre refers   City Centaur  Deals to CBI" .  On account of such   publication, Mr.  Anand Bhatt representing the appellants  wrote to  Mr. Suresh Talwar who was representing the  respondents on 21st July,  2005 stating  that in the light of  the said Article a cloud had been cast on the  title of the  respondents to the Centaur  property  till such time as the  CBI completed its probe and gave a clean chit to the  transaction under which  the Hotel Corporation of India  disinvested the said  hotel in favour of  the respondent No.1         In his reply dated 6th October, 2005, the learned  advocate for the respondents while  referring to the  media  reports in  respect of the CBI enquiry, also referred to an  agreement  entered into  by the respondent No.1  with Nirmal  Lifestyle Limited for the  development of a shopping mall and  supermarket  in the hotel complex.  It was stated that the  appellants were fully aware of the existence of the Agreement  between the respondent No.1 and Nirmal  Lifestyle and that  Nirmal Lifestyle was a part  of the joint venture of  the  appellants.  A reference was made to the  arbitration petition  filed by Nirmal Lifestyle against the respondent No.1 and an  order of injunction dated 6th June, 2005 passed against the  respondent No.1 from selling the hotel property.  It was  further stated that the action taken by  Nirmal Lifestyle   made it impossible for the respondent No.1 to proceed with  its obligations under  MAPA  and that the contract  stood  frustrated  in view of such injunction.  The respondents  stated that they stood discharged from fulfilling their  obligations under MAPA and that the amounts received by  the respondents from the appellants would be refunded to  the appellants after deduction of a sum of Rs. 2 crores within  a reasonable time.  The respondents requested the appellants  either to agree to such a course of action or to concur with  their appointment of an arbitrator.         In reply to the aforesaid letter of 6th October, 2005, the  learned advocate for the appellants wrote back on 24th  October, 2005, denying all the allegations contained in the  said letter of  6th October, 2005.  It was also mentioned in the  said letter that in terms of  MAPA  the parties had agreed   that in case of any default, the Escrow Agents would be  entitled to decide jointly the dispute  involved and  whether  any default had been  committed  which could trigger the  escrow arrangement.         At this juncture, it could be   profitable to refer to the  escrow arrangement contained in Clause 13 of the Terms  Sheet dated 8th March, 2005, which preceded the execution  of MAPA.  The same reads as follows:-                  "13. Escrow Arrangement. For the purpose of   securing  the Purchaser for the payments  made/to be made prior to the Closing Date  (or   the Extended Closing  Date, as the case may  be), a separate Escrow Letter has been  simultaneously executed on the Signing Date  pursuant to which the following documents  ("Escrow Documents") are being handed over  by  the Company  and Tulip Star to the joint  Escrow Agents i.e Mr. Suresh Talwar and Mr.  Anand Bhatt, to be retained by them in escrow   on the terms and conditions as set out  thereunder:-  

(a)     Escrow Documents relating to the  Company

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Undated resignation letters of all the  directors of the Company.

Circular Resolutions passed by the Board  of Directors of the Company accepting the  resignation of the Directors of the  Company.

Circular Resolutions passed by the Board  of Directors of the Company appointing the  nominees of the Purchaser as Directors of  the Company.

Circular Resolution passed by the Board of  Directors of the Company approving the  transfer of 22 lakh Tulip Star  Shares in  favour of the Purchaser.

All statutory registers of the Company.

Irrevocable Power of Attorney authorizing  the Purchaser to do all acts, deeds,  matters and things to comply with the   obligations  of the Company in the event  that the Company does not comply with  the same.

However it is clarified that the Power of  Attorney shall automatically come to an  end after the Company has complied with  all its obligations under this Term Sheet.

Common Seal of the Company.

(b)     Escrow Documents relating to Tulip Star

Original Allotment Letters relating to 22  lakh Tulip Star Shares.

Undated duly executed share transfer  forms in respect of the 22 lakh  Tulip Star  Shares.

Irrevocable  Power of Attorney in favour of  the Purchaser relating to transfer of the 22  lakh Tulip Star Shares.

However it is clarified that the Power of  Attorney  shall automatically come to an  end after the Purchaser becomes the legal  and beneficial owner of the 22 lakh Tulip  Star Shares.

It is clarified that instead of original allotment  letters in respect  of the 22 lakh Tulip Star  Shares referred to in (b) above, only photo  copies have been handed over to the Escrow  Agents on the Signing Date, on the specific  representation and warranty given  by the  Company, the Shareholders  and  the Promoter  Group that the original allotment letters will be  handed over to the Escrow Agents immediately  on receipt of the same from Saraswat Bank,  which  shall be complied with within a  maximum period of three working days from the

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Signing Date.  Further, on or before 19th  March  2005, Tulip Star shall replace the original  allotment letters with the original share  certificates in respect thereof and shall hand  over the said  original share certificates to the  escrow agents.

It is further clarified that from  and out of the  initial payment of Rs. 38.00 crore being made  on the Signing Date, a sum of  Rs.7.50  crore   has been handed over to the Escrow Agents,  which balance sum will be handed over by the  Escrow Agents to the Company only upon  receipt by the Escrow Agents of the original  allotment letters in respect of the 22 lakh Tulip  Star Shares.

The Escrow Agents will hold and release the  Escrow Documents as per the terms set out in  the Escrow Letter."     

       From the aforesaid arrangements, it would be evident  that the parties to the Agreement placed reliance on their  solicitors to function as the Joint Escrow Agents and both  the parties  agreed to their appointment as Escrow Agents to  secure  either party.  In the subsequent agreement (MAPA)  which followed on 31st March, 2005 the duties to be  performed  by the Escrow Agents have been indicated.  One  of the duties  to be performed  by the  Joint Escrow Agents is  set out in clause 14 of the MAPA which reads as follows:-

"14. DEFAULT PROVISIONS.   In case of an  event of default being triggered, under the  provisions of this Agreement, either by the  Purchaser or by the Vendor:

(a)     the fact as to whether an event of  default  has been so triggered; and  

(b)     the default provisions which will come into  effect on such default, as more particularly  set out hereunder,

shall be decided jointly by the solicitors of the  Vendor and the Purchaser i.e. Mr. Suresh  Talwar and Mr. Anand Bhatt.  The two solicitors  would be free to consult any third person, if so  desired and deemed necessary."  

            The consequence of default as mentioned in paragraph 14 is  set out in paragraph 15.3 of the Agreement and reads  as   follows:-

"15.3  In the event that the Vendor and the  Confirming Parties do not repay the amounts as  mentioned hereinabove, the Purchaser shall  have two options as set out hereunder:-

       To continue with the contemplated

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transaction  under this  Master Asset  Purchase Agreement, in which case the  provisions as set out  in Clause 15.3.1  below will be triggered;

       OR

       to become  the 50% shareholder of the  Vendor, in which case  the provisions as  set out in Clause 15.3.2 below will be  triggered."          

       In the event the purchaser (the appellants herein) chose  to become 50% share holder  of the  vendor company (the  respondent No.1  herein),  certain  consequences were to  follow  as contained in paragraph 15.3.2 :- "15.3.2  The Purchaser may exercise its option to  become the 50% shareholder of the Vendor, in which  case the Default Consequences shall be as under:-

The  Escrow Agents will hand over to the  Purchaser the Escrow Documents relating  to Tulip Star Hotels Limited and the  Purchaser shall be entitled to transfer the  22 lakh shares of the Vendor held by   Tulip Star Hotels Limited in favour of the  Purchaser or its nominees.

With regard to the original Escrow  Documents relating to the Vendor, the  same shall be returned to the Vendor save  and except the undated resignation   letters, resolutions for appointment of  Directors, resignation of Directors and  transfer of shares in favour of Purchaser or  its nominees which shall be handed over to  the Purchaser.

The Purchaser will nominate and the  Vendor will appoint three directors on the  Board or the Vendor.

From  and out of the four original directors  of the Vendor, two of the directors will  resign from the Board of the Vendor.

As a result the Board of the Vendor will  comprise five directors, three being  nominees of the Purchaser and two being  nominees of  Tulip Hotels Private Limited."     

On account of the letter written on behalf of the respondents  on 6th October, 2005, the appellants objected to the  appointment of an arbitrator in terms of  paragraph 19  of  MAPA  and  called upon the  respondents by their advocate’s  letter dated 24th October, 2005, to fix a time for appearing  before the Joint Escrow Agents.           In reply to the appellants’ letter dated 24th October,  2005, the respondents in their letter of 27th October, 2005  contended that though Joint Escrow Agents had been  appointed in September 2005, one of the said agents,  namely, Mr. Anand S. Bhatt representing the appellants had  resigned from his position as one of the  Escrow Agents.  The  respondents also indicated that they were unwilling to give

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consent to Mr. Bhatt’s reinstatement as Escrow Agent along  with Mr. Suresh Talwar.  The respondents also insisted that  as the contract had been frustrated and/or rendered  impossible to implement due to change in circumstances, the  issues could not be resolved by the Escrow Agents.  The  respondents once again requested the appellants to appoint  and to communicate the name of their Arbitrator.         The aforesaid contents of the letter written by the  respondents on 27th October, 2005 were denied by the  appellants who by their letter dated 25th November, 2005  categorically stated that at no point of time had Mr. Anand  Bhatt resigned from his position as an Escrow Agent.  There  was, therefore, no question of his reinstatement as Escrow  Agent.  The appellants also disputed the contention that  MAPA had been frustrated.  It was particularly mentioned  that the respondents could not take advantage of their own  wrong and/or their inability to perform their obligation under  the MAPA.  The appellants, therefore, once again called upon  the respondents to fix a meeting with the Escrow Agents to  enable them to perform their duties as contemplated under  the agreement.         The respondents thereafter informed the appellants by  their letter of 28th November, 2005 that since the appellants  had failed to appoint an Arbitrator, the said respondents had  moved the High Court for appointment of an Arbitrator under  Section 11 of the Arbitration and Conciliation Act, 1996.  It  was also contended that since the appellants had refused to  perform their obligations as a result of the CBI enquiry, the  said issue could not be decided by the Escrow Agents.         Notwithstanding the aforesaid circumstances, the  appellants wrote to the Joint Escrow Agents on 12th  December, 2005 and called upon them to fix a time for a  meeting and to indicate the venue of the meeting with notice  to the respondents.  The respondents by their letter of 14th  December, 2005 informed the Joint Escrow Agents that they  had already applied to the High Court for the appointment of  an Arbitrator on 29th November, 2005 and that the Joint  Escrow Agents should not, therefore, take any action in  terms of clause 14 of MAPA as the fact at issue in the dispute  between the parties was beyond their scope.  In view of the  aforesaid letter dated 14th December, 2005 written by the  respondents, Mr. Anand Bhatt, one of the Joint Escrow  Agents by his letter dated 19th December, 2005 expressed his  inability to call a meeting or to take any action under clause  14 of MAPA.  Having regard to the stand taken by Mr. Bhatt,  the appellants filed an Arbitration Petition under Section 9 of  the Arbitration and Conciliation Act for various reliefs.  On  24th January, 2006, the High Court passed the following ad- interim order in Arbitration Petition No. 434 of 2005 :- "that pending the Arbitral Proceedings  between the petitioners and the  respondents and passing of the Award,  the respondents, their servants and  agents be restrained from in any manner  impeding or obstructing the Joint Escrow  Agents from acting in accordance with  the terms of Master Assets Purchase  Agreement dated 31st March, 2005, copy  whereof is annexed as Exhibit "F" to the  petition."

       The aforesaid petition was disposed of on 8th March,  2006, with the order dated 24th January, 2006, being treated  as final with liberty to the parties to apply to the Arbitrator

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for cancellation or modification of the order.         Pursuant to the aforesaid order passed by the High  Court on 24th January, 2006, the appellants’ learned  Advocate called upon the Escrow Agents to fix a meeting to  take action on the letter dated 12th December, 2005.  The  Escrow Agents by their letter dated 13th February, 2006 fixed  16th February, 2006 for passing of necessary direction.  In  response to the aforesaid notice given by the Escrow Agents,  the respondents’ advocate by his letter dated 15th February,  2006 informed the Escrow Agents and the appellants that the  respondents had filed an appeal against the aforesaid order  dated 24th January, 2006 and prayed for an adjournment for  a period of six weeks.  Since no one appeared for the  respondents before the Escrow Agents on 16th February,  2006, the matter was adjourned till 28th February, 2006 for  direction.  Once again an adjournment was sought for by the  respondents but pursuant to the direction given by the  Escrow Agents on 28th February, 2006, the appellants filed  their statement of claim.         Soon thereafter, an Arbitrator was appointed on the  basis of the application filed by the respondents under  Section 11 of the Arbitration and Conciliation Act.  On the  other hand, the order passed by the High Court on 24th  January, 2006 in Arbitration Petition No.434 of 2005 was  confirmed on 8th March, 2006 with liberty to the parties to  apply before the Arbitral Tribunal for cancellation or  modification of the order dated 24th January, 2006.         Pursuant to the above on 27th March, 2006, the  respondents filed an application for interim orders before the  Tribunal under Section 17 of the Arbitration and Conciliation  Act for restraining the Escrow Agents from acting under  clause 14 of MAPA.         The Tribunal, however, refused to modify the order  dated 24th January, 2006 and rejected the interim  application filed by the respondents by order dated 27th April,  2006.  The said order of the Tribunal was challenged by the  respondents in Arbitration Petition (L) No.218/06 and the  High Court by its order dated 4th May, 2006 set aside the  order passed by the Arbitrator on 27th April, 2006 and  requested the Arbitrator to reconsider the application made  by the respondents afresh on its own merits without being  influenced by the earlier orders dated 24th January, 2006 or  8th March, 2006.  The interim application filed by the  respondents under section 17 of the Arbitration and  Conciliation Act, 1996 was thereafter heard by the Tribunal  on 16th June, 2006 and by its order dated 23rd June, 2006  the Tribunal went into and decided the question of bias  which had been disregarded in the earlier orders and  expedited the arbitration proceedings upon restraining the  appellants herein from proceeding before the Escrow Agents  pending the arbitration.         The aforesaid order of the Arbitral Tribunal dated 23rd  June, 2006 was thereafter challenged by the appellants  herein by way of Arbitration Petition No.308 of 2006 in the  Bombay High Court.  Before the Bombay High Court also the  main contention of the respondent was with regard to the  possibility of bias on the part of Mr. Anand Bhatt while  functioning as one of the Joint Escrow Agents.  Although it  was submitted on behalf of the appellants that the Escrow  Agents had been appointed knowingly by the respective  parties when the initial agreement was signed, the High  Court was of the view that since Mr. Anand Bhatt had  already expressed some views in the matter, the reasonable  apprehension of bias and/or suspicion of bias could not be  overlooked.  It could not be said that Mr. Anand Bhatt was

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not likely to be unconsciously biased when he would be  required to examine the materials and the submissions made  before him.         On the basis of the aforesaid findings, the Bombay High  Court dismissed the appellants’ application under Section 37  of the Arbitration and Conciliation Act and chose not to  interfere with the finding arrived at by the Tribunal.         The instant appeal has been filed by the appellants  before the High Court against the aforesaid judgment and  order passed by the Bombay High Court on 4th September,  2006.         Appearing for the appellants, Mr. Shyam Divan  submitted that the High Court had wrongly   endorsed the  view expressed by the Arbitrator regarding the possibility of  bias on behalf of Mr. Anand Bhatt, one of the joint Escrow   Agents.  He urged that having regard to the facts as  disclosed, the High Court   was not justified in coming  to a   finding that it could not be said that  Mr. Anand  Bhatt was  not likely to be unconsciously  biased when he  would  examine the material and/or  submissions placed before  the   Joint Escrow Agents.  On such  erroneous construction of  the Terms Sheet and MAPA, the High Court had come to the  finding that  no case  had  been made out under Section 37  of the Arbitration Act and even otherwise to interfere with the  findings arrived at by the Arbitral Tribunal.         Mr.  Divan reiterated the case  made on behalf  of the  appellants before the learned Arbitrator  as also the High  Court  and submitted that the parties had  quite  willingly  and  consciously appointed their respective solicitors  as the  Joint Escrow Agents since they were the persons who were  most familiar with the details of the transaction and could be  trusted with the documents which were to be handed over to  the respective parties after the completion of the transaction.   Mr. Divan urged that the bias now being sought to be  attributed to Shri Anand Bhatt on account of the fact that he  was a partner of the firm which had acted on behalf of one  Nirmal Lifestyle Ltd. with whom an agreement had been  entered into by the respondent No.1 for the development of a  shopping mall and super market in the complex, was not  available  to the respondent No.1 which had knowledge of the  said fact even at the time of the execution of the Terms Sheet  and MAPA.  It no doubt appears from the facts as disclosed  that Mr. Anand Bhatt’s firm had  acted to safeguard the  interests of  Nirmal Lifestylel Ltd., but since the relationship  between the said firm and Nirmal Lifestyle Ltd. was known to  the parties prior to the  signing of the Terms Sheet, the  allegation of bias was unfounded  and had obviously been   made  by the respondents to  wriggle out of the Escrow  Arrangement.         Mr. Divan submitted that  from the order passed by the  High Court  in Arbitration Petition No.434/2005 on 24th  January, 2006, it would be evident that the High Court  was  also of the view   that the  agreement between  the parties   casts  an obligation on both  the sides.  It was observed that  an Escrow Arrangement is in place  to see that both the  parties are   performing their obligations as per the  contract  and that merely because an arbitration clause had been  invoked,  the power given  to the Escrow Agents by Clause 14  of the Agreement did not   get  suspended and, therefore,  though the arbitration clause had been invoked, the Escrow  Agents would be entitled to  decide the question as to  whether a default had been committed  and as to which party   has committed the default.  Subsequently,  when the  matter  was taken up by the  learned Arbitrator, he was of the view  that in view of the aforesaid  order of the High Court,  he

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could not prevent the Escrow Agents from  proceeding.         Mr.Divan submitted that   apart from  executing the  Terms Sheet on 8th March, 2005, and MAPA  on 31st March,  2005,  an Undertaking\026cum-Indemnity had also been   executed by the parties on 31st March, 2005,  in favour of   the Joint Escrow Agents specifying the  functions of the Joint  Escrow   Agents and it was  reiterated that the duties of the  Joint Escrow Agents would be limited to holding of the   escrow  documents and handing over the same in the  circumstances set out  in the escrow letter.  The decision as  to whether the events contemplated had been triggered   would be independently decided by the Joint Escrow Agents.    Further the Joint Escrow Agents would not be bound by the  provisions of MAPA, as defined therein, save and except  under the provisions of the escrow letter.  Mr. Divan  submitted  that the appellants were always ready and willing  to perform  their obligations under MAPA but having regard  to the  newspaper report appearing in the Times of India on  21st July, 2005, it had informed the respondent No.1 that  since a cloud had  been  cast on the title of the respondent  No.1, it would be in a position to complete  the transaction as  contemplated under the MAPA only after the probe by the  CBI was completed and the CBI  confirmed that the purchase  of the  Centaur property  from Hotel Corporation of India was  not irregular.   Without responding to the said letter  immediately, the respondent No.1  on 6th October, 2005,   contended  that the MAPA  had  stood frustrated  and that  respondent No.1 stood discharged from performing their  obligations under MAPA.         Mr. Divan submitted that the said dispute involved the  question of default in complying with the terms of the  Agreement which  under the Agreement  was  a matter to be  decided  only by the Joint Escrow Agents.  Although in a  wider sense, the learned Arbitrator  would also be entitled to  decide such question, it was left to the discretion of the  parties to  choose to trigger the  escrow arrangement and as  had been  held both by the High Court as well as by the  learned Arbitrator, the appointment of the Arbitrator would  not  preclude the parties from  also taking recourse to the  escrow arrangement.         Referring to the decision of this Court in  Oil and  Natural Gas Corporation Limited vs.  Saw Pipes Limited,  reported in (2003) 5 SCC 705, Mr. Divan urged that this  Court in the said decision had held  that the jurisdiction  or  the power of the Arbitral Tribunal is prescribed  under the  Act and if the award  is de hors  the said provisions, it would  be on the face  of it, illegal.  The   decision of the Tribunal  must be within the bounds and its   jurisdiction conferred  under the Act or the contract.  In exercising jurisdiction, the  Arbitral Tribunal cannot act in breach of some provision of  substantive law or the provisions of the Act.  Mr. Divan  sought to contend that  under Section 28 (3) of the 1996 Act,  the Arbitral Tribunal has to decide  in accordance with the  Terms of  the Contract,  which in the instant case, included  the Escrow Arrangement.  Mr. Divan urged that it was not for  the Arbitral Tribunal to invalidate the Escrow Arrangement  which the parties to the agreement had themselves agreed to.    In fact, from the various correspondence disclosed, it would  be clear that all the parties  were fully aware  even at the  time of the signing of the agreement, that Nirmal Lifestyle  Limited was being represented by M/s. Wadia  Ghandy and  Company and it was  nothing but a further attempt to wriggle  out  of the Escrow Arrangement that the question of bias had  been raised on behalf of the respondent No.1 but without   any substance.  Mr. Divan urged that  the learned Arbitrator  

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had exceeded his jurisdiction in  restraining the parties to  the Agreement  from taking recourse to Clause 14 thereof,  which the parties had jointly agreed could be triggered even   in spite of the arbitration agreement contained in  Clause 19.         Mr. Divan’s submissions were strongly  opposed by Mr.  Abhishek Manu Singhvi,  learned senior advocate for the  respondents.  It was urged by him that the arbitration clause  was wide enough to include all disputes within its width,  including the question as to whether any default had been  committed and if so, by whom.  It was urged that instead of  serving any useful purpose, the invocation of two parallel  powers for deciding the same controversy could lead to  conflicting decisions which was to be avoided in the interest  of the parties.  Mr. Singhvi submitted that only after a  decision had been given on the question of default, could the  consequential  relief follow  and such a decision should be  left to the learned Arbitrator  instead of the Joint Escrow  Agents who, as pointed out  by the learned  Arbitrator having   acted  as the solicitors of the respective  parties,  there would  be  a reasonable apprehension that  Mr. Anand Bhatt would  not be in a position to decide independently   and fairly.   Furthermore, since many of the correspondences had been  addressed by Mr. Anand Bhatt, he would have to be  examined by the parties and, could not, therefore, also  function as an adjudicator in that regard.         Mr. Singhvi urged that   bias did not necessarily mean  conscious bias but would also include bias which creeps in  unconsciously without any deliberate and wilful intention of  such bias and since  M/s. Wadia Ghandy had acted on  behalf of Nirmal Lifestyle Limited  and had obtained an  injunction against the respondents to prevent them from  completing the sale, the question of bias assumes real  proportions and could not be  lightly brushed aside.  It was  urged that while, on the one hand, Mr. Anand Bhatt was  acting in support of the Terms Sheet and MAPA, on the other  hand, his firm was trying to prevent its execution.  Mr.  Singhvi urged that this in itself was sufficient for the learned  Arbitrator and also the High Court to arrive at a conclusion  that it would not be  fair to the parties to allow the triggering  of the Escrow Arrangement.   It was also urged that since two  courts  had decided the matter, there was  all the more   reason for the parties to maintain  status quo to allow the  learned Arbitrator to proceed in the matter.         In support of   his  aforesaid submission, Mr. Singhvi  first referred to the decision of the Court  of Appeal in   Metropolitan Properties Co. (F.G.C.) Ltd. vs. Lannon And Ors.,  reported in (1968) 3 W.L.R. 694, wherein in considering a  question of  bias it was observed that  a man may be  disqualified  from sitting in a judicial capacity  on one of two  grounds. First,  a "direct pecuniary interest" in the subject- matter. Second, "bias in  favour of one side or against the  other".  In  that context, it was inter alia   observed by  Lord  Denning as follows:-

"So  far as bias is concerned, it was  acknowledged that there was no actual  bias on the part of Mr. Lannon, and no  want of  good faith.  But it was said that  there was, albeit unconscious, a real  likelihood of bias.  This is a  matter on  which the law is not altogether clear: but  I start with the oft-repeated saying of  Lord Hewart C.J. in Rex v. Sussex  Justices, Ex parte McCarthy,(1924) 1 KB  256 at 259  ’It is not merely of some

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importance, but is of fundamental  importance that justice should not only  be done, but should manifestly   and  undoubtedly be seen to be done." (at page  707).

Reference was also made to a decision of this Court in  the case of  Rattan Lal Sharma vs. Managing Committee, Dr.  Hari Ram (Co-education) Higher Secondary School And Ors.,  reported in (1993) 4 SCC page 10, where  the maxim  ’Nemo  debet esse judex in propria causa’ (no man shall be a judge  in his own cause) was  considered  and it was held that the  deciding authority must be impartial and without bias which  could take the form of an apprehend bias even though such  bias had not in fact  taken place.  Mr. Singhvi  submitted that undoubtedly the parties had  agreed to  an Escrow Arrangement,  but the ground of bias  arose on the basis of facts that had transpired  subsequent to  the appointment  of the Escrow Agents and the subsequent   correspondence entered into by Mr. Anand Bhatt.   Referring  to Halsbury’s Laws of England (Vol.48) 4th Edn. Paragraph 835  at page 445) Mr. Singhvi submitted that  a trustee  "must not  be a partisan of one of several beneficiaries.  He referred to  paragraph 829 which reads as follows:-

829. Fidelity to the trust.  "A trustee  must not connive at or knowingly  facilitate any act or conduct of another  person  which would involve a breach of  trust or occasion loss or risk to the trust  property.  He must not set up or abet  an  adverse title or claim of another person  against his beneficiaries, or undertake a  duty or put himself in a  position which is   inconsistent with his duty as trustee, or  act in  a manner inconsistent with that  duty.  A trustee must perform the trust  that he has undertaken and must  assume the validity of the title of his  beneficiaries, even if it is doubtful, until it  is actually negatived.  At the same time,  he has a right to know the title of those  who pretend to be his beneficiaries, and,  if he receives notice of an adverse claim  and of an intention to hold him liable if  he disregards it, he may  obtain a  decision of the court as to his course of  action."     

            Mr. Singhvi urged that having regard to the finding of the  learned Arbitrator that there was a possibility of  Mr. Anand  Bhatt’s acting in a biased manner which finding was accepted  by the High Court,  it was not open to the appellant-company  to insist  that despite  such findings of bias the Escrow  Arrangement  should be allowed to be triggered.         On a careful consideration of the submissions made on  behalf of the respective parties, the materials on record and  the law on the subject, we must confess that there is much to  be said on both sides of the spectrum.   There is no doubt that   an Escrow Arrangement was agreed to between the parties and   the  Joint Escrow Agents  were entrusted with certain specific  functions under the  Agreement.  The agreement between the

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parties and in particular the Undertaking\026cum-Indemnity  Bond  in favour  of the Joint Escrow Agents executed by the  parties on 31st March, 2005 indicate that  the decision as to  whether any default had been committed by either of the  parties to the agreement, thereby triggering the Escrow  Arrangement, was to be independently decided by the Joint  Escrow Agents.  It was also specified that the Joint Escrow  Agents would not be bound  by the provisions of the MAPA,  save and except under the provisions of the escrow letter.   Clause 14 of  MAPA   makes the provision even more clear. While it is no doubt true that the question of default  can  also be gone into by the learned Arbitrator, the consequences  of setting in motion the Escrow Arrangement has certain  consequences which  the appellant herein are entitled to take  advantage of in order to safeguard their interests.  The Escrow  Arrangement was inserted into the agreement knowingly by  both the parties despite the inclusion of a separate arbitration  clause.  If it was the intention of the parties to only provide for   arbitration, there would have been no  need whatsoever to  include  such an arrangement in the agreement.  However, as  has been pointed out by Mr. Singhvi even the Escrow  Arrangement could be avoided by the parties if it could be  shown that one of the Escrow Agents was biased or was likely  to be biased in deciding the question entrusted to the Escrow  Agents jointly. An escrow arrangement is normally  arrived at in order to  safeguard the interest of the parties for the purpose of a  contract and the Escrow Agents are normally persons who are   trusted by the parties to act  fairly and without bias  notwithstanding their relationship  with the respective parties.    Mr. Singhvi does not appear to be correct in saying that the  question of  bias crept up  long after the agreement had been  signed, on account of  certain acts performed by one of the  Joint Escrow Agents, who had acted on behalf of a party   whose interests were adverse to that of the parties to the  present agreement.  In fact, both the parties were aware  that  one of the  Joint Escrow Agents was representing  such 3rd  party and an understanding had been given that the said 3rd  party would not proceed with the court proceedings initiated  by it.  At a later stage, to contend that the said Joint Escrow  Agent would be biased in dealing with the dispute, or that  there was a likelihood of bias is, in our view, misplaced and  unacceptable. Left to the aforesaid circumstances, we would have had  no hesitation in upholding    the contention of the appellant- company that it was entitled to take recourse to the escrow  arrangement.  The circumstances which however dissuade us  from doing so  is the possibility of Mr. Anand  Bhatt, one of the  Joint Escrow Agents, being examined on the very question on  which he as one of the Escrow Agents is required to  adjudicate.   In this context, the letter written by him  (Anand  Bhatt) on 21st July, 2005 to the other Joint Escrow Agent, Mr.  Suresh Talwar, in his capacity as the solicitor of the  respondent  No.1 indicating that in view of the  newspaper  report regarding the CBI  investigation, it would not be  possible  for the appellant-company to complete the  transaction as contemplated in the  MAPA, assumes  significance.  The disinclination of the appellant to complete  the transaction in terms of the MAPA is directly connected  with the issue of  default which is required to be decided by  the Joint Escrow Agents.   Since the said letter has been  authored by Shri Anand Bhatt, there is little doubt that he will  be subjected to  extensive cross-examination with regard to  the same.  He cannot, therefore, be called upon to decide the  dispute in which he himself becomes a party, in violation of

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the well-known maxim that a person cannot be a judge  in his   own cause.   It is only on such consideration that the  submissions made on behalf of the respondents have to be  accepted even though we are not inclined to  fully accept the  views  expressed  both by the learned Tribunal and the High  Court on the question of bias. The decisions cited on behalf of  both the parties  only lay  down the legal proposition relating to the concept of bias  which does not require  any elaboration in the  facts of this  case.  In the aforesaid circumstances, we are not inclined to  interfere with the judgment of the learned Arbitral Tribunal as  confirmed by the High Court and the instant appeal stands  dismissed accordingly.   We, however, make it clear that if the  learned Arbitrator finds that there has been a default in  working out the MAPA by either of the parties to the  agreement, the parties will be entitled to enforce  the   consequences arising out of the Escrow arrangement  irrespective  of the award of the  learned Arbitrator on all other  aspects of the disputes between the parties. There will be no order as to costs.