REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO. 17 of 2009

Sirajudeen Kasim & Another   ..Petitioners(s)

Versus  

M/s.Paramount Investments Limited ..Respondent(s)

O R D E R

GANGULY, J.

1. This petition has been filed under Section 11  

of the Arbitration and Conciliation Act, 1996  

(hereinafter,  “the  said  Act”)  by  the  

Petitioner  praying  for  appointment  of  an  

arbitrator  to  adjudicate  the  claims  and  

disputes  between  the  petitioner  and  the  

respondent as the parties have been unable to  

concur upon the arbitrator. 1

2. The  first  petitioner  (hereinafter,  P1)  is  

Sirajuddin  Kasim,  an  Indian,  who  is  the  

Director,  Promoter  and  shareholder  of  the  

second petitioner holding 75% of issued share  

capital of the second petitioner (hereinafter  

P2). P2 is a company incorporated under the  

laws of the Republic of Singapore and inter  

alia  deals  and  trades  in  cotton,  timber,  

logging, acquisition, operation and sale of  

oil and gas assets, mining of Manganese and  

other metals.  The respondent on the other  

hand is a company incorporated under the Laws  

of Mauritius. The respondent is engaged inter  

alia in the business of making investments by  

way  of  equities  in  private  and  public  

companies on a negotiated basis.

3. The  petitioners’  case  is  that  the  

understanding  between  the  parties  was  that  

the  respondent  would  procure  farm  out  

transactions of oil and gas blocks for P2.  

For  such  farm  out  transactions,  the  

respondent  would  be  paid  a  commission  

separately. On the date of the Shareholders’  2

Agreement (SHA), P2 was allotted oil and gas  

blocks in the Republic of Gabon. There were  

proposed  oil  blocks  to  be  procured  by  

execution  of  Production  Sharing  Contract  

(“PSC”) in Brunei as well as in Tajikistan.  

In  their  affidavit  the  respondent  admitted  

this arrangement between the petitioners and  

the respondent and also admitted the receipt  

in the name of Valpro, a sum of US $ 625,000,  

claiming  that  the  same  was  paid  by  the  

petitioners for services rendered in relation  

to the farm out contracts.  

4. In March, 2006 the respondent was successful  

in farming out the oil blocks of P2 through  

Oil India Limited and Indian Oil Corporation  

Limited  for  which  their  company  Valpro  

Private Limited was paid a commission of US $  

625,000 i.e. 5% of the value of the farm out.  

Subsequently, attempts were purported to be  

made by the respondent to farm out oil and  

gas blocks for P2, but the respondent could  

not procure any farm out transaction. Between  

March,  2006  and  23rd April,  2008  3

correspondence  was  exchanged  between  the  

parties i.e. P1 and P2 and the respondent.  

From that correspondence, it will appear that  

disputes and differences cropped up between  

the  parties.  Allegations  were  made  by  the  

respondent that P1 was allegedly falsifying  

and manipulating the accounts of P2. There  

were several other allegations which are not  

required to be discussed in detail.  

5. The petitioners’ case is that the respondent  

was deliberately postponing and delaying the  

holding of the AGMs of P2 and was thereby  

delaying the finalization of accounts which  

was  absolutely  necessary  for  submission  of  

proposals  to  foreign  Governments  for  

procuring oil block. The petitioners’ further  

case  is  that  the  respondent  through  its  

representatives,  Anshuman  Khanna,  Santosh  

Gadia  and  their  company  Seana  Energy  Pte.  

Ltd. were making presentations to prospective  

purchasers/operators for farming out assets  

of  P2  in  breach  of  the  Shareholders’  

Agreement  and  was  unjustifiably  demanding  4

remittances without the desired business for  

P2. The correspondence exchanged between the  

petitioners and the respondent between 28th  

August, 2006 and 22nd April, 2008 would show  

that  disputes  were  brewing  between  the  

parties.

6. On  23rd April,  2008  a  Settlement  Agreement  

(Annexure-P8  pg.  116  Vol.1)  was  executed  

between  P1  and  the  respondent;  Clause  C  

thereof  stipulates  that  there  have  been  

disputes and differences between P1 and the  

respondent  in  relation  to  SHA  and  the  

management of the company and with a view to  

amicably  resolve  the  same,  P1  agreed  to  

purchase  the  entire  interest  of  the  

respondent in P2.  

7. Clause  2(c)(i)  and  (ii)  of  the  Settlement  

Agreement stipulates:

“2(c) An amount equal to 10% of the  gross amount received by Marvis or any  other  company  in  which  Siraj  Kasim  holds  an  equity  interest,  whether  directly, indirectly or deemed (Marvis  and  such  company  being  referred  to  herein as the Siraj Kasim Investments)  

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in relation to or arising or accruing  from the farm-out of part or whole of  the  participating  interest  in  oil  &  gas  assets  of  the  Siraj  Kasim  Investments.   The  amounts  payable  under this clause 2(c) shall be paid  within  5  business  days  of  actual  receipt  of  the  gross  amount  by  the  Siraj  Kasim  Investments  save  and  except that  

(i) if, for any reason whatsoever,  the farm-out does not take place  on or before 23rd February 2009, or  (ii) 10% of the gross receipts on  account  of  such  farm-outs  as  on  23rd February 2009, aggregates to  less then USD 1,500,000 (USD One  Million  Five  Hundred  Thousand  only)  the  amounts  payable  under  this  

clause  2(c)  shall  be  USD  1,500,000  (USD One Million Five Hundred Thousand  only) which shall he payable in cash  by way of irrevocable wire transfer to  PIL's account set out in Schedule I  the wire transfer being for value on a  date  which  is  on  or  before  28th  February, 2009.  

Where full payment of any of the  above amounts is not received in the  due date for such payment, the amount  unpaid shall bear simple interest at  the rate of 12% p.a. from the due date  of  payment  to  the  date  of  actual  payment,  as  well  after  as  before  judgment (the interest).”

8. It is submitted by the petitioners that all  

rights of P1 and the respondent under the SHA  6

were  to  remain  operative  despite  the  

Settlement Agreement.

9. Clause 4C of the Settlement Agreement gave an  

option  to  the  respondent  to  acquire  10%  

participating  interest  of  P2  in  the  asset  

named Shakthi in Gabon.

10. Further  disputes  cropped  up  between  the  

parties out of the SHA between 23rd April,  

2008 and 17th April, 2009. To various letters  

written by the petitioners, the respondent by  

its letter dated 8th May, 2009 replied to the  

petitioners’  letter  dated  15th April,  2009  

and 17th April, 2009; and the respondent by  

its letter dated 8th May, 2009 called upon  

the  petitioners  to  appoint  an  independent  

accounting firm for a thorough investigation  

of the accounts.

11. The  notice  invoking  the  arbitration  clause  

was  given  by  the  petitioner  No.1  on  15th  

April, 2009 and in the said letter, it was  

contended by petitioner No.1 that the name of  

Mr. Gadia be deleted as an arbitrator from  7

the SHA, as he has acted on behalf of the  

respondent. Therefore, a prayer was made for  

the appointment of an impartial arbitrator.

12. Another  letter  dated  17th April,  2009  was  

written by the advocate of petitioner No.1 to  

the  respondent  and  Mr.  Anshuman  Khanna,  

representative of the respondent. In the said  

letter a further request was made for the  

appointment of an independent arbitrator and  

it was reiterated that petitioner No.1, by  

its  previous  letter  dated  15th April,  2009  

terminated  the  Settlement  Agreement  dated  

23rd April, 2008 and the Power of Attorney of  

the same date.

13. Thereafter, on 14th May, 2009 the respondent  

filed a suit against P1 before the High Court  

of Republic of Singapore, claiming damages to  

the extent of USD 4,850,000/- and interest at  

the  rate  of  12%  and  prayed  for  specific  

performance of the Settlement Agreement dated  

23rd April, 2008.

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14. The  case  of  the  Respondent  is  that  the  

Settlement  Agreement  has  no  arbitration  

clause. On the other hand, Clause 10 of the  

said agreement provides as follows:

“This Agreement shall be governed by the  Singapore  law.  Notwithstanding  any  provision in the Shareholders Agreement,  the  parties  agree  that  in  relation  to  any legal action or proceedings arising  out  of  or  in  connection  with  this  Agreement,  each  of  the  parties  hereby  irrevocably submits to the non-exclusive  jurisdiction of the courts of Singapore  and any party who is not resident or in  the  case  of  a  corporation,  not  incorporated,  in  Singapore  hereby  consents to service of process by post  or  in  other  manner  permitted  by  the  relevant law.”

15. It  may  be  noted  that  the  said  Settlement  

Agreement  is  between  petitioner  No.1  and  

respondent and petitioner No.2 is not a party  

to this Agreement.

16. The respondent’s case is that only after the  

Singapore Court decreed the suit and the same  

was  confirmed  in  appeal,  the  petitioner  

sought to invoke the arbitration clause under  

the SHA. 9

17. In  the  conspectus  of  these  facts,  the  

question is whether the arbitration clause in  

the  SHA  still  survives.   The  arbitration  

clause in SHA runs as under:

“If  any  dispute,  difference  or  question  shall,  at  any  time  hereinafter arise between the parties  in respect of the construction of this  Agreement,  or  concerning  anything  contained  or  arising  out  of  these  presents as to rights, liabilities or  duties of the said parties hereunder,  which cannot be mutually resolved by  the parties within a period of thirty  days, the same shall be referred to  arbitration  in  accordance  with  …  …  shall be resolved by a sole arbitrator  in accordance with the provisions of  the Model Law of Arbitration adopted  by  the  United  Nations  Commission  on  International  Trade  Laws.  The  sole  arbitrator shall be Mr. Santosh Gadia,  Chartered Accountant having address at  F-45, Bhagat Singh Market, New Delhi-  110001,  India  or  in  case  of  his  inability to act as such, such sole  arbitrator shall be appointed jointly  by  the  parties.   The  seat  of  arbitration shall be New Delhi.  The  arbitration  proceedings  shall  be  conducted in English.”

18. From a perusal of clause 10 of the Settlement  

Agreement and the Arbitration Clause in SHA,  

both set out hereinabove, it does not appear  

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prima  facie  that  the  rights  of  the  

petitioners – both petitioner Nos.1 and 2,  

under  SHA  have  been  superseded  by  the  

settlement  agreement.  In  any  event  the  

question  whether  the  rights  of  the  

petitioners under SHA have been superseded is  

an arbitrable dispute.  

19. Admittedly, petitioner No.2 is not a party to  

the  settlement  agreement.  Therefore,  its  

rights under the arbitration clause are prima  

facie  not  superseded  by  the  settlement  

agreement.  Under  Section  2  (h)  of  the  

Arbitration and Conciliation Act, 1996 party  

means a party to an arbitration agreement.  

The  petitioner  No.2  is  a  party  to  an  

arbitration agreement within the meaning of  

Section 2(h) but he is not a party to the  

settlement agreement. Therefore, whether his  

rights have been superseded by the settlement  

agreement also may be an arbitrable dispute.  

20. From the sequence of events discussed above,  

prima facie, it appears that respondent filed  

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a suit on 14th May 2009 before the High Court  

of  Republic  of  Singapore,  inter  alia,  

claiming damages after receiving the letters  

of the petitioner dated 15th April, 2009 and  

17th April, 2009, whereunder the arbitration  

clause has been invoked. It also appears that  

prior  to  the  filing  of  the  suit,  the  

settlement agreement dated 23rd April, 2008,  

as  also  the  Power  of  Attorney  dated  23rd  

April,  2008,  were  revoked  by  the  letters  

dated  15th and  17th April,  2009  and  the  

request to appoint an impartial arbitrator in  

terms of clause 8.4 of SHA was made in the  

letter dated 15.4.2009 and then reiterated in  

the letter dated 17.04.2009.  

21. The learned counsel for the respondent, in  

view of the facts stated above and in view of  

his  subsequent  suit  filed  by  them,  argued  

that the rights of the petitioners under the  

arbitration agreement does not survive and in  

support of his contention reliance was placed  

on the decision rendered in Sukanya Holdings  

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(P) Ltd. vs.  Jayesh H. Pandya and another  reported in (2003) 5 SCC 531.  

22. This  Court  is  of  the  opinion  that  the  

reliance  by  the  respondent  on  Sukanya  Holdings (supra) is not of much help to the  respondent in the facts and circumstances of  

the case. First of all in the instant case  

Section 8 of Arbitration and Conciliation Act  

is not attracted. It is nobody’s case that  

matter  was  placed  before  the  judicial  

authority  before  invoking  the  arbitration  

clause.  In  the  instant  case  arbitration  

clause was invoked earlier than the filing of  

a suit as noted above. On the other hand the  

ratio in the case of Sukanya Holdings (supra)  is against the contention of the respondent  

in as much as it has been held, in paragraph  

16 at 536 of the report, that it would be  

difficult  to  give  an  interpretation  to  

Section 8 of the Act for bifurcation of the  

cause of action between the Civil Court and  

the arbitral forum.   

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23. In the case of Sukanya Holdings (supra) the  dispute  was  over  dissolution  of  the  

partnership firm and over accounts filed by  

one partner against the defendants who were  

admittedly  not  partners  in  the  firm.  

Therefore, the Court held that the meaning of  

the term “in a matter” must indicate that the  

entire subject matter of the suit should be  

subject to arbitration agreement.  

24. In  the  instant  case  admittedly  petitioner  

No.2 is neither a party to the settlement  

agreement nor was he impleaded in the suit.  

Therefore,  the  ratio  in  Sukanya  Holdings  (supra) does not help the respondent.  

25. In  the  instant  case  the  petitioners  have  

alleged that there was economic duress in the  

matter  of  execution  of  the  settlement  

agreement. Therefore, following the ratio of  

this Court in the case of National Insurance  Company Ltd. vs.  Boghara Polyfab Pvt. Ltd.  reported in (2009) 1 SCC 267, this Court is  

of the opinion whether rights of the parties  

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under  SHA  have  been  superseded  by  the  

subsequent  settlement  agreement  may  be  an  

arbitrable  issue  and  that  issue  can  be  

examined by the arbitrator.  

26. In this case there are disputes between the  

parties  and  there  is  a  valid  arbitration  

clause and the clause has been invoked prior  

to the filing of the suit. It is also not in  

dispute  that  the  arbitration  procedure  

between the parties has failed.  Therefore,  

this Court cannot accept the contention of  

the respondent as there is valid invocation  

of the arbitration clause prior to the filing  

of suit by the respondent.  

27. In  that  view  of  the  matter,  this  Court  

appoints Justice S.B. Sinha, a former Judge  

of this Court, the sole learned arbitrator in  

this  case.   The  learned  arbitrator  is  

requested to decide the dispute as early as  

possible and preferably within a period of  

four months from the date of entering upon  

the  reference.  The  remuneration  of  the  

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learned  arbitrator  and  all  the  incidental  

costs  are  left  to  be  decided  by  learned  

arbitrator and are to be jointly shared by  

the parties.   

28. The petition for appointment of an arbitrator  

is thus allowed.  No order as to costs.  

  .......................J. (ASOK KUMAR GANGULY)

New Delhi August 02, 2010   

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