Case Note & Summary
This matter involved a commercial arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996, filed by the Kotharis seeking appointment of an arbitral tribunal to adjudicate disputes arising from an Escrow Agreement dated August 12, 2010. The Escrow Agreement was linked to a Share Purchase Agreement (SPA) dated August 16, 2010, under which the Dosti Group agreed to acquire 100% equity in a target company whose sole asset was a parcel of land. The purchase consideration was Rs. 59 crores, payable in three tranches. The first two tranches were paid, but the last tranche of Rs. 10 crores remained outstanding. The Escrow Agreement secured the payment obligations of the second and third tranches by requiring Lakshdeep Investment & Finance Private Limited to deposit Sun Pharma shares with Barclays Wealth Trustees (India) Pvt. Ltd., the escrow agent. The Kotharis alleged that the Dosti Group refrained from informing them that the requisite threshold of tenant consents had been obtained, thereby triggering the payment obligation. The Kotharis invoked arbitration on March 11, 2022, under Section 21 of the Arbitration Act. Shortly thereafter, the Dosti Group filed Suit (L) No. 11926 of 2022 seeking a declaration of no liability and release of the escrowed shares. The Kotharis filed a Section 11 application on April 26, 2022, and also a separate suit for interest. The dispute centered on whether the Kotharis had abandoned their right to arbitration by not filing a Section 8 application in the Dosti Suit and instead replying to an interim application, thus joining issue on merits. The Dosti Group argued that the cause of action under the Escrow Agreement was subsumed into the SPA litigation and that the Section 11 court should refuse to refer the parties to arbitration due to ex facie abandonment. The court also had before it a Section 9 petition filed by the Kotharis and an intervention application by a family member, Prabodh Kothari. By an order dated December 2, 2022, the court had maintained status quo over the Sun Pharma shares without prejudice to the Section 11 and Section 9 proceedings. The judgment excerpt concludes during the submissions of the Dosti Group’s senior counsel, without stating the final decision or reasoning of the court.
Issue of Consideration
Whether parties should be referred to an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996, particularly in light of the Dosti Group's contention that the Kotharis abandoned their right to arbitrate by failing to file a Section 8 application in the Dosti Suit.
Case Details
2025 LawText (BOM) (11) 7
Commercial Arbitration Petition No. 461 of 2022
Somasekhar Sundaresan, J.
Mr. Navroz Seervai, Senior Advocate; Mr. Gaurav Joshi, Senior Advocate; Mr. Sanjay Udeshi; Mr. Snehal Shah, Senior Advocate
Vikram Jamnadas Kothari (deleted since deceased), Luv Vikram Kothari, Gita Vikram Kothari
Barclays Wealth Trustees (India) Pvt. Ltd., Lakshdeep Investment & Finance Private Limited, Dosti Realty Ltd., M. J. Pharmaceuticals Ltd., Suraksha Realty Ltd.
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Nature of Litigation
Commercial arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitral tribunal in connection with an Escrow Agreement, accompanied by a Section 9 petition for interim measures and an interim application for intervention.
Remedy Sought
The Kotharis sought appointment of an arbitral tribunal to resolve disputes under the Escrow Agreement, while Prabodh Kothari sought to intervene in the proceedings.
Filing Reason
The Dosti Group allegedly failed to pay the third tranche of Rs. 10 crores under the SPA and allegedly concealed the receipt of tenant consents, leading to invocation of arbitration by the Kotharis.
Previous Decisions
On June 27, 2022, with consent of parties, ad-interim relief was granted restraining Barclays from altering the status quo over the Sun Pharma shares lying in escrow; by order dated December 2, 2022, the ad-interim arrangement was continued without expressing an opinion on merits, subject to orders in the Section 11 and Section 9 proceedings.
Issues
Whether the parties should be referred to an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996.
Whether the Kotharis abandoned their right to arbitrate by failing to file a Section 8 application in the Dosti Suit.
Submissions/Arguments
Dosti Group argued that the Kotharis abandoned arbitration by replying to the interim application in the Dosti Suit instead of filing a Section 8 application, and that the cause of action under the Escrow Agreement was subsumed in the SPA litigation, making the Section 11 application non-maintainable.
Dosti Group further contended that the Section 11 court could take judicial notice of the ex facie abandonment and refuse to refer the parties to arbitration, regardless of Section 11(6-A) of the Arbitration Act.
Judgment Excerpts
The key issue that falls for consideration is whether the parties ought to be referred to an arbitral tribunal – a proposition trenchantly opposed by the Dosti Group and insistently canvassed by the Kotharis.
It is the case of the Kotharis that the Dosti Group simply refrained from intimating them about the receipt of the requisite threshold of consents from tenants on the property.
To obviate any ambiguity and scope for varying interpretation by Barclays, the Escrow Agreement provided for explicit pre-agreed formats for communications between the parties.
Procedural History
Escrow Agreement executed on August 12, 2010; SPA executed on August 16, 2010; first two tranches paid; third tranche of Rs. 10 crores not paid; Kotharis sent legal notices on February 10, 2021 and May 27, 2021; Dosti Group’s lawyers responded on November 25, 2021 disclosing tenant consents; Dosti Group lodged criminal complaint with EOW on April 28, 2021, closed on August 2, 2021; arbitration invoked on March 11, 2022; Dosti Suit filed on April 11, 2022; Section 11 Application and Kothari Suit filed on April 26, 2022; ad-interim relief granted on June 27, 2022 maintaining status quo on Sun Pharma shares; order dated December 2, 2022 continuing status quo without prejudice to Section 11 and Section 9 proceedings; intervention application by Prabodh Kothari pending; matter heard and judgment reserved.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 11, 8, 9, 21
