High Court of Bombay Considers Application for Appointment of Arbitral Tribunal under Section 11 of Arbitration Act in Escrow Dispute; Abandonment of Arbitration Alleged. Dosti Group Contends That Petitioners' Participation in Parallel Suit Without Filing Section 8 Application Constitutes Ex Facie Abandonment Precluding Arbitration.

Application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitral tribunal to resolve disputes arising from an Escrow Agreement, along with a Section 9 petition and an intervention application.

Petitioners (Kotharis) sought constitution of an arbitral tribunal to adjudicate disputes under the Escrow Agreement dated August 12, 2010, and interim measures to secure the escrowed Sun Pharma shares.

Disputes arose regarding non-payment of the third tranche of Rs. 10 crores under the Share Purchase Agreement dated August 16, 2010; the Escrow Agreement secured this payment; the Dosti Group allegedly received requisite tenant consents but did not inform the Kotharis, who later invoked arbitration on March 11, 2022; after no response, the Section 11 application was filed on April 26, 2022.

In the Dosti Suit, a Learned Single Judge on June 27, 2022 granted ad-interim reliefs by consent, restraining Barclays from altering status quo on the Sun Pharma shares; by order dated December 2, 2022, the Court continued the arrangement without prejudice to the rights of parties in the Section 11 and Section 9 proceedings.

Whether the petitioners (Kotharis) had abandoned their right to arbitrate by filing a reply on merits in the Dosti Suit and not filing an application under Section 8 of the Arbitration and Conciliation Act, 1996, thereby precluding reference to arbitration under Section 11.

The Dosti Group contended that the Kotharis abandoned their right to arbitrate by participating in the Dosti Suit and filing a reply on merits without seeking a stay under Section 8; that the cause of action under the Escrow Agreement was subsumed in the SPA litigation; and that the Section 11 Court can take judicial notice of ex-facie abandonment and refuse to refer the parties to arbitration, regardless of Section 11(6-A).

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. Mr. Snehal Shah, Learned Senior Advocate on behalf of the Dosti Group would contend at the threshold that the Kotharis have abandoned their right to arbitrate. He would submit that it was incumbent on the Kotharis to have filed an application under Section 8 of the Arbitration Act in the Dosti Suit. Instead, the Kotharis had joined issue on merits. Therefore, Mr. Shah would contend, as of June 27, 2022, the Kotharis had abandoned their right to arbitration. It was expressly clarified by the Learned Signal Judge that such arrangement was without prejudice to all the rights and contentions of the parties – especially the Kotharis in their application under Section 11 (seeking constitution of an arbitral tribunal to decide disputes and differences under the Escrow Agreement) as indeed, the Section 9 Petition (which inter alia relates to securing the very same Sun Pharma shares), which were to be decided on their own merits, uninfluenced by the said order.

1. On August 12, 2010, an Escrow Agreement was executed between the parties, securing payment obligations under a proposed SPA. 2. On August 16, 2010, a Share Purchase Agreement was signed where the Dosti Group agreed to acquire 100% of the Target Company from the Kotharis for Rs. 59 crores in three tranches. 3. The first two tranches (Rs. 40 crores and Rs. 9 crores) were paid; the third tranche of Rs. 10 crores remained unpaid. 4. The Kotharis alleged that the Dosti Group received tenant consents in 2017 but did not inform them until a letter dated November 25, 2021. 5. On April 28, 2021, the Dosti Group lodged a criminal complaint with the Economic Offences Wing, which closed the preliminary inquiry on August 2, 2021. 6. On February 10, 2021 and May 27, 2021, the Kotharis' lawyers sent notices; the Dosti Group responded on November 25, 2021. 7. On March 11, 2022, the Kotharis invoked arbitration by issuing a notice under Section 21 of the Arbitration Act. 8. On April 11, 2022, the Dosti Group filed Suit (L) No. 11926 of 2022 seeking a declaration of no liability and release of escrowed shares. 9. On April 26, 2022, the Kotharis filed the present Section 11 application and also Suit (L) No. 13947 of 2022 for interest. 10. On June 27, 2022, the Kotharis filed a reply to an interim application in the Dosti Suit. 11. On June 27, 2022, with consent of parties, the Court granted ad-interim status quo on the Sun Pharma shares for two weeks, later extended and confirmed on December 2, 2022, without prejudice. 12. The Section 11 application and connected matters were heard and reserved for judgment.

• Arbitration and Conciliation Act, 1996: Section 11, Section 11(6-A), Section 21, Section 8, Section 9