Bombay High Court
Rohini Industrial Electricals ... vs Mr.Gopal M.Kandoi on 4 October, 2012
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 746 OF 2012
IN
SUMMARY SUIT NO. 1009 OF 2012
Rohini Industrial Electricals Limited )
a company incorporated and registered)
under the Companies Act, 1956, having)
its registered office at Voltas Premises, )
T.B.Kadam Marg, Chinchpokli, )
Mumbai - 400 033. ) ..... Petitioner
Versus
1. Mr.Gopal M.Kandoi, an Indian )
Inhabitant, currently residing at )
E/1102 Abhishek Apartments, Behind )
ESIC Nagar, Andheri (West), )
Mumbai - 400 033 )
2. Mr.Prashant G.Kandoi, son of )
Mr.Gopal M.Kandoi, Indian Inhabitant)
residing at E/1102 Abhishek Apartments)
Behind ESIC Nagar, Andheri (West), )
Mumbai - 400 033 ) ..... Respondents
Mr.Darius Khambatta, Ms.Anuradha Agnohotri, Ms.Shreya Gupta, i/b. Bharucha &
Partners for the Petitioner.
Mr.Pradeep Sancheti, a/w. Mr.Jatin Pore, Mr.Parag Khandhar, i/b. DSK Legal for the
Respondents.
CORAM : R.D. DHANUKA, J.
RESERVED ON :24th SEPTEMBER, 2012
PRONOUNCED ON : 4th OCTOBER, 2012
::: Downloaded on - 09/06/2013 19:13:02 :::
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JUDGMENT :
By this Petition filed under Section 8 of the Arbitration and Conciliation Act,
1996 (for short 'the said Act'), the Petitioner seeks that the Respondents be referred to
arbitration under Clause 17(b) of the shareholders agreement or in the alternative under
Clause 14.1.5 of the share purchase agreement.
2. Some of the facts emerge from the pleadings and documents filed by the parties
are as under :-
3. The Petitioner is wholly owned, managed and controlled by the Respondents
and their affiliates. Respondent No.1 is the shareholder of the Petitioner and was a
Executive Director till 31st March, 2010 and thereafter continued as a Director till 28th
March, 2011 when he retired. Respondent No.2 is a shareholder and Director of the
Petitioner.
4. On 12th August, 2008 the Petitioner, Respondents and Voltas Ltd. entered into a
share purchase agreement (for short "the said SPA"). The Petitioner was a confirming
party to the said SPA. Under the said agreement, Respondents agreed to sell 855367
shares held by the Respondents in Petitioner Company aggregating 46.85% of the
existing Equity Capital on a Fully Diluted Basis to Voltas Ltd. for consideration of Rs.
56,43,71,147/-.
5. Clause 7.2.11 of the said SPA provides that the Promoters shall grant an interest
free loan of Rs.1,81,20,000/- to the Petitioner on the terms and conditions stated
therein. Clause 7.4 provided that upon completion, the capital structure and
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shareholding pattern of the Company, on a Fully Diluted Basis shall be as under :-
1. Sellers
(Respondents)
49%
2. Purchaser
Voltas Ltd.
51%
6. Clause 12.3 of the said SPA provides that the said agreement constitutes the
whole agreement between the parties in respect of the sale of said Shares and
supersedes any previous written or oral agreement between the parties in relation to the
matters dealt with in the said agreement.
Recital H reads as under :-
H. The parties have also agreed to execute and sign an
agreement governing the inter se rights and obligations
of the Shareholders viz-a-vis the Company
("Shareholders Agreement") after completion of the
sale to the Purchaser of the Sale Shares and issue by the
Company and subscription by Purchaser to Shares
pursuant to the Share Subscription Agreement. This
Agreement, Share Subscription Agreement and the
Shareholders Agreement shall collectively constitute the
"Contractual Documents".
Clause 14.1.1 and 14.1.5 of the said 'SPA' which provides for arbitration procedure
reads as under :-
14.1.1 The formation, validity, interpretation,
execution, termination of and settlement of disputes and
differences under this Agreement, and any and all
claims arising directly or indirectly from the relationship
between any of the Parties, as the case may be (such
dispute, difference or claim hereafter referred to as
"Dispute" and "each being referred to as "Parties to
the Dispute") shall be governed by the laws of India.
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14.1.5 For the purposes of avoidance of doubt, it
is hereby clarified that notwithstanding the cause of
action of a Dispute, every dispute amongst different sets
of Parties to the Dispute shall be subject matter of a
separate dispute resolution process amongst the
respective Parties to the dispute, in accordance with the
provisions of this Clause 14, provided however, unless
all Parties to the Dispute agree in writing, a dispute
resolution process in accordance with the provisions of
this Clause 14 shall not be merged with another dispute
resolution process in accordance with the provisions of
this Clause 14.
The said 'SPA' dated 12th August, 2008 was signed by the Respondents, Voltas
Ltd. and by the Petitioner through the Respondent No.2 as a Managing Director of the
Petitioner.
7. On 4th September, 2008 the Petitioner, Respondents and Voltas Ltd. executed
shareholders agreement (for short the said 'SHA'). It was recorded that on the date of
execution of the said 'SHA', Voltas Ltd. had 51% shareholding of the Petitioner
Company and the remaining 49% belonged to the HUF of the Respondents and other
Promoters. Recital E provides that the Petitioner was being joined as a party, as the
matters contained in that agreement materially affect the administration of the
Company. Clause 2(A) of the said 'SHA' provides that board shall consist of five
directors. Voltas Ltd. shall at all times have the right to nominate a majority of the
directors on the board. The promoters shall have a right to appoint/nominate two
directors for appointment on the board till such time as the promoters hold not less
than 66.67% of the residual shares. Clause further provided that during the time if the
promoters hold less than 66.67% but 33.33% or more of the residual shares, they shall
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have a right to appoint/nominate one director on the board of the Petitioner.
8. Clause 4 provides the matters related to the business of the company. It was
agreed that the balance shareholding of 49% was to be purchased by Voltas Ltd. in
three tranches (16.33% each) spread over a three year period. Accordingly first
tranche of 16.33% of the shareholding was purchased by Voltas Ltd. from Respondents
and other shareholders of the Petitioner, based on the audited annual results of the
Petitioner for 2008-09.
9. Clause 17(b) of the said 'SHA' dated 4th September, 2008 reads as under :-
(b) In the case of any dispute or claim arising out of
or in connection with or relating to this Agreement, or
the breach, termination or invalidity hereof, the Parties
shall attempt to first resolve such dispute or claim
through discussions between senior executives of each
Party. For the avoidance of doubt, Deadlock Issues
shall not be deemed to be disputes for the purposes of
this Clause 17(b) and shall only be resolved in
accordance with Clause 15(b). If the dispute is not
resolved through such discussion within ten (10)
Business Days after one Party has served a written
notice on the other Party requesting the commencement
of consultation, such dispute shall be finally settled by
arbitration under the Arbitration and Conciliation Act,
1996 (the "Arbitration Act") as is in force at the time
of any such arbitration and as may be amended by the
rest of this Clause 17(b). For the purpose of such
arbitration, there shall be three arbitrators, one each to
be appointed by Voltas and the Promoters. The
arbitrators so appointed shall appoint a third arbitrator
(the "Arbitration Board"). All arbitration proceedings
shall be conducted in the English language and the place
of arbitration shall be in Mumbai. The arbitrators shall
decide any such dispute or claim strictly in accordance
with the governing law specified in Clause 17(a).
Judgment upon any arbitral award rendered hereunder
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may be entered in any court having jurisdiction, or
application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as
the case may be.
The said 'SHA' dated 4th September, 2008 was signed by Respondents, Voltas
Ltd., and by the Petitioner through its then Managing Director Mr.Prashant G.Kandoi,
the 2nd Respondent herein.
10. It is the case of the respondents that on 2nd November, 2010 they received a
notice alongwith a Note to the Board, from the petitioner calling upon a board meeting
on 3rd November, 2010 to consider proposal to avail of temporary loan from the
respondents. A Note circulated alongwith the said notice dated 2nd November, 2010
recorded that due to shortfall in the projected collections by almost Rs.18.82 crores in
the past few months, the company was in urgent need of funds to meet its present
working capital requirements. The respondents who were directors of the company
proposed to give temporary loan of Rs.2.50 crores each., aggregating Rs. 5 crores to be
repaid on 30th December, 2010 togetherwith interest at the rate of 10% per annum. It is
recorded that based on actual cash flow position, the company would have a discretion
to refund these amounts any time before 30th December, 2010. The projected cash
flow for the months of November-December 2010 was enclosed to the said note. The
board was requested to consider the said proposal.
11. On 3rd November, 2010, a meeting of the board of directors of the petitioner was
held. It was recorded that the petitioner was facing severe liquidity crunch and was in
urgent need of funds to meet its working capital requirements. The 2 nd Respondent
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stated that earlier collection target for October 2010 had not materialized. Major
payment of Rs. 6 crores from VSP was delayed and expected by end November or
early December 2010. It was recorded that the company had issued post-dated
cheques aggregating to Rs.2.88 crores to various vendors which were due for payments
during the period between November 2010 and January 2011. In order to meet the
temporary cash flow requirements, the Respondents, Promoter Directors had proposed
to give temporary loan of Rs.2.50 crores each, aggregating to Rs.5 crores at an interest
of 10% per annum for a short period upto end December 2010 to ensure that payments
to vendors were honoured. It was recorded that the company had projected realization
of Outstandings of Rs.25 crores in each month. The projected cash outflow was Rs.
21.76 crores for November 2010 and Rs.24.95 crores for December 2010 including
repayment of temporary loan of Rs.5 crores to the promoter directors. It was recorded
that the board had approved the proposal of availing temporary loan of Rs.2.50 crores
each from the respondents, aggregating to Rs. 5 crores at an interest rate of 10% per
annum. The respondent No.2 stated that in case the company had better cash flow
position or if additional overdraft facility was approved by the Board during the
interim period, the promoter's loan could be repaid earlier. I must mention that the
respondents, did not admit the contents of the said minutes fully and circulated draft
minutes of the said meeting held on 3rd November, 2010 with various changes.
12. By a letter dated 22nd March, 2011 to the board of directors of the petitioner, the
respondents contended that loan of Rs.5 crores extended by the promoters was a
temporary loan so as to enable the petitioner to meet its urgent requirements of
honouring certain post-dated cheques and the same was repayable by the petitioner to
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the promoters by 31st December, 2010. By the said letter, the respondents requested
the petitioner to repay the said loan immediately.
13. On 28th March, 2011, the 1st respondent retired as a director of the petitioner.
On 15th April, 2011, 2nd respondent sent a reminder to the petitioner to repay the loan
with accrued interest. On 21st April, 2011, the petitioner addressed letters both dated
21st April, 2011 to the respondents confirming that as per the books of accounts of the
petitioner as on 31st March, 2011 Rs.2.5 crores was appearing as loan amount payable
to the respondents and interest of Rs.5,54,796/- on that amount was payable to each of
the respondent. The respondents were requested to confirm the same. The
respondents confirmed the said statement in the month of April 2011. The respondents
thereafter by letter dated 22nd June, 2011 requested the petitioner to repay the loan
amount accrued with interest immediately. The petitioner by two separate letters dated
15th July, 2011 to the respondents confirmed that as per the books of accounts of the
petitioner as on 30th June, 2011 a sum of Rs.2.5 crores was appearing as loan amount
and interest of Rs.5,60,958/- was payable to each of the respondent. The respondents
confirmed the said statement on 16th July, 2011. Voltas Ltd. by its letter dated 10th
August, 2011 to the 1st respondent (a copy forwarded to the 2nd respondent) confirmed
that loan of Rs.5 crores was granted to the Company in view of the liquidity crunch
and the urgent need of funds to meet the working capital requirement and further stated
that the financial position of the petitioner had still not improved and there was
negative cash flow position. It was stated that in view thereof, loan was not presently
repayable and the petitioner was not in a position to accede the request of the
respondents for premature repayment of the loans aggregating to Rs.5 crores at the
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juncture. The respondents by their letter dated 26th September, 2011 denied the
statements made by Voltas Ltd. and once again called upon Voltas Ltd. to repay the
loan amount.
14. The petitioner by two letters both dated 5th October, 2011 to the respondents
requested to confirm that Rs.2.5 crores with interest at Rs.5,67,123/- was payable by
the petitioner to the respondents each as on 30th September, 2011. There was further
correspondence exchanged between the parties. By letter dated 12th December, 2011
the petitioner to the respondents herein, the petitioner stated that post-dated cheques to
vendors were issued by the 2nd respondent during the tenure as an MD and in the
course of normal business transactions. It was contended that loan was advanced by
the respondents in view of issuance of such post-dated cheques and in order to meet
the temporary cash flow requirements and such proposal was given by the respondents
themselves. It is recorded that the financial condition continued to remain precarious
and the company was not in a position to accept the request for repayment of the loan
at that time. The petitioner requested the respondents to support the company in that
regard as Promoters and shareholders of 16.33% share capital.
15. On 20th March, 2012 the respondents filed a Summary Suit (1009 of 2012) in
this Court against the petitioner for an order and decree to pay to each of the
respondents a sum of Rs.2.5 crores with accrued interest. In the plaint, respondents
referred to the Share Subscription Agreement dated 12th August, 2008, Share Purchase
Agreement dated 12th August, 2008, Supplemental Share Purchase Agreement dated
12th December, 2008, Share Holder Agreement dated 4th September, 2008 and
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Supplemental Shareholder Agreement dated 24th July, 2009. It is averred that in
relation to Share Purchase Agreement and/or other agreements, certain other disputes
had arisen between the parties and as a result of which the parties had commenced
arbitration proceedings. There is no dispute between the parties that other disputes
between the parties arising out of the aforesaid agreements have commenced. The said
summary suit (1009 of 2012) is pending in this Court.
16. On 14th June, 2012, the Petitioner filed this Petition under Section 8 seeking a
direction from this Court to refer the Respondents to arbitration under Clause 17(b) of
the shareholders agreement. The Petitioner was allowed to amend the petition by an
Order dated 16th July, 2012. The Petitioner has made an alternate plea to refer the
respondents to arbitration under Clause 14.1.5 of the Share Purchase Agreement.
There is no dispute that the parties to this proceedings are parties to the Summary Suit
(1009 of 2012) filed by the Respondents in this Court.
17. The Learned Advocate General appearing for the petitioner made the following
submissions :-
(i) Various post-dated cheques were signed by one of
the respondent being the part of the Management of the
Petitioner in favour of third party. Precarious condition
of the petitioner was known to the respondents. There
was delay in recovery of large amount due to the
petitioner from the third party. The respondent No.1
who was a Managing Director of the petitioner till 31st
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March, 2010 and thereafter continued as a director till
28th March, 2011 when he retired. Respondent No.2 is a
shareholder and director of the petitioner. Due to such
relationship of the respondents with the petitioner and
with a view to avoid any untoward situation, due to the
post-dated cheques having been signed by one of them
as office bearer of the petitioner, by and under various
agreements referred as aforesaid between the parties and
Voltas Ltd., the respondents had offered loan to the
petitioner. The dispute between the parties is thus due to
such relationship between the parties. The respondents
are not outsiders but had given such assistance to the
petitioner being part of the Management and thus such
proposal was discussed and approved by the board of
directors of the petitioner. The respondents thus can not
be permitted say that the loan given to the petitioner has
no connection whatsoever with the 'SPA' and 'SHA',
(ii) Under Clause 17(b) of the 'SHA' dated 4th
September, 2008 to which the respondents were parties,
any dispute or claim arising out of or in connection with
or relating to that agreement is required to be settled by
the arbitration under the provisions of Arbitration and
Conciliation Act, 1996. In the alternative Clause 14.1.1
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of 'SPA' dated 12th August, 2008 which categorically
provided that dispute, difference or claim regarding
formation, validity, interpretation, execution, termination
of and settlement of disputes and differences under that
agreement and any and all claims arising directly or
indirectly from the relationship between any of the
parties, as the case may be is required to be referred to
under the provisions of Arbitration and Conciliation Act,
1996.
The Learned Advocate General placed strong
reliance on Clause 14.1.5 which provides that every
dispute amongst different sets of parties to the dispute
shall be subject matter of a separate dispute resolution
process amongst the respective parties to the dispute in
accordance with the provisions of Clause 14. It is thus
submitted that the dispute which is subject matter of the
summary suit filed by the respondents thereby making
claim against the petitioner by the respondents is arising
directly or indirectly from the relationship between the
parties and is thus required to be referred to the
arbitration as per the procedure prescribed under Clause
14.1,
(iii) Though Voltas Ltd. was a party to various
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agreements referred as aforesaid alongwith the
Petitioner and the Respondents and not being a party to
the summary suit, the dispute in the summary suit shall
still be referred to the arbitration in view of Clause
14.1.5 which permits the arbitration to adjudicate upon
every dispute amongst different sets of parties to the
agreement. It is submitted that merely because Voltas
Ltd. is not party to the summary suit, it is not fatal to
refer the dispute to arbitration,
(iv) That arbitration clauses provided in 'SPA' and
'SHA' are very wide and dispute forming part of the
summary suit are required to be referred to arbitration.
The Learned Advocate General has placed reliance on
the Judgment of Renusagar Power Co. Ltd. vs.
General Electric Company and another1 , in the case
of Union of India vs. M/s.D.N.Revri & Co. and
others2, in case of Fili Shipping Co.Ltd. and others
vs.Premium Nafta Products Ltd. & Ors. 3
18. On the other hand, Mr.Sancheti, the learned senior advocate appearing for the
respondents submits as under :-
1 AIR 1985 SUPREME COURT 1156
2 (1976) 4 Supreme Court 147
3 (2007) Bus LR 1719
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(i) The suit filed by the respondents was for
recovery of temporary bridge loan given by the
respondents to the petitioner. The petitioner was only a
confirming party to the 'SPA' dated 12th August, 2008
by which respondents had agreed to transfer their 51%
share holdings in the petitioner's Company to Voltas
Ltd.,
(ii) Voltas Ltd., one of the party to the agreements
entered into between the parties is not a party to the suit
filed by the respondents. 51% shares agreed to be
transferred under the said 'SPA' dated 12th August, 2008
has been implemented,
(iii) the dispute or claim made by the respondents in
the summary suit is not in connection with or relating
to the agreements entered into between the parties and
thus cannot be referred to arbitration under Clause
17(b) of the 'SHA' dated 4th September 2008 or under
Clause 14.1 of the 'SPA' dated 12th August, 2008. The
disputes and differences arisen between the parties
which is the subject matter of the suit does not arise
under any of these two agreements and thus cannot be
referred to Arbitration under Clause 14.1.1 of the 'SPA'
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dated 12th August, 2008 or under Clause 17(b) of the
'SHA' dated 4th September, 2008. The personal loan
given by the respondents to the petitioner has nothing
to do with the valuation or any other transaction under
the agreements relied upon by the Petitioner. Loan is
not given due to any relationship between the parties as
contended by the learned Advocate General,
(iv)
the petitioner has admitted its liability to re-pay
the loan advanced by the respondents to the petitioner
and by this application the petitioner seeks to postpone
the decree likely to be passed against the petitioner
based on such admission,
(v) the claims made by the respondents in suit does
not arise directly or indirectly from any relationship of
any of the parties and thus the dispute cannot be
referred to the arbitration under Clause 14.1.1 read with
14.1.5 of the 'SPA' dated 12th August, 2008. If dispute
between some of the parties to the agreement is referred
to the arbitration under Clause 14.1.1 read with 14.1.5,
it would mean that any private dispute between the
parties which has not arisen under that agreement and is
of personal nature, can also be referred to arbitration at
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any point of time even in future. Such broad meaning
cannot be given to the term "from relationship between
any of the party" or "dispute amongst different set of
parties to the dispute",
(vi) there is no dispute regarding the administration
of the company which is the subject matter of the suit
filed by the respondents and thus it cannot be referred
to arbitration,
(vii) that the judgments relied upon by the Learned
Advocate General are clearly distinguishable and/or not
applicable to the facts of this case.
19. In rejoinder, the Learned Advocate General submitted that both the agreements
shall be read together and shall be given proper meaning considering the commercial
application. The loan was given by the respondents to the petitioner for smooth
functioning of the petitioner. Post-dated cheques were signed by one of the
respondents on behalf of the petitioner. The petitioner was not able to recover all its
dues from the third parties. Entire shareholding of the respondents in the Petitioner's
Company were agreed to be transferred to Voltas Ltd. Respondents are not outsiders
and/or not in money lending business. The Learned Advocate General fairly conceded
that the dispute which is the subject matter of the suit is not arising out of or in
connection with the agreement. It is submitted that Clause 14.1.1 is very wide and
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provides that any and all claims arising directly or indirectly from the relationship
between any of the parties shall be referred to arbitration. It is submitted that the
petitioner and the respondents are parties to the arbitration agreement. The loan was
given by the respondents to the petitioner after same having being approved by the
board of directors of the petitioner in the meeting in which the respondents were
personally present being the shareholders and part of the board. He referred to the
correspondence placed on record by both the parties which shows that the loan was
given by the respondents to the petitioner after consultation with each other and also
Voltas Ltd. It is pointed out that the term "parties" has been defined under 'SPA' dated
12th August, 2008 which reads as "Parties" means collectively the Promoters, the
Company and Purchaser and "Party" means individually each of the Parties.
20. It is thus submitted that the petitioner was admittedly a party to both these
agreements. Respondent Nos. 1 and 2 were directors and shareholders of the Petitioner
at the relevant time. Respondent No.2 continues to be shareholder and director even
after loan transaction. The respondents had agreed to give loan to the petitioner as
director/shareholder. Claim thus made in the suit arose due to such relationship
between the parties and the dispute thus has to be referred to the arbitration once all the
conditions of the arbitration agreement read with section 7 of the Arbitration and
Conciliation Act, 1996 having been satisfied.
21. The Supreme Court in the case of S.B.P. And Co. vs. Patel Engineering Ltd.1
which is being followed by the Supreme Court in case of Booz Allen and Hamilton
1 2005(8) SCC 618
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Inc. vs. SBI Home Finance Ltd. & Ors.2 while dealing with Section 8 of the
Arbitration Act, 1996 has held as under :-
Where a suit is filed by one of the parties to an
arbitration agreement against the other parties to the
arbitration agreement, and if the Defendants file an
application under Section 8 stating that the parties
should be referred to arbitration, the court (judicial
authority) will have to decide (i) whether there is an
arbitration agreement among the parties; (ii) whether all
parties to the suit are parties to the arbitration
agreement; (ii) whether the disputes which are the
subject matter of the suit fall within the scope of
arbitration agreement; (iv) whether the Defendant had
applied under Section 8 of the Act before submitting his
first statement on the substance of the dispute; and (v)
whether the reliefs sought in the suit are those that can
be adjudicated and granted in an arbitration.
22. There is no dispute that there is arbitration agreement between the parties who
are parties to the suit filed by the respondents in this Court. The petitioner which is
defendant to the suit has applied under Section 8 of the Arbitration Act, 1996 before
submitting first statement on the substance of the dispute.
23. The question now arises for consideration of this Court is as to whether (1) the
dispute which are the subject matter of the suit fall within the scope of any of
arbitration agreement between the parties; (2) whether the reliefs sought in the suit are
those that can be adjudicated and granted in an arbitration.
24. In the light of the aforesaid two issues which in my opinion arise for
consideration of this Court, I shall refers to few facts which emerge from the pleadings
2 AIR 2011 SC 2507
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and documents. It is not in dispute that when the loan was granted by the respondents
to the petitioner, each of the respondent was a shareholder and director of the board of
the petitioner. The first respondent retired as a director of the petitioner on 28th March,
2011. Respondent No.2 even continue to be a director and shareholder of the
Petitioner till today. The respondents had entered into the aforesaid two agreements
with Voltas Ltd. to which the petitioner was also a party. The respondents have
proposed to transfer their shareholding with the Petitioner alongwith others at a
consideration agreed upon. It was, therefore, agreed that on transaction of such shares,
the respondents would be ceased to be directors and part of the management. All the
terms and conditions were reduced to writing by and between the parties. Recital H of
'SHA' dated 4th August, 2008 provides that the petitioner was being joined as a party to
the said agreement as the matter contained in that agreement materially affect the
administration of the Company. Respondents have referred to the agreements arrived
at between the parties in suit. The proposal of availing the loan by the petitioner from
the respondents was considered in the board meeting of the petitioner held on 3rd
November, 2010. The re-payment of the loan was made dependent on the recoveries
to be effected by the petitioner. Various post-dated cheques were issued by the
petitioner duly signed by one of the respondent. There was delay in realisation of the
outstandings by the petitioner. Copies of various documents sent by e-mail relied
upon by both the parties indicates that the loan was given after having discussion also
with Voltas Ltd. who were transferee of the shareholding of the respondents held by
them with the petitioner Company. The correspondence relied upon by the parties also
indicates that the loan was proposed by the respondents to the petitioner they being
directors of the petitioner. It is not the case of the respondents that they are in business
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of money lending. Recital H of the 'SPA' provides that the said agreement, Share
Subscription Agreement and Share Holders Agreement shall collectively constitutes a
"contractual documents".
25. In my view, on perusal of the Clause 14.1.1 read with Clause 14.1.5 of the
'SPA' dated 12th August, 2008, it is clear that any claim arising directly or indirectly
from the relationship between any of the parties has to be referred to arbitration in
accordance with Clause 14.1 to 14.1.5. In my opinion, the loan was given by the
respondents to the petitioner in the peculiar facts and circumstances setout in the
earlier part of this judgment, being shareholder and director of the petitioner company.
In my opinion, the loan was given due to such relationship of the respondents, as
shareholders and the director that with the petitioner. The suit filed by the
Respondents admittedly is for recovery of such loan given by the respondents to the
Petitioner which was sanctioned by the board of directors of the petitioner of which
the respondents were part of the Board of Management. In my opinion, the subject
matter of the suit thus falls within the scope of arbitration agreement arrived at
between the parties. I am therefore not inclined to accept the submission made by the
Learned Senior Advocate Mr.Sancheti on behalf of the respondents that the loan given
by the respondents to the petitioner was a private bridge loan and had no connection
whatsoever with the 'SPA' or 'SHA' and not covered by the arbitration procedure
prescribed in the Clause 14.1 to 14.1.5.
26. In so far as the submission of the respondents that Voltas Ltd. is party to the
agreement is admittedly not party to the suit and therefore dispute between only some
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of the parties to agreement cannot be referred to arbitration is concerned, in my view,
there is no substance in this arguments advanced by the Learned Senior Advocate
appearing on behalf of the Respondents. Clause 14.1.5 clearly provides that
notwithstanding cause of action of a dispute every dispute amongst different sets of
Parties to the Dispute shall be subject matter of a separate dispute resolution process
amongst the respective Parties to the dispute, in accordance with the provisions of this
Clause 14. It is however provided that unless all parties to the dispute agree in
writing, a dispute resolution process in accordance with Clause 14 shall not be merged
with another dispute resolution process in accordance with the provisions of Clause
14. In my opinion, the conjoint reading of Clause 14.1.5 read with 14.1.1 makes it
clear that any dispute even between the parties inter se who were parties to the
agreement arising directly or indirectly from the relationship between any of the
parties are required to be referred to arbitration. Both these clauses are very wide in
nature.
27. Though the learned Advocate General cited three judgments, in my view
reference to the judgment of House of Lords in the case of Fili Shipping Co.Ltd.
(supra) would be relevant. Relevant paragraphs of the said judgment reads thus :-
3. I start by setting out the arbitration clause in the
Shelltime 4 form :
" 4 I (a) This charter shall be construed and the
relations between the parties determined in accordance
with the laws of England.
"(b) Any dispute arising under this charter shall be
decided by the English courts to whose jurisdiction the
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parties hereby agree.
"(c) Notwithstanding the foregoing, but without
prejudice to any party's right to arrest or maintain the
arrest of any maritime property, either party may, by
giving written notice of election to the other party, elect
to have any such dispute referred ... to arbitration in
London, one arbitrator to be nominated by owners and
the other by charterers, and in case the arbitrators shall
not agree to the decision of an umpire, whose decision
shall be final and binding upon both parties. Arbitration
shall take place in London in accordance with the
London Maritime Association of Arbitrators, in
accordance with the provisions of the Arbitration Act
1950, or any statutory modification or re-enactment
thereof for the time being in force. (i) A party shall lose
its right to make such an election only if : (a) it receives
from the other party a written notice of dispute which -
(1) states expressly that a dispute has arisen out of this
charter; (2) specifies the nature of the dispute; and (3)
refers expressly to this clause 4 1 (c); and (b) it fails to
give notice of election to have the dispute referred to
arbitration not later than 30 days from the date of
receipt of such notice of dispute ...."
6. In approaching the question of construction, it is
therefore necessary to inquire into the purpose of the
arbitration clause. As to this, I think there can be no
doubt. The parties have entered into a relationship, an
agreement or what is alleged to be an agreement or
what appears on its face to be an agreement, which may
give rise to disputes. They want those disputes decided
by a tribunal which they have chosen, commonly on the
grounds of such matters as its neutrality, expertise and
privacy, the availability of legal services at the seat of
the arbitration and the unobtrusive efficiency of its
supervisory law. Particularly in the case of
international contracts, they want a quick and efficient
adjudication and do not want to take the risks of delay
and, in too many cases, partiality, in proceedings before
a national jurisdiction.
7. If one accepts that this is the purpose of an
arbitration clause, its construction must be influenced
by whether the parties, as rational businessmen, were
likely to have intended that only some of the questions
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arising out of their relationship were to be submitted to
arbitration and others were to be decided by national
courts. Could they have intended that the question of
whether the contract was repudiated should be decided
by arbitration but the question of whether it was
induced by misrepresentation should be decided by a
court? If, as appears to be generally accepted, there is
no rational basis upon which businessmen would be
likely to wish to have questions of the validity or
enforceability of the contract decided by one tribunal
and questions about its performance decided by another,
one would need to find very clear language before
deciding that they must have had such an intention.
8. A proper approach to construction therefore
requires the court to give effect, so far as the language
used by the parties will permit, to the commercial
purpose of the arbitration clause. But the same policy
of giving effect to the commercial purpose also drives
the approach of the courts (and the legislature) to the
second question raised in this appeal, namely, whether
there is any conceptual reason why parties who have
agreed to submit the question of validity of the contract
to arbitration should not be allowed to do so.
11. With that background, I turn to the question of
construction. Your Lordships were referred to a number
of cases in which various forms of words in arbitration
clauses have been considered. Some of them draw a
distinction between disputes "arising under" and
"arising out of" the agreement. In Heyman v Darwins
Ltd [1942] AC 356, 399 Lord Porter said that the
former had a narrower meaning than the latter but in
Union of India v E B Aaby's Rederi A/S [1975] AC 797
Viscount Dihorne, at p 814, and Lord Salmon, at p 817,
said that they could not see the difference between
them. Nevertheless, in Overseas Union Insurance Ltd
v. AA Mutual International Insurance Co Ltd. [1988] 2
Lloyd's Rep 63, 67, Evans J said that there was a broad
distinction between clauses which referred "only those
disputes which may arise regarding the rights and
obligations which are created by the contract itself" and
those which "show an intention to refer some wider
class or classes of disputes." The former may be said to
arise "under" the contract while the latter would arise
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"in relation to" or "in connection with" the contract. In
Fillite (Runcorn) Ltd v Aqua-Lift (1989) 26 Con LR 66,
76 Slade LJ said that the phrase "under a contract" was
not wide enough to include disputes which did not
concern obligations created by or incorporated in the
contract. Nourse LJ gave a judgment to the same effect.
The court does not seem to have been referred to
Mackender v Fledia AG [1967] 2 QB 590, in which a
court which included Lord Denning MR and Diplock LJ
decided that a clause in an insurance policy submitting
disputes "arising thereunder" to a foreign jurisdiction
was wide enough to cover the question of whether the
contract could be avoided for non-disclosure.
12. I do not propose to analyse these and other such
cases any further because in my opinion the distinctions
which they make reflect no credit upon English
commercial law. It may be a great disappointment to
the judges who explained so carefully the effects of the
various linguistic nuances if they could learn that the
draftsman of so widely used a standard form a
Shelltime 4 obviously regarded the expressions "arising
under this charter" in clause 4 1 (b) and "arisen out of
this charter" in clause 4 1 (c) (1) (a) (i) as mutually
interchangeable. So I applaud the opinion expressed by
Longmore LJ in the Court of Appeal [2007] Bus LR
687, para 17, that the time has come to draw a line
under the authorities to date and make a fresh start. I
think that a fresh start is justified by the developments
which have occurred in this branch of the law in recent
years and in particular by the adoption of the principle
of separability by Parliament in section 7 of the 1996
Act. That section was obviously intended to enable the
courts to give effect to the reasonable commercial
expectations of the parties about the questions which
they intended to be decided by arbitration. But section
7 will not achieve its purpose if the courts adopt an
approach to construction which is likely in many cases
to defeat those expectations. The approach to
construction therefore needs to be re-examined.
13. In my opinion the construction of an arbitration
clause should start from the assumption that the parties,
as rational businessmen, are likely to have intended any
dispute arising out of the relationship into which they
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have entered or purported to enter to be decided by the
same tribunal. The clause should be construed in
accordance with this presumption unless the language
makes it clear that certain questions were intended to be
excluded from the arbitrator's jurisdiction. As
Longmore LJ remarked, at para 17: "if any businessman
did want to exclude disputes about the validity of a
contract, it would be comparatively easy to say so".
28. In my view, considering the expression "claims arising directly or indirectly
from the relationship between any of the parties" shows that parties had agreed to
refer their dispute inter se arising directly or indirectly from the relationship between
them. Considering such clause, in my view Court shall implement the intention of the
parties so as to give commercial meaning to such wide clause agreed by the parties in
the agreement. Once it is clear that both parties intended that their inter se dispute
between them shall be referred to the arbitration, it is duty of the court to bind parties
and to refer them to the arbitration. I am satisfied that condition of Section 8 of the
Arbitration Act, 1996 are satisfied and the parties are required to be referred to
arbitration.
29. I, therefore, pass the following order:-
(a) The Petition is made absolute in terms of prayer
(aa). It is made clear that this Court has not expressed
any opinion on the merits of the claims and disputes in
the suit and has not recorded any finding.
(b) Parties to the Summary Suit No. 1009 of 2012 are
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referred to arbitration under Clause 14.1.1 read with
14.1.5 to Share Purchase Agreement dated 12th August,
2008.
(c) The Petition is disposed of accordingly.
(d) There shall be no order as to costs.
(R.D. DHANUKA, J.)
