Bombay High Court
Wind World (India) Limited And 2 ... vs Enercon Cmbh And Anr on 29 March, 2016
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION (L) NO.374 OF 2016
1.Wind World (India) Limited )
a company incorporated under the )
laws of India and having its registered )
office at Wind World Tower, )
Veera Industrial Estate, Veera Desai )
Road, Andheri (West), )
Mumbai - 400 053. )
2. Yogesh J. Mehra )
Hare Krishna Residency Society,
Indian Inhabitant, residing at 101, )
)
J.V.P.D.Scheme, North South Road No.8)
Vile Parle (West) )
Mumbai - 400 049. )
3. Ajay J. Mehra )
Indian Inhabitant, residing at 101, )
Hare Krishna Residency Society, )
J.V.P.D.Scheme, North South Road No.8)
Vile Parle (West) )
Mumbai - 400 049. ) .. Petitioners
Versus
1. Enercon GmbH, a company duly )
incorporated and existing under the )
laws of Germany and having its )
registered office at Dreekamp 5, )
D26605, Aurich, Germany. )
2. Wobben Properties GmbH, a company)
duly incorporated and existing under the)
laws of Germany and having its )
registered office at Dreekamp 5, )
D26605, Aurich, Germany. ) .. Respondents
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---
Mr.Atul Rajadhyaksha, Senior Advocate a/w Mr.Zal Andhyarujina a/w
Mr.Rohan Rajadhyaksha a/w Mr.Ameet Hariani a/w Mr.Aditya
Khandeparkar a/w Mr.Anirudh Hariani i/by M/s.Hariani & Co. for the
petitioners.
Mr.Aspi Chinoy, Senior Advocate a/w Mr.Zubin Behramkamdin a/w
Mr.Sharan Jagtiani a/w Mr.Jehangir Jejeebhoy a/w Mr.Vivek Vashi a/w
Ms.Kanika Sharma a/w Mr.Krishendev Satya a/w Ms.Shaheda
Madraswala i/by M/s.Bharucha & Partners for the respondents.
---
CORAM : R.D. DHANUKA, J.
RESERVED ON : 15th March 2016
PRONOUNCED ON : 29th March 2016
Judgment :-
. By this petition filed under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the said Act"), the
petitioners have impugned the order dated 8th March 2016 passed by the
arbitral tribunal (as decided by the majority) directing the petitioners
herein to produce various documents to the respondents and also
granting various interim measures. The petitioners have also prayed for
stay of the operation and implementation of the time-table contained in
the order no.7 dated 3rd February 2016 passed by the arbitral tribunal
and also stay of all further proceedings before the arbitral tribunal. By
consent of parties, this petition is heard finally at the admission stage.
Some of the relevant facts for the purpose of deciding this arbitration
petition are as under :-
2. The petitioner no.1 is a company registered under the Indian
Companies Act, 1956 and is a joint venture company between the
petitioner nos.2 and 3 along with others currently holding 44% of the
share capital of the petitioner no.1 and the respondent no.1 which
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currently holds 56% of the share capital of the petitioner no.1. The
respondent no.1 and the respondent no.2 are the companies incorporated
under the laws of Germany.
3. The dispute arose between the parties in relation to the
Shareholders' Agreement, Technical Know-How Agreement,
Supplementary Shareholders' Agreements, Supplementary Technical
Know-How Agreement, Agreed Principles and Intellectual Property
Licensing Agreement. By an order dated 14 February 2014, Supreme
Court referred all the disputes between the parties in relation to aforesaid
agreements to arbitral tribunal. The petitioners nominated Mr. Justice
R.V. Raveendran, a former Judge of Supreme Court. The respondents
nominated Mr. V.V.Veeder, Q.C. as a nominee arbitrator. Supreme Court
appointed Lord Hoffmann as a Presiding Arbitrator. Supreme Court
clarified that the present arbitration was to be conducted in London and it
was an arbitration with its seat in India and governed by Part I of the
said Act.
Consequent to the said judgment dated 14th February 2014
4.
passed by the Supreme Court, the arbitral proceedings commenced
before the arbitral tribunal with a statement of claim filed by the
respondents. The petitioners filed statement of defence and a counter-
claim. Parties filed three interim applications. The arbitral tribunal gave
various directions from time to time.
5. The petitioners are aggrieved by an order dated 8 th March
2016 passed by the majority arbitrators i.e. Lord Hoffmann and Mr.V.V.
Veeder, Q.C. allowing the application dated 13 th December 2015 filed
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by the respondents purportedly under Section 17 read with Section 19 of
the said Act for disclosure of certain documents/information and
injunctive reliefs. Mr. Justice R.V. Raveendran, former Judge of the
Supreme Court issued a dissenting opinion dismissing the interim
application filed by the respondents.
6. The respondents made a claim against the petitioner
nos.2 and 3 for damages on account of alleged breaches of the
shareholders' agreements and/or due to differences arising as a matter of
Indian Law quantifiable in terms of money. According to the petitioners,
the arbitral record comprises of a Trial Bundle consisting of over 33,000
pages and separate documents produced in the matter in excess of
140,000 pages weighing over 450 kgs.
7. On or about 5th September 2014, the respondents filed an
application before the arbitral tribunal under Section 17 of the said Act
seeking production of documents which application was opposed by the
petitioners setting out various grounds. By an order dated 24 th January
2015, the arbitral tribunal disposed of the said application allowing the
petitioners to redact the documents produced by them. The arbitral
tribunal directed that any document produced by a party or a non-
party shall be used only in connection with the the arbitral proceedings.
On 27th April 2015, both sides made requests for production of further
documents. By an order dated 22nd June 2015, the arbitral tribunal
allowed the production of some of the documents. On 29 th June 2015,
the petitioners filed an application under Section 17 of the said Act
seeking leave to produce redacted documents to the respondents and to
produce various other documents. The respondent no.1 opposed the said
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application stating that un-redacted documents are material to the liability
and quantification of loss and also on the ground that the said application
did not fall within the ambit of Section 17 of the said Act.
8. The said application filed by the petitioners came to be
rejected by the arbitral tribunal by an order dated 11th July 2015 and by
a majority of 2:1 by holding that the said application of the petitioners
was not within the terms of Section 17 of the said Act as the petitioners
were not seeking an order against a party requiring the party to take
some measure of protection in respect of subject matter of dispute.
Mr.Justice R.V.Raveendran, (retired) passed a dissenting order and held
that the application filed by the petitioners was within the ambit of
Section 17 of the Act. The petitioners filed an appeal under Section 37
of the said Act before this Court challenging the order dated 11 th July
2015. This Court allowed the said appeal vide order dated 9 th December
2015.
9. On 13th December 2015, the respondents filed an interim
application for reliefs in terms of a draft order attached to the interim
application and sought disclosure of documents/information and also
sought certain injunctive reliefs. Learned senior counsel along with
assisting Counsel representing the petitioners chose to withdraw from
the arbitral proceedings due to some reasons. The petitioners informed
about withdrawal of those two counsel of the petitioners from the arbitral
proceedings to the arbitral tribunal and that the petitioners were
endeavouring to engage new lawyers to act for them. In the meanwhile,
the arbitral tribunal issued further directions for proceeding with the
matter.
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10. By an order dated 24th December 2015 passed by the arbitral
tribunal, the petitioners were granted an extension of four weeks' time
to file their reply to the interim application on the condition that the
petitioner nos.2 and 3 would furnish to the arbitral tribunal an
undertaking that until the interim application was disposed of, the
petitioner nos.2 and 3 would not take any action or cause or permit
any other entity to take action contrary to the directions set out in
paragraphs 3.2 to 3.5 of the draft order prepared by the respondents
and attached to the interim application of the respondents. The arbitral
tribunal also held that there existed circumstances showing a prima facie
risk of the dissipation of assets which would justify a grant of temporary
injunction in terms of paragraphs 3.2, 3.3 and 3.4 of the said draft
order prepared by the respondents. The arbitral tribunal granted the
reliefs as prayed by the respondents in the nature of ad-interim reliefs in
favour of the respondents by calling upon the petitioner nos.2 and 3 to
give an undertaking as a condition precedent to grant of extension of four
weeks.
11. It is the case of the petitioners that pursuant to the said order
dated 24th December 2015 passed as a condition precedent to the
extension of time sought by the petitioners, without prejudice to the
rights and contentions of the petitioners, the petitioner nos.2 and 3
complied with the said conditions imposed by the arbitral tribunal by
furnishing their undertakings in respect of the contents of paragraphs
3.2, 3.3 and 3.4 of the draft order prepared by the respondents and
attached to the interim application without any legal advice.
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12. On 3rd February 2016, the arbitral tribunal issued its order
no.7 thereby amending the time-table to the order dated 11 th December
2015. It is the case of the petitioners that the said time-table set out by
the order dated 3rd February 2016 amounted to in violation of principles
of natural justice. The arbitral tribunal maintained 27 and 28 April 2016
as the dates for oral hearings in London as earlier stipulated in the
time-table. The petitioners requested the arbitral tribunal to grant
extension of time in respect of items (6), (7) and (8) of the time-table
which application was opposed by the respondents. The arbitral tribunal
expressed its unanimous to alter the date of 22nd April 2016 in Item no.8
of the time-table laid down in the order dated 3rd February 2016.
13. It is the case of the petitioners that the present advocates
who are representing the petitioners were appointed in the first week
of January 2016 and informed the arbitral tribunal about their
appointments. The petitioners thereafter filed a detailed reply dated 27 th
February 2016 to the application filed by the respondents. The
respondents filed a rejoinder in the said reply filed by the petitioners
before the arbitral tribunal.
14. On 8th March 2016, the arbitral tribunal passed an order
allowing various reliefs claimed by the respondents by majority.
Mr.Justice R.V. Raveendran (retired) rendered dissenting opinion
dismissing the interim application filed by the respondents. The
petitioners herein have impugned the said order dated 8th March 2016 in
the present arbitration petition filed under Section 37 of the said Act.
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15. Mr.Chinoy learned senior counsel for respondents raises a
preliminary objection about maintainability of this petition filed under
section 37 of the said Act on the ground that insofar as challenge to the
order passed by the arbitral tribunal in this petition against the order of
disclosure and furnishing copies of various documents to the petitioner is
concerned, the said application was under section 19 and thus that part of
the order being distinct and separate order though part of the common
order is not appelable under section 37 of the said Act.
16. Mr.Rajadhyaksha, learned senior counsel for the petitioners
made his submissions first on the preliminary objections raised by the
respondents about maintainability of the appeal and thereafter on merits.
Learned senior counsel invited my attention to the application filed by the
respondents inter alia praying for disclosure of various documents. He
placed reliance on the directions given by the arbitral tribunal vide
procedural order no.5 issued by the arbitral tribunal on 11th December,
2015. He submits that the arbitral tribunal had directed the respondents
to file an application under section 17 of the said Act on or before 13 th
December, 2015 and issued further direction about filing of the reply by
the petitioners to such application under section 17 and fixed a date for
the arbitral tribunal to make the ruling on the said application under
section 17. He submits that pursuant to said directions issued by the
arbitral tribunal, the respondents herein filed an application under section
17 on 13th December, 2015.
17. It is submitted that in the introductory paragraph of the said
application, the respondents though alleged that the application of the
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respondents seeking disclosure of certain documents/information was
pursuant to section 19 of the said Act and the application for interim
measures of protection and preservation pursuant to section 17 of the said
Act, the said application was filed pursuant to the liberty granted by the
arbitral tribunal under section 17 of the said Act. He also placed reliance
on the procedural order no.7 issued on 3 rd February, 2016 passed by the
arbitral tribunal in which the arbitral tribunal amended the time table in
procedural order no.5. He submits that even in the said procedural order,
the arbitral tribunal amended the date of filing reply given to the
petitioners to the application under section 17 of the said Act which order
was passed after the respondents had already filed an application on 13 th
December, 2015 under section 17 of the said Act.
18. Learned senior counsel placed reliance on the draft order
filed by the respondents along with an application made by the
respondents and would submit that even according to the said draft order
submitted by the respondents, it was clear that the disclosure sought by
the respondents was relating to the interim reliefs prayed by the
respondents and thus that application for disclosure would be an
application under section 17 of the said Act and not under section 19. He
also placed reliance on the dissenting order passed by Mr.Justice
R.V.Raveendran (Retired) in which it is opined that section 19 of the said
Act relied upon by the respondents herein had no bearing on the interim
reliefs claimed.
19. Learned senior counsel placed reliance on the procedural
order no.8 dated 8th March, 2016 and more particularly page (3) thereof
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which states that the claim for documentary disclosure was made
pursuant to the procedure agreed by the parties at the outset of the
arbitration and incorporated by the tribunal in paragraph (9) of the
procedural order no.1 which reads as under :-
" The IBA Rules on the Taking of Evidence in International
Arbitrations (2010) ("the IBA Rules") will constitute
guidelines for the purpose of these arbitral proceedings,
subject to the discretion of the Tribunal."
20. It is submitted that the application made by the respondents
for disclosure of the documents along with other reliefs was not under
section 19 of the said Act but was a composite application under section
17 of the said Act. It is submitted that in any event since the application
made by the respondents was a composite application for seeking
disclosure of various documents and also for interim measures, appeal
under section 37 of the said Act is maintainable in view of the composite
order having been passed by the arbitral tribunal in respect of both the
reliefs granted by the arbitral tribunal. In support of this submission,
learned senior counsel placed reliance on the judgment of Supreme Court
in case of Arcot Textile Mills Limited vs. Regional Provident Fund
Commissioner and others, (2013) 16 SCC 1 and in particular paragraphs
1 to 5, 11, 12, 15, 17, 20 and 21. It is submitted that the disclosure sought
by the respondents of various documents was in furtherance of the
interim measures prayed under section 17 and the said order of disclosure
is thus not severable from the injunctive relief granted by the arbitral
tribunal.
21. Insofar as challenge to the impugned order passed by the
majority arbitrators on merits is concerned, learned senior counsel for the
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petitioners invited my attention to the procedural order no.6 dated 24 th
December, 2015 and in particular paragraphs 12 and would submit that
the arbitral tribunal had agreed to grant an extension of four weeks time
to file reply to the application filed by the respondents under section 17 to
the petitioners only on the condition that the petitioner nos. 2 and 3 shall
give an undertaking on or before 27th December, 2015 that until an
application of the respondents under section 17 was disposed of, they will
not take any action or cause or permit any other entity to take action
contrary to the orders setout in paragraph 3.2-5 of the draft order attached
to the application filed by the respondents. He submits that in view of
such conditional order passed by the arbitral tribunal, the petitioners had
no other option but to file such undertaking however without prejudice to
the rights and contentions of the petitioners. The petitioner nos. 2 and 3
filed such undertaking on 27th December, 2015 which undertaking were
extended till disposal of the said application filed by the respondents
under section 17 of the said Act.
22. Learned senior counsel for the petitioners invited my
attention to the impugned order passed by the arbitral tribunal on 8 th
March, 2016 and submits that the arbitral tribunal has granted interim
measures against the petitioner nos. 2 and 3 to do or not to do various acts
in respect of preservation of partnership assets of various limited liability
partnership (LLPs) and a private limited company or from preventing any
distribution of the assets etc. of those LLP's and a private limited
company. He submits that the arbitral tribunal could not have passed any
orders in respect of those LLPs and a private limited company since none
of those LLPs or the private limited company were parties to the arbitral
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proceedings or to the arbitration agreements. He submits that the arbitral
tribunal has thus exceeded its jurisdiction by passing interim measures
against the third parties.
23. Learned senior counsel for the petitioners invited my
attention to the dissenting order passed by Mr.Justice R.V.Raveendran
(Retired), a Co-arbitrator and adopted the reasons recorded by the learned
dissenting arbitrator allowing application filed under section 17 by the
respondents only in part to the extent agreed by the petitioners herein. It
is submitted by the learned senior counsel that the disclosures directed by
the arbitral tribunal were related to five limited liability partnerships
viz.Vish Wind Infrastructure LLP, Nirvana Wind Power Infrastructure
LLP, Ray Urja Infrastructure LLP, Vaayu Energy LLP and Vaayu
Infrastructure LLP which were listed at serial nos. 12, 13, 14, 19 and 25
in Annexture B to the claim statement. He submits that admittedly there
were several other partners in the said five LLPs viz. Radhika Mehra,
Minakshi Mehra, Sudarshan Mehra, Sitakshi Khanna, Neha Mehra,
Siddharth Mehra and Smriti Mehra. No reliefs were sought against those
LLPs in the statement of claim filed by the respondents. He submits that
the liability of partnership cannot be equated to or identified for one or
two of its partners. He submits that no individual liability of a partner in
LLPs can be considered since the LLPs are body corporate and separate
legal entities distinct from its partners. The arbitral tribunal could not
have passed any order directly or indirectly in respect of assets of those
LLPs and a private limited company which would affect the interest of all
the partners including petitioner nos. 2 and 3. He submits that the entire
order passed by the arbitral tribunal granting interim measures is thus
without jurisdiction and deserves to be set aside.
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24. It is submitted by the learned senior counsel for the
petitioners that by granting such interim measures in respect of those five
LLPs and a private limited company, the arbitral tribunal has proceeded
with on the premise that all those LLPs and a private limited company
were firms of the petitioner nos.2 and 3 only and the arbitral tribunal
could have lifted the corporate veil and had jurisdiction to pass such
interim measures even in respect of those LLPs and a company who were
not parties to the present proceedings or to the arbitration agreement. He
submits that the arbitral tribunal had no jurisdiction to lift the corporate
veil of the third parties and thus the entire impugned order is without
jurisdiction. In support of this submission he placed reliance on the
judgment of this court in case of Oil and Natural Gas Corporation Ltd.
vs. M/s.Jindal Drilling and Industries Limited delivered on 28th April,
2015 in Arbitration Petition No.587 of 2014 along with other companion
company and more particularly paragraphs 42 to 44, 47 and 48. He
submits that paragraph 27 of the impugned order passed by the arbitral
tribunal is contrary to the view formulated by this court in the judgment
of ONGC vs.M/s.Jindal Drilling and Industries Limited (supra) and the
impugned order thus deserves to be set aside on this ground also.
25. Learned senior counsel for the petitioners placed reliance on
the judgment of Supreme Court in case of Md.Army Welfare Housing
Organisation vs. Sumangal Services (P) Ltd. (2004) 9 SCC 619 and in
particular paragraphs 43 and 58 and would submit that the arbitral
tribunal has no jurisdiction to pass any interim measures against a third
party. It is submitted that the impugned order passed by the arbitral
tribunal directly affects or is against those LLPs and a company and
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would affect the other partners and the shareholders of the LLPs and a
company respectively who are admittedly not the parties to the arbitration
agreement and to the proceedings before the arbitral tribunal.
26. It is submitted that two partners of those LLPs cannot be
directed to preserve the assets of those third parties or to maintain status
quo or to prevent other partners from distribution of assets of those LLPs
and a company or from dealing with or diminishing the value of their
assets with prior permission of the tribunal or otherwise. He submits that
third parties cannot be made bound by such interim measures not to deal
with, dispose of or diminishing value of assets or cannot be taken forced
to take any prior permission of the tribunal before dealing with the assets
of the partnership firm. He submits that it is well settled principles of law
that what cannot be done directly cannot be done indirectly. Learned
senior counsel placed reliance on the following judgments :-
(i) Judgment of Supreme Court in case of State of Tamil Nadu and
others vs. K.Shyam Sunder and others (2011) 8 SCC 737
(paragraph 40).
(ii) Judgment of Supreme Court in case of Rashmi Rekha Thatoi and
another vs. State of Orissa and others (2012) 5 SCC 690
(paragraph 67).
(iii) Judgment of Supreme Court in case of Abdul Basit alias Raju and
others vs. Mohd. Abdul Kadir Chaudhary and another (2014) 10
SCC 754 (paragraph 25).
27. Learned senior counsel for the petitioners invited my
attention to the annexture (b) to the statement of claim referred in the
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dissenting order passed by Mr.Justice R.V.Raveendran (Retired) co-
arbitrator showing a list of various LLPs and private limited companies.
He submits that even the said list would clearly indicate that in respect of
four such LLPs in respect of which the interim measures are granted by
the arbitral tribunal consists of 9 to 10 partners including the petitioner
nos. 2 and 3. No such interim measures thus could be granted directly or
indirectly against the partners who were third parties.
28. Insofar as disclosure agreed to be made by the petitioners are
concerned, it is submitted by the learned senior counsel for the petitioners
that those disclosures were agreed without prejudice to the rights and
contentions of the petitioners and were the documents/information which
were within the public domain and to which any members of public could
have an access. He submits that the arbitral tribunal has also directed the
petitioner nos.2 and 3 to furnish the bank statements and all documents
evidencing investments, including, but not limited to, demat accounts,
fixed deposits and shareholdings of Vaayu Renewable Energy (Purna)
Pvt. Ltd. since incorporation. He submits that though a specific objection
was raised pointing out that the said Purna was a private limited
company, the arbitral tribunal directed the petitioner nos.2 and 3 to
produce certain records even of the said company who was also not a
party to arbitration agreement or the proceedings.
29. Learned senior counsel for the petitioners invited my
attention to paragraph 28 of the impugned order passed by the majority
arbitrators and would submit that the order of the arbitral tribunal is based
on the principles of constructive trust, in respect of assets under their
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control, i.e. their interest in the Vaayu Companies representing assets
wrongfully extracted from WWIL holding that even if the remedy was
purely personal, a court or tribunal would have power to grant interim
relief, equivalent to a Mareva or freezing injunction, to prevent a
respondent from taking extraordinary steps, outside the ordinary course of
business, to put his assets outside the reach of an enforceable judgment or
award. He submits that none of these aspects including mareva or
freezing injunction considered by the arbitral tribunal were even pleaded
by the respondents in the application for interim relief or any other
proceedings. He submits that in the impugned order, the majority
arbitrators have considered what was not even submitted by the
respondents.
30. Learned senior counsel invited my attention to paragraph 31
of the interim order passed by the majority arbitrators and would submit
that majority arbitrators while granting interim measures have even
according to the arbitral tribunal have considered only the evidence
adduced by the parties at the hearing which was much prior to the date of
passing of the said order. He invited my attention to the letter dated 9 th
February, 2016 addressed by the petitioners through their advocates to the
arbitral tribunal seeking clarification from the arbitral tribunal about the
observations made in paragraph (10) of the procedural order no.6 thereby
making certain prima facie observations on the alleged breaches of the
shareholder agreement by the petitioner nos. 2 and 3 that those
observations of the arbitral tribunal did not bind the arbitral tribunal in
any way at the stage of considering an application filed by the
respondents under section 17 on merits and that the same were without
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prejudice to all rights and contentions of the petitioners herein in the
matter. He also invited my attention to the clarification issued by the
arbitral tribunal vide their e-mail dated 14th February, 2016 clarifying that
in the absence of further evidence or explanation from the other party,
there was evidence upon which the tribunal could make such a finding. It
does not bind the tribunal to make any finding whatsoever.
31. It is submitted that after such clarification issued by the
arbitral tribunal, the petitioners herein had filed a detailed affidavit in
reply to the application under section 17 on 27th February, 2016 raising
various issues on merits of the application filed by the respondents for
interim measures and for disclosure of various documents. He submits
that though the arbitral tribunal had agreed to consider the evidence relied
upon by the parties, the majority arbitrators have granted interim
measures without considering the detailed objections and clarification
issued by the petitioners in the detailed reply dated 27th February, 2016
and passed interim measures only based on the evidence produced by the
respondents upto the stage of hearing. He submits that the impugned
order passed by the majority arbitrators is thus ex-facie illegal being in
violation of principles of natural justice. He submits that the impugned
order while granting interim measures by the majority arbitrators is
without disclosing any reasons as to how the respondents had made out a
prima facie case.
32. Learned senior counsel also invited my attention to some of
the paragraphs from the affidavit in reply filed by the petitioners to the
said application filed under section 17 and would submit that though the
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petitioners had rendered explanation as to how no prima facie case was
made out by the respondents, the arbitral tribunal did not consider those
objections and did not disclose as to how prima facie case was made out
by the respondents.
33. It is submitted by the learned senior counsel that admittedly
the claims made by the respondents before the arbitral tribunal were for
damages which claims were seriously disputed by the petitioners and
were required to be proved by the respondents by leading oral evidence.
He submits that the claims made by the respondents for damages were not
secured claims and thus the arbitral tribunal could not have granted any
interim measures in respect of the properties and that also of third parties
by ignoring the principles of Order 38 Rule 5 of the Code of Civil
Procedure, 1908. He submits that the unsecured and disputed claims of
the respondents could not have converted into secured claims. In support
of this submission, he placed reliance on the judgment of Supreme Court
in case of Raman Tech & Process Engg. Co. and another vs. Solanki
Traders (2008) 2 SCC 302 and in particular paragraphs 4 to 6. He also
invited my attention to paragraph 28 of the application made by the
respondents under section 17 and would submit that the averments made
by the respondents for seeking interim measures of protection were
totally vague and without particulars and did not satisfy the principles of
Order 38 Rule 5 of the Code of Civil Procedure, 1908.
34. Learned senior counsel for the petitioners placed reliance on
the judgment of Delhi High Court in case of Intertoll Ics Cecons O & M
Co. Pvt. Ltd. vs. National Highways Authority of India, ILR (2013) II
ppn 19 arbpl-374.16(j).doc
Delhi 1018 and in particular paragraphs 10, 13 and 18. He also placed
reliance on reported judgment of this court in case of Baker Hughes
Singapore Pte. vs. Shiv-Vani Oil and Gas Exploration Services Ltd.
reported in 2015 (1) Bom.C.R. 377 and in particular paragraphs 35,
43,44, 55, 57 and 58 and would submit that the arbitral tribunal could
have granted interim measures under section 17 in case of money claim
only if such claims made by the claimants were admitted which was not
the case of the respondents in this case. He submits that in the said
matter, there was a provision for payment of undisputed invoices and
some of the invoices were admittedly undisputed.
35. It is submitted by the learned senior counsel for the
petitioners that the impugned order directing the petitioners to produce
and furnish copies of various documents was totally unwarranted and in
any event is not in accordance with the IBA Rules applicable to the
parties. In support of this submission, learned senior counsel invited my
attention to Articles 1, 3, 3(7) and 3(9) of the said IBA Rules. It is
submitted that under Article 9, even if parties to the arbitration agreement
wish to obtain the production of the documents from the person who was
not a party to the arbitration,the party has to follow the steps legally
available within the time ordered by the arbitral tribunal to obtain such
requested documents or to seek leave from the arbitral tribunal to take
such steps etc.
36. It is submitted that Article 9 of IBA Rules is in pari materia
with section 27 of the Arbitration and Conciliation Act, 1996. It is
submitted that the arbitral tribunal thus on its own could not have ordered
ppn 20 arbpl-374.16(j).doc
the production of documents relating to third parties or directing the
petitioner nos. 2 and 3 to produce such documents but ought to have
directed the respondents to take steps under Article 9 read with section 27
of the Arbitration and Conciliation Act, 1996 after deciding the relevance
of such documents. He submits that the impugned order of disclosure is
thus in violation of IBA Rules and more particularly Article 9 and also
section 27 of the Arbitration and Conciliation Act, 1996.
37. Mr.Chinoy, learned senior counsel for the respondents on the
other hand submits that the composite petition filed by the petitioners
under section 37 of the said Arbitration and Conciliation Act, 1996 inter
alia impugning the order of disclosure passed under section 19 of the Act
and interim measures granted under section 17 of the Act is not
maintainable. In support of this submission, he invited my attention to
various paragraphs of the impugned order and in particular paragraphs
16, 22, 23, 24 to 28 and would submit that the application for disclosure
was made by the respondents under section 19 read with IBA Rules. He
submits that order of disclosure made by the arbitral tribunal is an
independent order and can be segregated from the composite order passed
by the majority arbitrators.
38. Insofar as order passed by the majority arbitrators directing
the petitioners to disclose and furnish various documents is concerned, it
is submitted by the learned senior counsel that Mr.Yogesh Mehra was
cross examined at the hearing about the related party transactions in 2011
and 2013 between WWIL and Vish Wind which were recorded in the
financial statements of WWIL. He submits that Vish Wind was a
ppn 21 arbpl-374.16(j).doc
partnership firm of members of the Mehra family which was administered
by Yogesh and Ajay Mehra, the petitioner nos. 2 and 3 herein. He
submits that during the course of cross examination it appeared from the
accounts that Vish Wind had netted a profit of about Euro 124 million
from the transactions in question. During the course of the cross
examination, the learned counsel for the respondents herein requested for
disclosure of the documents relating the Vish Wind transactions.
39. It is submitted that on the 6th day of the hearing, the contracts
and valuation reports were disclosed by the petitioners herein which
evidenced sales of development rights by Vish Wind to WWII for very
substantial sums, supported by valuation certificates based on
comparables with other sales of such development rights in other parts of
the world. He submits that the respondents herein accordingly asked the
petitioners to disclose the financial statements of Vish Wind and they
were put before the tribunal by the petitioners on the 7 th day of the
hearing. He submits that from the accounts showed before the arbitral
tribunal, it appeared that Vish Wind had used part of its profit to buy
WTGs from WWIL and was now earning income from sale of power.
Huge amount of salaries were paid to petitioner nos. 2 and 3. He submits
that it was a clear case of the siphoning of fund by the petitioner nos. 2
and 3 and about 11000 crores were diverted illegally to themselves or
partnership firms controlled by them. He submits that it was a clear case
of misfeasance. The production of documents and disclosure of various
information pertaining to these illegal transaction was thus necessary for
proper adjudication of the dispute before the arbitral tribunal.
ppn 22 arbpl-374.16(j).doc
40. It is submitted by the learned senior counsel that the
petitioner themselves had voluntarily agreed to disclose various
documents and agreed to furnish copies of various documents of the
LLPs and thus it cannot be allowed to be urged by the petitioners at this
stage that no such disclosure in respect of such documents and/or
information regarding the transaction in respect of those limited liability
partnership firms could have been directed by the arbitral tribunal on the
ground that such firms were neither parties to the arbitration agreement
nor were parties to the arbitral proceedings.
41.
It is submitted that according to the petitioners herein, those
four limited liability partnership firms were dormant companies and/or
non business firms, however the cross examination of the petitioner no.2
disclosed the total contrary facts and the diversion of funds was proved.
It is submitted that most of these firms and companies were admittedly
set up by the petitioner nos.2 and 3 only after the dispute between the
parties hereto started. The purpose of disclosure of various transactions
and documents in the present proceedings was to find out whether the
petitioner nos.2 and 3 were actually siphoned of and/or diverted the funds
of the firms and companies in question by the petitioner nos. 2 and 3.
42. Insofar as order passed by the majority arbitrators granting
various interim measures is concerned, it is submitted by the learned
senior counsel that the impugned order was passed by the majority
arbitrators in view of the misfeasance and siphoning of the funds of the
company in question to the partnership firm and the companies setup by
the petitioner nos.2 and 3 which was apparent during the course of cross
ppn 23 arbpl-374.16(j).doc
examination of the petitioner no.2 and thus the arbitral tribunal was fully
empowered and justified in passing such interim measures under section
17 of the Arbitration and Conciliation Act, 1996. He invited my attention
to the undertaking filed by the petitioner nos. 2 and 3 on 27 th December,
2015 which was extended till the date of the impugned order and would
submit that the interim measures granted by the majority arbitrators was
exactly in identical terms of such undertaking and thus no prejudice of
any nature whatsoever would be caused to the petitioners.
43. It is submitted that if the undertaking could be furnished by
the petitioner nos. 2 and 3 on behalf of various limited liability
partnership firms, the petitioners cannot be allowed to urge that the
arbitral tribunal which has passed an order in terms of undertaking
furnished by the petitioner nos. 2 and 3 did not have jurisdiction to pass
such interim measures against those firms. He submits that all the firms
which were started by the petitioner nos. 2 and 3 after commencement of
the disputes between the parties were under the exclusive control of the
petitioner nos. 2 and 3. It is submitted that in any event the majority
arbitrators have not passed any interim measures against those
partnership firms or a company but the order has been passed against the
petitioner nos. 2 and 3 who were parties to the arbitration agreement and
to the proceedings.
44. It is submitted that the arbitral tribunal has in any event has
not prohibited the partnership from dealing with and/or disposing of their
assets upto a cumulative value of Rs.10 million rupees, provided that
such dealing or disposal was in the ordinary and proper course of their
ppn 24 arbpl-374.16(j).doc
business and does not entail any distribution of the partnership assets to
the partners or others. He submits that majority of the arbitrators have
also in the impugned order has made it clear that the said order did not
prohibit the partnerships from continuing the payment of interest in
relation to any pre-existing loans from independent financial institutions
or from making payments towards any costs and expenses of operating
any currently held wind farms, provided that such dealing was in the
ordinary and proper course of their business. It is submitted that the
impugned order passed by the majority arbitrators is thus equitable, fair
and just and was warranted in the facts and circumstances of this case and
cannot be interfered with in this case under section 37 of the Arbitration
and Conciliation Act, 1996.
45. It is submitted by the learned senior counsel for the
respondents that by the impugned order passed by the majority
arbitrators, the corporate veil of the firms have not been lifted by the
majority arbitrators. He submits that those limited liability partnership
firms are not made liable to pay any amount at this stage by the impugned
order. Learned senior counsel placed reliance on the judgment of Division
Bench in case of La-Fin Financial Services Pvt. Ltd. vs. IL & FS
Financial Services Pvt.Ltd., 2015 SCC OnLine Bom 4794 and in
particular paragraphs 39, 43 and 44. It is submitted that there is a clear
distinction between the relief for attachment before judgment, which is
governed by the provisions of Order 38 Rule 5 and the grant of temporary
injunctions under Order 39 of the Code of Civil Procedure, 1908. It is
submitted that majority of the arbitrators have rightly granted interim
measures in favour of the respondents.
ppn 25 arbpl-374.16(j).doc
46. Learned senior counsel for the respondents invited my
attention to paragraphs 54 to 59 of the affidavit in reply filed before the
arbitral tribunal by the petitioners in which the petitioners themselves had
agreed to produce the documents and have not disputed their capacity to
produce such documents on behalf of those firms.
47. Learned senior counsel made an attempt to distinguish the
judgment of Supreme Court in case of Arcot Textile Mills Limited (supra)
on the ground that the said judgment does not apply to the facts of this
case. He submits that in this case the order passed by the majority of the
arbitrators on the application of disclosure made under section 19 and on
the application filed under section 17 for interim measures are clearly
severable and thus no composite petition for impugning both the orders is
maintainable. In support of this submission, learned senior counsel placed
reliance on the section 5 of the Arbitration and Conciliation Act,1996. He
submits that admittedly, the petitioner nos.2 and 3 are parties to the
arbitration agreement and thus can be directed to preserve the assets of
the firm controlled by them which preservation is within the power and
control of the petitioner nos.2 and 3.
48. Mr.Chinoy, learned senior counsel for the respondents states
that when the erstwhile counsel and the advocate representing for the
petitioners realized suppression of their clients of various facts, they did
not continue to represent the petitioners. He submits that this fact itself
would show that the petitioners had not come to the arbitral forum with
clean hands and had suppressed various true and material facts.
ppn 26 arbpl-374.16(j).doc
49. Learned senior counsel for the petitioners in rejoinder
distinguished the judgment of Division Bench in case of La-Fin
Financial Services Pvt. Ltd. (supra) on the ground that the said order
passed by this court was arising out of the notice of motion in a suit
which principles are not applicable to the arbitral proceedings.
50. Insofar as submission of the learned senior counsel about
withdrawal of the erstwhile advocates and counsel of the petitioners is
concerned, learned senior counsel for the petitioners invited my attention
to page 174 i.e. the procedural order no.7 and in particular paragraph 5
and would submit that even the arbitral tribunal has clearly recorded that
no explanation has been given to the tribunal as to why the petitioners
previous solicitors withdrew the proceedings and the arbitral tribunal did
not suggest any explanation should have been given. It is held that it is a
matter of which the petitioners are entitled to maintain privilege and it is
not something in which the respondents herein are in anyway responsible
and it would cause any prejudice.
51. Insofar undertaking furnished by the petitioners is
concerned, it is submitted that the said undertaking was admittedly
furnished without prejudice to the rights and contentions of the petitioners
and was required to be furnished since the majority of the arbitrators had
refused to grant any extension of time to file affidavit in reply to the
application filed by the respondents under Section 17 of the Act.
52. Insofar as submission of the learned senior counsel for the
respondents on the allegations of defalcation/siphoning of funds of the
ppn 27 arbpl-374.16(j).doc
company in question in the LLPs is concerned, it is submitted that the
petitioners herein had disputed such allegations made by the respondents
by filing a detailed affidavit in reply and more particularly in paragraphs
6 to 53. It is submitted that the petitioners have explained various
transactions in those paragraphs which are not even referred to and/or
dealt with by the majority arbitrators in the impugned order while
granting interim measures under section 17 of the Arbitration and
Conciliation Act, 1996.
53. Insofar as documents agreed to be furnished in respect of
some of the partnership firms before the arbitral tribunal by the
petitioners is concerned, it is submitted that all such documents which
were agreed to be furnished are within the public domain and any party
can obtain such documents. He submits that such statement made by the
petitioners cannot be construed as any admission on the part of the
petitioners.
REASONS AND CONCLUSIONS:-
54. I shall first deal with the issue as to whether this arbitration
petition filed under section 37 of the Arbitration and Conciliation Act,
1996 inter alia, impugning the common order passed by the Arbitral
Tribunal on 8th March 2016, thereby directing the petitioners to disclose
and deliver various documents of the four LLPs and a private limited
company and granting various interim measures is maintainable.
55. A perusal of the Procedural Order No.V dated 11 th December
2015 indicates that the arbitral tribunal had fixed a time table for filing
ppn 28 arbpl-374.16(j).doc
various pleadings and applications as agreed between the parties. It was
directed that the claimants (respondents herein) shall file an application
under section 17 of the said Act by 13 th December 2015 and the
petitioners herein shall file their reply to the said application under
section 17 of the said Act on 19 th December 2015. The Arbitral Tribunal
agreed to make a ruling on the application if filed under section 17 of the
said Act on 23rd December 2015. There was some delay on the part of the
petitioners in filing reply to the application filed by the respondents.
56. In the Procedural Order No.VII dated 3 rd February 2016, the
arbitral tribunal amended the time table and extended the date of filing
affidavit in reply by the petitioner to the application under section 17 till
26th February 2016 and the date of giving ruling on the said application
by the tribunal till 4th March 2016. There is no dispute that the
respondents herein had already filed their application on 13th December
2015 when the Procedural Order No.VII was passed i.e. prior to the
arbitral tribunal passing an order dated 3rd February 2016.
57. A perusal of the application dated 13th December 2015, filed
by the respondents indicates that in the said application, it was stated by
the respondents that in accordance with the Procedural Order No.V, the
respondents were seeking a disclosure of certain documents/ information
pursuant to section 19 of the said Act and were applying for interim
measures for protection and preservation pursuant to section 17 of the
Act. In para 9 of the said application, it is stated that the respondents
ought to be entitled to see various documentations as well, including so
as to determine for what purpose the Mauritian Vehicle had been
ppn 29 arbpl-374.16(j).doc
established by the petitioner Nos. 2 and 3 and has to ensure that the
ultimate prayer for relief would be framed as closely as possible to
individual coporate entities. In para 10 of the said application filed by the
respondents clearly indicates that the respondents have applied for
disclosure and details of the bank accounts and various other documents
which were to be used in a matter of interim protection/preservation and
important for policing the interim relief sought for. It is averred by the
respondents in para 10 that the tribunal has powers to order such
information pursuant to section 19(3) and/or section 17 of the Arbitration
Act.
58. A perusal of the Procedural Order No.I passed by the
Arbitral Tribunal which is referred in para 2 of the Impugned order
indicates that, according to the arbitral tribunal, the claim for
documentary disclosure was made pursuant to the procedure agreed by
the parties in the Arbitral Order No.I that the 'I.B.A. Rules on Taking of
Evidence in International Arbitrations (2010)' ("the IBA Rules") will
constitute guidelines for the purposes of these arbitral proceddings
subject to the discretion of the Tribunal. The Tribunal also referred to
Articles 3.9, 3.10 and 3.2 of the IBA Rules.
59. A perusal of para 38 of the impugned order passed by the
majority arbitrators indicates that, according to the majority arbitrators,
the documents relating to the bank accounts of various LLPs the bank
account in to which drawing of partnership have been paid. Disclosure is
resisted on the grounds of lack of relevance, there being no case for relief
in support of which disclosure should be ordered and disclosure would
involve a breach of confidentiality to the other partners.
ppn 30 arbpl-374.16(j).doc
60. It is held that the Arbitral tribunal considers that if it should
find that assets or value had been wrongfully transferred from WWII to
Vaayu Companies, documents which enable it to trace exactly what
happened to those assets, would be relevant and that obligation of
confidence to other members of Mehta family who have been benefited
from such wrong deal would not be a ground for declining other
disclosure. The arbitral tribunal accordingly ordered disclosure of the
information sought under para 2 of the draft order and granted permission
to the respondents herein, if so advised, to apply for similar orders in
respect of other entities after the disclosure order in respect of Vish wind.
In para 39 of the impugned order, passed by the majority arbitrators, the
arbitrators directed the petitioners herein to deliver true copies of various
documents of four limited liability partnership firm and also of a private
limited company. In para 39(2) of the impugned order, the majority
arbitrators granted various interim measures in respect of various assets
of the said LLPs and in respect of a private limited company.
61. A perusal of the application made by the respondents for
disclosure of documents and also simultaneously seeking interim
measures clearly indicates that respondents had applied for disclosure of
documents to support the case of the respondents to obtain interim
measures in respect of various assets of the said four limited liability
partnership firms and a private limited company. All such disclosure
sought by the respondents in respect of various assets of the firms and the
company were sought with a view to obtain interim measures under
section 17 and thus, the relief of disclosure sought by the respondent was
connected with and/or intertwined with the relief of interim measures
sought by the respondents.
ppn 31 arbpl-374.16(j).doc
62. A perusal of the order passed by the majority arbitrators
clearly indicates that even, according to the composite order passed by
the majority arbitrators, the disclosure was ordered by the majority
arbitrators with a view to grant interim measures in favour of the
respondents. In my view, the arbitral tribunal though has given a separate
direction in the same para i.e. one for the disclosure of documents and to
furnish copies thereof to the respondents by the petitioners and another
granting measures, in these circumstances, the impugned order of
disclosure granted by the majority arbitrators cannot be segregated with
the order of interim measures granted by the majority arbitrators, the
same being inter-point and inter-dependent on each other.
63. The Supreme Court in the case of Arcot Textiles Mills
(supra), has held that in a composite order, which comprises of part of the
order which is not appealable and comprises of another part of the order
which is appealable, in that situation, such composite order will be
amenable to appeal. In my view, the judgment of the Supreme Court in
the case of Arcot Textiles Mills (supra) will squarely apply to the facts of
this case. I am in respectfully bound by the said judgement of Supreme
Court. In the facts of this case, it is not possible to segregate the order of
majority arbitrators granting disclosure of documents with the order of
interim measures and thus, the petitioners were not bound to adopt any
other remedy available, if any, in respect of the order of disclosure
directed by the majority arbitrators.
64. In my view, there is no merit in the submission of the
learned Senior Counsel for respondents that this composite petition for
ppn 32 arbpl-374.16(j).doc
impugning the order of disclosure as well as the order of granting interim
measures by the majority arbitrators under section 37 is not maintainable
and the same is accordingly rejected.
65. Insofar as merits of the order of disclosure directed by the
majority arbitrators is concerned, there is no dispute that in the
Procedural Order No.1, the arbitral tribunal had recorded that the 'IBA
Rules of taking evidence in international arbitration (2010)' will
constitute guidelines for the purpose of this arbitral proceedings, subject
to discretion of the Tribunal.
66. A bare perusal of the IBA Rules referred to aforesaid and
more particularly Article 3(9) clearly indicates that if a party wishes to
obtain production of documents from a person or organisation, who is not
party to the arbitration and from whom, a party to the arbitration cannot
obtain the documents on its own, the party may, within the time ordered
by the Tribunal ask it to take whatever steps as are legally available to
obtain the requisite documents, or seek leave from the arbitral tribunal to
take such steps itself. The party has to submit such request to the
arbitratral tribunal and to the other parties in writing and the request shall
contain the particulars set forth in article 3.3 as applicable. The arbitral
tribunal, then, has to decide on the said request and to authorise the
requesting party to take or order any other party to take such steps as the
tribunal considers appropriate, if in its discretion it determines that the
documents would be relevant to the case and material to its outcome, the
requirement of article 3.3 have been satisfied and none of the reasons for
objection set forth in article 9.2 applies. It is thus clear beyond reasonable
ppn 33 arbpl-374.16(j).doc
doubt that the respondents were seeking disclosure of various documents
and information regarding four limited liability partnership firms and a
private limited company, who were admittedly not parties to the
arbitration agreement and also to the arbitral proceedings and were thus
third parties.
67. A reference to section 27 of the Arbitration Act at this stage
would be relevant. Under section 27 of the Act, the Arbitral Tribunal or
a party with the approval of the arbitral tribunal may apply to the court
for assistance in taking evidence. Under the said provision, the party can
apply for issuance of witness summons upon the witness including expert
witnesses and for production of documents. In my view, the provision in
article 3 of the IBA Rules, will have to be read with section 27 of the
Arbitration Act and thus, the majority arbitrators could not have directly
or indirectly directed the petitioners herein to disclose and produce
various documents relating to third parties which were objected to by the
petitioners. The majority arbitrators, even if, were satisfied that such
documents would be necessary for granting interim measures, the
majority arbitrators could have at the most directed the respondents to
apply to the court for taking assistance under section 27 of the Arbitration
Act. In that situation, this court would have considered whether those
third parties shall be directed to produce any such document or to furnish
information to the applicants after hearing the parties concerned,
including third parties. In my view, the impugned order passed by the
arbitral tribunal thus, directing the petitioner Nos. 2 and 3 and indirectly
directing third parties to furnish such documents is contrary to Article
3(9) of the IBA Rules and section 27 of the said Arbitration Act.
ppn 34 arbpl-374.16(j).doc
68. In so far as the directions issued by the majority arbitrators
to the petitioners to produce the documents of third parties is concerned,
in my view, the majority arbitrators could not have issued such directions
which would affect the rights of the third parties i.e. the other partners of
those four limited liability partnership firms and a private limited
company, who are admittedly not party to the arbitral proceedings or
arbitration agreement. In my view, directing two of the partners out of
several partners to furnish information pertaining to the assets and
accounts of third parties comprising of several other partners, would be
outside the jurisdiction of the arbitral tribunal and also contrary to the
provisions of those partnership deeds entered into between the petitioner
Nos. 2 and 3 along with other partners and the Memorandum and
Articles of Association of the private limited company. In my view, the
directions to furnish such disclosure of the assets and accounts against the
petitioner Nos. 2 and 3 also will be in violation of provisions of Limited
Liability Partnership Act, 2008 applicable to the petitioner Nos. 2 and 3
and other partners of those LLPs and also would be in violation of the
provisions of Companies Act, 1956 insofar a private limited company is
concerned. In my view, the order of disclosure thus issued by the majority
arbitrators is contrary to the law and thus deserves to be set aside.
69. Insofar as the submission of learned Senior Counsel for the
respondents that the petitioners themselves had agreed to furnish certain
documents to the arbitral tribunal and to the respondents in the arbitral
proceedings is concerned, in my view, merely because the petitioners had
agreed to disclose certain information regarding assets or accounts of
those partnership firm or private limited company, such a voluntary
ppn 35 arbpl-374.16(j).doc
statement made by the petitioners for providing certain information
which was available within the public domain cannot be held binding
upon the petitioners to disclose all information without consent and
permission of the other partners. Even if part of the disclosure was agreed
by the petitioners Nos.2 and 3, the disclosure sought by the respondents
being contrary to the provisions of Limited Liability rPartnership Act,
2008 and Companies Act, could not have been ordered by the majority
arbitrators and that also without following agreed procedure under IBA
Rules and contrary to section 27 of the Arbitration Act.
70.
In my view, there is no merit in the submission of the
learned Senior Counsel for respondents that if part disclosure was agreed
by the petitioners voluntarily, the arbitral tribunal could have ordered the
remaining disclosure of the assets and accounts of these four limited
liability partnership firm and a private limited company.
71. In my view, in the dissenting order passed by the learned
Arbitrator Mr.Justice R.V.Raveendran (Retired) the learned Arbitrator has
rightly held that such limited liability partnership firm and a private
limited company against whom such an order of disclosure is ordered are
separate legal entities and the learned arbitrator was right in rejecting the
said application for disclosure of documents except the documents which
the petitioners had furnished.
72. Insofar as interim measures granted by the majority
arbitrators in favour of the respondents is concerned, a perusal of the
order passed by the majority arbitrators indicates that the petitioner nos. 2
ppn 36 arbpl-374.16(j).doc
and 3 have been directed to preserve the partnership assets of the
aforesaid four limited liability partnership firms and of a private limited
company, to maintain the status quo, including but not limited to, not
changing, altering or dealing in any way with the current interests in the
said partnerships or the position of petitioner nos. 2 and 3 as designated
partners. Majority arbitrators have also directed the petitioner nos. 2 and
3 to prevent any distribution of the partnership assets and to procure that
the partnerships do not, in any manner whatsoever, dispose of, deal with
or diminish the value of their assets, except with the permission of the
tribunal which includes, but not limited to, procuring that the partnerships
do not sell, loan, encumber, pledge or otherwise deal with any of the
partnerships' assets or create any new indebtedness.
73. The majority arbitrators however in the said order made
exception to the interim measures referred to aforesaid and made it clear
that (a) the said order did not prohibit the partnerships from dealing or
disposing of their assets upto a cumulative value of Rs.10 million
provided that such dealing or disposal was in the ordinary and proper
course of their business and does not entail any distribution of the
partnership assets to the partners or others and (b) also did not prohibit
the partnerships from continuing the payment of interest in relation to any
pre-existing loans from independent financial institutions or from making
payments towards any costs and expenses of operating any currently held
wind farms, provided that such dealing was in the ordinary and proper
course of their business.
74. It is not in dispute that to the agreement entered into between
the petitioners and the respondents those four limited liability partnership
ppn 37 arbpl-374.16(j).doc
firms and a private limited company were not parties nor are parties to the
present arbitral proceedings ongoing before the arbitral tribunal. The
question that arises for consideration of this court is whether the majority
arbitrators could have passed any interim measures against the petitioner
nos. 2 and 3 who were two of the partners alongwith several others in
those four limited liability partnership firms and were shareholders in a
private limited company in respect of the assets and the accounts of those
partnership firms and a private limited company in an application under
section 17 of the Arbitration and Conciliation Act, 1996.
75.
A perusal of Annexture B to the claim statement which is
referred in the dissenting order passed by the learned arbitrator Mr.Justice
R.V.Raveendran (Retired) which provides a list of 33 limited liability
partnerships and companies including those four firms and the private
limited company clearly indicates that in addition to the petitioner nos. 2
and 3 herein, there are about 7 to 8 partners in those firms. The majority
arbitrators have also passed an interim measures in respect of Vaayu
Renewable Energy (Purna) Pvt. Ltd. in which the petitioner nos. 2 and 3
had shareholding of 34% and 33% respectively. It is not in dispute that
those four partnership firms are limited liability partnerships and are body
corporates and are registered under the provisions of Limited Liability
Partnerships Act, 2008. It is not dispute that no separate relief is prayed
against those four limited liability partnerships or against Vaayu
Renewable Energy (Purna) Pvt. Ltd.
76. Under section 3 of the Limited Liability Partnerships Act,
2008 a limited liability partnership is a body corporate incorporated under
ppn 38 arbpl-374.16(j).doc
the provisions of the said Act is a separate legal entity separate from that
of its partners and has perpetual succession. Such firms are liable to the
full extent of its assets and insofar as liabilities of partners are concerned,
it is limited to their agreed contribution in the limited liability
partnerships. No partners shall be held liable on account of any
independent unauthorized action, wrongful business decisions or
misconduct of the other partners. The provisions of Indian Partnership
Act, 1932 cannot be extended to such limited liability partnerships. In
my view the majority arbitrators thus could not have applied the
provisions and/or principles of Indian Partnerships Act, 1932 to those
four limited liability partnerships formed and registered under the
provisions of Limited Liability Partnerships Act, 2008 and to a private
limited company.
77. In my view, no interim measures as ordered could be granted
by the majority arbitrators even against the petitioner nos. 2 and 3 who
had certain shares in those four limited liability partnerships in view of
the fact that those four limited liability partnerships were separate legal
entities. No interim measures could be passed against those limited
liability partnerships and other partners of whatsoever nature against
them directly or indirectly which would impose any restriction against
them from exercising their rights and powers available to them under the
provisions of Limited Liability Partnerships Act, 2008 or as shareholders
of the said private limited company. The impugned order passed by the
majority arbitrators granting the interim measures directly or indirectly
against such limited liability partnerships or a private limited company on
the premise that those limited liability partnerships and the said company
ppn 39 arbpl-374.16(j).doc
were under the control of the petitioner nos. 2 and 3 is totally contrary to
the provisions of the said Limited Liability Partnerships Act,2008 and the
Indian Companies Act, 1956. In my view by the impugned interim
measures allowed by the majority arbitrators, the majority arbitrators
have directed the petitioner nos. 2 and 3 to prevent those limited liability
partnerships and other partners from exercising their rights and powers
under the provisions of Limited Liability Partnerships Act, 2008 which is
not permissible in law.
78. In my view there is no merit in the submission of the learned
senior counsel for the respondents that the petitioners themselves had
voluntarily filed an undertaking before the arbitral tribunal to preserve the
partnership assets, to maintain status quo, to prevent distribution of the
partnership assets etc. and the impugned order passed by the majority
arbitrators having been passed in line of the undertakings rendered by the
petitioner nos.2 and 3 and thus cannot be interfered with by this court.
The petitioner nos.2 and 3 at the first instance could not have rendered
such undertaking on behalf of those limited liability partnerships or on
behalf of the other partners at all, contrary to the provisions of the
Limited Liability Partnerships Act, 2008. Be that as it may, in my view
the majority arbitrators could not have passed such interim orders by
which the two partners have been directed to preserve the assets of the
limited liability partnerships or to prevent any distribution of assets of
such limited liability partnership or to dispose of or deal with or
diminishing the value of the assets except with the prior permission of the
tribunal or otherwise.
ppn 40 arbpl-374.16(j).doc
79. In my view, the majority arbitrators could not have subjected
the other partners of the limited liability partnership or shareholders of a
private limited company to obtain prior permission to deal with or
dispose off the assets of those limited liability partnerships which is not
permissible in law. The majority arbitrators in my view have directed the
petitioner nos.2 and 3 to force other partners of those limited liability
partnerships not to take any independent decision and to accept
whatsoever would be the decision or the order of the petitioner nos.2
and 3. The order passed by the majority arbitrators in my view shows
patent illegality and thus deserves to be set aside.
80. In my view the arbitral tribunal has no power to lift the
corporate veil but only a court can lift a corporate will of the company if
the strongest case is made out. This court in case of ONGC Vs.
M/s.Jindal Drilling and Industries Limited (supra) has held that the
arbitral tribunal has no power to lift the corporate veil and the same can
be lifted only by the court if the strongest case is made out. The said
judgment of this court squarely applies to the facts of this case. I do not
propose to take any different view in the matter.
81. Supreme Court in case of MD.Army Welfare Housing
Organisation (supra) has held that power of an arbitral tribunal under
section 17 are limited one. It is held that the interim measures under
section 17 must be related to the protection of the subject matter of the
dispute and the order may be addressed only to a party to the arbitration.
In my view in this case the assets of those four limited liability
partnership and a private limited company were not the subject matter of
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the dispute before the arbitral tribunal and thus no order under section 17
could be passed in respect of those assets of the limited liability
partnerships and of a private limited company. Those four limited liability
partnerships and private limited company were not even parties to the
arbitration proceedings or to the arbitration proceedings. The judgment of
MD.Army Welfare Housing Organisation (supra) squarely applies to the
facts of this case. I am respectively bound by the said judgment.
82. A perusal of the prayers in the statement of claim highlighted
in the impugned order clearly indicates that the respondents had made a
claim for damages. The claims made by the respondents were strongly
protested by the petitioners as is apparent in the affidavit in reply in the
application under section 17. A perusal of the application filed by the
respondents under section 17 clearly indicates that the allegations of the
respondents for seeking an interim measures even against the petitioner
nos. 2 and 3 were totally vague and without particulars and on this ground
itself the respondents not having made out any prima facie case, the
majority arbitrators could not have passed any interim measures.
83. In my view the arbitral tribunal could not have converted an
unsecured debt into a secured debt. Neither there was any averments in
the application filed under section 17 nor any such case was made out for
applying the principles of Order 38 Rule 5 of the Code of Civil Procedure
by the respondents. The judgment of Supreme Court in case of Raman
Tech & Process Engg. Co. and another (supra) applies to the facts of this
case. I am respectively bound by the said judgment.
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84. Insofar as judgment of Division Bench of this court in case
of La-Fin Financial Services Pvt. Ltd.(supra) relied upon by Mr.Chinoy,
learned senior counsel for the respondents is concerned, it is held by the
Division Bench that grant of the relief under Order 38 Rule 5 is on a
different situation from the grant of relief in a temporary injunction. In
my view the said judgment of Division Bench would not apply to the
facts of this case on the ground that the majority arbitrators have granted
interim measures in the nature of attachment before judgment against the
third party.
85.
Insofar as judgment of this court in case of Baker Hughes
Singapore Pte. vs. Shiv-Vani Oil and Gas Exploration Services Ltd.
(supra) relied upon by both the parties is concerned, this court has held
that the money claim was a subject matter of the dispute based on the
invoices issued by the petitioners upon the respondents. This court
considered a provision of the contract between the parties that the
respondents had agreed to pay the undisputed invoices to the petitioners
within 60 days from the date of the submission of such invoices. The
respondents in that case had admittedly not paid the undisputed invoices
in terms of the agreement and had asked for several extension. Several
winding up proceedings were filed against the respondents and in that
context, this court held that the claim of the petitioner therein was
admitted and the liability was acknowledged. The arbitral tribunal had
power to pass an order for furnishing security to secure the claim in those
circumstances. The order for furnishing security was passed against the
party to the arbitral tribunal and not against the third parties. In my view
the said judgment of this court would not assist the case of the
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respondents and is clearly distinguishable in the facts of this case. In my
view the order passed by the majority arbitrators granting interim
measures being contrary to law and thus deserves to be set aside. It is
ordered accordingly.
86. Insofar as prayer clauses (c) and (d) of the petition are
concerned, those prayers are for interim reliefs. Since this petition is
disposed of, the same need not be considered.
87. I, therefore, pass the following order :-
(a) Impugned order dated 8th March, 2016 passed by the arbitral
tribunal is set aside;
(b) The statement made by the learned senior counsel for the petitioners
on instructions and without prejudice to their rights and contentions
that the petitioners would comply with the statement made before
the arbitral tribunal as recorded in the paragraph 26 of the impugned
order and would disclose the documents referred in paragraphs 1.1,
1.5, 1.6 and 3.1 to the respondents on or before 23 rd March, 2016 is
accepted;
(c) The undertakings given by the petitioners as recorded in paragraphs
3 and 4 of the order dated 15th March, 2016 are accepted. No order
as to costs.
R.D. DHANUKA, J.
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