Bombay High Court
D.K.Infrastructure Pvt Ltd vs Kishore Agarwal And Anr on 2 May, 2022
Bench: N. J. Jamadar
Digitally signed by
SHRADDHA SHRADDHA
KAMLESH
TALEKAR
KAMLESH TALEKAR
Date: 2022.05.02
20:26:31 +0530
arbap 59 of 2022.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO.59 OF 2022
D.K.Infrastructure Pvt. Ltd.,
a Private Limited Company registered
under the Indian Companies Act, 1956,
through its Director
Mr. Sandip Hirani,
having their registered ofce address at
321, Solitaire Corporate Park,
Building No.3, 2nd Floor,
Andheri Kurla Road, Chakala,
Andheri (East), Mumbai - 400 093 ... Petitioner
Versus
1. Kishore Agarwal
An Adult, Indian Inhabitant,
having its residential address at :
B - 110, Western Edge II,
Western Express Highway,
Borivali (East), Mumbai - 400 066
2. Yogita Kishore Agarwal,
An Adult, Indian Inhabitant,
having its residential address at :
B - 110, Western Edge II,
Western Express Highway,
Borivali (East), Mumbai - 400 066 ... Respondents
Mr. Ammanullah Khan with Mr. Jehangir Khan, for Applicant.
Mr. Naushad Engineer with Mr. Devendra Tiwari, Mr. Aman Anand,
Mr. Harish Agarwal i/by Law Chamber of Siddharth Murarka, for
Respondents.
CORAM: N.J.JAMADAR, J.
RESERVED ON : 28th MARCH, 2022
PRONOUNCED ON : 2nd MAY, 2022
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JUDGMENT :
1. This is an Application under Section 11 of the Arbitration
and Conciliation Act, 1996 ('the Act) to appoint an Arbitrator to
arbitrate the disputes between the Petitioner and the Respondents
which purportedly have arisen out of the Share Purchase Agreement
dated 29th June, 2017.
2. The background facts leading to this Application can be
stated as under :
The Petitioner is a Company registered under the
Companies Act, 1956. Jalore Jaswantpura BOT Project Private
Limited (the 'JJBP' Company) is a private limited company. The 'JJBP'
is engaged in, interalia, the business of construction of highways
and roads. The Petitioner, Mr. Sandip Hirani and Mr. Suresh Hirani
are the 100% shareholders of the JJBP Company. The Petitioner
holds 5100 shares of the face value of Rs.10/- each. Mr. Sandeep
Hirani holds 3,675/- shares. Mr. Suresh Hirani holds 1,275/- shares.
Mr. Sandeep Hirani and Mr. Suresh Hirani are also the directors of
JJBP Company. The Respondent No.2 is the wife of Respondent No.1.
3. The Respondents had entered into a Share Purchase
Agreement with the Petitioner and Mr. Sandeep Hirani and Mr.
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Suresh Hirani (the Sellers), to purchase the entire shareholding i.e.
10,000 equity shares of JJBP Company. The agreement dated 29 th
June, 2017 interalia provided that the Respondents would purchase
10000 shares of the Sellers for an amount of Rs.43,00,000/-
calculated at Rs.430/- per equity share. The Respondent No.1 had,
in turn, agreed to purchase 51000 equity shares from the Petitioner
Company (the frst seller) and the Respondent No.2 had agreed to
purchase 3675 equity shares from Shri Sandip Hirani (the second
seller) and 1225 equity shares from Shri Suresh Hirani (the third
seller). In addition, the purchasers had agreed to discharge the
liabilities of the JJBP Company to the lenders of the JJBP Company as
enumerated in Schedule III under the title 'Outstanding Creditors',
to the tune of Rs.55,63,00,000/-. The rest of the outstanding
payments were to be made by the JJBP Company and sellers. For
which, the purchasers had already made a payment of
Rs.1,00,00,000/- to the Petitioner Company to enable them to pay
all the liabilities other than those mentioned in the Schedule III.
4. The Share Purchase Agreement further provided that in
case the Sellers failed to obtain an extension of the Concession
Agreement dated 9th February, 2012 between the Governor of
Rajasthan and the JJBP Company upto 30th January, 2029 within six
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months of the execution of the Share Purchase Agreement or the
extended time as may be mutually decided between the parties, the
Petitioner Company (frst Seller) shall issue a credit note for the sum
of Rs.5,00,00,000/- to the JJBP Company, and reduce its outstanding
by the said sum of Rs.5,00,00,000/- and also pay the Respondent
No.1 - Purchaser No.1 a sum of Rs.1,80,00,000/-. For the said
purpose, the frst Seller had handed over the post dated cheque
payable on 23rd December, 2017 in favour of the Purchaser No.1.
The Share Purchase Agreement contained a mechanism for
resolution of the disputes through arbitration.
5. The Petitioner asserts that the Respondents entered into
a fnancial arrangement with Reliance Commercial Finance Limited
(RCFL) and executed a letter of continuing guarantee with RCFL to
grant to the said JJBP Company a rupee term loan to the extent of
Rs.45,00,00,000/- for the acquisition of BOT toll project. The
Respondents have, however, not cleared the entire liability in terms
of the Share Purchase Agreement. The Petitioner Company has
received only a sum of Rs.32,93,52,150/- towards the agreed
amount. Since the Petitioner Company could not obtain the
extension in terms of the sub-clause (b) and (c) of Clause 3 of the
Share Purchase Agreement, even if a sum of Rs.6,80,00,000/- is
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withheld on the said count, the Respondents owe a sum of
Rs.17,32,47,850/- to the Petitioner. Hence, the Petitioner initially
addressed Notices dated 24th May, 2019 and 16th July, 2019 calling
upon the Respondents to pay the balance consideration in terms of
the Share Purchase Agreement. As the Notices did not elicit the
desired response, the Petitioner invoked the arbitration by a Notice
dated 1st November, 2019. The Petitioner suggested names of the
three Arbitrators. The Respondents refused to accept the service of
the Notice. Hence, the Petitioner is constrained to approach this
Court under Section 11(6) of the Act to appoint an Arbitrator to
arbitrate the disputes which have arisen between the parties.
6. The Respondents have resisted the above Application by
fling an Afdavit in Reply. At the outset, it is contended that the
Application is not properly instituted as Shri Sandeep Hirani ceased
to be a director of the Petitioner Company. The thrust of the
response putforth by the Respondents is that there is no arbitrable
dispute between the parties. Without disputing the fact that the
Share Purchase Agreement was executed between the sellers and
the Respondents, the Respondents contend that the Respondent
No.1 has duly paid a sum of Rs.21,93,000/-, the agreed share
purchase of 5100 shares of the Petitioner (the frst seller) @ Rs.43
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per share vide cheque dated 15 th July, 2017. Thus, the transaction
between the Petitioner and the Respondent No.1 is complete and
concluded and this concluded transaction does not give rise to any
arbitrable dispute. Conversely, the Respondent No.2 contended that
she had not purchased any shares from the Petitioner. There is no
scope for any dispute between the Petitioner and the Respondent
No.2. The impleadment of Respondent No.2 is a clear case of mis-
joinder of the parties.
7. The Respondents further assert that in accordance with
sub-clause (c) of Clause (3) of the Share Purchase Agreement
Addendum dated 30th June, 2017, it was agreed between the parties
that in the event of the failure of the sellers to obtain an extension
of the Concession Agreement dated 9th February, 2012 between the
Government of Rajasthan and the JJBP Company upto 30 th January,
2029 within a period of six months, the sellers shall not only issue a
credit note of Rs.5,00,00,000/-, but the Petitioner Company (the frst
seller) shall also pay the Respondent No.1 a sum of Rs.1,80,00,000/-
as the penal charges. On account of default on the part of the
sellers to perform this part of the agreement, the Respondent No.1
presented the cheque drawn for Rs.1,80,00,000/- for encashment
and, upon its dishonour, fled a complaint under Section 138 of the
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Negotiable Instruments Act, 1881.
8. In any event, according to the Respondents, if at all there
is a dispute, it is between the Petitioner and the JJBP Company, and
the Respondents - share holders, cannot be called upon to
discharge the liability in their individual capacity. The said JJBP
Company is not a party to this proceeding. The liability of the share
holders is limited and the claim even if assumed to exist against the
JJBP Company, cannot be adjudicated in an arbitration between the
Petitioner and the Respondents. The instant Application, according
to the Respondent, is instituted as a counter blast to the complaint
lodged by the Respondent No.1 against the Petitioner for the ofence
punishable under Section 138 of the Negotiable Instruments Act,
1881. Thus, the Application deserves to be dismissed.
9. In the light of the aforesaid pleadings, I have heard Mr.
Ammanullah Khan, learned Counsel for the Petitioner and Mr.
Naushad Engineer, learned Counsel for the Respondents at some
length. With the assistance of the learned Counsel for the parties, I
have perused the material on record.
10. Mr. Khan, learned Counsel for the Petitioner submitted
that all the conditions requisite for appointing an Arbitrator are
fulflled. Inviting the attention of the Court to the Share Purchase
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Agreement, especially Clause 9 thereof, which provides for the
disputes resolution mechanism through an arbitration, Mr. Khan
would urge that in view of the limited scope of inquiry in an
Application under Section 11 of the Act, it would be necessary to
appoint an Arbitrator to adjudicate all the disputes which have
arisen between the parties.
11. Per contra, Mr. Engineer, the learned Counsel for the
Respondents submitted that the instant case is one of those
exceptional cases where this Court would be justifed in declining to
exercise the jurisdiction under Section 11 of the Act. Mr. Engineer
canvassed three fold submission. Firstly, the dispute between the
Petitioner and the Respondent No.1 does not arise out of the Share
Purchase Agreement and, in fact, there is no subsisting dispute
emanating from the contract to purchase the shares. Second, the
Petitioner has no claim whatsoever against the Respondent No.2,
who had agreed to purchase the shares from the second and third
sellers and not the Petitioner. Third, if at all there is a dispute, it is
between the Petitioner and JJBP Company. The Respondents who are
the share holders of the said JJBP Company, cannot be made
personally liable and, in any event, no case for lifting the corporate
veil is pleaded, much less, made out.
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12. In order to properly appreciate the aforesaid rival submissions,
it may be apposite to note the relevant terms of Share Purchase
Agreement. The nature of the agreement entered into between the
parties is indicated in Clause H, which reads as under :
"H. The Parties are entering into this Agreement in order
to set out the rights and obligations of the parties in relation
to the acquisition of the Sale Shares by the Purchasers and
other matters in connection therewith, which they agree will
be interpreted, acted upon and governed solely in accordance
with the terms and conditions of this Agreement."
13. The "Equity shares", "Sale Price" and "Sale Shares" were
defned as under :
"g) "Equity Shares" shall mean the issued and fully paid up
equity shares of the Company, having a face value of Rs.10/-
each.
o) "Sale Price" shall mean the aggregate sum required to be
paid by the Purchasers to the Sellers for the Sale of Shares as
provided in clause 2(b).
p) "Sale Shares" shall mean 10,000 Equity Shares of the
Company to be purchased by the Purchasers, representing as
on the date of this Agreement, 100% of the total paid up
share capital of the Company as also outlined in Schedule 1
to this Agreement."
14. Clause 2 which provides for the mechanism for the
purchase of the Sale Shares, reads as under :
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"2. PURCHASE of SALE SHARES
a) Subject to and in accordance with the terms and
conditions of this Agreement including the satisfaction of
the Conditions Precedent or waiver thereof by the
Purchasers, the Sellers agree to sell and the Purchasers
agrees to purchase the Sale Shares on the Closing Date,
Free of all Encumbrances, from the Sellers.
b) Sale Price : The aggregate consideration payable by
the Purchasers for the purchase of the Sale Shares shall be
Rs.43,00,000/- (Rupees Forty Three Lakhs only) calculated
@ Rs.430/- per Equity Share.
c) The frst Purchaser agrees to purchase from the First
Seller 5,100 Equity Shares and the second Purchaser agrees
to purchase 3,675 Equity Shares from the Second Seller and
1,225 Equity Shares from the Third Seller for the
consideration as agreed in Clause 2.1.b."
15. 'Conditions Precedent' under Clause 3 read as under :
"3. Conditions Precedent
The obligations of the Purchasers to consummate the
transactions contemplated under the terms of this Agreement
are subject to the fulfllment by the Sellers and the Company (
as applicable,) to the satisfaction of the Purchasers of the
following conditions (unless waived in writing by the
Purchasers) on or prior to the Closing Date :
(a) The Company and the Sellers shall have furnished
documentary evidence that all the creditors and outstanding
payment refected in the balance sheet as on 31st March,
2017, updated as on the date hereof have been paid and/or
fully satisfed / discharged other than those listed out in
Schedule III payable to the Lenders of the Company and the
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First Seller and which are valued at Rs.55,63,00,000/- (Rupees
Fifty Five Crores Sixty Three Lakhs only); including accrued
interest thereon if any upto the Date hereof. The Purchasers
have already made a payment of Rs.1,00,00,000/- (Rupees
One Crore only) to the First Seller, which the Sellers confrm to
enable them to pay all liabilities other than the ones
mentioned in Schedule III and valued as hereinabove.
(b) Incase, the Sellers cannot within a period of six months
from hereof, or such extended time as may be mutually
decided obtain an extension of the Concession Agreement
dated 9th February, 2012 between the Governor of Rajasthan
and the Company upto 31st January, 2029, the Sellers No.1
shall issue a credit note for sum of Rs.5,00,00,000/- (Rupees
Five Crores only) to the Company JJBOT and reduce its
outstandings by the said sum of Rs.5,00,00,000/- (Rupees Five
Crores only).
(c) Incase the Sellers are unable to obtain an extension of the
Concession Agreement dated 9th February, 2012 between The
Governor of Rajasthan and the Company upto 31 st January,
2029 within a period of six months from hereof, the Sellers
shall not only issue a Credit Note for a sum of Rs.5,00,00,000/-
(Rupees Five Crores only) as mentioned hereinabove, the
Seller Number One further agrees to pay the Purchaser
Number One a sum of Rs.1,80,00,000/- (Rupees One Crore
and eighty Lakhs only) as penal charges. The Seller Number
One shall handover a post dated cheque dated 23 rd
December, 2017 in favour of the Purchaser No.1 on the
Closing Date which will be deposited by the Purchaser No.1 in
his Bank account on 23rd December, 2017 without any further
notice incase the said Extension is not received."
16. How the agreement was to be closed was provided by
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the parties in Clause 6 captioned "CLOSING". Relevant part of
Clause 6 reads thus :
6. CLOSING
6.1 Events prior to Closing
A A Board meeting shall be convened by the Company
within 7 days from date hereof, to carry out the following :
a) To appoint the Purchasers as Additional Directors of
the Company and to authorize the Purchasers as Directors
and to afect the change in the Directorship of the Company
and to fle the necessary return in E-Form No.DIR-12 with the
Registrar of Companies, Maharashtra and to take all such
necessary steps as required in this regard.
b) To approve the audited fnancial statements of the
Company for the year ended 31st March, 2017.
B a) The purchasers shall pay the liability of ICICI Bank
Limited as mentioned in Schedule III hereto on or before the
Closing Date."
17. Schedule III which enumerated the outstanding liabilities,
which were to be cleared by the Purchasers, reads as under :
SCHEDULE III
OUTSTANDING CREDITORS
Sr.No. Name Amount in Rs.
1 Lender i.e. ICICI Bank 32,50,00,000/-
Limited (Rupees Thirty
Two Crores and
Fifty Lakhs only)
2 D.K.Infrastructure 23,13,00,000/-
Private Limited (First (Rupees Twenty
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Seller) Three Crores and
thirteen Lakhs
only)
18. Under the Share Purchase Agreement Addendum dated
30th June, 2017, the parties agreed to revise Schedule III. The
liability was reduced to Rs.38,57,00,000/-. The revised Schedule III
reads as under : Revised
SCHEDULE III
OUTSTANDING CREDITORS
Sr.No. Name Amount in Rs.
1 Lender i.e. ICICI Bank 32,50,00,000/-
Limited (Rupees Thirty
Two Crores and
Fifty Lakhs only)
2 D.K.Infrastructure 6,07,00,000/-
Private Limited (First (Rupees Six
Seller) Crores and Seven
Lakhs only)
19. At this juncture, it would be necessary to note the
arbitration clause so as to appreciate the contours of the dispute
which the parties had agreed to be resolved through arbitration.
Clause 9.1 reads thus :
9. ARBITRATION & JURISDICTION
9.1 If any dispute arises between the parties hereto
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during the subsistence of this agreement or thereafter, in
connection with the validity, interpretation, implementation
or any alleged breach of any provision of this Agreement or
relating to any question with reference to or in connection
with this agreement, including the question as to whether
any termination of this Agreement by either party hereto has
been legitimate, the parties hereto shall endeavour to settle
such dispute amicably within 30 days from raising of the
dispute by either of the parties. If the parties fail to settle
the disputes amicably, the parties shall refer the said
disputes to a sole arbitrator to be appointed by the parties
jointly and in the event of failure of marketability on the
name then in accordance with the provisions of the Indian
Arbitration and Conciliation Act, 1996."
20. In the backdrop of the aforesaid stipulations in the Share
Purchase Agreement, as amended by the Addendum dated 30 th
June, 2017, the primary issue that warrants consideration is the
scope of the Share Purchase Agreement. Mr. Engineer, learned
Counsel for the Respondents, endeavoured to impress upon the
Court that the moment the Respondent No.1 paid the sale price of
5100 equity shares, which has indubitably been paid, the
transaction so far as the purchase of the shares stood concluded.
Thus, there can be no subsisting dispute between the Petitioner and
the Respondent No.1. Emphasis was laid on sub-clauses (a) to (c)
of Clause 2 of the Share Purchase Agreement, extracted above. As
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the aforesaid clauses provide that the Purchasers would purchase
the shares on the Closing Date, free from all encumbrances, the
Purchasers cannot be fastened with any further liability, urged Mr.
Engineer
21. The aforesaid submission, in my considered view, takes a
very restricted view of the Share Purchase Agreement and looses
sight of the nature of the bargain between the parties. It is trite
that a document is required to be read as a whole to gather the real
intention of the parties. All the clauses in the Contract are required
to be considered in conjunction with each other and not in isolation.
If submission of Mr. Engineer is to be acceded to, the stipulations in
the Share Purchase Agreement under Clause 3 'Conditions
Precedent' and Clause 6 'Closing' are required to be ignored
completely. Sub-clause (a) of Clause 3 extracted above, provides
that the JJBP Company and the Sellers shall discharge all the
liabilities other than those listed out in Schedule III payable to the
lender of the JJBP Company and the frst Seller. If the said Clause is
read in juxtaposition with sub-clauses (A) and (B) of Clause 6.1
under the caption 'Events prior to Closing', it becomes abundantly
clear that the Purchasers had agreed to discharge the liability of
ICICI Bank Limited as mentioned in Schedule III thereto on or before
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the 'Closing Date'.
22. A conjoint reading of these clauses would lead to an
inescapable inference that the Purchasers had in addition to the
payment of the Sale Price of the shares, which, in a sense,
constituted a minuscule part of consideration, agreed to discharge
the outstanding liabilities of the named creditor of the JJBP Company
and the frst seller, as mentioned in Schedule III. Schedule III initially
provided for the discharge of the liability by the Purchasers to the
tune of Rs.53,63,00,000/-. Subsequently, by virtue of the
Addendum, the liability was scaled down to Rs.38,57,00,000/-
under the revised Schedule III. It is the claim of the Petitioner that
the Respondents have not completely discharged the liability in
terms of the said Schedule III. In the aforesaid view of the matter, I
fnd it rather difcult to accede to the submission made on behalf of
the Respondents that with the payment of the sale price of the
shares, as stipulated in Clause 2 of the Share Purchase Agreement,
the liability of the Respondents came to an end.
23. The second limb of the submission of the Respondents
that in any event the Petitioner cannot seek to arbitrate a dispute
with Respondent No.2 as the latter had not at all agreed to purchase
the shares from the Petitioner and the Respondent No.2's
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transaction was with the second and third sellers, also appears
attractive at the frst blush. However, the submission is again
based on a constricted view of the transaction between the parties.
As indicated above, the payment of the sale price was a part of the
bargain. The Respondents who have acquired the entire and
controlling stake in JJBP Company were not only required to pay the
price of the shares, but also discharge the outstanding liability to
the creditors which were mentioned in Schedule III. Clauses 3 and 6
adverted to above, do not make a distinction between the frst
purchaser and the second purchaser. It was a composite liability of
the purchasers to discharge the outstanding debts of the creditors
named in Schedule III. Thus, I am afraid to accede to the
submission on behalf of the Respondents that there is no subsisting
dispute between the Petitioner and the Respondent No.2, in the
sense, that there was no privity of contract between the Petitioner
and the Respondent No.2.
24. Mr. Engineer fairly submitted that, in view of the
development of law post Arbitration and Conciliation Amendment
Act, 2015, the scope of enquiry under Section 11 of the Act is
extremely limited. However, according to Mr. Engineer, the Court
still retains the jurisdiction to examine as to whether the dispute
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arises out of, or co-relates with, the contract which incorporates the
arbitration agreement. A strong reliance was placed on the
observations of the Supreme Court in the case of DLF Home
Developers Limited V/s. Rajapura Homes Pvt. Ltd. And Anr. 1
In paragraph 20 of the said Judgment, the Supreme Court observed
thus :
"20. To say it diferently, this Court or the High Court, as
the case may be, are not expected to act mechanically mere
to deliver a purported dispute raised by an applicant at the
doors of the chosen Arbitrator. On the contrary, the Court(s)
are obliged to apply their mind to the core preliminary
issues, albeit, within the framework of Section 11(6-A) of the
Act. Such a review, as already clarifed by this Court, is not
intended to usurp the jurisdiction of the Arbitral Tribunal but
is aimed at streamlining the process of arbitration.
Therefore, even when an arbitration agreement exists, it
would not prevent the Court to decline a prayer for
reference if the dispute in question does not corelate to the
said agreement."
(emphasis supplied)
25. The aforesaid pronouncement, in my considered view,
reiterates both postulates; frstly, the scope of enquiry under
Section 11(6) of the Act, 1996 is extremely limited and the Court
has to examine the existence of the arbitration agreement and,
1 2021 SCC Online SC 781
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secondly, the Court can decline to make a reference to arbitration
only when it is positively satisfed that though the arbitration
agreement exists, yet the dispute is non-existent and has become a
deadwood.
26. We have seen that the dispute raised by the Petitioner,
has its genesis in the Share Purchase Agreement, especially the
alleged failure of the Respondents to discharge the liability of the
outstanding creditors of the JJBP Company. It would be naive to
hold that the dispute raised by the Petitioner does not corelate with
the contract between the parties.
27. At this stage, it would be necessary to note the amplitude
of the disputes which the parties had agreed to resolve through
arbitration under Clause 9 of the shares Purchase Agreement. The
disputes which the parties agreed to refer were : in connection with
the validity, interpretation, implementation or any alleged breach of
any provisions to the said Agreement or relating to any question
with reference to or in connection with the said Agreement including
the question as to whether the termination, if any, of agreement by
either party, was legitimate. Evidently, the arbitration agreement is
worded in widest possible terms. It subsumes within its fold all the
disputes which, the parties conceived, might arise in relation to the
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Share Purchase Agreement.
28. A proftable reference, in this context, can be made to
the judgment of the Supreme Court in the case of Renusagar
Power Co. Ltd. V/s. General Electric Company and Anr. 2
wherein import to be accorded to the words like, 'in connection with'
and 'relating to' in the context of an arbitration agreement, was
expounded. The relevant observations are extracted below :
"Expression such as 'arising out of' or 'in respect of' or in
connection with' or in relation to' or in consequence of' or
'concerning' or 'relating to' the contract are of the widest
amplitude and content and include even questions as to the
existence, validity and efect (scope) of the arbitration
agreement."
( emphasis supplied)
29. In the light of the aforesaid position in law, I am afraid to
agree with the submission advanced on behalf of the Respondents
that the dispute raised by the Petitioner does not arise out of, and
relate to, the Share Purchase Agreement.
30. This propels me to the third challenge namely, liability, if
at all is that of the JJBP Company and the Respondent Nos.1 and 2,
being the share holders, not liable in their individual capacity. Mr.
Engineer would urge that neither the case for lifting of corporate veil
2 (1984) 4 SCC 679
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is pleaded, nor made out by the documents placed on record and
the attendant circumstances. Mr. Engineer placed reliance on the
observations of this Court in the case of Kimiya Shipping Inc. V/s.
m.v. Western Light and Ors. 3 to bolster up the submission that
the company is a separate juristic entity distinct from the share
holders and unless the case of fraud is asserted, the question of
lifting corporate veil does not arise. Attention of the Court was
invited to the observations in paragraph No.19 which reads as under
:
"19. It is trite law that a company is a separate juristic
entity distinct from the shareholders; its assets are separate
and distinct from those of its members; it can sue and be
sued exclusively for its own purpose; its creditors cannot
obtain satisfaction from the assets of its members; the
liability of the members or shareholders is limited to the
capital invested by them; similarly the creditors of the
members have no right to the assets of the corporation and
unless fraud is asserted or at least alleged in the plaint, as
required under Order VI Rule 4 and in such a way that it will
be sustained at the time of trial, the question of lifting a
corporate veil does not arise. To accept the plaintif's
submissions that there need not be any fraud or underlying
element of dishonesty in formation of corporate entities
would amount to violating and shaking these fundamental
tenets of corporate law."
3 Notice of Motion No.1597 of 2013 in ADMS 22 of 2022
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31. There can be no qualm over the proposition enunciated
above. However, the applicability of the aforesaid proposition to
the facts of the case, is in issue. It would be sufce to note that
JJBP, the company of which the shares were purchased by the
Respondents under the Share Purchase Agreement, was a party
thereto and yet under Clauses 3 and 6 of the said Agreement,
extracted above, the liability to discharge the outstanding debts of
the creditors was explicitly incurred by the Respondent Nos.1 and 2
in the capacity of the purchasers. Conversely, the company had
not agreed to discharge its liabilities to the existing creditors as
named in Schedule III, including the Petitioner herein. Therefore,
there is no substance in the submission that the dispute is
essentially between JJBP Company and the Petitioner and for the
discharge of the liability of the JJBP Company, the Respondents
share holders cannot be held individually liable.
32. The upshot of the aforesaid consideration is that there
exists an arbitration agreement. Secondly, on a prima facie review
of the Share Purchase Agreement and the material on record, this
Court is satisfed that disputes have arisen between the parties in
connection with the Share Purchase Agreement. Thirdly, those
disputes, prima facie, are amenable to the arbitration. And fourthly,
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as the law has now crystalised, the arbitrability of the disputes is
also required to be determined by the Arbitral Tribunal. Thus, all
the necessary elements to exercise the power under Section 11(6)
of the Act, are adequately satisfed. The Application, therefore,
deserves to be allowed.
33. Hence, the following order :
(I) The Application is allowed.
(ii) Justice R.M.Savant, Former Judge of this Court is
appointed as a Sole Arbitrator to adjudicate upon the claims and
counter claims, if any, and/or all the disputes which arise out of the
Share Purchase Agreement dated 29th June, 2017.
(iii) The learned Arbitrator is requested to fle his
disclosure statement under Section 11(8) read with Section 12(1) of
the Act, 1996 within two weeks with the Prothonotary and Senior
Master and provide copies to the parties.
(iv) Parties to appear before the Sole Arbitrator on a
date to be fxed by him at his earliest convenience.
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arbap 59 of 2022.doc
(v) Fees payable to the Sole Arbitrator will be in
accordance with the Bombay High Court (Fee Payable to Arbitrators)
Rules, 2018.
( N.J.JAMADAR, J. )
34. At this stage, the learned Counsel for the Respondents
seeks stay to the execution and operation of this order. In view of
the issue raised in the Application and the fact that the Court is
closing for vacations, the execution and operation of this order is
stayed for a period of six weeks.
( N.J.JAMADAR, J. )
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