Bombay High Court
Jsw Steel Limited vs Bellary Oxygen Company Private ... on 18 November, 2022
Bench: G. S. Kulkarni
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION APPLICATION NO.131 OF 2022
AND
COMMERCIAL ARBITRATION PETITION NO.131 OF 2022
JSW Steel Limited, a company incorporated
under the Companies Act, 1956, having its
registered office at JSW Centre, Bandra ...Applicant
Kurla Complex, Bandra (East), Mumbai -
400 051.
Versus
1. Bellary Oxygen Company Private
Limited, a company incorporated under the
Companies Act, 1956, having its registered
office at 855 TPD Plant, JSW Steel Limited
Premises, Torangallu, Bellary, Karnataka
583123 and also having address at 102,
Haudin House, 5, Haudin Road, Bangalore -
560 042.
2. Sun Investments Private Limited, a
company incorporated under the Companies
Act, 1956, having its registered office at
Jindal Mansion, 5-A, G. Deshmukh Marg, ...Respondents
Mumbai - 400 026.
-----
Mr.Janak Dwarkadas, Senior Advocate with Mr.Kunal Dwarkadas
with Vineet Unnikrishnan with Samhita Mehra with Ms.Vaidehi
Chande i/b. Cyril Amarchand Mangaldas, for the
Petitioner/Applicant.
Mr.Sharan Jagtiani, Senior Advocate with Ms. Shradha Achliya,
Aditya N.Raut, Nitesh Jain, Atul Jain, Mahi Mehta i/b. Desai Desai
Carrimjee and Mulla, for Respondent No.1.
-----
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CORAM : G.S. KULKARNI, J.
Reserved on: 13 July 2022,
Further reserved on: 4 November 2022
Pronounced on: 18 November 2022
(Through Video Conferencing)
JUDGMENT:
The judgment has been divided into the following sections to
facilitate analysis:-
SECTIONS HEADING PARA NOS.
behalf of the Respondent
D Submissions on behalf of 32
the Applicant.
E Submissions behalf of 33
the Respondent no.1
F Analysis and Conclusion 34
Commercial Arbitration Application No. 131 of 2022
A. Prelude:
1. This application under Section 11 of the Arbitration and
Conciliation Act,1996 (for short 'the ACA') raises an issue as to whether
Clause 6 being an arbitration agreement as contained in the Shareholders
Agreement dated 13 June 2005 (for short 'the Shareholders Agreement')
could be invoked and would be available to the applicant in its demand for
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appointment of an arbitral tribunal for adjudication of disputes and
differences, which are stated to have arisen between the parties not merely
under the Shareholders Agreement but under a subsequent agreement
dated 14 June 2005 (for short 'the Second Agreement'), which does not
provide for an arbitration agreement, and in which, one of the parties is
also different from the parties under the Shareholders' agreement.
2. Clause 6 of the Shareholders' Agreement as invoked by the
applicant reads thus:
"6. Governing Law and Arbitration
This Agreement shall in all respects be governed by the
laws of Republic of India.
In the event of any dispute, controversy or claim, arising
in connection with this Agreement, or breach, termination
or invalidity thereof, the Parties shall seek an amicable
settlement during a sixty-day period, failing which the
matter under dispute will be settled by arbitration in
accordance with the Arbitration and Conciliation Act,
1996 (the "Act"). The venue of arbitration shall be
Mumbai. The arbitration proceedings shall be conducted
before one (1) arbitrator to be mutually agreed upon by the
Parties in dispute failing which the arbitrator shall be
appointed in accordance with the Act.
The judgment upon the award rendered may be entered in
any court having jurisdiction or application for a judicial
acceptance of the award may be made for enforcement.
The cost of arbitration shall be borne by the Parties
equally."
(Emphasis supplied)
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B. Facts:
3. The factual matrix as the application would set out, is required to be
noted in some detail: The applicant formerly known as Jindal Vijayanagar
Steel Ltd. (for short 'JVSL') has its steel manufacturing plant at
Toranagallu, Bellary, Karnataka (referred to as "the Facility").
4. In or around the year 2004, JVSL was in the process of expanding
the Facility. In order to meet the additional industrial gas requirement for
the expanded Facility, the JVSL entered into a Gas Supply Agreement
dated 22 November 2004 (for short 'the Gas Supply Agreement') with a
company known as BOC India Limited (purchaser in interest of
respondent No.1 - Bellary Oxygen Company Pvt.Ltd.)
5. Under the Gas Supply Agreement, BOC India Ltd. set up a gas
supply plant near the "Facility" for the purpose of supplying industrial gas
to JVSL which could be used in the manufacture of steel. Under the Gas
Supply Agreement, JVSL was responsible for ensuring supply of power to
BOC India Ltd. not only for the purpose of operating the Gas Supply Plant
but also during its construction, commissioning and trial running phase.
6. In pursuance of its obligation under the Gas Supply Agreement, to
supply power to BOC India Ltd., JVSL arranged for one of its group
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companies namely 'JSW Power', to supply power to BOC India Ltd. from
its thermal power plant which was located in close proximity to the
Facility.
7. On 8 June 2005 the Electricity Rules, 2005 (for short "2005 Rules")
under the Electricity Act,2003, came to be notified by virtue of which,
interalia, the requirement of a "captive generating plant" came to be
prescribed. Rule 3 of the 2005 Rules ordained that a power plant shall
qualify as a "captive generating plant" under Section 9 read with Section
2(8) of the Electricity Act only if (i) less than 26% of the ownership is
held by the captive user; and (ii) not less than 51% of the aggregate
electricity generated in such plant, (determination on annual basis) is
conceived for captive uses.
8. At the time when the 2005 Rules were notified, JSW Power was in
the process of setting up an additional power plant at the Facility for
captive consumption by its shareholders. As a "Captive User" of power,
from the captive generation plant, BOC India Ltd. would have received
power to meet its gas supply obligations at a competitive rate which would
be beneficial to JVSL. For such reasons, JVSL is stated to have facilitated
equity contribution by respondent No.1 (successor-in-interest of BOC
India Ltd.) in JSW Power, to enable respondent No.1 to become a captive
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consumer of power supply by JSW Power at competitive rates.
9. The applicant contends that keeping such objective in mind, within
a period of one week of the 2005 Rules being notified, the following four
agreements were executed interalia between the parties to this application
namely between the applicant on one hand and respondent No.1 - Bellary
Oxygen Company Pvt.Ltd., and respondent No.2 - Sun Investment
Pvt.Ltd. :-
(i) The Shareholders Agreement dated 13 June 2005
by which respondent No.1 agreed to subscribe to
1,10,35,000 shares of JSW Power Ltd.at a face value of
Rs.10/- each for an aggregate sum of Rs.11,03,50,000/-.
Respondent No.1 in consideration of having subscribed to
the said shares and thereby having qualified as "Captive
User", became entitled to an assured supply of 20 MW of
power generated by JSW Power's power plant;
(ii) Supplemental agreement to the Gas Supply
Agreement dated 13 June 2005 (for short "Supplemental
Agreement") by which it was agreed that BOC India Ltd.
would be permitted to assign or novate the Gas Supply
Agreement to any entity which becomes an affiliate of
BOC India Ltd.;
(iii) Deed of Novation and Assumption dated 13 June
2005 (for short 'Novation Deed') in respect of the Gas
Supply Agreement by which it was agreed that Gas Supply
Agreement would be novated to the effect that respondent
No.1 would be substituted in the place of BOC India Ltd
and would perform all obligations of supplying gas under
the Gas Supply Agreement;
(iv) Agreement dated 14 June 2005, ('Second
Agreement') the object and purpose of which was to set
out the terms and conditions on which the shares of JSW
Power allotted to respondent No.1 under the Shareholders
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Agreement (equity contribution made by respondent No.1)
would be held by respondent No.1.
10. It is the case of the applicant that the obligations under the
Supplemental Agreement and the Novation Deed have been performed, as
a consequence of which, according to the applicant, respondent No.1
stepped into the shoes of BOC India Ltd. and began performing all
obligations including of supplying gas to JVSL under the Gas Supply
Agreement.
11. It is the applicant's case that at the time the "Shareholders
Agreement" and the Second Agreement were being negotiated and
executed, there was an impending merger between JSW Power and JVSL.
It is stated that steps were to be taken by JSW Power, JVSL and
respondent No.1 on the intended merger, hence a reference to merger was
incorporated in the said agreements. It is stated that for instance the
Second Agreement records that the property and liabilities of JSW Power
(including captive generation plant) would stand transferred to JVSL and
that the shareholders of the JSW Power would be allotted shares in JVSL
on the basis of the share-exchange ratio, approved in the scheme of
amalgamation. It is stated that accordingly respondent No.1 was to be
issued shares of JVSL in consideration of JSW Power merging into JVSL.
12. The applicant states that at such point of time respondent No.1
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wanted to ensure that its right to receive 20 MW of power as a "Captive
User" was protected even after the amalgamation. The applicant states
that it is for such reasons Clause (1) read with Clause (8) of the Second
Agreement provided that the Scheme of Amalgamation should contain
suitable conditions to protect respondent No.1's right to receive 20 MW of
power and to protect its "Captive User" status. The applicant has
contended that JSW Power merged into JVSL in September 2005, at
which point of time JVSL was a listed entity. It is stated that JVSL
continued to be a listed entity.
13. It is the case of the applicant that at the time of merger based on the
share exchange ratio under the Scheme of Amalgamation, respondent No.1
was allotted 4,41,400 equity shares of JVSL (i.e. of the present applicant).
Subsequently in the year 2017, (i.e. after about 12 years of the
Shareholders Agreement) pursuant to share split, respondent No.1 was
allotted 44,14,000 shares of JVSL ("Sale shares").
14. The applicant has contended that Clause 6 of the 'Second
Agreement' sets out the consequences of termination of Gas Supply
Agreement or of respondent No.1 ceasing to be a 'Captive User' of power,
which is the matter of concern insofar as the reference to arbitration is
concerned, inasmuch as the said clause according to the applicant
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provided a buy back arrangement between the parties.
15. On 13 November 2021 the applicant and respondent No.1 entered
into an "Asset Sale Agreement" under which the gas supply plant
comprising interalia of an Area Separation Unit constituted under the
Facility were transferred by respondent No.1 to the applicant, which
enabled the applicant to produce and supply gas by itself. It is stated that
further by a Closure Letter dated 15 November 2021 (for short "the
Closure Letter") both the applicant and respondent No.1 agreed and
acknowledged that the Gas Supply Agreement stood terminated with
effect from 14 November 2021.
16. It is contended by the applicant that consequent to the execution of
the Asset Sale Agreement and the Closure Letter, all three conditions
stipulated in Clause 6 of the Second Agreement stood attracted namely (i)
respondent No.1 ceased to have a Captive User status for 20 MW of
power generated at the applicant's Facility; (ii) respondent No.1 was no
longer being supplied with power under the Gas Supply Agreement; and
(iii) the Gas Supply Agreement stood terminated by a mutual agreement
between the applicant and respondent No.1. It is stated that these were the
conditions set out in Clause 6 of the Agreement on the basis of which the
respondent No.1, within five working days, was obliged to cause the sale
of shares held in the applicant to be purchased by the applicant's existing
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shareholders or by any other entity nominated by the applicant at a price
equal to the equity contribution namely Rs.11,03,50,000/-.
17. The applicant contends that accordingly in terms of Clause 6 of the
Second Agreement, the applicant issued a notice dated 17 November 2021
to respondent No.1, thereby calling upon respondent No.1 to sell the said
shares to its nominee - JSW Techno Projects Management Ltd (for short
'the Purchaser') on or before 22 November 2021, at a price equal to the
equity contribution namely Rs.11,03,50,000 to be paid by the purchaser to
respondent No.1. It is stated that in terms of Clause 12 of the Agreement,
the applicant also called upon respondent No.1, in the meantime, not to
sell the Sale shares to anyone else. It is stated that the said letter also
contained the purchaser's consent to purchase the Sale shares and pay the
consideration in respect thereof.
18. The applicant contends that respondent No.1, however, failed to sell
the said Sale shares to the purchaser or to take any steps in respect thereof
on or before appointed dated 22 November 2021. It is stated that by
failing to sell the "Sale shares" to the purchaser, respondent No.1 acted in
breach of the said agreement(s), more particularly, the Second Agreement
read with the Shareholders agreement. It is stated that respondent No.1
could not have denied its obligation under Clause 6 of the agreement to
sell the Sale shares to the purchaser or any existing shareholder/ nominee
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of the applicant at a price equal to the equity contribution.
19. The applicant has contended that it is in these circumstances
disputes and differences have arisen between the parties under the Second
Agreement read with the Shareholders Agreement. It is stated that the
applicant is entitled to seek enforcement of respondent No.1's obligation
including its obligation under Clauses 6 and 12 of the Second Agreement.
20. It is the case of the applicant that as a result of respondent No.1
denying its obligations under Clause 6 of the Second Agreement to sell the
'Sale shares' to the purchaser or any existing shareholder/ nominee of the
applicant at a price equal to the equity contribution, the applicant was
constrained to file a petition before this Court under Section 9 of the ACA,
seeking urgent interim measures in aid of the reliefs that would be sought
by the applicant in the arbitration proceedings. The applicant has stated
that a reply affidavit dated 13 December 2021 was filed by respondent
No.1 in the Section 9 petition raising various contentions, which according
to the applicant, were baseless and false and were denied by the applicant
by filing an affidavit-in-rejoinder dated 20 December 2021. The Section 9
petition is also listed along with the present proceedings.
21. The applicant contends that as per the arbitration agreement, as
contained in the Shareholders Agreement, all disputes, controversies and
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claims between the parties are to be referred to arbitration before a Sole
Arbitrator, however, the parties are required to resort to an amicable
settlement of disputes, before they go for arbitration. It is stated that
accordingly, during the pendency of the Section 9 petition, the applicant
through its Advocates addressed a letter dated 28 February 2022 to
respondent No.1, requesting respondent No.1 to confirm if it is willing to
discuss with the applicant and explore the possibility of an amicable
resolution of the disputes, which had arisen under the Second Agreement
read with the Shareholders Agreement. The applicant nominated its
nominee to represent the applicant in a settlement discussion as also
requested respondent No.1 to depute its representative with whom
settlement discussion could be taken forward.
22. It is stated that respondent No.1, however, by its advocate letter
dated 4 March 2022 denied and rejected the applicant's request for any
discussion interalia contending that there is no dispute between the parties
within the scope of the arbitration agreement.
23. The applicant contends that accordingly in terms of the arbitration
agreement as contained in the Shareholders agreement, the applicant
through its Advocates addressed a letter dated 17 March 2022 to
respondent No.1 invoking the arbitration agreement, thereby calling upon
the respondents to refer the disputes, controversies and claims in
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connection with the Second Agreement read with the Shareholders
Agreement, namely the applicant's claim arising out respondent No.1's
failure to comply with Clause 6 of the Second Agreement, to a sole
arbitrator. The applicant also suggested the name of the proposed
arbitrator.
24. The applicant contends that respondent No.1 by its Advocate's letter
dated 12 April 2022 addressed to the applicant, stated that the invocation
of the arbitration was illegal and invalid, recording that respondent No.1
did not consent to the said invocation or to the appointment / nomination
of any arbitrator.
25. It is in these circumstances, the applicant, has filed the present
application under Section 11(6) of the ACA, praying that the Court
exercises its jurisdiction and appoint an arbitral tribunal.
26. The applicant in supporting such relief as prayed for, has contended
that there exists a valid and binding arbitration agreement between the
parties as contained in Clause 6 of the Shareholders Agreement for
adjudication of the disputes and differences which have arisen between the
parties in connection with the Shareholders Agreement read with the
Second Agreement. It is stated that on following counts the applicant
would be entitled to refer the disputes to arbitration:-
(i) The Shareholders Agreement and the Second Agreement are
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inextricably interlinked;
(ii) The Shareholders Agreement and the Second Agreement were entered
into one day apart, and as a part of the same transaction and for
performance of a single commercial understanding;
(iii) The equity contribution and respondent No.1's "Captive User" status
consequent thereto, are captured in the Shareholders Agreement on one
hand, and on the other hand, the terms on which respondent No.1 holds
equity contribution as well as circumstances in which respondent No.1
ceased to be a Shareholder are captured in the Second Agreement. Both
the agreements must therefore be read together and cannot be read in
isolation.
(iv) The Second agreement contained multiple references to the
Shareholders Agreement which makes it evident that the Second
Agreement and the Shareholders Agreement are composite agreements
and must therefore, be read together;
(v) The Shareholders Agreement is so inextricably interlinked with the
Second Agreement that the disputes arising under the Second Agreement
become disputes arising under the Shareholders Agreement and vice versa.
(vi) The language of the arbitration agreement is very wide when it uses
the words "any dispute, controversy or claim, arising in connection with
this Agreement". It is stated that it is well settled that such words are of
the widest amplitude.
(vii) The present disputes certainly fall within the scope of the arbitration
agreement contained in Clause 6 of the Shareholders Agreement as the
disputes being raised are in connection with the Shareholders Agreement
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and are not disputes arising only under the Second Agreement.
(viii) It is a settled law that an arbitration clause contained in one
agreement can be invoked in connection with the disputes arising under
another agreement provided that such other agreement is ancillary to
and/or inextricably interconnected with the main agreement; or if a single
commercial understanding is sought to be performed under two
agreements.
(ix) It is also well settled that if from the mutual intention of the parties
as well as the construction of the contracts which are subject matter of the
dispute, if it is apparent that the parties have mutually intended to rely on
the arbitration clause of the main agreement in case of a dispute, in such
event an application for appointment of an arbitrator ought to be allowed.
27. The applicant has thus contended that the essentials which are
required to be considered, are firstly, that this is a clear that there exists an
arbitration agreement between the applicant and the respondents under
Clause 6 of the Shareholders Agreement which provides for adjudication
of disputes and differences which have arisen between the parties, arising
in connection with the Shareholders Agreement read with the Second
Agreement; secondly, there are disputes and differences between the
applicant and respondent No.1 which squarely fall within the arbitration
agreement; thirdly there is a failure to comply with the applicant's
invocation notice/letter dated 17 November 2021, as also a rejection of an
effort to amicable settlement, hence the arbitration agreement gets
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triggered; fourthly respondent No.1 has failed and refused to consent to
the appointment of an arbitrator in terms of Clause 6 of the Shareholders
Agreement raising untenable contentions denying that the dispute falls
under the scope of arbitration agreement and, accordingly, losing its right
to participate in the appointment of an arbitrator. On such premises, the
applicant has filed the present application under Section 11 of the ACA.
28. The prayer as made by the applicant is required to be noted which
reads thus:
"(a) that this Hon'ble Court be pleased to appoint an
arbitrator and constitute the Arbitral Tribunal comprising of
the Sole arbitrator so appointed, to adjudicate the disputes
and differences arising between the parties in connection with
the Agreement dated 14th June 2005 read with the
Shareholders' Agreement dated 13th June 2005;"
(emphasis supplied)
C. Reply Affidavit on behalf of respondent No.1:
29. On behalf of respondent No.1, a reply affidavit of Mr. Madhur
Kabra, Authorised Signatory of respondent No.1 has been filed. At the
outset, it is contended by respondent No.1 that there is no arbitration
agreement between the applicant and respondent No.1 in regard to the
disputes sought to be raised and/or the contract the applicant is seeking to
enforce. It is stated that the applicant's alleged claim as sought to be
referred to arbitration arises solely under the Second Agreement dated 14
June 2005, which does not have any arbitration clause/agreement, so that
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the dispute under the Second agreement could be referred to arbitration. It
is further stated that the Second agreement dated 14 June 2005 is an
independent agreement and is not interlinked or connected with the
shareholders agreement dated 13 June 2005. The reply affidavit further
states that the applicant is making a feeble attempt to contend that the
Second Agreement and the Shareholders Agreement are inextricably
interlinked and/or interconnected and/or reflect the composite
understanding between the parties and/or are meant to achieve a common
object which, according to respondent no.1, is ex facie false, baseless and
untenable. It is stated that the Shareholders Agreement and the Second
Agreement are separate and independent agreements which have a
different scope and contain independent rights and obligations of the
parties as provided therein and cannot at all in any manner be treated as a
composite agreement as alleged by the applicant. It is contended that
these two agreements namely the Shareholders Agreement and the Second
Agreement operate distinctly and independent of each other. The affidavit
further contends that it is trite law that as per Section 7(5) of the ACA, if
an arbitration agreement falls in another document and is incorporated in
an agreement by a reference, then all of the following conditions are
required to be satisfied namely (a) the contract should contain a clear
reference to a document containing the arbitration clause; (b) the reference
to other document would clearly indicate the intention to incorporate the
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arbitration clause into the contract; (c) the arbitration clause should be
appropriate that is capable of its application qua the disputes under the
contract and the same should not be repugnant to any terms of the
contract; and lastly, (d) there cannot be any mechanical reference of the
disputes to arbitration, as it needs to be seen whether the core preliminary
issue and/or dispute based on which the reference is sought to be made,
has a clear co-relation to the Agreement under which the reference is
sought. Respondent no.1 contends that in the present case, none of these
conditions are satisfied in any manner.
30. In the reply affidavit, respondent no.1 further contends that in the
present case, in the Second Agreement, there is no clear reference to the
arbitration clause as contained in the Shareholders Agreement. It is thus
contended that the parties never intended to refer the disputes under the
Second Agreement to arbitration. It is next contended that Clause (13) of
the Second Agreement sets out that in the event of any conflict between
the provisions of the Second agreement and the Shareholders Agreement,
the provisions of the Second Agreement shall prevail. According to
respondent No.1, this clause makes it evident that the arbitration clause in
the Shareholders Agreement was never intended to apply to the Second
agreement. It is next contended that a perusal of the memo of the
application demonstrates that the applicant has rather mechanically sought
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to refer the disputes under the Second Agreement to an arbitrator based on
the arbitration clause in the Shareholders Agreement, and no serious
attempt has been made by the applicant to incorporate and co-relate the
arbitration clause in the Shareholders Agreement. It is contended that the
Shareholders agreement having an arbitration clause and the Second
Agreement not having an arbitration clause, the terms of the Second
Agreement shall always prevail and the present dispute between the
parties cannot be subject to any arbitration. It is next contended that even
assuming that the Shareholders Agreement and the Second Agreement are
inextricably linked and/or connected as sought to be contended by the
applicant, even then, the fact remains that these two are separate
agreements. That the breaches as alleged are under the Second Agreement,
hence, the genesis of the dispute arises under the Second Agreement and
not either directly or indirectly under the Shareholders Agreement. It is,
hence, contended that the purported disputes admittedly having arisen
under the Second Agreement, the disputes cannot be referred to arbitration
on the basis of the arbitration clause in the Shareholders Agreement,
which is a separate and an independent agreement. It is also contended
that on a reading of the Second Agreement with the Shareholders
Agreement it is ex facie clear that the parties never intended to apply the
arbitration clause under the Shareholders Agreement to the Second
Agreement.
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31. Also, a without prejudice contention is urged in the reply affidavit
to contend that the Shareholders Agreement was executed between JSW
Power Ltd. and respondent Nos.1 and 2, while the Second Agreement was
executed between JPL [Jindal Vijayanagar Steel Ltd. (JVSL)], and
respondent Nos.1 and 2. It is contended that when the dispute resolution
clause if is "carried forward" to a later Agreement which introduces a new
contract between the parties, then the arbitral intent between the original
party and the assignee of the other party must be made manifest. It is
contended that even the parties to the Shareholders Agreement which
contains the arbitration clause, are not the same as the parties to the said
Agreement, hence consent cannot be assumed for incorporating any
dispute resolution clause without there being any clear intention. The
affidavit further sets out a detailed paragraph-wise reply to the application,
however, to avoid prolixity, the contents therein need not be discussed in
detail, suffice it to observe that the case of the applicant for appointment
of an arbitral tribunal is denied and disputed on the above premise as
discussed above.
D. Submissions on behalf of the Applicant:
32. Mr. Janak Dwarkadas, learned Senior Advocate and Mr. Kunal
Dwarkadas have made elaborate submissions which can be summarised as
under :
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(i) In the facts and circumstances of the present case, the
applicants are entitled to invoke the Arbitration Agreement as contained in
Clause 6 of the 'Shareholders Agreement', for adjudication of disputes and
differences which have arisen under an interconnection of the
Shareholders Agreement with the Second Agreement.
(ii) The Shareholders Agreement and the Second Agreement are
inextricably interlinked as both these agreements were entered between
the parties only one day apart and as a part, of the same transaction and for
the performance of a single commercial understanding.
(iii) The equity contribution of respondent no.1's "Captive User"
status consequent thereto was captured in the Shareholders' Agreement on
one hand, and on the other hand, the terms on which respondent no.1
holds the equity contribution as well as the circumstances in which
respondent no.1 would cease to be a shareholder are captured in the
Second Agreement. It is thus necessary that both the agreements are read
together and not in isolation.
(iv) The Second Agreement contains references to the
Shareholders Agreement which makes it evident that the Second
Agreement and the Shareholders Agreement are composite Agreements,
which necessarily are required to be read together.
(v) The disputes arising between the parties under the Second
agreement are integrally connected to the Shareholders' Agreement and
vice versa.
(vi) The language of the Arbitration Agreement is also very wide
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when it uses the word "any dispute, controversy or claim arising in
connection with this Agreement". These are the words of widest
amplitude and accordingly ought to be given their due meaning.
(vii) The present dispute falls within the scope of the arbitration
agreement which is contained in Clause 6 of the Shareholders Agreement
for the reason that the disputes have arisen in connection with the
Shareholders Agreement and are not the disputes arising only under the
Second Agreement.
(viii) The mutual intention of the parties needs to be examined in the
present case, which would go to show that the parties have intended to
rely on the arbitration clause under the Shareholders Agreement which is
the main agreement, in the event disputes arise between the parties. The
applicant by its letter dated 28.02.2022 and 17.03.2022 addressed to the
respondents has rightly invoked the Arbitration Agreement.
(ix) That clause 4.1 of the Shareholders Agreement is a 'bare bone'
clause clearly providing that the Shareholders' Agreement shall come into
force on the date of its execution and shall remain in force till respondent
no.1 ceases to be a Shareholder of JPL or JVSL and as the case may be
until terminated pursuant to the provisions of this Agreement. From the
reading of clause 4.1, it is clear that the said clause does not furnish any
other details as to what are the obligations between the parties. The
Shareholders Agreement was entered between the parties only for
respondent no.1 to be a captive power consumer.
(x) In adjudication of the present proceedings it is for the Court
to examine the commercial understanding between the parties and the
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intention of the parties whether there is any interconnection between the
two agreements. The interconnection between the Shareholders'
Agreement and the Second Agreement is clear from the combined reading
of Clause 4.1 of the Shareholders' Agreement and clause 6 of the Second
Agreement. It is submitted that this Shareholders' Agreement would never
come to an end and the corresponding obligation of respondent no.1 to sell
the shares to the applicants at the agreed price is clearly borne out from
Clause 4.1 of the Shareholders' Agreement with Clause 6 of the Second
Agreement.
(xi) It is a settled principle of law that when an Arbitration
Agreement uses the words 'arising in connection with' it would be
interpreted by giving a meaning of the widest amplitude whereby the
disputes or differences arising under the main agreement which are
"connected" with disputes arising under an ancillary agreement can be
referred to arbitration under the arbitration clause as contained in the main
agreement.
(xii) It is well settled that an arbitration clause contained in one
agreement can be invoked in connection with disputes arising under
another agreement provided that such other agreement is ancillary to /
inextricably interconnected with the main agreement; or if a single
commercial understanding is sought to be effected through the two
agreements.
(xiii) The Second Agreement and the Shareholders Agreement
form part of the same transaction, as can be seen from the comments
offered by the applicants in the chart describing three clauses of the
Shareholders Agreement (described as Note 1, Note 2 and Note 3). it is
pvr 24 carap131-22 (edits 1).odt
thus submitted that the Shareholders Agreement and the Second
Agreement when read as a whole clearly show that they form a composite
arrangement being interlinked.
(xiv) The Shareholders Agreement and the Second Agreement were
entered into only one day apart and as part of the same transaction and for
the performance of a single commercial understanding.
(xv) The Second Agreement contains multiple references to the
Shareholders Agreement which makes it evident that the Second
Agreement and the Shareholders' Agreement is a composite agreement
and must therefore be read together.
(xvi) From the plain reading of the notices dated 28.02.2022 and
17.03.2022 it is apparent that the disputes have arisen under the Second
Agreement read with the Shareholders' Agreement and not only under the
Second Agreement as alleged by respondent no.1.
(xvii) The concept of "captive user" status referred to in Clause 6 of
the Shareholders Agreement is captured in the Shareholders' Agreement as
well as in the Second Agreement. Also, the price at which the applicant is
obliged to purchase the shares held by the respondent no.1 being the
equity contribution made by respondent no.1 at cost, is reflected in the
Shareholders' Agreement and the equity contribution itself was made by
respondent no.1 pursuant to the terms of the Shareholders' Agreement. It
is for such reasons that the present disputes cannot be segregated into the
disputes arising only under the Second Agreement and de hors the
Shareholders' Agreement.
pvr 25 carap131-22 (edits 1).odt
(xviii) Section 7(5) in its application to the present facts is one of the
ways which recognizes that the arbitration agreement in the Shareholders
Agreement would be required to be recognized in the Second Agreement.
Under Section 5 of the ACA it is for the Court to examine both the
documents and come to a conclusion whether they are integrally
connected or not and as to what is the commercial understanding between
the parties.
In support of the above submissions, reliance is made on the
decisions of the Hon'ble Supreme Court in the the case of Olympus
Superstructures Pvt. Ltd. V/s. Meena Vijay Khetan & Ors. 1, and Ameet
Lalchand Shah & Ors. V/s. Rishabh Enterprises & Anr.2
E. Submissions on behalf of Respondent No.1.
33. Mr. Sharan Jagtiani, learned Senior Advocate has made the
following submissions on behalf of respondent No.1:
(i) The disputes between the parties have arisen under the
Second Agreement under which, there is no arbitration agreement between
the parties, which is the cause of action the applicant intends to pursue
after invoking the arbitration agreement. This submission is supported by
drawing the Court's attention to the fact that whenever the parties
intended to have an arbitration agreement, they have so provided in the
respective agreements. The submission is to the effect that in so far as the
Second Agreement is concerned, the parties have categorically excluded
the arbitration agreement and hence, in respect of any dispute under the
Second Agreement, there is no question of the parties being referred to
arbitration.
(ii) The case of the applicant that there is an inextricable
1 (1999) 5 SCC 651
2 (2018) 15 SCC 678
pvr 26 carap131-22 (edits 1).odt
connection between the Shareholders Agreement and the Second
Agreement, is totally unfounded much less for the reference of disputes to
arbitration is concerned.
(iii) If the case of the applicant is accepted so as to read the
arbitration agreement between the parties in the Second Agreement, it
would amount to re-writing of the contract, also, it would amount to
totally negating the effect of Section 7(5) of the ACA as Section 7(5)
would not admit of such interpretation.
(iv) The purpose and scope of the two agreements is totally
different. This being so, it is not correct for the applicant to contend that
both the agreements for any purposes go hand in hand, more particularly
when the applicant contends that the main agreement is the Second
Agreement, however, the Shareholders Agreement has nothing to do with
the Second Agreement. It is submitted that in fact it is clear that there is no
dispute under the Shareholders Agreement.
(v) A mere making of a reference to the other agreement or
borrowing of the context from the other agreements is of no
consequence/relevance, when it comes to the reading of the Second
Agreement.
(vi) The applicant's understanding of its case in paragraphs 6, 7, 8
and 9 of the Section 9 petition itself would show that the Second
agreement is a standalone agreement.
(vii) That the termination of the Shareholders Agreement does not
infer termination of the other. It is clear from paragraph 6 of the letter
pvr 27 carap131-22 (edits 1).odt
dated 17 November 2021 addressed by the applicant to respondent No.1,
that what was sought to be asserted and enforced on behalf of respondent
No.1 was Clause 6 of the Second Agreement which is under an
eventuality, namely, that if respondent No.1 does not have captive user
status or is not supplied with power under the Gas Supply Agreement or if
the Gas Supply Agreement is terminated, then the consequence as brought
about between the parties was as to what was set out in Clause 6. Such an
eventuality in Clause 6 would be confined only to the Second Agreement
and not to the Shareholders Agreement, and being confined to the Second
Agreement, there was no question of any reference of disputes to
arbitration, as there is no arbitration agreement under the Second
Agreement.
(viii) It is submitted that the purported dispute if at all has arisen, has
arisen under Clause (6) of the Second Agreement. It is thus submitted that
the main agreement is the Second Agreement, which has no arbitration
agreement. In the context of the decision of the Supreme Court in
Olympus Superstructures Pvt. Ltd. (supra), the Second Agreement is
required to be considered to be the main agreement.
(ix) The scope of the Shareholders Agreement which contains an
arbitration clause is to explain the circumstances in which respondent
No.1 would subscribe to and invest in the equity shares of JSW Power
Ltd. (JPL) and to record the terms and conditions "governing the
shareholding and rights of the parties and other matters as hereinafter
provided in writing".
(x) The substantive covenants and/or obligations under the SHA, being
the rights of parties and other matters in writing, show that they do not
pvr 28 carap131-22 (edits 1).odt
overlap and are not interlinked with the substantive covenants and the
obligations contained in the Second Agreement, which admittedly does
not contain an arbitration clause.
(xi) The Second Agreement although executed a day later, deals with an
entirely different situation and pertains to the date and time when the
respondent was already a shareholder of JPL after it had made its equity
contribution. It is submitted that the substantive covenants and obligations
under the Second Agreement pertain to the matters which are not regulated
or governed by the Shareholders Agreement. A mere reference to SHA or
"Shareholders Agreement dated 13 June 2005" as a narrative in the
context of these distinct covenants and obligations, does not bring a
dispute under the Second Agreement, within the scope of the arbitration
clause contained in the Shareholders Agreement.
(xii) In fact, there is no dispute that the Shareholders Agreement is a
distinct agreement from the Second Agreement which is clear from
paragraph 26 of the Section 9 petition, that the applicants are seeking
enforcement of the rights under the Second Agreement which does not
have an arbitration clause. Also, the parties to the arbitration agreement
contained in the Shareholders Agreement are different than the parties to
the Second Agreement.
(xiii) The fact that the Second Agreement is executed one day later to the
Shareholders Agreement would, if at all, operate against the applicant
because it highlights the obvious conscious choice to leave the arbitration
clause out of the Second Agreement.
(xiv) A mere reference to the Shareholders Agreement in some of the
pvr 29 carap131-22 (edits 1).odt
clauses of the Second Agreement does not satisfy the reading of an
arbitration clause contained in the Shareholders Agreement into the
Second Agreement.
(xv) It is submitted that during 2004-2005, the parties had executed five
agreements namely;
(I) Gas Supply Agreement dated 22 November 2004;
(II) Shareholders Agreement dated 13 June 2005;
(III) Supplemental Agreement dated 13 June 2005;
(IV) Deed of Novation and Assumption dated 13 June 2005; and
(V) Second Agreement dated 14 June 2005.
Each of the above agreements, contain an arbitration clause except the
Second Agreement (dated 14 June 2005). This according to the respondent
No.1, militates against the intention or presumed intention as canvassed by
the applicant. It is submitted that in contrast, the parties were meticulous
to have a separate arbitration clause in the Gas Supply Agreement dated
22 November 2004, Supplemental Agreement to GSA dated 13 June 2005
and Deed of Novation and Assumption dated 13 June 2005. It is hence,
submitted that leaving out the Second Agreement can never be regarded as
inconsequential merely because it was always presumed that the
arbitration clause of the Shareholders Agreement would apply to the
Second Agreement.
(xvi) It is submitted that the applicant has invoked arbitration by notice
dated 17 March 2022, the contents of which did not relate to breach of the
terms of the Shareholders Agreement but squarely deal with enforcement
of the terms under the Second Agreement.
(xvii) It is on such submissions, it is prayed that the applicant is not
pvr 30 carap131-22 (edits 1).odt
entitled to the reliefs of the dispute be referred to arbitration.
In support of his submission, reliance is placed on the judgment in
(a) Duro Felguera S.A. V. Gangavaram Port Ltd.3; (b) M.R.Engineers
and Contractors Pvt. Ltd. V. Som Datt Builders Ltd. 4; (c) Vishranti
CHSL Vs. Tattva Mittal Corporation Pvt.Ltd.5
F. Analysis and Conclusion
34. The question which falls for consideration in the present
proceedings is as to whether Clause 6 of the Shareholders Agreement,
being the arbitration agreement, could be invoked by the applicant for the
stated disputes to be referred to arbitration?
35. For such determination, there are two basic issues which are
required to be considered, firstly, from the nature of the invocation of the
arbitration agreement, under which of the two agreements, disputes
between the parties have arisen; and whether there exists an arbitration
agreement between the parties qua such agreement; secondly, in the event,
if there is no arbitration agreement qua the agreement under which
disputes have arisen, then whether, there is any inextricable connection
between the two agreements, so that the arbitration agreement under one
of the agreement can be construed to be an arbitration agreement for both
the agreements. Such is the nature of the controversy.
36. As noted above, the applicant intends to rely and invoke Clause 6 of
3 (2017)9 SCC 729
4 (2009)7 SCC 696
5 2020 SCC OnLine Bom 7618
pvr 31 carap131-22 (edits 1).odt
the Shareholders Agreement dated 13 June 2005 which is the only
arbitration agreement between the parties, qua the two agreements in
question. It is required to be noted that the parties to the Shareholders
Agreement are (i) JSW Power Ltd.(which stood merged with the applicant
and which no more is an existing legal entity), (ii) Sun Investments
Pvt.Ltd. (respondent No.2) and (iii) Bellary Oxygen Company Pvt.Ltd.
(respondent No.1). Insofar as the Second Agreement is concerned, the
parties to the Second Agreement are (i) JSW Power Ltd., (ii) Sun
Investments Pvt.Ltd. (respondent No.2), (iii) Jindal Vijayanagar Steel Ltd.
(the applicant) and (iv) Bellary Oxygen Company Pvt.Ltd. (respondent
No.1). Thus, on the face of these two agreements, it is clear that the parties
to these agreements are not the same inasmuch as the Shareholders
Agreement was with JSW Power Ltd. which has stood merged with the
applicant.
37. The plinth of the applicant's case is that the Shareholders
Agreement and the Second Agreement are inextricably connected or both
are integral to each other. To appreciate such contention, it would be
necessary to examine as to what is the nature of the dispute as sought to be
raised by the applicant.
38. The dispute between the parties as raised by the applicant can be
seen from the applicant's letter dated 28 February 2022 read with the
pvr 32 carap131-22 (edits 1).odt
invocation notice dated 17 March 2022 as addressed by the Advocate for
the applicant to respondent No.1. In such invocation notice, the applicant
stated that pursuant to the Shareholders Agreement dated 13 June 2005,
respondent No.1 had subscribed to 1,10,35,000 shares of JSW Power Ltd.
(JPL) in order to become a 'Captive User' of the power generated by JPL
Facility at Toranagallu, Bellary, Karnataka. It is stated that by virtue of
such equity contribution JPL was to supply 20 MW powers to respondent
No.1 for the purpose of manufacturing and supplying gas to the applicant
under the Gas Supply Agreement dated 22 November 2004 under which
interalia power was supplied by the applicant to respondent No.1. It is
also stated that the relevant terms relating to respondent No.1's equity
contribution and "Captive User" status consequent thereto, were
compositely and together recorded in the Shareholders Agreement read
with the Second Agreement and that both these agreements are connected
inextricably and are interlinking agreements reflecting the commercial
arrangement between the parties. It is next stated that the JSW Power Ltd
(JPL) having merged into the applicant, pursuant to such merger,
respondent No.1 was allotted 4,41,400 equity shares of JVSL. It is stated
that subsequently in the year 2017, pursuant to the share split, respondent
No.1 was allotted 44,14,000 shares of JVSL to the applicant. The
invocation notice then referred to Clause (6) of the Second Agreement
which reads thus:
pvr 33 carap131-22 (edits 1).odt
"6. If for any reason:
a) BELLOXY does not have captive user status for any
reason whatsoever including without limitation change of
law, post-merger dilution in shareholding, etc.; or
b) BELLOXY is not supplied with power as provided in
the Gas Supply Agreement dated November 22, 2004 read
with the Supplemental Agreement to the Gas Supply
Agreement dated 13th June 2005; or
c) the Gas Supply Agreement dated November 22, 2004
read with the Supplemental Agreement to the Gas Supply
Agreement dated 13th June, 2005 is terminated in accordance
with the provisions of the Gas Supply Agreement.
then JPL or JVSL, as the case may be, shall within five working
days cause BELLOXY's equity shares in JPL or JVSL to be
purchased by the existing shareholders or by any other entity
nominated by JVSL at a price equal to the face value of the
shares of JPL or the corresponding value of shares in JVSL
arrived at based on the share exchange ratio under the Scheme of
Amalgamation referred to above. It is clarified that the aforesaid
price shall not be less than the full amount of BELLOXY's equity
contribution. It is further clarified that, in the event the share
purchase transaction pursuant to the foregoing paragraph is
triggered by Agreement and the Supplemental Agreement to the
Gas Supply Agreement shall remain in full force and effect,
including in particular the obligation under the Gas Supply
Agreement to supply BELLOXY with power at the price and
quantity specified therein."
(Emphasis supplied)
39. The applicant qua the above clause as contained in the second
agreement, which was sought to be enforced by the applicant, stated in the
invocation notice that on 13 November 2021 the applicant and respondent
No.1 entered into an 'Asset Sale Agreement' under which interalia certain
assets comprising the air separation unit situated at the applicant's Facility
at Toranagallu, Bellary, Karnataka, were transferred by respondent No.1 to
the applicant on the terms as set out therein. The applicant stated that
pvr 34 carap131-22 (edits 1).odt
further by a Closure letter dated 15 November 2021 addressed by
respondent No.1 to the applicant and duly agreed and accepted by the
applicant, it was recorded that the Gas Supply Agreement stands
terminated and consequently all the three conditions stipulated in Clause 6
of the Second Agreement (supra) stood attracted, namely (i) Respondent
No.1 ceased to have captive user status for 20MW of power generated at
the applicant's facility; (ii) Respondent No.1 was no longer being
supplied with power under the Gas Supply Agreement; and (iii) the
termination of Gas Supply Agreement.
40. In these circumstances, in the invocation letter, it is the case of the
applicant that in terms of Clause 6 of the Second Agreement, the applicant
became entitled within five working days of the Gas Supply Agreement
being terminated, to cause the 'Sale Shares', held by respondent No.1 in
the applicant, to be purchased by the applicant's existing shareholders or
by any other entity nominated by the applicant at a price equal to the
equity contribution of Rs.11,03,50,000/-. The applicant recorded that for
such reasons, by a notice dated 17 November 2021 the applicant called
upon respondent No.1 to interalia, sell the Sale Shares to its nominee
JSW Techno Projects Management Ltd. on or before 22 November 2021,
at a price equal to the equity contribution namely Rs.11,03,50,000/- to be
paid by the purchaser to respondent No.1. The notice stated that in the
pvr 35 carap131-22 (edits 1).odt
meantime, in terms of Clause 12 of the Second Agreement, respondent
No.1 should not sell the 'sale shares' to anyone else. It also recorded that
the purchaser's consent to purchase the 'sale shares' and pay the
consideration in respect thereof was obtained. In the invocation letter, the
applicant also stated that respondent No.1 had however, failed to sell the
Sale Shares to the purchaser in terms of notice dated 17 November 2021,
or take any steps in respect thereof on or before the appointed date i.e. 22
November 2021 or thereafter. The applicant thus recorded that respondent
No.1 was in breach of the Second Agreement, more particularly, 'Clause 6'
thereof and hence was entitled to seek enforcement of respondent No.1's
obligations under the Second Agreement, including its obligation under
Clauses 6 and 12 of the Second Agreement. It is in these circumstances,
the applicant stated that disputes and differences had arisen under the
Second Agreement read with the Shareholders Agreement as the applicant
was desirous of seeking legal enforcement of respondent No.1's
obligations under the Second Agreement including its obligation under
Clauses 6 and 12 of the Second Agreement.
41. The gravamen of the applicant's invocation is clearly seen in
paragraphs 8, 9, 10 and 12 of the invocation notice, which read thus:-
"8. Consequently, all three conditions stipulated in Clause 6 of the
Agreement stood attracted, namely: (i) Belloxy ceased to have
captive user status for 20 MW of power generate at JSW Steel's
facility; (ii) Belloxy was no longer being supplied with power
under the Gas Supply Agreement; and (iii) the termination of Gas
pvr 36 carap131-22 (edits 1).odt
Supply Agreement. Accordingly, in terms of Clause 6 of the
Agreement, JSW Steel became obligated to, within five working
days, cause the Sale Shares held by Belloxy in JSW Steel to be
purchased by JSW Steel's existing shareholders or by any other
entity nominated by JSW Steel at a price equal to the Equity
Contribution, viz. Rs.11,03,50,000/-.
9. Therefore, by a notice dated 17th November 2021 ("Notice"),
inter alia, JSW Steel called upon Belloxy to, on or before 22°
November 2021, sell the Sale Shares to its nominee JSW Techno
Projects Management Limited ("Purchaser"), at a price equal to the
Equity Contribution namely Rs. 11,03,50,000/- to be paid by the
Purchaser to Belloxy. In terms of Clause 12 of the Agreement, JSW
Steel also called upon Belloxy to not sell the Sale Shares to anyone
else in the meantime. The said letter also contained the Purchaser's
consent to purchase the Sale Shares and pay the consideration in
respect thereof.
10. However, Belloxy failed to sell the Sale Shares to the
Purchaser in terms of the Notice or take any steps in respect thereof
on or before the appointed date, i.e. 22nd November 2021 or
thereafter. Belloxy is in breach of the Agreement more particularly
Clause 6 thereof. JSW Steel is entitled to seek enforcement of
Belloxy's obligations under the Agreement including its
obligations under Clauses 6 and 12 of the Agreement.
.... ... ... ... ... ..
12. In the circumstances, disputes have arisen under the
Agreement read with the SHA and JSW Steel is desirous of
seeking legal enforcement of Belloxy's obligations under the
Agreement including its obligations under Clauses 6 and 12 of the
Agreement."
It is thus clearly noticed that the dispute as sought to be raised by
the applicant in the invocation notice primarily pertains only under the
Second Agreement.
42. The respondent No.1's case on the invocation notice of the applicant
can be examined: The applicant's invocation notice was replied by
pvr 37 carap131-22 (edits 1).odt
respondent No.1's Advocate's letter dated 4 March 2022, wherein
Respondent No.1 stated that the Shareholders Agreement dated 13 June
2005 or any clause therein can, in no manner be linked or read with the
Second Agreement dated 14 June 2005. It was stated that the case of the
applicant to contend that the disputes under the Second Agreement, would
fall under the Shareholders' agreement was only to utilise the arbitration
clause in the Shareholders' Agreement. It was stated that the disputes in
no manner whatsoever, could fall within the ambit of the arbitration clause
under the Shareholders Agreement. It was contended by respondent No.1
that the case of the applicant was ex facie misplaced and untenable.
Respondent No.1 also stated that it would rely on the reply affidavit dated
13 December 2021 filed in the Section 9 proceedings (companion petition)
and accordingly, rejected the request as made by the applicant in the
invocation notice. The applicant however by its Advocate's letter dated 17
March 2022 reiterated its contentions in regard to the invocation and as
respondent No.1 did not agree to refer the disputes to arbitration, the
present proceedings were filed.
43. On such backdrop both the agreements would be required to be
discussed. Firstly, on a perusal of the Shareholders Agreement, the
intention of the parties to such agreement namely JSW Power Ltd. (JPL),
Sun Investments Pvt.Ltd. (respondent No.2) and Bellary Oxygen
pvr 38 carap131-22 (edits 1).odt
Company Pvt.Ltd. (respondent No.1) to enter into such agreement can be
seen from paragraphs 1 to 6 of such agreement, which read thus:-
"1. The generation of electricity in India is now
delicensed and captive generation is freely permitted,
pursuant to The Electricity Act, 2003,
2. JPL is a public limited company whose primary
business is to build, own and/or operate power plants for
captive consumption of power by the shareholders of the
Company and other persons and to generate, develop
and accumulate electrical power at any place or places
in India and to transmit, distribute and supply such
power including to its shareholders and other persons,
3. JPL has set up a Thermal Power Plant of 100 MW
and is in the process of setting up an additional 130 MW
power plant at Toranagallu, Karnataka and 60 MW
power plant at 'Salem, Tamil Nadu for captive
consumption by the shareholders of JPI.;
4. BELLOXY had expressed its desire to participate
in the setting up of the power plant by JPL and JPL has
agreed for BELLOXY's participation in the setting up of
the power plant.
5. BELLOXY desires to invest a sum of Rs.
11,03,50,000/- (Eleven Crores Three Lakhs and Fifty
Thousand only) to buy the equity shares in JPL at par
at face value of Rs.10/each;
6. The Board of Directors of JPL and the Board of
Directors of Jindal Vijayanagar Steel Limited, a
company incorporated under the Companies Act, 1956
and having its registered office at Jindal Mansion, 5-A,
G. Deshmukh Marg, Mumbai 400 026 (hereinafter
"JVSL"), in their respective Board meetings held on May
9, 2005, have passed resolutions approving the merger of
JPL and JVSL;
The Parties hereto are desirous of recording the terms
and conditions governing the shareholding and the
rights of the parties and other matters as hereinafter
provided in writing;
NOW, THEREFORE, in consideration of the foregoing
pvr 39 carap131-22 (edits 1).odt
premises and the mutual covenants and agreements
herein below contained, it is hereby mutually agreed by
and between the parties as follows."
(Emphasis supplied)
44. On the basis of such intention between the parties as reflected in the
above introductory paragraphs of the Shareholders Agreement, the
primary clauses of the said agreement being Clauses 1 to 7 are also
required to be noted as they have been a subject matter of extensive
deliberation at the bar. The said clauses read thus:-
"1. COVENANTS BY THE PARTIES
1.1 By virtue of equity contribution of Rs.
11,03,50,000 by BELLOXY, the Parties agree that in
proportion to its shareholding in JPL, BELLOXY is
entitled to 20 MWs of power generated by JPL.
1.2 BELLOXY shall subscribe for 11035000 equity
shares in JPL and shall make an equity contribution in the
amount of Rs. 11,03,50,000/- in respect of such shares and
upon receipt of such payment JPL shall issue one or
more share certificates to BELLOXY evidencing the
issuance of such shares in accordance with the Articles
of Association of JPL.
1.3 BELLOXY agrees that it shall not object to the
merger of JPL and JVSL, and once the merger is
approved, BELLOXY shall obtain equity shares of JVSL
pursuant to Scheme of Amalgamation as approved by the
Honourable High Court.
1.4 Terms and conditions for use of power shall be as
agreed between the Parties.
1.5 The Company may take up projects from time to
time for setting up of power plants.
1.6 Neither party shall be entitled to assign its rights
and obligations under this Agreement, to any other person
without the consent of the other Parties in writing.
pvr 40 carap131-22 (edits 1).odt
1.7 If the lenders of JPL so require, BELILOXY shall
offer its shares in JPL to be pledged in quantum to be
decided by the Company and the lenders.
1.8 The Power Plants shall be operated and maintained
in accordance with accepted international utility practices.
2. DISTRIBUTION OF PROFITS
Distribution of profits by way of dividends shall
be as per the recommendations of the Board of JPL
and approval of shareholders (as required under the
Companies Act, 1956) and of the JPL's lenders, if
there be any covenant to obtain the consent of the
JPL's lenders.
3. GENERAL
3.1 This Agreement may be executed simultaneously
in two or more counterparts each of which shall be
deemed to be an original but all of which together shall
constitute one instrument.
3.2 Each signatory to this Agreement represents and
warrants that he is duly authorised by the Party for and on
whose behalf he is signing this Agreement to execute the
same in a manner binding upon the said Party and all
corporate approvals and procedures necessary for vesting
such authority in him have been duly obtained and
complied with.
3.3 This Agreement may be amended only with the
prior written consent of the Parties hereto.
4. DURATION AND TERMINATION OF THE
AGREEMENT
4.1 This Agreement shall come into force on the
date of its execution and shall remain to force till
BELLOXY ceases to be a shareholders of JPL or
JVSL, as the case may be, or until terminated
pursuant to the provisions of this Agreement.
4.2 Section 6 of this Agreement shall survive the
termination of this Agreement.
pvr 41 carap131-22 (edits 1).odt
5. SEVERABILITY
If any of the provisions of this Agreement are found by
any court or other competent authority to be void or
unenforceable, such provision or provisions shall be
severed from this Agreement and shall be considered
divisible as to such provision or part thereof and such
provision or part thereof shall be inoperative between the
Parties hereto and shall not be considered to be part of this
Agreement and the remaining provisions of this
Agreement shall continue in full force and effect.
Notwithstanding the foregoing, the Parties shall thereupon
negotiate in good faith in order to agree the terms of
mutually Satisfactory provisions to be substituted for the
provisions so found to be void or unenforceable.
6. GOVERNING LAW AND ARBITRATION
This Agreement shall in all respects be governed by the
laws of Republic of India.
In the event of any dispute, controversy or claim, arising
in connection with this Agreement, or breach, termination
or invalidity thereof, the Parties shall seek an amicable
settlement during a sixty-day period, failing which the
matter under dispute will be settled by arbitration in
accordance with the Arbitration and Conciliation Act,
1996 (the "Act"). The venue of arbitration shall be
Mumbai. The arbitration proceedings shall be conducted
before one (1) arbitrator to be mutually agreed upon by
the Parties in dispute failing which the arbitrator shall be
appointed in accordance with the Act.
The judgment upon the award rendered may be entered in
any court having jurisdiction or application for a judicial
acceptance of the award may be made for enforcement.
The cost of arbitration shall be borne by the Parties
equally."
(Emphasis supplied)
45. The salient features of the Shareholders Agreement can briefly be
discussed: This agreement sets out that JSW Power Ltd. (JPL) had set up a
thermal power plant of 100 MW and was in the process of setting up an
pvr 42 carap131-22 (edits 1).odt
additional 130 MW power plant at Toranagallu, Karnataka and 60MW
power plant at Salem, Tamil Nadu, for captive consumption by the
shareholders of JPL, as captive generation was freely permitted in
pursuance of the Electricity Act,2003, when the generation of electricity in
India was delicenced. Respondent No.1 expressed its desire to participate
in setting up the power plant by JPL, and JPL agreed for respondent
No.1's participation. For such purpose, respondent No.1 desired to invest a
sum of Rs.11,03,50,000/- to buy equity shares of JPL at par at face value
of Rs.10/- each and as a shareholder became entitled interalia for profits
in the dividends being distributed as agreed in Clause 2 of the
Shareholders Agreement. At the same time, the Board of Directors of JPL
and the Board of Directors of JVSL - another company had also passed
resolutions approving the merger of JPL and JVSL being Resolution dated
9 May 2005, approving such merger. At such time, thus, the merged entity
of JPL into JVSL was yet to have any legal existence. It is in such
situation, respondent No.1 made equity contribution of Rs.11,03,50,000/-
in the shareholding of JPL. Respondent No.1 accordingly became entitled
to 20 MWs of power generated by JPL which was in terms of the Gas
Supply Agreement. Respondent No.1 also agreed that it shall not object to
the merger and once the merger is approved, respondent No.1 "shall
obtain equity shares" of JVSL pursuant to the scheme of amalgamation as
may be approved. As to what would happen to the respondent no.1's
pvr 43 carap131-22 (edits 1).odt
acquisition of such shares or even a consequence of respondent no.1
becoming entitled to any bonus or split shares of JVSL was not the subject
matter of the Shareholders' agreement.
46. Thus, the whole intention of the parties in the Shareholders'
agreement was that by virtue of the equity contribution by respondent
no.1, it became entitled to 20 MW power generated by JPL proportionate
to its shareholding. If the agreement was to be terminated as agreed in
Clause 4.1, respondent no. 1 would cease to have the benefit of its
entitlement of 20 MW power supply. Most pertinently, in the
Shareholders Agreement, the parties did not make any provision for any
buy back or anything concerning respondent no.1's rights and liabilities in
the capacity as a shareholder of JPL or for that matter of the merged entity.
Also, the Shareholders Agreement did not provide that in relation to any
such matters, a separate agreement would be entered between the parties
which would become part and parcel of the Shareholders Agreement
and/or an integral part of the Shareholders Agreement. This, possibly
being conscious of the fact that once respondent no.1 subscribes to the
shareholding of JPL, respondent no.1 being a shareholder cannot be
treated differently, namely, as a shareholder who would not have all rights
and liabilities as any other shareholder would otherwise possess. Thus,
consciously, the rights of respondent no.1 in the capacity of JPL's
pvr 44 carap131-22 (edits 1).odt
shareholders in no manner whatsoever were circumscribed in the
Shareholders' agreement. It appears that the intention of the parties clearly
was to confine themselves within the four corners of the Shareholders'
agreement when it came to anything to be done with or being provided
under the Shareholders' agreement including confining the arbitration
agreement only to the Shareholders' agreement.
47. Also in Clause (4) of the Shareholders' agreement, which pertains to
'Duration and Termination of the Agreement', it was agreed that the
shareholders agreement shall come into force on the date of its execution
and shall remain in force till respondent No.1 ceases to be a shareholder of
JPL or JVSL, as the case may be, or until terminated pursuant to the
provisions of the said Agreement, and Clause (6) of the agreement namely,
that the arbitration agreement shall survive termination of the said
agreement. It is in such context the arbitration agreement as contained in
Clause (6) is required to be seen. The arbitration agreement very clearly
provides that in the event of any dispute, controversy or claim, arising "in
connection with the Shareholders Agreement", or breach, termination or
invalidity thereof, the parties shall seek an amicable settlement during a
sixty-day period, failing which the matter under dispute would be settled
by arbitration. Thus, to read into the arbitration agreement, something
which would fall outside the Shareholders' agreement is certainly not the
pvr 45 carap131-22 (edits 1).odt
intention of the parties, as the parties have clearly intended to restrict the
operation of the arbitration clause only and only to the Shareholders'
agreement.
48. Having noticed the relevant terms and conditions of the
Shareholders Agreement and the consequences emanating therefrom, the
Second agreement between the parties dated 14 June 2005 would be
required to be seen. As noted earlier, a new party to this agreement is
"JVSL" the other parties being JSW Power Ltd. (JPL), Bellary Oxygen
Company Pvt. Ltd. (respondent No.1), and Sun Investments Pvt. Ltd.
(respondent No.2). Hence the terms and conditions of this agreement are
the terms and conditions between JPL, JVSL, Sun Investments Pvt.Ltd
(which represented the existing shareholders) and respondent No.1,
where-under the following was mutually agreed between the parties. As
the clauses in this agreement were a subject matter of intense debate
between the parties, the same are required to be noted which read thus:
"1. The Board of Directors of JPL and the Board of
Directors of JVSL in their respective Board meetings held
on May 9, 2005, have passed resolutions approving the
merger of JPL and JVSL whereby pursuant to the
sanctioning of the Scheme of Amalgamation by the High
Court of Judicature at Mumbai and the filing of such
sanction with the office of the Registrar of Companies, the
whole of the undertaking, property, liabilities of JPL shall
stand transferred to JVSL and the shareholders of JPL will
be allotted shares in JVSL on the basis of the share
exchange ratio approved in the Scheme;
2. In terms of Deed of Novation and Assumption
pvr 46 carap131-22 (edits 1).odt
between BOC India Limited, an existing Company under
the provisions of the Companies Act, 1956 and having its
registered office at Oxygen House, P-43, Taratala Road,
Kolkata 700 088 (hereinafter referred to a "BOCI"),
BELLOXY and JVSL, BELLOXY is a party to a Gas
Supply Agreement dated November 22, 2004 with JVSL
whereby JVSL is obligated to supply power to BELLOXY
in the quantity and at the price specified in the Gas Supply
Agreement read with the Supplemental Agreement to the
Gas Supply Agreement dated 13 June, 2005.
3. The terms and conditions of supply of power to
BELLOXY shall be as set out in the Gas Supply Agreement
dated November 22, 2004 between BOCI and JVSL read
with the Supplemental Agreement to the Gas Supply
Agreement dated 13™ June, 2005.
4. Unless agreed otherwise between the parties;
BELLOXY shall not be called upon or required to make
any investment beyond the equity contribution agreed to be
made pursuant to the Shareholders Agreement dated 13°
June 2005, in order to retain its captive users status.. JPL
and/or JVSL shall indemnify BELLOXY for any additional
expenditure that may be necessary for this purpose. For the
purposes of this Agreement, the term 'equity contribution'
shall mean BELLOXY's subscription for 11035000 equity
shares in JPL and its corresponding equity contribution in
the amount of Rs.11,03,50,000/- in respect of such shares.
5. BELLOXY's total liability in connection with the
equity contribution and the restructuring of the transactions
related to the Gas Supply Agreement shall be limited to the
amount of equity contribution. JPL or JVSL, as the case
may be, shall indemnify and hold harmless BELLOXY
from and against any and all losses, claims, and liability
arising out of or in connection with the equity contribution
and/or the operation and corporate activities of JPL, JVSL,
and/or any merged entity comprised of JPL and JVSL.
6. If for any reason:
a) BELLOXY does not have captive user status for
any reason whatsoever including without limitation
change of law, post-merger dilution in shareholding,
etc; or
b) BELLOXY is not supplied with power as
pvr 47 carap131-22 (edits 1).odt
provided in the Gas Supply Agreement dated
November 22, 2004 read with the Supplemental
Agreement to the Gas Supply Agreement dated 13 th
June 2005; or
c) the Gas Supply Agreement dated November 22,
2004 read with the Supplemental Agreement to the
Gas Supply Agreement dated 13" June, 2005 is
terminated in accordance with the provisions of the
Gas Supply Agreement,
then JPL or JVSL, as the case may be, shall within five
working days cause BELLOXY's equity shares in JPL or
JVSL to be purchased by the existing shareholders or by
any other entity nominated by JVSL at a price equal to the
face value of the shares of JPL or the corresponding value
of shares in JVSL arrived at based on the share exchange
ratio under the Scheme of Amalgamation referred to above.
It is clarified that the aforesaid price shall not be less than
the full amount of BELLOXY's equity contribution. It is
further clarified that, in the event the share purchase
transaction pursuant to the foregoing paragraph is trigerred
by operation of eityer sub clause a) or b) above, then in
such case both the Gas Supply Agreement and the
Supplemental Agreement to the Gas Supply Agreement
shall remain in full force and effect, including in particular
the obligation under the Gas Supply Agreement to supply
BELLOXY with power at the price and quantity specified
therein.
7. BELLOXY shall not participate in the management
of the Company.
8. The Company may take up projects from time to
time for setting up of power plants provided that such
projects shall not affect BELLOXY's captive user status for
20 MW failing which, any consequences as a result thereof,
shall be the responsibility of JPL or JVSL, as the case may
be. In the event of a merger of JPL. and JYSL, JPL shall
cause JVSL to ensure that suitable conditions are
incorporated in the scheme of merger to be entered into
between JPL and JVSL, to protect the right of BELLOXY
to receive 20 MW of power from the power plant to be
owned by the merged entity, and to protect BELLOXY's
captive user status for 20 MW.
9. The Articles of Association of JPL and JVSL shall at
pvr 48 carap131-22 (edits 1).odt
all times be consistent with the terms of this Agreement to
the extent permitted by law.
10. All costs, charges taxes, duties and expenses
including stamp duty in relation to this Agreement shall be
borne and paid for by the Company alone. Legal expenses
of the respective parties shall be borne by the respective
parties.
Il. In case of breach of the' provisions of this
Agreement by any Party, the other Party shall be entitled to
terminate the Agreement and the consequences as set out in
clause 6 above relating to the purchase of the shares of
BELLOXY by the Existing Shareholders or by any other
entity nominated by JVSL shall follow, provided that,
notwithstanding such termination and share purchase, both
the Gas Supply Agreement and the Supplemental
Agreement to the Gas Supply Agreement shall remain in
full force and effect, including in particular the obligation
under the Gas Supply Agreement to supply BELLOXY
with power at the price and quantity specified therein.
12. BELLOXY agrees and undertakes that it shall not
during the term of this Agreement sell, pledge (except to
the lenders of JPL pursuant to clause 1.7 of the
Shareholders' Agreement dated 13th June 2005) or
otherwise deal in any manner whatsoever, the equity shares
of JPL or as the case may be, of JVSL.
12. Clauses 4, 5 & 6 of this Agreement shall survive
the termination of the Shareholders Agreement dated
13th June 2005.
13. In the event of any conflict between the
provisions of this Agreement and those of the
Shareholders Agreement, the provisions of this
Agreement shall prevail."
(Emphasis supplied)
49. From the perusal of the above clauses of the Second Agreement, it
is quite clear that the arrangement/agreement between the parties as
contained in its different clauses was wholly independent, having no
bearing or relation whatsoever to the Shareholders' agreement. Clauses 4,
pvr 49 carap131-22 (edits 1).odt
5 and 6 of the Second Agreement explicitly brings about a totally distinct,
a well defined and a divergent understanding between the parties, under
which the parties have agreed that these clauses shall survive even the
termination of the Shareholders' agreement, as set out in Clause 12. Thus,
even if the Shareholders Agreement was to be put off or extinguished,
Clauses 4, 5 and 6 of the Second Agreement were to survive. Most
significantly in Clause 13 thereof in no uncertain terms qua the Second
Agreement, the parties clearly disassociate and untie themselves from the
shareholders agreement when they agree, that in the event of any conflict
between the provisions of the Second Agreement and those of
Shareholders' agreement, the Second Agreement shall prevail.
50. It is on the above backdrop, the invocation notice assumes
significance and would be required to be considered. As observed above,
the invocation notice concerns the enforcement and compliance of Clause
6 of the Second Agreement by respondent No.1. However, what is
material is that the same is preceded by certain events, namely, on 13
November 2021 the applicant and respondent No.1 entered into an Asset
Sale Agreement under which interalia certain assets comprising of an
Area Separation Unit constituted under the applicant's Facility at
Toranagallu, Bellary, Karnataka were transferred by respondent No.1 to
the applicant (JSW Steel Ltd.) on terms and conditions as set out therein.
pvr 50 carap131-22 (edits 1).odt
By a Closure Letter dated 15 November 2021 addressed by respondent
No.1 to the applicant, it was recorded that the Gas Supply Agreement
stood terminated. It is thus seen, that as a consequence of such events
taking place in paragraph (8) of the applicant's invocation Letter,
addressed to respondent No.1, it has been clearly set out that due to the
happening of such events, Clause 6 of the Second Agreement comes into
play and as a consequence of non-compliance of its obligations by
respondent No.1, necessarily, disputes have arisen under the Second
Agreement, however, under which, the parties have categorically avoided
to incorporate an arbitration agreement. The applicant thus cannot
overcome such specific exclusion of any arbitration agreement by
invoking the arbitration agreement as contained in the Shareholders
Agreement, which has no bearing whatsoever or anything to do, as to what
was agreed between the parties under the terms and conditions of the
Second Agreement.
51. Thus, in the context of Clause 6 of the Shareholders Agreement read
with Clause 12 of the Second Agreement and even considering Clause 4.1
of the Shareholders Agreement which is being described as a 'bare-bone'
clause, the applicant is not correct in its case that there is any inextricable
connection between the Shareholders Agreement and the Second
Agreement.
pvr 51 carap131-22 (edits 1).odt
52. In my view, respondent No.1 would be correct in its contention that
both the agreements stand independent of each other, inasmuch as the
consequences as brought about by both these agreements are totally
distinct and separate, more particularly looked from the point of view of
the applicant's grievance which is in respect of breach of Clause 6 of the
Second Agreement, which has no bearing or is totally disconnected and/or
independent of the Shareholders Agreement.
53. Under the Shareholders Agreement, respondent No.1 subscribed to
the shareholding of JPL, for the purpose of taking benefits as a "Captive
User", and it is only in the context of any dispute arising between the
parties under the Shareholders Agreement, the dispute could be referred to
arbitration. Per contra, under the Second Agreement apart from the
intention of the parties to have a distinct agreement of the nature, as set
out, different consequences are brought about under this agreement.
Merely because under the Shareholders' agreement respondent No.1
becomes a Shareholder of the merged entity, an inextricable connection
between both the agreements should be presumed, is not an acceptable
proposition. In the Second Agreement for whatever disputes which may
arise between the parties, who are independent parties to this agreement,
the parties have consciously not provided for any arbitration agreement.
Also, the parties have not left any scope for any such inclusion, which
pvr 52 carap131-22 (edits 1).odt
could have been the easiest possible avenue available to them to connect
both the agreements in a direct manner, so as to bring both the agreements
under the umbrella of the Dispute Resolution Mechanism namely the
arbitration clause as contained in the Shareholders Agreement. Possibly,
the reason for such specific exclusion of an arbitration agreement, can be
many- one of them which is quite apparent is that the parties are distinct as
also the consequences under both the agreements are distinct. The other
commercial reasons need not be imagined or guessed by the Court. Thus,
to lift the arbitration clause under the Shareholders Agreement and foist
the same on the Second Agreement would in fact amount to re-writing of
the Second Agreement. It would amount to imposing on the parties,
something which the parties themselves have not desired. This becomes
more apparent from the reading of the invocation notice itself as issued by
the applicant to respondent No.1. It may be stated that when the parties in
their commercial wisdom decide to formulate commercial terms and
confine themselves to specific agreements, it cannot be an endeavour and
province of the Court to alter the commercial wisdom of the parties so as
to create obligations not desired by the parties and compel them to choose
an avenue not desired by them by a judicial dictum.
54. In the present case, the parties are experts in the commercial field.
Thus, apart from the commercial wisdom of the parties, the parties with
pvr 53 carap131-22 (edits 1).odt
their expert resources decided to have such multiple agreements with
specific understanding as contained in each of these agreements. In these
circumstances, it certainly cannot be an endeavour of the Court to tinker
with these agreements, so as to bring about consequences which were
excluded and not intended by the parties.
55. In so far as the applicant's contention that both the agreements are
inextricably connected, is certainly not a sound argument considering the
nature of both these agreements. Merely because there are recitals in
regard to the background facts, a clear intention much less in a manner
known to law to bring about an arbitration agreement in relation to the
disputes which may arise between the parties under the Second
Agreement, is certainly not to be seen.
56. In my opinion, it would be absurd to accept a blanket proposition
that mere reference or recital of an earlier agreement in the subsequent
agreement would bring about any integral connection between the two
agreements when the two agreements do not per se reflect such position.
The real test to determine whether the two agreements are integral to each
other, would be to examine whether either of the agreement becomes
unworkable in the absence of the other agreement or in other words
whether both the agreements are inter-dependent on each other and
pvr 54 carap131-22 (edits 1).odt
accordingly become unworkable without each other. Thus, the integral
and involute relation between the two agreements would be the sine qua
non. Applying this test to the present facts and circumstances, it certainly
cannot be said that the Shareholders' Agreement finds for itself such an
unimpeachable position in the Second Agreement that the Second
Agreement would fail/collapse in the absence of the Shareholders'
agreement.
57. For such reasons, it needs to be concluded there was no conscious
intention of the parties to subject the disputes to arbitration under the
Second Agreement. Thus, to forcibly stretch the Second Agreement so as
to make it fall within the Shareholders Agreement only for the purpose of
adopting the dispute resolution mechanism under the Shareholders
Agreement, in my opinion, would be opposed to what can be conceived as
an arbitration agreement, as Section 7 of the ACA would provide.
58. Now coming to the decision in Olympus Superstructures Pvt. Ltd.
(supra) as relied on behalf of the applicant. The contention of Mr.
Dwarkadas that the Shareholders Agreement and the Second Agreement
are required to be treated as composite agreements and integral to each
other, and hence, a reference to arbitration be made in regard to the
disputes which have arisen under the Second Agreement, is premised
relying on the decision of the Supreme Court in Olympus Superstructures
pvr 55 carap131-22 (edits 1).odt
Pvt. Ltd. (supra). As to whether this decision would at all carry forward
the case of the applicant, can be examined. The decision arose from the
proceedings of the award rendered by an arbitral tribunal having attained
finality before the High Court, in Section 34 and Section 37 proceedings.
In this case, the disputes between the parties revolved around two sets of
agreements dated 9 March 1994 and one dated 29 June 1994 which were
to sell three flats and three related agreements in relation to the interior
design of the said flats. The respondent/flat purchaser entered into the
three agreements for sale of the flats, possession thereof was handed over
along with the amenities by 30 October 1994. It was stipulated that time
was essence of the contract, also the time schedule for payments by the
purchasers was provided. The purchasers were to pay 21% interest in case
of default. The sellers (appellants) had the power to terminate the contract
however only after giving 15 days prior notice in writing and also giving
the purchasers an opportunity, to make up for any breaches committed.
Disputes and differences had arisen between the parties, after the
respondent wrote to the appellant on 24 April 1995 seeking information
regarding the stage of construction of the flats. The appellants charged the
respondent with defaulting in payments and issued a 15 days notice of
termination of all three agreements. The respondents contended that their
dishonoured cheques had been substituted by banker's cheques or cash
and thus the termination was not valid. As the appellants did not respond,
pvr 56 carap131-22 (edits 1).odt
the respondent had invoked the arbitration agreement and called upon the
appellants to refer the disputes to arbitration. The appellants failed to
reply, consequently, the respondents filed a petition under Section 11 of
the ACA which came to be allowed by the High Court by appointing an
arbitrator. The respondent filed their claim before the Arbitrator. The
arbitral proceedings culminated into an award granting relief of specific
performance to the respondent in respect of three main as well as three
interior design agreements. The appellant challenged the award under
Section 34 of the Act. The objections to the award were dismissed by the
learned Single Judge as well as by the Division Bench. In these
circumstances, on behalf of the appellant, it was contended before the
Supreme Court that the arbitrator could not have decided the dispute
regarding three interior design agreements, as the reference to arbitration
was based only on the three main agreements for sale, and the interior
design agreements, contained their own arbitration clauses which could
not be superseded. The question before the Supreme Court was whether
the disputes and differences arising under the Interior Design Agreement
were integrally "connected with" the disputes and differences arising from
the main contract. Answering the question in the affirmative, the Supreme
Court considering the arbitration agreement in the main agreement being
Clause 39, held that in a situation wherein there were disputes and
differences in connection with the main agreement, as also disputes in
pvr 57 carap131-22 (edits 1).odt
regard to the "other matters" "connected" with the subject matter of the
main agreement, they would be governed by the general arbitration clause
of the main agreement, under which, disputes not only under the main
agreement but disputes connected therewith "were referred" to the same
arbitral tribunal. The Court held that it was a case where the disputes and
differences covered the main agreement (sale of flats agreement) as well
as the Interior Design Agreement. The relevant paragraph in that regard
are required to be noted which read thus:-
"25. It is true that there are two agreements in each of
the three appeals before us. One is the main agreement
relating to construction of flats and the arbitration clause
39 there is general and does not refer to any named
arbitrator. It is also true that there is a separate arbitration
clause 5 in the Interior Design Agreement which gives the
names of specific arbitrators. But it must be noticed that
clause 39 permits reference to arbitration not only of
issues arising under the main agreement but also those
disputes or differences which are "connected" with
disputes arising under the main agreement. The following
words in the main agreement are important.
"Otherwise as to any other method in any way
connected with, arising out of or in relation to the subject
matter of this agreement."
In other words, clause 39 refers to the `subject matter' of
the main agreement and also to `any other matters' and
these `any other matters' if they are "connected" with or
arise out of or are in relation to the subject matter of the
main agreement, the disputes and differences concerning
those `other matters' can also be referred to arbitration
under clause 39 of the main agreement. In other words,
parties intended arbitration in respect of the main disputes
and connected disputes before one arbitral tribunal.
... .. ... .. .
27. Question is whether the disputes and differences
arising under the Interior Design Agreement are integrally
pvr 58 carap131-22 (edits 1).odt
"connected with" the disputes and differences arising from
the main contract? In our view, they are. The main
agreement refers to the payment of the last installment of
Rs.17 lakhs against `taking of possession' of the flats.
Therefore the main agreements extended upto the time of
taking of possession by the purchasers. Para 8 of the main
agreement states that the fixtures, fittings and amenities to
be provided by the Developers in the said building and the
flat/unit are those that are set out in Annexure E annexed
to the main agreement. Now annexure E refers not only to
the building but to the type of doors, corridors, fixtures,
the nature of the flooring, the bathroom tiles and fittings,
the Kitchen, the W.C. and the nature of the Electric Wiring.
When we come to the Interior Design Agreement,
Annexure A itself refers to the element of designs, Interior
finishes/fittings/services and deals with the Walls, Balcony,
type of Main Door and Internal Doors, External Doors. It
also deals with the type of staircase, the flooring (Italian
marbles for Hall room, Bed rooms and passages), Toilet
(Italian Marbles, Designed Basin Ceiling Valve plastering,
bathtub/Jacuzzi, all hardware fitting inclusively Germany
range), marble skirting, Lobby & entrance (Italian Marble
Flooring), plumbring, Gas system, Electrical (heavy duty
ISI quality concealed copper wiring) etc.
28. Thus it will be noticed that there are several items in
Schedule E of the main agreement which overlap the items
in Schedule A of the Interior Design Agreement. In view of
the overlapping, in our opinion it has to be said that several
items in the Schedule A of the Interior Design Agreement
are in modification/substitution of the items in the Main
Agreement. Therefore the coverage of the two agreements
makes it clear that the execution of the Interior Design
Agreement is `connected with' the execution of the main
Agreement. It may also be noted that the date of the main
agreement and the Interior Design Agreement is the same
in each of the three cases and clause 3 of the Interior
Design Agreement states specifically that `the work of the
said renovation, designing and installation shall commence
from the execution thereof' which means that the execution
of the Interior Design agreement and the main agreement is
to be simultaneous.
... ... ... ... ...
30. If there is a situation where there are disputes and
differences in connection with the main agreement, and
also disputes in regard to "other matters" "connected" with
pvr 59 carap131-22 (edits 1).odt
subject matter of the main agreement then in such a
situation, in our view, we are governed by the general
arbitration clause 39 of the main agreement under which
disputes under the main agreement and disputes connected
therewith can be referred to the same arbitral tribunal. This
clause 39 no doubt does not refer to any named arbitrators.
So far as Clause 5 of the Interior Decorator Agreement is
concerned, it refers to disputes and differences arising from
that agreement which can be referred to named arbitrators
and said clause 5, in our opinion, comes into play only in a
situation where there are no disputes and differences in
relation to the main agreement and the disputes and
differences are solely confined to the Interior Design
Agreement. That, in our view, is the true intention of parties
and that is the only way by which the general arbitration
provision in clause 39 of the main agreement and the
arbitration provision for named arbitrator contained in
clause 5 of the Interior Design Agreement can be
harmonised or reconciled. Therefore, in a case like the
present where the disputes and differences cover the main
agreement as well as the Interior Design Agreement, - (that
there are disputes arising under the main agreement and the
Interior Design Agreement is not in dispute) - it is the
general arbitration clause 39 in the main agreement that
governs because the questions arise also in regard to
disputes relating to the overlapping items in the Schedule to
the main agreement and the Interior Design Agreement, as
detailed earlier. There cannot be conflicting awards in
regard to items which, overlap in the two agreements. Such
a situation was never contemplated by the parties. The
intention of the parties when they incorporated clause 39 in
the main agreement and clause 5 in the Interior Design
agreement was that the former clause was to apply to
situations when there were disputes arising under both
agreements and the latter was to apply to a situation where
there were no disputes or differences arising under the main
contract but the disputes and differences were confined
only to the Interior Design Agreement. A case containing
two agreements with arbitration clauses arose before this
Court in Aggarwal Engineering Co. vs. T.H. Machine
Industries [AIR 1977 S.C. 2122]. There were arbitration
clauses in two contracts one for sale of two machines to the
appellant and the other appointing the appellant as sales-
representative. On the facts of the case, it was held that
both the clauses operated separately and this conclusion
was based on the specific clause in the sale contract that it
was the "sole repository" of the sale transaction of the two
pvr 60 carap131-22 (edits 1).odt
machines. Krishna Iyer,J. held that if that were so, then
there was no jurisdiction for travelling beyond the sale
contract. The language of the other agreement appointing
the appellant as sales representative was prospective and
related to a sales agency and `later purchases', other than
the purchases of these two machines. There was therefore
no overlapping. The case before us and the above case
exemplify contrary situations. In one case the disputes are
connected and in the other they are distinct and not
connected. Thus, in the present case, clause 39 of the main
agreement applies. Points 1 and 2 are decided accordingly
in favour of the respondents."
59. It is thus seen that the decision in Olympus Superstructures Pvt.
Ltd. (supra) was completely in a different context and in variance with the
issue in hand. In all the agreements, there were arbitration agreements
between the parties and on construing of the arbitration clause, the
Supreme Court held that the arbitration clause was couched in such a
language that the disputes and differences arising under the Interior
Design Agreements were integrally connected with the disputes and
differences arising from the main contract, as they related to the same
subject matter, namely that of the sale of flats in question, being the
subject matter of the main agreements. Such is not the reading of the
arbitration agreement in the present case [Clause (6) of the Shareholders
Agreement] and in fact the parties have consciously avoided to have any
arbitration clause / arbitration agreement in the Second Agreement.
60. In so far as the case of the applicant based on sub-section (5) of
Section 7 of the ACA is concerned, at the outset, it would be appropriate
pvr 61 carap131-22 (edits 1).odt
to note Section 7, which reads thus :
Section 7. Arbitration agreement :
(1) In this Part, "arbitration agreement" means an
agreement by the parties to submit to arbitration all or
certain disputes which have arisen or which may arise
between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form
of an arbitration clause in a contract or in the form of
a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in-- (a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other
means of telecommunication [including
communication through electronic means] which
provide a record of the agreement; or (c) an
exchange of statements of claim and defence in
which the existence of the agreement is alleged by
one party and not denied by the other.
(5) The reference in a contract to a document
containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing
and the reference is such as to make that
arbitration clause part of the contract."
(Emphasis supplied)
61. The applicant's contention based on sub-section (5) of Section 7,
cannot be accepted, inasmuch as sub-section (5) of Section 7 clearly
provides that a reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement, if the contract is in
writing and the reference is such, so as to make, the arbitration clause part
of the contract. Plainly applying the said provision in the present context,
pvr 62 carap131-22 (edits 1).odt
in my opinion, firstly, mere reference to the Shareholders Agreement in
Clause (4) of the Second Agreement cannot be construed to be of a nature
and effect as to what sub-section (5) of Section 7 would envisage, so as to
bring about a consequence that the arbitration agreement in the
Shareholders Agreement is incorporated into the Second Agreement. A
mere reference of the Shareholders Agreement in Clause (4) is of no
consequence when the same is tested on the touchstone of requirement of
sub-section (5) of Section 7 of the ACA, which ordains that the reference
should be such so as to make that arbitration clause part of the contract.
62. In this context Mr.Jagtiani has rightly placed reliance on the
decision of the Supreme Court in Duro Felguera S.A. (supra) wherein in
the context of Section 7(5) the Supreme Court has clearly observed that
Section 7(5) requires conscious acceptance of the arbitration clause from
the other document, as a part of the contract, before such arbitration clause
is read as a part of the contract between the parties. In this decision, the
Supreme Court referring to its decision in M. R. Engineers and
Contractors Pvt. Ltd. (supra) did not accept the contention as urged on
behalf the respondent therein that various agreements constitute a
composite transaction. It was held that the Court can refer disputes to
arbitration if all ancillary agreements are relatable to the principal
agreement and performance of one agreement is so intrinsically
pvr 63 carap131-22 (edits 1).odt
interlinked with other agreements. Referring to the decision in "Chloro
Controls India Private Ltd. v. Severn Trent Water Purification Inc.
and Others (2013) 1 SCC 641", the Supreme Court considered the
doctrine of "composite reference", "composite performance" and held that
the ratio in Chloro Controls (supra), would not be applicable in the facts
at hand, as in Chloro Controls (supra), the arbitration clause in the
principal agreement required that any dispute or difference arising under
or in connection with the principal (mother) agreement, which could not
be settled by friendly negotiation and agreement between the parties,
would be finally settled by arbitration conducted in accordance with Rules
of ICC. It was observed that the words "under and in connection with" in
the principal agreement were very wide to make it more comprehensive.
In the present case such wide connotation itself is lacking, as the parties
have clearly confined the applicability of the arbitration agreement only to
the Shareholders' agreement, when the arbitration clause categorically
uses the words "in connection with this agreement". Hence the analogy
as in Olympus Superstructures Pvt. Ltd. (supra) or in Chloro Controls
India Pvt.Ltd. (supra), would not be applicable in the facts of the present
case.
63. The Supreme Court in M. R. Engineers and Contractors Pvt. Ltd.
(supra) has clearly held that a general reference to another contract will
not be sufficient to incorporate the arbitration clause from the referred
pvr 64 carap131-22 (edits 1).odt
contract into the contract under consideration. It was observed that there
should be a special reference indicating a mutual intention to incorporate
the arbitration clause from an other document into the contract. The
Supreme Court in paragraph 24 of M. R. Engineers and Contractors
Pvt. Ltd. (supra) has summarized the intention of Section 7(5) as under:-
"24. The scope and intent of Section 7(5) of the Act may
therefore be summarized thus:
(i) An arbitration clause in another document, would get
incorporated into a contract by reference, if the following
conditions are fulfilled :
(1) the contract should contain a clear reference to
the documents containing arbitration clause,
(2) the reference to the other document should
clearly indicate an intention to incorporate the
arbitration clause into the contract,
(3) The arbitration clause should be appropriate, that is
capable of application in respect of disputes under the
contract and should not be repugnant to any term of the
contract.
(ii) When the parties enter into a contract, making a general
reference to another contract, such general reference would not
have the effect of incorporating the arbitration clause from the
referred document into the contract between the parties. The
arbitration clause from another contract can be incorporated
into the contract (where such reference is made), only by a
specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the
execution or performance of that contract shall be in terms of
another contract (which contains the terms and conditions
relating to performance and a provision for settlement of
disputes by arbitration), then, the terms of the referred contract
in regard to execution/performance alone will apply, and not
the arbitration agreement in the referred contract, unless there
is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of
terms and conditions of an independent Trade or Professional
Institution (as for example the Standard Terms & Conditions
of a Trade Association or Architects Association) will bind
them or apply to the contract, such standard form of terms and
pvr 65 carap131-22 (edits 1).odt
conditions including any provision for arbitration in such
standard terms and conditions, shall be deemed to be
incorporated by reference. Sometimes the contract may also
say that the parties are familiar with those terms and
conditions or that the parties have read and understood the said
terms and conditions.
(v) Where the contract between the parties stipulates that the
Conditions of Contract of one of the parties to the contract
shall form a part of their contract (as for example the General
Conditions of Contract of the Government where Government
is a party), the arbitration clause forming part of such General
Conditions of contract will apply to the contract between the
parties."
64. As to whether the decision of the Supreme Court in Ameet
Lalchand Shah (supra), would assist the applicant, can now be examined:
Although the applicant's reliance on such decision at the first blush
seemed attractive, however a deeper scrutiny of the facts of the said case
under which such decision was rendered, would clearly show that this
decision is not applicable to the facts in hand. In Ameet Lalchand Shah
(supra), the respondents therein, namely, Rishabh Enterprises had entered
into a total of four agreements with three different parties. The first two
agreements were entered on 1 February 2012 with Juwi Renewable
Energy Pvt Ltd and were termed as the "Equipment and Material Supply
Contract" which was for the purchase of equipments in respect of a solar
power plant at Jhansi and the second contract was the "Engineering,
Installation and Commissioning Contract" for installation and
commissioning of the same solar power plant. Subsequently, Rishabh
Enterprises then entered into a third agreement dated 5 March 2012
pvr 66 carap131-22 (edits 1).odt
termed as the "Sale and Purchase Agreement" with one Astonfield
Renewables Pvt Ltd. for purchase of photovoltaic products to be leased to
Dante Energy for the solar power plant. Lastly, Rishabh Enterprises
entered into the fourth agreement on 14 March 2012 with Dante Energy
called the "Equipment Lease Agreement" in respect of the lease money
that was payable by Dante Energy to Rishabh Enterprises for the
equipments purchased by Rishabh Enterprises under the third agreement.
It needs to be noted that out of the four agreements, only the "Equipment
and Material Supply Contract with Astonfield Renewables did not have an
arbitration agreement and all the other agreements had an arbitration
agreement with the seat of arbitration at Bombay. On such conspectus, the
Supreme Court considered as to whether there was a composite agreement
between the parties to refer a non-signatory like Astonfield Renewables to
arbitration under Section 8 of the ACA. In the facts of the case, the
Supreme Court held that all four agreements entered by Rishabh
Enterprises were in respect of "a single commercial project", namely, the
setting up of the solar power plant at Jhansi. In the facts of the case, it was
held that the Equipment Lease Agreement was the principal agreement,
and that the other agreements were inter-connected and integrally
connected for the commissioning of the said solar power plant, hence any
disputes between the parties under such agreements could be resolved
only by referring all four agreements to arbitration. The relevant
pvr 67 carap131-22 (edits 1).odt
observations of the Supreme Court in this regard are as under:
24. In a case like the present one, though there are
different agreements involving several parties, as discussed
above, it is a single commercial project namely operating a
2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District
Jhansi, Uttar Pradesh. Commissioning of the Solar Plant,
which is the commercial understanding between the parties
and it has been effected through several agreements. The
agreement - Equipment Lease Agreement (14.03.2012) for
commissioning of the Solar Plant is the principal/main
agreement. The two agreements of Rishabh with Juwi
India:- (i) Equipment and Material Supply Contract
(01.02.2012); and (ii) Engineering, Installation and
Commissioning Contract (01.02.2012) and the Rishabh's
Sale and Purchase Agreement with Astonfield (05.03.2012)
are ancillary agreements which led to the main purpose of
commissioning the Photovoltaic Solar Plant at Dongri,
Raksa, District Jhansi, Uttar Pradesh by Dante Energy
(Lessee). Even though, the Sale and Purchase Agreement
(05.03.2012) between Rishabh and Astonfield does not
contain arbitration clause, it is integrally connected with
the commissioning of the Solar Plant at Dongri, Raksa,
District Jhansi, U.P. by Dante Energy. Juwi India, even
though, not a party to the suit and even though, Astonfield
and appellant No.1 - Ameet Lalchand Shah are not
signatories to the main agreement viz. Equipment Lease
Agreement (14.03.2012), it is a commercial transaction
integrally connected with commissioning of Photovoltaic
Solar Plant at Dongri, Raksa, District Jhansi, U.P. Be it
noted, as per clause(v) of Article 4, parties have agreed that
the entire risk, cost of the delivery and installation shall be
at the cost of the Rishabh (Lessor). Here again, we may
recapitulate that engineering and installation is to be done
by Juwi India. What is evident from the facts and intention
of the parties is to facilitate procurement of equipments,
sale and purchase of equipments, installation and leasing
out the equipments to Dante Energy. The dispute between
the parties to various agreements could be resolved only by
referring all the four agreements and the parties thereon to
arbitration.
25. Parties to the agreements namely Rishabh and Juwi
India:- (i) Equipment and Material Supply Agreement; and
(ii) Engineering, Installation and Commissioning Contract
pvr 68 carap131-22 (edits 1).odt
and the parties to Sale and Purchase Agreement between
Rishabh and Astonfield are one and the same as that of the
parties in the main agreement namely Equipment Lease
Agreement (14.03.2012). All the four agreements are inter-
connected. This is a case where several parties are involved
in a single commercial project (Solar Plant at Dongri)
executed through several agreements/contracts. In such a
case, all the parties can be covered by the arbitration clause
in the main agreement i.e. Equipment Lease Agreement
(14.03.2012).
26. Since all the three agreements of Rishabh with
Juwi India and Astonfield had the purpose of
commissioning the Photovoltaic Solar Plant project at
Dongri, Raksa, District Jhansi, Uttar Pradesh, the High
Court was not right in saying that the Sale and Purchase
Agreement (05.03.2012) is the main agreement. The High
Court, in our view, erred in not keeping in view the various
clauses in all the three agreements which make them as an
integral part of the principal agreement namely Equipment
Lease Agreement (14.03.2012) and the impugned order of
the High Court cannot be sustained.
(emphasis supplied)
65. The decision in Ameet Lalchand Shah (supra), in my opinion,
would not assist the applicants for more than one reason. It is difficult to
accept an analogy relatable to "Equipment and Material Supply
Agreement", "Engineering, Installation and Commissioning Contract",
"Sale and Purchase Agreement" with third party Astonfield and
"Equipment Lease Agreement" with Dante Energy to be compared with a
Shareholders' Agreement, the purpose of which was to enable the
applicant to subscribe to the shares of JPL so as to avail of power supply
of 20 MW. The situation in Ameet Lalchand Shah (supra) cannot even
remotely be comparable as to what has been agreed between the parties in
pvr 69 carap131-22 (edits 1).odt
the Shareholders' Agreement and the Second Agreement. A contract for
works, supply and/or procurement in law has a different connotation from
what the parties may agree under a Shareholders Agreement. It would be
an incongruity and a mismatch to hold that the analogy of such
agreements which fell for consideration in Ameet Lalchand Shah(supra),
could be comparable with the Shareholders Agreement. Similar was the
situation as discussed above in Olympus Superstructures Pvt. Ltd.
(supra). Thus, in my opinion, the reliance of the applicant on the decision
in Ameet Lalchand Shah (supra), is not well founded not only on this
count but looked at from any angle.
66. In any event, as discussed above, on a perusal of both the
agreements in question, namely the Shareholders' Agreement and the
Second Agreement, it is not possible to come to a conclusion that a
composite transaction or single transaction exists between the parties. The
Shareholders' Agreement cannot be called as the principal agreement
between the parties, as both the agreements operate independently and
cannot be considered and termed to be interconnected, so that arbitration
of disputes under the Second Agreement could get facilitated by taking
recourse to the arbitration clause in the Shareholders' Agreement.
67. As a result of the above discussion, in my opinion, no case is made
out by the applicant for appointment of an arbitral tribunal, as there exists
pvr 70 carap131-22 (edits 1).odt
no arbitration agreement between the parties. The Section 11 application
accordingly stands dismissed. No costs.
Commercial Arbitration Petition no. 131 of 2022
In view of the orders passed on the Section 11 proceedings, this
petition under Section 9 of the Arbitration and Conciliation Act, 1996
would not be maintainable, as there is no arbitration agreement between
the parties. The petition is accordingly dismissed, leaving the petitioner to
take recourse to appropriate remedy as available in law. All contentions of
the parties are expressly kept open. No costs.
[G.S. KULKARNI, J.]
Digitally signed by ANDREZA
ANDREZA PEREIRA PEREIRA
Date: 2022.11.18 19:31:39 +05'30'
