Mr. Nilesh Shejwal vs Agrowon Agrotech Industries Private ...
2024 Latest Caselaw 241 Bom

Bombay High Court

Mr. Nilesh Shejwal vs Agrowon Agrotech Industries Private ... on 5 January, 2024

Author: Bharati Dangre

Bench: Bharati Dangre

2024:BHC-AS:1296



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      rajshree


                               IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                             CIVIL APPELLATE JURISDICTION
                            COMMERCIAL ARBITRATION PETITION NO.14 OF 2022


                    Nilesh Shejwal                                ]       ..       Petitioner
                            vs.
                    Agrowon Agrotech Industries Pvt. Ltd.         ]       ..       Respondent

Mr.Shavez Mukri i/b A & G Legal Associates for the Petitioner. Mr.Vishwajit Sawant, Senior Advocate and Prabhakar Jadhav for the Respondent.

CORAM : BHARATI DANGRE, J

DATE : 5th January, 2024.

P.C.

1] The Commercial Arbitration Petition filed by the Petitioner, Chief

Executive Officer and Director of the Respondent-Company, seek

appointment of an Arbitrator to adjudicate the disputes, differences,

claims etc. between the parties, out of the Employment Agreement

dated 23.08.2019.

I have heard Mr. Shavez Mukri for the Petitioner and senior

Advocate Mr. Vishwajit Sawant, for the Respondent.

It is the case of the Petitioner that he alongwith his brother

Naresh Shejwal had formed a company Krushiking Agrotech Industries

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Pvt. Ltd. for providing services in the field of software and software

enabled applications for farmers, villages, media and related activities.

On coming into contact with Mr. Abhijit Pawar, the Managing Director of

Sakal Group, who offered to buy out the company belonging to the

Petitioner, a Share Purchase Agreement was entered on 23.08.2019

and the nomenclature of the company was changed to 'Agrowon

Agrotech Industries Private Limited'. Similarly, the Petitioner also

executed a Deed of Assignment on the same day in favour of

Krushiking Agrotech Industries Pvt. Ltd. thereby assigning all the

ownership rights, trademark, copyrights as well as all other intellectual

property rights.

In the backdrop of the aforesaid arrangement, the Petitioner

came to be appointed as Chief Executive Officer of Krushiking

Agrotech Industries Pvt. Ltd. vide Letter of appointment dated

23.08.2019, setting out the remuneration as well as various terms and

conditions. The Employee Agreement was also executed at Pune on

23.08.2019 with the present Petitioner, pursuant to his appointment as

Chief Executive Officer with effect from 23.08.2019, on separate terms

contained in the Letter of Appointment.

The said Agreement under Clause 19 provide an Agreement for

dispute resolution and the clause reads thus :

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"All disputes, controversies or claims arising out of or in relation to this Agreement or the validity, interpretation, breach or termination thereof, including claims seeking redress or asserting rights under applicable law, shall be subject to the provisions of this clause, be resolved and finally settled by arbitration by a sole arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996.

The arbitration proceedings shall be conducted in English language. The arbitration proceedings shall be conducted at Pune. The arbitrator shall apply this Agreement according to its terms and pass a reasoned award. The Parties agree to be bound by any award or order resulting from any arbitration conducted hereunder. All the disputes for this agreement shall be resolved subject to jurisdiction at Pune Courts."

2] It is the specific case of the Petitioner that the in pursuance to

the aforesaid arrangement between the Parties, the Petitioner was

actively involved with the day to day business of the Company and was

conducting his duties with utmost honesty and integrity. But to his utter

dismay, on 22.10.2021, the Petitioner was restrained and not allowed to

attend the office on the pretext that some irregularities were found in

the functioning of the Company. The Petitioner was also forcibly

deprived of his mobile phone and his Savings Account password was

changed, which constrained him to lodge a complaint before the

concerned authorities. It is his specific case that he was also forced to

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tender his resignation as the Audit was in progress, but as soon as it

was concluded, the Petitioner withdrew his resignation by email dated

15.02.2022 and requested for release of his pending salary and

permission to serve for the remainder term.

3] As a counterblast action, the Respondent issued notice of

termination of contract dated 27.12.2021, by posting it on 16.02.2022,

which attribute that on receipt of audit report, the Petitioner is found

guilty of misappropriation of funds, wrongful use of company brand and

breach of trust/contract and, therefore, it was decided to discontinue his

employment forthwith. It is also stipulated that he shall be relieved

from the employment with effect from 27.12.2021, on the ground of loss

of confidence and faith.

Not only this, a complaint was also lodged against the Petitioner

at Chatushrangi Police Station, which resulted into registration of CR

No.95/2022 dated 19.03.2022, invoking offence punishable under

Section 409, 420, 477A of the Indian Penal Code.

The Petitioner has sought protection from arrest from the

Sessions Court at Pune.

4] Pursuant to the termination, a grievance was raised by the

Petitioner for illegally terminating his services and the Petitioner

addressed a notice to the Respondent on 06.04.2022 alleging that

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termination was in violation of the principle of natural justice and in fact

is received by him 20.02.2022, though his termination is contemplated

since 27.12.2021. Apart from this, the termination was clamped as

vague, without furnishing any details and it was contested on the

ground that the allegations levelled were false, frivolous and

concocted and since the termination was illegal and in breach of the

terms of the Employment Agreement, he was entitled to complete his

terms of employment of 5 years as per the contract or otherwise he is

entitled to a remuneration as agreed for the said terms of 5 years. The

notice set out that as on date of issuance of notice, he was entitled for

an amount of Rs.1,08,00,000/- towards his salary and variables as per

the terms of Employment Agreement.

The notice, therefore, sought revocation of the termination letter

and for payment of remuneration for his entire tenure as per the

Contract of employment alongwith the arrears.

5] The notice was replied on 04.05.2022 denying the allegation that

the termination was illegal and the claim towards salary and variables

was specifically denied. On the other hand, the Respondent also

staked the claim of damages and reserve its rights to claim the same

once the damages are assessed and to initiate further appropriate

action.

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6] By notice dated 10.05.2022, the Petitioner invoked arbitration , in

the wake of Clause 19 of the Agreement since the dispute had arisen

between the parties, in the wake of termination notice of his services,

which according to him was illegal and in breach of the terms of

Agreement.

The invocation of the arbitration is contested by the Respondent

through its communication dated 20.05.2022, by raising a plea that the

issue involved, is not arbitrable and no assent was accorded for

appointment of an Arbitrator, which has constrained him to approach

this court.

7] Opposing the appointment of the Arbitrator, the learned senior

counsel Mr. Vishwajeet Sawant would submit that the dispute between

the parties is not arbitrable since an offence is registered against the

Petitioner under Section 409, 420 and 477 of IPC as the Petitioner who

was working as CEO of the Respondent in collusion of other

employees of the Respondent, has defrauded it by purchasing

items/materials from various vendors, which were found to be of

substandard quality and purchased at a higher price and thus he has

made unlawful gain for himself from the fraudulent acts.

It is the submission of Mr. Sawant that as the CEO of the

company, the Petitioner ought to have acted in the interest of the

Respondent, but instead in collusion with other companies viz.

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Cornnext Agri Products Pvt. Ltd, M/s. Renisons Infra and Energy Pvt,

Ltd., M/s. PVG Enterprises etc. he had defrauded the Respondent in

in transactions relating to purchase of computer systems, television

sets, agri products, etc. Mr. Sawant would specifically submit that

these entities are not parties to the arbitration Agreement and hence

there cannot be full and complete adjudication of the disputes and the

grievances attempted to be raised by the Petitioner and it is nothing but

an attempt on his part to scuttle a complete enquiry into the facts,

alleged by the Respondent by resorting to the mechanism of arbitration.

Apart from this, the learned counsel would submit that the

Petitioner had voluntarily resigned on 22.10.2021 and his resignation

was accepted and as such the employment Agreement executed on

23.08.2019 has come to an end, hence no Arbitrator can be appointed.

8] The learned counsel has placed reliance upon the decision in the

case of N.N. Global Mercantile Pvt.Ltd. vs. Indo Unique Flame Ltd.

2021 SC OnLine SC 13, and in specific Para 100, to submit that there

exist clear distinction between the cases where there are allegations of

serious fraud and fraud simplicitor and the Court may refuse to make

reference to arbitration in cases where there are serious allegations of

fraud, and when allegations of fraud are so complicated, it becomes

absolutely essential that such complex issues shall be decided only by

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Civil Courts on appreciation of voluminous evidence. According to

him, as per the Apex Court, these shall include those where cases

there are serious allegations of forgery or fabrication of documents.

I am unable to find substance in the arguments of Mr. Sawant.

The issue of arbitrability of fraud has been the focus of various

decision of the Apex Court and it is trite position of law that a reference

to arbitration, in the wake of valid existing arbitration clause is

imperative unless the Arbitration Agreement is found to be invalid. It is

a well recognized principle that certain categories of disputes which

are of public nature are not capable of adjudication and settlement by

arbitration, which is the private forum constituted by consent of parties.

The Apex Court in the case of A. Ayyasamy vs. Paramasivam &

Ors., (2016) 10 SCC 386, laid down a twin test be followed i.e. 1]

Does the plea of fraud permeate the entire contract and above all the

Agreement of Arbitration rendering it void or 2] whether the allegations

of fraud touch upon the internal affairs of the parties interse having no

implication in public domain.

9] Undisputedly, the disputes relating to rights in rem are required

be adjudicated by Courts and/or statutory tribunal as they are the right

exerciable against the world at large and it create a legal status. A

right in rem is not arbitrable by private tribunal constituted by consent of

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parties, whereas the action in personem determine the rights and

interest of the parties, to the subject matter of the disputes which are

arbitrable.

The broad categories of disputes which are considered to be non

arbitrable are specifically highlighted in the decision of the Apex Court

in case of Vidya Drolia vs. Durga Trading Corporation, (2021) 2 SCC 1

and the penal offences which are visited with criminal sanction;

offences pertaining to bribery/corruption; matrimonial disputes relating

to divorce, judicial separation, restitution of conjugal rights, child

custody and guardianship matter, which pertain to the status of the

person; testamentary matters which pertain to disputes relating to

validity of a Will, grant of probate etc. are some instances, which are to

be adjudicated by Civil Courts. Thus disputes of non arbitrability and

arising out of criminal offence, are admittedly, not arbitrable.

Though Mr. Sawant has relied upon the decision in case of NN

Global (Supra) which has carefully outlined the position of law as

regards the allegations of fraud being meted out and whether in such

a scenario, the dispute would be arbitrable, the observations in the

authoritative pronouncement in Para 100 deserve a reproduction ;

"100. The doctrine of separability has been statutorily recognized under the domestic arbitration regime in Singapore through Section 21 of the Singaporean Arbitration Act, 2001. The

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provision is that "an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract." The separability presumption has been further explained by the Singapore High Court in BNA v. BNB. The High Court observed that the "parties intend their arbitration agreement to remain effective if a provision of the substantive contract into which it is integrated could, in certain circumstances of fact or law, operate to render their arbitration agreement invalid. " Thus, the Singapore High Court held that the purpose of the separability presumption is to insulate an arbitration agreement from invalidity that may arise from a challenge to the substantive contract."

The further jurisprudence on the aspect of fraud is succintly

worded as under :

"110. In National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Co., the issue before this Court in an application under Section 11 was whether an arbitration clause comes to an end if the contract containing such clause is repudiated. While answering this in negative, this Court observed that even if the underlying contract comes to an end, the arbitration agreement contained in such contract survives for the purpose of the resolution of disputes between the parties. Similarly, in P Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corp., 114 this Court referred to Buckeye Check Cashing Inc. (supra) to observe that an arbitration agreement contained in an underlying contract is a collateral term which may survive the termination of the contract."

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In para 116 the conclusion derived and recorded is that the

ground on which the fraud was held to be non arbitrable earlier was

that it would entail voluminous and extensive evidence and would be

too complicated to be decided in the arbitration. However, in

contemporary arbitration practice, arbitral tribunals are required to

traverse through volume of material in various kinds of disputes and

therefore the ground of fraud is not arbitrable an archaic view has now

become obsolete and deserve to be discarded. A clear word of caution,

however, expressed is as under,

"However, the criminal aspect of fraud, forgery or fabrication, which would be resulted with penal consequences and criminal sanctions can be adjudicated only by a Court of law, since it may result in conviction, which is in the realm of public law."

10] In the wake of aforesaid position of law, the objection of Mr.

Sawant that the present dispute raised by the Petitioner is non

arbitrable is not a correct reading of the position of law propounded by

the Apex Court on the ground when fraud is involved it becomes non

arbitrable,as per Para 116 of the Judgment relied upon by him.

11] The Petitioner has invoked arbitration, being aggrieved by the

termination of his services by the Respondent on the alleged ground of

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misappropriation of funds, breach of contract/trust and on the contrary,

it is the Petitioner who allege that the termination of contract dated

27.12.2021 is clearly contradictory to the Employment Agreement and it

is in clear violation of the principles of natural justice. According to the

Petitioner, the service contract contemplated termination on occurrence

of the events stipulated therein and upon the "cause being shown",

which is stipulated to be admission of any criminal proceedings in a

Court and not obtaining any interim order or bail within period of 3

months or any conviction for an offence.

The dispute is evident between the parties as it is the case of the

Respondent that the Petitioner has submitted his resignation, but the

claim is contested by alleging that it was a forced termination and in

any case subsequent to that there is termination of contract by the

employer and it is alleged to be in breach of the 'Employment

Agreement'. The claim of the Petitioner is about he being permitted to

serve the remainder of his term, by setting aside the termination as the

Employment Contract contemplated 5 years term, with the clause for

termination to be effected only in the circumstances and the manner

prescribed in the contract.

Whether the Petitioner is entitled for his claim, of being continued

in service or not is ultimately the dispute which arises out of the

Employment Agreement and though Mr. Sawant would vehemently

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submit that the employer has already initiated criminal proceedings

against the Petitioner, I see no difficulty in justifying the termination

before the tribunal, if at all, it is permissible to show a 'cause' but one

thing is evidently clear that the dispute only relate to the contract of

employment and the consequences flowing therefrom.

The Petitioner may face the charge in the criminal prosecution,

and it may also have a repercussion in determining whether the

termination was justified or not but filing of criminal proceedings by

itself will not make the dispute that has arisen between the parties,

which is set out in the notice invoking arbitration, to be a non arbitrable

dispute.

The argument of Mr. Sawant, that in arbitration proceedings, the

Respondent will have to disclose its stand upon the alleged charges

which are levelled in the criminal proceedings, is not a valid and

sufficient ground to decline arbitration, which is limited to employment

agreement and the justiciability of the termination of the Employment

Agreement.

It is informed that the FIR filed is presently under investigation

and no charge sheet is yet filed and it may take its own course.

However, it is not the case of the arbitration agreement itself being

vitiated on account of fraud or an allegation of fraud when the Court

can refuse its reference to an Arbitrator. Nonetheless the criminal

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aspect of fraud, forgery or fabrication may be visited with criminal

consequences, but a claim for salary/remuneration arising out of

Employment Agreement is definitely an arbitrable claim and the

objection raised by Mr.Sawant about the dispute raised by the

Petitioner being non arbitrable.

12] For the reasons recorded above, Advocate Mr.Sarang Aradhye ,

is appointed an an arbitrator, having address at Room No.28,29,

Prospect Chamber Annex, Pitha Street, Fort, Mumbai,Mob-98928

77979,EMAIL ID- [email protected].

The Parties have agreed that the Arbitration shall be conducted

in Pune.

The Arbitrator shall be informed about his appointment by the

Counsel for the Petitioner, and within a period of 15 days before

entering the arbitration reference, he shall forward a statement of

disclosure as per the requirement of Section 11(8) read with Section

12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary

& Senior Master of this Court, to be placed on record of this application,

with a copy to be forwarded to both the parties.

The Arbitrator shall be entitled for the fees as per the Bombay

High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral

costs and fees of the Arbitrator shall be borne by the parties in equal

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portion and shall be subject to the final Award that may be passed by

the Tribunal.

The parties shall appear before the Sole Arbitrator within a period

of two weeks from today and the Arbitrator shall fix up a first date of

hearing in the week commencing from 22.01.2024. The Arbitral Tribunal

shall give all further directions with reference to the arbitration and also

as to how it is to proceed.

All contentions of both sides are left open to be raised by the

respective parties before the Arbitral Tribunal, in accordance with law.

Commercial Arbitration Petition stand disposed off in the aforesaid

terms.

[BHARATI DANGRE, J]