Ite India Private Ltd. vs Shri Mukesh Sharma And Ors.
2005 Latest Caselaw 1771 Del

JUDGMENT

Sanjay Kishan Kaul, J.

Page 152

1. The plaintiff has filed the suit for declaration whereby a decree of declaration is sought to the effect that there exists no valid arbitration agreement between the parties and the letter issued by defendant No. 6, International Chambers of Commerce, at the request of defendants No. 3-5 is null and void whereby arbitration proceedings are sought to commence. A similar declaration is sought in respect of the letter dated 29.6.2005 issued by defendant No. 6 to the plaintiff directing the plaintiff to jointly nominate the arbitrator along with defendants No. 1-2.

2. The plaintiff is a company incorporated and registered under the Companies Act, 1956 having its registered office at I-83, Lajpat Nagar-II, New Delhi. Defendant No. 2 company also has the registered address at the same place.

3. Defendant No. 1 Shri Mukesh Sharma is a citizen of India and had entered into a shareholders agreement with defendant No. 3 containing an arbitration clause. The shareholders agreement is dated 1.7.1998.

4. Defendant No. 2 company was incorporated in the year 1997 and initially the complete shareholding was held by defendant No. 1 or his other family members. Defendant No. 3 purchased shares in defendant No. 2 company in the year 1998 and a shareholders agreement dated 1.7.1998 was arrived at between defendant No. 1 and defendant No. 3. Defendant No. 2 company is also a party to the said agreement which admittedly contains the arbitration clause 14 but, it is alleged that no such arbitration clause was incorporated in the Articles of Association of defendant No. 2 company.

5. The plaintiff and defendant No. 1 to 6 are shareholders of the company in view of the shares allotted from time to time and since disputes arose, the arbitration was invoked by the contesting defendants No. 3 to 5. It is thereafter that the suit for declaration has been filed.

6. The plaintiff along with the suit filed an application for interim relief being IA 5069/2005 under Order 39 Rules 1 and 2 of the CPC and in terms of ex parte orders dated 12.7.2005 it was directed that the respondents shall not commence any arbitration proceedings nor pass any award against the plaintiff. It was clarified on 5.10.2005 that the order dated 12.7.2005 was naturally directed only in favor of the plaintiff and no other party since the claim of the plaintiff was that the plaintiff was not party to the arbitration clause.

7. Defendant No. 3 to 5 have filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act') being IA No. 6527/2005 praying that the plaintiff should be referred to arbitration, the suit should be dismissed and the interim orders vacated.

8. In so far as the shareholders agreement dated 1.7.1990 is concerned, there is no dispute that the same contains an arbitration clause as under:

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14. ARBITRATION

14.1 In the event a dispute arises in connection with the validity, interpretation, implementation or breach of any provision of this Agreement, the Parties shall attempt, in the first instance, to resolve such dispute through negotiations within thirty (30) days from a Party making a written request therefore. In the event that the dispute is not resolved through negotiations, or such negotiations do not commence within thirty (30) days of a written request in this behalf, either Party may refer the dispute to arbitration. Each Party shall nominate one arbitrator and in the event of any difference between the two arbitrators, a third arbitrator/umpire shall be appointed. The arbitration proceedings shall be in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris.

9. In order to appreciate the contours of the controversy, it is necessary to reproduce some of the other recitals of the said agreement. These are as under:

SHAREHOLDERS AGREEMENT

THIS SHAREHOLDERS AGREEMENT ('Agreement') is made on this 1 day of July, 1998.

BY AND BETWEEN

Mr Roger S Shashoua, son of Mr. Samuel Shashoua and residing at Byron House, 112A, Shirland Road, London, W9 2EQ, United Kingdom (hereinafter referred to as 'Roger Shashoua'), which expression shall, unless it be repugnant to the meaning or context thereof, be deemed to mean and include his successors and permitted assigns);

AND

Mr. Mukesh Sharma, son of Mr. Vishwanath and residing at I-83, Lajpat Nagar II, New Delhi-110024 (hereinafter referred to as 'Mukesh Sharma') which expression shall, unless it be repugnant to the meaning or context thereof, be deemed to mean and included his successors and permitted assigns).

AND

International Trade Expo Centre Limited through Mr. Mukesh Sharma its Director and duly authorised representative (hereinafter referred to as 'ICO') which expression shall, unless it be repugnant to the meaning or context thereof, be deemed to mean and included his successors and permitted assigns).

(Roger Shashoua and Mukesh Sharma are hereinafter referred to as such, collectively as the Parties and singularly as the Party, as the case may be).

WHEREAS

A. Roger Shashoua is a French citizen, resident in the United Kingdom and is well versed in organising international trade exhibitions and has expressed a desire to participate as a shareholder in ICO.

B. Mukesh Sharma is an Indian citizen residing at New Delhi, and is engaged, inter alia in the business of organising exhibitions, trade fairs and conferences.

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C. ICO is a public limited company incorporated and existing under the Companies Act, 1956 and has been allotted certain property located at A-11, Sector-62, Noida by way of allotment letter No. NOIDA/DM(I)/47/96/566/97 dated October 20, 1997, and has paid a sum of Rs. 150,000,00 as allotment money to the New Okhla Industrial Development Authority.

D. The Parties are interested in forming a joint venture in India, which is proposed to be engaged in the Activities. For this purpose, the Parties have agreed to deem ICO to be their joint venture company and ICO by execution hereof agrees to be so constituted as such joint venture company and further agrees to abide and be bound by the terms contained herein.

E. Roger Shashoua and Mukesh Sharma are now desirous of recording, in writing, a binding agreement containing the terms and conditions of their final understanding, in respect of their investment in ICO as also the manner in which they shall act inter se, and the manner in which the affairs of ICO shall be conducted for the purpose mentioned in Recital D hereinabove and hereinafter.

NOW, THEREFORE, THIS AGREEMENT WITNESSETH AND ROGER SHASHOUA, MUKESH SHARMA AND ICO BEING PARTIES HERETO AGREE AS FOLLOWS:

1. DEFINITIONS:

In this Agreement, unless the context otherwise requires, the terms hereinbelow shall have the meaning as set forth against them:

xxx xxx xxx

c. Agreement This Shareholders Agreement dated 1st July 98 entered into between the Parties.

10. Learned counsel for the respondents No. 3 to 5 pointed out that initially both the defendant No. 1 and defendant No. 3 had 50% shareholding each in defendant No. 2 company in terms of the shareholding agreement. Subsequently, additional shares were issued equally between the two groups which can be called the Indian party and the foreign party and 50% of the total additional shares were given to the Indian party consisting of plaintiff and defendant No. 1 while 50% to defendants No. 4 and 5.

11. In view of the disputes which arose between the parties, defendant No. 3 and 4 invoked the arbitration clause before defendant No. 6 and filed the claim on 20.5.2005. It may be noticed that clause 14 of the shareholders agreement provides for the venue of arbitration at London. The claim was forwarded by the ICC to the plaintiff and defendant No. 1 and 2 with a request to nominate an arbitrator within 30 days of the receipt of the letter dated 27.5.2005. A response was received from the plaintiff dated 23.6.2005 denying any arbitration clause capable of enforcement. However, without prejudice to his rights to apply to a court of competent jurisdiction for declaration that there is no binding arbitration agreement between the parties, extension of time was sought to file the reply. This letter was served on the ICC on 27.6.2005 and simultaneously an application filed by the plaintiff for declaration of non-valid arbitration claim under Article 6 of the ICC Rules was also served. The claim was sought to be dismissed with costs to the Page 155 plaintiff together with compound interest on the same with quarterly rests under Section 49 of the English Arbitration Act, 1996. This is so since the English law had to apply to the arbitration proceedings. The plaintiff also appointed its arbitrator in terms of the said application without prejudice to its rights to contend that there was no binding arbitration agreement capable of enforcement against the plaintiff.

12. A preliminary reply to the application was filed by the claimants in the arbitration proceedings and the stand of the said contesting defendants is that the plaintiff is nothing but an alter ego of defendant No. 1.

13. Defendant No. 3-5 have strongly relied upon the letter addressed by defendant No. 1 dated 1.9.2004. This letter is stated to be on behalf of the plaintiff as it bears such description at the right hand corner of the letter. The letter is, however, signed at the end only with the name of Mukesh Sharma written there. It would be useful to reproduce the heading of the said letter, which is as under:

1/9/04 Regd./E mail MUKESH SHARMA ITE India Pvt. Ltd.

I-83, Lajpat Nagar-II New Delhi.

TO

MR. ROGER SHASHOUA Rodemadan Holdings Ltd.

Werney House 1B, Hollywood Road London.

I am constrained to issue this notice to you for Breach of Understanding, Trust and Share Holders agreement reached between us for our Joint Venture Company "International Trade Expocentre Ltd.

14. It is the contention of learned counsel for the respondent 3-5 that defendant No. 1, his wife and sons are the Directors of the plaintiff and all the allotment of the shares to the plaintiff are made as part of allotment to the group of defendant No. 1. In this behalf, the agreement itself has been referred to where while describing the defendant No. 1 and defendant No. 3 it has been clearly mentioned that the same would include "permitted assigns". It is thus the submission of the learned counsel that the plaintiff would fall under the definition of such permitted assigns.

15. Learned counsel has also drawn the attention of this court to para 19 and 21 of the plaint which set out the share capital. The said paragraphs are reproduced hereunder:

19. That the plaintiff on subscribed to a total No. of 25,00,000 (Twenty Five Lacs) fully paid up equity shares of the defendant No. 2 company. That in addition thereto the the defendant No. 1 for valuable consideration transferred 10,00,000 (Ten lacs) fully paid up equity shares to the plaintiff company. That as such the entire shareholding held by the plaintiff company in Page 156 the defendant No. 2 company came to be 35,00,000 (Thirty Five lacs) fully paid up equity shares, representing 44% of the total paid up share capital of the defendant No. 2 company. It is pertinent to point out that the plaintiff accordingly was and is till date the single largest shareholder of the defendant No. 2 company.

21. That after the above said subscription of the shares, the shareholding pattern of the defendant No. 2 company was, as under, till the date of issuance of further shares by the defendant No. 2 company and as per the inspection done by the plaintiff company on 14th June, 2004:

----------------------------------------------------------

S.No.  Name of the shareholder       No. of shares held
                                (face value Rs.10/- each)
----------------------------------------------------------
1.      Sh. Mukesh Sharma               5,00,000
2.      Rodemadan Holdings Ltd.         20,00,000
3.      Stancroft Trust Ltd.            20,00,000
4.      ITE India Pvt. Ltd.             35,00,000
----------------------------------------------------------
   Total                                80,00,000
----------------------------------------------------------

 

16. The attention of this court has also been invited to the fact that the plaint has been signed and filed through Ashish Sharma, son of defendant No. 1. Learned counsel has also drawn the attention of this court to the reply filed by defendant No. 1 in the arbitration proceedings where in reply to para 2.29 and 2.30, it is stated as under:

2.29-2.30 That the contents of paragraphs 2.29 to 2.30 are denied except to the extend anything contained therein specifically admitted by the respondent herein below with regard to the contention that the shares held by Roger Shashoua and Mukesh Sharma were transferred to their nominees, it is stated that the initial transfer of shares was to bodies corporate controlled by the individuals and therefore permissible under law to be transferred without any consideration.

17. It is thus submitted by reference to the reading of the aforesaid that defendant No. 1 admits to having transferred the shares without any consideration and even for that reason it is obvious that the plaintiff is only a front for defendant No. 1 and would certainly fall within the definition of "assign".

18. The submissions of learned counsel for the defendant No. 3-5 are two-fold: first, an assign under the original agreement is envisaged and the plaintiff being an assign is bound by the arbitration agreement contained therein. Thus, no separate agreement with the plaintiff is necessary. Second, prior to the institution of the suit, the plaintiff itself had filed an application under Article 6 of the Rules of ICC calling upon the Tribunal to rule on its jurisdiction in respect of the plea raised by the plaintiff.

The Article 6 of the Rules of Arbitration of the ICC is as under:

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Article 6      Effect of the Arbitration Agreement
--------------------------------------------------
 

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1.             Where the parties have agreed to
      submit to arbitration under the
      Rules, they shall be deemed to
      have submitted ipso facto to the
      Rules in effect on the date of
      commencement of the arbitration
      proceedings, unless they have
      agreed to submit to the Rules in
      effect on the date of their
      arbitration agreement.

2.             If the Respondent does not file an
      Answer, as provided by Article 5,
      or if any party raises one or more
      pleas concerning the existence,
      validity or scope of the
      arbitration agreement, the Court
      may decide, without prejudice to
      the admissibility or merits of the
      plea or pleas, that the
      arbitration shall proceed if it is
      prima facie satisfied that an
      arbitration agreement under the
      Rules may exist.  In such a case,
      any decision as to the
      jurisdiction of the Arbitral
      Tribunal shall be taken by the
      Arbitral Tribunal itself.  If the
      court is not so satisfied, the
      parties shall be notified that the
      arbitration cannot proceed.  In
      such a case, any party retains the
      right to ask any court having
      jurisdiction whether or not there
      is a binding arbitration
      agreement.

3.             If any of the parties refuses or
      fails to take part in the
      arbitration or any stage thereof,
      the arbitration shall proceeding
      notwithstanding such refusal or
      failure.

4.       Unless otherwise agreed, the
      Arbitral Tribunal shall not cease
      to have jurisdiction by reason of
      any claim that the contract is
      null and void or allegation that
      it is non-existent, provided that
      the Arbitral Tribunal upholds the
      validity of the arbitration
      agreement.  The Arbitral Tribunal
      shall continue to have
      jurisdiction to determine the
      respective rights of the parties
      and to adjudicate their claims and
      pleas even though the contract
      itself may be non-existence or
      null and void.

--------------------------------------------------

 

19. Learned counsel for the respondent No. 3-5 thus submits that the Tribunal is fully competent to go into the effect of the arbitration agreement and its validity.
 

20. Learned counsel has relied upon the judgment of the apex court in Shin-etsu Chemical Co. Ltd. v. Aksh Optfibre Ltd. and Anr., (2005) 127 Comp Case 97. Learned counsel has relied upon the observations made in the majority judgment by Justice D.M. Dharmadhikari in para 71 and 72 and by Justice B.N. Srikrishna in para 123 as under:

71. The main issue is regarding the scope of power of any judicial authority including a regular civil court under section 45 of the Act in making or refusing a reference of dispute arising from an international arbitration agreement governed by the provisions contained in Part III Chapter I of the Act of 1996. I respectfully agree with learned Brother Srikrishna J. only to the extent that if on prima facie examination of the documents and material on record, including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the court decides to make a reference, it may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material Page 158 and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is "null and void" or "inoperative" or "incapable of being performed" within the meaning of Section 45 of the act, the judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decide the question like a trial of a preliminary issue on jurisdiction or limitation in a regular civil suit and pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference on the grounds available under section 45 of the Act, it is necessary for the judicial authority or the court which is seized of the matter, to pass a reasoned order as the same is subject to appeal to the appellate court under Section 50(1)(a) of the Act and further appeal to this court under sub-section (2) of the said section.

72. Whether such a decision of the judicial authority or the court of refusal to make a reference on grounds permissible under section 45 of the Act would be subjected to further re-examination before the arbitral tribunal or the court in which eventually the award comes up for enforcement in accordance with section 48(1)(a) of the Act, is a legal question of sufficient complexity and in my considered opinion since that question does not directly arise on the facts of the present case, it should be left open for consideration in an appropriate case where such a question is directly raised and decided by the court.

123. I fully agree with my learned Brother's view that the object of dispute resolution through arbitration, including international commercial arbitration, is expedition and that the object of the Act would be defeated if proceedings remain pending in court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre-reference stage contemplated by section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the arbitral tribunal or before the court at the post-award stage.

21. Learned counsel has in fact submitted that a declaratory suit as filed by the plaintiff was not maintainable in view of the observations of the Supreme Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal and Anr. (2001) 6 Supreme Court 265 where it was observed in para 1 and 2 as under:

1. These special leave applications are directed against an order of a learned Single Judge of Bombay High Court refusing to interfere with an order of the Civil Court vacating an interim order of injunction granted by it earlier. The suit in question had been filed for a declaration that there does not exist any arbitration clause and as such the arbitral proceedings are without jurisdiction. The learned Single Judge of Bombay High Court came to hold that in view of Section 5 of the Arbitration and Conciliation Act, 1996 read with Section 16 thereof since the arbitral Tribunal has the power and jurisdiction to make rule on its own jurisdiction the Civil Court would not pass any injunction against an arbitral proceeding.

2. Mr. Dave, the learned senior counsel appearing for the petitioner contends that the jurisdiction of the Civil Court need not be inferentially Page 159 held to be ousted unless any statute on the face of it excludes the same and judged from that angle when a party assails the existence of an arbitration agreement, which would confer jurisdiction on an arbitral Tribunal, the court committed error in not granting an order of jurisdiction. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitration to an arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and Conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power on the arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with regard to existence or validity of the arbitration agreement is raised and a conjoint reading of sub-sections (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court. The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question and such an objection being raised, the Arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings.

22. Learned counsel submitted that Section 5 of the said Act requires that no judicial authority is to entertain such a suit or petition and the said provision has to be read with Section 9 of the Code of Civil Procedure, 1908 which excludes the jurisdiction of the civil court where it is so specifically provided. In this behalf, Section 16 of the said Act was also referred to, to contend that the matter in issue falls totally within the domain of the proceedings before the arbitrator.

23. Learned counsel referred to the judgment of the apex court in Ram Baran Prasad v. Ram Mohit Hazra and Ors., to contend that an assignee would be covered and bound by the terms of the contract in view of the observations made in para 3 and 4 as under:

(3) On behalf of the appellant learned Counsel put forward the argument that the covenant for pre-emption was merely a persona covenant between the contracting parties and was not binding against successors-in-interest or the assignees of the original parties to the contract. We are unable to accept this submission as correct. It is true that the pre-emption clause does not expressly state that it is binding upon the assignees or successors-in-interest, but, having regard to the context and the circumstances in which the award was made, it is manifest that the pre-emption clause must be construed as binding upon the assignees or successors-in-interest of the original contracting parties.

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(4) Prima facie rights of the parties to a contract are assignable. Section 23(b) of the Specific Relief Act states:

23. Except as otherwise provided by this Chapter, the specific performance of a contract may be obtained by -

(a) ...

(b) the representative in interest, or the principal, of any party thereto; provided that, where the learning, skill, solvency or any personal quality of such party is a material ingredient in the contract, or where the contract provides that his interest or his principal shall not be entitled to specific performance of the contract, unless where his part thereof has already been performed.

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24. Learned counsel for the plaintiff, on the other hand, strenuously sought to contend that the suit for simplicitor declaration filed by the plaintiff was maintainable in view of the provisions of section 45 of the said Act. The scope of judicial scrutiny is stated to be dual: firstly, whether there exists an arbitration agreement; and secondly in case such an arbitration agreement exists whether the same is null and void or is inoperative or incapable of being performed.

25. Learned counsel for the plaintiff sought to contend that there was no agreement between the plaintiff and either of the defendants as the plaintiff was not specifically a party to the shareholders agreement dated 1.7.2005. The extent of the jurisdiction under Section 45 of the Act was submitted to be settled in view of the judgment of the apex court in Shin-etsu Chemical Co. Ltd. case (supra). The issue of assignment by defendant No. 1 in favor of the plaintiff is alleged to be based only on oral submissions without any documents in support thereof as the certificates of shareholding of the plaintiff do not state that the shares are subject to any restriction.

26. The plea of the defendants No. 3 to 5 based on there being 50% shareholding each is sought to be belied by submitting that only the shareholder whose name appears on the register of members is to be considered a valid shareholder and it cannot be said that anyone else is holding on behalf of the said person in view of the provisions of Section 184C of the Companies Act 1956. The reliance placed by defendants No. 3 to 5 on the letter dated 1.9.2004 by defendant No. 1 is stated to be misplaced on the ground that the word used in the letter is "I" and thus could not be on behalf of the company. In any case, it is submitted that the powers of the management of the affairs of the company are vested with the Board of Directors. They alone are empowered to manage the company in view of Section 291 of the Companies Act. The company is a separate juristic entity and thus neither the Director nor the shareholder has the right in the assets of the company. Analogy is sought to be drawn with the situation where the authority of a Director to institute a suit has been judicially held to be valid only if such authority is in pursuance to an appropriate resolution of the Board of Directors. It is not necessary to refer to the judgments referred in this behalf for the reason that there is no dispute about the proposition that a company acts through its Board of Directors.

27. Learned counsel for the plaintiff has also referred to Article 17.6 of the Shareholders Agreement to contend that in view of the clear stipulation, the agreement has to be governed by the laws of India, which reads as under:

17.6 Governing Laws:

This agreement shall be governed by and construed in accordance with the laws of India.

28. It was further submitted that the statement of defendant No. 1 in response to the request of defendant No. 6 was erroneously made to the effect that the shares held by defendant No. 1 in defendant No. 2 company were without consideration. In this behalf, reliance is placed on affidavit dated 24.11.2005 filed during the proceedings in pursuance to the order dated 22.11.2005. The affidavit explains the manner in which the plaintiff paid for these shares totalling 10 lakhs transferred to the plaintiff by defendant No. 1. The balance 25 lakh shares out of the total 35 lakh shares are stated to be allotted to the plaintiff by way of conversion of loan into equity which loan is stated to have been granted by the plaintiff to defendant No. 2 company. Thus, the complete shareholding of the company is stated to have been fully paid up and on the basis of the same, it was contended that the plaintiff cannot be permitted to be defined as an assign of defendant No. 1. Not only that, the Shareholders Agreement between defendant No. 1 and defendant No. 3 is stated to permit the parties to transfer to third parties and thus the transfer would be without the restriction of the shareholders agreement on such parties in view of clause 2.5 and Article 12 of the Agreement which are as under:

2.5 Either Party shall be free to sell, pledge, transfer, or in any manner alienate possession of the shares held by it in ICO, to any third party, subject however to the rights of preemption as set out in Article 12 hereinbelow.

12. TRANSFER OF SHARES

12.1 Roger Shashoua or Mukesh Sharma may, at any time during the term of this Agreement, transfer any or all of its shares to a Third Party with the written consent of the other in the manner contained in this Article.

12.2 In the event, either Roger Shashoua or Mukesh Sharma wish to transfer any or all of their shares in accordance with Article 12.1 above, he ('Selling Shareholder') shall serve a notice containing all terms and conditions of such transfer to a Third Party ('Sale Notice') on the other shareholder ('Non Selling Shareholder'), in writing to that effect.

12.3 Upon service of the Sale Notice, the Non Selling Shareholder shall be entitled to purchase all or a part of the shares offered by the Selling Shareholder to such Third Party, upon the terms and conditions offered by/to such Third Party, within a period of thirty (30) days (provided however that to the extent regulatory approvals are required for such purchase, the time taken for obtaining the same shall be excluded from the computation of this period of 30 days), failing which, the Selling Shareholder shall be free to sell the shares to the Third Party only on terms and conditions specified in the Sale Notice. Provided however that in the event such sale Page 162 is not completed within a period of thirty (30) days from the date of expiry of the above-mentioned period of thirty (30) days then the Selling Shareholder shall be required to comply with the terms of and procedure prescribed in this Article 12.

12.4 The Parties agree that they have not and shall not pledge all or any part of the shares held by them in ICO with any bank or financial institution. Provided however, that if both Parties so agree, a Party may pledge all or a part of the shares held by him in ICO with such bank or financial institution that may have been so agreed to by the Parties.

29. Learned counsel for the plaintiff has relied upon the judgment of the learned Single Judge of this court in Bharti Televentures Ltd. v. DSS Enterprises Private Ltd. and Ors., to advance the proposition that if a party is needlessly and vexatiously subjected to arbitration compelling it to expend avoidable time, effort and expense, the said Act expects the court to look into the matter and obviate futile and facile reference. It was clarified that the non-obstante part of Section 45 expects the court to be satisfied that the agreement has not become null and void, inoperative or incapable of being performed, before the court can accede to request of any person to make any reference.

30. A reference has also been made to the judgment of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. J.H. Pandya and Anr., which has discussed the scope of exercise of jurisdiction under Section 5 and 8 of the said Act which read as under:

Section 5. Extent of judicial intervention.--Notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this Part.

8. Power to refer parties to arbitration where there is an arbitration agreement.-- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

31. The Supreme Court came to the conclusion that it would be difficult to give the interpretation to Section 8 under which bifurcation of the cause of Page 163 action is possible. Thus, if one part of the cause of action can be said to confer jurisdiction of an arbitral tribunal and another on the civil court, any attempt at bifurcation of a suit into two parts would inevitably delay proceedings. It was thus submitted that if a part of the claim is subject to arbitral proceedings, even that cannot be so referred in view of the fact that there is no arbitration agreement with the plaintiff and at least to the extent of the plaintiff's claim, there can be no reference to arbitration.

32. To apply the aforesaid principle, learned counsel for the plaintiff specifically drew attention to the Shareholders Agreement where after defining the parties and before the recital, it has been stated as under:

(Roger Shashoua & Mukesh Sharma are hereinafter referred to as such, collectively as the parties and singularly as the party, as the case may be).

33. It was thus submitted that the reference is only to the two parties and not to the assigns.

34. Learned counsel for the plaintiff has referred to para 2.29 of the claim petition filed by defendants No. 3 to 5 before the ICC to contend that what was stated therein was that in the Board of Directors meeting held on 24.8.1999 there was mutual agreement between Mukesh Sharma and Roger Shashoua that each of them could transfer whole or part of the shares to the nominees or permitted assigns. It was thus submitted that this would imply that prior to that, there was no such intention to transfer or for the phraseology nominee to include such transferees. It may, however, be noted that in response to this paragraph, it has been admitted in the reply that the initial transfer of shares was to bodies corporate controlled by the individual and, therefore, permissible under law to be transferred without any consideration. It is this admission which was sought to be explained away by the affidavit filed subsequently.

35. I have given deep thought to the rival contentions of the parties.

36. In my considered view, an important aspect to be kept in mind in so far as the factual matrix is concerned is the very premise on which the Shareholders Agreement dated 1.7.1998 was arrived at. A bare perusal of the clauses referred to above and the recital shows that the concept was of two groups. Clause 12.3 in fact provided that in case of any one party wanting to exit and transfer the shareholding to the third party, the party wanting to continue would have peremptory rights in respect of the shares. Such shareholding of the two parties may be held in individual names or in name of different companies fully controlled by one group or the other.

37. It is not in dispute that the plaintiff company is really a company of Mukesh Sharma. However, a technical plea is sought to be taken that the company is a separate juristic entity and thus is not bound by the arbitration clause contained in the shareholders agreement. It has already been noticed that there is no dispute about the fact that a company is a separate juristic entity and has to be managed by the Board of Directors. However, if the corporate veil was to be lifted, it would be found that the plaintiff company is nothing else but a part of the group of defendant No. 1. An important aspect is that this was envisaged even at the stage of entering into the Shareholders Page 164 Agreement. Thus, consciously the phraseology "permitted assigns" has been used while defining all the entities which have entered into the agreement. I fail to appreciate as to how a conclusion could be drawn in a different manner by the portion after the initial definition of the parties. No doubt, Roger Shashoua and Mukesh Sharma are referred to as the parties but any assigns of theirs would be included.

38. Learned counsel for the plaintiff had referred to Article 12 of the Agreement dealing with transfer of shares. A reading of the said clause in fact supports the statement of defendants No. 3 to 5 that what is envisaged is really only two groups. This consists of the two persons entering into the agreement and any shares transferred to the nominees and assigns of these two persons. A transfer to a third party is envisaged only in terms of the different sub-paras of clause 12 which gives the peremptory right. The distribution of shareholding shows that it is to the nominees and assigns that the shareholding has been given for the two parties to maintain the 50% each balance. As the shareholding has increased, defendant No. 1 and defendant No. 3 took steps in their commercial wisdom to give shares not in individual names but to different entities which were their permitted assigns. Thus, the reliance placed by defendant No. 3 to 5 on the judgment of the apex court in Ram Baran Prasad case (supra) is apposite to the present case.

39. It is also relevant to note that in pursuance to the notice issued by the ICC, the plaintiff itself has filed an application under Article 6 of the Rules of ICC calling upon the Tribunal to rule on its jurisdiction. It cannot be said that the arbitral tribunal is without competency to rule on its jurisdiction arising from the validity of the arbitration agreement. The observations of the Supreme Court in Kvaerner Cementation India Ltd. case (supra) are important where the apex court has emphasised the important object with which the said Act was enacted and jurisdiction was conferred under Section 16 of the Act on the arbitral tribunal to rule on its own jurisdiction including ruling on any jurisdiction with respect to the existence and the validity of the arbitration agreement. It was held that the civil court would have no jurisdiction to go into the question.

40. The conduct of the parties including the communications exchanged and pleadings filed also substantiates this view. The letter dated 1.9.2004 cannot be explained away by stating that it was written by Mr. Mukesh Kumar in his personal capacity. The reference to the word "I" was only a manner of addressing and the same is apparently on behalf of the plaintiff. The pleadings before the ICC also show that the stand of the plaintiff was that there could be transfer of shares to bodies corporate without any consideration. This was so since the plaintiff itself understood that it was an assign. The subsequent effort to explain the same away by the affidavit dated 24.11.2005 cannot be accepted since the nature of alleged consideration was adjustment of loans and that appears to be a matter of internal financial adjustment of one group inter se the individuals and the companies representing the said group.

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41. In so far as the scope of enquiry under Section 45 of the Act is concerned, the observations in Shin-etsu Chemical Co. Ltd. case (supra) are of great importance. Section 45 of the said Act reads as under:

45. Power of judicial authority to refer parties to arbitration.-- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44 shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

42. The Supreme Court observed that only a prima facie examination has to take place and a summary decision arrived at on the objections raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case a request to refer the matter to arbitration is to be rejected, at that stage, the court would afford full opportunity to the parties to lead evidence. Thus, at a pre-reference stage, it was held that what was contemplated was only a prima facie view for making the reference leaving the parties to full trial either before the arbitral tribunal or before the court at a post-award stage.

43. In view of the aforesaid position, it is not necessary to go into greater detail into the submission of the learned counsel for the defendant No. 3 to 5 that it a mere suit for declaration to the effect that there exists no arbitration agreement is not contemplated under section 45 of the Act and what is contemplated is a suit which is otherwise maintainable in law but the subject matter of suit is such that the same falls within the domain of determination of arbitration agreement falling under Section 44 of the said Act. It may, however, be observed that the Supreme Court in Kvaerner Cementation India Ltd. case (supra)has laid great emphasis on the principle of the arbitral tribunal ruling on its own jurisdiction including the ruling on any objection with respect to the existence or validity of the arbitration agreement for which civil court would have no jurisdiction.

44. If the facts of the present case are considered within the aforesaid parameters, it cannot be said that the plaintiff is totally outside the purview of the arbitration clause. This is on the reading of the shareholders agreement. It is, however, to be kept in mind that the consideration of these aspects arise from the view to be taken both on the Interlocutory Application for stay of the plaintiff and the application filed by defendant No. 3 to 5 under Section 45 of the said Act. The present case is not one where this court can come to the conclusion that the agreement is null and void or inoperative as in Bharti Televentures Ltd. case (supra). There is also thus no question of the bifurcation of any claim which will invite the ratio of Sukanya Holdings Pvt. Ltd. case (supra). Such an eventuality would only arise if it was held that the claim qua the plaintiff was not arbitrable.

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45. I am thus of the considered view that in so far as the interim application for stay is concerned, there is no prima facie case made out. Not only that, the plaintiff himself has moved an appropriate application before the ICC which would consider the validity of the agreement qua the plaintiff.

46. The said application is thus liable to be rejected. Ordered accordingly. Interim orders stand vacated.

47. I am also of the considered view that the application filed by defendant No. 3 to 5 under Section 45 of the Arbitration Act is liable to be allowed and the matter in issue is liable to be considered by the ICC including the application filed by the plaintiff.

48. In view of the aforesaid, the suit also does not survive for considering being merely a suit for declaratory relief and is accordingly disposed of.

49. Defendants No. 3 to 5 shall also be entitled to costs from the plaintiff quantified at Rs. 20,000/-.