Lt. Col. Ratan Singh Gaba & Anr. vs S.N.Mishra & Ors.
2009 Latest Caselaw 2627 Del

           * IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                    Date of Reserve: 14.7.2009
                                                   Date of Order: 15th July, 2009

OMP No. 371/2009
%                                                                  15.7.2009

       Lt. Col. Ratan Singh Gaba & Anr.       ... Petitioners
                        Through: Mr. Sanjeev Anand, Advocate

              Versus


       S.N.Mishra & Ors.                      ... Respondents
                      Through: Ms. Kriti, Advocate for R-1 & R-2
                      Mr. Sunil Bainsla, Advocate for R-3
                      Mr. S.Chandra Sr. Advocate for R-5


JUSTICE SHIV NARAYAN DHINGRA

1. Whether reporters of local papers may be allowed to see the
judgment?

2. To be referred to the reporter or not?

3. Whether judgment should be reported in Digest?

ORDER

Notice of the petition was served upon the respondents.

Respondents' Counsel appeared and with consent of parties the arguments on

the petition have been heard finally.

2. This application under Section 9 of the Arbitration & Conciliation

Act, 1996 has been made by the petitioners with a prayer that the Court should

stay the decision dated 16th June 2009 of Board of Directors of respondent no.5

company relating to rights issue and also should stay the operation of letter dated

20th June 2009 issued by respondent no.5 company to shareholders with respect

to rights issue.

3. Brief facts relevant for the purpose of deciding this petition are that

the petitioners' Group was holding 59% shares in respondent no.5 company.

The petitioner no.1 (for self and as power of attorney holder of his family

members) entered into a Memorandum of Understanding (MoU) dated 5.7.2008

with Mr. Arun Bhan, respondent no.3. Under this MoU it was agreed that 59%

shareholding of the petitioners shall be purchased by respondent no.3 for a total

consideration of Rs.3,02,66,073/- The price was net on spot delivery basis. It

was also agreed that respondent no. 3 Mr. Arun Bhan may purchase the shares

himself or any of his representative may purchase the shares. It was further

agreed that in the event of respondent no.3, Mr. Arun Bhan, failing to make the

payment against purchasing of these shares on or before 31st December, 2008

as mentioned in the agreement, the petitioner would be free to sell these shares

to anyone, in any manner deemed fit by the petitioner, either in the market or by

private sale. During currency of this MoU out of 59% shares of the petitioner,

25% of shares of respondent no.5 company were purchased by nominee of Mr.

Arun Bhan viz. M/s Jyoti Infrastructure Private Limited (respondent no.4) and the

petitioner was left with 34% shareholding in respondent no.5. Another

agreement was entered into between the parties on 31st January, 2009 called as

Credit Facility Restructuring-cum-Shareholder Agreement (hereinafter referred to

as Shareholders Agreement) in which all shareholders of the company and the

company itself were made as a party and it was agreed under this agreement

that the remaining 34% shares of the petitioner shall be bought on or before 30th

April, 2009 and in the event the sale purchase was not concluded by 30 th April,

2009, the earlier MoU and the Shareholders' Agreement shall come to an end

and petitioner would be at liberty to dispose of and sell these shares in the

market or to any private party at the price to be decided by him. Under the

Shareholders' Agreement, the price mutually fixed between the parties was

Rs.22.50 per share.

4. It is contended by the petitioner that the Board of Directors of the

Company had decided to issue rights shares to the shareholder and a letter has

also been received by the petitioner to subscribe to the rights issue by 15th July

2009 failing which shares would be offered to others. It is submitted that under

the MoU and under the Shareholders' Agreement, the petitioner was to exit from

the company and for that reason only it was agreed between the parties that the

entire shareholding of the petitioner would be purchased initially by Mr. Arun

Bhan respondent no.3 and later on this agreement was entered into with all the

shareholders of the company. It is submitted that in case rights issue is brought

out by the company, the petitioner would be compelled to shed more money or

the petitioners' holding in the company would reduce from 34% to a lower level

and petitioner's 'say' in the company would accordingly reduce. It is therefore

contended that the Board of Directors of respondent no.5 company should be

restrained from bringing out rights issue.

5. A perusal of the Shareholders' Agreement relied upon by the

petitioner would show that after 30th April, 2009 the petitioner was given liberty to

dispose of and sell his shares to anyone. The petitioner cannot say that despite

having this liberty of selling the shares to anyone at the price of his choice, the

petitioner can still bind the respondents from either purchasing 34% shares or

from not conducting the business of the company in normal course. If the

company/respondent no.5 considered that it should increase its equity by

bringing out rights issue, the Restructuring Agreement/Shareholders' Agreement

puts no restrictions on the company on such a move. No dispute can be raised

by the petitioner under Shareholders' Agreement in respect of rights issue as

neither the rights issue nor the restrictions on the conduct of business by the

Board of Directors figure in the Shareholders' Agreement. I, therefore, consider

that the application under Section 9 of the Arbitration & Conciliation Act, 1996

made by the petitioner is misconceived. An application under Section 9 can be

made only for the purpose of keeping the subject matter of dispute intact. In this

case, it is not stated by the petitioner as to what is the dispute sought to be

raised by him and how bringing out of right issue by the Board of

Directors/Management of respondent no.5 company was contrary to the

agreement even after 30th April, 2009, when the petitioner was at liberty to

dispose of his shares as per his own choice. Moreover, the petitioners are

shareholders and have Directors on Board of respondent no.5. He can oppose

the decision of right issue only in the Board meeting. In absence of any clause in

the Shareholders' Agreement regarding conduct of the business of the company,

he cannot rack up this dispute of rights issue before the Arbitrator.

I find no force in the application. The application is hereby

dismissed.

July 15, 2009                                    SHIV NARAYAN DHINGRA, J.
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