Delhi High Court
Clearwater Capital Partners ... vs Satyajit Singh Majithia And ... on 23 February, 2012
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P. 951/2011 & IA Nos. 1572, 1573/2012
Reserved on: February 16, 2012
Decided on: February 23, 2012
CLEARWATER CAPITAL PARTNERS
(CYPRUS) LIMITED ..... Petitioner
Through: Mr. Rajiv Nayyar and Mr. N.K. Kaul,
Senior Advocates with
Mr. Amit Sethi and Mr. Aman Raj
Gandhi, Advocates.
versus
SATYAJIT SINGH MAJITHIA
AND OTHERS ..... Respondents
Through: Mr. A.S. Chandhiok and Mr. Sandeep
Sethi, Senior Advocates with
Ms. Maneesha Dhir, Mr. Kshitij
Khera and Mr. R.S. Paliwal,
Advocates.
AND
CS (OS) 277/2012 & IA Nos. 2139, 2985/2012
GURMEHER SINGH MAJITHIA & ORS ..... Plaintiffs
Through: Mr. A.S. Chandhiok and Mr. Sandeep
Sethi, Senior Advocates with
Ms. Maneesha Dhir, Mr. Kshitij
Khera and Mr. R.S. Paliwal,
Advocates.
versus
M/S CLEARWATER CAPITAL
PARTNERS(CYPRUS) LIMITED & ANR ..... Defendants
Through: Mr. Rajiv Nayyar and
Mr. N.K. Kaul, Senior Advocates,
OMP No. 951/2011 & CS (OS) 277/2012 Page 1 of 24
With Mr. Amit Sethi and Mr. Aman
Raj Gandhi, Advocates.
CORAM: JUSTICE S.MURALIDHAR
JUDGMENT
23.02.2012
1. OMP No. 951 of 2011 under Section 9 of the Arbitration and Conciliation
Act, 1996 ('Act') and CS (OS) No. 277 of 2012 arise out of the same set of
facts and are being disposed of by this common judgment.
Background facts
2. The Petitioner in OMP No. 951 of 2011, Clearwater Capital Partners
(Cyprus) Limited ('CCPCL'), is a company incorporated in Cyprus. It
entered into a Share Subscription Agreement ('SSA') and a Shareholder's
Agreement ('SHA'), both dated 11th December 2005, with Respondent Nos.
1 to 6, all residents of New Delhi and promoters and shareholders of Saraya
Industries Limited ('SIL'), a company incorporated in India under the
Companies Act, 1956 ('CA'). Respondent Nos. 1 to 6 own 72.5% of total
issued equity share capital of SIL and are in control of its management and
day-to-day affairs. By virtue of the SSA and SHA CCPCL was issued
11,13,800 shares of SIL resulting in the CCPCL holding 26% of the total
issued equity share capital of SIL. However, the management and day-to-
day affairs of SIL continued to be with Respondents 1 to 6.
3. Clause 17.8 of the SHA states that the SHA will be interpreted and
governed in all respects by the laws of India. Under Clause 17.9 the disputes
arising out of the SHA between the parties are to be resolved by arbitration.
Under Clause 17.9.2 the parties are to mutually appoint a sole Arbitrator to
resolve their differences or disputes. The venue of the arbitration
proceedings would be Singapore. Clause 9.6 of the SHA gave CCPCL a Put
Option in terms of which if the initial public offer or the listing of shares of
SIL did not happen by 30th June 2009, CCPCL could require Respondents 1
to 6 to purchase 10% of the shares of SIL held by CCPCL at any time within
a 30 day period commencing 31st December 2009 at a price computed on the
basis of 25% per annum Internal Rate of Return on investment ('IRR').
4. The SHA was amended on 22nd January 2010. Clause 9.6 of the SHA was
replaced by Clause 1 of the amended SHA. SIL and the promoters, i.e.,
Respondent Nos. 1 to 6 granted CCPCL a Put Option in relation to 4,28,384
shares held by CCPCL. CCPCL could exercise the Put Option at any time
within 24 months from 1st January 2010 at once or in multiple tranches.
CCPCL could require Respondent Nos. 1 to 6 or SIL to purchase such shares
at a price equal or the pro rata subscription price paid by CCPCL for a
number of shares in relation to which the Put Option had been exercised,
plus an IRR of 25% calculated from the date of subscription of the shares in
relation to which the Put Option has been exercised. If CCPCL decided to
exercise its rights under Clause 1.1 of the amended SHA, it was to serve
upon Respondent Nos. 1 to 6 or SIL a written notice (Put Notice) requiring
them to purchase the shares in relation to which the Put Option was
exercised. Within a period of 60 days from the date of the Put notice,
Respondent Nos. 1 to 6/SIL was to make payment of the Put Option exercise
price into a bank account of CCPCL specified in the Put Notice. On receipt
of the entire Put Option exercise price, CCPCL was to transfer/return the
relevant shares to Respondent Nos. 1 to 6 or SIL.
5. It is stated by CCPCL that Respondent Nos. 1 to 6 had not provided
CCPCL with an exit in relation to its investment and since the exercise
period specified in the amended SHA was expiring, CCPCL issued a Put
Notice to Respondent Nos. 1 to 6 on 7th December 2011 calling them to
confirm in writing to CCPCL within a period of seven days from the date of
receipt of Put Notice that the Put Option exercise price (as specified in the
amended SHA) would be deposited in a bank account held by CCPCL
within 60 days. The Put Notice further provided that on deposit of the said
amount, CCPCL would deliver 4,28,384 shares held by CCPCL in SIL. It is
stated that the Put Notice was received by Respondent Nos. 1 to 6 on 8th
December 2011 and also through speed post on 9th December 2011.
6. Stating that Respondent Nos. 1 to 6 had failed to respond to the Put
Notice, CCPCL on 19th December 2011 filed the present petition under
Section 9 of the Act seeking the following reliefs:
(a) an injunction to restrain the Respondents 1 to 6 from selling,
transferring, alienating, encumbering, parting with or disposing of
their properties located within India or outside;
(b) an order directing Respondent Nos. 1 to 6 to disclose by way of an
affidavit details of all their immoveable and moveable assets;
(c) an order appointing a private Receiver in respect of the properties
belonging to Respondents 1 to 6;
(d) a mandatory order directing Respondent Nos. 1 to 6 to deposit in
this Court a sum of Rs. 48,57,28,582/- plus additional amounts
calculated @ 25% IRR on the subscription amount of Rs.
13,46,15,388/- starting from 8th December 2011 up to the date of
deposit;
(e) an injunction restraining Respondent Nos. 1 to 6 from selling,
transferring, alienating, encumbering or parting with in any manner or
disposing of their respective share holdings in SIL.
7. The petition was listed in this Court on 22nd December 2011 when the
Respondents appeared on caveat. The Court required CCPCL to satisfy it as
regards the jurisdiction to entertain the present petition. This was because
under the arbitration clause, the venue of arbitration was to be Singapore and
Clause 17.9.1 stated that the Rules of the Singapore International Arbitration
Council ('SIAC') would govern the arbitration. It was stated by Mr. Rajiv
Nayyar, learned Senior counsel for the Petitioner that in terms of Clause
17.10 of the SHA, the parties had agreed to the 'exclusive jurisdiction of the
courts of Delhi, India'. He pointed out that the decision of the Supreme
Court in Yograj Infrastructure Limited v. Ssang Yong Engineering and
Construction Company Limited (2011) 9 SCC 735 as further explained in
Yograj Infrastructure Limited v. Ssang Yong Engineering & Construction
Company Limited 2011 (13) SCALE 526 holding that in such event the
Indian courts would not have the jurisdiction to entertain a petition, was
rendered in the context of the SICA Rules as they stood prior to 2010. He
pointed out that after 2010 the SICA Rules were amended as a result of
which merely because the venue of the arbitration was Singapore the parties
would not be precluded from approaching courts outside Singapore for
relief.
8. On 3rd January 2012 Mr. A.S. Chandhiok, learned counsel for the
Respondents stated that the parties were scheduled to meet on 5th January
2012 to sort out their differences. However, on the next date, i.e., 9th January
2012 it was stated by Mr. Nayyar that the talks had not progressed. While
directing notice to issue to Respondents on that date the Court directed that
"the Respondents will within two weeks file their respective affidavits
disclosing their assets as of today, including bank accounts and enclose
therewith the statements of the bank accounts indicating the balances
therein." Further, it was directed that "till the next date, the Respondents will
maintain status quo as regards the shareholding in Respondent No. 2 and
also as regards the assets of the Respondents."
9. On 23rd January 2012, Respondent Nos. 1 to 6 thereafter filed IA No.
1572 of 2012 for dismissal of the present petition as well as IA No. 1573 of
2012 for vacating an order dated 9th January 2012. Notice was directed to
issue in the said applications on 25th January 2012.
10. On 3rd February 2012 Respondent Nos. 1 to 6 filed CS (OS) No. 277 of
2012 seeing the following reliefs:
(a) declaration that SSA and SHA, both dated 11th December 2005
and the amended SHA dated 22nd January 2010 are 'illegal and
therefore, void ab initio being in complete contravention of the
External Commercial Borrowing Guidelines ('ECB Guidelines')
issued by the Reserve Bank of India ('RBI') as well as the Securities
Contracts (Regulation) Act, 1956 ('SCR Act');
(b) declaration that Put Option contained in Clause 9.6 of SHA as
amended by Clause 1.1 of the amended SHA was 'illegal and
unlawful and not enforceable in law;
(c) permanent injunction restraining the CCPCL, (Defendant No. 1 in
the suit) from initiating any legal action for the enforcement of any
terms of the SSA and SHA "including but not limited to invocation of
the arbitration clauses" in the SSA and SHA as well as the amended
SHA as well as enforcement of Put Option contained in Clause 9.6.
11. On 3rd February 2012, the suit was directed to be listed along with OMP
No. 951 of 2011. In the suit Respondent Nos. 1 to 6 filed IA No. 2139 of
2012 for an ex parte ad interim injunction restraining the CCPCL from
initiating any legal proceedings for the enforcement of any terms of the SSA,
SHA as well as the amended SHA.
12. Respondent Nos. 1 to 6 did not comply with the order dated 9th January
2012 passed by this Court in OMP No. 951 of 2011. In the meanwhile,
CCPCL invoked the arbitration clause and approached the SIAC. Pursuant
thereto SIAC issued an arbitration notice to Respondents 1o 6 on 7th
February 2012. Thereafter, Respondent Nos. 1 to 6 filed IA No. 2985 of
2012 in CS (OS) 277 of 2012 on 15th February 2012 seeking stay of the
impugned notice of CCPCL seeking to invoke arbitration clause and for a
direction to CCPCL to maintain status quo.
13. This Court has heard the submissions of Mr. Rajiv Nayyar and Mr. N.K.
Kaul, learned Senior counsel appearing for CCPCL and Mr. A.S. Chandhiok
and Mr. Sandeep Sethi, learned Senior counsel appearing for Respondent
Nos. 1 to 6.
Maintainability of the suit
14. The first question that arises for consideration is whether the suit seeking
the reliefs aforementioned is maintainable in light of CCPCL having
invoked the arbitration clause in the SHA.
15. The relevant Articles of the SHA read as under:
"9.6.1 Put Option - In consideration of CCPCL entering into
this Agreement, the Promoters grant CCPCL a Put Option in
the event that the Initial Public Offier/listing of shares does not
happen by end of June 30, 2009, being the right of CCPCL to
require the Promoters to purchase up to 10% of the shares of
the company held by CCPCL (the 'Put Option Shares') at any
time within a 30 days period commencing from December 31,
2009 ('Put Option period') at a price computed on the basis of
25% per annum IRR (i.e., Internal Rate of Return on
Investment) to CCPCL ('Put Option Strike Price'). The said
Put Option shall not be applicable in the event the Promoters
have already acquired 100% or more shareholding from
CCPCL, and procured the acquisition of the remaining shares
of CCPCL, pursuant to exercise of the Right of First Offer
under Article 9.3 above.
17.8 Governing Law
This Agreement shall be interpreted and governed in all
respects by the laws of India.
17.9 Arbitration
17.9.1 Any dispute arising out of or in connection with this
Agreement (including a dispute regarding the existence,
validity or termination of this Agreement or the consequences
of its nullity) shall be referred to and finally resolved by
arbitration to be conducted in accordance with the rules of the
Singapore International Arbitration Council.
17.9.2 The arbitration shall be conducted as follows:
(a) The parties shall mutually appoint a sole Arbitrator to
resolve the aforesaid disputes or differences.
(b) All proceedings in any such arbitration shall be conducted
in English.
(c) The venue of the arbitration proceedings shall be
Singapore.
(d) The Arbitrator shall be free to award costs as he thinks
appropriate.
(e) The arbitration award shall be final and binding on the
parties, and the parties agree to be bound thereby and to act
accordingly.
17.10. Jurisdiction
Subject to Article 17.9 each party submits to the exclusive
jurisdiction to the Courts of Delhi, India.
17.13 Violation of the terms
Without prejudice to the provisions of this Agreement, the
parties agree that each party shall be entitled to an injunction,
restraining order, right for recovery, suit for specific
performance or such other equitable relief as a court of
competent jurisdiction may deem necessary or appropriate to
restrain the other party from committing any violation or
enforce the performance of the covenants, obligation and
representations contained in this Agreement. These injunctive
remedies are cumulative and are in addition to any other rights
and remedies the parties may have at law or in equity,
including without limitation a right for recovery of the
amounts due under this Agreement and related costs and a
right for damages."
16. In terms of the Amended SHA dated 22nd January 2010 Clauses 1.1, 1.2
were inserted in the SHA. They read as under:
1. Put Option
1.1 In consideration of a sum of Rs. 100/- each received from
CCPCL, the receipt of which the Promoters and the Company
hereby acknowledge, the Promoters (jointly and severally) and
the Company hereby grant CCPCL a Put Option in relation to
the 428,384 shares held by CCPCL, CCPCL may exercise the
Put Option at any time within 24 months from January 1,
2010, at once or in multiple tranches. CCPCL may require the
Promoters and/or the Company to purchase such shares at a
price equal to the pro rata subscription price paid by CCPCL
for the number of shares in relation to which the Put Option
has been exercised plus an IRR of 25% calculated from the
date of subscription of the shares in relation to which the Put
Option has been exercised ('Put Option Exercise Price').
Provided that in the event that the Promoters and/or the
Company have exercised the call Option under Clause 2 below
the relevant shares in relation to which the call Option is
exercised have been transferred and the consideration paid to
CCPCL, CCPCL shall exercise the Put Option in relation to
such number of shares as would remain after such transfer,
i.e.: [428384 shares - the shares in relation to which the call
Option has been exercised and shares transferred]
1.2 If CCPCL decides to exercise its rights pursuant to Clause 1.1
above, CCPCL shall serve upon the Promoters and/or the
Company a written notice ('Put Notice') requiring the
Promoters and/or the Company to purchase the shares in
relation to which the Put Option is exercised within a period of
60 days from the date the Put notice. Within 60 days from the
date of the Put Notice, the Promoters and/or the Company
shall make payment of the Put Option Exercise Price into a
bank account of CCPCL specified in the Put Notice. ON the
date on which the entire Put Option Exercise Price is received
by CCPCL, CCPCL shall transfer/return the relevant shares to
the Promoters and/or the Company. The Promoters and the
Company shall do all such things as may be required to give
effect to the provisions of this Clause. The Promoters shall not
exercise and shall waive any rights that may available to any
of them in relation to the repurchase of CCPCL's shares by the
Company pursuant to this Clause.
The Promoters and the Company shall make all requisite
applications in a prompt and timely manner to obtain such
approvals as may be required to give effect to the provisions
of this Clause 1."
17. A collective reading of the aforementioned clauses shows that Article
17.10 which provides for the exclusive jurisdiction of the courts in Delhi is
subject to Article 17.9 which provides for arbitration. The scope of the
disputes that can be referred, in terms of Article 17.9.1, to arbitration, is
indeed wide. It includes not only disputes arising out of SHA but also a
dispute "regarding the existence, validity or termination of this Agreement
or the consequences of its nullity." Consequently, any dispute between the
parties arising out of a challenge by Respondent Nos. 1 to 6 to the existence
or validity of the SHA or of any of its articles, including Article 9.6 as
further amended, on any ground whatsoever, can also be referred to
arbitration.
18. The contention of Mr. Chandhiok is that by virtue of Article 17.13 the
parties have agreed that each of them would be entitled to the remedies of
'an injunction, restraining order, right for recovery, suit for specific
performance or such other equitable relief as a Court of competent
jurisdiction may deem necessary or appropriate to restrain the other party"
and therefore if CCPCL seeks specific performance of the SHA, the 'only'
remedy available is by way of a suit. Considerable reliance is placed upon
the decision of the learned Single Judge of the Bombay High Court in IND
Synergy Limited v. Clearwater Capital Partners 2011 (1) Bom CR 168
where while interpreting similar clauses of the SHA and SSA in that case the
Bombay High Court held that "the parties had not arrived at a definite
conclusion that the dispute must be referred to arbitration only and they
should not be resolved by any other method." Consequently, in that case the
court declined to refer the disputes to arbitration. Mr. Chandhiok also placed
reliance on the decision in Wellington Associates Limited v. Kirit Mehta
(2000) 4 SCC 272. Mr. Chandhiok sought to distinguish the decision of this
Court in Oval Investment Private Limited v. Indiabulls Financial Services
Limited 2009 VII AD (Del) 336 which was upheld by the Division Bench of
this Court by its order dated 3rd November 2009 in RFA (OS) No. 68 of
2009.
19. The facts in IND Synergy Limited were that Plaintiff No. 1 IND Synergy
Limited ('ISL') was engaged in extraction of iron ore and Plaintiff Nos. 2 to
9 were its promoters. Defendant Nos. 1 and 2 were the companies with
whom the Plaintiffs entered into a Subscription Agreement for the sale of
fully convertible debentures of ISL on 11th March 2008. A separate
agreement was also entered into on the same date titled as 'Shareholders'
Agreement' under which Defendant No.1 had a Put Option. Under the
Shareholders' Agreement it was agreed that 50% of the fully convertible
debentures held by Defendant No. 1 company could be transferred to
Defendant No. 2. Defendant No. 2 also asserted that it was entitled to Put
Option like Defendant No. 1. Both Defendants exercised the Put Option and
issued notices on 18th June 2008 to the Plaintiff enforcing their rights
conferring upon them in terms of the Shareholders' Agreement. In terms of
the Agreement, ISL was to extract one million tonnes of iron ore between 1st
April 2009 to 31st March 2010. However, that did not happen. ISL and other
Plaintiffs filed a suit in the Bombay High Court for a declaration that the
provisions of Shareholders' Agreement relating to transferability of the
promoters' shares in ISL were illegal, null and void. The other prayer in the
suit was for a declaration that the Put Notices dated 18th June 2010 issued by
Defendants were misconceived, illegal and null and void. The Plaintiffs also
sought an order of injunction restraining the Defendants from taking any
coercive action on the basis of notices dated 18th June 2010. The Defendants,
on receipt of the notices, filed an application under Section 8 of the Act
stating that the disputes should be referred to arbitration.
20. At this stage it may be noted that Clause 16.7.1 of the Shareholders'
Agreement dated 11th March 2008 in IND Synergy Ltd. is more or less
similar to Clause 17.9.1 of the SHA in the present case. Likewise, Clause
16.8 of the Shareholders' Agreement in IND Synergy Ltd. is identical to
Clause 17.10 of the SHA in the present case. Clause 16.11 of the
Shareholders' Agreement in IND Synergy Ltd. is identical to Clause 17.13
of the SHA in the present case.
21. In IND Synergy Ltd. the application filed by the Defendants under
Section 8 of the Act was rejected. The learned Single Judge of the Bombay
High Court interpreted Clauses 16.7.1 and 16.11 of the agreement in that
case thus:
"30. Looking to the two clauses as they stand, I am inclined to
observe that the parties had not arrived at a definite conclusion
that the dispute must be referred to arbitration only and they
should not be resolved by any other method. If that would have
been the intention of the parties, there was no room for the
litigation clause. The judgment in the case of Wellington
Associates Ltd. would clearly indicate that in order to have the
dispute referred to arbitration, the parties must have a firm
intention that the dispute should be referred to an arbitration. The
parties must whole heartedly agree that the dispute should be
referred to arbitration only. In my view, slightest deviation by the
parties from their intention to refer the dispute to the arbitration
would lead to non-compliance of requirements of Section 8 of
the said Act.
31. In my view, in the present case, the way in which the
litigation clause has been worded it is clear that parties were not
firm on the point of reference of the dispute to arbitration. In
such a situation, it will not be possible for this Court to arrive at a
conclusion that the only intention of the parties was to refer the
dispute between them to arbitration."
22. While it is true that clauses interpreted in the above decision of the
Bombay High Court are identical to the clauses in the present case, this
Court is, for the reasons explained hereafter, not inclined to follow the said
decision. The words 'without prejudice' occurring in Clause 17.13 of the
SHA cannot be read as 'notwithstanding' as in a non-obstante clause of a
statute. In fact it is doubtful that the rules of interpretation of statutes could
ipso facto be adopted while interpreting clauses of a contract where the
intention of the parties is determinative of the meaning that should be given
to the clauses. Secondly, Clause 17.13 itself makes it clear that "these
injunctive remedies are cumulative and are in addition to any other rights
and remedies the parties may have at law or in equity." Therefore, there is
no 'ouster' of the arbitration clause by Clause 17.13 when the relief sought
is of specific performance of the agreement. Thirdly, if one of the parties has
elected to invoke the arbitration clause to resolve the disputes, and which
includes every type of dispute, then that party is entitled to contend that the
said remedy must be exhausted. Fourthly, it is possible to read Clause 17.13
and Clause 17.9.1 harmoniously and not as if one excludes the other. The
injunctive reliefs that a court may be approached for by any of the parties in
terms of Clause 17.13 could well mean the kind of interlocutory reliefs that
may be sought, for instance, under Section 9 of the Act., Fifthly, our Court
has taken a view different from the Bombay High Court in the matter of
entertaining a suit concerning the validity of an agreement which includes an
arbitration clause.
23. In Oval Investment Private Limited v. Indiabulls Financial Services
Limited a Single Judge of this Court was dealing with the question of
maintainability of a suit by the Plaintiff in that case in which it sought a
declaration against the Defendant No. 1 company in that case that the
invocation of the arbitration/reference to arbitration in terms of a letter dated
17th July 2009 issued by Defendant No. 1 company was vitiated and liable to
be struck down. The second relief sought was a decree of perpetual
injunction restraining Defendant No. 1 from invoking the arbitration clause.
The issue that arose was whether the suit was maintainable in view of Clause
57 of the agreement between the parties in that case which provided for
reference of a dispute or difference arising between them to arbitration. The
suit was held to be not maintainable. After analyzing the scheme of the Act
and its provisions, it was observed as under (AD, pp 344-345):
"24. It appears that the Court comes into picture thereafter only
at two stages. Under Section 37 (2) (a) of the 1996 Act, an appeal
can be filed to a court against an order passed by an Arbitrator
either accepting the plea of lack of jurisdiction or of exceeding
the scope of authority. Under Section 37(2) (b) an appeal can
also be filed against an interim order passed by the Arbitrator
under Section 17 of the 1996 Act either granting or refusing
interim measure. If the Arbitrator under Section 16 (1) overrules
the plea of an objector and rules that he has jurisdiction or that
there does exist a valid arbitration agreement then the aggrieved
party has to wait for the final Award and thereafter challenge it
under Section 34 of the Act. Section 34(2) sets out the grounds
on which the Award can be challenged. Among these grounds is
that the arbitration agreement is not a valid one or that the award
deals with the disputes not contemplated or not falling within the
terms submitted to the arbitrator or it contains the decision on
matters beyond the scope of the submission to arbitrator. One
other ground is that the composition of the tribunal or the arbitral
tribunal was not in accordance with the agreement between the
parties. The scheme of the Act appears to be restrict interdiction
by the court of arbitral proceedings except to the limited extent
indicated hereinbefore.
25. Under Section 33 of the 1940 Act, the Arbitrator could
examine the question of the existence or validity of the
arbitration agreement. Section 16 of the Act not only preserves
this power of the arbitrator but in fact expands it. The wording of
Section 16(1) indicates that the arbitrator could rule on his own
jurisdiction "including ruling on any objections with respect to
the existence or validity of the arbitration agreement". The word
"including" shows that the scope of the examination of the
questions concerning the jurisdiction of the arbitral tribunal is not
limited to the existence of the arbitration agreement itself.
Therefore, it is inconceivable that where there is a violation of
mandatory requirement like Section 21 of the Act, the arbitrator
cannot examine that question as well. If the existence of the
arbitration agreement is a sine qua non for commencement of
arbitration proceedings and if such a question is to be examined
only by the arbitrator, it is difficult to accept the proposition that
the question whether a valid notice under Section 21 has been
received by the respondent in a claim petition, cannot be gone
into by the arbitrator. The question really is not so much whether
the requirement under Section 21 of the Act is mandatory or not.
This Court is of the view that such a requirement is indeed
mandatory for without the notice of invocation being received by
the respondent no arbitral proceedings can commence. The
question really, therefore, is whether the arbitrator has the power
to decide where this procedure under Section 21 of the Act has
been complied with. In the considered view of the Court, given
the scheme of the Act and the minimal scope of the interference
by the civil courts, it must be held that this question can and
should be examined by the arbitrator himself." (emphasis
supplied)
24. After discussing the decisions of the Supreme Court including the one in
Milkfood Limited v. GMC Ice Cream (P) Limited (2004) 7 SCC 288 it was
concluded in Oval Investment Private Limited as under (AD, pp 349-350):
"34. It appears to this Court in the light of the scheme of the
Act as discussed hereinbefore, the question whether the
mandatory requirement of receipt of the notice by the
Respondent in terms of the Section 21 of the 1996 Act has
been complied with is also to be examined by the Arbitrator
under Section 16 of the 1996 Act. The reliance by the learned
Senior Counsel for the Plaintiffs upon the decision in India
Household & Healthcare Ltd. v. LG Household &
Healthcare Ltd. (supra) appears to be misplaced. The question
that arose there was whether in terms of Section 16 of the
1996 Act, notwithstanding that the agreement itself was
challenged as being vitiated by fraud, it would be for the
Arbitrator to determine he had jurisdiction. Para 3 of the said
decision in India Household & Healthcare Ltd. (supra)
reveals that the respondent there had questioned the
Memorandum of Understanding (MOU) dated 1st November
2003 and the Licence Agreement dated 8th May 2004
containing the arbitration clause as being vitiated by fraud.
The Respondent had filed a suit in the High Court in which an
interim injunction had been issued restraining the petitioner
from acting on the MOU. In the said suit it had been
categorically alleged that the Respondents had hatched a
conspiracy to defraud the petitioner for the purpose of
obtaining bribes, commissions and kickbacks. The matter
came before the Supreme Court by way of an application
under Section 11 filed by the Petitioner seeking the
appointment of an arbitrator. It was pointed out by the
Respondents that in terms of the judgment in SBP & Co. v.
Patel Engineering Ltd., the Court under Section 11 was
obligated to go into the question whether the entire agreement
was vitiated by fraud and whether as a result thereof no valid
arbitration agreement came into being. It is, therefore, seen
that the decision in India Household & Healthcare Ltd.
(supra) was in the context of the challenge to the existence and
the validity of an arbitration agreement in proceedings under
Section 11 of the Act. The question really was not whether the
Court can examine such a question dehors the Act. In fact,
India Household & Healthcare Ltd. (supra) indicates that
even such questions have to be examined only within the
scope of the 1996 Act and not outside it.
35. In the present case, for instance, if the Plaintiffs are
aggrieved by the appointment of the learned Arbitrator they
might have to seek remedies in terms of Section 11 of the Act.
In fact the Plaintiffs seem to assert such a proposition in para
44 of the plaint. If the Plaintiffs are aggrieved by the interim
order dated 23rd July 2009 passed by the learned Arbitrator
under Section 17 of the 1996 Act, they can appeal against it in
terms of under Section 37(2) (b) of the 1996 Act. Therefore, it
is not as if the Plaintiffs do not have a remedy."
25. The Division Bench while affirming the above decision in appeal
observed as under:
"13. We are also satisfied that the learned Single Judge has
rightly concluded that the suit is barred under Section 34 of the
Specific Relief Act, 1963. It has noted that the consequential
relief that would flow from the first prayer, viz. for the
declaration that the letter dated 17.7.2009 invoking
arbitration proceedings was invalid, would be that
proceedings based thereon would also be invalid. Such a relief
could not be granted as that would tantamount to restraint of
arbitral proceedings, which is precisely what should be
assiduously avoided where the existence of an arbitration
clause is not in dispute. The consequential relief of injunction
was, therefore, deliberately drafted in the manner so as to
claim what was essentially and logically the consequential
relief. We are reminded of the observations in T.
Arivandandam -vs- T.V. Satyapal, (1977) 4 SCC 467, which
are to the effect that the Court should not fall prey to clever
drafting. This case has recently been adverted to in Abdul
Gafur -vs- State of Uttarakhand, (2008) 10 SCC 97 where
his Lordship D.K. Jain, speaking for the Bench, had
recommended that wherever "the High Court is convinced that
the plaint read as a whole does not disclose any cause of
action, it may reject the plaint in terms of Order 7 Rule 11 of
the Code. As a matter of fact, as observed by V.R. Krishna
Iyer, J., in T. Arivandandam -vs- T.V. Satyapal, (1977) 4
SCC 467, if on meaningful - not formal - reading of the
plaint, it is manifestly vexatious, and meritless, in the sense of
not disclosing a clear right to sue, the court should exercise its
power under the said provision. And if clever drafting has
created an illusion of a cause of action, it should be nipped in
the bud."
26. This Court is bound by the decision of the Division Bench of this Court.
Having agreed to refer the disputes arising between them to arbitration,
including disputes concerning the validity of the SHA itself, Respondents
No.1 to 6 cannot seek to prevent CCPCL from invoking the arbitration
clause and seeking reference of the disputes to arbitration. No suit for such a
relief can be entertained by the Court when CCPCL has prior thereto elected
to refer the disputes for arbitration in the manner envisaged in Article 17.9.1
of the SHA.
27. Relying on Wellington Associates Ltd. (supra) Mr. Chandhiok submitted
that Article 17.13 used the word "shall" and therefore it was mandatory for
parties to approach the court for the relief of specific performance. Since the
wording of Article 17.13 indicated that it was mandatory, the intention of the
parties was that the reference of the disputes to arbitration under Article 17.9
was not.
28. There is no merit in this contention either. A perusal of the relevant
clauses of the agreement in that case show that under Clause 4 it was agreed
that if any dispute arose then "only the courts in Bombay would have
jurisdiction to try and determine the suit" and that the parties had submitted
to the "exclusive jurisdiction of the courts of Bombay." This was followed
by Clause 5 which stated that it had "also" been agreed between the parties
that any dispute arising between them "may be referred" to arbitration. It
was in the said context that in was held in Wellington Associates Ltd. that in
the absence of a clause "requiring a reference in a mandatory sense", no
reference can be made to the arbitral tribunal. In the present case, Article
17.9 expresses unambiguously the clear intention of the parties that their
disputes arising from the SHA would be referred to arbitration. The word
"shall" is used in Articles 17.9.1 and 17.9.2 as well. Although the word
"shall" is used in Article 17.13 of the SHA as well, it has to be understood in
the context of the later part of Article 17.13 which clearly states that the
remedy available to the parties thereunder is in addition to the one under the
earlier Article 17.9. The wording of Article 17.9 conveys the "mandatory
sense" of the arbitration agreement between the parties as envisaged by
Section 7 of the Act.
29. Mr. Chandhiok then referred to several passages of the decision in SBP
& Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 and contended that it is
the Court before whom the challenge as to the validity of the arbitration
agreement was raised which has to decide that question and not relegate the
party to the remedy before the arbitral tribunal under Section 16 of the Act.
The said submission fails to notice that the question in SBP & Co. v. Patel
Engg. Ltd. concerned the power of appointment of an arbitrator by the Chief
Justice under Section 11 (6) of the Act. The envisaged sequence was that
one of the parties had approached the Chief Justice prior to the making of
the reference to an arbitrator, i.e., at a stage prior to reference being made to
an arbitrator in terms of the arbitration agreement. This is clear from the
highlighted portion of the following passage (SCC, p. 649):
"20. Section 16 is said to be the recognition of the principle of
Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has
the competence to rule on its own jurisdiction and to define the
contours of its jurisdiction, only means that when such issues
arise before it, the Tribunal can, and possibly, ought to decide
them. This can happen when the parties have gone to the
Arbitral Tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these
sections, before a reference is made, Section 16 cannot be
held to empower the Arbitral Tribunal to ignore the decision
given by the judicial authority or the Chief Justice before the
reference to it was made. The competence to decide does not
enable the Arbitral Tribunal to get over the finality conferred on
an order passed prior to its entering upon the reference by the
very statute that creates it. That is the position arising out of
Section 11(7) of the Act read with Section 16 thereof. The
finality given to the order of the Chief Justice on the matters
within his competence under Section 11 of the Act are
incapable of being reopened before the Arbitral Tribunal."
(emphasis supplied)
30. In the present case, neither of the parties has approached this Court for
appointment of an arbitrator under Section 11 of the Act. In fact,
Respondents 1 to 6 are seeking a declaration as to the invalidity of the SHA
itself including its arbitration clause. Meanwhile CCPCL has already
invoked the arbitration clause and sought reference of the disputes to
arbitration under the SIAC Rules. As already held, it is only where the
arbitrator is not appointed in terms of the SHA read with the SIAC Rules
that the question of this Court exercising powers under Section 11 of the Act
arises. If an arbitrator is appointed either by consent of the parties or failing
that in terms of the SIAC Rules, then it would be for such arbitrator to
determine in the first instance the question concerning the validity of the
SHA or any clause thereof.
31. It was then contended by Mr. Chandhiok that in terms of Article 17.9.2
of the SHA, the appointment of the sole Arbitrator has to be decided by the
parties and not by the SIAC. Therefore, the notice issued by the SIAC to the
Respondents to agree to the appointment of a sole arbitrator as suggested by
CCPCL was invalid. There is no merit in this contention. The Rules of the
SIAC provide that where the parties fail to agree on the name of the sole
arbitrator the SIAC will, in its exercise of Clause 7.2, appoint an Arbitrator.
Clause 7.2 of the SIAC Rules reads as under:
"7.2. If a party fails to make a nomination within 21 days after
receipt of a party's nomination of an arbitrator, the Chairman
shall proceed to appoint the Arbitrator on its behalf."
32. Therefore, it is the procedure envisaged in the SHA that will first be
given effect to and upon that procedure not resulting in an arbitrator being
appointed, the SIAC will step in. It is only where the SIAC fails to appoint
an Arbitrator that it will be open to the parties to invoke Section 11 (6) of the
Act for appointment of a sole Arbitrator.
33. For the aforesaid reasons, this Court is of the view that the suit is not
maintainable as such and it is accordingly dismissed.
The Section 9 petition
34. In relation to petition under Section 9 of the Act, it is not in dispute that
Respondents 1 to 6 have not complied with the order dated 9th January 2012
passed by this Court and filed their respective affidavits disclosing the
moveable and immoveable assets. The explanation offered is that they had
filed two applications, one for vacation of the said order and the other
seeking dismissal of the petition on the strength of the decisions of the
Bombay High Court in IND Synergy Limited v. Clearwater Capital
Partners and Nishkalp Investments and Trading Company Limited v.
Hinduja TMT Limited (2008) 143 Comp Cas 204 (Bom).
35. As already observed, it is misconceived on the part of Respondent Nos. 1
to 6 to contend that they can avoid arbitration in view of the invalidity of any
clause of the SHA or SSA or the amended SHA. The issue concerning the
validity of the SHA or SSA as a whole or of any of its articles can well be
raised before the arbitrator. Further, as pointed out by Mr. Kaul learned
Senior counsel for CCPCL, even if a clause in the SHA or SSA is found to
be invalid for any reason whatsoever, that does not affect the arbitration
clause. The parties can still refer the disputes arising between them,
including the dispute relating to validity of the SHA and SSA to arbitration.
Likewise, the question as to the validity of the Put Option clause, in Article
9.6 of the SHA as amended, on the ground that it may be contrary to the
provisions of the SCR Act can also be examined by the arbitrator. It would
be for the arbitrator to decide what is the kind of relief that can be prayed for
and that which can be granted. It would be premature for this Court in a
Section 9 of the Act to take a view on this aspect.
36. Consequently there is no merit in IA No. 1572 of 2012 and I.A. No.
1573 of 2012 filed by Respondents 1 to 6 in OMP No. 951 of 2011 and they
are dismissed as such.
37. At the hearing of the case on 16th February 2012 it was submitted by Mr.
Chandhiok that the Respondents 1 to 6 will, without prejudice to their rights
and contentions, comply with the order dated 9th January 2012 and file by
the next date their respective affidavits disclosing their assets, including
bank accounts and enclose therewith statements of the bank accounts
indicating the balance therein. The Respondent No. 4 has, on 22nd February
2012, filed an affidavit disclosing the details of the moveable and
immoveable properties of each of the Respondents with a copy thereof being
served on the counsel for the Petitioner. Secondly it was submitted by Mr.
Chandhiok that that under Article 9.1 of the SHA, the parties have agreed
that as long as CCPCL holds 10% of the paid up share capital of SIL, "the
Promoters shall not create an encumbrance directly or indirectly, in any
manner, on all or any of their shares without obtaining the prior written
consent of the CCPCL." It is submitted that since admittedly Respondents 1
to 6 own more than 72.5% of the paid up share capital of SIL, and the value
of the said shares as of date is much much higher than the total claim of
CCPCL against them, Article 9.1 itself constitutes sufficient security for the
CCPCL. It is reiterated that Respondents 1 to 6 are bound by Article 9.1 of
the SHA and will abide by it.
38. The above statement on behalf of Respondent Nos. 1 to 6 is placed on
record and it is directed that they will not, either jointly or severally,
transfer, alienate, dispose, encumber or part with their shares in SIL without
the prior written consent of CCPCL. In addition, Respondents 1 to 6 will
jointly and severally ensure, during the pendency of the arbitral proceedings,
that they maintain sufficient bank balances and other moveable and
immoveable assets in their individual names of the aggregate value of Rs. 50
crores. It will be open to the parties to seek appropriate interim relief,
including a variation or modification of the above order, before the sole
Arbitrator in accordance with law.
Conclusion
39. CS (OS) No. 277 of 2012 and the pending applications in it are
dismissed. IA Nos. 1572 and 1573 of 2012 in OMP No. 951 of 2012 are
dismissed. Respondents 1 to 6 will pay CCPCL Rs. 30,000 towards costs of
these proceedings within four weeks.
S. MURALIDHAR, J.
FEBRUARY 23, 2012
rk
