M/S. Tata Industries Ltd. & ANR. Vs. M/S. Grasim Industries Ltd. [2008] INSC 1066 (9 July 2008
2008 Latest Caselaw 569 SC

M/S. Tata Industries Ltd. & ANR. Vs. M/S. Grasim Industries Ltd. [2008] INSC 1066 (9 July 2008)

Judgment "REPORTABLE"

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO. 5 OF 2007 M/s.Tata Industries Ltd. & Anr. .... Applicants Versus M/s.Grasim Industries Ltd. .... Respondent

V.S. SIRPURKAR, J

Two companies, first being M/s.Tata Industries Ltd., and the second being M/s. Apex Investments (Mauritius) Holding Private Limited (hereinafter referred to Applicant Nos.1 and 2 respectively) have approached this Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") for appointment of the Arbitrator in a commercial dispute which has arisen between them and Grasim Industries Limited (hereinafter referred to as "the non- applicant"). Initially the applicants had approached Bombay High Court by way of an application under Section 11(6) of the Act, however, a stand was taken by the non-applicant that this would amount to an international 2 commercial arbitration and, therefore, it would be the Chief Justice of India alone who would have the powers to constitute the Arbitral Tribunal under Section 11(12) of the Act. It is, therefore, that the matter has come before this Court. The parties are ad idem on this jurisdictional issue that the jurisdiction to appoint the Arbitrator lies with the Chief Justice of India or as the case may be, his nominee. There is no dispute between the parties that there is an arbitration agreement between the parties vide Clause 12.04 of the Shareholders Agreement dated 15.12.2000 and Clause 9 of the Share Transfer Agreement dated 1.6.2006. That issue need not, therefore, be dilated upon. The parties are also ad idem that the claims are within limitation. The only question to be decided, on which the parties have extensively argued, is whether there is a live arbitrable issue. Following background facts would help to understand the controversy between the parties. M/s.Tata Industries Limited (hereinafter referred to as "TIL") is a company incorporated under the Indian Companies Act, 1956 (Applicant No.1) while Apex Investments (Mauritius) Holding Private Limited (Applicant No.2) is a company incorporated under the Laws of Mauritius. 3 The Applicant No.2 has its registered office at Mauritius while non-applicant M/s.Grasim is also a company incorporated under the Indian Companies Act, 1956. Tata Cellular Limited (hereinafter called the "TCL") had obtained a CMTS licence for Andhra Pradesh Circle on 19.12.2005. Similarly, Birla AT &T Communications Ltd. (hereinafter referred to as "BACL") which was a joint venture undertaking of A.V. Birla Group and AT&T Wireless Group held CMTS licences for Maharashtra and Gujarat Circles since 15.12.1995.

Tata Teleservices Limited (hereinafter referred to as "TTSL") was granted a basic service licence for Andhra Pradesh Circle on 4.11.1997. A Memorandum of Understanding was arrived at between AT&T Wireless Inc., AV Birla Group and Tata Industries Limited on 1st March, 2000 whereby they agreed to provide CMTS service through a single entity. As per this Memorandum of Understanding AT&T Wireless Inc., AV Birla Group and TIL agreed to provide services through a single entity or an alliance of entities and agreed to merge themselves to form IDEA Cellular Limited (hereinafter referred to as "IDEA"). The Memorandum of Understanding was entered into on 13.11.2000 by merging TCL with BACL.

A Shareholders Agreement came into existence on 15.12.2000 between AT&T Wireless Inc., AV Birla Group (through Grasim Industries Limited) and Tata Group through TIL. In this Agreement respective rights 4 and obligations of the parties for the merger/amalgamation of the TCL into BACL and modalities and functions of merged entities were recorded.

Under that Agreement, the applicants, the non-applicant and AT&T Wireless Services Inc., were to hold 44,72,35,136 shares being one-third of the subscribed and paid up Equity Share Capital of the merged entity, i.e., IDEA. Article 3.04(b) of the Shareholders Agreement provides as under:

"Each founder covenants and agrees that except as set out in Section 3.04(c) and Section 3.04(d), it will not engage in, either directly or indirectly though an affiliate, (i) any activity that would constitute the business of the merged company within the territorial telecom circles covered by the licences; or (ii) any opportunity outside the territorial telecom circles covered by the licences that would constitute the business or the merged company in India and the neighbouring territories unless the opportunity has been first offered to the merged company to undertake such new business by placing the same before the Board of Directors of the merged company. The Board of Directors shall deliberate, without the participation of the India placing the opportunity before the Board (the Opportunity Shareholder") on whether to avail of such an opportunity. If the Board decides not to avail itself of such opportunity or does not convey the decision in respect thereto within a period of 120 days (or such shorter period as may be necessary in the context of the nature of the opportunity) from the date of receipt of such offer by the merged company then;

              i.        the Opportunity Shareholder shall invite the other Founders for discussions on whether a joint venture for availing the opportunity may be undertaken;

             ii.        If the other Founders do not wish to participate in a joint venture the Opportunity Shareholder shall be free to avail of the opportunity on its own."

Article 8 is the Confidentiality Clause which reads as under:

5 "8.01 Confidential Information Defined:

For the purposes of this Agreement, "confidential information"

shall mean all oral, written and/or tangible information created by the merged company or disclosed by a Founder (in either case "owner") to the receiving Founder ("Recipient") which is confidential, proprietary and/or not generally available to the public, including but not limited to information relating in whole or in part to present and future products, services, business plans and strategies, marketing ideas and concepts, especially with respect of unannounced products and services, present and future product plans, pricing, volume estimates, financial data, product enhancement information, business plans, marketing plans, sales strategies, customer information (including customer's applications and environment), market testing information, development plans, specifications, customer requirements, configurations, designs, plans, drawings, apparatus, sketches, software, hardware data, prototypes or other technical and business information.

Notwithstanding the foregoing, information shall not be deemed confidential and Recipient shall have no obligation with respect to any such information which:

(a) is already known to Recipient, or (b) is or becomes publicly known, through any means including publication, inspection of a product, or otherwise, and through no negligence or other wrongful act of Recipient, or (c) is received by recipient from a third party without similar restriction and without breach of this Agreement, or (d) is independently develop by Recipient, or (e) is furnished to a third party by owner without a similar restriction on the third party's rights. 8.02 Treatment of Confidential Information From the execution of this Agreement until three (3) years after the Recipient ceases to be a shareholder, Recipient shall, and shall cause its affiliates to, keep confidential and will 6 not disclose, and will cause its affiliates not to disclose, to third parties, the confidential information receive from, or made available by owner in the course of the transactions contemplated hereby and will use and cause its affiliates to use, the same level of care with respect to the confidential information as Recipient employees with respect to its own proprietary and confidential information of like importance, and will not use and will cause its affiliates not to use such confidential information for any purpose other than the performance of its obligations under this Agreement. Promptly upon the Recipient ceasing to be a shareholder, written confidential information will be returned to Owner or destroyed immediately upon the request of owner, and no copies, extracts or other reproductions shall be retained by the Recipient. All documents memoranda, notes and other writings whatsoever prepared by recipient which contain the confidential information shall be returned to owner or destroyed at owner's request. Confidential information provided by owner shall remain the property of owner. For the avoidance of doubt, the merged company shall not be deemed to be a Recipient for purposes of this Section. 8.03 Notice prior to disclosure:

If Recipient (or its affiliate) is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any confidential information, Recipient will promptly notify owner of such request or requirement so that owner may seek an appropriate protective order or waive compliance with the provisions of this Section 8.03. If, in the absence of a protective order or the receipt of a waiver hereunder, Recipient (or any of its affiliates) is in the written opinion of Recipient's counsel compelled to disclose the confidential information or else stand liable for contempt or suffer other censure or significant penalty, Recipient (or its affiliates) may disclose only so much of the confidential information to the party compelling disclosure as is required by law. Recipient will exercise (and will cause its affiliate to exercise) reasonable efforts to obtain a protective order or other reliable assurance and confidential treatment will be accorded to confidential information." 7 Article 9 of the Agreement deals with the effectiveness and termination.

Article 9.02 relates to right to terminate for cause. It specifically provides that in the event of occurrence of a material breach on the part of the Defaulting Founder, each Founder shall have right to make the election as provided in Clause 9.02(b). However, for that purpose the electioning Founder should have given written notice of the alleged breach to Defaulting Founder and in terms of that notice the Defaulting Founder has not cured, within 60 days, the said breach, if the said breach is capable of being cured within such period, or the Defaulting Founder has not taken substantial and appropriate steps to cure the breach. The "material breach" is defined in this Clause as:

              i.        a breach of confidentiality provisions set forth in Article VIII of the Agreement;

             ii.        breach of the provisions of Section 3.04(b) relating to non- competition;

            iii.        the failure to contribute capital as required under Section 2.04 (a);

            iv.        a breach of provisions relating to election of Directors, filling of Board vacancies, removal of Directors and election of Chairman of the Board;

             v.        a breach of the provisions under Article 10 relating to transfer of equity, capital or voting interest;

            vi.        a breach by a party of the provisions under Section 6.02.

Article 10.06 provides that if any party receives from or otherwise negotiates with third parties a bonafide offer to purchase any of the equity capital owned or held by such party and intends to make sale of its shares to such third party, such founder must notify the other two parties of the Shareholders Agreement by way of a notice mentioning offer price, the third parties making the offer and the number of shares that such third party wants to purchase on which the offeree would have option to purchase such amount of shares at the offer price within 45 days of the offer notice.

The Arbitration clause worded in Article 12.04 and Article 12.04(a), (b), (c), (d) and (e) are as under:

"12.04 Governing law and consent to Jurisdiction:

Arbitration:

a.     This Agreement and all questions of its interpretation shall be construed in accordance with the laws of the Republic of India without regard to its principles of conflict of laws.

b.    The parties agree that they shall attempt to resole through good faith consultation in their behalf, disputes arising in connection with this Agreement and such consultation shall begin promptly after a party has delivered to another party a written request for such consultation.

c.     In the event that, after exhausting the efforts for resolution of dispute described in paragraph (b), the parties have been unable to resolve a dispute, and if the dispute is one which relates to an alleged breach of any representation, warranty, covenant or agreement under or the validity or termination of, covenant or agreement under or the validity of termination of this agreements, such dispute shall be finally settled according to the procedure set forth in paragraph (d).

d.    A dispute subject to resolution under this paragraph (d) shall be finally settled by binding arbitration in Mumbai, India before and pursuant to the Indian Arbitration and Conciliation Act, 1996. Each party shall select an arbitrator within fifteen (15) days from the initial arbitration request.

Promptly upon their selection, such arbitrators shall agree upon and select a third arbitrator from the panel of arbitrators UNCITRAL. The parties shall agree in advance as to manner in which the arbitration panel shall promptly hear witnesses and arguments, review documents and otherwise conduct the arbitration proceedings. Should the parties fail to reach an agreement as to the conduct of the arbitration proceeding within twenty (20) days from the selection of the third arbitrator, the arbitration panel shall formulate its own procedural rules and promptly commence the arbitration proceedings. The arbitration proceedings shall be conducted as expeditiously as possible with due consideration for the complexity of the dispute in question. The arbitration panel shall issue its decision in writing within thirty (30) days from the hearing of final arguments by the parties. The parties agree that the arbitrators will have the power to rule on questions of its own jurisdiction over any dispute, to award damages and, in appropriate circumstances, to award equitable relief but shall not be authorized to award punitive or exemplary damages to any party. The parties specifically agree to be bound by the decisions rendered by the arbitration panel provided for herein and agree not to submit a dispute subject to this Section 12.04 (d) to any federal, State or local court or arbitration association except as may be necessary to enforce the procedures of this 10 Section 12.04(d) or to enforce the decision rendered by the arbitrators. The parties to any dispute submitted to arbitration hereunder shall share equally the costs of the arbitral panel and shall each bear their own attorneys' fees and other expenses incurred in connection with any arbitration proceedings. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses and attorneys' fees which are reasonably incurred by the other party.

a.      

b.      

c.      

d.      

e.     During the pendency of a dispute/arbitration proceedings the parties shall be bound by the terms of this Agreement."

The parties point out that in 2004 AT&T Wireless Services Inc., which was the holding company of AT&T Cellular Private Limited (Mauritius), merged with New Cingular Wireless Services Inc. (hereinafter referred to as "NCW") pursuant to a global restructure cum merger. Subsequently in September, 2005 TIL acquired the entire shareholding of AT&T Cellular Pvt. Ltd. from NCW and the Birla Group acting through Aditya Birla Nuvo Ltd. (hereinafter referred to as "ABNL") acquired 16.45% shares in IDEA from AT&T Cellular Private Limited. AT&T Cellular Private Limited was subsequently renamed as Apex Investments (Mauritius) Limited. As a result of this, the shareholding of Birla Group in IDEA increased to 50.14% while TIL continued to have 31.69% of the issued share capital. The balance 1.70% of IDEA was held by AIG (Mauritius) LLC.

On 31.1.2006, the Applicant No.1 served a notice on the non- applicant under Article 9.02 of the Shareholders Agreement in which it was stated that pursuant to an e-mail communication received by it from one Mr.Sanjeev Aga, it was clear that Aditya Birla Telecom Limited (hereinafter referred to "ABTL"), a subsidiary of ABNL had applied to the Department of Telecommunication for grant of UAS license for the Mumbai Metro Circle.

It was further stated in that notice that vide Board Circular dated 29.7.2005, the Board of Directors of IDEA had accepted proposal to apply for UAS licence for the Mumbai Metro Circle and consequently the said application was filed on 3.8.2005. The Applicant No.1 thus asserted that the filing of the application for UAS licence by ABTL for the Mumbai circle was in clear violation of Article 3.04(b) of the Shareholders Agreement and amounting to a material breach by Aditya Birla Group under Article 9.02 of the Shareholders Agreement and accordingly it was requested to cure the said material breach within 60 days of the receipt of the said letter by withdrawing the said application made by ABTL for grant of UAS licence for Mumbai Circle.

On 27.2.2006, Applicant No.1 sent the Termination Notice under Article 9.02 (b) of the Shareholders Agreement that ABNL, which was an affiliate company of Aditya Birla Group, for the purposes of Shareholders Agreement had displayed confidential financial data of IDEA including particulars of revenue, PBDIT, OPM%, PBIT, Net profit/loss, capital 12 employed, ROCE (annualized)% and projections, on its website. It was asserted that this information displayed on the website was confidential information within the meaning assigned to the said term in Article 8.01 of Shareholders Agreement. Since such confidential information was not in the public domain and since none of the exceptions to the protection of confidential information contained in Section 8.01 of the Shareholders Agreement were available to ABNL, the disclosure of confidential information was a clear breach of Article 8.02 of the Shareholders Agreement. It was also asserted that such material breach was not capable of being cured and, therefore, the said letter was to be treated as the Termination Notice in accordance with Article 9 of the Shareholders Agreement and the Applicant No.1 was proceeding to purchase the shareholding of AV Birla Group within 90 days of the receipt of the said notice. A copy of the notice was also endorsed to IDEA in order to take steps to facilitate access to an international firm of auditors appointed by Applicant No.1 for computing the fair market value of the IDEA shares. These letters dated 20.2.2006 and 1.3.2006 were disputed by letters dated 31.1.2006 and 27.2.2006 respectively wherein a clear cut denial was asserted to the effect that there was no violation of the provisions of the Shareholders Agreement relating to non-competition and confidentiality.

Then vide the subsequent correspondences dated 16.3.2006 and 27.3.2006, Applicant No.1 reaffirmed all its stand and its entitlement to purchase the entire equity share capital of the non-applicant in IDEA in 13 accordance with the provisions of Shareholders Agreement. There was a further denial on the part of the non-applicant by its letters dated 17.3.2006 and 3.4.2006.

However, in the meantime, the applicant received an offer for purchasing its stake as well as the stake of M/s. Apex Investments (Mauritius) Holding Private Limited in IDEA from Global Communication Services Holding Limited. In such an eventuality, in terms of Clause 10.06, the applicants were bound to offer the shares at the same price to the non- applicant. Accordingly, a notice dated 5.4.2006 came to be served by Applicant No. 1 on its behalf and on behalf of its subsidiary M/s. Apex Investments (Mauritius) Holding Private Limited, offering the said shares to the non-applicant. In this notice, the material terms and conditions of the offer were specified vide para 3. It was stated:

"By this letter, TIL and Apex are intimating the AV Birla Group of their having received a bonafide offer for purchase of the Sale Shares and of TIL and Apex having accepted the offer made to them, subject to this prior offer being made to the AV Birla Group. Without prejudice to the notices of termination dated January 31, 2005 and February 27, 2006 issued by TIL to the AV Birla Group, TIL and Apex are hereby making the first offer for purchase of the Sale Shares to the AV Birla Group at the price and on the material terms and conditions mentioned above. This Offer Notice shall remain irrevocable for a period of 45 days after the Notice Date (i.e., 45 days after the receipt of this Offer Notice by yourselves).

On the very next day of this Offer, the non-applicant vide its communication dated 6.4.2006 accepted the Offer of Purchase. However, 14 it was specified in that reply that their acceptance of the Offer was without prejudice to their contentions that the notices of termination referred to in the said Offer Notice were not tenable. The applicant TIL on the very next day, i.e. 7.4.2006, conveyed that they would be shortly forwarding two Draft Share Purchase Agreements for the sale of IDEA shares held by Tata Industries Limited and Apex Investments (Mauritius) Holding Private Limited. However, in the second para of this Notice, it was reiterated as under:

"We reiterate that our offer and your acceptance thereof, is without prejudice to the notices of termination dated January 31, 2006 and February 27, 2006 issued by us, and your rival contentions which we have not accepted."

On 10.4.2006, the letter dated 7.4.2006 was replied to. There again, it was reiterated:

"As regards our position regarding the notices of termination, we wish to reiterate your position already communicated."

On 19.4.2006, by the even dated letter, the applicant reiterated that the non-applicant had breached the Confidentiality Clause and that the claim of the non-applicant that the data displayed on the website was not confidential under the Shareholders Agreement, is misplaced. It was asserted in para 6 of the letter that non-applicant No. 1 was making contradictory statements. It was lastly asserted:

15 "As already explained above, since the AV Birla Group is in violation of the provisions of the Shareholders Agreement, the First Notice and the Second Notice issued by us cannot be withdrawn. Since you have failed in agreeing upon the name of the international firm of auditors we shall therefore proceed in accordance with the Shareholders Agreement to do the needful in connection with determining the Fair Market Value of IDEA shares."

Again on 19.4.2006 by the letter of even date, the applicants reaffirmed the contents of Notices of Termination dated 31.1.2006 and 27.2.2006.

15. On 24.4.2006 the Non-applicant replied to the letter dated 19.4.2006 and intimated the applicants their readiness to make full and final payment against the delivery of shares by TIL and the Apex. On 24.4.2006 the applicants issued a notice requesting to commence the process of consultation with respect to the dispute which had arisen between the parties and which was more particularly highlighted in their earlier notices.

In that notice it was said:

"We note that vide your letters dated February 28, 2006, March 1, 2006, March 17, 2006, April 3, 2006 and April 24, 2006, you have disputed the contents of the said Notices and have also disputed the fact of commitment of "material breaches" of Section 3.04 and 9 of the Shareholders Agreement by you.

It is, therefore, apparent that a dispute has arisen between us in connection with the terms of the Shareholders Agreement."

16 A further reference was given to Clause 12.04 (b) of the Shareholders Agreement which provided for consultation and, therefore, by the same notice the process of consultation was called upon by the applicants.

Lastly it was straightaway suggested that:

"In case you are not interested in exploring the process of consultation as aforesaid, and would like to proceed with arbitral proceedings straight away, we would be agreeable to that procedure also."

On 27.4.2006 the non-applicant responded to the applicants consultation notice and asserted that there was no arbitral dispute surviving between the parties and, therefore, there was no longer a basis for arbitration regarding the issues set forth in the termination notices. The non-applicant also requested the applicants to withdraw the consultation notice. It was, therefore, pointed out through the notice dated 5.5.2006 by the applicants that the termination of the agreement on their part was made without prejudice to the pendency of the dispute and/or arbitration proceedings and the position was clarified from time to time. On 5.5.2006 the applicants formally served a letter by way of formal notice for arbitration. This notice was contested by the non-applicant by its letter dated 17.5.2006 again reiterating its position that there was no arbitrable dispute surviving between the parties. Hence on 19.5.2006, the applicants communicated to 17 the non-applicant that they had appointed their nominee Arbitrator under Clause 12.04 (d) of the Shareholders Agreement.

16. So far so good. Thereafter two share purchase agreements were entered into between the applicants and the non-applicant. There was a specific reference made to the claim of arbitration made on behalf of the TIL in Clause (d) which runs as under:

"In relation to the notices dated January 31, 2006 and February 27, 2006 issued by TIL (as a founder under the Shareholders Agreement as hereinafter defined) to the AV Birla Group, TIL has pending arbitration disputes with the AV Birla Group, TIL has not accepted the rival contentions of the AV Birla Group in respect of the said notices nor has the AV Birla Group accepted, TIL's claim pending Arbitration. As such, the execution of and consummation of the transaction contemplated by this Agreement shall not prejudice or affect the pendency of continuation of the arbitration proceedings between TIL and AV Birla Group."

In Clause 2.3 it was further specified in this Agreement that:

"TIL for itself and Apex has issued the Termination Notices.

The offer made by TIL to the AV Birla Groupa pursuant to the offer notice, was made without prejudice to he said Termination Notices, Grasim Industries Limited, as part of the AV Birla Group has refuted the Termination Notices. Further, in order to enforce the rights accrued to TIL and Apex on account of the Termination Notices, TIL, for itself and Apex has pursuant to clause 12.04(d) of the Shareholders Agreement on May 5, 2006 issued a notice to arbitrate to the AV Birla Group. Accordingly, this Agreement is being executed without prejudice to the rival contentions of either party with reference to the Termination Notices and the legal 18 rights which have accrued to each party (including Apex acting through TIL as founder) under the Shareholders Agreement."

In pursuance of this an application was filed before the Bombay High Court and as has been stated earlier, the said application came to be withdrawn and a fresh application came to be made before this Court for the appointment of Arbitrator.

Mr.Harish N. Salve, Mr.R.F. Nariman and Mr.Mukul Rohtagi, Senior Counsel on behalf of the applicants painstakingly took the court through the Shareholders Agreement as well as the Share Purchase Agreement. The Court was taken through the whole history along with necessary documents and it was reiterated that the appointment of Arbitral Tribunal was a must for resolving the live issues between the parties. Learned counsel firstly urged that there was no dispute about there being Shareholders Agreement to which contesting entities were the parties and further that the applicants held shares in IDEA subject to discipline of Shareholders Agreement. Learned counsel thereafter relied upon the Notice dated 31.1.2006 whereby a material breach was alleged on the part of the non-applicant, i.e., to secure the licences which would necessarily involve business in competition with IDEA. The attention of the Court was also drawn to the second notice dated 27.2.2006 by which the confidentiality clause was alleged to have been breached, which breach 19 was an incurable breach. Thus the applicants asserted that under the terms of the Shareholders Agreement, the applicants were entitled to purchase the shares of the non-applicant in the event of the breach at a price that was heavily discounted price, i.e., at 25% less than the market price as per clause 9.02(b)&(c) of the Shareholders Agreement. It was, therefore, urged that the dispute had arisen which has been shown in the Termination Notices dated 31.1.2006 and 27.2.2006, which has been disputed by the non-applicant's reply dated 28.2.2006 and 1.3.2006. It was, therefore, urged that such dispute clearly fell within the Arbitration Clause. It was further urged that there was a live issue between the parties and that there was a difference between a live issue and a live claim. It was urged that whether the claim had any merit or not was a matter which could be considered at the stage of appointing an Arbitrator and an issue which has never been closed or treated to have been closed remains a live issue. Heavy reliance was placed on the judgment of this Court reported in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. [(2007) 4 SCC 599 at p.607]. It was, therefore, urged that as per the principles laid down, the initial notices of termination were disputed by the non-applicant; that on 27th March, 2006 an international firm of auditors was appointed by the applicants to determine the fair value of shares; that on 5th April, 2006, the applicant had received an offer for selling these shares to a third party and 20 on that very date the applicant had raised the dispute although the arbitration proceedings had by then not yet commenced. It was pointed out by the learned counsel that the non-applicant in its reply dated 28.2.2006 had very clearly understood this position and has reiterated therein as under:

"Your Second Notice is wrongful, illegal, malafide, non est factum and designed to take advantage of your own wrongs.

The Shareholders Agreement continues to subsist under law and contract, despite the second notice. Such notice is of no consequence under the Shareholders Agreement or in the eyes of law. You are not entitled to rely upon or take any advantage based upon the Second Notice."

Learned counsel pointed out that in the first notice there was no termination of contract but it was a notice to correct the material breach while the second notice purported to terminate the Agreement. Learned counsel also pointed out that in the reply dated 28.2.2006 there was a tacit agreement that the Shareholders Agreement remained in existence inasmuch as it was stated in its notice that:

Any breach by you of the provisions of the Shareholders Agreement relating to transfer of shares will result in an invalid and illegal transfer, which will not be binding on either Idea or the Birla Group. Also, such breach will be a material breach under Section 9.02 of the Shareholders Agreement. Please be advised that the Birla Group is committed to asserting its rights in respect of any attempted breach in accordance with law. Please also note that any third party participating in any sale of the shares of Idea held or controlled by the Tata Group will also be liable to the Birla Group. We also hereby put all 21 such third parties on notice of your obligations towards the Birla Group, and the Birla Group's potential claims against them for inducing the breach of the Shareholders Agreement."

Learned counsel further argues that the offer which was made on 5th April, 2006 was a "without prejudice" offer which was accepted by non-applicant on "without prejudice" basis on 6th April, 2006 and therefore, when on 24th April, 2006 the non applicant informed the applicants that they were ready to make full and final payment on the same day, the applicants requested to commence the process of consultation to resolve the dispute which had arisen. Learned counsel also pointed out that subsequently when the Share Purchase Agreement was executed on 1st June, 2006, it contained clauses which made it clear that the disputes were being kept outside this arrangement and they would be resolved separately and thus the live issue remained to be alive.

It was further argued that though the non-applicant had contested the notices of termination suggesting that there was no arbitrable issue, still an agreement was entered into on 1st June, 2006 wherein there was clear reference to the clauses keeping the disputes arising out of the live issues alive. Learned counsel relied upon the following observations made in Heyman & Anr. v. Darwins Ltd. [(1942) 1 All E.R. 337]:

"Repudiation, then, in the sense of a refusal by one of the parties to a contract to perform his applications, thereunder, 22 does not of itself abrogate the contract. The contract is not rescinded. It obviously cannot be rescinded by the action of one of the parties alone. Even if the so-called repudiation is acquiesced in or accepted by the other party, that does not end the contract. The wronged party has still his right of action for damages under the contract which has been broken, and the contract provides the measures of those damages. It is inaccurate to speak in such cases of repudiation of the contract. The contract stands, but one of the parties has declined to fulfil his part of it. There has been what is called a total breach or a breach going to the root of the contract, and this relieves the other party of any further obligation to perform what he for his part has undertaken."

"I am accordingly of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate a contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by a contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purpose of the contract have failed, but the arbitration clause is not one of the purposes of the contract."

Similarly other observations by House of Lords reported in the above case were also heavily relied upon to the effect:

"To say that the contract is rescinded or has come to an end or ceased to exit may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that, upon acceptance of the renunciation of a contract, the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the 23 consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.

The injured party may therefore rely upon the contract and apply to have the action stayed if he desires to do so."

"The same observations as apply to accepted repudiation apply, I think to frustration. The phrase `frustration of the contract' is as inaccurate in expression as is the phrase `rescission of the contract by repudiation'. The contract is not frustrated. Its future performance or the adventure is frustrated. The damages are still at large and so is the question whether, having regard to the terms of the contract express or implied, there has been frustration or not. This appears to have been recognized in Scott & Sons v. Del Sel [(1923) S.C. (H.L.) 37) which though a Scottish case was decided on the same principles as apply in English law, and is binding upon your Lordships' House. So far as the case of Hirji Mulji [(1926) AC 497], which is not binding, lays down a different principle, I do not think it should be followed, despite the authority which is undoubtedly possesses."

Shortly stated the claim of the applicants is for the profits they had become entitled to by the breach of confidentiality clause on the part of the non- applicant which profit was on account of applicant's entitlement to purchase the shares of non-applicant at the rate 25% less than the market price. Its reiteration is that though subsequently it agreed to sell all its shares to the non-applicant on account of the offer having been made to it by Global Communication Services and though subsequently the Share Purchase Agreement dated 1.6.2006 was executed between the applicants and the non-applicant, since the said agreement was subject to the disputes raised 24 earlier and without prejudice to its rights it could still lay its hand on its claim.

As against this Shri K.K. Venugopal, Dr. Abhishek Manu Singhvi and Shri Shyam Diwan, learned senior counsel for the Non-applicant opposed the appointment of Arbitral Tribunal on various grounds and basically on the ground that there was no live issue remaining pending between the parties. The major contention is that by Share Purchase Agreement, the applicants had made an exit from the company and, therefore, they were left with no rights under the Shareholders Agreement. A very heavy reliance was placed by Shri Venugopal on Clauses 7.01 (a) and (b) which are as under:

"7.01 (a) For a founder to exercise its rights under this Agreement, the Founder must hold 15% of the issued, subscribed and paid up Equity Capital (the "Threshold Limit").

(b) Should the shareholding of any Founder fall below the Threshold Limit;

i) Such Founder shall not be entitled to exercise any rights under this Agreement;

ii) Such Founder shall comply with all obligations set forth in this Agreement;

iii) Such Founder shall act in accordance with the instructions of the other founders;

iv) any disposal by such Founder of any shares held by it shall be in accordance with Article X."

25 Heavily relying on this clause, the learned Senior Counsel argued that once by a Share Purchase Agreement, the applicants agreed to sell their shares to the non-applicant and due to such act once the shareholding of the applicants fell below 15%, it had no right to assert more particularly under the Shareholders Agreement. Learned counsel argues that there were two options to the applicants when they received an offer from Global Communications Services, a third party, for the sale of their shares if the applicant had accepted the offer. First option was to sell the entire shareholding to Global Communications and exit IDEA in which case the non-applicant could also choose to sell its entire shareholding in IDEA to Global Communications by giving a Special Disposal Notice and once the Tata Group allowed the Birla Group to sell all its shares to Global Communications, it could no longer require the Birla Group to then sell the same shares to the Tata Group for the reason that Birla Group would no longer have those shares. The second option, according to the learned counsel was to sell the entire shareholding in IDEA to the non-applicant and exit IDEA. According to the learned counsel in both these cases on acceptance of the offer by the applicants from Global Communications, there would be an inevitable result of voluntary effacement of all rights that the applicants claim on the Birla Group shareholding in IDEA. It was pointed out that the applicants had accepted this offer from the Global Communications much before it attempted to reserve any rights against the non-applicant and, therefore, had irrevocably elected to exit IDEA, electing 26 for second option. It was, therefore, urged that there was a concluded contract between Global Communications and the applicants even before a letter dated 5.4.2006 was sent by the applicants to Birla Group to purchase their shareholding in IDEA and hence the applicants had elected to exit IDEA themselves. In support of this proposition, the learned counsel relied on three cases:

(i) Sargent and ASL Developments Limited, reported at (1974) 4 Australian Law Reports (A.L.R.) 257.

Pushpa Devi Saraf and others, reported at 2006 7 SCC 756. and another, reported at 2006 2 SCC 641.

21. In short, it was contended that by accepting the offer of Global Communications the claim made by the applicants under Termination Notices for purchase of Birla Group shareholding in IDEA at a defaulting price got necessarily effaced with the subsequent option given in the offer notice to Birla Group to sell their entire shareholding to Global Communications. It was further urged that with the offer of sale to Global Communications, the applicants recognized and acquiesced that the Birla Group's shareholding in IDEA was not subject to any encumbrance or 27 reservations and the applicants, therefore, necessarily abandoned all purported claims for the purchase of Birla Group's shareholding and there was nothing left with the applicants to reserve in the offer notice or any documents executed thereafter. It is pointed out that the Agreement to Sell to Global Communications took place without any notice to the Birla Group and contrary to the alleged right of applicants to buy out Birla Group and remain invested in IDEA with increased shareholding, the applicants themselves exited IDEA by selling their shares to Birla Group companies and thereby reducing the Tata Group's shareholding in IDEA to Nil. It is accordingly suggested that as a result all rights of Tata Group pursuant to Termination Notices were effaced and there was no arbitrable dispute surviving between the parties. It is pointed out that there was no claim for damages in the Termination Notice and in fact such a claim was not even possible because it was excluded by the decision to seek a buy out under Section 9.02 of the Shareholders Agreement. It was then stated that the claim by the applicants was frivolous and unsustainable because of the alleged loss of an opportunity to buy out Birla Group's shareholding in IDEA was not caused by any breach of contract by any Birla Group company but it was by applicants' own voluntary decision to exit the company and thereby lost the right to acquire Birla Group's shareholding in IDEA. It is pointed that the purported rights of the applicants under the Termination Notice is not possible in law also particularly because the Tata Group's election to exit IDEA and to let Birla Group remain invested in 28 IDEA and as such all their claims were erased. Learned counsel also relied on Clause 7.01(b)(i) of the Shareholders Agreement which is as under:

i) Such Founder shall not be entitled to exercise any rights under this Agreement;

It was suggested that even if the Arbitration clause remains inspite of the termination of the Shareholders Agreement, because of the above mentioned clause, there is complete bar created on the exercise by the applicants of the substantive right to seek a buyout. A live procedural mechanism of dispute resolutions through arbitration cannot be set in motion to enforce a dead claim and, therefore, there would be no question of starting an arbitration proceeding.

22. As to what should be the approach of the Court in an application Engineering Ltd. and Another reported in 2005 8 SCC 618. This was a decision to resolve as to whether the Chief Justice of India or his nominee, while dealing with the matters under Section 11(6) acts in his administrative capacity or his judicial capacity. The Court ultimately, held that the Chief Justice of India acts in his judicial capacity. Hon. P.K. Balasubramanyan, J., who authored the judgment on behalf of the majority, in his conclusions, pointed out clearly in point iv (points i, ii and iii not relevant) that:- 29 "(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators..........................."

The law, thus, stands crystalised by this judgment indicating the exact scope of the Judge in dealing with an application under Section 11(6) of the Act. The judgment was thereafter considered in number of cases.

SCC 599, it was observed relying on observations made in paragraph 39 of SCC 618 (cited supra):

"A glance on this para would suggest the scope of the order under Section 11 to be passed by the Chief Justice or his designate. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims, there will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine as to whether there remains anything to be decided between the parties in 30 respect of the agreement and whether the parties are still at issue on any such matter. If the chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties........"

"It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal.

All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation."

In the wake of above decision, it will be now necessary to see whether a live claim or a live issue exists in between the parties.

23. As has already been clarified in the earlier part of the judgment that there is jurisdiction in this Court to decide the application, secondly, there is arbitration agreement between the parties, and thirdly, the claim is not barred by limitation, the only issue which has to be decided is whether there is a live issue in the sense as to whether the parties have already concluded or recorded their satisfaction regarding the issues or whether the parties are still in contest regarding certain issues.

24. In the backdrop of what has been asserted by the applicant and the stands taken by the non-applicant, it would be first better to note certain dates, which are of extreme importance. It will be seen there as below:

31 15.12.2000: A Shareholders Agreement (SHA) came into effect between AT&T Group, Birla Group and Tata Group.

9.11.2005: The name of AT&T Cellular Pvt. Ltd., Mauritius was changed to M/s. Apex Investments (Mauritius) Holding Private Limited (APEX).

31.1.2006: The first termination notice was served by the applicant on the non-applicant, alleging breach of Shareholders Agreement on account of the non- applicant Company having applied for Unified Access Service Licenses (UAS Licenses), enabling license holder to provide any kind of telecommunication service for Mumbai Metro circle and thereby committing breach of Article 3.04 (b) of the Shareholders Agreement and asking the non-applicant to remedy the breach within 60 days.

27.2.2006: A second termination notice was sent by the applicant to the non-applicant claiming that there was a breach of confidentiality clause committed by the non-applicant and since this breach was 32 incapable of being cured, the applicant demanded to purchase the shareholding of the Birla Group within 90 days of the said notice at a default price.

28.2.2006: The non-applicant disputed the first termination notice dated 31.1.2006, while on 1.3.2006, the non-applicant replied to the second termination notice dated 27.2.2006.

16.3.2006: The applicants reiterated both the termination notices.

17.3.2006: The non-applicant wrote a letter observing therein:

"..... Based upon your above- referenced two letters, we conclude the Shareholders Agreement continued to remain valid, subsisting and enforceable."

27.3.2006: The applicants reiterated the second notice of termination insisting that they were entitled to acquire shares and shown their readiness to appoint international firm of auditors to determine the fair market value of the shares to be purchased by them.

33 3.4.2006: The non-applicant refused the claim once again.

5.4.2006: The applicant received the offer from Global Communication Services for purchasing its stake in IDEA and hence, it makes offer for the sale of its shareholding under clause 10.06 to the non- applicant. This offer notice was expressly "without prejudice" to both the termination notices.

6.4.2006: This offer was accepted by the non-applicant.

However, it was clarified that the acceptance of this offer was without prejudice to the contention that the notices of termination were not tenable.

7.4.2006: The applicant sent the letter stating therein that it would be shortly forwarding two Draft Share Purchase Agreement for the sale of IDEA shares held by it and M/s. Apex Investments (Mauritius) Holding Private Limited. There was again a reiteration that the offer made by it and the acceptance thereof was without prejudice to the termination notices dt. 31.1.2006 and 27.2.2006.

10.4.2006: The non-applicant submitted the particulars of the Birla Group Companies, which would be 34 purchasing the shares of the applicant and M/s.

Apex Investments (Mauritius) Holding Private Limited under the two Share Purchase Agreements with the percentage of shares to be purchased by such companies.

19.4.2006: The applicant reaffirmed its termination notices dt.