Full Judgment Text
2015:BHC-OS:9660
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 560 OF 2013
Welspun Enterprises Limited, )
A company incorporated under the )
provisions of the Companies Act, 1956 )
having its registered office at TradeWorld)
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B Wing, 9 Floor, Kamla Mills Compound)
Senapati Bapat Marg, Lower Parel (West)
Mumbai 400 013 ) ….. Petitioner
Versus
1. ARSS Infrastructure Projects Limited )
A company incorporated under the )
provisions of the Companies Act, 1956, )
having its registered office at Sector A, )
Zone D, Plot No.38, Mancheswar Industrial)
Estate, Bhubhaneshwar 751010 )
2. ARSS Bus Terminal Private Limited )
a company incorporated under the )
Companies Act, 1956 and having its )
registered office at 73 HIG, BDA Housing)
Complex, Ekamra College Square, Kapil )
Prasad, Bhubhaneshwar 751002 )
3. Orissa State Road Transport Corporation)
a statutory body constituted under the )
Road Transport Corporation Act, 1950, )
having its office at Paribahan Bhawan, )
Sachivalaya Marg, Bhubhaneshwar 751009) ….. Respondents
Mr.Vikram Nankani, Senior Advocate, a/w.Ms.Rhia Marshall, Ms.Mihika Jalan,
i/b. Economic Law Practice for the Petitioner.
Mr.R.Banarjee, Senior Advocate, a/w. Mr.Ratnesh Rai, Mr.Gautam Tiwari, i/b.
Mr.Prateik Parija for Respondent No.1.
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Dr.Birendra Saraf, a/w. Mr.I.J.Nankani, Mr.H.S.Khokhawala, i/b. Nankani &
Associates for Respondent No.2.
CORAM : R.D. DHANUKA, J.
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RESERVED ON : 30 JULY, 2015
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PRONOUNCED ON : 3 AUGUST, 2015
JUDGMENT :
By this petition filed under section 9 of the Arbitration and Conciliation Act,
1996, the petitioner seeks an injunction against the respondent no.3 from making
payment of the amount of Rs.18,66,66,667/- or any other amount in relation to the
project on account of cancellation of the concession agreement to the respondent
no.1 or any other person, except as and by way of refund to respondent no.2.
Some of the relevant facts for the purpose of deciding this petition are as under :-
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2. On 14 December, 2009 the Department of Commerce and Transport,
Government of Odisha, invited proposals for the development of modern
Baramunda Bus Terminal alongwith commercial facility at various locations
including in Odisha including Bhubaneshwar on public private partnership mode
i.e. on BOT basis.
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3. Respondent no.1 submitted a bid on 26 July, 2010 of Rs.56 crores towards
concession fee as premium for the development of the project and was selected as
a preferred bidder in the development of the project. Respondent no.3 issued a
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letter of acceptance in favour of the respondent no.1. On 24 August, 2010 the
respondent no.2, a special purpose vehicle company was incorporated and was
registered with the Registrar of Companies, Cuttack as a limited liability company.
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4. On 24 August, 2010, the respondent no.1 intimated respondent no.3 of
incorporation of respondent no.2. On behalf of respondent no.2 a sum of
Rs.2,33,24,038/- was paid as the project development fees to respondent no.3 and
also a sum of Rs.18,66,667/- was paid also as the first installment towards the
upfront concession fees. It is the case of the petitioner that those payments were
capitalized in the books of accounts of respondent no.2 and also reflected in the
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latest audited financial statement for the year ended 31 March, 2012. The upfront
concession fee amount of Rs.18,66,66,667/- was also reflected under the heading
Capital Work in Progress of the said financial statement of the respondent no.2.
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5. On 25 August, 2010, on behalf of respondent no.2 a bank guarantee dated
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24 August, 2010 amounting to Rs.18,66,66,667/- was furnished towards second
installment and bank guarantee for Rs.18,66,66,667/- towards third installment i.e.
as security towards remaining amount of the concession fees of Rs.56 crores. The
bank guarantee charges/commission were also debited to the books of respondent
no.2 and are reflected in the audited financial statements of respondent no.2 for the
financial year 2011-2012.
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6. On 29 September, 2010, the respondent no.1 provided a bank guarantee of
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Rs.1 crore towards construction performance security to respondent no.3. On 20
December, 2010 on the order of Government of Odisha, General Administration
Department allotted land to respondent no.3 on which the project was to be
developed. The respondent no.3 was allowed to enter into a concession agreement
with the highest bidder in order to expedite the process for development of modern
bus terminal at Baramunda.
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7. On 16 March, 2011 the respondent no.1 described as 'Preferred Bidder',
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respondent no.2 described as 'the Concessionaire' and respondent no.3 described
therein as 'the Grantor' entered into a concession agreement for implementation of
the said project. It is the case of the petitioner that in accordance with its
obligation under the concession agreement, respondent no.2 submitted the renewed
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bank guarantee for the second installment upto 23 February, 2013.
8. It is the case of the petitioner that in the month of June 2011, the respondent
no.1 approached the petitioner with its intention of forming a joint venture with the
petitioner by diluting its shareholding in respondent no.2. The petitioner,
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respondent no.1 and respondent no.2 accordingly executed a Term Sheet on 4
July, 2011 outlining the terms of such joint venture.
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9. On 3 August, 2011 the Share Subscription and Shareholders' Agreement
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dated 3 August, 2011 came to be executed between the petitioner, respondent no.1
and respondent no.2. Under the terms of the said agreement, the petitioner
subscribed to 77,72,727 equity shares having its face value of Rs.10 each of the
respondent no.2 constituting 45% of respondent no.2's equity share capital on a
fully diluted basis. The petitioner paid a sum of Rs.7,77,27,270/- to respondent
no.2 for subscribing to 7,77,27,270 equity shares. It is the case of the petitioner
that out of all the moneys brought in by the respondent no.1 and shown towards
share application money in the books of account of respondent no.2, 59,60,000
equity shares were freshly issued and 35,40,000 equity shares were acquired by
respondent no.1 from the original shareholders of respondent no.2. Respondent
no.1 holds 95,00,000 equity shares of respondent no.2.
10. It is the case of the petitioner that out of Rs.7,77,27,270/- paid by the
petitioner to the respondent no.2, a sum of Rs.7,70,00,000/- was immediately
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withdrawn/refunded to respondent no.1 by respondent no.2 on 4 August, 2011.
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11. On 21 December, 2011, the respondent no.2 addressed a letter to
respondent no.3 intimating respondent no.3 about the shareholding pattern of
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respondent no.2 as on 21 December, 2011 i.e. 55% shareholding of the respondent
no.1 and 45% shareholding of the petitioner.
12. Sometimes in the month of June, 2012, the shareholding of the petitioner
was increased in the respondent no.2 from 45% to 49% after obtaining necessary
approvals from its shareholders including respondent no.1 for which purpose
petitioner paid a further sum into respondent no.2 company.
13. It is the case of the petitioner that the respondent no.1 was facing severe
financial crisis and had approached its lenders for Corporate Debt Restructuring.
The respondent no.1 also approached the petitioner and expressed its inability to
fund/invest the project beyond 26% shareholding in respondent no.2.
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14. On 6 September, 2012 the respondent no.1 addressed a letter to the
respondent no.3 and pointed out its severe financial constraints and requested for
respondent no.3's approval for diluting respondent no.1's equity share capital in
respondent no.2 company to 26% and increase the petitioner's equity share capital
to 74%.
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15. On 28 November, 2011 Mr.Samir Mohanty filed a writ petition (30961 of
2011) by way of a public interest litigation before the Orissa High Court, inter alia
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praying that the concession agreement be quashed. By an order dated 20
December, 2012, Orissa High Court allowed the said writ petition and held that the
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concession agreement was void-ab-initio for non-compliance with the mandatory
requirement of Article 299 of the Constitution of India and the other provisions of
law.
16. By virtue of the said order, the concession agreement executed between
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respondents stood cancelled. On 8 April, 2013, respondent no.2 addressed a letter
notifying respondent no.3 that all transactions relating to payments by respondent
no.3 to respondent no.2 and vis-a-versa shall be made through respondent no.2's
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bank account and also submitted audited accounts for the year ending 31 March,
2012 to respondent no.3.
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17. On 9 April, 2013, the Commissioner cum Secretary to Government,
Commerce and Transport Department, Government of Odisha addressed a letter to
respondent no.2 stating that Government had decided not to prefer an appeal
against the order passed by Orissa High Court and suggested to take immediate
action i.e. for cancellation of concession agreement, for refund of the bank
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guarantee, payment made towards 1 installment of the concession fee etc. It is the
case of the petitioner that the respondent no.1 had made representation to the
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respondent no.3 that refund of the 1 installment of concession fees of
Rs.18,66,66,667/- should be made to it rather than the respondent no.2.
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18. On 11 April, 2013, the respondent no.3 addressed a letter to the respondent
no.1 and requested that respondents shall attend the meeting convened by
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respondent no.3 on 12 April, 2013 to resolve the issue regarding the refund of
Rs.18,66,66,667/- and regarding the bank guarantees. It is the case of the
petitioner that the said meeting was attended by the representative of respondent
no.1 who claimed that respondent no.3 should refund the amounts including
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Rs.18,66,66,667/- to respondent no.1 and not to the respondent no.2.
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19. On 12 April, 2013, the respondent no.2 addressed a letter to the respondent
no.3 with a copy marked to Commissioner Cum Secretary Commerce and
Transport Department and annexed therewith the submissions made by respondent
no.2 to respondent no.3.
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20. By a letter dated 30 April, 2013, addressed to respondent no.2, respondent
no.3 terminated the concession agreement on the grounds of force majeure. On
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10 May, 2013 the petitioner addressed another letter to the respondent no.3 not to
release any payment in favour of the respondent no.1.
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21. The petitioner thereafter filed this petition on 20 May, 2013 inter alia
praying for interim measures and applied for ad-interim reliefs. By an order dated
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30 May, 2013, this court granted ad-interim relief in terms of prayer (a) thereby
restraining the respondent no.3 from making payment of Rs.18,66,66,667/- or any
other amount in relation to the project on account of cancellation of the concession
agreement to respondent no.1 or any other person, except as and by way of refund
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to respondent no.2. This court also took cognizance of the fact that the 1
respondent had applied for refund of the said amount from the third respondent and
was unable to make any statement that till application of respondent no.2 filed
before the High Court of Orissa was decided, respondent no.1 would not receive
any amount from respondent no.3. This court also prima facie observed that the
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present application was made by the petitioner who holds 49% share of the 2
respondent company and was thus entitled to seek the reliefs under section 9 of the
Act independently. This court however kept the issue of maintainability raised by
the respondent no.1 open and clarified that the same would be decided at the time
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of admission of the present petition.
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22. On 19 June, 2013 this court directed the respondent no.2 to pursue the
application filed by respondent no.2 before Orissa High Court expeditiously and
not later than four weeks from the date of the said order and continued the ad-
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interim order dated 30 May, 2013 till the disposal of the arbitration petition.
23. Mr.Nankani, learned senior counsel appearing for the petitioner invited my
attention to various documents annexed to the petition and also the allegations
made by the respondent nos. 1 and 2 in their affidavits and submits that in view of
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the provisions of Share Subscription and Shareholders' Agreement dated 3
August, 2011 and more particular under clause 12 thereof, it is clear that the costs
mentioned in the cost statements which reflected the costs contributed by
respondent no.1 was to be considered as costs incurred by respondent no.1 to
subscribe to the equity share capital of the respondent no.2 and respondent no.2
shall not be liable to return the said amount to the respondent no.1.
24. It was further provided that if any further issue beyond the equity shares to
its shareholders was to be issued to respondent no.1, the respondent no.1 would not
be liable to pay to the respondent no.2 any moneys in connection with such further
issue till such time the amount mentioned in the costs statements less
Rs.9,50,00,000/- equalled the costs of subscription to such further issue and once
the adjustment amount was extinguished, the respondent no.1 shall be required to
pay to the company the same cost of subscription as applicable to the other
shareholders in connection with further issues of equity shares by the company. It
is submitted that by virtue of this provision, the amounts paid by the respondent
no.1 in its individual capacity to the respondent no.3 were converted into the equity
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share capital of the respondent no.1 in respondent no.2. The respondent no.2 has
already issued equity shares in favour of the respondent no.1 and to the extent the
amount reflected in the costs statement are not equal to the cost of subscription
account, if further shares are issued if any, the respondent no.1 would not be liable
to pay such amount to the respondent no.2.
25. It is submitted that in view of this agreement arrived at between the parties,
the respondent no.1 could not make any claim for refund of the amount from the
respondent no.3 which was payable to the respondent no.2 upon termination of the
concession agreement. He submits that the said amount paid to the respondent
no.3 was all throughout treated as the amount as if paid by the respondent no.2 and
the contract was also executed by the respondent no.3 with the respondent no.1 and
respondent no.2 in which the respondent no.1 was described as 'preferred bidder'.
26. Learned senior counsel invited my attention to the balance-sheet of the
respondent no.2 and also correspondence exchanged between the respondent no.1
and respondent no.3 in which the respondent no.1 had applied for permission from
respondent no.3 to dilute its equity share capital in respondent no.2 and to increase
the equity share capital of the petitioner to 74%. He submits that admittedly, the
respondent no.1 has been facing financial crisis and has applied for reliefs under
Corporate Debt Restructuring.
27. Learned senior counsel for the petitioner invited my attention to clause 32.2
of the agreement entered into between the petitioner, respondent no.1 and
respondent no.2 which records an arbitration agreement and also to clause 32.2.8
which provides for jurisdiction of court at Mumbai in case of dispute between the
parties arising out the said share subscription and shareholders' agreement.
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28. Learned senior counsel also invited my attention to various portions of the
balance-sheet and would submit that even the bank guarantee commission charges
which were paid by the respondent no.1 were admittedly debited to the account of
the respondent no.2 which would also indicate that the contract awarded in favour
of the respondent no.1 was transferred to respondent no.2. He submits that after
the petitioner contributed substantial amount for acquiring 45% initially, the
respondent no.1 had withdrawn substantial amount from respondent no.2 out of the
amount paid by the petitioner. He submits that since the arbitration proceedings
are pending, the respondent no.1 cannot be allowed to withdraw any amount from
the respondent no.3 and the ad-interim order passed by this court shall be
confirmed.
29. Dr.Saraf, learned counsel appearing for the respondent no.2 submits that the
respondent no.2 is a separate legal entity and is entitled to get the refund of the
amount paid by the respondent no.2 to the respondent no.3 upon termination of the
said contract. He submits that there are various statutory liabilities and creditors of
respondent no.2 which are required to be cleared and which can be cleared only if
the amount lying with the respondent no.3 are received by the respondent no.2.
30. Mr.Banarjee, learned senior counsel appearing for respondent no.1 on the
other hand invited my attention to the various correspondence and various
agreements entered into between the parties to the present proceedings and would
submit that prior to the incorporation of the respondent no.2, respondent no.1 had
paid various amounts to the respondent no.3 admittedly under the said concession
agreement which was awarded to the respondent no.1. He submits that the
petitioner had admittedly not contributed any such amount at that stage. He
submits that respondent no.2 was incorporated after such payments were made by
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the respondent no.1 to the respondent no.3. It is submitted that the petitioner was
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not even a party to the concession agreement dated 16 March, 2011 which was
entered into between the respondent no.1, respondent no.2 and respondent no.3.
31. It is submitted that the dispute about the refund of the amount by the
respondent no.2 in favour of the respondent no.1 or respondent no.2 would be a
dispute arising under concession agreement to which the petitioner was not even a
party. He submits that the dispute about the refund of the amount recoverable of
respondent no.3 would not be a dispute under the Share Subscription and
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Shareholders' Agreement dated 3 August, 2011 and thus the present petition filed
under section 9 by invoking arbitration agreement recorded in the Share
Subscription and Shareholder's agreement recorded in the Share Subscription and
Shareholders' Agreement is not maintainable on that ground alone.
32. It is submitted by the learned senior counsel that since the respondent no.3
was not a party to the said Share Subscription and Shareholders' Agreement and
was not party to the arbitration agreement recorded therein, no relief can be
granted by this court under section 9 of the Arbitration Act against the respondent
no.3. He submits that the petitioner has sought direct relief against respondent
no.3 in the present petition.
33. In support of his submission that various payments were made by the
respondent no.1 to respondent no.3, the learned senior counsel invited my attention
to various recitals and clauses of the concession agreement which records the
payments made by the respondent no.1 to respondent no.3. He invited my
attention to the averments made in the arbitration petition by the petitioner and in
particular paragraph V and (6) of the petition and also the prayer clauses in which
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the petitioner has admitted that the respondent no.3 was liable to refund the amount
to the respondent no.2. He submits that since no relief is prayed by the petitioner
individually in its favour and the reliefs being sought in favour of respondent no.2,
the action of the petitioner would be a derivative action and cannot be pursued by
the petitioner in its independent capacity on behalf of the respondent no.2. In
support of his submission, learned senior counsel placed reliance on the judgment
of this court in case of Onyx Musicabsolute.com Pvt.Ltd. vs.Yash Raj Films Pvt.
Ltd. & Ors., reported in 2008(6) Bom.C.R.418 and in particular paragraphs 4, 5,
14, 17 and 18. He also placed reliance on the judgment of Calcutta High Court in
case of Narendra Kumar Berlia vs. Om Prakash Berlia reported in 2011(3) CHN
(CAL) 147 and in particular paragraphs 11 and 12 in support of the aforesaid
submissions.
34. The next submission of the learned senior counsel for the respondent no.1 is
that since the application filed by the respondent no.2 before the High Court of
Orissa in Writ Petition (C) No.30961 of 2011 inter alia praying for a direction to
the respondent no.3 not to release any amount in favour of the respondent no.1
until the entity who is entitled to refund of the said amount is decided is rejected,
no relief in favour of the petitioner in the present proceedings against respondent
no.3 can be granted by this court.
35. Learned senior counsel for the respondent no.1 also invited my attention to
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the order passed by the Company Law Board on 20 August, 2013 in Company
Petition No.183 of 2013 which was filed by the respondent no.1 against the
respondent no.2 and others. By the said order, the Company Law Board has
passed an ad-interim order restraining the respondent nos.1 and 2 both from
receiving and claiming any money from any State Authority in the name of the
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respondent no.2 company and in case any such name is already received in the
account of the respondent no.2 company, the said company is directed not to utilize
such money for any purpose without taking the leave of the Company Law Board.
Learned senior counsel submits that the said order passed by the Company Law
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Board on 20 August, 2013 is in force. He submits that in view of the said order
passed by the Company Law Board, this court cannot direct the respondent no.3 to
pay any amount either to the petitioner herein or to respondent no.2.
36. Mr.Nankani, learned senior counsel for the petitioner in rejoinder once again
placed reliance on clause 12 of the Share Subscription and Shareholders'
Agreement and submits that the respondent no.1 could not have demanded any
payment from respondent no.3 in its own name on the premise that the original
investment was made by the respondent no.1 when the contract was awarded to the
respondent no.1 by the respondent no.3. Insofar as submission of the learned
senior counsel for the respondent no.1 whether action of the petitioner would be of
the nature of derivative action or not, learned senior counsel distinguished the
judgment of this court in case of Onyx Musicabsolute.com Pvt.Ltd. (supra) and
the judgment of Calcutta High Court in case of Narendra Kumar Berlia (supra)
on the ground that the facts before this court and also before the Calcutta High
Court in the said judgment was totally different. He submits that in this case, the
petitioner has applied for interim measures for protecting the rights of the
petitioner and not simplicitor the respondent no.2. Learned senior counsel placed
reliance on the judgment of this court in case of Rajiv Vyas vs. Johnwin
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Manavalan and others delivered on 6 July, 2009 in Arbitration Petition No. 222
of 2008 and would submit that after adverting to the judgment of this court in case
of Onyx Musicabsolute.com Pvt.Ltd. (supra) , this court has held that the
proceedings filed by a shareholder to protect his rights and shareholding in the
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company cannot be in the nature of derivative action. Reliance is placed on
paragraphs 18, 21 to 23 of the said judgment.
REASONS AND CONCLUSIONS
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37. A perusal of the concession agreement dated 16 March, 2011 indicates that
the said agreement was entered into between the respondent no.1, respondent no.2
and respondent no.3. The respondent no.1 was referred to in the said agreement as
the 'preferred bidder'. In the said agreement, various payments made by the
respondent no.1 to the respondent no.3 have been described towards project
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development fee and 1 installment of concession fees. Various bank guarantees
were executed by the respondent no.1 in favour of respondent no.3 have been also
described. It is not in dispute that the petitioner herein was not a party to the said
concession agreement.
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38. A perusal of the Share Subscription and Shareholders' Agreement dated 3
August, 2011 which was entered into between the petitioner, respondent no.1 and
respondent no.2 clearly indicates that on the date of the execution of the said
agreement, respondent no.1 held 100% of the equity share capital of the respondent
no.2. The party agreed to record the terms and conditions of the petitioner
subscribing to the subscription shares and its rights and obligations as a
shareholders in respondent no.2 and also in relation to the organization
management and operation of the respondent no.2 company.
39. Under the said agreement, 'costs statements' had been defined which means
the monies contributed by the respondent no.1 to fund the expenses incurred by the
respondent no.2 in connection with the company's business and more particularly
setout in Schedule E. The petitioner agreed to subscribe to the subscription share
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of respondent no.2 company on the terms and conditions setout therein. The
respondent no.2 agreed to allot and deliver the subscription share fee and clear all
encumbrances and togetherwith all rights, title, interest and benefits appertaining
thereto. The parties agreed that the subscription amount shall be utilized by the
respondent no.2 company exclusively for its business in a manner as may be
decided by the board from time to time. Each of the party to the said agreement
had a corporate power and authority to execute and deliver the terms and
provisions of the said agreement and had agreed not to contravene any of the
provision of any applicable law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental instrumentality to which it was
subject, violate any provision of its memorandum and articles of association or any
other similar constitutional documents. There was also a provision about the
appointment of nominees on the board of respondent no.2 by the petitioner and
respondent no.1. Under clause 6 of the said agreement, the respondent no.2 also
was under obligation to comply with various terms and conditions setout therein in
respect of the contract awarded to the respondent no.2 company.
40. Under clause 12 of the said agreement, it was clearly provided that the costs
mentioned in the cost statements shall be considered as the costs incurred by the
respondent no.1 to subscribe to the equity share capital of the respondent no.2 and
shall further not be liable to be returned by the respondent no.2 to the respondent
no.1. It was further provided that upon the respondent no.2 coming out with
further issue of equity shares to its shareholders, respondent no.1 shall not be liable
to pay to the respondent no.2 any monies in connection with such further issues till
such time the amounts mentioned in the costs statement less Rs.9,50,00,000/-
equalled the costs of subscription to such further issue. It was agreed that once the
adjustment amount was extinguished, the respondent no.1 was required to pay to
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the respondent no.2 the same cost of subscription as applicable to the other
shareholders in connection with further issues of equity shares by the respondent
no.2. There were also various other restrictions provided in the said agreement of
transfer of shares.
41. Clause 26.2 provides for consequences of events of default committed by the
respondent no.1. Clause 26.4 provided for consequences of a shareholder's event
of default. Clause 32.2 provided for dispute resolution by the arbitration. Clause
32.2.4 provided that such arbitration shall be held in Mumbai. Clause 32.2.8
provided that the court in Mumbai shall have jurisdiction in connection with the
said agreement. The costs statement was annexed at Schedule E to the said
agreement.
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42. It is not in dispute that the respondent no.1 vide their letter dated 6
September, 2012 informed the respondent no.3 about its financial constraints faced
by the respondent no.1 and the respondent no.1 going through a process of
'Corporate Debt Restructuring'. In the said letter, the respondent no.1 also
expressed that the said situation adversely affected its financial ability to entirely
fund the project and it had become difficult for them to make available the entire
funds for the implementation of the project. By the said letter, the respondent no.1
requested the respondent no.3 for approval for diluting their equity share capital in
the concessionaire to 26% and to increase the stake of the petitioner in the project
to 74%. It was also stated that the respondent no.1 was signatory to the concession
agreement and as per the said agreement, the respondent no.1 was jointly and
severally liable to the respondent no.3 for the concessionaire's obligations to
implement the project as per the requirements of the concession agreement. The
said letter was also signed by the respondent no.2.
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43. In my prima facie view the amount paid by the respondent no.1 to the
respondent no.3 under the said project was converted into its equity share capital in
view of clause 12 of the said Share Subscription and Shareholders' Agreement and
after execution of the said agreement between the petitioner, respondent no.1 and
respondent no.2, respondent no.1 could not have applied for refund of the amount
to the respondent no.3. It is not in dispute that the petitioner no.1 has 49% equity
share capital whereas respondent no.1 has 51% equity share capital of the
respondent no.2.
44. A perusal of the petition indicates that the petitioner has filed the present
proceedings under section 9 to protect not only the interest of the respondent no.2
company but also its own interest having equity share capital of 49% of the
respondent no.2. In my view, merely because the petitioner has stated in the
petition that the said amount is liable to be refunded by the respondent no.3 on
termination of the concession agreement to the respondent no.2, it cannot be
construed as if action of the petitioner would be a derivative action. The petitioner
is entitled to protect its own interest being a shareholder of the respondent no.2
company who is entitled to recover substantial amount from the respondent no.3
upon termination of the agreement.
45. This court in case of Rajiv Vyas (supra) has considered similar facts and
after adverting to the judgment of this court in case of Onyx Musicabsolute.com
Pvt.Ltd. (supra) has negatived the contention of the respondent to the said
proceedings that the petition was not maintainable on the ground that the petition
was in the nature of derivative action. This court has held that the arbitration
agreement did not bar any dispute between the parties arising out of agreement
between them under any of the clauses contained therein. It is held that the
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shareholders have every right to refer the disputes arising out of the breach of non
compete and non solicitation clause to the arbitral tribunal. In my view the
principles laid down by this Court in case of Rajiv Vyas (supra) squarely applies to
the facts of this case.
46. A shareholder who is entitled to certain benefits under the provisions of the
said Share Subscription and Shareholders' Agreement having substantial part of
equity share capital is a party aggrieved in case of another shareholder committing
any breach of its obligation under the said Share Subscription and Shareholders'
Agreement thereby affecting its right and is thus entitled to protect the interest not
only of the company but also of itself. Such dispute in my view can be agitated
under the arbitration agreement entered into between the parties recorded in the
said Share Subscription and Shareholders' Agreement. In my view such
proceedings under section 9 thus cannot be construed as an action in the nature of
derivative action.
47. Insofar as judgment of this court in case of Onyx Musicabsolute.com
Pvt.Ltd. (supra) and judgment of Calcutta High Court in case of Narendra Kumar
Berlia (supra) relied upon by the learned senior counsel appearing for the
respondent no.1 are concerned, in my view both these judgments would not assist
the respondent no.1. The facts in those two judgments before both these courts
were totally different. In any event the judgment of this court in case of Onyx
Musicabsolute.com Pvt.Ltd. (supra) has been interpreted by this court in the
subsequent judgment of this court in case of Rajiv Vyas (supra) which judgment in
my view applies to the facts of this case. I am respectfully bound by the judgment
of this court in case of Rajiv Vyas (supra) .
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48. Insofar as submission of the learned senior counsel appearing for respondent
no.1 that since application filed by respondent no.2 before the Orissa High Court
for interim relief has been rejected and thus no relief can be granted to the
petitioner in this case is concerned, a perusal of the said order passed by Orissa
High Court clearly indicates that the relief was rejected in favour of the respondent
no.2 on the ground that this court had already granted injunction against
respondent no.3 from releasing any amount in this petition. The application filed
by the respondent no.2 has not been rejected on merits but has been disposed of as
infructous in view of the similar reliefs already having been granted by this court.
In my view there is thus no merit in this submission of the learned senior counsel
for the respondent no.1.
49. Insofar as submission of the learned counsel for the respondent no.2 that the
respondent no.2 is a separate legal entity and is entitled to get the refund of the
amount from the respondent no.3 and to spend the said amount for the purpose of
clearing statutory dues and other creditors is concerned, a perusal of the order
passed by the Company Law Board clearly indicates that the respondent no.2 as
well as other three parties to the said proceedings have been restrained from
receiving or claiming any money from any state authority in the name of
respondent no.2 company and in case any such money is already received in the
account of the said company, the said company has been directed not to utilize
such money for any purpose without taking leave of the Company Law Board.
The said order passed by the Company Law Board is in force. In my view no
order thus can be passed in favour of the respondent no.2 as canvassed by the
learned counsel appearing for the respondent no.2 at this stage. A perusal of the
record indicates that even according to the respondent no.1, it has been facing
financial crisis and was unable to spend any further amount on the project.
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Respondent no.1 itself had requested the respondent no.3 to permit the respondent
no.2 to dilute the shareholding of respondent no.1 and to increase equity share
capital of the petitioner to 74%. In my prima facie view since the respondent no.1
cannot seek any refund in its own name in view of clause 12 and other provisions
of the said Share Subscription and Shareholders' Agreement, it would be
appropriate if the respondent no.3 is directed to deposit the said amount due and
payable to respondent no.2 in this court which order will protect the interest of
petitioner, respondent no.1 as well as respondent no.2.
50. Insofar as submission of the learned senior counsel for the respondent no.1
that the respondent no.3 being not a party to the share purchase subscription
agreement and thus no relief can be granted against respondent no.3 in this
proceedings is concerned, in my view if a party who is likely to be affected by any
order proposed to be passed under section 9 of the Arbitration Act, such party can
be impleaded as a respondent to such proceedings. Admittedly the respondent no.3
had to pay certain amount to the respondent no.2 in which petitioner as well as
respondent no.1 has equity share capital in the ratio of 49% and 51% respectfully.
Though respondent no.3 has been impleaded in the present proceedings and have
been served with notice as well as copies of the proceedings, no objection has been
raised by the respondent no.3 that no relief could be granted by this court against
respondent no.3 on the ground that it was not a party to the share purchase and
subscription agreement. The rights and obligation of the party have to be
considered not only under the provisions of share purchase subscription agreement
but also under the provisions of the concession agreement. In my view there is
thus no substance in the submission of the learned senior counsel for the
respondent no.1 that no relief could be granted by this court against respondent
no.3.
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51. It is not in dispute that ad-interim order was already passed by this court as
th
far back as on 30 May, 2013 against respondent no.3 herein in terms of prayer
clause (a) which order has not been impugned by any of the respondents including
respondent no.3. In my view the present petition filed by the petitioner for reliefs
as claimed is thus maintainable under section 9. This court is empowered to mould
the reliefs claimed by the petitioner.
52. I, therefore, pass the following order :-
(a) Respondent no.3 is restrained from making payment of
amount of Rs.18,66,66,667/- or any other amount in relation to
the project on account of cancellation of the concession
agreement to respondent no.1, petitioner or respondent no.2.
(b) Respondent no.3 is directed to deposit the aforesaid
amount with the Prothonotary and Senior Master of this court
within two weeks from the date of communication of this
order by the petitioner. Upon such deposit of the amount by
the respondent no.3 as directed, Prothonotary and Senior
Master shall invest the said amount in a fixed deposit of any
nationalized bank initially for a period of two years and for
like period after obtaining further orders from this court. The
deposit of the said amount would be subject to further orders
as may be passed by the arbitral tribunal.
(c) Petitioner, respondent no.1 and respondent no.2 are
directed to proceed with the arbitral proceedings without any
further delay.
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(d) Parties to the present proceedings to act on the
authenticated copy of this order.
53. Arbitration petition is disposed of in the aforesaid terms. There shall be no
order as to costs.
(R.D. DHANUKA,J.)
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