2009 (9) TMI 919 - HC - Companies Law

Court orders disputes to SIAC arbitration, nullifies share transfer, grants interim reliefs.

Unity Realty and Developers Ltd. Versus BW Highway Star (P) Ltd., Kamat Hotels India Ltd., Clearwater Capital Partners (Cyprus) Ltd. and BSEL Infrastructure Reality Ltd

The court determined that the disputes should be resolved through SIAC arbitration, rejecting arguments against arbitrability. It deemed the share ... - Issues Involved:1. Existence and applicability of arbitration clauses.2. Validity of share transfers and compliance with Articles of Association.3. Appointment and nomination of directors.4. Interim reliefs and protections under Section 9 of the Arbitration and Conciliation Act, 1996.Detailed Analysis:1. Existence and Applicability of Arbitration Clauses:The court examined two arbitration clauses: Article 71 of the Articles of Association and Clause 18.5 of the Shareholders Agreement (SHA). Both clauses mandate arbitration under the Singapore International Arbitration Centre (SIAC) Rules in Mumbai. The court found that the disputes among the parties are interlinked and interconnected, making it necessary to resolve them through arbitration as per the SIAC Rules. The court rejected the respondents' argument that the disputes are not arbitrable and that the Company Law Board (CLB) would have jurisdiction, citing the binding nature of the arbitration clauses.2. Validity of Share Transfers and Compliance with Articles of Association:The court scrutinized the transfer of shares by Clearwater Capital Partners (CCPL) to Kamat Hotels (India) Limited (KHIL) without prior notice to other Joint Venture (JV) Partners. The Articles of Association, particularly Articles 17, 19, 20-25, and 41-57, outline specific procedures for share transfers, including Right of First Refusal (ROFR) and Tag Along Rights. The court found that the transfer violated these provisions, rendering it null and void. The court emphasized that KHIL, being a competitor, required proper notice and compliance with the Articles, which was not done.3. Appointment and Nomination of Directors:The court examined the appointment of Mr. Vithal Kamat and Mr. Vikram Kamat as nominee directors by CCPL and their subsequent nomination by KHIL. The Articles of Association limit the number of directors JV Partners can appoint and require specific procedures for such appointments. The court found that the appointments were made without proper notice and in violation of the Articles, making them null and void. The court also noted that the resignation of a director and the nomination of new directors were not properly communicated or accepted, further invalidating the appointments.4. Interim Reliefs and Protections under Section 9:The petitioner sought various interim reliefs, including restraining respondents from exercising voting rights and participating on the board, and preventing any actions based on the disputed resolutions. The court granted these interim reliefs, emphasizing the need to maintain the status quo and protect the interests of all parties until the arbitration tribunal makes a final decision. The court highlighted the principles of balance of convenience, irreparable injury, and the conduct of the parties in granting these protections.Conclusion:The court concluded that the disputes are arbitrable and should be resolved through SIAC arbitration. It found the share transfer to KHIL invalid due to non-compliance with the Articles of Association and invalidated the subsequent appointments of directors. The court granted interim reliefs to maintain the status quo and protect the interests of all parties until the arbitration tribunal's final decision. The court's observations are prima facie and not final, allowing the parties to raise appropriate defenses before the tribunal.