2003 (8) TMI 545 - Board - Companies Law

Arbitration Ordered for Dispute Resolution in Company Petition as Per SHA, Interim Orders Vacated, Application Disposed.

Airtouch International Versus Rpg Cellular Investments And

The CLB determined that the disputes in the Company Petition arise from the SHA and involve common parties. The arbitrator is deemed capable of resolving ... Acts of oppression and mismanagement in the affairs of the Company - violation of certain terms of the SHA - arbitration proceedings - CLB's power to exercise its jurisdiction - HELD THAT:- The petition in entirety elaborates the terms of the SHA and the Articles of Association of the Company, relationship among the respondents, correspondence between the RPG Group and the Vodafone Group resulting in the proposal for sale of the Vodafone Group shareholding in the second respondent in favour of the sixth respondent, said to be in violation of the SHA etc. Apart from these allegations, which are all directly arising out of the SHA, I do not find any other substantial acts of oppression and mismanagement alleged in the Company Petition save that respondent Nos. 7 and 8 have aided and abetted the Vodafone Group and respondent No. 6 to act against the SHA. At this juncture, it is sufficient to refer to the averments of the petitioner made in paragraph 30 at page 45 of the petition to the effect that 'respondents 2 to 5 are acting in breach of the Shareholders Agreement of August 19, 1995, as amended from time to time and/or the Articles of Association of the Company as per particulars'.... stated through out the Company Petition thereon. In other words, the petitioner admits that the matters complained of in the Company Petition principally arise out of the SHA. Therefore, there is no need for any bifurcation of the subject matter of the action before the CLB, in which case the decision in Sukanya Holdings (P) Ltd. [2003 (4) TMI 435 - SUPREME COURT] does come to the aid of the petitioner. Thus, there is no doubt that the entire foundation of the petition is on the SHA and there is substance in the arguments of Shri Dwarkdas, learned Senior Counsel for the applicant that the matters agitated in the Company Petition are arising out of and in connection with the SHA. Accordingly, this issue is answered in the affirmative. It is on record that the petitioner, the second respondent and the ninth respondent are parties to the SHA. It is already found that the Company is bound by the SHA. The respondent Nos. 3 to 5 belonging to the Vodafone Group are parties to the Company Petition, which are in my view not formal parties, more so, when the second respondent, forming part of the Vodafone Group is a party to the Company Petition. Similarly, respondent Nos. 7 & 8, directors of the Company, are made parties to the Company Petition on the ground that they have abetted the Vodafone group and the sixth respondent to act in the manner oppressive to the petitioner, but no prima facie case has been made out against them either in the Company Petition or at the time of arguing the application. I do not find any reason for impleadment of respondents 9 & 10, being shareholders of the Company as parties to the Company Petition, against whom no reliefs have been claimed. The petitioner cannot frustrate the SHA, as rightly pointed out by Shri Dwarkdas, by merely joining third parties, not being formal parties to the present proceedings, as enunciated in H.G. Oomer Sait v. O. Aslam Sait [2001 (6) TMI 821 - MADRAS HIGH COURT]. The reliefs for the alleged acts of oppression and mismanagement, when established can be granted even in the absence of the sixth respondent and therefore, the sixth Respondent, in my view, is not a formal party to the Company Petition. In these circumstances, the main parties to the Company Petition are found to be the parties to the SHA. I, therefore, find commonality of the main parties to the present proceedings and the SHA. In the present case, there is no doubt that the CLB is seized of a Section 397/398 proceeding initiated by the petitioner in the affairs of the Company, which arises out of the SHA containing arbitration clause to refer the parties to arbitration and that the second respondent, being one of the parties to the SHA, has made this application for referring the parties to arbitration. It is not the case of either of the parties that the SHA is null and void, inoperative or incapable of being performed. I am, therefore, of the view that the requirements of Section 45 of the Act, 1996 are found to be fulfilled. It is, therefore, free from doubt that the third respondent is holding company of the second respondent. The respondents 2 & 3 are under the control of the respondents 4 & 5. Thus, the question of piercing the corporate veil of respondents 3 to 5 does not arise. Having found all the three issues in the affirmative and the requirements of Section 45 of the Act, 1996 are duly met, the CLB is obliged to proceed in accordance with the mandatory provisions of Section 45 and refer the parties to arbitration, as held by the CLB in Naveen Kedia v. Chennai Power Generation Ltd. [1998 (6) TMI 575 - COMPANY LAW BOARD, CHENNAI] and Magotteaux International [1999 (12) TMI 876 - COMPANY LAW BOARD NEW DELHI]. Accordingly, I am inclined to refer the parties to arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce as provided in Clause 23.1 of the SHA. Ordered accordingly. Thus, the interim orders made by this Bench stand vacated. The application is disposed of in these terms. Issues Involved:1. Whether the disputes raised in the Company Petition are arising out of or in connection with the SHA.2. Whether there is commonality of parties to the present proceedings and the SHA.3. Whether an arbitrator is capable of settling the disputes by appropriate reliefs.Summary:Issue No. (i):The main grievance of the petitioner is that the Vodafone Group entered into a Sale and Purchase Agreement for its shareholding in the second respondent in favor of the sixth respondent, a competitor, contrary to Clauses 17.2, 18.2.3, and 18.8 of the SHA. This deprived the petitioner of the option to purchase the shares at par value as per Clause 18.3.1 of the SHA. The petition elaborates on the terms of the SHA, the Articles of Association, and the correspondence between the RPG Group and the Vodafone Group. The petitioner admits that the matters complained of in the Company Petition principally arise out of the SHA. Thus, the entire foundation of the petition is on the SHA, and the disputes are arising out of and in connection with the SHA. This issue is answered in the affirmative.Issue No. (ii):The SHA was made among the second respondent, the petitioner, and the ninth respondent, with the Company not initially a party. However, through a Supplementary Agreement dated 31.07.2001, the Company adopted the SHA, making it binding on the Company. The terms of the SHA were incorporated into the Memorandum and Articles of Association of the Company. The main parties to the Company Petition are the petitioner, the second respondent, and the Company, all of whom are bound by the SHA. The other respondents are not formal parties, and the reliefs can be granted even in their absence. Thus, there is commonality of the main parties to the present proceedings and the SHA.Issue No. (iii):The CLB has wide powers u/s 402/403 of the Act, but the arbitrator can settle disputes arising out of the SHA by providing appropriate reliefs. The main grievance is the Vodafone Group's failure to offer its shareholding to the petitioner, violating Clauses 17.2, 18.2.3, and 18.8 of the SHA. The SHA provides adequate safeguards and remedies for any breach. The requirements of Section 45 of the Act, 1996, are fulfilled, and the arbitrator can grant appropriate remedies. The argument that the arbitrator cannot pierce the corporate veil of respondents 3 to 5 is not applicable, as the third respondent is the holding company of the second respondent, and both are under the control of respondents 4 and 5. This issue is answered accordingly.Having found all three issues in the affirmative and the requirements of Section 45 of the Act, 1996, duly met, the CLB is obliged to refer the parties to arbitration as per Clause 23.1 of the SHA. The interim orders are vacated, and the application is disposed of in these terms.