2012 (10) TMI 651 - HC - Companies Law

Court dismisses plaintiffs' interim relief application, directs arbitration before SIAC. No irreparable harm found.

The court dismissed the plaintiffs' application for interim relief, vacated the interim order, and directed the parties to proceed with arbitration before ... Joint Venture Agreement - disputes relating to conversion price of the CCD - arbitration clause contained in JV Agreement invoked by defendant to keep the plaintiff out of the disputes which are subject matter of the arbitration - Held that:- JVC is nothing but a joint venture of plaintiff no.1 and the defendant. The plaintiff no.2 owns more than half of the equity of plaintiff no.1 company. The disputes with respect to conversion price of CCDs issued by JVC to the defendant is nothing but a dispute between the plaintiffs and the defendant, the JVC being only an alter ego of the parties to the suit. It is the conduct of JVC through the representative of the plaintiffs on its Board of Directors which has given rise to the dispute which the defendant wants to be adjudicated by the Arbitrator. It is, therefore, not be possible to keep the plaintiff out of the disputes which are subject matter of the arbitration initiated by the defendant. It is the JVC dated 15.12.2009 which is the core agreement and which governed the other document, including the DSA dated 21.04.2010. It would be, therefore, difficult to say that the disputes relating to conversion price of the CCD issued by the JVC to the defendant would be outside the scope of the arbitration agreement contained in the JVA dated 15.12.2009. The interim relief sought by the plaintiffs before this Court is an injunction restraining the defendant from continuing with the arbitration proceedings before SIAC. If such an interim relief is granted, it would amount to almost decreeing the suit since it will not be possible for the defendant to continue with the arbitration proceedings already initiated before SIAC. It would be unrealistic to assume that this suit would be decided in a short span permitting resumption of arbitration in the event of the suit being ultimately decided on merits. On the other hand, it is also equally true that refusal of injunction would amount to frustrating the relief sought by the plaintiffs in the absence of injunction from this Court, the Arbitrator may go ahead with the proceedings above the award, thereby giving the full fait accomplice to the plaintiffs. The plaintiffs before this Court have not been able to make out a strong prima facie case but it appears that the scope of the arbitration agreement contained in the JVA extends to the current disputes between the parties. No irreparable loss would be caused to the plaintiffs in case the defendant is not restrained from continuing with the arbitration to inasmuch they have an opportunity to establish before the Arbitrator that the current disputes between the parties are beyond the scope of the arbitration clause contained in the JVA. In case their plea is not accepted by the Arbitrator, they would be entitled to raise plea when execution of the award which may be passed against them, is sought. No reasonable ground to restrain the defendant from proceeding with the arbitration proceedings invoked by it. The application is accordingly dismissed. The interim order dated 9.8.2012 is hereby vacated. Issues Involved:1. Jurisdiction of the Court to examine the arbitration agreement.2. Scope of the arbitration agreement in the Joint Venture Agreement (JVA).3. Prima facie existence of an arbitration agreement.4. Interim relief and injunction against arbitration proceedings.Issue-wise Detailed Analysis:1. Jurisdiction of the Court to Examine the Arbitration Agreement:The court considered whether it had jurisdiction to examine if the arbitration agreement between the parties extended to the dispute subject matter of arbitration before the Singapore International Arbitration Centre (SIAC). The court referred to precedents such as *Oval Investment P. Ltd. & Ors v. Indiabulls Financial Services Ltd. & Ors.* and *National Insurance Company Ltd. vs. Boghara Polyfab Private Limited*, which established that the Arbitral Tribunal has the power to rule on its own jurisdiction, including any objections regarding the existence or validity of the arbitration agreement. However, the court also noted that in international arbitration, where costs are prohibitive, it is essential for the court to return at least a prima facie finding on the existence of an arbitration agreement.2. Scope of the Arbitration Agreement in the Joint Venture Agreement (JVA):The court analyzed whether the disputes were covered by the arbitration clause in the JVA. It examined various clauses of the JVA, including Clause 18.2, which detailed the arbitration process and stated that disputes arising out of or in connection with the JVA should be referred to arbitration in Singapore under SIAC rules. The court found that the JVA was the principal agreement, and the Debenture Subscription Agreement (DSA) and Deed of Adherence were offshoots of this principal agreement. The court concluded that the disputes related to the conversion price of the Compulsorily Convertible Debentures (CCDs) issued by the Joint Venture Company (JVC) were within the scope of the arbitration agreement in the JVA.3. Prima Facie Existence of an Arbitration Agreement:The court referred to the decision in *Chloro Controls (I) Pvt. Ltd. v. SEVERN Trent Water Purification*, which held that disputes arising from multi-party agreements could be referred to arbitration and that even non-signatory parties could be subjected to arbitration if the agreements formed part of a composite transaction. The court found that the JVC was intrinsically linked to the JVA, and the issue of CCDs was part of a composite transaction envisaged by the JVA. Therefore, the court concluded that there was a prima facie arbitration agreement between the parties.4. Interim Relief and Injunction Against Arbitration Proceedings:The plaintiffs sought an injunction to restrain the defendant from continuing with the arbitration proceedings before SIAC. The court noted that granting such an interim relief would effectively amount to decreeing the suit, as it would prevent the defendant from continuing with the arbitration. The court referred to *Deoraj V. State of Maharashtra*, which held that interim relief should only be granted in rare and exceptional cases where withholding it would cause extreme hardship and injustice. The court found that the plaintiffs had not made out a strong prima facie case for such an injunction and that no irreparable loss would be caused to them if the arbitration proceeded, as they could still raise their objections before the Arbitrator and during the enforcement of any award.Conclusion:The court dismissed the plaintiffs' application for interim relief, vacated the interim order dated 9.8.2012, and directed the parties to proceed with the arbitration before SIAC. The court's observations were tentative and prima facie, not affecting the decision of the suit on merits. The written statement was to be filed within four weeks, with replication within two weeks thereafter, and the matter was listed for framing of issues on 18.04.2013.