AI Drafter 
TaxTMI 
TaxTMI 
2009 (7) TMI 780
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....he shareholders agreement (Exhibit-A to the petition), i.e., the non-compete and non-solicitation clause. The petitioner by the present petition is, therefore, desirous of restraining respondent Nos. 1 and 2 from in any manner committing breach of clause 12 of the said shareholders agreement. 3. According to respondent Nos. 1 and 2 the agreement containing the arbitration clause is not a concluded agreement, but is incomplete, inchoate and has not come into existence. It is submitted that if the underlined agreement has not been concluded or is not in existence, the arbitration agreement would not be a valid and existing arbitration agreement and cannot be independently enforced. The question therefore of granting any relief under section 9 of the Act cannot arise. It is submitted that in view of the decisions of the Hon'ble Supreme Court in SBP and Co. v. Patel Engineering Ltd. [2006] 2 Comp LJ 7 (SC): [2005] 8 SCC 61 and Sundaram Finance Ltd. v. NEPC India Ltd. [1999] 3 Comp LJ 205 (SC): [1999] 2 SCC 479, it is a settled position that if there is no arbitration agreement in existence between the parties, the court will not exercise jurisdiction under section 9 of the Act. Equa....
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....ll be known as the 'Founder Group' These will consist of not less than 15 distributor shareholders from those mentioned in the list of 21 distributors attached vide Annexure 1. Annexure I contains the names of 21 distributors/authorized personnel along with their areas of operation set out under the caption 'Head-end'. (v)On 10 August, 2007, a shareholders agreement was executed between the petitioner, respondent No. 1 and respondent No. 2 (first shareholders agreement). According to the petitioner, the petitioner is not in possession of the first shareholders Agreement and, therefore, the same is not produced before the court. (vi)In September, 2007, articles of association of the said company were amended to include the petitioner as a permanent director of the company along with respondent Nos. 1 and 2. (vii)On 3 September, 2007, the second shareholders agreement (for short 'agreement') was executed between the petitioner and respondent Nos. 1 and 2 at the office of Paras Kuhad and Associates, Advocates, in presence of Mr. Manish Desai, a senior partner in the said firm. The date on which the said agreement is made and entered into is not filled in and is left blank ....
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....d distribution agency or agencies of the company or to the user directly by means of all media and technology (now or hereafter created) including but not limited to diffusing or redistributing such channels by means of co-axial cable and/or optical cable and such other available means of transmission and the equipment associated with them. It also includes retransmission/distribution of the broadcasting channels which will be done by the company through the cable operators affiliated with the shareholder and/or the company or directly on a subscription basis. It further includes sale by the company of air time of the local channels to advertisers and acting as an Internet service provider ('ISP') to carry on the business of Internet distribution services, to offer users access to the Internet and related services including, but without limitation, services relating to Internet transit, domain name registration and hosting, dial-up or DSL access, leasedline access and colocation and development of its infrastructure to provide to the end users a single platform from where they can access broadcasting, internet and telephony related services integrated with existing technologies or ....
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....ation of the company, consultation, providing legal and investment banking tie up as well as actively participating in all aspects to funding of the company and for negotiations to be held in the future, the RV Co. shall be initially allotted 26,00,000 (Twenty six lakhs only) shares of the company, out of which 13,00,000 (Thirteen lakhs only) shares will be held by Mr. Rajiv Vyas (petitioner) and 13,00,000 (thirteen lakh only) shares will be held by his company SVJ networking Pvt. Ltd. Under clause 2.4 of the agreement it is agreed between the parties that at all times the shareholding of R.V. Co shall be at-least 10% of the Group A shareholding. The remainder 90% Group A shareholding shall, as far as practicable and subject to what is stated in the agreement be held by the remainder Group A shareholders in agreed proportion. It is agreed that at no point of time shall the RV Co. shareholding fall below 10% of the Group A shareholding. In the event, the Group A shareholders are required to dilute their shareholding, the dilution shall take place in such a manner that the agreed proportion of the Group A shareholders remains intact. It is further agreed that R.V. Co. shareholdings w....
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....t shall come into force for all purposes and intents from the date of its signing, i.e., the date of execution. (xi)Clause 12 of the agreement deals with 'non-compete and non-solicitation' and the said clause is reproduced hereunder. 22. Non-compete and non-solicitation - 12.1The shareholders covenant that during the term of this agreement and for a period of at least 6 months thereafter, the shareholder shall not directly or indirectly carry on, assist, engage in, be concerned or participate in any business (whether directly or indirectly, as a partner, shareholder, principal, agent, director, affiliate, executive, consultant, distributor or in any other capacity or manner whatsoever) which is similar to the business of the company nor engage in any activity that conflicts with the shareholder's obligations to the company. 12.2Further, it is the clear intention of the parties for the purpose of this agreement, the shareholder would be deemed to be competing with the business of the company, if the shareholder owns, manages, operated, consults or renders services or is employed in a business substantially similar to, or competing with, the present business of the compan....
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....or in equity. (xii)Clause 13.6 of the agreement provides that the agreement contains the whole agreement between the parties relating to the project, and supersedes all previous agreements and understandings between the parties insofar as these relate to the subject matter of the agreement. (Emphasis supplied)^1 (xiii)Clause 14 deals with the dispute resolution and the same is reproduced hereunder: 14 Dispute resolution: 14.1 Settlement of disputes through good faith negotiations. (a)The parties shall endeavour, in the first instance, to resolve any dispute, disagreement or difference arising out of or in connection with this agreement, including any question regarding its performance, existence, validity, termination and the rights and liabilities of the parties to this agreement (a 'dispute') through good faith negotiations. (b)If a settlement is not reached within thirty (30) days after the date of receipt of the dispute notice by the non-initiating party, such dispute shall be referred for conciliation to one conciliator in accordance with the provisions of Arbitration and Conciliation Act, 1996. 14.2 Arbitration: (a)If good faith negotiations and concil....
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....f the said company and have signed the said agreement in the week after 3 September, 2007, i.e., upto 10 September 2007. (xvi)Pursuant to the shareholders agreement over Rs. 2.5 crores were received by the company towards the subscription of the share capital from incoming shareholders. (xvii)Between November/December, 2007, exhaustive correspondence (on email) took place between YOU Telecom, petitioner, respondent Nos. 1 and 2, Edelweiss, Paras Kuhad and Associates and the advocates of YOU Telecom with regard to finalisation of the share subscription agreement to be entered into between YOU Telecom and the Company. A separate compilation of such e-mails is submitted by the petitioner to this court. The petitioner has pointed out that between September 2007 and February 2008 various amounts were utilized from the bank account of the company for purchase and installation of fibre optic cable for the business of the company. It is also pointed out that on 13 December, 2007, YOU Telecom conducted the physical audit which confirms the purchase and laying of fibre optic cables and existence of the network. (xviii) The petitioner has pointed out that on 29 January, 2008, behind ....
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.... petitioner and respondent Nos.1 and 2 were parties to all such correspondence but at no time respondent 1 or 2 informed the petitioner or the company lawyers that the distributor shareholders had allegedly asked for return of their share subscription amount or that the amounts were allegedly being refunded to them. No meeting of the company was held and the petitioner as a chairman/executive director/permanent director was never informed about any such purported development. In fact, Paras Kuhad and Associates, the advocates of the said company addressed an e-mail dated 13 February, 2008, to YOU Telecom and also to the directors of the company as well as Edelweiss Capital Ltd. regarding the roles to be played by the directors of the company, after investment by YOU Telecom in the company. (xx)The petitioner on 26 March, 2008, addressed a letter to respondent Nos. 1 and 2 and the auditor of the said company SCOD Networking (P.) Ltd. as well as the advocates of the said company to call an AGM and also sought certain information. (xxi)In April, 2008, the petitioner through an announcement on internet learnt that YOU Telecom and respondent Nos. 1 and 2 signed an agreement and la....
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....his court in Nazir Hussain Films (P.) Ltd. v. Saregama India Ltd. [Appeal No. 457 of 2007 in Arbitration Petition No. 81 of 2007, dated 7 April, 2008, since reported as [2010] 2 Comp LJ 393 (Bom)] wherein it is held that if the underlying agreement has not been concluded or is not in existence, the arbitration agreement would not be a valid and existing arbitration agreement and cannot be independently enforced. It is further contended on behalf of respondent Nos. 1 and 2 that the shareholders agreement is inchoate and incomplete and never came into existence in view of the following: (i)The idea behind forming the said company was to bring together a group of 18 odd cable operators who would give access to their entire networking and customer base for transmission of cable video services. It is an admitted position that the agreement has not been signed by '18 odd cable operators' nor has a single cable operator given access to their networking or customer base as provided in Recital C of the said agreement. Thus, on the petitioner's own showing absent a consensus amongst all '18 odd cable operators' and promoters of the company and absent the cable operators bringing in their ....
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....f respondent Nos. 1 and 2 that there were 18 distributor shareholders, but in fact there were to be only 15-16, and that, therefore, the agreement was not executed or remained inchoate, is based on reading in provisions which do not exist. Merely because the schedules show numbers 1 to 18 in the margins does not mean that the agreement was not to come into force without the presence of 18 distributor shareholders. There is nothing in the agreement to suggest that it required any minimum number of distributors, and it is only in the MoU/term sheets entered into with YOU Telecom that a minimum number of 15 distributor shareholders is insisted upon by the financer/investor. It is submitted that a mere glance at the final agreement as well as letters claiming withdrawals of share monies shows that there were atleast 16 distributor shareholders in place, including respondent Nos. 1 and 2. In any event there is nothing in the agreement to suggest that 18 was the minimum number, and the mere fact that a typist has put some numbers in the margin of the schedule cannot be read as altering the essential terms of the agreement. 7. It is further submitted on behalf of the petitioner that th....
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....tence of words which are absent from the agreement, and/or by reading in words/provisions which are not found in the agreement. A plain reading of clause 1(h), which defines 'date of execution' shows that this expression means either the date of signing or the date set out hereinabove as the date of making this agreement, whichever is earlier. This obviously means that the parties envisaged that there could be different dates of signing and a different date 'entered hereinabove as the date of making this agreement^7, otherwise there would have been no need for the words 'whichever is earlier'. The use of words 'whichever is earlier' also indicates that the signing could be earlier than the date entered on the agreement, and equally these words suggest that even if there was different dates of signing, the earliest date on which the agreement was signed would be treated as the 'date of execution'. It is not disputed that the petitioner and respondent Nos. 1 and 2 as well as at least some of the distributor shareholders signed the agreement on 3 September, 2007. Though much has been made by the respondents about the fact that the petitioner has not been able to specify a particular d....
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....n the correspondence exchanged [in terms of section 7(4)(b) of the Arbitration and Conciliation Act, 1996]. It was held by the Hon'ble Division Bench that from the pleadings, no conclusion could be drawn that it was the case of the petitioner that the correspondence exchanged between the parties resulted into an arbitration agreement. The Hon'ble Division Bench came to the conclusion that the fact that the appellants contend that there was an arbitration agreement contained in the correspondence must negate the contention that there was a concluded agreement. The Hon'ble Division Bench held that there was no concluded agreement from the correspondence and that merely because there was an arbitral clause in the documents exchanged and there was no dispute about the arbitral clause it would not result in holding that there was a contract containing an arbitral clause. It is submitted on behalf of the petitioner that in contrast to Nazir Hussain's case [2010] 2 Comp LJ 393 (Bom) where it was expressly argued that the petitioner was not relying on the written agreement, in the present case, the petitioner's case is that there is an agreement drafted by the law firm of Paras Kuhad and A....
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....working and customer base for transmission of the cable (video) services. It is also true that the said agreement is signed by approximately 15 distributor shareholders, including the promoters. However, it is nowhere to be found that if the said agreement is not signed by 18 distributors the said agreement would be treated as incomplete or unenforceable. It is obvious that when the promoters of the said company perceived forming a company, they had thought of bringing together a group of approximately 18 cable operators and distributors who would give access to their entire net working and customer base for transmission of the cable video services. However, if the group of cable operators ultimately brought together for making such an agreement contains less than 18 members, it would certainly not mean that the agreement is not concluded, is incomplete, inchoate, did not come into existence and there is thus no arbitration agreement between the parties. Again, only because the draftsman or the typist of the agreement has in the execution portion of the agreement under the caption 'Parties' stated/typed 'signature _' 26 times and has in schedule A, under the caption 'distributor sh....
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.... whose names and initials are found in Schedule A to the said agreement. (Emphasis supplied)^3 12.1 As stated earlier only because the numbers 1 to 16 are typed in the margin under the head of distributor shareholders in Group A, it cannot be read or understood to mean that 16 distributor shareholders have to compulsorily be parties or signatories to the said agreement without which the said agreement would be incomplete. 13. The submission advanced on behalf of respondent Nos. 1 and 2 that in the absence of the cable operators bringing in their entire net working as well as customer base into common/cooperative pool and share of revenue not being fixed the said agreement is not concluded, binding or enforceable and not capable of being implemented is in my view also incorrect. From recitals A and C of the said agreement as also clauses 2 and 9 thereof it is clear that the Group A shareholders, which include the distributor share holders, have 'agreed' to jointly engage in the business and to provide to the business of the company access to their entire networking and consumer base transmission of the cable (video) services in the areas as more particularly set out against th....
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....osed to be the date that the agreement was to come into force, i.e., the date of its signing. In the absence of the date of making the agreement the execution/ effective date of the agreement would be the date of signing of the agreement. According to the petitioner the petitioner and respondent Nos. 1 and 2 and some of the distributor shareholders signed the agreement on 3 September, 2007, and some of the distributor shareholders sighed/executed the said agreement during the week following 3 September, 2007, i.e., on or before 10 September, 2007. Respondents No. 1 and 2 have not seriously disputed what is stated by the petitioner nor have they stated in any of their Affidavits as to when the said agreement was signed by the parties. None of the parties have chosen to lead any oral evidence on any issue under consideration. The factum of signing is not disputed. Though it is submitted on behalf of the petitioner that the agreement came into force from 3 September 2007 since the petitioner and defendant Nos. 1 and 2 admittedly signed on that day, I am of the view that since all the signatories to the said agreement had signed the said agreement by 10 September 2007, according to the....
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....it is obvious that there are differences of opinion between the promoters of the said company who were finalizing the deal with YOU Telecom, i.e., the share subscription agreement. In the course of such discussion, it appears that certain issues/disputes were raised regarding the protection of equity of respondent Nos. 1 and 2 enshrined in the shareholders agreement and also pertaining to increase in salary for all promoter directors. However, in my view, any subsequent dispute or issue raised by respondent Nos. 1 and 2 cannot affect the binding nature of the said agreement and it certainly cannot be contended that the shareholders agreement is incomplete or is not concluded or is not enforceable or cannot be implemented. 18. The petitioner has insisted that the company has carried on its business and the shareholders agreement has been implemented. The respondents have disputed this fact. It is clear that after execution of the said agreement, shareholders have made certain payments as agreed under the said agreement and apart from the letter of intent and term sheet executed earlier, the directors of the said company have pursuant to clause 2.5 of the said agreement proceeded ....
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....oresaid, the parties have not made the agreement dependent upon any terms to be agreed upon in future. The parties are ad idem on the terms of the contract including the arbitral clause. The consent of the parties to be bound by the agreement upon execution is clear from clause 16 of the said agreement. The decision in Nazir Hussain Films (P.) Ltd. [2010] 2 Comp LJ 393 (Bom), supra, thus, does not lend any support to the submissions advanced on behalf of respondent nos.1 and 2. 20. In view of the aforesaid I am of the considered view that the said agreement is complete and binding between the parties and the arbitration clause is valid subsisting and binding between the parties. 21. The next contention advanced on behalf of respondent Nos. 1 and 2 is that from the allegations in the petition itself it is clear that the petition is substantially in the nature of a 'derivative' action for and on behalf of the company. It is contended that in a recent decision of this court [Onyx Musicabsolute.Com (P.) Ltd. v. Yash Raj Films (P.) Ltd. [2010] 2 Comp LJ 341 (Bom): [2008] 6 Bom CR 418], it has been held that derivative petition on behalf of the company by the shareholders of a comp....
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....jurisdiction to decide the disputes raised therein and which are referred to the tribunal. 23. Respondent Nos. 1 and 2 have also contended that under clause 12.6 of the agreement the shareholders have agreed 'that the company shall be entitled to an interim injunction, restraining order or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain the shareholder from committing any violation of the covenants and obligations contained in this article'. Respondent Nos. 1 and 2 have therefore submitted that the shareholders cannot seek reliefs in the event of breach of the said non-compete and non-solicitation clause and it is the company which has to approach a court of competent jurisdiction for appropriate reliefs. I am not in agreement with this submission made on behalf of respondent Nos. 1 and 2. The arbitration agreement does not bar any dispute between the parties to the said agreement arising out of the agreement between them under any of the clause/s contained therein. The shareholders, therefore, have every right to refer the disputes arising out of the breach of non-compete and non-solicitation clause to the arbitral ....
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.... Company [1995] 4 Comp LJ 417 (SC): AIR 1995 SC 2372, at paragraph 46/page 2388, it is submitted on behalf of respondent Nos. 1 and 2 that the Hon'ble Supreme Court of India has held that even if the negative covenant is per se valid and not in restraint of trade, an injunction does not follow as a matter of course when the covenant is sought to be enforced. The court will have to consider the grant of an injunction in the context of the generally applicable principles such as prima facie case and balance of convenience and irreparable injury. Equally, the court will have to consider whether it results in granting the specific performance of personal services, which is prohibited by section 14(1) of the Specific Relief Act, 1963. 26. It is further contended on behalf of respondent Nos. 1 and 2 that the grant of an injunction in such cases (even if otherwise a case is made out) is always subject to the test of 'idleness', i.e., an injunction will not be granted if it results in an individual being rendered idle. Negative covenants, which are legal at their inception, may be rendered unenforceable if at the time they are sought to be enforced, they result in 'sterilization' as aga....
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....der and the order passed by the Bombay High Court cannot be interfered with not even on the ground of closure of factory, as the party responsible, prima facie, for breach of contract cannot be permitted to raise this grievance." 28.1 It is contended on behalf of the petitioner that the conduct of respondent Nos. 1 and 2 has been shocking. They are the first directors of SCOD 18 a company formed on 29 January, 2008/12 February 2008, without any information to the petitioner. They were the first shareholders of SCOD-18. If the said company failed to carry on business as a multi-system operator (MSO) and is not in a position to carry on the said business even today and if injunction granted in favour of the petitioner leads to sterilisation or idleness of respondent Nos. 1 and 2, respondent Nos. 1 and 2 cannot complain about the same because they are solely responsible for having brought about the set of things complained of by them. It is submitted that respondent Nos. 1 and 2 who are responsible for the breach of contract cannot be permitted to raise this grievance. 29. I have considered the submissions made on behalf of the petitioner and the response of respondent Nos. 1 an....
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....s fact is not dealt with and/or denied by the petitioner in paragraph 22 of his affidavit dated 14 July, 2008 which reads thus: "22. With reference to paragraph 3(iv) of the said affidavit, I deny that the agreement never came into being and/or existence on the grounds set out therein or for any other reason. I deny that there was no business of the company. I say that the respondents' advocates have given copies of the bank statement of SCOD Networking (P.) Ltd. which itself goes to show that money was spent by the company for purchase of fiber optic cables. I crave leave to refer to and rely upon the emails for their true meaning and interpretation...." 30.1 The petitioner has, therefore, admitted that the respondent Nos. 1 and 2 and other signatories to the agreement had throughout carried on business inspite of clause 12 of the said agreement and the petitioner had never objected to the same. In view thereof, the petitioner is not entitled to any relief to the effect of restraining respondent Nos. 1 and 2 from carrying on the business similar to the business of the said company as defined under the said agreement. 31. Faced with this difficulty, the petitioner has trie....