AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2008 (7) TMI 588
X X X X Extracts X X X X
X X X X Extracts X X X X
....dents in the arbitration petition Nos. 169 and 170 of 2008. Hence, for the sake of convenience the parties are referred to as the plaintiffs and the defendants. 3. In the suits as well as in the arbitration petitions, the plaintiffs seek an order of injunction restraining the defendants, their agents and servants from selling, re-selling, sub-licencing, distributing, exploiting, promoting, marketing any form of content in the films produced or to be produced by the defendant No. 1 and covered by the contract (licence agreement dated 23 April 2005) between the defendant No. 1 and defendant No. 2. The plaintiffs also seek a further order directing the defendant Nos. 1 and 3 to return the content of the film 'Tashan' and other reliefs. Basic facts 4. Plaintiff No. 1 is a company incorporated and registered under the Companies Act, 1956, and plaintiff Nos. 2 to 5 hold the entire share capital of plaintiff No. 1. Plaintiff No. 1 is engaged in the business of producing internet and net enabled solutions and related services. Defendant No. 1 is also a company incorporated and registered under the Companies Act and is engaged in the business of production distribution, marketing and sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....net and mobile rights in its film 'Tashan' to the defendant No. 3. The plaintiffs, therefore, filed the aforesaid two arbitration petitions to restrain the defendant No. 1 from giving away the internet or mobile rights in the contents of the films produced or to be produced by the defendant No. 1 and for preventing it from committing breach of the licence agreement. However, since the defendant No. 3, to whom the internet and mobile rights are sought to be transferred, is not a party to the joint venture agreement or the licence agreement (which contain arbitration clause) the plaintiffs have filed the suit for claiming relief of injunction against all. Submissions of the plaintiffs 6. Mr. Khambatta, learned Senior Advocate for the plaintiffs, submitted that by the licence agreement dated 23 April 2005, the defendant No. 1 had granted exclusive licence to the defendant No. 2 for exploiting internet rights as well as mobile rights in respect of all films produced as also the films to be produced by defendant No. 1 from time to time. No person (including the defendant No. 1) other than the defendant No. 2 has a right to exploit the internet and mobile content in the films of defend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Senior Advocate, appearing for the defendant No. 1 submitted that suit and the arbitration petitions by the present plaintiffs were not maintainable. Under the licence agreement dated 23 April 2005, the licence was granted by the defendant No. 1 to joint venture-company, i.e., the defendant No. 2. Assuming, without admitting, that there was any breach of the terms and conditions of the licence, it was the defendant No. 2 who alone could take an action either by filing of a suit or by arbitration petition. The plaintiffs had no cause to take an action for the alleged breach of the licence. The plaintiff Nos. 2 to 5 as shareholders of the defendant No. 2 company could not take an action for the alleged cause of defendant No. 2. The case of the plaintiff No. 1 was worse inasmuch as he is not even a shareholder of the defendant No. 2. It was the defendant No. 2, if at all, who was aggrieved by the alleged breach of licence and a shareholder of group of shareholders of defendant No. 2 were not entitled to sue for the alleged breach. The defendant No. 3 was not a party to the licence agreement and, therefore, a petition under section 9 of the Arbitration Act could not be filed against....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the relief of injunction on the very same cause the arbitration petitions were not maintainable as two forums cannot, in law, hear and decide the same issues. Since the plaintiffs themselves had chosen public forum (of a civil court) getting their grievance redressed, they were not entitled to proceed with the private forum, viz., the arbitral tribunal and, consequently, they were not entitled to any reliefs in the petitions under section 9 of the Arbitration Act. Derivative action by way of a suit 8. Admittedly, the licence was granted by the defendant No. 1 in favour of defendant No. 2. By the alleged breach of the licence by the defendant No. 1 in granting licence to defendant No. 3 the person who could be aggrieved was the defendant No. 2. The defendant No. 2 has not taken any action for the alleged wrong done to it. The action is taken by the plaintiffs in their own name for the wrong allegedly done to the defendant No. 1 company. The short question that arises for consideration is whether the plaintiffs can sue in their own name for the wrong allegedly done to the defendant No. 2 company in which they hold 50% of the shares capital. 9. The fundamental principle of our ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of law that in order to redress the wrong done to a company or to recover monies or damages alleged to be due to the company, the action should prima facie be brought by the company, accepted that misconduct on the part of a director provided an exception to the rule in Foss v. Harbottle [1843] 2 Hare 461. The court held: "The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the wrongdoers against the company and have acted mala fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the shareholders must in such a case be entitled to take steps to redress the wrong. There is no provision in the articles of association to meet the contingency, and, therefore, the rule which has been laid down in a long line of cases that in such circumstances the majority of the shareholders can sue in the name of the company must apply. In MacDougali v. Gardsner [1876] 1 Ch D 18 (45 LJ Ch 27) and Pender v. Lushin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an arbitration can be taken by initiating arbitration before an arbitral tribunal, for the reasons indicated a little later. 14. The form of action to be taken by the minority shareholder however may admit of a debate. In case of Dr. Satya Charan Law AIR 1950 FC 133, supra, an action was taken by the majority shareholders in the name of the company by joining the company as co-plaintiff. A Single Judge of the High Court of Calcutta held that the company was not properly impleaded as the plaintiff. The learned judge however observed that it was open for the plaintiffs to make the company a defendant. A division bench of the High Court, on appeal, held that the action was correctly made by joining the company as co-plaintiff in the suit. That decision was upheld by the Federal Court. It therefore appears that it would be open to the shareholders who sue for the wrong done to a company on the ground that the persons causing the wrong are insiders and unlikely to take any action for wrong done to the company by joining the company as co-plaintiff along with them. However no final opinion needs to be expressed, at this stage, whether a suit filed by minority shareholders by joining th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions. Counsel for the plaintiffs, in fact, submitted that realising this difficulty, the plaintiffs have filed the suit joining defendant No. 3 as party to the suit. In view of this, it must be held that plaintiffs are not entitled to any reliefs against defendant No. 3 in the two arbitration petitions. The arbitration petitions against the defendant No. 3 are not maintainable. 16. Counsel for the defendant No. 1 further submitted that the plaintiffs Nos. 2 to 5 who are the petitioner Nos. 2 to 5 in the arbitration petitions are also not parties to the arbitration agreement contained in the joint venture agreement dated 23 April 2005 and, therefore, arbitration petitions filed by plaintiff Nos. 2 to 5 are not maintainable. Countering this submission, learned counsel for the plaintiff submitted that names of plaintiff Nos. 2 to 5 are shown as parties of the third part to the joint venture agreement and they have also signed the joint venture agreement as parties of the third part. Therefore, they are parties to the arbitration agreement contained in clause No. 12.6 of the joint venture agreement. Clause No. 12.6.1 of the joint venture agreement provides that all disputes and contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g doer by joining the defendant no.2 company as a party. 18. The rule in Foss v. Harbottle [1843] 2 Hare 461 clearly lays down that if a company is defrauded or wronged, it is the company who can take action for the wrong done to it. Individual shareholders are not entitled to take action for the wrong done to the company. As stated earlier, the courts have recognised an exception to this rule that where the wrong doer themselves are in charge of the company as directors or is a majority shareholders. Minority shareholder may take action for the wrong done to the company. The action contemplated however is legal action before a public forum, i.e., the ordinary courts of law and not before a private forum of arbitral tribunal. An arbitral tribunal gets jurisdiction only on agreement between the parties. In the absence of agreement between the parties, there can be no arbitral tribunal except where such agreement or arbitration is forced by the provisions of any statute. The agreement between the parties being a pre-requisite for constitution of a private arbitral tribunal and exercise of its jurisdiction, it is not possible to hold that such arbitration can be forced by the minorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eadlock to the other; each party is then to appoint chartered accountant for the valuation reports which are to be exchanged between the parties. The reports of the chartered accountants, however, are not final. Thereafter a bidding process inter-se between the partners of the joint venture is to take place and the highest bidder is to buy out the other and become absolute owner of the joint venture. Several disputes have arisen between the parties regarding the management of the joint venture company. Allegations and counter allegations are made by the parties. It is not necessary to refer to the various allegations but suffice it to say that there has been unsavoury exchange of letters and e-mails. Finally, the defendant No. 1 served on the plaintiffs a deadlock notice under clause 11 of the joint venture agreement. Though not required, the letter dated 27 November 2007 gives reasons why the defendant No. 1 had come to the conclusion that there was a deadlock. The reasons, inter alia, are that the defendant No. 1 was requesting for information which was not being provided at the desired pace. The information related to management information system (MIS) was not being sent even o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the parties had agreed to discuss without prejudice to the deadlock notice. In paragraph No. 8 of the letter dated 11 March 2008, the defendant No. 1 specifically stated that deadlock notice was kept on hold only to evaluate the results of post of deadlock meetings and since no consensus could be reached it was prudent to expedite severance process. In view of this, I am unable to agree with Mr. Khambatta that deadlock notice was withdrawn. Whether the suit and arbitration can go on simultaneously 21. Mr. Tulzapurkar submitted that the subject matter of the arbitration petitions and the subject matter of the suit was the same. By filing of a subsequent suit the plaintiffs must be held to have withdrawn from and/ or prevented themselves from referring any dispute to arbitration. In any event, the arbitration proceedings and the suit cannot go on simultaneously. The arbitral tribunal being a private forum must lead to the adjudication by the public forum. Countering the submission, Mr. Khambatta submitted that the points in issue in the suit and points in issue in the proposed arbitration proceedings are not and could not be the same. The suit relates only to grant of the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orded on the same issue in both the proceedings and the claimants in the arbitration proceedings would not be entitled to any relief. That issue is the heart of the matter. The subject matter of the suit and the arbitration proceedings are the same. 23. In Doleman & Sons v. Ossett Corporation [1912] 3 K.B. 257 (CA), the Court of Appeal was required to consider whether two tribunals, each having jurisdiction to decide can simultaneously proceed to decide the same dispute between the same parties. The decision was followed by the Calcutta High Court in Ram Prasad Surajmull v. Mohan Lal Lachminarain AIR 1921 Cal 770. The division bench of the Calcutta High Court following the decision of the Court of Appeal in Doleman & Sons held that there cannot be two tribunals each with jurisdiction to insisting on deciding the rights of the parties and to compel it to accept its decision. In Jai Narain Babu Lal v. Narain Das AIR 1922 Lahore 369, the Lahore High Court also accepted the principle laid down by the Court of Appeal in Doleman's case and held that arbitral tribunal and court cannot proceed with the resolution of the same dispute simultaneously. In Firm Gopi Ram Guranditta Mal v. Pokha....