TaxTMI 
TaxTMI 
2011 (8) TMI 962
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.... [2012] 170 Comp Cas 73 (CLB-Chennai)) modifying its earlier order dated August 13, 2008 in C. P. Nos. 65 and 76 of 2005 (C. G. Holdings (P.) Ltd. v. Cheran Enterprises (P.) Ltd. [2010] 159 Comp Cas 266 (CLB-Chennai)) and issuing various directions in modification of its earlier order is under challenge in Company Appeals Nos. 21, 25 to 27 and 29 of 2009. 2. The issues involved in these original side appeals and company appeals relate to the dispute pertaining to the joint venture agreement dated January 30, 2004, in relation to the affairs of M/s. Cheran Enterprises P. Ltd. Since common issues are involved in the original side appeals and company appeals, all the appeals were heard together and shall stand disposed by this common judgment. 3. For convenience, the parties are referred by their names and also in short form and wherever necessary they shall be referred as per their array in C. S. No. 257 of 2008. Factual background of the matter 4. The tenth defendant-K. C. Palanisamy (in short, "KCP"), an industrialist from Coimbatore along with his family members had acquired controlling interest in M/s. Vasantha Mills Ltd. (in short, "VML") and promoted a company in th....
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....way of contribution of properties of VML and CPL worth Rs. 130 crores to get 45 per cent. shares in CEPL ; ORE to hold 45 per cent. against investment of cash of Rs. 75 crores ; and Nandakumar Athappan to hold 10 per cent. against investment of Rs.4 crores. 6. As per "Business Purpose and Scope of JVA (clause 4.1), the company has been incorporated to : (i) purchase, construct and develop a hotel property, a shopping complex and an information technology park, (ii) renovate and develop properties owned by CPL and VML, and (iii) sell the aforementioned properties. KCP, C. G. Holdings, VML and CPL are one group, ORE is another group and plaintiffs-Ramasamy Athappan and Nandakumar Athappan are one group. Under JVA, ORE nominated one Chandran Ratnaswami, who lives in Canada, to act as a director in the joint venture company-CEPL. C. G. Holdings nominated K. C. Palanisamy as a director in CEPL. The second plaintiff-Nandakumar Athappan nominated his father-Ramaswamy Athappan, who lives in Singapore as a director in CEPL. Hence, K. C. Palanisamy alone is the Indian director and was appointed as the managing director of CEPL. K. C. Palanisamy, who is ....
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....iled this petition before the Company Law Board under sections 397 and 398 of the Companies Act for various reliefs alleging acts of mismanagement and suppression by KCP in his capacity as a managing director and CEO of CEPL. In the said petition, ORE Holdings Ltd., prayed for : (i) removal of KCP as a director, CEO, and the managing director of the company ; (ii) restraining C. G. Holdings and KCP or their nominees from in any manner acting on behalf of CEPL ; (iii) constituting a board of management for the company consisting of independent directors and nominees of ORE Holdings ; (iv) direct CEPL and other respondents to give effect to the resolutions passed by the board in its meeting dated November 12, 2005 ; and (v) set aside all contracts entered by or on behalf of subsidiaries in violation of the provisions of joint venture agreement and other reliefs. 10. The Company Law Board heard C. P. Nos. 65 and 76 of 2005 together and with a view to bring an end to the grievance of C. G. Holdings, KCP, ORE and Athappan on August 13, 2008 (C. G. Holdings P. Ltd.'s case (supra), in exercise of the powers under sections 397 and 398, ....
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....thappan in CEPL, VML and CPL is tainted by fraud and misrepresentation and also null and void and consequently to restrain Nandakumar Athappan by way of permanent injunction not to alienate or sell or pledge the shares allotted to him and not to exercise his voting rights in CEPL and VML and Ramasamy Athappan not to function as a director of CEPL. 12. C. G. Holdings, KCP and his father Chenniappan have filed six criminal complaints against the plaintiffs-Ramasamy Athappan and Nandakumar Athappan. Conversely, the plaintiffs and other parties to the JVA have also filed three criminal complaints against C. G. Holdings and KCP for misappropriation of funds, forgery of minutes/resolutions and fabrication of accounts. KCP was arrested and remained in custody for 87 days. Even when the parties were seriously pursuing the petitions before the Company Law Board and other proceedings, in 2007, C. G. Holdings and KCP wrote to the Secretary of the Court of International Chamber of Commerce (ICC) making a "request for arbitration" seeking for declaration that the JVA dated January 30, 2004, is vitiated by misrepresentation and to direct CEPL to forthwith transfer the title to the claimant. O....
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..... 759413 in favour of ORE and Nandakumar Athappan in the ratio of 75 : 4 and the remaining 50 per cent. of the maturity proceeds in favour of C. G. Holdings and KCP enabling them to deal with the same, viz., 50 per cent. of the matured proceeds without any interference. The Company Law Board also permitted C. G. Holdings and KCP to induct two additional directors on the board of CEPL and shall carry on the affairs of CEPL in accordance with the provisions of the Act without intervention of ORE and N. Athappan. The Company Law Board further directed the properties of VML, namely, 17.15 acres of land would be conveyed in favour of ORE or its nominee in the event of any remote need, which may arise in future, on account of non-compliance of the order dated August 13, 2008, by CEPL, C. G. Holdings and KCP. The Company Law Board further directed ORE and Nandakumar Athappan to deposit their share certificates in respect of their holdings in CEPL with the Bench Officer within 30 days. Being aggrieved by the said common order dated August 3, 2009, modifying the earlier order, the parties have preferred the company appeals. 15. In the impugned common order dated October 29, 2008, made in....
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.... P. No. 65 of 2005, C. G. Holdings and KCP were espousing a cause as an aggrieved shareholder. Similarly, C. P. No. 76 of 2005 filed by ORE Holdings was a petition filed by a shareholder against other shareholders ; O. S. No. 90 of 2007 pertains to a cause of action, which happened even prior to the JVA (dated January 30, 2004), which contains the arbitration clause and main applicant to the arbitration, viz., C. G. Holdings is not a party to the suit-O. S. No. 90 of 2007 ; By their conduct, C. G. Holdings and KCP have unequivocally communicated their intentions to proceed with the arbitration before the ICC ; Looking at the issues raised, there is no waiver or estoppel as contended. The plaintiffs have participated in the constitution of the ICC Arbitral Tribunal and each and every allegation contained in the plaint was raised before the ICC and ICC considered the request of the plaintiffs to invoke article 6 and rejected the same and proceeded to constitute the Arbitration Tribunal in accordance with the ICC Rules. 17. VML and CPL are represented by counsel Mr. V. Lakshminarayanan. Before the learned single judge, VML and CPL have neither filed any counter in the appl....
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.... the learned single judge rightly held that the arbitration agreement has become inoperative by abandonment and waiver by the conduct of parties. Taking us through the materials on record, in particular, the bank statement, learned counsel would contend that based on the materials, the Company Law Board has given clear findings to the effect that KCP has committed breach of JVA and if ICC proceedings is allowed to be initiated, it will result in multiplicity of proceedings. 20. On behalf of ORE Holdings, learned senior counsel Mr. AR. L. Sundaresan appearing along with Mr. Aditya Bhat has submitted that ORE Holdings brought investment of Rs. 75 crores towards its share capital and without any corporate approval, KCP, who was in the helm of affairs of CEPL mismanaged the funds. Learned senior counsel would further contend that the Company Law Board rightly held that the conduct of KCP was harsh, burdensome, oppressive and failed in his statutory obligations. Learned senior counsel would further contend that the Company Law Board rightly held that the entire investment made by ORE must be restored back to ORE. Placing reliance upon a decision of the Supreme Court in the case of At....
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....cated credit facility of Rs. 300 crores, to be secured by a corporate guarantee to be issued by OARC (clause 9.1) ; to pledge the shares of (i) C. G. Holdings and Athappan in VML ; (ii) KCP and his affiliates in UBC and UPL ; and (iii) Athappan in UPL and UBC in favour of OARC, as security for the grant of a corporate guarantee by OARC (clause 9.1) ; C. G. Holdings Nominee (KCP) appointed by the board as the CEO and managing director of CEPL ; Clause 12.3 of the JVA as to the functioning of CEPL is very relevant. Any decision on the matters stated in clause 12.3 shall require an affirmative vote from ORE and no resolution in relation to the same shall be carried through unless approval of ORE is obtained on the same ; For any investment or other payment made by CEPL or its subsidiaries in excess of USD 1,00,000, approval of ORE has to be obtained. (clause 12.3(vi)) ; and Approval of ORE is to be obtained for any sale, transfer or any other form of disposal of substantial assets of the company or its subsidiaries other than the assets whose sale has been approved under the annual business plan (clause 12.2(ix)). 23. Clause 14 of JVA sets out "events of default". Cl....
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....ntered into contracts with CCL in respect of their properties, contrary to the JVA and without any approval of the board of directors of CEPL can be raised in the present proceedings." On the above observations, the Company Law Board went into the entire gamut of all transactions of CEPL. 25. The request of C. G. Holdings for arbitration before International Chamber of Commerce (ICC) is for the reliefs to declare that the JVA is vitiated by misrepresentation on the part of ORE Holdings, plaintiffs, Odyssey Re Holdings, OARC and Fairfox and to direct them to pay damages for all the losses suffered by C. G. Holdings. 26. Before we touch upon the matter as to the issues raised before the ICC we may analyse the materials to have an understanding as to how the same issues were already agitated before the Company Law Board in C. P. Nos. 65 and 76 of 2005, it is necessary to delve into the acts of mismanagement alleged by the plaintiffs and ORE Holdings, which was elaborately dealt with by the Company Law Board. 27. Financial mismanagement and siphoning of money : As pointed out earlier, ORE brought in investment of Rs. 75 crores, which was duly credited in the account of CEPL....
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....under (page 318 of 159 Comp Cas) : "These amounts, namely, Rs. 25.57 crores and Rs. 6.86 crores having been appropriated towards the income-tax liabilities of CG Holdings, without any approval of the board of directors of CEPL and not for the purpose of CEPL, must be restored back to the account of CEPL by KCP, on the principles enunciated in (a) Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 1 WLR 1555 (Ch. D) ; (b) K. Narain Das v. Bristol Grill P. Ltd. [1997] 90 Comp Cas 79 (CLB) ; and (c) Life Insurance Corporation of India v. Hari Das Mundhra [1966] 36 Comp Cas 371 (All). The conduct of KCP in having regarded CEPL's funds, as though his own funds, is burdensome harsh and wrongful, as held in H. R. Harmer Ltd., In re [1959] 29 Comp Cas 305 (CA) ; [1959] 1 WLR 62." 30. The Company Law Board appointed auditors M/s. Deloitte Haskins and Sells. In its order, the Company Law Board referred to the interim report of M/s. Deloitte Haskins and Sells, which has traced the movement of funds in CEPL books for the year ended March 31, 2005, according to which, a major portion of Rs. 16.13 crores was moved to group companies/related parties. The movement of funds is not ....
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....EPL, thereby returning the said sum to CEPL due to which the shares of DAIL were acquired from Siddharth Ray and Associates. It is for the aforesaid reasons R. Athappan, Chandran, ORE and OARC cannot excuse themselves from the unauthorised investment by KCP in DAIL, despite the fact that CEPL did not suffer any loss on this account, excepting that funds were not available to CEPL for a significant period." By a reading of the above, it is clear that the investment made in DAIL is from the loaned amount of USD 17 million extended by the OARC to CHPL. Investment in DAIL is an independent transaction, which has been referred to by the Company Law Board only to say that funds were not available to CEPL for a significant period. 33. Contracts entered with Cheran Construction Ltd. (CCL) and KCP's act of diverting immovable property assets of CEPL : Yet another major conduct of KCP is diverting all immovable properties of VML and CPL brought into CEPL by C. G. Holdings to its other subsidiary companies. As pointed out earlier, C. G. Holdings hold 45 per cent. of CEPL against contribution of properties of VML and CPL. As per clause 12.3(ix), any sale, transfer or any other form of di....
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....behalf . . . VML parted with possession of 24.95 acres of prime lands on receipt of a paltry amount of Rs. 20,000 which is the only benefit derived by VML. CCL has been given powers to mortgage the properties for the purpose of raising loans to complete the construction as per the agreements, while VML will have no right to deal with the property without the written consent of CCL . . . CCL's capacity and capability, demonstrated with reference to the documentary evidence on record in no way would justify the contracts with CPL and VML and overcome the consequent prejudices being suffered by CEPL. KCP undoubtedly had taken enormous steps in safeguarding and enhancing the value of CPL properties as well as bringing VML out of sickness, thereby saving its vast extent of properties and settling dues of all workmen, as elaborated by Dr. Ravichandran and undenied by ORE, which, however, do not empower KCP to act contrary to the JVA/articles of CEPL, while dealing with properties of CPL and VML." 35. On the above findings, the Company Law Board has held that by virtue of clause 12(3)(vi)/article 45(vi), any investment or other payment made by CEPL or its subsidiaries in excess o....
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....nd OARC on the other hand. In exercise of powers under sections 397 and 398 read with section 402 of the Companies Act and with a view to bring an end to the grievances of the parties concerned, the Company Law Board, inter alia, directed CEPL to return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively together with simple interest at the rate of 8 per cent. per annum from the date of investment till the date of repayment within a period of twelve months (vide paragraph No. 9) the Company Law Board had given liberty to CEPL to make use of the fixed deposit held by the CEPL with SBI, Erode Main Branch to make payment to ORE and Athappan. The said order was subsequently modified by the Company Law Board on August 3, 2009, which we would refer a little later while dealing with company appeals. 40. Strained relationships between the parties aggravated the situation resulting in both parties filing civil suits as well as the number of criminal complaints/cases. Instead of instituting arbitration proceedings at the early point of time, C. G. Holdings, CPL, VML and KCP repeatedly filed suits and number of criminal complaints. The details of the criminal ....
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.... N. Athappan (6) Benn Watsa (7) G. Athappan (8) Hamblin Watsa Investment Council (9) ORE (10) Paul Rivett Stayed by the High Court in Crl. O. P. Nos. 20886-20887 of 2007 on 12-7-2007. The petitions are pending. Cr. No. 468 of 2007 Sections 406, 409, 420, 467, 468, 471, 472, 477 IPC 9-6-2007 Kangayem Police Chennaiappan Gounder F/o. K. C. Palanisamy (1) R. Athappan (2) Chandran Ratnaswami (3) OARC (4) Prem Watsa (5) N. Athappan (6) Paul Rivett (7) G. Athappan (8) Hamblin Watsa Investment Council (9) ORE Stayed by the High Court in Crl. O. P. Nos. 20888-20889 of 2007, on 12-7-2007. The petitions are pending. 41. It is in this factual background and proliferation of civil and criminal proceedings initiated by KCP, the learned single judge held that clause 22 of the JVA containing arbitration clause has become inoperative. The learned single judge took the view that : ". . . parties are already engaged in Gorilla warfare of litigations at several locations and C. G. Holdings and KCP have made the arbitration agreement inoperative by resorting to a series of litigations before various Fora. Pointing out that the concept of h....
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....Cas 114 ; 82 SCL 495 , wherein the Supreme Court approved the views taken by the Company Law Board that the proceedings under sections 397 and 398 of the Companies Act always relate to the affairs of the company. Observing that the provisions of section 397/398 of the Companies Act can be invoked only if the disputes even among the shareholders or allegations against each other relate to the affairs of the company, the hon'ble Supreme Court held as under (page 122 of 142 Comp Cas) : "As rightly observed by the Company Law Board, the proceeding under section 397/398 of the Companies Act always relates to the affairs of the company. In so far as the arbitration clause in the JVA is concerned, to bind the company it has to be a party to the arbitration agreement. It was pointed out that even though the company is a party to the JVA, no arbitration has been provided for disputes between the shareholders and the company or in relation to allegations in the affairs of the company." 44. In Sumitomo Corpn.'s case (supra) at paragraphs 18-23, the hon'ble Supreme Court considered the disputes vis-a-vis the arbitration clause. The hon'ble Supreme Court concluded that as parties to the d....
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.... case pertains to winding up of the company, which involves a special procedure to be followed by the official liquidator appointed by the court and does not involve the adjudication of disputes between the parties. As discussed infra, the basis on which the arbitration was sought for has been the subject-matter of dispute both before the Company Law Board and in various other litigations. Hence, the above judgment has no application to the facts of this case. 47. Learned counsel for appellants contended that the Company Law Board dealt with only the issues pertaining to the oppression and mismanagement of CEPL and the larger issues are to be determined. Holding that bifurcation of cause of action, i.e., the subject-matter of cause of suit or in some cases, bifurcation of suit between the parties, who are the parties to arbitration agreement, is not permissible, in Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya, AIR 2003 SC 2252; 44 SCL 146, the Supreme Court held as under (page 2255) : "16. The next question which requires consideration is-even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under section 8 of the A....
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....2005, the Company Law Board has only dealt with the matters pertaining to oppression and mismanagement alleged by the shareholders and none of the allegations in C. P. No. 65 of 2005 pertain to the claims of C. G. Holdings and KCP arisen out of the contractual claims of JVA and the breach of terms of JVA. 49. The Company Law Board observed that (page 310 of 159 Comp Cas) : "Nevertheless, the grievances on account of non-issue of a corporate guarantee by OARC are not remedial under section 397/398, for the reasons already recorded". Laying emphasis upon the said findings of the Company Law Board, Mr. Karthik Seshadri, learned counsel for the appellants contended that the said view of the Company Law Board clearly shows that the Company Law Board has not dealt with all the issues arising out of the contractual breaches and the Company Law Board has imposed a restriction on itself based on the decisions of the Supreme Court that it will not decide the issues arising out of contractual breaches and has directed the parties to work out their rights in accordance with article 22 of JVA, viz., arbitration clause. It was therefore contended that when the Company Law Board itself was of ....
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....gitated in a proceeding under section 397 of the Act, but only in a civil court. Much reliance was also placed upon the observations of the Company Law Board that the grievance of KCP or ORE on account of the purported breach of the terms of the JVA are not amenable to the jurisdiction of the Company Law Board and that clause 22 of JVA provides for dispute resolution mechanism in settling any differences arising between the parties in respect of implementation of the JVA. Learned counsel for the appellants further contended that when the Company Law Board itself has left open the issues as regards violation of contractual rights to be determined by arbitration in terms of clause 22 of the JVA, the learned single judge erred in holding that the arbitration clause has become inoperative. 53. Breach of clause 9.1 of JVA is alleged mainly on the ground of non-issuance of a corporate guarantee by OARC to secure syndicated credit facility in terms of the JVA. It is pertinent to note that the controversies raised in relation to non-issue of a corporate guarantee by OARC in securing a syndicated credit facility in terms of the JVA has been dealt with by the Company Law Board, wherein th....
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....as) : "CG Holdings and Athappan should pledge their shares and shares in VML in favour of OARC ; KCP and his affiliates should pledge their right in their partnership interest in UBC and pledge their equity shares of UPL ; and Athappan should pledge his interest in UPL and UBC, as security for the grant of corporate guarantee by OARC for the syndicated credit facility which may be obtained by CEPL (clause 9.1)." The contention raised on the grant of corporate guarantee by OARC has been elaborately considered by the Company Law Board. 55. On analysis of various aspects, the Company Law Board concluded that it was no longer possible for the parties to carry out joint venture business of CEPL as per the terms of JVA. Only to have smooth exit of ORE and Athappan, the Company Law Board passed the order directing CEPL to repay Rs. 75 crores and Rs. 4 crores invested by ORE Holdings and Athappan respectively. By perusal of the order of Company Law Board, in our considered view, the Company Law Board has elaborately gone into the issues arisen between the parties even though those objections were filed under sections 397 and 398 of the Companies Act. As demonstrated infra, there a....
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....evidence by either parties and such a situation cannot be properly gone into by the arbitrator, the Supreme Court in N. Radhakrishnan v. Maestro Engineers [2010] 1 SCC 72, the Supreme Court held as under (page 77) : "23. In this connection, reliance was placed on a decision of this court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406) in which this court under paragraph 17 held as under (page 411 of AIR 1962) : '17. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference.' In our view and relying on the aforesaid observations of this court in the aforesaid decision and going by the ratio of the abovementioned case, the facts of the present case do not warrant the matter to be tried and decided by the arbitrator, rather for the furtherance of justice, it should be tried in a court of law which would be more competent and have the means to decide such a complicated matter involving various questions and ....
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...., itself, the appellants had invoked the arbitration in article 22.3 of JVA and written to plaintiffs concerning the appointment of arbitrator and therefore learned single judge erred in arriving at the conclusion that O. S. No. 90 of 2007 would be a bar for proceeding with arbitration before the ICC. 62. Reiterating the above submissions, Mr. V. Lakshminarayanan, learned counsel for VML would also contend that O. S. No. 90 of 2007 pertains to the allotment of shares to Nandakumar Athappan in VML, CPL, Unaitted Plantations and Unaitted Builders and Consultants Ltd., which is much prior to the JVA dated January 30, 2004 and while so the learned single judge erred in saying that the issues involved in O. S. No. 90 of 2007 are the same as that of the issues sought to be raised in the arbitration before the ICC. 63. The above contention does not merit acceptance. In O. S. No. 90 of 2007, the prayer is to declare the allotment of shares to Nandakumar Athappan at the instance of Ramaswamy Athappan in CEPL, VML and CPL is tainted with fraud and misrepresentation and also null and void. Even though the allotment of shares challenged in O. S. No. 90 of 2007 is stated to be prior to th....
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...., the learned single judge shut the opportunity to VML as well as CPL to agitate the larger issues before the appropriate forum. 67. There is no merit in the contention that the C. G. Holdings, being not a party in O. S. No. 90 of 2007, could not effectively adjudicate upon the issues in O. S. No. 90 of 2007. A company is a legal personality entirely distinct from its members. In certain exceptional case, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the corporate entity. For instance, the court has the power to lift the corporate veil if it is used for tax evasion or to circumvent tax obligation. The principle of lifting or piercing a veil is also applicable to cases of holding company-subsidiary relations, where in spite of there being separate legal personalities, the facts and circumstances show that they are in reality parts of one concern owned by a parent company or a group as a holder. Applying the ratio of the decision of Jai Narain Parasrampuria v. Pushpa Devi Saraf [2006] 133 Comp Cas 794 (SC), the Company Law Board held that the CCL is nothing but an extended arm of KCP. 68. If we lift the corporate v....
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....to pay damages for all losses suffered by C. G. Holdings by reason of respondents' breach of JVA and/or misrepresentations. 72. As discussed earlier, various acts referred to, issues and prayers made before the arbitral forum are the same and are also raised before the various fora, viz., O. S. No. 90 of 2007 on the file of the District Munsif's Court, Kangeyam, C. P. No. 65 of 2005 before the Company Law Board, Southern Region Bench, Chennai and the counter statement filed in C. P. No. 76 of 2005. Considering the entire matter, the Company Law Board has decided most of the issues and passed the order directing return of moneys invested by Athappans and ORE to enable smooth exit of Athappan and ORE. It is in this factual scenario the learned single judge held that the appellants by their conduct engaged in pitched battle of litigation with the respondents and hence article 22.3 of JVA-arbitration clause has become inoperative. 73. Request for arbitration : After raising the dispute in C. P. No. 65 of 2005 and also contesting C. P. No. 76 of 2005, proposing to initiate arbitration before the ICC, on August 14, 2006, C. G. Holdings issued letter to Nandakumar Athappan stating t....
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....heir response, the Athappans stated that request for extension of time to send the response should not be regarded as submission to the arbitration and saying so, the Athappans reserved their rights. On November 26, 2007, the Athappans sent a detailed reply to ICC refusing to submit to arbitration and they have also raised preliminary grounds of objection and called upon the ICC court to reject the "Request for arbitration" under article 6(2) of ICC Rules. By their letter dated November 28, 2007, ORE also responded to the "request for arbitration". In paragraphs 1.4 and 1.5 of their response, ORE clearly stated that arbitration has been waived by the conduct of the parties and hence Arbitral Tribunal (ICC) does not have jurisdiction to entertain the dispute. ICC proceeded to constitute the Tribunal. In response to the constitution of the Arbitral Tribunal, on December 27, 2007, the Athappans sent a further reply to ICC citing various judgments in support of their contentions and stating that the parties have waived their right to arbitration. In paragraph 2 of the response, the Athappans raised objection to the very initiation of arbitration. However, in paragraph 4, it was stated ....
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....iling the present suit-C. S. No. 257 of 2008. 76. There is no force in the contention that the plaintiffs were attempting to frustrate the arbitration. In their letter dated September 2, 2006, the Athappans clearly stated that in view of filing of C. P. Nos. 65 and 76 of 2005, KCP has waived the right to arbitrate and hence the Athappans were refusing to appoint arbitrators. As rightly contended by learned counsel for the plaintiffs, there was no response from C. G. Holdings or KCP to the said letter dated September 2, 2006. Even while KCP was hotly pursuing the petitions before the Company Law Board and lodging various criminal complaints for nearly about one year, seldom there was any action to take further steps to initiate arbitration. Interestingly, KCP along with CPL and VML filed suit-O. S. No. 90 of 2007 on January 23, 2007. 77. As per article 4, the date on which the request concerned is received by the Secretary shall be the date of commencement of the arbitral proceedings. Article 4(1) and (2) of Rules of Arbitration of ICC reads as under : "4. Request for arbitration.-(1) A party wishing to have recourse to arbitration under these Rules shall submit its request....
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....activity were of their very nature equivocal and could not therefore of themselves constitute an unequivocal representation for the purposes of invoking the principle of equitable estoppel ; that moreover, there was no evidence that in failing to take steps to prepare their case, the owners had acted in reliance on any representation made by the characters ; and that, accordingly the characters were not estopped from pursuing their claim and the associated reference to arbitration." 81. Reliance was also placed by learned counsel on the decisions of Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd. [1972] 42 Comp Cas 512 (SC), Sha Mulchand & Co. (in liquidataion) v. Jawahar Mills Ltd. [1953] 23 Comp Cas 1 (SC) and World Pride Shipping Ltd. v. Daiichi Chuo Kisen Kaisha [1984] 2 Lloyds Report 489. 82. Learned counsel for appellants Mr. Karthik Seshadri has further contended that in this case such an assumption cannot be inferred since KCP and C. G. Holdings filed application under section 9 (O. P. No. 279 of 2005) before the District Court, Coimbatore. It was further urged that after filing C. P. No. 65 of 2005 before the Company Law Board followed the request to a....
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.... Court held that arbitration proceedings and civil suits cannot be agitated side by side. It was therefore contended that when O. S. No. 90 of 2007 and C. S. No. 257 of 2007 are pending, ICC Arbitration cannot be permitted to proceed simultaneously. 85. For waiver, there must be intentional or voluntary abandonment of a known right. It may be either express or implied from the conduct, but its basic requirement is that it must be an intentional act being fully informed as to his rights and with full knowledge of such right Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC). Reliance was also placed upon a decision of a single judge of the Karnataka High Court in Ramakrishna Theatre Ltd. v. General Investments & Commercial Corpn. Ltd. AIR 2003 Kar. 502. Waiver of the right to arbitration however cannot be easily assumed. It requires an unequivocal demonstration of intent to waive. After extracting passage from O. P. Malhotra's Law and Practice of Arbitration and Conciliation, the learned judge has well considered the aspect of waiver. 86. Having seen the letter dated August 14, 2006, from C. G. Holdings stating that as per clause 22 of the ....
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....76 of 2005, it is clear that the alleged breach of clause 9.2 has been elaborately dealt with. The Company Law Board dealt with not only the issues pertaining to the oppression and mismanagement of CEPL and also the larger issues arising between the parties. Only to ensure smooth exit of ORE and Athappan, the order dated August 13, 2008, came to be passed by the Company Law Board. It is pertinent to note that KCP had not challenged the said order of the Company Law Board. 89. Per contra, KCP had sent a letter dated August 20, 2008, to counsel on record for the plaintiffs stating that in compliance with the order passed by the Company Law Board offering to pay the amount to N. Athappan to the tune of Rs. 4 crores with interest at the rate of 8 per cent. per annum calculated at Rs. 545.52 lakhs as the sum refundable. Later KCP chose to file C. A. No. 154 of 2008 seeking certain modification in respect of Rs. 20 crores in fixed deposit T. D. R. No. 759413 dated October 14, 2005, lying with the State Bank of India, Erode Branch. This again indicates that KCP had chosen to comply with the order of the Company Law Board and see that Athappans and ORE make smooth exit. 90. Since mos....
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....d issues of facts are involved and hence the dispute is not arbitrable. 94. Article 6 of ICC Rules deals with "Effect of the Arbitration Agreement". Article 6(1) reads as under : "Where the parties have agreed to submit to arbitration under the Rules, they shall be deemed to have submitted ipso facto to the Rules in effect on the date of commencement of the arbitration proceedings, unless they have agreed to submit to the Rules in effect on the date of their arbitration agreement." 95. Articles 6(2) and (3) deal with instances where the respondent failed to file an answer to refuse to take part in the arbitration proceedings. Article 6(4) stipulates that the arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent. Articles 6(2) to (4) reads as under : "(2) If the respondent does not file an answer, as provided by article 5, or if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the court may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima....
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....nd consciously proceeded to invite the decision from the ICC and suffered a decision from the ICC under article 6(2), it is not open to the plaintiffs to file the suit impugning the arbitration clause in the JVA and challenging the initiation of arbitration proceedings on identical grounds. 98. No doubt, in response to the "request for arbitration", Athappans and ORE sent a detailed reply reiterating their stand that C. G. Holdings and KCP having initiated multiple litigations in various civil courts and having lodged criminal proceedings for the very same cause of action cannot seek reference to arbitration. In the said response, it was also brought to the notice of ICC that C. P. Nos. 65 and 76 of 2005 are in the final stages of adjudication and the "request for arbitration" appears to have been made to frustrate the company petition and other proceedings. Even though the plaintiffs and ORE requested ICC to exercise its powers under article 6(2) of the ICC Rules of Arbitration and merely because the ICC proceeded to appoint arbitrators, it cannot be contended that the plaintiffs suffered a decision from the ICC and were precluded from filing the suit. It is pertinent to note t....
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....-agitated before the ICC. When the Company Law Board has elaborately dealt with the matter and when O. S. No. 90 of 2007 on the file of District Munsif's Court, Kangeyam is also pending, the same issues cannot be sought to be agitated before the ICC and thus making the whole process expensive. 103. Re-contention on dismissal of application under section 45 of the Arbitration and Conciliation Act : The existence, validity and scope of arbitration agreement can be determined by court : (i) before the commencement of arbitration proceedings (section 45) ; or (ii) at the stage of enforcement of the award (section 48). 104. Section 45 reads as under : "45. Power of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of bein....
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....on, the judicial authority should be satisfied that the arbitration agreement is not null and void, inoperative or incapable of being performed . . . Clearly section 45 casts an obligation upon the judicial authority when seized of the matter to record a finding as to the validity of the arbitration agreement as stipulated in the section and there is nothing to suggest either from the language of the section or otherwise that the finding to be recorded is to be only ex facie or prima facie. It is true that section 5 limits judicial intervention in the manner provided therein. It accelerates the arbitral process by curtailing chances of delay that may be caused in court proceedings. But, at the same time, it is also clear that though sections 8 and 45 both deal with the power of judicial authority to refer parties to arbitration, in the former which deals with domestic arbitration, no provision has been made for examining at that stage the validity of the arbitration agreement whereas under section 45 which deals with arbitrations to which the New York Convention applies, a specific provision has been made to examine the validity of the arbitration agreement in the manner prov....
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....ion at the pre-reference stage, and a fair opportunity to contest the award after full trial, would be fully satisfied by interpreting section 45 as enabling the court to act on prima facie view. In the said judgment, the Supreme Court summed up the law as follows (page 124 of 127 Comp Cas) : ". . . if on prima facie examination of the documents and material on record, including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the court decides to make a reference, it may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is 'null and void' or 'inoperative' or 'incapable of being performed' within the meaning of section 45 of the Act, the judici....
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....final finding of fact arrived is in contravention of the principles laid down by the honourable Supreme Court in Shin-Etsu Chemical Co. Ltd.'s case (supra). 111. In Shin-Etsu Chemical Co. Ltd.'s case (supra) the honourable Supreme Court laid down that while considering the application under section 45, the court is required to make a prima facie determination whether the arbitration agreement is "null and void", "inoperative", or "incapable of performance". If on a prima facie determination, the court finds that the arbitration agreement is not null and void, inoperative or incapable of performance, the parties would be referred to arbitration. After affording sufficient opportunity to the parties, where the court arrives on a prima facie finding that the arbitration agreement is null and void, inoperative or incapable of performance, the court shall refuse to refer the parties to arbitration. In Shin-Etsu Chemical Co. Ltd.'s case (supra), the Supreme Court also held that when the court refuses to refer the parties to arbitration, the court must give a reasoned order as to why the court is not referring the parties to arbitration. 112. Before the single judge, even though the....
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....ration proceedings. The learned single judge dismissed section 45 application (A. No. 2670 of 2008) on the only ground that the conduct of the appellants rendered the arbitration clause "inoperative". Upon consideration of totality of circumstances the learned judge held that conduct of the appellants is inconsistent with the right to arbitrate. 116. In determining whether a party has waived its right to arbitration, the court examines the following factors : (i) Whether the party's actions are inconsistent with the right to arbitrate ; (ii) Whether the litigation machinery has been substantially invoked ; (iii) Whether dispute arising out of the contract was adjudicated and whether in judicial process important events had taken place ; (iv) Whether delay affected or prejudiced the opposing party. 117. Learned counsel for the appellants contended that the arbitration clause does not prohibit the filing of company petition, which mainly pertains to the management of the company and thus filing of company petition is subject to the right of the party in requesting to refer the dispute to arbitration. It was further contended that a party cann....
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....ay the amount of Rs. 545.52 lakhs as the sum refundable to N. Athappan in full settlement. The waiver is clearly implicit from the acts of the appellants, which indicates their intention not to proceed with the arbitration. On the facts and circumstances of the case and in view of the pitched battle of litigations between the parties, the learned single judge rightly held that there is a waiver by estoppel and that the arbitration clause in JVA has become "inoperative". The said conclusion is based on materials on record warranting no interference. We do not find any ground for interference with the order of the learned single judge allowing injunction application-A. No. 277 of 2008 restraining C. G. Holdings and K. C. Palanisamy from proceeding with the arbitration and dismissing A. No. 1270 of 2008 filed by the appellants under section 45 of Arbitration and Conciliation Act, 1996. 121. O. S. A. No. 258 of 2009 : This appeal arises from the order of single judge dated February 4, 2008, made in Application No. 5848 of 2007 in C.S. No. 709 of 2007. 122. As pointed out earlier, OARC loaned amount of 17 million USD to Data Access America Inc. (DAA) for being invested in DAIL. Pa....
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....such a conclusion then, this court can exercise its power under Order 6, rule 16 of the CPC to strike out the prayer which it consider unnecessary, scandalous, frivolous or vexatious or which may tend to prejudice, embarrass or delay the fair trial of the suit of which is otherwise an abuse of the process of the court. Under such circumstances, I am of the view that under Order 6, rule 16 of the CPC, the following in the relief "A" to the plaint, or connected with the joint venture agreement dated January 30, 2004, including the investment of the second plaintiff in Cheran Enterprises P. Ltd., alone is ordered to be struck off. For filing amended plaint by one week. A.No. 5848 of 2007 is disposed of." 123. A. No. 5848 of 2007 was disposed of on the above lines. The application-A. No. 5849 of 2007 seeking striking off the names of defendants Nos. 2 and 4 to 6, viz., Cheran Holdings P. Ltd. (CHPL), Cheran Constructions Ltd. (CCL), Chinniappan Gounder-father of KCP, B. Gunasekaran and the same came to be dismissed. 124. Being aggrieved by the order in A. No. 5848 of 2007, OARC and ORE have preferred appeal-O. S. A. No. 258 of 2009. On behalf of OARC and ORE, learned senior couns....
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....ry 30, 2004, cannot be said to be scandalous, frivolous or vexatious. On the mere fact that OARC and ORE have included several causes of action, the prayer in respect of the JVA does not make it scandalous or frivolous. Nothing can be scandalous which is relevant for the determination of the suit. In our considered view, the learned single judge was not right in striking off the words "joint venture agreement dated January 30, 2004" including the investment of the second plaintiff in Cheran Enterprises P. Ltd., in the relief "A" to the plaint. In the light of our findings in O. S. A. Nos. 2 to 5 of 2009, the order of the learned single judge in Application No. 5848 of 2007 in C. S. No. 709 of 2007 is liable to be set aside and O. S. A. No. 258 of 2009 is allowed. 127. Company Appeals Nos. 21, 25 to 27 and 29 of 2009 : The gist of order in C. P. Nos. 65 and 76 of 2005 dated August 13, 2008, is that : CEPL, KCP and C. G. Holdings were to return Rs. 75 crores to ORE and Rs. 4 crores to Athappan. The money was to be paid within a period of one year starting November 1, 2008, with 25 per cent. of the same, being paid every year. CEPL, KCP and C. G. Holdings were to utilise Rs. ....
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....t specific directions to the bank for release of funds. Hence, N. Athappan and R. Athappan filed C. A. No. 10 of 2009 before the Company Law Board for a direction to release the funds in State Bank of India, Erode in furtherance of order dated August 13, 2008. ORE also filed C. A. No. 155 of 2008 for direction to the State Bank of India, Erode funds to release the amount and also praying that in the event VML's land is to be transferred to it then the same may be permitted to be transferred to a nominee of ORE. 130. In all the three applications, by a common order dated August 3, 2009, the Company Law Board, inter alia, directed the State Bank of India, Erode to release 50 per cent. of the CEPL's money to ORE and N. Athappan in the ratio of 75 : 4 and the remaining 50 per cent. of the proceeds to C. G. Holdings and KCP and passed the following order (page 91 of 170 Comp Cas) : "(i) SBI is authorised to release 50 per cent. of maturity proceeds of the fixed deposit No. 759413 held in the name of CEPL, in favour of ORE and N. Athappan in the ratio of 75 : 4 and the remaining 50 per cent. of the proceeds in favour of C. G. Holdings and KCP enabling them to deal with the sa....
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....happan were admitted on the following questions of law : "2. Whether the hon'ble Company Law Board rendered functus officio in respect of the prayers sought in C. A. No. 154 of 2008 ? 3. Whether by passing order dated August 3, 2009, the hon'ble Company Law Board has reviewed/reversed its order and therefore whether the hon'ble Company Law Board has the power of review ? 4. Whether grant of 50 per cent. of the money of CEPL to the second and third respondents was in the paramount interests of CEPL ? . . . 6. Whether the hon'ble Board was justified in not granting the power sought in C. A. No. 10 of 2009 ?" 133. Mr. Sivam Sivanandaraj, learned counsel for N. Athappan contended that KCP and C. G. Holdings failed to comply with previous order of the Company Law Board dated August 13, 2008, by not paying a single instalment and while so, the Company Law Board ought to have reprimanded C. G. Holdings and the KCP and Company Law Board overlooked the fact that by August 3, 2009, at least three instalments were already due. It was further submitted that the Company Law Board has not given any reasoning, what so ever, in its order dated August 3, 2009, for arriving at any of ....
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....eshadri, learned counsel for KCP submitted that under section 398 read with section 402 of the Companies Act, power has been conferred upon the Board "to make such orders as it thinks fit and in the interest of the company (CEPL), the Company Law Board has rightly modified its earlier order". 139. In Shoe Specialities (P.) Ltd. v. Standard Distilleries & Breweries (P.) Ltd. [1997] 90 Comp Cas 1, Division Bench of this court had an occasion to consider the scheme of the Act pertaining to corporate management of the companies. Observing that under section 398 read with section 402 of the Companies Act, power has been conferred upon the court (Company Law Board) to make such order as it thinks fit, it was held as under (page 25) : "Under section 397 read with section 402 power has been conferred on the court 'to make such orders as it thinks fit if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the gr....
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.... to deal with the money lying with the State Bank of India, Erode. As elaborated earlier, in its earlier order dated August 13, 2008, the Company Law Board has recorded categorical findings : (i) conduct of KCP having regarded CEPL's funds as though his own funds is burdensome, harsh and wrongful ; (ii) movement of funds from CEPL as traced by the auditors M/s. Deloitte Haskins and Sells is not supported by any approvals from the board of CEPL ; (iii) KCP had taken enormous steps in safeguarding and enhancing the value of CPL properties as well as bringing VML out of sickness thereby saving its vast extent of properties and settling all dues of workmen which is in contravention to the JVA/articles of CEPL; and (iv) KCP is accountable for not having diligently discharged its statutory duties cast on him. On those factual findings, in its order dated August 13, 2008, the Company Law Board observed that the very purpose of CEPL could not have been achieved in terms of the JVA and in the light of those factual findings directed CEPL to return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively along with interest at 8 per cent. In the said order, the Compa....
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....nd Athappan would exit after receiving return of their investments or transfer of VMC property. In its previous order, the Company Law Board has maintained status quo regarding contract of CEPL until ORE and Athappan are repaid their investments. The subsequent order dated August 3, 2009, is to give control of CEPL to KCP. If the control of CEPL is given back to KCP, certainly KCP would divert the money as well as the properties and ORE and Athappan would never be paid their investments. The second order of the Company Law Board dated August 3, 2009, to the extent permitting KCP to withdraw 50 per cent. of the money completely reverses the position and therefore it cannot be said to be "removal of any difficulty in the implementation of smooth exit of ORE and Athappan from CEPL". On the contrary, the subsequent order dated August 3, 2009, considerably alters the manner of exit of ORE and Athappan. While passing the order dated August 3, 2009, the Company Law Board failed to note that KCP had not paid any instalment from November 1, 2008. Without paying the money, KCP only wants to have control of CEPL. To have control over CEPL, KCP should have taken efforts to comply with the earl....
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....of 2005 and 16 of 2007 dated January 21, 2011 : Anticipating approval of the Board of CEPL, KCP transferred Rs. 33 crores to CHPL to be paid to DAIL. Subsequently, CEPL Board disapproved the said transfer of funds to CHPL for investing in DAIL. OARC had given a loan of USD 17 million to Data Access America Inc. (DAA), which is a wholly owned indirect subsidiary of DAIL. DAA executed a promissory note dated August 13, 2004, in favour of OARC. Subsequently, the loan proceeds were inappropriately remitted by DAA to DAIL as payment of receivables for services rendered by DAIL. Faced with inappropriate remittance and subsequent diversion of the loan proceeds and the failure of DAA to make payment on the loan, DARC instituted a suit for recovery of USD 17 million in the Supreme Court of State of New York, U. S. A., in which the judgment and decree was passed for the said amount together with interest. 147. C. P. No. 292 of 2004 was filed for winding up DAIL. In the said company petition, Canara Bank filed C. A. No. 221 of 2007 seeking for the relief to release a sum of Rs. 17.56 crores lying in the State Bank of India, Erode as fixed deposit of CEPL and for other reliefs. Referring to....
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....yed to nominee of ORE. Upon consideration of the rival contentions, the Company Law Board held that ORE, being an entity of foreign origin (Mauritius), cannot hold any immovable property and that holding of immovable property would amount to violation of FEMA, modified its earlier order to the effect that in the event of any remote need the properties of VML 17.15 acres of land will be conveyed in favour of ORE or its nominee. 150. Being aggrieved by the order passed in C. A. No. 155 of 2008, C. G. Holdings and KCP have preferred appeal-C. A. No. 27 of 2009. It is pertinent to note that VML has not preferred any appeal but only C. G. Holdings and KCP have preferred appeal. 151. Learned counsel Mr. Lakshminarayanan submitted that behind the back of VML such an order came to be passed and advanced arguments. As observed in paragraph No. 17, with a view to afford an opportunity to VML, we have heard the submissions of Mr. V. Lakshminarayanan. Learned counsel for VML contended that the property of VML was to act as a security till the share capital was returned in accordance with applicable laws in India and while so by the impugned order dated August 3, 2009, the Company Law Boa....