TaxTMI 
TaxTMI 
TaxTMI 
2011 (8) TMI 962
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....difying 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 the name and style of Cherraan Properties Ltd. (in ....
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....h 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 a former member of Legislative Assembly and also a Member of Parlia....
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.... 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, passed the following order (page 327 of 159 Comp Cas) : "CEPL shall return a sum of Rs. 75 c....
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.... 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. Objections were filed by the plaintiffs for invoking ICC Rules, inter alia, stating that arbitration....
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....e 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 O. A. No. 277 of 2008, A. Nos. 1236, 2670 and 2671 of 2008 in C. S. No. 257 of 2008, the learned single judge ....
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....6 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 applications nor advanced any arguments, before the learned single judge, VML and CPL, who are subsidiary companies, have not eve....
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....duct 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 Atul Singh v. Sunil Kumar Singh [2008] 2 SCC 602, learned senior counsel contended that if the arbitration agreement is claimed as il....
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.... 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". Clause 14.1(x) stipulates the default clause in case company is not able to meet its financial or business targets stipulated in the business plan. For the avoid....
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....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 in ABN Amro Bank on January 29, 2004. Since the time of investment, constantly, money has been moved. The bank statement of account shows trail of money. As per clause 12....
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....out 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 supported by any approvals from the board of CEPL or the affirmative vote of ORE and is in clear violation of clause 12.3(vi) of JVA/article 45(vi). The circular resolution relied u....
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.... 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 disposal of substantial assets of the company (CEPL) or its subsidiaries, has to be approved by the board with an affirmative vote from ORE. Without any such board resolution with affirmative v....
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....ties 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 of USD 1,00,000 requires an affirmative vote from ORE. The investments made by CPL in each of the contracts entered with CCL exceeds the monetary limit of USD 1,00,000 fixed under clause 12.3(vi)/article 45(vi). ....
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....er 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 complaints filed by KCP against ORE and Athappan are as under : Crime No./-offences -alleged Date of filing/police station/court Name of complainant Name of accused Status 157 of 2006 Section 138 of the NI Act De....
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....(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 holding the parties to their bargain and driving them to arbitration is based on the principle of 'one-stop adjudication'." The learned judge held that the arbitration is devised as an alternative dispute resolution mechanism and not as an additional dispute resolution mechanism. Thus, on the facts and materials and on the conduct of the parties, the learned single judge held that by estoppel, abando....
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.... 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 dispute were not parties to the arbitration clause and hence the matter need not be referred. The apex court considered the dispute vis-a-vis the arbitration clause and refused to refer the parties to the arbitration on the ground that the company therein was not a party to the arbitration agreement and hence the matter was not sent to arbitration. In the said judgment, in paragraph No. 23, the Supreme Court he....
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....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 Act ? In our view, it would be difficult to give an interpretation to section 8 under which bifurcation of the cause of action, that is to say, the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a....
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....sue 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 the view that the issues could be raised only before arbitration, learned judge was not right in saying that the Company Law Board has finally resolved the dispute between the parties. 50. On behalf of the appellants, reliance was placed upon the observations of the Company Law Board that the issues are to be agitated only before the arbitral tribunal as per clause 22 of JVA. Learned counsel for the respondents contends that....
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.... 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 the Company Law Board held that the said issue has been set at rest in view of the explicit acknowledgment reflected in the annual report of the Odyssey Re Holding Corporation for the years 2005 and 2006. We may usefully refer to the said annual report of the Odyssey Re Holding Corporation for the years 2005-06, which has been extracted in the order of the Company Law Board, which reads as under (page 308 of 159 Comp Cas) : "The compa....
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....n 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 are commonality of issues raised in both the company petitions, O. S. No. 90 of 2007 and the petition filed before the ICC seeking for arbitration. 56. Criminal cases : Learned counsel for appellants Mr. Karthik Seshadri contended that the purport of the criminal proceedings are different and initiating of criminal complaints does not amount to waiver of arbitration. Of course, a party does not waive his right to invoke arbitration by filing c....
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....t 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 issues raised in the present dispute. 24. This view has been further enunciated and affirmed by this court in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [1999] 97 Comp Cas 683 ; [1999] 5 SCC 688 ; AIR 1999 SC 2354, wherein this court under paragraph 4 observed (page 685 of 97 Comp Cas) : '4. Sub-section (1) of section 8 provides that the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said mat....
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....mar 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 the JVA, by a careful reading of O. S. No. 90 of 2007, it is seen that almost the entire plaint averments revolve around the JVA dated January 30, 2004, the alleged breach in failure to bringing in the syndicated credit facility to the tune of Rs. 300 crores and breach of clause 9.1 of JVA. By a careful comparative reading of the averments in O. S. No. 90 of 2007 and C. P. No. 65 of 2005, we find that the averments in O. S. No. 90 of 2007 are verbatim same as that of other the avermen....
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.... 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 veil, we find that the companies-VML, CPL, C. G. Holdings, CCL and number of other companies were promoted only by KCP. At this juncture, it is pertinent to note that in the JVA dated January 30, 2004, KCP only has signed as a director of C. G. Holdings as well as VML and CPL and CEPL. Lifting the corporate veil and applying the ratio of the decision of Jai Narain Parasrampuria's case (supra), we find that VML, CPL and C. G. Holdings are one group of companies promoted by KCP. 69. In the join....
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..... 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 that as per clause 22 of JVA, C. G. Holdings and Athappan are to jointly appoint an arbitrator. In the said letter, C. G. Holdings proposed the names of Lord Steyn or Sir Anthony Evans as arbitrators and called upon N. Athappan to select any one of them as arbitrator. On August 21, 2006, N. Athappan through his counsel issued a preliminary response stating that as per the arbitration clause 22.3 in the JVA he has 45 days time to respond to such a request and also stated that he has no knowledge of both ....
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....o 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 that if the court/ICC is inclined to order that the arbitration has to be proceeded, then to grant the Athappans an opportunity to make oral submissions before the final decision is arrived at. On February 1, 2008, the ICC sent a letter to the Athappans stating that it had decided to proceed with the arbitration proceedings and called upon the parties to comment upon the same. By their letter dated February 19, 2008, the Athappans clearly stated that they do not submit to the jurisdiction of any Arbitral....
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....d 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 for arbitration (the 'request') to the Secretariat, which shall notify the claimant and respondent of the receipt of the request and the date of such receipt. (2) The date on which the request is received by the Secretariat shall, for all purposes, be deemed to be the date of the commencement of the arbitral proceedings." 78. As pointed out earlier, in the present case, "request for arbitration" is dated September 12, 2007 and as per article 4, the said date shall be deemed to be the date of commencement of a....
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....d 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 appoint arbitrator on August 14, 2006 and even thereafter, C. G. Holdings and KCP were pursuing the matter to initiate arbitration proceedings. Learned counsel would further contend that filing of criminal complaints and any investigation thereafter is a matter of public policy and initiating criminal complaints therefore can never give rise to the conclusion that it constituted waiver or abandonment or estoppel. Placing reliance upon the decisions of Trisuns Chemical Industry v. Rajesh Agarwal [1999] 8 SCC 686 and Booz Allen ....
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....al 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 JVA, Athappans are to jointly appoint arbitrator and after the Athappans sent response (September 2, 2006) stating that KCP has waived his right to arbitrate, KCP thereafter did not further pursue the matter to initiate arbitration proceedings till September 12, 2007. The flow of events and conduct of KCP and circumstances would clearly show that by filing O. S. No. 90 of 2007 and by hotly contesting the company petitions and filing number of criminal complaints, C. G. Holdings and KCP have waived their right to arbitrate. A right on....
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....ounsel 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 most of the issues sought to be raised in the arbitration were already raised and resolved by the Company Law Board and when the Company Law Board has passed the order to ensure smooth exit of Athappan and ORE, the appellants now cannot contend that larger issues need to be raised before the arbitration. 91. In so far as the contention of the appellants regarding the investment in Sporting Pastime India Ltd., it pertains to the loan advanced by OARC, which is not a party to the JVA. The investment in Sporting Pastime India Ltd., itself is the ....
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....ed 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 facie satisfied that an arbitration agreement under the Rules may exist. In such a case, any decision as to the jurisdiction of the arbitral Tribunal shall be taken by the arbitral Tribunal itself. If the court is not so satisfied, the parties shall be notified that the arbitration cannot proceed in such a case, any party returns the right to ask any court having jurisdiction whether or not there is a binding arbitration agreement. (3) If any of the parties refuses or fails to take part in the arbitration or any stage thereof, the arbitration shall proceed notw....
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....erence 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 that the ICC did not make any judicial or quasi-judicial order in respect of the respondent's assertion on the invalidity of the JVA, but merely communicated its intention in appointing the arbitrators and calling upon them to pay the costs and to hear the parties in detail. Hence, there was no prima facie decision on the merits of the matter and the objection raised as to the maintainability of the suit cannot be countenanced. 99. If we accept the submission of Mr. Karthik Seshadri, it would defeat the whole purpose and legislative intent of section 45 of the Arbitration and Conciliation A....
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....ment 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 being performed." 105. The ingredients of section 45 are : a judicial authority should be seized of an action in the matter of which the parties have made an agreement for arbitration. In the absence of a valid arbitration agreement, judicial authority will not be seized of its authority and a stay will not be granted. Thus, section 45 requires that in order to specifically perform the agreement, the court has to satisfy that the agreement is valid, operative and capable of being performed. 106. Section 8, which deals with the arbitrations in India, is akin to section 45, which deals with the International Arb....
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.... 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 provided in section 45. Both provisions are differently structured albeit the purpose of both is to refer parties to arbitration but in one case domestic arbitration and in other case international arbitration. Unlike section 8 which provides that the application shall be moved not later than when submitting the first statement of the substance of the dispute, under section 45 there is no such limitation. The apparent reason is that in so far as domestic arbitration is concerned, the Legislature intended to achieve speedy reference of disputes to the arbitration tribunal and left most of the matters to be raised before the ....
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....ection 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 judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decide the question like a trial of a preliminary issue on jurisdiction or limitation in a regular civil suit and pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference on the grounds available under section 45 of the Act, it is necessary for the judicial authority or the court which is seized of the matter, to pass a reasoned order as the same is subject to appeal to the appellate court under section 50(1)(a) of the Act and further appeal....
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....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 parties have not adduced oral evidence, by perusal of the materials on record, it is seen that the learned judge afforded full opportunity to the parties and heard the matter at length. In paragraph No. 50, the learned single judge held that there is no scope nor any need for such elaborate enquiry since the court is rejecting the application on the basis of the admitted facts and evidence that the arbitration agreement has become inoperative by virtue of the conduct of defendants Nos. 6 and 10 (C. G. Holdings and KCP). The learned judge dismissed the application in A. No. 2670 of 2008 filed by the appellants under section 45 of the ....
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....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 cannot be said to have waived his right merely because the criminal cases were registered. 118. As pointed out earlier, several criminal cases have been filed and number of quash petitions also came to be filed. Of course a party does not waive his right to invoke the arbitration of the dispute by filing of criminal complaints, when a party deliberately chooses not to adopt a particular course of action, the arbitration agreement becomes inoperative and as the parties have waived or abandoned the arbitration clause, by invoking the jurisdiction of the civil court, the doctrine of waiver applies. The appellants had the option to go before the ICC even in 200....
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....tion-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. Pacific Convergence Corporation Ltd., a creditor of DAIL filed company petition in C. P. No. 292 of 2004 seeking winding up of DAIL for the inability to pay its debts. By the judgment dated November 18, 2005, the Delhi High Court allowed the petition for winding up of DAIL and directed the official liquidator to take possession of all assets and records of DAIL. Alleging that criminal complaints are filed against OARC and ORC, OARC and ORC filed suit-C. S. No. 709 of 2007 seeking permanent injunction restraining KCP, Cheran Holdings P. Ltd., C. G. Holdings, CCL, Chenniappan Gounder and B. Gunasekaran from instituting any proceedings, civil or criminal arising out of....
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.... 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 counsel Mr. AR. L. Sundaresan contended that the learned judge ought to have simply dismissed the applications filed by the KCP and C. G. Holdings and striking off the reference to the JVA was not warranted by the materials on record before the court. It was further submitted that while purporting to exercise the suo motu powers of Order 6, rule 16 of the CPC, the learned judge failed to see that none of the conditions required for the exercise of such powers have been met and the above impugned order is non-speaking and perverse. 125. Pleading can be ordered to be struck off under Order 6, rule 16 only if they are shown to be unnecessary, scandalous, frivolous or vexatious....
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....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. 20 crores maintained in the fixed deposit at State Bank of India, Erode to pay ORE and Athappan. In the event of failure to pay the money, the property of VMC situated in Coimbatore is to be transferred to ORE and Athappan in the proportion of 17.15 acres and 7.80 acres respectively. Until then VML was refrained from dealing with the property. On receipt of money, ORE and Athappan were to surrender their shares in CEPL and CEPL shall accordingly be permitted to reduce its share capital. The parties were given liberty to approach the Company Law Board for limited purpose of overcoming difficulties in implementation of the said order. 128. Pursuant to the said order, KCP issued ....
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....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 same, namely, 50 per cent. of maturity proceeds, without any interference from respondents Nos. 2 to 6 in C. A. No. 154 of 2008, provided that C. G. Holdings and KCP shall by way of an affidavit to be filed with the Bench Officer within 30 days, undertake- (a) to tender all necessary co-operation and execute and/or procure the executions of documents required to facilitate remittance of the investment of ORE in accordance with the Company Law Board order ; (b) to take appropriate action for raising the order of attachment made by EPFO over VML properties within a period of 90 days ; and (c) deposit with the Bench Officer within 30 days, the share certificates together with....
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....ed 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 its conclusions contained therein and the direction of the Company Law Board granting right to KCP to deal with the funds of CEPL on the ground that the same was in the "paramount interest" of CEPL is mostly erroneous and an error apparent on the face of the record. 134. The main contention of learned counsel for N. Athappan is that when serious charges of criminal breach of trust and misappropriation of moneys of CEPL have been laid against KCP, whose bail was also cancelled by the High Court, the direction of the Company Law Board giving KCP 50 per cent. of the money of CEPL is completely contrary to the paramount interest of the company and the orders issued by the High Court. 135. Reiterating the contentions, Mr. AR.....
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....nder 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 ground that it was just and equitable that the company should be wound up with a view to bringing to an end the matters complained of'. Similarly, under section 398 read with section 402 power has been conferred upon the court 'to make such orders as it thinks fit', if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change has taken place in the management or control of the company by reason of which it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company 'with a view to bringing to....
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....ving 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 Company Law Board also permitted KCP to utilise the money to return the said amount to ORE and Athappan and in the meanwhile directing that VML shall not alienate or sell any of its immovable properties till payment is made to ORE. The Company Law Board also made provision that in the event of failure to make the repayment within the specified time, CEPL, C. G. Holdings, KCP and VML were to duly convey the immovable properties of VML, i.e., 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan. When the Company Law Board has recorded categorical findings that CEPL neither carried out nor could accomplish its business plan in accordance with terms of the JVA and the Company Law Board directed return of sum of Rs. 75 crores....
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.... 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 earlier order dated August 13, 2008. The Company Law Board has not kept in view the failure on the part of KCP to comply with the earlier order dated August 13, 2008. The subsequent order of the Company Law Board dated August 3, 2009, gives a go bye to its earlier order dated August 13, 2008. 145. Jurisdiction of the High Court in an appeal under section 10F of the Act is expressly confined to the determination of any question of law. Finding of a question of fact may also result in a question of law if the Tribunal's finding is without evidence or based on irrelevant material. In our considered view, the order of the Company Law Board dated August 3, 2009, modifying its earlier order is so perverse or unreasonable that no person acting judicially cou....
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....llion 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 C. P. Nos. 65 and 76 of 2005 on the file of the Company Law Board and the orders dated August 13, 2007, passed therein, the single judge of the Delhi High Court passed orders on January 21, 2011, attaching all bank accounts and deposits of CEPL, CHPL, SPIL and KCPAHPL and restraining them from making payments except with the permission of the court. In the said order, the single judge of Delhi High Court observed that the order dated January 21, 2011, be brought to the notice of the Madras High Court and also be filed with the Company Law Board. On behalf of the appellants, it was contended that in view of the order passed by the single judge of the Delhi High Court in C. P. No. 292 of 2004 and other applications, dated January 21, 2011, the amount now ....
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.... 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 Board has overstepped its jurisdiction and given a go bye to the provisions of Foreign Exchange Management Act, 1999, even though the earlier order dated August 13, 2008, contained a condition that parties are required to abide strictly by all the applicable laws of India. It was further contended that the order of the Company Law Board introducing a new condition to execute the sale deed in favour of the ORE nominee, considerably alters the previous order, which is beyond the jurisdiction of the Company Law Board. It was also submitted that over the years the value of the properties of VML has gone up and therefore if the properties of VML are to be conveyed, as an entity, VML would be subjected to great loss. 152. ORE, being a non-resident company, is not permit....