TaxTMI 
TaxTMI 
2007 (10) TMI 609
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....pany was changed to Enercon (India) Limited with the main object to produce Wind Turbine Generators in collaboration with the petitioner. On the same day, i.e., 12.1.1994, pursuant to the SHA, the company and the petitioner also entered into a Technical Know how Agreement.(TKA) by which the petitioner had agreed to supply technical know how, information, assistance, supply of equipment and material etc to the company. The SHA is a comprehensive one covering capital structure, transfer and sale of shares, board meetings, directorships etc. It contains an arbitration clause also (Article XVI). Most of the terms, particularly relating to transfer of shares and directorship were thereafter incorporated into the Articles of the company. As per the terms of the SHA, Articles provide for equal representation of both the petitioner and Mehra group on the board of the company. Similarly, in line with the SHA, the Articles also provide that the MD of the company would be a nominee of Mehra group and the Chairman that of the petitioner. TKA also contains an arbitration clause (Clause 19). In terms of the SHA, the petitioner subscribed to 51% shares in the company while Mehra group subscribed ....
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....The disputes raised in the petition have arisen squarely out of the terms SHA and the TKA both of which contain arbitration clauses. The main prayer of the petitioner in the petition is removal of the 2nd and 3 rd respondents as MD and whole time director, respectively as also directions to Mehra group to sell their shares to the petitioner. In terms of Article 2(5) of the SHA, Mehra group is entitled to appoint one of its nominee as the MD with considerable powers of management and the right to remove its nominee is vested only with Mehra group in terms of Article 2.2 of SHA. Similarly, Article 5 of the SHA deals with the provision relating to transfer of shares and preemptive rights. This being the case, the main matters raised in the petition are matters covered in the SHA and therefore in terms of Section 8 of the Arbitration & Conciliation Act of 1996, the parties should be referred to arbitration. Similarly, regarding non payment of royalty which is one of the other allegations, TKA under which this claim has arisen, also provides for arbitration. The petitioner has alleged that is that royalty has not been paid on the basis of the alleged intellectual property licence agreem....
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....nsel relied on the following cases to support his contention. (1) Griesheim GmbH v. Goyal MG Gases Pvt. Ltd. and Ors. 123 CC 280 CLB: When a petition contains allegations concerning matters covered in the arbitration agreement and also other matters not covered by the said agreement, the matters cannot be bifurcated and those in the agreement referred to arbitration. (2) Sukanaya Holdings Pvt. Ltd. v. Jayesh H. Pandeya : The words "a matter" as in Section 8 of the Act indicate that the entire subject matter of the suit should be subject to arbitration agreement. Where a suit is commenced "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. (3) Shri Gautam Kapoor v. Limrose Engineering Manu/CL/0123/2004 CLB: The test to determine as to whether a matter in a petition under Sections 397/398 is to be relegated to arbitration is to examine as to whether the allegations of oppression & mismanagement contained therein can be adjudicated without reference to the terms of arbitration agreement. If it can be, then, the question of referring t....
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....bstance of the dispute, refer the parties to arbitration. (2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 8. It is evident from the provisions of Section 8 that if the subject matter brought before this Board is the subject matter of arbitration agreement, the Board is bound to refer the parties to arbitration. Therefore commonality of the subject matter is a prerequisite to invoke/apply Section 8. Likewise, a reading of Section 7(1) read with Section 2(1)(h) would indicate that the parties before the judicial proceedings should be parties to the arbitration agreement to refer the disputes between them arising out of the defined relationship. This would indicate that there should be a commonality of parties also. Section 7(3) mandates that an arbitration agreement has to be in writing or in terms of Section 7(4), it should satisfy one of the requirem....
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....ldings, there is no possibility of bifurcation of the subject matter between the CLB and the Arbitrator. Whether, there is a breach of right of pre-emption, whether the Mehra group is guilty of financial mismanagement meriting their removal as MD and WTD and whether Articles relating to directorship is to be amended etc. would all depend on the merits of the case and need not be gone into while dealing with the instant petition under Section 8 of the Act. 10. Considering the fact that the company is not a party to SHA and that some of the allegations cannot be traced to the terms of the SHA, even assuming that pre-emption rights and directorship are covered under the terms of SHA, the application is not maintainable and is accordingly dismissed. 11. Having dismissed the application under Section 8 of the Act, now I shall deal with the interim reliefs. At the time of mentioning the petition, giving an overvall view of the allegations contained in the petition, Shri Sarkar sought for appointment of a local commissioner to inspect and sign the books of accounts of the company for the year ending 31.3.2007 and also for the current year and take copies thereof, for maintenance of stat....
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....urther amount of 30 million would be transferred to Escrow account. However, later on, by an SMS dated 1st November, 2006, the petitioner informed the 2nd respondent that it would pay 40 million for 12% shares and not for 6% shares. When the 2nd respondent declined to accede to this offer, the petitioner started acting against the interest of the company. In February, 2007, it stopped all supplies to the company due to which the working of the company had come to a standstill. When the 2nd respondent expressed his protest, while resuming the supplies in March, the petitioner also hiked the prices by 300%. From July onwards, the petitioner has again stopped further supplies and now the company is not in a position to execute any of the orders. The petitioner also withdrew its guarantee given to the ABM Amro Bank which has asked the company to repay the loans. The company has to pay a sum of Rs. 20 crores because of the action of the petitioner. The petitioner who has acted prejudicially against the interest of the company does not deserve any consideration. 13. The learned Counsel further submitted: The 2nd and 3rd respondents have been in active management of the company right fro....
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....s not given a copy of the due diligence report to Mehra group. Even though, un-audited financial statements up to 31.12.2006 have been given to the petitioner, the company is unable to complete the audit as the petitioner has instructed the auditors by an e-mail dated 10.4.2007 to postpone the commencement of audit. Thus, it is the petitioner who is responsible for non fmalization of the accounts for the year 2006-2007. 15. The learned Counsel further submitted: In the middle of 2006, the parties had decided to modify the existing arrangements between the parties. The petitioner desired to purchase 6% shares held by Mehra group and negotiations took place by which the petitioner agreed to purchase 6% shares of Mehra group at Rs,40 million Euros. Later, the petitioner demanded 12% shares for 40 million Euros which Mehra group declined to accede. By this, the Mehra group has complied with the pre-emptive position in the Articles, according to which, if the shares offered by a shareholder to another shareholder is not accepted, then, the shares could be sold to an outsider. Since the petitioner has rejected the offer, Mehra group has negotiated with IL&FS to sell 6% shares for Rs. 22....
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.... and signed on 29.9.2006 is completely wrong. Only by a communication dated 29.1.2007, the petitioner forwarded to the 2nd respondent the final drafts of the other three agreements. Immediately on receipt of the same by a letter dated 31.1.2007, the 2nd respondent brought to the notice of the petitioner that the stand of the petitioner that IPLA was "a done deal" was wrong and it had never been finalized. By a communication dated 18.10.2006, the petitioner informed the petitioner that IPLA had been signed on 29.9.2006 which statement is absolutely wrong. Again by a communication dated 8.1.2007, the petitioner reiterated that IPLA was signed on 29.9,2007. Therefore, the petitioner cannot allege that royalty in terms of IPLA has not been paid. 17. The company is completely dependent on the petitioner not only for technology but also for various components. In the meeting held on 4.2.2006, the production target for 2006-2007 was agreed to and the petitioner had agreed to supply all the necessary material/components to meet with the production. By a communication dated 26.8.2006, the petitioner guaranteed continuous material supply. By a communication dated 10.6.2006, the petitioner h....
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....not individual disputes between the petitioner and the respondent, (para 202) In terms of Rule 6 of the Companies(Court) Rules, the provisions of the Code of Civil Procedure will be applicable in a proceeding under the Companies Act. (208) Begam Sabiba Sultan v. Nawab Mohd. Mansoor Ali Khan : The plaint should be read in a meaningful manner to find out the real intention behind the two; Before a court can be held to have jurisdiction to decide a particular matter, it must not only have jurisdiction to try the suit abroad but also have the authority to pass orders sought for. It is not sufficient that it has some jurisdiction in relation to subject matter of the suit. Its jurisdiction must include the power to hear and decide the questions at issue, the authority to hear and decide the particular controversy that has arisen between the parties. Rajabhai Abdul Rehman v. Vasudev Dadabhai Modi : A party who approaches the court must come with clean hands. If there appear on his part any attempt to over reach or mislead the court by false and untrue statement by withholding true information which would have bearing on the question of exercise of the jurisdiction, the court would be jus....
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....Outstanding contracts would be sent to him for verification. Likewise, when drafts of the other agreements were sent to him on 29.1.2007, IPLA was not shown as a pending agreement. In his communication dated 24.11.2006, even though in the caption the 2nd respondent has mentioned the final IPLA, he has not indicated that the same was being sent along with the latter. The disputes relating to IPLA started only when the 2nd respondent questioned the existence of agreed IPLA in his communication dated 31.1.2007. By a letter dated 18.10.2006, the 2nd respondent was informed that having signed IPLA on 29.9.2006, the petitioner was confident of closing the agreement in relation to the other 3 agreements. The 2nd respondent did not raise any objection to this assertion as he was fully aware that IPLA had been signed. Because the 2nd respondent raised objection on the existence of IPLA, the petitioner stopped the supply. It is not correct to say that the stoppage was with a view to arm twist the Mehra group to part with their shares. Even today, the petitioner is prepared to resume the supply provided the company/Mehra group adhere to the terms of IPLA. Therefore, the petitioner has not act....
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....etitioner that if it does not accept the price of 40 million Euro for 6% shares, the petitioner would sell the shares to IFLS is completely against the provisions of the Articles and as such it is a gross act of oppression. It is seen from the letter of IL&FS that the 2nd respondent has agreed to sell balance 38% also to IL&FS at a later date. In terms of the Articles, once Mehra group sells/transfers 6% shares, its group cannot have any representation on the board and as such cannot appoint its nominee as the MD. Even now, the petitioner is prepared to purchase the entire shares of Mehra group in accordance with the Articles i.e. on a fair price to be determined by an independent chartered accountant appointed by the CLB. 22. The learned Counsel further submitted: The 2nd respondent has not finalized the account for 2006-2007 only with a view to hide the real financial position of the company from the petitioner. By a communication dated 28.6.2007, the petitioner was informed that the accounts had not been finalized and it would take 3 to 4 week for offering the accounts to the auditors. Again by a communication dated 16.7.2007, only un-audited preliminary figures as on 31st Dece....
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....e ground that the matters complained of are contractual disputes; that with a view to gain advantage, the petitioner has suppressed vital documents; that the petition has been filed with an ulterior motive and that the affidavit affirmed by a lawyer in Germany is not valid. In so far as the matter being contractual disputes and therefore should be agitated elsewhere is concerned, in the in the order on the application under Section 8 of the Act, I have already held that the disputes raised in the petition can be adjudicated by this Board. Therefore the application of the decision of Supreme Court in 2007 4 SCC 343 does not arise. In so far as dismissal of the petition on the ground of suppression of material documents is concerned the learned Counsel relied on the two judgments of the Supreme Court viz. AIR 1964 SC 345 and 1984 1 SCC In the first case, the appellant had obtained special leave to appeal without disclosing all material facts. In the second case, a decree was obtained without disclosing relevant and material documents. Thus in both the cases certain reliefs had been obtained by suppression material facts. In the present case, no relief has been granted as yet and whet....
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....on of the hearing, as I have already noted, Shri Sarkar sought for various other interim reliefs in the nature of interim arrangement as indicated in paragraph 23 ante. Shri Dave argued that to grant interim reliefs, the petitioner should establish balance of convenience, irreparable injury etc. I do agree. The normal principles to be applied for grant of interim relief are that there is a serious dispute in question to be tried, that the court's interference is necessary to protect the parties from injury, that a prima facie case has been established and that the balance of convenience is in favour of the petitioner. Keeping these principles in mind, noting that the issues and counter issues raised by the parties would require detailed examination after completion of pleadings, I shall examine whether a case has been made out for granting interim reliefs taking into Consideration, that, unlike a suit, where the interest of the parties have to be taken care of, in a petition under Sections 397/398 of the Act, the interest of the company is also vitally important. 26. There are two main interim reliefs that have been sought. The first relates to maintenance of status quo with r....
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....n on import duty is granted by the Government of India to units in the renewable energy sector. Non-supply of special components by Petitioner can result into lower production resulting in inability on part of Respondent No. 1 to submit the six monthly return of the "End Use Certificates" required to be filed with the Government of India. The failure on the part of Respondent No. 1 to file the aforesaid return can attract penalties of upto 500% of the duty concession apart from exposing all the Directors of Respondent No. 1 to criminal prosecution on account of such breach. Para 31. It is submitted that Respondent No. 1 has grown to a size of more than 3,500 employees and maintained through its 12 years of existence, excellent industrial harmony, and has effectively ensured that not a single man-day has been lost due to any industrial dispute. The disruption of material supply and stoppage of production has led to undesirable consequences in terms of sending out wrong signals to the employees, which could have long term implications for Respondent No. 1. The answering Respondents submit that any discontinuance of its production and other activities due to non-supply of components ....