TaxTMI 
TaxTMI 
2009 (9) TMI 919
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....jects Ltd., (UIL) and Respondent no.4-BSEL Infrastructure Reality Limited (BSEL) were the joint successful bidders. A Letter of Acceptance dated 02.01.2007 (LOA) was issued in favour of the Unity Infrastructure Projects Ltd. (UIL) which is 100% holding company of the petitioner (URDL). 4. On 31.01.2007 a Joint Venture Agreement (JVA) entered into between UIL, BSEL and respondent no.2Kamat Hotels (India) Limited (KHIL). 5. The parties proceeded accordingly, held various meetings and took various decisions including to raise finance for the project. 6. On 21.04.2007, respondent no.1-BW, (the company) was incorporated with equal promoters subscription by URDL, KHIL and BSEL. Mr. Kishore K. Avarsekar became first Director and Chairman of the Company under the Articles of Association. 7. The Articles of Association of the company (the Articles) provides an Arbitration clause which is reproduced as under: "71 Any dispute, controversy, claim or disagreement of any kind whatsoever between or among the Company and/or the Shareholders in connection with or arising out of these Articles or any inter se arrangement between them shall be referred to and finally resolved by arbitration....
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.... 14. As cost was escalated because of revision, it was decided to allow respondent no.3Clearwater Capital Partners(Cyprus) Limited (CCPL) or (Clearwater) to invest ₹ 48.51 crores in exchange of 57,64,706 Class "A" Equity shares of the company. Clearwater holds 3.90% Equity capital of KHIL agreed to participate as investor shareholders in the company. In this background, two mutual (the definitive documents) coexisting Agreements dated 1.11.2007 were executed recording the agreed terms between the parties called as "Share Subscription Agreement" (SSA), CCPL and a "Shareholders Holding Agreement" (SHA) between CCPL, URDL, KHIL, BSEL and the company. 15. The Company, some time in June, 2008, secured further loan of ₹ 50 crores from ICICI Bank. There are allegations and counter allegations of the defaults and the misappropriation of the funds. 16. Respondent no.2-KHIL, some time in August, 2008, acquires 9% of the shares of Respondent no.4BSEL. The petitioner agrees to acquire 8% of the shares of respondent no.4BSEL. However, the petitioner acquired only 2% of the shares as defaulted in the payments thereof. Since August 2008, Respondent no.2....
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....05.2009 the Board meeting of the company was duly convened as per the respondents, which is recorded in the Minutes at Exhibit J. There are two disputed minutes of the Board meetings of respondent no.1 on the record. The second set of resolutions (Exh. J) was circulated by a letter dated 22/05/2009 under the signature of Dinkar Jadhav as a Director of respondent no. 1. 24. The petitioner received on 21.05.2009 a Winding Up Notice issued by UIL by email through its Advocate. KHIL resisted and replied the same. 25. As per letter dated 22.05.2009, KHIL as transferee of Clearwater adopted and accepted Mr.Vithal Kamat and Mr.Vikram Kamat as its nominee Directors on the Board of the company dated 21.05.2009 (Ex. J) and proceeded and passed resolution accordingly. It is also stated that on and from 21.05.2009, respondent no.1 has became a subsidiary of respondent no.2. 26. On 01.06.2009, the petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, the Act) for various interim injunctions and measures and protections. 27. The existence of arbitration clause and the subject matter of the dispute arising out of the same, in the p....
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.... Financial Services (Mauritius) Ltd., (2008) 4 SCC 91, by the respondents with regard to the arbitrability of the dispute and coverage of the said dispute and that the Company Law Board (CLB) would have only jurisdiction is also not acceptable. The facts and circumstances in Sumitomo (supra) are distinct and distinguishable. 30. Having once held that there exists arbitration clauses and the arbitral dispute and as there is no bar of any kind and as all ingredients of Sections 7 and 9 of the Act are present and as parties have agreed to settle their dispute through the SIAC Rules, the present proceedings cannot be said to be not maintainable. On the contrary, if there exists such arbitration clause, it is necessary for the Court to pass appropriate orders under Section 9 of the Act. 31. Apart from above, the petitioner has already approached the Singapore International Arbitration Centre (SIAC) and has taken steps for constitution of the Arbitral Tribunal of Mr.Manoj Thakar. The notice dated 04.08.2009 and the statement of dispute as required under clause 3 of the SIAC Rules has been submitted to SIAC along with filing fees. The Advocate for KHIL by letter dated 6.6.2009 addressed....
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....ween the shareholders. The transfer of shares of respondent no.3Clearwater, to respondent no.2, has drastically changed shareholding of the company. Whether such transfer is validly made or not and whether such transfer is permissible or not and whether notices before such transfer ought to have been given or not to other JV Partners and whether the meeting of the company was conducted in accordance with the Rules and clauses of the company and all related aspects further show that all the issues are interlinked and interconnected. It is difficult to accept that there is a dispute only between the two JV Partners. The basic requirement is the existence of arbitration clause between the parties. Admittedly, all the parties in the present petition are the parties to the said arbitration clauses. Though, respondent no.1company formed in 2007 and two definitive documents (SSA and SHA) have been executed by all the parties, yet on 29.11.2007 the company's Articles of Association were amended. Therefore, as of today, prima facie, all these parties are bound to resolve their dispute through Arbitration clause4 71 of the Articles of Association. I am not accepting the submissions that ....
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....m fit and proper; i. that costs of this petition be provided for." 36. The relevant clauses which the parties have made submissions are as under: Some of the definitions are as under: "Competitor" shall mean any person whose primary business is of owning and operating hotels or malls in India. "Hotel Operating Agreement" shall mean the hotel operating agreement entered into between the Company and KHIL. "JV Partners" shall refer to URDL, KHIL and BSEL collectively and "JV Partner" shall refer to any of them individually. "Person" shall mean and include an individual, an association, a firm, a corporation, a partnership, a joint venture, a trust, an unincorporated organisation, a joint stock company, governmental or statutory authority, including a government or political subdivision, or agency or instrumentality thereof or other entity or organisation. "Proposed Transferee" shall have the meaning ascribed to it in Article 23(a). "Reserved Board Matters" shall mean the matters which require the affirmative vote of any one Clearwater Director and any one of the JV Partner Directors as set out in Artic....
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....ated herein, the Equity Shares may be transferred in accordance with Article 20 (Transfer of Shares by JV Partners), Article 21 (Transfer to Affiliates), Article 22 (Permitted Transfers), Article 23 (JV Partners' Right of First Refusal) Article 24 and 25 (Tag Along Rights) and Article 31 (Drag Along Rights) hereinafter. 20. No JV Partner ("Transferring JV Partner") shall transfer any of the Class B Equity Shares held by it to any person other than the JV Partners till such time as Clearwater continues to hold any Class A Equity Shares of the Company, without the prior consent of the remaining JV Partners. The terms of such Transfer by the Transferring JV Partner shall be decided by mutual consent between all 3 (three) Partners. 21. Clearwater may Transfer its Shares to an Affiliate without attracting the provisions of Article 22 (Permitted Transfer). 22. (a) Clearwater may Transfer its Shares to any person, subject to Article 23 (JV Partners Right of First Refusal). Article 24 (JV Partners Tag Along Right), Article 28 (Joint Exit), Article 29 (Purchasing Shareholder Offer), Article 30 (Clearwater Exit) and Article 31 (Drag Along Right). Any Transfer of Shares by Cl....
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....otice and in accordance with the JVP Acceptance Letter within a period of 30 (thirty) days following the date of receipt by Clearwater of the JVP Acceptance letter. The time required for Approvals or for compliance with any requirements of Applicable Law shall be excluded in calculating the foregoing period of 30 (thirty) days. The Shareholders and the Company shall make all requisite applications to obtain such Approvals in a prompt and timely manner for giving effect to the provisions of this Article. (c) If JV Partners are unable or unwilling to purchase the Offered Shares, subject to the provisions of Article 24 (JV Partners Tag Along Right) below, Clearwater may Transfer the Offered Shares to the Proposed Transferee at a price and on terms no more favourable than those mentioned in the Transfer Notice. 24 (a) If the Proposed Transferee is a Competitor, the JV Partners shall have a tag along right that may be exercised by any or all of them in accordance with the terms and conditions contained herein for all or part of the Shares held by the JV Partners. (b) If any of the JV Partners choose to exercise their tag along right pursuant to this Article, such JV Partner shall sen....
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....ooses to exercise the Clearwater Tag Along Right, Clearwater shall send the Clearwater tag along notice ("Clearwater Tag Along Notice") to the JVP Transferring Parties within a period of 15 (fifteen) days from the date of receipt of the JVP Transfer Notice, specifying the number of Shares sought to be Transferred by Clearwater ("Clearwater Tag Shares"). Clearwater Tag Shares may be all or part of the Shares held by Clearwater and need not be pro rata to the shareholding of Clearwater in the Company. If Clearwater serves the Clearwater Tag Along Notice on the JVP Transferring Parties, the JVP Transferring Parties shall ensure that the JVP Proposed Transferee purchases the Clearwater Tag Shares at a price per share and on terms that are no less favourable than the price and the terms offered by the JVP Proposed Transferee to the JVP Transferring Parties." "41 (a) The Board shall consist of a maximum of 5 (five) Directors. (b) Subject to the provisions of the Act, the Shareholders may vary the strength of the Board and the number of Directors that shall be nominated by each Shareholder. 44 (a) Clearwater shall nominate 2 (two) Directors ("Clearwat....
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....ess than fifteen (15) Business Days' but not less than forty eight (48) hours if it is so unanimously agreed by the Directors. Each notice of a meeting of the Board of Directors shall contain inter alia, an agenda specifying in reasonable detail the matters to be discussed at the relevant meeting and shall be ac companied by all necessary written information. No matter which is Reserved Board Matter shall be introduced for discussion or resolution in a meeting of the Board unless such matter is set out in the agenda for the meeting and notice thereof has been given to each of the Directors." "54 (a) Each Director (or his alternate) present at each Board meeting shall be entitled to cast 1 (one) vote on each issue put to vote. (b) The decisions of the Board shall be taken, to the extent possible, on an unanimous basis, provided however that, in the event the members of the Board fail to agree on a particular issue after due deliberation and effort, the matter shall be decided by a simple majority of the Board. (c) The Shareholders and th Company shall procure that no action shall be taken or resolution be passed by the Board except with the affirmative vote of at le....
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....roved." 37. Admittedly, respondent no.2 was brought in to utilise its experience in hotel management and, therefore, on 21.04.2007, the petitioner-URDL, respondent no.4-BSEL and respondent no.2-KHIL resolved and decided to form respondent no.1company. UIL was not in the picture and not even party to the JVC. Therefore, at the relevant time, there were only three shareholders of respondent no.1company. The construction work was entrusted to UIL on 01.05.2007. On 16.07.2007, 60 years concession contract was awarded by the GOM to the company. Respondent no.2 was to supervise the project. The estimated cost increased. Respondent no.3 who was having 3.90% equity capital of respondent no.2-KHIL agreed to participate as an investor. On 03.07.2007 Power of Attorney was given to Mr.V.S.Kamat in the Board meeting on 28.06.2007, based upon which he was managing the affairs of the company. As noted on 01.11.2007 both these definitive documents have been signed by all the parties, knowing fully the contents, purpose, object of the project and the Company's Articles of Association. 38. On 15.11.2007, respondent no.1-company executed a "Hotel Operating Agreement" to manage an....
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....visions of Article 24 (JV Partners Tag Along Rights), Clearwater may transfer the shares to the proposed transferee at a price on terms no more favourable than those mentioned in the transfer notice. 41. As per clause 24(a) of the Articles of Association, if the proposed transferee is a competitor the JV Partners shall have the Tag Along Right that may be exercised by any or all of them in accordance with the terms and conditions contained herein for all or part of the shares held by the JV Partners. If any of the JV Partners exercise their Tag Along Rights need to send a notice within a period of 15 days to Clearwater specifying details. If JV partners serves the Tag Along Notice on Clearwater, it shall ensure that the Proposed Transferee purchases the JVP Tag Shares at a price per share. If there is no Tag Along Notice to Clearwater within 15 days from the date of receipt of the Transfer Notice, such JV Partners shall be deemed to have waived its Tag Along Notice under the Articles. 42. In the present case, respondent no.3 as admittedly, transferred the shares on 18.05.2008 and recorded accordingly officially on 21.05.2008, to respondent no.2-KHIL treating it as a "JV Part....
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....nor can the vision of the Judge who interprets the law be disjointed from the modern necessities to make business sense to business dealings." 47. I have observed in Reliance Natural Resources Ltd. v. Reliance Industries Limited, 2007 (Supp.) Bom. C.R.925 as under: "93 Apart from that the following extracts from Chitty on Contracts (27th Edition), 1994 in para 12.053 is also useful: "Every contract is to be construed with reference to its object and the whole of its terms, and accordingly, the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated word or clause." 48. The parties have made their respective interpretation of these various terms and clauses from their points of view in support of their respective submissions. The Court need to take into consideration all but within the frame of law. The contract/agreements need to be read as a whole considering the nature and the purpose of the business. The clause and the contract as a whole even if is clear and unambiguous the court needs to consider the same in the facts and circumstances of the case....
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....Competitors itself means that each and every JV Partners have right of due and proper written notice, if CCPL wants to transfer shares. 51. The vital facet, two shareholders rights were provided to CCPL because of its financial assistance to the project. The two votes therefore treated as separate for all the purposes. Such rights, therefore, governed by the Clearwater existing clause 30 also, as finance support goes so also the rights flow from it. This also means due and proper notice to all JV Partners before transfer of the shares by CCPL. 52. All JV partners, considering the scope and purpose of the project, entered into and have formed the companyrespondent no.1. Thereafter jointly executed definitive documents (SSA, SHA). Therefore, for all the purposes JV partners entity and its role and involvement to take decisions jointly, collectively and definitely not as an individual has been recognised. This was also well within the knowledge of CCPL. The submission that the transfer of shares by CCPL to respondent no.2 only, without giving notice and/or any rights to petitioner and respondent no.4-BSEL is impermissible. The documents nowhere provides and authorises to treat one J....
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.... 56. It is more clear that admittedly, CCPL has not transferred the shares to its Affiliate. Respondent no.2 is not CCPL's affiliate. Respondent no.2, therefore, need to be treated as "Person" for the purposes of these Articles who is other than a JV Partner. Having once purchased such equity shares without prior consent of remaining JV Partners, respondent no.2, in my view, also becomes "competitor" and a "Person" or "third person/party" and, therefore, transfer of such shares to such Person/Competitor without prior consent and permission of the other JV Partners and all subsequent actions arising out of the same is in contravention of above Articles and, therefore, in view of Articles 17 and 19 itself, such transfer is null and void and not binding on the company, but the Court under Section 9 of the Act cannot declare and decide the validity of such transactions finally. It is a matter of detail inquiry and the trial before the Tribunal. 57. The transfer of CCPL's shares in favour of respondent no.2, if not legal and valid, it creates no rights or interest to appoint two additional nominee Directors as is done in the present case.....
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....iew, the clauses of SHA or SSA cannot be read in isolation by overlooking the clauses of Articles of Association of respondent no.1company. The plain reading of these Articles itself made provisions with regard to transfer of shares and notices of the Board meetings which, in the present case, as contended by the respondents, just cannot be overlooked with reference to the clauses of SHA or SSA independently. All are intermixed, interlinked and interconnected. At this prima facie stage, therefore, considering the purpose and intention behind this document read with whole documents, I am not inclined to accept the submission to read definitive document's clauses independently and/or separately from the Articles of the company. 59. I am not inclined to accept the submission that there was no ROFR notice required to be given by respondent no.3 for the sale to a JV Partner who is not a "Third Party". There is no clauses pointed out that no notice is required to be given to other partners when respondent no.3 wants to transfer the shares to only one partner. In the absence of specific provision like this and considering the clauses/Articles from 20 to 24 as a whole, in my....
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.... is also necessary now to consider the Notices dated 18.04.2009, 19.04.2009 and Board Meeting dated 21.04.2009 and the Resolution at Exhibit "I" and the Resolution at Exhibit "L". On 18.05.2009 (Exh. G) Mr.V.S. Kamat, the Chairman of the Company, circulated the agenda along with the notice for the Board meeting on 21.05.2009 at 3p.m. There was no objection received from any of the Directors including to the items contained therein. 62. On 19.05.2009 the letter was addressed by Mr.Dinkar, a nominee Director of KHIL to Mr.V.S.Kamat, thereby gave consent to the agenda of 18.05.2009, but also requested for two additional items [ (a) cancellation of Power of Attorney and other authority and (b) change of Registered Office). As per Article 52, a minimum 48 hours notice is a must. Therefore, these additional items were never circulated with proper and sufficient notice to all the Directors of the Company. 63. On 21.05.2009, the meeting was chaired by Mr. V. S. Kamat. The other coDirectors of the company except Mr.Karthik, a nominee of CCPL (Mr.Ashvini Sahu) were present. A resignation letters dated 18.05.2009 signed by Mr.Karthik was also tendered which is also in di....
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....ed as in the present case, the basic notice/agenda of 18.05.2009 nowhere provided the same and as added agenda was not accepted, including the resignation and the nomination as sought to be done and as admittedly, none of the matters contained in Exhibit "J", were part of the agenda as recorded in Exhibit "I", there was no question of discussion of any resolution in the Board meeting of 21.05.2009 as rec ordered in Exhibit "J", specially when it was not in conformity with Article 52. There is no material or justification on record to show that what compelled the parties to take such steps without due notice to other JV Partners of transferring CCPL's shares, the resignation and nomination of two Directors on behalf of CCPL. Now having sold the same to KHIL and as permitted pursuance to the exit clause, there was no question of substitution of any other Directors by subsequent purchaser of shares from CCPL because there was no financial support remained in the company of CCPL once the shares were sold to KHIL. The CCPL, therefore, exits and looses the entity even to nominate any person. Two nominees as sought to be introduced in such hurried fashion....
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....edy need to be respected. Therefore, transfer of shares, if it is in contravention of Articles 22, 23 and 24 then the action from its inception is impermissible, null, void and invalid. 68. The Articles are binding on the parties. Any action in breach, therefore is challengeable by others. Whether in minority or in majority looses its importance. If the case is made out, based upon the material, the Court/Tribunal is entitled to declare such illegal action arising out of the same null and void. If the action is ultravires, it cannot bind even by the majority shareholders. There is no question of rectification to such ultravires/void action. [ Dr.A. Lakshmanaswami Mudaliar and ors. v. Life Insurance Corporation of India and anr., 1962 (2) SCR 887 ]. [ Dale and Carrington Invt.(P) Ltd. and anr. vs. P.K.Prathapan and ors., (2005) 1 SCC 212] 69. Therefore, it follows that all subsequent actions, resolutions Exhibit J, Forms 18, 32, subsequent correspondence to the Authorities, letters dated 27.05.2009, 28.05.2009 and 30.05.2009 and all actions arising out of the same. The transfer of shares including resolutions (Exh. J) as relied by the respondents, in view of above, need detail tri....
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....t of the parties and the related circumstances are also relevant factors which goes in favour of the petitioner. 73. The concept of lifting the corporate veil needs to be invoked and utilised only on certain facts and circumstances of the case. (State of U.P. and ors. v. Renusagar Power Co. and ors., 1991 Company Cases 127 (S.C.). [ Karnataka State Financial Corporation vs. N.Narasimahaiah and ors., 2008(5) SCC 176 ] 74. Having once observed that there is a valid arbitration agreement between the parties whereby parties have decided/agreed to resolve their dispute arising out of the agreements and which, in my view, in the present case, there exists an arbitration agreement between the parties to resolve the disputes and the SHA and SSA are also interlinked and interconnected with the agreements as provided in the Articles of the company. [National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd., reported in (2007) 5 SCC 692 ]. 75. The SIAC Rules will govern the arbitration proceedings as agreed. The Tribunal has also power to decide on its jurisdiction, objection to the existence, termination or validity of the arbitration agreement unless agreed otherw....
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....r various aspects of the company matters need to be dealt with as per the provisions of the Companies Act like Sections 260 to 262, 284, 319, 330 including the facets of alleged resignations, collusion, fraud, need detail trial. If action is within law then only question of rectification under the provisions of the Companies Act, and not otherwise. 79. The meeting is of 21.05.2009. The resolutions were passed accordingly. The respondents have acted based upon the same and corrected the various record. The petitioner has invoked Section 9 of the Act and filed the present Petition on 01.06.2009. The statement recorded on 03.06.2009 has been in force and continued since then till this date. Respondent no.1 filed written notes on 02/11.09.2009, Respondent no.2 on 02.09.2009 and respondent no.3 on 09.09.2009 and the petitioner on 04.09.2009. No written notes are filed by respondent no.4. It is made clear that this order should not affect the statutory liabilities and the payment of the company and/or other dues including regular payments of the employees/staff etc. Any major decision, if taken, based upon Resolutions (Exh. J) dated 21.05.2009 which is in dispute and challenged by the p....