TaxTMI 
TaxTMI 
2016 (7) TMI 853
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....his Application, I must say what the Company Petition is. The petitioners 1 to 5 entered into a Shareholders Agreement (SSHA) with R2, allowing R2 to purchase 50.1% shareholding of the company for consideration of Rs. 95,99.37,230 (subscription considerable amount) by paying it in seven tranches in accordance with SSHA. The terms of this agreement were made part of Article of Association. Again on 18.05.2012, the shareholding of the respondents was increased from 50.1% to 76% on execution of Memorandum of Agreement dated 18.05.2012. On 30.09.2013, R2 again brought in an amount of Rs. 187.6 crores as share application money, to clear the loan liability of the company and to cater the working capital requirement as per business plan. Since this money had come into the company as share application money, R1 Company, first increased the authorised capital from Rs. 125 crores to Rs. 300 crores, in furtherance of it, rights issue was given for allotment of Rs. 4,63,72,645 equity shares with a rate of Rs. 53.22 (issue price) per share on pro rata basis. Before giving this rights issue notice, the share price was set out on valuation report given by M/s. Sanjeev Sapra & Associates. Total i....
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....tion in the Board of Directors. 4. On seeing the petitioners filed this CP, R1 filed this CA saying that despite there being a dispute resolution mechanism provided for under Clause 23 of SSHA mandating to resolve disputes arising out of SSHA through negotiations, failing which, to resolve through arbitration at Singapore International Arbitration Centre (in short "SIAC"), and despite this arbitration clause was reiterated in the amendments dated 4.7.2011 & 28.9.2011 to the SSHA as well as in the Memorandum of Agreement dated 18.5.2012, the petitioners have approached this Bench by filing this CP under sections 397/398,399, 402 & 403 of the Companies Act, 1956. 5. In definition part of SSHA, dispute is defined as "any and all claims, causes of actions, disputes or proceedings arising out of or in connection with this agreement". It is also said that R1 Company, the promoters group i.e., petitioners, R2 and its nominee directors are parties to SSHA covered with Arbitration Clause, it can't be therefore said that R1 Company is not a party to Arbitration Clause 23. In the definition 'party' in SSHA, R1 Company is also referred as a party. It is further said in clause 11 ....
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....es not contain the Arbitration Clause, since the arbitration clause in the agreement, not being part of the AoA, it shall not be binding upon the company. Though as many clauses as present in the SSHA are brought into the AOA, Arbitration Clause is not consciously mentioned or incorporated in the Articles of Association, for this Arbitration Clause is out of the ambit of AOA, the disputes emanating out of violation of Articles cannot be referred on the premise arbitration clause is present in the SSHA. It is further stated that clause 23.5.2 of SSHA makes it clear that the disputes in between R2 (investor) and the promoters (petitioners) would be capable of reference to arbitration. If the disputes arc solely between R1 Company and the shareholders or inter sc between the persons referred as promoters, they would not fall within the ambit of arbitration clause, this arbitration clause is applicable only when the dispute arose between R2 on one hand and the petitioners on the other hand. The petitioners submit that the reliefs sought in the petition are of such nature that they cannot be granted by an Arbitral Tribunal in such cases it shall not be referred to arbitration. The petit....
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....y is running on the expertise of the petitioners. It is also not in dispute that the company has been in need of funds ever since the investor joined in this company. It is also not the case of me petitioners that the company docs not require any money. It is a fact that R2 entered into the company by investing huge money with an understanding that R2 would get more than 50% shareholding and management of the company. According to this agreement, R2 initially acquired 50.45 shareholding and management in the company with its nominee directors. In the second phase when funds were required. R2 again put in money, by which his shareholding went up to more than 75%. As necessity for the funds rising from time to time, R2 has kept on investing money in the company, in the process of it, R2 invested Rs. l89 crores as share application money in the month of September, 2013 to meet the loan liability and working capital requirements. It is not the case of the petitioners that allotments made to Respondent No. 2 were made without funds coming from R2. It is also not the case of the petitioners that the money brought in by R2 was not utilised for the requirements of the company. These petiti....
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....get allotment to the money invested by R2. May be, meetings were held on short notice but not without any notice. Yes, it could be understood that the action of R2 was oppressive, had R2 failed to make an offer of rights issue to the petitioners on pro rata basis. R2 indeed made an offer of rights issue to the petitioners, and even offered to allot shares to the petitioners on loan basis provided the petitioners accept the offer to pay the consideration along with interest. But the petitioners, instead of accepting such a generous offer come from R2, the petitioners ignored the same, started evincing other ways to stall the functioning of the company by pointing out some technical short falls in conducting the affairs of the company. Though meeting was held on short notice, but rights issue was left open for acceptance of the shareholders for a period of 30 days. Therefore, it cannot be said that R2 tried to appropriate the entire allotment to itself ignoring the entitlement of the petitioners. It is not for the first time the petitioners failed to accept the offer of rights issue, in past also when the petitioners failed to put the funds to meet the necessity of the company, R2 al....
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....dispute that Rl Company is a party to SSHA and to subsequent amendments to SSHA. All these purported violations raised by the petitioners are covered under SSHA and the Articles of Association. In the definition clause 'party' in the SSHA. R1 company is also defined as a party to the proceedings. Arbitration clause in the SSHA says that if any disputing between the parties dealing with the terms and conditions of SSHA, the same will have to be resolved either by appointment of representative on either side or by referring the matter to arbitral tribunal situated at Singapore. It's a contract in between the parties of SSHA saying how many days notice is to be given for holding board meeting and holding shareholders meeting. 16. As to the contention of the petitioners saying that the parties in CP not being parties to SSHA inbuilt with arbitration clause, that clause of arbitration governing the covenants of the SSHA will not be binding on non-parties to the SSHA, for R4-8 and R9-13 being parties to the CP and being non-parties to the SSHA, the arbitration clause is not binding on R4-8 & R9-13, hence the subject matter cannot be referred to Arbitration as laid in section....
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.... many violations in holding meetings and making allotment to R2, they have not stated that those violations led to oppression against the petitioners except saving that for the shares being undervalued, more shares were allotted to R2 causing reduction in the petitioners shareholding. In a bid to testify the same, the petitioners procured a valuation report from a company called American Appraisal India Pvt. Ltd. showing indicative value of Rs. 230 per share which is nowhere close to the valuation given either by M/s. Sanjeev Sapra or by Deloitte. The argument of the petitioners is that the company is undervalued, especially when comparative companies such as Just Dial and Quikr were being valued at Rs. 12,500 crores and Rs. 1,500 crores. It can't be said that every company doing similar business will have the valuation equivalent or close to every other company of same the kind, it all depends upon many factors. Here, the valuation given by M/s. Sanjeev Sapra is in confirmation with the valuation subsequently given by Deloitte, an independent valuer, world known company. The subject matter in the CP is governed by Arbitration Clause, therefore, it appears to me that it's a....
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....ration clause of the ease (supra), JVA Arbitration has been provided only to the disputes between the companies (SML/PTL on one hand and MAZDA/SC on the other). There is no provision for arbitration in relation to the disputes between the company and the contesting respondents. In the case supra, therefore, Honourable Supreme Court held that dispute being not in between SML/PTL and MAZDA/SC, arbitration clause could not govern the dispute in between the company and contesting respondents. 21. But here in this case, any dispute that arose in terms of the SSHA, the parties agreed in between them to go for arbitration, for there being contractual agreement in between the parties about dispute resolution mechanism, they must opt for resolution they agreed for, not otherwise. I don't say that 397/398 jurisdiction cannot be invoked even when oppression is writ at large on the face of it in the cases governed by arbitration. The only difference is when the acts alleged are being laced with malfeasance or malice solely to cause oppression; the subject matter will be governed by 397/398, if the allegation is qua against violations of the provisions de hors any malice, arbitration claus....
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.... like a partnership arrangement, now after having the Respondents infused huge money believing the petitioners would abide by the agreement, now these petitioners could not back out from the covenant between them. On the top of it, all purported violations are basing on the clauses of SSHA which have been carried into the Articles. Two points arc clear, one company is a party to the agreements, two, none of the clauses of the SSHA are not inconsistent with the Articles. Therefore, merely because the clauses of SSHA being carried into articles, it can't be said that SSHA has lost its relevance and that the rights and obligations created between the parties in the SSHA will become statutory rights for having shown them in the Articles. In Sumitomo, for arbitration clause has limited it to a dispute in between SML/PTL and MAZDA/SC, that clause cannot be equated to this arbitration clause in the SSHA, because it is explicitly said am dispute in between the parties (company is also party), not limiting in between two parties as in the case of Sumitomo, hence the ratio decided in the cases supra not applicable to this case. 25. Petitioners counsel relied upon World Phone India Pvt. ....