TaxTMI 
TaxTMI 
2012 (12) TMI 1141
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....h, 2012, the first defendant wrote a letter asking for arbitration by the International Court of Arbitration of the International Chamber of Commerce. They wanted resolution, by arbitration, of the disputes arising out of the agreement dated 12th January, 2002. Before proceeding any further, I come to the agreement dated 12th January, 2002. It was an agreement between the Government of West Bengal (Go. WB), being the fifth defendant, West Bengal Industrial Development Corporation (WBIDC), being the sixth defendant, Chatterjee Petrochemical (Mauritius) Company (CP(M)C), being the first defendant and Haldia Petrochemicals Ltd. (HPL), being the plaintiff. It was recited in it that HPL was in need of "financial and managerial restructuring". CP(M)C had agreed to bring in further funds for the smooth running of the Company. WBIDC and Go. WB had agreed to hand over the majority shareholding in HPL and its management to CP(M)C. In Clause 5 of the agreement Go. WB agreed to arrange for WBIDC to transfer to CP(M)C, its shareholding in HPL shares of Rs. 360 crores from time to time to enable CP(M)C to hold 51% of the total paid up equity share capital of HPL. The transfer would be e....
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....t being C.S. No. 152 of 2012 in this Court against CP(M)C, Chatterjee Petrochemical (India) Pvt. Ltd. (CP(I)PL) being the second defendant and an Indian subsidiary or group company of CP(M)C, Go. WB, WBIDC and others, after obtaining leave under Clause 12 of the Letters Patent and making the following claims: " (a) A decree for declaration that the Impugned Arbitration Agreement contained in clause 15 of the Agreement dated January 12, 2002 is void and/or unenforceable and/or has become inoperative and/or incapable of being performed; (b) a decree of permanent injunction restraining the defendant no. 1, their officers, employees and successors-in-interest from initiating and/or continuing with the Impugned Arbitration proceedings bearing case No. 18582 /ARP pursuant to the Impugned Arbitration Agreement contained in clause 15 of the Agreement dated January, 12, 2002 and the Request for Arbitration dated March 21, 2012 and the communication dated April 02, 2012 issued by the defendant no. 8 and any other proceeding connected therewith or incidental thereto. (c) a decree of permanent injunction prohibiting the defendant no. 8, its agents, ....
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....ourt against the judgment and order dated 18th May, 2012 by the bench presided over by the Hon'ble the Chief Justice. The Supreme Court was pleased by its order dated 7th December, 2012 to dispose of the Special Leave Petition by making a request to the trial Court to finally dispose of this application latest by 20th December, 2012. Now, I come to the heart of the matter. Hindustan Petrochemical Ltd. (HPL) was incorporated in 1985. It was to have a petrochemical complex in Haldia in West Bengal. It was to be established by West Bengal Industrial Development Corporation (WBIDC) and the RP Goenka Group. The RP Goenka Group pulled out of the Company 1990. Tata Chemicals and Tata Tea were inducted between 1990 and 1993 but not much headway could be made. Dr. Purnendu Chatterjee is a nonresident Indian. In June, 1994 he entered the field. He claimed to be an industrialist and financer. On 3rd May, 1994 a Memorandum of Understanding was entered into between WBIDC, the first defendant, (CP(M)C) and the Tatas. The cost of establishing the project was estimated at Rs. 3,600 crores. It was to be funded with a debt of Rs. 2,400 crores and equity of Rs. 1,200 crores....
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....e certificates. However, the position was that the shares would remain pledged with WBIDC and were not registered in the name of CP(I)PL. The parties to the 12th January, 2002 agreement i.e. CP(M)C, HPL, Go. WB and WBIDC executed another agreement on 30th July, 2004, endorsing the transactions made by the 8th March, 2002 agreement. Go. WB by their letter of 17th December, 2004 to HPL with a copy to CP(M)C said they were "committed to transfer of shares to CP(M)C." It further appears from the records that after the approvals came the shares would be transferred to CP(M)C. Disputes arose between the parties in January and February, 2005. HPL had decided to issue equity shares of the value of Rs. 150 crores at par to Indian Oil Corporation. CP(M)C and CP(I)PL had objection to such issue. According to them, WBIDC and Go. WB were in breach of their obligation to transfer 36% of their shares to them. They approached in Company Law Board with a Company Petition No. 58 of 2009. They applied under Sections 397, 398, 399, 402 and 406 of the Companies Act, 1956. These were the prayers before the Company Law Board: "a) An order be passed....
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....he Company except strictly in the course of the business of the Company; h) Permanent injunction restraining the Company and its Board of Directors from taking any decision in relation to the management and administration of the Company except with the previous approval of the petitioner; i) Permanent injunction restraining the respondents and each of them from in any manner acting in derogation of the petitioner's rights as majority shareholders in the company and the petitioner's right to control the management of the Company, including without limitation by way of scale of shares of the Company held by any of them to any third party except the petitioners; j) .................................................................... k) ................................................................... l) Direct the reconstitution of the Board of the Company to reflect the majority control and the special rights accorded under the Agreements between the shareholders to the petitioners; m) ................................................................. n) ......................
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.... below : - "....... Very briefly, the Hon'ble Court came to the following conclusions: - (a) That the dispute between the parties was a private dispute regarding transfer of shares and that there was no case of oppression under Section 397, of the Chatterjee Group by the other parties. (b) The Court held that in exercise of powers under Section 402 of the Companies Act, 1956 the Company Law Board could not direct transfer of the above shares. The relevant contentions before the Supreme Court and its findings are set out below : - "66. Even the allegations of oppression remained unproved, since the entire content related to the transaction between WBIDC and CP(I)PL, which was not the act of the Company, as contemplated in Section 397, but a private dispute between two groups of shareholders. Mr. Desai submitted that the appeals were liable to be dismissed with appropriate costs. 74. Mr. K.K. Venugopal, learned Senior Advocate, who appeared for the Government of West Bengal and its officials, urged that the relief prayed for in the Company Petition for specific relief, could not be granted under Section 397 of the Comp....
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....r, by transfer of 150 million shares by WBIDC in favour of IOC. 103. The failure of WBIDC and GoWB to register the 155 million, shares transferred to CP(I)PL could not, strictly speaking, be taken to be failure on the part of the company, but it was the failure of one of the parties to a private arrangement to abide by its commitments. The remedy in such a case was not under Section 397 of the Companies Act ..... 104. In our view, the appellants have failed to substantiate either of the two grounds canvassed by them for the CLB to assume jurisdiction either under Section 397 or 402 of the Companies Act, 1956, and it could not, therefore, have given directions to WBIDC and GoWB to transfer 520 million shares held by them in HPL to the Chatterjee Group and the High Court quite rightly set aside the same and dismissed the company petition ......" It is also necessary to read the following other observations and findings of the Supreme Court: "94. The law relating to grant of relief on a petition under Sections 397, 398 and 402 of the Companies Act, 1956, has been crystallized in various decisions of this Court, including those cited on behalf ....
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....in the form of agreements, not only remained unfulfilled, but even the character of the Company was altered with the transfer and sale of 150 million shares by the Company in favour of IOC. Coupled with the above, is the other grievance that despite having transferred 155 million shares in favour of CP(I)PL, and having received the full price therefore, the Company had not registered the same in the Company's Register of Share-holders, thereby depriving the Chatterjee Group from exercising its right to vote in respect of the said shares. The third grievance of the Chatterjee Group is that by not registering the transfer of the 155 million shares in their favour, but, on the other hand, transferring 150 million shares in favour of IOC, the character of the Company was altered from a Private Company into a Government Company and also reduced the Chatterjee Group to a minority, despite the promises held out earlier and as incorporated in the Agreements dated 20th August, 1994, 12th January, 2002 and 8th March, 2002. 99. The case of the Chatterjee Group is woven around two particular issues, namely, that it had been induced to invest in HPL so as to make it a successful ....
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....the amounts that would have been brought in by way of subscription to the Rights Issue, the Chatterjee Group imposed various preconditions in order to do so, which ultimately led GoWB and WBIDC to terminate the agreement to transfer sufficient number of shares to the Chatterjee Group to enable it to have complete control over the management of the Company and also to retain its private character. It is at a stage when there was a threat to the supply of Naphtha, which was the main ingredient used by HPL for its manufacturing process, that it finally agreed to induct IOC into the Company as a member by transferring 150 million shares to it. It may not be out of place to mention that it was on Dr. Chatterjee's initiative that it had been decided to induct the IOC as a member of the Company at meetings of the Directors which were chaired by Dr. Chatterjee himself. Of course, as explained on behalf of the Chatterjee Group, even the induction of the IOC as a member of the Company is concerned, was part of a conspiracy to deprive the Chatterjee Group of control of the Company since GoWB and WBIDC never intended to keep its promise regarding transfer of at least 60% of its shareholdings i....
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....h July, 2004 novated the 8th January, 2002 agreement by adding CP(I)PL as a party and imposing obligations upon it. D. Hence the arbitration agreement had become null and void and/or inoperative and/or incapable of being performed. E. By approaching the Company Law Board the first and second defendants and their associates companies had abandoned the remedy available in arbitration. The Supreme Court by its judgment and order dated 30th September, 2011 had held against the first and second defendants and their group companies. The Supreme Court held that it had the power under Section 402 of the Companies Act, 1956 to grant reliefs to the said defendants but was not exercising the power in the facts and circumstances of the case. F. In those circumstances the present claim of the first defendant in arbitration was barred by the law of res judicata and/or constructive res judicata. G. The claim ceased to be a live claim. H. The claim of the said defendant was barred by the laws of limitation. GoWB, WBIDC had terminated their agreement with the first and second defendants by their letter dated 28th Se....
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....he principle of res judicata or abandonment of claim did not arise. H. The claim of the first and second defendants was not barred by limitation. The Company Law Board had passed an order directing status quo regarding the shares which remained intact till dismissal of the Supreme Court appeal on 30th September, 2011. Therefore the cause of action for preferring the claim before the Arbitral Tribunal arose after dismissal of the Supreme Court appeals on 30th September, 2011. I. Moreover, the defendants are entitled to protection under Section 14 of the Limitation Act, 1963, as the same issues are involved in the Arbitration as were involved in the Company Law Board, High Court and the Supreme Court and the first and second defendants had proceeded bona fide in these fora. In numerable judgments were cited by either side. I will discuss only the relevant judgments at the time of discussing the merits of the rival claims. DISCUSSION & FINDINGS: The issue of novation is most important. The law is codified in the Indian Contract Act, 1872. Sections 62 and 63 are material. They are in the following terms: "62. Effec....
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....nsfer the 155 million shares according to the above three agreements. It was contended by Mr. S.K. Kapur, learned Senior Advocate that there had been a novation of the contract between the parties dated 12th January, 2002. According to Mr. Sarkar, CP(M)C was just asking for transfer in favour of its nominee CP(I)PL on the principle of Beswick Vs. Beswick reported in 1967 (2) ALL. ER 1197. The common law principle, that a party to an agreement for sale can stipulate that the subject matter of the sale could be transferred in favour of his nominee, as held in Beswick Vs. Beswick reported in (1967) 2 ALLER 1197 is not applicable here, in my opinion. By the letter dated 8th March, 2002 read with the formal agreement of the same date, the entire obligations, in my opinion, were changed. CP(I)PL did not act as a nominee but became a party to the transactions. Not only were the shares to be transferred in its favour, it would directly provide the consideration, partly by cash and party by obtaining a loan from WBIDC against pledge of the shares, just in the way CP(M)C had done by the 12th January, 2002 agreement. Only the Kolkata Court would have jurisdict....
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.... of the Act are of paramount importance. They are set out below: "44. Definition. - In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on difference between person arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 - (a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. 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 been 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 ....
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....ted or superseded the Court will decline to interfere and ask the parties to get the issue adjudicated by the arbitrator or the Arbitral Tribunal. Undoubtedly, the rules of ICC that govern the arbitration contain a provision that the Arbitral Tribunal would adjudicate upon the validity of the arbitration agreement. If the facts were seriously disputed or capable of more than one interpretation or if they needed to be proved by evidence, surely the question of jurisdiction is normally to be decided by the arbitrator or Arbitral Tribunal. In this case when it is absolutely clear, on the available evidence without the necessity of inviting any additional evidence, that the arbitration clause has been abrogated, it would be injustice to the plaintiff to refer them to an arbitration in a foreign land to establish before an Arbitral Tribunal that there was no arbitration agreement. When it has been established here that there is no arbitration agreement surviving, the Arbitral Tribunal, does not have any jurisdiction over the subject matter of this dispute. And this is very fundamental. In domestic arbitrations, the Supreme Court has said that the Court can go into the question of the va....
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....his stage. The Supreme Court has narrated the disputes of the parties in considerable detail. It has made many observations and findings. But the substance of its findings is affirmation of the decision of the learned Single Judge that the dispute raised is a private dispute between two shareholders being Government of West Bengal through WBIDC and the Chatterjee Group. The Company was not involved. Hence, there was no case of oppression of the Chatterjee Group by the Company HPL. The Company Law Board had erroneously exercised jurisdiction by directing transfer of 155 million shares in a private dispute. The Company Law Board had no such jurisdiction, even under S. 402. It dismissed the appeal. It is quite true that the Court did not expressly reserve any right to the Chatterjee Group to explore an alternative remedy. But in my opinion the decision of the Privy Council in the case of Upendra Nath Bose Vs. Lall and others reported in AIR 1940 Privy Council 222 cited by Mr. Sarkar, that a Court which declines jurisdiction cannot bind the parties by its reasons while declining jurisdiction, is applicable. With all humility I say that the Supreme Court did not bind the parties b....
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.... the order of the Appeal Court. It affirmed the decision of the Division Bench that the Company Law Board had no jurisdiction to order transfer of the shares in a private dispute between the parties. Therefore, the dispute pending before the Company Law Board, the High Court, the Supreme Court and before the Arbitral Tribunal were or are the same relating to the transfer of 155 million shares. The Supreme Court opined that the Company Law Board had no jurisdiction to direct this transfer. Since it was an appeal from an order of the Company Law Board in Section 397, 398 read with S. 402 the Supreme Court felt that there was no cause for exercise of its jurisdiction, under those provisions. No one can deny that the Supreme Court has been invested with enormous powers by the Constitution to pass any orders that it thinks fit. But the fact is that in the facts of this case the Supreme Court felt that the Company Law Board had no jurisdiction to pass any orders under Section 397, 398 read with S. 402 of the Companies Act, 1956. Therefore, in my opinion the Supreme Court perceived a defect in jurisdiction to pass the order prayed for by the Chatterjee Group. This cannot be inter....
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....es which were raised before the Company Law Board were private disputes between the parties and did not involve the Company, HPL. Hence there was no scope for invocation of the above jurisdiction. The Supreme Court was not using its powers under Section 402 of the Companies Act, 1956. Hence the Supreme Court dismissed the appeal on the ground that the High Court had rightly exercised its jurisdiction by holding that the Company Law Board did not have the above power. In the circumstances the Supreme Court did not decide the merits of the disputes between the parties relating to specific performance of the agreement dated 12th January, 2002 read with the agreements dated 8th March, 2002 and 30th July, 2004. Hence the above issue is not res judicata. d) The above defendants are entitled to the benefit of Section 14 of the Limitation Act, 1963, for the reason, that identical issues were raised before the Company Law Board, this High Court, and the Supreme Court and the Arbitral Tribunal. For want of jurisdiction the issues could not be decided by those Courts. The first and second defendants had proceeded with the litigation before the Courts, bona fide. On the basis....