TaxTMI 
TaxTMI 
2007 (3) TMI 795
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.... relief based on a clause in this agreement which prohibited the parties thereto from undertaking any business similar to that of the joint venture during its currency. 2. So far as the basic facts are concerned, there is no material dispute and to the extent necessary, they are noticed hereinafter. The petitioner M/s Modi Rubber Ltd., (hereinafter referred to as 'MRL' for brevity) entered into a Memorandum of Understanding ('MOU') dated 1st July, 1988 with M/s Guardian International Corporation arrayed as respondent before this Court, (hereinafter referred to as 'Guardian'). 3. Guardian is stated to be a leader in manufacturing float glass and the agreement between the parties states that it has acquired unique and valuable engineering skills and expertise for designing, constructing and operating plants for the manufacture of float glass by the float process. The agreement between the parties also notices that the MRL is a renowned industrial establishment of India with extensive expertise in the manufacturing and marketing of high quality industrial products in India and other countries. 4. Besides the parties to the present petition, the agreeme....
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....elationship between the principal share holders of this company, the parties agreed that the equity subscription in GGL would be held between the parties to this SHA as follows: (i) By Guardian International Corporation 40.00% (ii) By MRL 20.00% (iii) By Gujarat Alkalies and Chemicals Ltd. and its nominees 11.00% (iv) By the public 20.00% The amount of issued and the subscribed capital was agreed to be valued by mutual agreement between Guardian and MRL and it was agreed that if any additional shares were issued, GGL was first to offer such shares at the price at which the shares are to be offered to new share holders, to Guardian, MRL or the other share holders in proportion to the equity shares owned by each of them on the date of such offer. 9. So far as the agreement of the parties which was set out as Clause 7 in the MOU is concerned, the parties reiterated the prohibition therein contained and co opted the same as Clause 14 of the SHA whereby the parties covenanted as follows: Clause 14 - Additional Projects/Exclusivity During the term of this Shareholders Agreement, neither MRL nor Guardian International, nor any Affiliates or Associates of either one....
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....ndon Court of International Arbitration by three (3) arbitrators designated in conformity with those Rules. MRL and GACL shall select one (1) arbitrator, Guardian International shall select one (1) arbitrator, and the two arbitrators so selected shall select the third arbitrator. Judgment upon the award rendered may be entered in any court of competent jurisdiction. 15. It now becomes necessary to examine certain other aspects of the functioning of the joint venture placed before this Court by both sides. The admitted position is that no dividend was distributed to the share holders of shares in the joint venture GGL for 16 years since its incorporation. MRL has complained that dividend was declared for the first time in the last financial year which was also only to the extent of Rs. 2 per share. As a result of this policy, the position of the reserves and surplus considerably enhanced. The petitioner has placed reliance on a letter dated 19th November, 2003 written by Guardian to Mr. Vinay Kumar Modi as Chairman of the joint venture GGL adverting to restructuring alternatives. This communication refers to several alternatives and proposals which were discussed between the part....
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....ow many months could we consider after 31 March 2005' 4) If we wanted to pay dividends beyond the maximum distributable earnings, (taking into account the questions and assumptions above), can we do a return on capital' If so, what percentage or amount of the paid in capital would be returned' Would there be a withholding tax on this. This fax is evidence of the fact that so far as the reservation of amounts in the books of accounts of the joint venture GGL was concerned, the entries to this effect in the accounts had been reversed. Undoubtedly this communication also confirms availability of substantial reserves. 20. A further communication dated 12th August, 2005 was addressed by Guardian to Mr. V.K. Modi as Chairman of GGL pointing out that so far as its considerations with regard to the distribution of the dividends was concerned, they were based on the tax impact on its earnings of the dividends. In this communication, Guardian wrote thus: As you requested, I also wanted to let you know that due to the mechanics of U.S. Tax Law, Guardian has the ability until December of this year to receive its share of a GGL dividend in the range of $17 - ....
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....lared and paid during 2006. Any future payouts are subject to mutual agreement. Hopefully, we would ensure that GGL is not subjected to any degradation of its financial position and that it makes sense including from a tax perspective, for both of us to receive dividends. 22. In this communication of 2nd February, 2006, a suggestion was made on behalf of the Guardian with regard to purchase of shares held by MRL in the joint venture as well. In this behalf, Guardian had written thus: ...Summarizing Guardian's perspective on various GGL restructuring issues, it has become increasingly clear that if and when shares change hands, they will do so at a premium price. As you know, during your visit, we were discussing the possibility of a GGL share price in the range of Rs. 60 to Rs. 65 per share. Our view is that this price is at, or even beyond the upper end of any reasonable discounted cash flow analysis, EBITDA multiple, or similar 'investment banker' formula beyond taking a multiple from the current overheated Mumbai stock exchange. If our restructuring conversation had continued into Tuesday, I would have proposed a Guardian/Modi relationship with some mo....
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....ween them, namely Gujarat Guardian Ltd. (GGL). Modi Rubber Ltd. has been in BIFR since February, 2004 and was declared sick by the BIFR on May 17, 2006. To date: (a) Modi Rubber is no longer a financially viable partner and its future is uncertain. (b) Modi Rubber's management and affairs are under the effective control and mandate of the BIFR, and the appointed Operating Agency, IDBI. (c) There are inter-se disputes between the promoters, which further exacerbates Modi Rubber's distressed condition. The Agreement was founded on the premise of two financially stable and reliable partners. This understanding stands completely eroded as a consequence of Modi Rubber being declared a sick company by the BIFR, thus striking at the very substratum of the Agreement. Therefore, the Agreement stands frustrated and is terminated effective immediately. Further, pursuant to the terms of the Articles of Association of GGL, we assume you will not transfer your shareholding in GGL without our prior consent. We will continue to comply fully with the Articles of Association and expect that you will do the same. 24. On the same date, Guardian a....
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......Modi Rubber Limited ('Modi Rubber') has been advised by Guardian International Corp. ('Guardian') that Guardian desires to establish a wholly- owned subsidiary in India to build and operate a float glass manufacturing plant and a glass coating facility outside of Gujarat. Modi Rubber understands that this business would be separate from the existing joint venture, Gujarat Guardian Ltd.('GGL'). Finally, Modi Rubber also understands that Guardian is seeking FIPB approval under Press Note 18 and Press Note 1 for this planned expansion. As such, Modi Rubber has no objection to Guardian proceeding, through one or more wholly owned subsidiaries in India, to build and operate float glass manufacturing and fabrication facilities such as those described above, and Modi Rubber gives its consent to Guardian to undertake such activities independently of Modi Rubber and GGL. 26. The petitioner points out that such consent was imperative under the SHA and that the very fact that Guardian has sought the consent under the SHA negates its contention that the SHA stood terminated. 27. Immediately thereafter on the 22nd of July, 2006, the respondent made an ap....
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....rectors (in particular Mr. V.K. Modi) on the Board of GGL has rendered vital support for the needs and operations of the Joint Venture company leading to its continuing successes and its highly prosperous present state. As such the question of the Shareholders Agreement being frustrated does not arise. Guardian's action purporting to terminate the agreement, entirely ignores Indian law on the subject of 'frustration of contract' which governs the Shareholders Agreement. 29. In this communication, MRL also pointed out that despite continuous profitability of the joint venture during the last many years, no dividend had been declared by GGL to its shareholders since inception. Consequently, at the next meeting of the Board of Directors of GGL, it was stated that an interim/final dividend of at least 80% of the permissible distributable dividend be declared. 30. Guardian replied to this communication by a letter dated 25th September, 2006 baldly disagreeing to MRL's submissions and again stated thus: ...We have received your letter of August 21, 2006 on behalf of Modi Rubber Limited (MRL) in response to our letter of July 21, 2006 with regard to the term....
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.... in India will be built outside of Gujarat, at some distance from GGL's facility. Guardian has received advice that it should undertake any expansion plans that it may have in India on its own. We intend to establish a wholly-owned subsidiary to build and operate a float glass manufacturing plant and, in a second phase, a glass coating operation. We are writing to respectfully request that GACL provide written consent for Guardian to build and operate a wholly owned float glass manufacturing and fabrication plant in India. It would be helpful to us if you written consent were to certain the language shown on the enclosed sheet. xxxx xxxx 33. Despite the stand taken by Guardian in its letter dated 21st July, 2006 purportedly terminating its SHA with MRL, on the 24th July, 2006, it also filed O.M.P. No. 337/2006 titled Guardian International Corporation v. Modi Rubber Ltd. before this Court seeking the following prayers: (a) to restrain the respondent from transferring its shareholding in Gujarat Guardian Limited without the prior consent of the petitioner and without giving a pre-emptive right to purchase the said shares to the petitioner. ....
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....reholders Agreement has come to an end. Further this clause is not restricted to the period of the Shareholders Agreement but forms an independent and severable agreement amongst the shareholders. However, it appears that the Respondent cannot be depended upon to be bound by the restrictions on the transfer of shares, which is compounded by the factum of the Respondent being a 'sick' company within the purview of BIFR. It further transpires that the inter se disputes between the promoters of the Respondent company are also fuelled by their interest and intention to participate in GGL. It is in fact the stand of the petitioner that given the circumstances under which the Shareholders Agreement stood frustrated, the very raison d'etre for the participation of the Respondent in GGL no longer stands. The petitioner is willing to buy the respondents shareholding in GGL and willing to pay a fair price for the same, and the petitioner believes that the respondent ought to transfer its shareholding in GGL in favor of the petitioner. These are, however, all disputed issues which perforce would need to be resolved as per the arbitration clause (Clause 26) in the Shareholders Agre....
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....s of MRL; MRL has been declared sick and its management and affairs are subject to control and mandate of the BIFR and the operating agency IDBI and consequently, the entire substratum of the SHA stands eroded by the frustration thereof. 38. The petitioner has urged that the letter dated 6th July, 2006 and the letter dated 21st July, 2006 support the submission that the respondent Guardian was treating the SHA dated 23rd January, 1990 as subsisting and the averments of Guardian in O.M.P. No. 337/2006 and as well as the relief sought therein bears out the fact that the SHA stood neither frustrated nor terminated and that Guardian was itself treating the same subsisting. 39. On the 22nd July, 2006, Guardian also filed a caveat petition under Section 148A of the Code of Civil Procedure, 1908 before this Court. 40. In O.M.P. No. 337/2006, the following order was recorded on 28th July, 2006: O.M.P. No. 337/2006 Notice. Mr. Arjun Pant, Advocate accepts notice for the respondent and prays for time to file reply. Let the reply be filed within six weeks. Rejoinder thereto, if any, be filed before the next date. The petitioner, inter alia, places reliance on the Ar....
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....in the respondent from pursuing the application made to the Government of India (now pending before the Foreign Investment Promotion Board) for approval to set up a wholly owned subsidiary in the glass manufacturing and glass coating sector; (d) restrain the respondent from acting in furtherance of the application No. 141/2006-F.C.I. filed before the FIPB; (e) grant ex-parte ad-interim reliefs in terms of clause (a) to (d) above; and xxxx xxxx'. 44. Inasmuch as no interim relief was granted in this matter, the petition was put to final hearing. Long arguments have been addressed by both sides and voluminous submissions laid before this Court. During the course of the hearing, it appears that Guardian has on 16th October, 2006 filed a reference for arbitration before the London Court of International Arbitration. 45. MRL has submitted that, in its reply, it has opposed the reliefs prayed for by the respondent and has also made counter claims against the respondent company to the effect that the SHA including clause 14 continues to be valid and binding between the parties. 46. Mr. Arun Jaitley, learned senior counsel for the petitioner has contended tha....
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....ness. The value of the equity of the joint venture would be also impacted and would go down sharply. 50. It has further been pointed out that merely because one of the partners of the joint venture was before the BIFR, does not give any immunity to the respondent against its contractual obligations. So far as the contract between the partner which is before the BIFR and the respondent is concerned, the same remains valid and binding. The respondent cannot terminate the agreement for any reason other than the stipulations contained in the agreement itself. Consequently, the unilateral termination by the respondent for reasons which are not stipulated in the agreement between the parties, is illegal and so long as the parties continue to maintain the shareholding in terms of the SHA, the agreement subsists. The respondent is consequently bound by the non compete clause. 51. It has further been contended that before this Court, the respondents have tried to place reliance on the tentative proposals placed by one of the directors of the petitioner before the BIFR giving different alternatives whereby MRL could liquidate its liabilities. Such proposal, it is explained, was not by ....
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....nd new ranges in the product in a big way, strongly jeopardising the joint venture. 54. It is pointed out that in the light of the Guardian's huge stake in the joint venture, in case the business of the joint venture suffers, Guardian suffers the most. The submission is that it is in Guardian's commercial interest as well not to do anything which would jeopardise the business interest of the joint venture. 55. Mr. Mukul Rohtagi, learned senior counsel for the respondent has pointed out that even the FIPB has required a guarantee that the health of the joint venture is not impacted in any manner by the proposed new subsidiary. Consequently, it is urged that instead of Guardian being like the 'big fish trying to eat a small fish', it is in fact, acting as the big brother protecting the smaller brother. 56. On the afore-noticed facts, it is vehemently submitted that the new project to be set up by Guardian is its wholly owned subsidiary. It is not a collaboration with any other Indian or foreign partner. Consequently there is no question of there being any competition with the joint venture or any outsider becoming privy to the business secrets of the joint ve....
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....being pre-mature and consequently cannot invoke the jurisdiction of this Court under Section 9 of the Arbitration and Conciliation Act, 1996. (III) Clause 14 of the SHA is not binding on the parties for the reason that it has not been incorporated in the Articles of Association of GGL, the joint venture. (IV) The SHA cannot be enforced for the reason that it stands terminated on the grounds of frustration and the petitioner has failed to make out a prima facie case for grant of injunction in the following circumstances: (i). MRL had been declared sick by the BIFR. Its total dues as on 31st March, 2003 were in excess of Rs. 250-300 crores and its net worth had been completely eroded. MRL's industrial operations and products stood shut down since 2001. (ii). Shares of the joint venture GGL as held by MRL have been treated by it as investments. Under the provisions of Sick Industrial Companies (Special Provisions) Act, the operating agency has the power to sell the assets of MRL in order to revive the company. Shares of GGL as held by MRL are the most valuable assets of MRL. Consequently, there is continuing uncertainty with regard to the sale o....
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....07 though actual repairs may start in the year 2008. Merely shifting the reserve for such repairs from one heading to another for accounting purposes is distinct from having the actual cash to pay for the same. Such an amount has to be maintained in order to have the reserve to effectuate the repairs. (x) Guardian cannot be compelled to share its cutting edge technology and new technologies for new products under any agreement with the MRL or with the existing joint venture. (xi). M/s Saint Gobain and M/s Asahi Glass, the competitors to the joint venture GGL in India, have already set up second plants in India which has aggravated the need for a new project to be set up which would complement the joint venture GGL's production facility. (xii). The Foreign Investment Promotion Board FIPB has granted permission to Guardian, USA to start a new project on terms and conditions stipulated in the permission granted to it. The FIPB stands satisfied that the joint venture would not be harmed or prejudiced if the Guardian is permitted to set up a new wholly owned subsidiary. The findings of the FIPB are those returned by the expert body set up by the Government....
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....the Joint Venture of GGL. 60. An objection has been taken by the respondents in their arguments to the effect that Clause 14 of the SHA dated 23rd January, 1990, was not incorporated in the Article of Association of the joint venture GGL and consequently would not bind the parties. (Ground III in para 58 above) Placing reliance on the pronouncement of the Supreme Court in AIR1992SC453 V.B. Rangaraj v. V.B. Gopalakrishnan and Ors. and the pronouncement of the Bombay High Court reported at 2004 (121) Comp Cas 335 IL and FS Trust Company Limited and Arn. v. Birla Perucchini Limited and Ors. it is contended that it is only the Article of Association which binds the shareholders. 61. On the other hand, Mr. Arun Jaitley, learned senior counsel for the petitioner, has urged that Clause 14 of the SHA did not relate to a matter effecting the affairs of the joint venture. Learned senior counsel has placed reliance on another pronouncement of the Apex Court reported at (2004)9SCC204 M.S. Madhusoodhanan and Anr. v. Kerala Kaumodi Pvt. Limited and Ors. to urge that such a covenant as contained in clause 14 would bind the parties thereto irrespective of whether it was contained in the Arti....
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....y placing reliance on a decision is not proper. 63. This principle was reiterated by the Supreme Court in 2004 (VIII) AD (SC) 468 Kesar Devi v. Union of India and 2004 (VII) AD (SC) 109 U.P. Co-operative Cane Unions Federations v. West U.P. Sugar Mills Association and Ors. etc. It has also been dealt with in (109) 2004 DLT 763 M.C. Khullar v. Union of India and Ors. 64. In a recent decision reported at (2007)1SCC457 State of Haryana v. M.P. Mohla, also the Apex Court has observed thus: 19. A judgment as is well known must be read in its entirety. The judgment of a court must also be implemented. But what would be the effect of a judgment must be considered from the reliefs claimed in the writ petition as also the implications thereof which has to be deciphered from reading the entire judgment. A judgment may also have to be read on the touchstone of pleadings of the parties. 65. It Therefore becomes necessary to consider the facts which were before the Supreme Court in AIR1992SC453 V.B. Rangaraj v. V.B. Gopalkrishnan and Ors. In this case, the plaintiffs had placed reliance on an oral agreement to the effect that two branches of the family who were the shareholder....
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....etition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking certain injunctions. In this background, the court noticed that the provisions contained in the subscription cum share holders agreement were translated into an amendment of the Articles of Association. However, the provisions contained in Article 3.10 of the subscription agreement which provided that the promoters undertook that the second respondent shall not resign from the Board 'till the validity of the agreement' was not translated into an amendment of the Articles of Association of the company. The effect of Article 3.10 was that the respondent No. 2 was rendered a permanent director of the company. Placing reliance on the Division Bench pronouncement reported at 2000 (100) Company Cases 19, Rolta India Ltd. v. Venire Industries Ltd. and Anr., the court held that subject to the provisions of the Companies Act, the company and its members are bound by the provisions contained in the Articles of Association. The Articles regulate the internal management of the company and define the powers of its officers. It was also observed that the Articles would be a contract between the company an....
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....bay High Court in a judgment reported at 2000 (100) Comp Cas 19 Rolta India Ltd. v. Venire Industries Ltd. and Anr. was called upon to consider a restriction contained in a pooling agreement with regard to restriction of number of directors of the Board. The court held that a pooling agreement cannot be used to supersede the statutory rights given to the board of directors to manage the company, the underlying reason being that the share holders cannot achieve by a pooling agreement that which is prohibited to them, if they are voting individually. Therefore, the power of share holders to unite is not extended to a contract whereby restrictions are placed on the powers of directors to manage the business of the corporation. The only restriction which would be recognised as binding on the company would be under the statute or in the Articles of Association. It was such an agreement between the shareholders which was held by the court as being capable of such construction as to constitute a contract not binding on the company even if the company had taken note of the same or acted thereupon. The court had held that an interim injunction restraining the right of the company to be a....
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.... limited company would come within the phrase 'not obtainable in the market' as specified in the Explanation to Section 10. It was further held in para 142 that, while it is imperative that the company should be a party to any agreement relating to the allotment of new shares, before such an agreement can be enforced it is not necessary for the company to be a party in any agreement relating to the transfer of issued shares. For such agreement to be specifically enforced between the parties for transfer, the court considered the decision rendered in Rangaraj case and observed thus: 144. The decision does not in any way hold that the transfer of shares agreed to between shareholders inter se does not bind them or cannot be enforced like any other agreement. 145. In Rangaraj case relied upon by the respondents, an agreement was entered into between the members of the family who were the only shareholders of a private company. The agreement was that for all times to come each of the branches of the family would always continue to hold equal number of shares and that if any member in either of the branches wished to sell his share/shares, he would give the ....
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....) days after the receipt of such offer, notify Guardian International if MRL (or such nominee) will accept such offer (subject to obtaining any requisite approvals of the Reserve Bank of India, the Department of Company Affairs, or any other institution or department of the Government of India or any political subdivision thereof). If MRL fails to notify Guardian International of its acceptance of the offer as aforesaid, Guardian International (or its Affiliates or Associates) shall be entitled to sell or otherwise dispose of the shares to third parties at the aforesaid price. Should Guardian International (or its Affiliates or Associates) fail to sell or otherwise dispose of such shares at the said price, any of them shall be entitled to sell or otherwise dispose of the shares to third parties at a lower price; provided, however, that Guardian International (on behalf of such proposed disposing party) shall first have offered the shares at such lower price to MRL in accordance with the aforesaid procedure. Guardian International (or its Affiliates or Associates) shall be entitled at any time, without liability to any person, to decline to sell or otherwise dispose of its shares if....
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....es or Associates, or between MRL and any of its Affiliates or Associates; provided, however, that with respect to a transferee of MRL (or any of its Affiliates or Associates) the transferee is not engaged in a competing business with the company; and (ii) the right of GACL to transfer all or a part of the equity shares of the company owned by it to MRL. The SHA dated 23rd January, 1990 contained a restriction on the parties to indulge in other business for manufacture of float glass or fabrication of products made from float glass in Clause 14 which has been reproduced earlier in this judgment. 76. Inasmuch as the SHA permits transfer of equity to an 'affiliate' or an 'associate', it would be useful to also set out the definition of these expressions as agreed upon between the parties which was provided in clause 15.1 and reads thus: 15. 'Affiliates' and 'Associates' 15.1 For purposes of this Shareholders Agreement, the term 'Affiliates' shall mean any legal person (other than the company) who, directly or indirectly, is controlled by controls, or is under common control with, a party to this Shareholders Agre....
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....ompounded by the factum of the respondent being a 'sick' company within the purview of BIFR. Again in paras 23 and 24 of this petition, the respondent stated thus: 23. Therefore, in the interest of justice and in aid of the Arbitration Agreement in the Shareholders' Agreement, the petitioner is seeking to restrain the respondent from taking any steps from transferring its shares in GGL without the consent of the petitioner and without giving a pre-emptive right to purchase the said shares to the petitioner. 24. The petitioner Therefore submits that it is absolutely just, necessary and convenient that the respondent its officers and directors are restrained in any manner from transferring any of its shareholdings in GGL without the consent of the petitioner and without giving a pre-emptive right to purchase the said shares to the petitioner. The petitioner also craves leave that in the event of change in the ultimate and beneficial ownership of the respondent they be permitted to seek other reliefs. Finally, the following prayers have been asserted by the respondent: (a) to restrain the respondent from transferring its shareholding ....
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....been urged at great length that there is no challenge by the petitioner to the termination of the SHA by the letter dated 21st July, 2006 before any forum and consequently, the present proceedings are misconceived and wholly without jurisdiction and not maintainable. 81. In the present case, I find that the respondent has made a request for arbitration dated 16th October, 2006. In its letter of request, the respondent has urged that its termination of SHA is valid and has sought, a declaration to be made to the effect that the termination is justified and legal. The respondent has further sought a specific declaration that the petitioner is not bound by the non-compete clause as contained in clause 14 of the SHA. It is apparent that the respondent has itself raised an issue with regard to the validity and legality of the termination effected by it by the letter dated 21st July, 2006. 82. I find that the petitioner has filed the present petition based on the averments that the purported termination of the SHA effected by the letter dated 21st July, 2006 is contrary to the terms of the contract and is illegal and wrongful. Thus, it is the petitioner's case that the terminat....
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....overnment policy would amount to aiding a breach of the SHA. The Petitioner reserves its right to take separate legal action seeking appropriate direction/order/writ against the Government by invoking the extra ordinary jurisdiction vested in this Hon'ble Court under Article 226 of the Constitution of India.' Therefore, it cannot be held that the petitioner has accepted the factum and validity of the termination. 83. The objection based on the plea that the petitioner has not challenged the termination can be tested from yet another angle. There are several instances when a party is compelled to seek relief of injunction on the averment that an action taken by a person or authority is contrary to law or the agreement between them. The adjudication on the entitlement to the relief necessarily requires an inquiry into the legality of the action of the defendant. In such a case, a declaration that the action of the defendant is illegal is inherent in the adjudication. It is well settled that such a declaration does not require to be specifically prayed for. The courts have held that the correct test is as to whether there is a legal necessity for the plaintiff to g....
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....reement. 88. It is trite that in the present proceedings, it is not open to the court to adjudicate upon an issue which is the subject matter of the arbitration. The present proceedings are concerned only with preservation of the property and to prevent violation of claimed rights of parties so that no irreparable loss and damage enures to the parties till the arbitration results in a dispute redressal. 89. In this background, Therefore, it cannot be held that the petitioner has not challenged the termination or be non-suited for the reason that it has not made a prayer for declaration before this Court to the effect that the action of the respondent was illegal. 90. The second limb of the objection as to the maintainability of this is based on the plea that the petitioner has not invoked the dispute redressal mechanism by way of arbitration and for this reason as well, the present petition at its instance, is misconceived. 91. In order to appreciate the submission on behalf of the petitioner, it becomes necessary to consider the concerned statutory provisions at this stage. Section 9 of the Arbitration and Conciliation Act, 1996 empowers a court to pass interim orders ....
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....25 of the Arbitration and Conciliation Act, 1996 refers to default of a 'party' and Sub-section (a) and (b) of this provision provide for the consequences of the default either by the 'claimant' which is dealt with in Sub-section (a) while Sub-section (b) refers to the consequence of a default by the 'respondent'. Sub-section (c) refers to the failure of either party to appear at an oral hearing or to produce documentary evidence. Section 9 of the Arbitration and Conciliation Act, 1996 permits a 'party' applying to a court seeking interim measures for protection. It is thus apparent from the spirit, intendment and purpose of the statute that the legislature intended such statutory right to approach a court for interim relief to be available to either party to the arbitration. 93. In the instant case, the admitted position is that the respondent approached this Court by way of O.M.P. No. 337/2006 which was filed on 24th July, 2006 by the respondent under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief in respect of the share holding in GGL. 94. Subsequently thereafter, the respondent herein has made a request fo....
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....quest for Arbitration. 36. Guardian International has commenced this arbitration seeking declaratory relief that it is entitled to construct and operate other float glass plants in India, together with an award of monetary damages. Guardian International is entitled to such relief on one or more of the following grounds: a. the Shareholders Agreement has been frustrated and as a result the non- competition provision of Clause 14 of the Shareholders Agreement no longer applies; and/or b. alternatively, MRL has anticipatorily breached Clause 6 of the Shareholders Agreement (and Article 3(b) of GGL's Articles of Association), by declaring its intention to sell its GGL shares to a third party and by taking steps to effect such sale, discharging the Shareholders Agreement; and/or c. alternatively, the non-competition provisions of Clause 14 of the Shareholders Agreement are null and void and/or unenforceable against Guardian International and/or have been frustrated or otherwise discharged; and/or d. alternatively, MRL has unreasonably and/or wrongfully withheld its consent to Guardian International's construction of further ....
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....to the validity and legality of the termination of the agreement dated 21st July, 2006 is yet to be decided. 96. The present petitioner is a respondent in the arbitration proceedings commenced by the present respondent. Therefore, it cannot be disputed that the petitioner is a party to the arbitration proceedings. In the light of the above discussion, it has to be held that the petitioner is entitled to maintain the present petition under Section 9 of the Arbitration and Conciliation Act, 1996. The SHA stands frustrated and terminated and Therefore the respondent stands discharged from obligation there under (Ground IV) 97. The entire grave man of the respondents' case rests on its purported termination of the SHA by the letter dated 21st July, 2006. Perusal of the letter dated 21st July, 2006 shows that the termination of the agreement is for the reason that there was fighting within the promoters of MRL; the petitioner was before the BIFR, had been declared sick; there was a winding up order against it, all of which lent insecurity to its partnership with the respondent and consequently jeopardizing the future of GGL. Consequently, it was stated that the SHA stood frust....
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.... of frustration. It must be held also, that to the extent that the Indian Contract Act deals with a particular subject, it is exhaustive upon the same and it is not permissible to import the principles of English law dehors these statutory provisions. The decisions of the English Courts possess only a persuasive value and may be helpful in showing how the Courts in England have decided cases under circumstances similar to those which have come before our courts.' 100. It would also be useful to consider the principles laid down by the Apex Court in Satyabrata Ghose v. Mugneeram Bangur and Co. (Supra) wherein the court had observed thus: 9. The first paragraph of the section lays down the law in the same way as in England. It speaks of something which is impossible inherently or by its very nature, and no one can obviously be directed to perform such an act. The second paragraph enunciates the law relating to discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done. The wording of this paragraph is quite general, and though the illustrations attached to it are not at all happy, they cannot de derogate from the general wo....
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....n a contract cannot be ignored only on account of uncontemplated turn of events after the contract. Also, in HV Rajah v. C.N. Gopal and Ors., the court had held that the doctrine of frustration can only apply to executory contracts and not the transactions which have created a demise in praesenti. The principles noticed hereinabove were reiterated by the Apex Court in the recent pronouncement reported at (2003)12SCC91 Ganga Retreat v. State of Rajasthan. 102. Even in United Kingdom, it is well settled that the doctrine of frustration of a contract cannot be lightly invoked to relieve the contracting parties of the normal consequences of imprudent commercial bargains. (Ref: 1982 AC 724 between Pioneer Shipping Ltd. and Ors. and B.T.P. Trioxide Ltd.) The essence of frustration is that it should not be due to an act or election of the party seeking to rely on it and it must be some outside event or extraneous change of situation. (Chitty on contracts, 29th Edition, Vol.I, Page 23 Para 007). 103. Furthermore, it is an admitted position that the petitioner continues to be under its Board of Directors. 104. It has not even been argued by the respondent that any of the terms o....
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....nt till such period that each of them continues to hold not less than 15% of the total issued equity shares of the company. The stipulation in this behalf was contained in clause 16 of the SHA which provides as follows: 16. Term This Shareholders Agreement shall continue in force and effect for so long as MRL (either with or without GACL and its nominees) and Guardian International (or Affiliates or Associates of Guardian International) each shall hold not less than fifteen per cent (15%) of the total issued equity shares of the company. It is noteworthy that there is was no other provision governing termination of the agreement and certainly the grounds set out in the letter dated 21st July, 2006 were not envisaged or provided under the agreement. 107. The admitted position is that both parties continued to hold more than 15% of the total issued shares in GGL when the letter dated 21st July, 2006 was issued and continued to do so when hearing in the present matter commenced and concluded. 108. So far as the performance of the joint venture GGL is concerned, it appears that the demand of float glass has constantly expanded over the period. The balance she....
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.... pending before the Supreme Court as on date. 112. It is also an undisputed position that on the 4th February, 2004, MRL filed a reference under the Sick Industrial Companies (Special Provisions) Act hereinafter (SICA) before the Board of Industrial and Financial Reconstruction hereinafter (BIFR) seeking a declaration that its own net worth stood eroded. MRL has urged that this was a 'technical sickness' faced by the MRL which in no way has impacted the stability or growth of the joint venture GGL. The submission is that it has also had no effect on its management and performance. 113. So far as this reference to the BIFR was concerned, it remained pending on account of a vacancy of the Presiding Officer and was listed for the first time on the 17th May, 2006. Upon consideration of the matter, the BIFR declared that the petitioner as 'sick' under Section 16 of the Sick Industrial Companies (Special Provisions) Act (SICA). An operating agency was appointed to examine the affairs. The operating agency as well as the petitioner were required to submit a scheme for revival for MRL, if feasible, bearing in mind the provisions of Section 18 of SICA and the enclosed ....
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....half, a letter dated 9th June, 2006 which was written by Guardian to Unit Trust of India has been placed before this Court wherein Guardian wrote that Guardian hoped that its agreement with Mr. Modi will be approved by BIFR, to the extent BIFR approval is necessary, and consummated in a timely manner. However, the BIFR may take several months or longer to approve a scheme of rehabilitation for MRL and, further, any proposed scheme could be opposed by the various constituent interests in MRL. If the complete restructuring of MRL and its emergence from BIFR could be completed promptly and that Guardian was prepared to act to protect GGL and was Therefore writing to remind UTI of Guardian's willingness to purchase all of MRL's GGL shares at their recently appraised fair market value if a transaction with Mr. Modi is not concluded promptly. Guardian is prepared to provide meaningful liquidity to MRL by making payment in cash within days of reaching an agreement with the financial institutions. Guardian also requested UTI that its agreement with Mr. Modi would not preclude it from supporting a sale of MRL's GGL shares to Guardian in the event that Mr. Modis proposed transact....
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....d out by the parties that in the 1990s itself that is the early years after the incorporation of the joint venture, GGL was also referred to the BIFR. The respondent has contended that when equity infusions were required, the petitioner remained a spectator and did not participate in the infusions. However, the fact remains that the respondent at that stage did not contend that the SHA stood frustrated. 125. The petitioner on the other hand, has submitted that the Board of Directors of GGL is headed by Mr. V.K. Modi as Chairman and that it was Mr. Modi who had approached the financial institutions for financial restructuring of GGL's debt which included pre-payment of debts and waiver of interest amongst other measures. It has been contended by the petitioner that it was the effort of Mr. V.K. Modi as Chairman which resulted in GGL's net worth improving and helped it to come out of the BIFR. The petitioner has also claimed that it was Mr. V.K. Modi who had furnished his personal guarantee to the financial institutions for securing the repayment of the dues while the respondent did not undertake any such measure. 126. It has also been pointed out that the respondent....
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.... liabilities of the contract. This would, Therefore, enable a party to terminate a contract on the ground of substantial failure by the other party which goes to the root of the contract. 133. The respondent has asserted that the petitioner was no longer a financially viable partner and that its future was uncertain. It has been contended that the petitioner being before the BIFR has amounted to frustration of the SHA and the respondent has resorted to termination the same. Even assuming that such a submission was to be accepted, it is noteworthy that despite this position, GGL is admittedly a prosperous undertaking with substantial reserves. 134. Examination of the course of the proceedings which are pending before BIFR so far as the MRL's industrial and technical sickness is concerned. The accepted position is that one of the factions Constituting MRL had put forth a proposal to purchase the share holding of the financial institutions in MRL which proposal has been accepted by the BIFR and this faction has also discharged the financial liability towards such purchase so far. As a result the stake of the financial institutions is stated to have come down from over 50% in....
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....ing would be acquired by its own affiliates or its associates in terms of the share holders agreement and thus there is no intent of the petitioner to dispose of its shareholding in GGL to any third party as allotted by the respondent'`. 142. Even assuming for the sake of argument that such a proposal was advanced and was binding on the petitioner, a reading thereof would show that it had set out two alternative proposals. The first postulated raising of a loan from a bank whereby all assets of the company could be protected. The second proposal put forth disposal of the assets of the company. The shareholding in GGL has undoubtedly been set down as one of the assets. It has been urged that this proposal also shows that the value of the assets of GGL were far more than its liabilities and it was not necessary that the shareholding of the GGL would require to be sold even in order effectuate such a proposal. 143. The petitioner has pointed out that even this proposal closely examined in its entirety does not evidence of any intention to violate the petitioner's commitment under the SHA and that there was nothing in the face of the proposal to show that the petitioner i....
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....not to do a certain act, the circumstance that the court is unable to compel the specific performance of an affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. 149. So far as contracts which are determinable are concerned, it has been repeatedly held by the court that compensation would be the adequate remedy for breach of the contract and that the court cannot direct enforcement of the specific performance of its material terms. 150. This is so because if the party against whom specific performance is sought, is entitled to terminate the contract, an order of specific performance will be refused as the defendant could render it nugatory by exercising its power to terminate the contract (Ref: Law of Contract by G.S. Treitel, 15th Edition at page 762 and Chitty on Contract 27 Edition Vol. I and Pollock and Mulla's Contract and Specific Relief Act 11th Edition Vol.II page 1271). This principle would apply whether the contract is determinable under its express terms or on account of the conduct of the parties seeking specific performance. 151. It now becomes necessary to examine the effect of a negative covenant in an....
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....e negative stipulation restricting the right of the other side did amount to a restraint of trade. So far as the negative stipulation in the agreement between the Gujarat Bottling Company and M/s Coca Cola Company was concerned, it was noticed by the Apex Court that such a condition restricting the right of the franchisee to deal with competing goods is for facilitating the distribution of the goods of the franchiser, it could not be regarded as being in restraint of trade. It was further held that since the negative stipulation was confined in its application to the period of subsistence of the agreement and the restriction imposed therein was operative only during the period 1993 when the agreement is subsisting, such stipulation could not be held to be in restraint of trade so as to attract the bar of Section 27 of the Contract Act. The court thereafter proceeded to consider as to whether the plaintiff in the case in hand was entitled to the injunction prayed for to compel enforcement of the negative agreement not to do certain acts. It was held by the Apex Court that the court was empowered to so direct in the light of Section 42 of the Specific Relief Act, 1963. Such power how....
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.... to its business rival by supplying its essence/syrup etc. for which the Coca Cola owns trademark to the Gujarat Bottling Company which was by then under the effective control of Pepsi. 158. The court observed that Pepsi took a deliberate decision to take over the Gujarat Bottling Company with the full knowledge of terms of its agreement with Coca Cola and it did so with the intention of paralysing the operations of the Coca Cola in the region and promoting its goods. Subsequently, it must suffer the consequences of the failure of its effort and cannot possibly oppose the interim protection to Coca Cola Company. So far as the loss that may be caused to Gujarat Bottling Company as a result of the grant of the interim injunction, the court was of the view that such loss can be assessed and the Gujarat Bottling Company can be compensated by award of damages which can be recovered from Coca Cola in view of the undertaking which was required to be given under the concerned rules. 159. The Apex Court re-emphasised the principle that the relief of injunction was wholly equitable in nature and the party invoking the jurisdiction of the court has to show that he himself was not at ....
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....nt venture. In this background, this Court upheld the order of the lower courts restraining the defendants from urging any agreement with any other party in India for joint venture disturbing till the disposal of the suit. 162. My attention has been drawn to the Division Bench pronouncement of this Court rendered on 23rd October, 1998 in FAOS 251/1998 Goyal MG Gases Limited and Anr. v. Messer Griestrein Gmbh and Anr. In this case the appellant (referred to as GMG for short) had entered into a share purchase and cooperation agreement dated 12th May, 1995 with Messer Griestrein Gmbh(referred to as Messer for short). This agreement had resulted in a joint venture of the parties. A dispute had arisen between these parties in connection with acquiring the control and shares of another industrial gas company in India namely the Bombay Oxygen Corporation Limited (referred as BOCL for short) as to whether the control of BOCL should be with Messer or with GMG or otherwise. The appellant had sought an injunction against such acquisition by Messer on the ground that the same was contrary to the share purchase agreement dated 12th May, 1995 and two subsequent agreements dated 8th Novembe....
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....he injunction on the ground that balance of convenience lay in its favor as it would expose Messer to breach of the agreement which it had entered into with the third party. It was held that there was substance in the apprehension of GMG that if Messer took over BOCL, it would become a competitor of GMG and that as GMG has on its board of directors, nominee directors of Messer; thereby the secret information of GMG would be passed of through these directors to BOCL. The court also noticed that Messer was a multinational corporation and customers of GMG may prefer to contract with the company where Messer has a controlling interest and not with GMG which only carries the name and technology of Messer in view of the agreement dated 12th May, 1995 and 30th November, 1995. As a consequence thereof, it was held by the court, Goyals would have no option but to have to sell its shareholding in MGM to Messer resulting in its ruination. In this behalf, the court observed thus: In substance the argument is that in this manner a big fish will altogether eat a small fish in the corporate world despite the agreement referred to above. It deserves to be emphasized that the Messer had re....
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....775/2003 entitled Orient Longman Pvt. Ltd. and Chancellor, M and S, University of Oxford whereby the special leave petition assailing the judgment of this Court was dismissed as withdrawn. 167. Based on the pronouncement of this Court rendered in Old World Hospitality Pvt. Ltd. v. India Habitat Centre 73(1997)DLT374 it has been urged that the courts should prefer such construction of a contract as could favor performance of the contract and not encourage avoidance contractual obligations. On such construction, it is urged that injunctions would be granted in favor of a party seeking enforcement of contractual obligations. My attention was drawn observations in this judgment which reads thus: 116. In Chave v. Breamer 1976 Q.B. 76, Rosekill Learned Judges said 'In principle contracts are made to be performed and not to be avoided according to whims of the market fluctuations where there is a free choice between the two possible constructions of a contract, I think the Court should tend to prefer the construction which will infer performance and not encourage avoidance of contractual obligations. 168. On the other hand, Mr. Mukul Rohtagi, learned senior counsel for ....
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....a Limited and Ors. 171. I have carefully perused the judgments relied upon by the respondents. I find that in Rajasthan Breweries Limited (supra) it was specifically noticed by the court that there was no negative covenant in the contract and that termination of the agreement was in fact effected in terms of clause 8 of the contract between the parties. However in paras 14 and 15 of the report, the court specifically noticed that the principles of compensation of damages would have no relevance when a negative covenant is sought to be enforced in the light of Section 42 of the Specific Relief Act. It would be useful to consider the observations of this Court in extenso which reads thus: 14. The effect of breach of a contract by a party seeking to specifically enforce the contract under the Indian law is enshrined in Section 16(c) read with Section 41(e) of the Specific Relief Act, 1963. Clause (e) of Section 41 of the Specific Relief Act provides that injunction cannot be granted to prevent the breach of contract, the performance of which would not be specifically enforced. Clause (c) of Section 41 enumerates the nature of contracts, which could not be specifically enfo....
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.... pronouncement wherein the court interpreted the meaning of the expression determinable used in clause ``c'` to Sub-section 2 to Sub-section 14. In this behalf, the court had observed thus: 16. Learned Counsel for the appellant contended that the word 'determinable' used in Clause (c) to sub-Section (1) of Section 14 means that which can be put an end to. Determination is putting of a thing to an end. The clause enacts that a contract cannot be specifically enforced if it is, in its nature, determinable not by the parties but only by the defendant. Although clause does not add the word 'by the parties or by the defendant' yet that is the sense in which it ought to be understood. Therefore, all revocable deeds and voidable contracts may fall within 'determinable' contracts and the principle on which specific performance of such an agreement would not be granted is that the Court will not go through the idle ceremony of ordering the execution of a deed or instrument, which is revocable at the will of the executant. Specific performance cannot be granted of a terminable contract. 173. The court had also negated the submissions on behalf of the a....
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.... such a notice had been issued to the plaintiff and the shareholders agreement terminated thereafter. In these facts injunction was refused. However, having closely considered this judgment, I find that in this pronouncement the court was not called upon to consider the impact of the negative covenant and grant of an injunction to ensure its compliance. 176. In AIR1956Cal41 Pravu Dayal Agarwal v. Ram Kumar, the court was concerned with a suit for specific performance of a contract whereby the parties had agreed that only Pravu Dayal as a benamidar would submit tenders for the settlement of the plot in question and such offer would be deemed to have been made on behalf of all three. The parties as partners were all to contribute their share of the capital within one month from the execution of the patta to be obtained from the Government. It was stated that despite intimation to the other parties they failed to pay their shares which consequently led to Pravu Dayal to intimating them that the partnership stood abandoned. This was denied by the other parties who filed the suit against Pravu Dayal seeking the relief of specific performance of the agreement. The court held that in v....
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....nt. In this case, the court held that the relief by way of interlocutory injunction was granted to mitigate the risk of injustice to the plaintiff during the period before the uncertainty of the respective claims is resolved. Such injunction is to be granted only in cases where damages would not be adequate compensation for the injury which would result. Injunction was refused for the reason that the court for several reasons which have been noticed in the judgment held that the plaintiff can be compensated in terms of money and that plaintiff No. 1 would be held entitled to commission on the sales effected by the defendant. In this case, the plaintiff had even quantified its claim at 20% commission on sales made by the defendant or by its group/subsidiary directly or indirectly in India. It was in these circumstances held by the court that instead of an interim injunction, an interim protection in respect of securing 10% of the commission on the sales of the products which were covered by the joint venture agreement between the parties should be passed. The present case is distinguishable on facts which are before the court in Usha Drager P. Ltd. This Court is not concerned wit....
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....nt has also placed reliance on the judgment reported at Turnaround Logistics (P) Ltd. v. Jet Airways (India) Ltd. and Ors. This case is also distinguishable on facts inasmuch as the court held that from the averments made in the plaint, the contract whereby the plaintiff was appointed an agent could not be inferred. Furthermore, this case did not postulate any negative covenants, and the plaintiff had only challenged the termination by the defendant on several grounds. Consequently, the court held that the contract being determinable, provisions of Section 14(1)(c) and Section 41(e) of the Specific Relief Act would preclude the grant of an injunction. For these reasons, this pronouncement has no application to the instant case. 182. I, Therefore, find that there is no legal impediment to grant of an injunction so as to enforce a negative covenant contained in an agreement which may be determinable. Of course, such relief cannot be granted merely on the asking of a petitioner who is required to show more as is discussed hereinafter. Impact of approval by the Foreign Investment Promotion Board (FIPB) to the proposal of the respondent 183. An approval of the FIBP is required by vir....
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.... the new proposal would or would not in any way jeopardise the interest of the existing joint venture or technology/trade mark approval or other stock holders would lie equally on the Foreign investor/technology supplier and the Indian partner. Press Note 1 (2005 series) states that a new proposal would be allowed where the existing venture/Corporation is defunct or sick and according to the respondent this should be interpreted to include a situation where the Indian partner is sick or defunct. 188. The respondent was required to give details of the previous/existing joint venture in the same/allied fields, if any, and if so, the justification for the proposed venture. The respondent in para 9 (a) A has clearly stated that 'the existing joint venture, GGL, is in the same field as the new proposed wholly owned subsidiary'. Justification has been given as to why the proposed venture shall not impact the existing joint venture and four reasons have been advanced by the respondent for the same which read thus: (I) The MRL is in a state of internal disarray. (II) Proposal to bring in latest and improved technology. (III) Increasing demand for....
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....vision was not likely to jeopardise the interest of existing joint venture and consequently recommended the proposal of the respondent for consideration and approval of the competent authority. The petitioner is stated to have assailed the recommendations of the FIPB in proceedings before the Gujarat High Court. The scope of those proceedings is concerned with the legality and validity of the approval under press note 1 (2005 series) and not of the contractual stipulations between the parties and the commitments by the respondent under clause 14 of the SHA. 195. It is noteworthy that the other share holders in the joint venture have also opposed setting up of the wholly owned subsidiary by the respondent. 196. The petitioner has placed the stand of the Union of India, Ministry of Finance in the writ petition filed by it assailing the recommendation under press note 1 (2005 series) granted vide letter dated 26th October, 2006. In the affidavit dated 10th November, 2006 filed by the officer (OSD), Capital Marketing and Investment of the Department of Economic Affairs in the Ministry of Finance in Special Civil Application 2206/2006 in the High Court of Gujarat at Ahmedabad, it ....
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....ing been placed before the FIPB other than its own self-serving bald statements and assurances. 201. I also find that there is no manner of enforcing the assurance and guarantee given by the respondent before the FIPB that the business of the subsidiary proposed to be set up by it would not impact the business of the joint venture inasmuch as it is relatable to third parties with whom it would be conducting business and who would not be bound by the assurance given by the respondent. The FIPB on 5th October, 2006 has also observed that its approval is merely an enabling decision which is without prejudice to any existing contractual agreement. In view of the stand of the government also it Therefore, cannot be held that grant of approval by FIPB would bind adjudication by this Court. Suppression of material facts and delay 202. According to the respondents, the petitioner is also disentitled to any relief in this petition on grounds of suppression of material facts. According to the respondent the petition does not adequately disclose the proceedings before the FIPB. It has been pointed out that FIPB had given a hearing to the petitioner which fact has not been disclosed in t....
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....risdiction and pass such orders as are required to maintain the sub-stratum of the subject matter of the arbitration. 208. The next issue which deserve to be considered is the nature of relief to which a party may be entitled. Section 9 confers a discretionary power on the court which has to be exercised sparingly and cautiously, the object of the statutory provision is to be found in the words of the Section itself which confers jurisdiction on a court to pass orders of interim measures of protection for the preservation, interim custody or sale of goods which are the subject matter of the arbitration agreement; securing the amount in dispute in the arbitration proceedings; detention, preservation or inspection of a property which is the subject matter of the dispute in arbitration; authorise any person to enter upon a land or building; taking of samples or making of observation or experiment to be tried as may be necessary or expedient for the purposes of obtaining full information or evidence. The court is empowered to even appoint a receiver in respect of the property which is the subject matter of the arbitration and take such interim measures of protection as may be just a....
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....le of equity is also that if a thing is agreed to be done, though there is a penalty attached thereto to secure its performance, yet the court in its discretion enforces specific performance thereof. The jurisdiction of the court is discretionary and must be exercised on such judicial principles when balance of convenience and possibility of irreparable loss and injury is shown to the plaintiff (Ref: 120(2005)DLT387 Geep Batteries (India) Pvt. Ltd. v. Gillette India Ltd.; 118(2005)DLT591 Techno Construction v. Kunj Vihar Co- operative Group Housing Society) (v) The discretionary power of the court under Section 9 has to be exercised by the court sparingly and cautiously, bearing in mind that the objective of the court is to create an alternative dispute redressal mechanism and consequently, the interference by the court is not required at every stage. (Ref: 2006 (128) DLT 694 DB Sanrachna (India) Inc. v. AB Hotels Ltd.) Whenever the powers of the courts are invoked under Section 9 with the objective of supporting the arbitration, the court must act with alacrity. However, this would not justify grant of interim orders and relief on the mere asking. (Ref: (87) 2000 DLT 449 ....
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....ction 9 are much wider inasmuch as they extend to the pre and post award period as well as with regard to the subject matter and the nature of the orders which the court is empowered to pass. Therefore, pendency of an application under Section 17 before the Arbitral Tribunal does not denude the court of its power to make an order for interim measures under Section 9 of the statute. (Ref: AIR2006Delhi134 National Highways Authority of India (NHAI) v. China Coal Construction Group Co.) (x) It has been held that though Section 9 enables a party, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced under Section 36 of the Act, may apply to the court for an interim order under Section 9, however, without a substantive move for reference or declaration on the petitioner's stand on the substantive relief by an appropriate forum, Section 9 cannot be invoked for grant of interim relief. (Ref: AIR2004SC1433 Firm Ashok Tralers and Anr. v. Gurmukh Das; [1999]1SCR89 Sudarshan Finance Ltd. v. NEPC; 1998(44)DRJ399 National Building Construction Corporation Ltd. (NBCC) v. Ircon International Ltd.) (xi) So far as....
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....was in competition with the plaintiffs, and that they were not required to produce any further proof of such competition. This contention was rejected by the court holding thus: 14. While appreciating the above referred contentions of the appellants, one cannot forget that this is a matter pertaining to equitable relief being sought by the appellants. No amount of weakness on the part of defense case can ensure to benefit of the plaintiffs to obtain the equitable reliefs. It is the duty of the plaintiffs seeking the assistance of the Court for equitable relief, to disclose all the facts which can entitle the plaintiffs to justify the grant of the relief asked for. Once it is not disputed that Clause 4 clearly provides that what is sought to be restrained is the competition by the defendant No. 1 with the business of the plaintiff's company and the grievance of the plaintiff is that there is a violation or breach of the defendant No. 1 of Clause 4 in that regard it is primarily for the appellant company to plead and prima facie establish that there is violation by the defendant No. 1 in respect of Clause 4 inasmuch as there has been a business by the defendant No. 1 in ....
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....te only on their 100% subsidiary and will ignore GGL operations where they have only a stake of 50% (2). Future growth of GGL will be stopped as all further expansion will be taken up by the Respondent only in the subsidiary company (3). In float glass industry the margins are much higher in value added products viz. mirrors, coated glass, tempered and laminated glass and automotive glass. Respondent will pursue manufacturing of these products only in its subsidiary rather than GGL leading to reduced profitability at GGL. (4). Respondent would force GGL to undertake more exports being near to the sea and use the subsidiary largely to meet the requirements of the Indian market. Respondent is planning to put up its subsidiary in North India. The margins in glass industry are much higher in the domestic market as compared to the export market. This would lead to reduce profitability at GGL. (5). If GGL sets up the second plant instead of the Respondent setting up the new subsidiary, it would be much more cost effective. It would provide economy of scale to GGL, which would improve its competitive position in the market and hence improved profitabili....
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.... impact of the subsidiary on the profitability and revenues of the joint venture company GGL is concerned, the petitioner has clearly stated that the impact of such a subsidiary and its on going production would result in diminishing the value of the share holding of the petitioner- company in GGL and that thereby the petitioner and its minority share holders would be unjustly deprived of valuable rights with the act of breach by respondent. The petitioner has clearly stated that setting up of the wholly owned subsidiary shall result in irreversible damage to the rights of the petitioner. 218. The respondent has urged that the wholly owned subsidiary is proposed to undertake manufacturing of glass and glass products and coating of glass using advanced coating technology. In phase-I, the respondent proposes to build only a float glass manufacturing plant with the capacity of at least 600 metric tonnes per day. It is only in phase-II that the respondent would build on the same site, a glass floating facility. Before the FIPB, the respondent has stated that 20% of the new plant would be dedicated to the coating technology. However, initially, the major production would be float ....
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....cted future cash flows, it was estimated that substantial funds would be available to finance the major repairs in future. This was the reason which was given in the director's report for transferring back the amount of Rs. 13,500/- lakhs which was appropriated to reserves for cold tank repair to the profit and loss account in the current year. 222. It has been strenuously contended on behalf of the petitioner that the respondent has prevented expansion of GGL not because the same is not possible. It has been pointed out that the respondent has exercised its power to Veto such expansion which has been provided to it under Article 148 of Article of Association which reads thus: 148. Subject always to any directions of the company in General Meeting by Special Resolution, so long as Modi and GACL together and Guardian shall be members of the company, (each holding not less than fifteen per cent 15% of the total issued equity capital of the company) the following powers shall be exercised by the Board or a Committee of the Board if such powers are delegated under the provisions of these Articles by an alternative vote of a majority of directors which majority shall ....
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....ed at from whatever angle, even if the amount which has been considered necessary for cold tank repairs, is so immediately utilized, I find that there is no dispute even by the respondents that the GGL was still a vibrant profitable business enterprise which was capable of sustaining its business, and that, despite the disputes in which MRL or its promoters were involved, GGL had faced no difficulty even during the period when the MRL was before the BIFR or when it was facing a winding up proceedings in the High Court of Judicature at Allahabad. 227. Be that as it may be, there is no dispute that the GGL has the financial capacity and that there is no dispute that it is functioning with technical and administrative capability and has reserve surplus in its cash flow as noticed hereinabove. 228. In its note to the FIPB on 5th October, 2006 in para 9(c), the respondent admitted that cold tank repair is not to be undertaken for the next two years, i.e. by the end of 2008. The admitted position is that the Board of GGL had not considered any proposal for undertaking the repairs of the cold tank which was not absolutely eminent. 229. The respondent has also considered alternati....
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.... to avoid its contractual liability with the petitioner as the SHA dated 23rd January, 1990 remains valid and binding and consequently, the respondent cannot proceed with its proposal to set up a wholly owned subsidiary which would be in violation of the agreement between the parties. 235. In an answer to the respondent's submission that the proposed project of the respondent would bring in huge amounts of foreign exchange, it has been pointed out that the respondent proposed to bring in foreign exchange in two phases. In the first phase, the project cost was to the tune of US $ 150 million while in the second phase, its cost was US $ 50 million. The respondent has proposed induction of foreign exchange in the nature of equity to the tune of US $ 66.67 million only and the respondent was proposing to infuse approximately US $ 60 million in the new subsidiary over the next two-three years. 236. From the documentation which has been placed on record, it has been pointed out that the existing joint venture GGL currently has over US $ 66 million in liquid assets including a bank balance which was growing at the rate over US $ 2 million per month. Consequently, it is pointed o....
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....s wholly detrimental and was opposed to the interest of the joint venture. It has been submitted that the profitability of the wholly owned subsidiary would also guide the respondent's policies in the technology sharing with the GGL and impact on the payments which the respondent expected GGL to make to it. 238. According to the petitioner, GGL, a highly successful company had adequate resources to meet the entire project cost for the proposed new project and there was no need at all for setting up a wholly owned subsidiary by the respondent. It has been vehemently urged that the respondent has deliberately not permitted GGL to proceed with such project which had been proposed to be implemented in GGL by using its affirmative vote which allowed it to veto the setting up of such a plant and it is for this reason, GGL which was a market leader holding market shares which were more than 33%, found its leadership position eroded and taken over by other competitors. It is also the petitioner's case that the respondent has earned huge amounts from the joint venture on account of the payments towards the technology which was shared and advanced to it. 239. Another argument w....
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....holdings of the Gujarat Government establishment as also the refusal to utilize the ``available funds'` for releasing dividends to shareholders goes to show that funds were available. The respondent has not placed or relied on any proposal to expand the capacity of GGL. I also find that the respondent's termination of the agreement with the petitioner does not emanate from growing competition in trade inasmuch as there is no dispute that GGL remains a vibrant and profitable enterprise. 241. The petitioner has pointed out that even in 2003, the joint venture partners foresaw the growth of the demand for its production and had agreed that it was desirable to expand existing facilities of the GGL by setting up an additional float glass plant. MRL is stated to have proposed conservation of internal accruals towards furtherance of expansion which fact the respondent has acknowledged in its letter dated 19th November, 2003. But such proposal did not culminate in any active consideration. 242. The petitioner has challenged the claim of the respondent that it is intending to bring in latest and improved technology through the wholly owned subsidiary into the country. It has b....
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.... itself in. Such a stand has been taken despite the strong emphasis laid by the respondent on the fact that it is holding 50% of shares in GGL while the petitioner is holding only 21.24% of shares. 246. The respondent has the power of veto on all material decision-making as per the Articles of Association and is not only influencing but is controlling the decision-making so far as GGL is concerned. In this background Therefore, while the concerns of the respondent even though may be legitimate, however, it has to be borne in mind that the same are prima facie not supported by any facts and figures inasmuch as MRL has been in such a position since 2000 while GGL has continuously grown in status and strength over this period. In this background, the submission made by the respondent that its new venture would not compete with GGL or that the petitioner's sole interest in the matter is restricted to the value of its shareholding and any reduction to the same can be compensated adequately, is wholly misconceived. Such a submission certainly does not consider the reasonable apprehension of the petitioner with regard to the impact on the goodwill and business of the GGL. 247. P....
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....t of the respondent lies in promoting the wholly owned subsidiary which would certainly be a competitor for the business of the petitioner; would take the market share of the joint venture in the product which it is manufacturing and that its business would certainly be negatively impacted. 251. The contract between the parties was a commercial contract and the prohibition which was contained in Clause 14 is to operate only during the subsistence of the agreement and was provided in the interest of the joint venture. The respondent has refused to share technology or permit expansion of the joint venture not because the joint venture could not have coped with the same or that the petitioner could not have participated or contributed to the expansion but on its apprehension that the petitioner's involvement in the proceedings before the BIFR would render the petitioner as incapable of participating in the venture in a healthy manner. 252. It cannot be lost sight of that if the wholly owned subsidiary is set up and goes into business, undoubtedly, the market share of the joint venture shall further go down. There is also reasonable apprehension that hitherto customers of the....
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....ame product as being produced by the petitioner and would not be selling the same under the trademark and trade name of the joint venture. The respondent has categorically stated that it has no intention of bringing in any new technology into the joint venture or participate in its expansion. Undoubtedly, these actions would result a smaller market share of the joint venture in the future. It is well established that loss of current or future market share may constitute irreparable harm. (Ref: Freedom Holdings v. Spitzer 408 F.3d at 114-15; Novartis Consumers Health Inc. v. Johnson and Johnson Merc. Consumers Pharms .Co. 290 F.3d 578, 526 : 3d CIR.2002. It is equally well settled that in a competitive industry, consumers would be influenced by the branding and the loss of market shares is a potential harm which cannot be retraced by a legal or an equitable remedy following a trial. 256. I find that the issues raised in the present case have arisen in several cases decided by the courts in the United States of America and adjudication in these matters gives a valuable insight into the matter. The Supreme Court of the State of New York had an occasion to consider a matter raisi....
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....without the participation of the plaintiff. It was held that issuance of an injunction was appropriate to protect the plaintiff's 'legitimate interests' in the profits of the joint venture. Consequently, holding that equity was tipped in the plaintiff's favor, the court had passed an order of status quo with regard to the joint venture business. 257. The United States Courts of Appeals for the Tenth Circuit, in a case reported at 356 F.3d 1256 : 2004 US App LEXIS 1382 Dominion Video Satellite Inc. v. Echostar Satellite Corp. and Ors., the court had an occasion to consider a prayer for injunction based on a breach of the exclusivity clause. In this case, the court had negated the injunction which was prayed for on the ground that the plaintiff has failed to show anything which could persuade the court to hold that the loss of exclusivity rights itself constitute irreparable harm without evidence of any further damage. Several judicial pronouncements were relied upon the court including Tom Doherty Assocs., Inc. v. Saban Entm't, Inc. 60 F.3d 27, 37-39 : 2d Cir. 1995 (loss of prospective goodwill through inability to market unique product constituted irrepara....
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....ages); Reuters Ltd., 903 F.2d at 907-09 (loss of unique product and goodwill supports finding of irreparable harm when customers indicate a strong preference for the product and threaten discontinuation of business relationship). It was also noticed that certainly there are cases in which courts have made findings of irreparable harm based on the loss of unique rights protected by contract. But those cases were distinguished from the controversy before the court because they focussed on harm to a unique market position based on evidence of loss of a unique product or goodwill, or difficulty in calculating damages. See, e.g., Tom Doherty Assocs., Inc., 60 F.3d at 38 (irreparable harm arises where loss of ability to market unique product damages company's prospective goodwill); Reuters Ltd., 903 F.2d at 907-08 (damages to goodwill as a result of loss of unique product supports finding of irreparable harm); Ferry- Morse Seed Co., 729 F.2d at 592 (company irreparably harmed where it would suffer disadvantage in competitive market by inability to sell unique product); Green Stripe, Inc., 159 F. Supp. 2d at 56-57 (irreparable harm arises from denial of ability to sell unique produ....
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.... case. Clause 14 of the SHA prohibits MRL and Guardian from participating, negotiating or engaging, or being financially interested, directly or indirectly, in any other project for the manufacture of float glass or other products. The prohibition to involve in or undertaken similar business is clear, unequivocal and absolute without even requiring an element of competition between the joint venture or the other project. Interestingly, clause 6.5 dealing with the transfer of the shareholding prohibits sale of shares to a transferee which is engaged in ``competing'` business with the company. In the instant case, there is no dispute that the proposed wholly owned subsidiary is to manufacture float glass as well as other products made by the joint venture in India. Prima facie, this by itself would entitle the petitioner to assert that the respondent is threatening to breach the SHA between the parties entitling it to interim protection. However, in the facts noticed above, it has been held that the petitioner has been able to make out a prime facie case in its favor and that there is reasonable apprehension of irreparable damage in case the interim protection is not grante....
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....a significant dividend. For example, if GGL were to pay a significant dividend, 22.4% of the dividend would go Modi Rubber and could be used in your scheme of rehabilitation. We can arrange for dividend to be declared as promptly as the required meetings of Modi Rubber can be called.' The same proposal was placed before the Unit Trust of India (UTI) by the respondent by a letter dated 6th July, 2006 urging that thereby MRL would have the liquidity to make a reasonable payment to its secured creditors. The respondent even informed the UTI that it was willing to invest separately from MRL in case it so preferred. 264. This proposal was also placed by the respondent before the Board of Industrial and Financial Reconstruction (BIFR) by an application for impleadment filed in July, 2006 wherein the respondent stated thus: 7. Specifically, the Applicant is willing to buy MRL's shareholding in GGL at Rs. 55 per share, aggregating to Rs. 184.25 Crores (approx. USD 40M). This valuation is based on an independent valuation performed by ICICI Securities at the direction of the Financial Institutions who have a 44% shareholding in MRL. This offer has already been made to th....
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.... as per the arbitration clause (Clause 26) in the Shareholders Agreement. It is, however, imperative that pending such imminent arbitration proceedings, urgent interim orders are passed by this Hon'ble Court. Hence this petition. 267. Before this Court, the respondent has filed a reply on 13th October, 2006 wherein it has again stated that it is willing to buy the petitioner's shares in GGL at a fair market value and that it had filed an application for impleadment at the BIFR towards this end. 268. During the course of hearing, the respondent repeatedly stated that it was only willing to purchase the shares held by the petitioner in terms of the offers contained in the above communications. An oral offer made during the course of hearing on 21st November, 2006 by the petitioner to purchase the share holding of Guardian in GGL was answered by the respondent in their written submissions filed on 24th November, 2006 in the following terms: n.) That Guardian has offered to buy MRL's shareholding in GGL at a valuation arrived at by ICICI Securities Ltd. and an application to this effect was also filed before the BIFR (see page 439), apart from request being m....
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....o the petitioner on this application who has filed a reply pointing out that the offer of the petitioner was rejected outright by the respondent in court which opposition was reiterated in the written submissions filed on 24th November, 2006. The petitioner has contested the claim of the submission made by the respondent submitting that its communication dated 30th November, 2006 is a conditional acceptance which has been replied by the petitioner by communication dated 8th December, 2006. In its rejoinder, the respondent has referred to this course of events as 'talks of settlement'. The parties were heard on this application on the 15th of December, 2006 till which date no firm settlement was placed before this Court. Therefore, so far as adjudication in the present matter is concerned, this Court is not required to go into this aspect any further as the fact remains that the parties had agreed that the term SHA would be so long as the parties held 15% shareholding (Clause 16) which they did on all material dates. 271. The present case is concerned with a joint venture by two legal entities to undertake a business for mutual profit. The expression 'joint vent....
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.... Therefore, joint ventures fill a strong need for organisations as they enable organisations, to extend resources, acquire tacit resources and engage in forms of organisational and scientific learning. It is natural that as the firms' capabilities grow, it may no longer need the co-operation of its joint venture partner. 275. In the instant case, GGL and MRL entered into a joint venture for the obvious reason that the same was in their mutual interest. The parties agreed on the proportion of their contributions. Guardian was admittedly compensated for its technical contributions by the joint venture. From the facts noticed above, not only has GGL discharged all its financial liabilities towards the respondent but also is placed in a healthy situation so far as the financial reserves are concerned. It has been vehemently urged by both sides that GGL is a debt free company. 276. Undoubtedly, GGL has displayed technical, financial and managerial discipline. Guardian has been able to take the benefit of the experience of MRL's long standing and experience on the Indian industrial scene. Guardian has thus been successful in maintaining a joint venture in a culture which is....
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.... Arbitration and Conciliation Act, 1996, on 24th July, 2006, the respondent sought preservation of the shareholding pattern set out in Article 3(b) on Article of Association of GGL and also sought to enforce its pre-emptory rights of purchase of shareholding. Such pre-emptory right is not available under the Articles of Association but is available to the parties only under Clause 6 of SHA. The respondent has sought a restraint order against the petitioner from transferring its shareholding in GGL without the petitioner's consent and without giving effect to Guardian's pre-emptory rights to purchase shares. Undoubtedly, such a right could be enforced only if the agreement is subsisting and binding upon the parties. There is also no arbitration clause in the Articles of Association of GGL. The same is available only in the shareholder's agreement. The respondent pursuant to the arbitration agreement contained therein, has made a request for arbitration before the London Court of International Arbitration (LCIA) wherein it has sought a declaration with respect to the validity of the termination of the agreement effected by it on 21st July, 2006 and release of its ob....