TaxTMI 
TaxTMI 
2014 (6) TMI 1046
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....1 of 2013, the Respondent Nos. 1 and 2/Applicants have prayed to pass an order thereby referring the disputes between the Parties to the Arbitration in terms of the Arbitration clause as contained in the Articles of Association of the Respondent No. 1 Company and Shareholders Agreement dated 21/12/2011. The Respondents/Applicants have further prayed to dismiss the petition on the grounds stated therein. 3. In C.A. No. 113 of 2014, the Petitioners/Applicants have sought for the following orders:- a. To pass an order thereby appointing the professional management organization, such as Alvarez & Marsal to manage the affairs of the Company at earliest." b. To pass an order thereby directing the Promoter Group immediately cease to participate in the management and day to day operations of the Company, including but not limited to in respect of managing the bank accounts of the Company, and participating in discussions with customers/vendors of the Company. c. To pass an order thereby directing the Company and the Promoter Group to schedule and attend a meeting between BSR and Deloitte, no later than three days from the date of this application. d. ....
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.... to refer few facts leading to filing the above applications here asunder. It is to be noted that for the purpose of easy comprehension, the parties are referred to as per their ranking in the Company Petition hereinafter:- 5.1 The Petitioners have filed the Company Petition being C.P. No. 103 of 2013 by invoking the provisions contained in Section 397 and 398 read with Sections 402 and 403 of the Companies Act, 1956 complaining certain acts of oppression and mismanagement purportedly committed by the Respondent Nos. 2 to 7 in the affairs of Respondent No. 1 Company. They sought various reliefs as well as interim reliefs as contained in the petition. 5.2 Pursuant to the notice, the Respondents appeared and filed a Company Application being C.A. No. 271 of 2013 under Section 45 of the Arbitration Act, for reference of the dispute and differences between the Parties to Arbitration in terms of Articles of Association and/or the Shareholders Agreement dated 21/12/2011. 5.3 The Ld. Sr. Counsel appearing for the Petitioners vehemently opposed the aforesaid application. Further, stating the grounds for urgent hearing the Ld. Sr. Counsel pressed for grant of ad-i....
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....f this order. We do not express any opinion on the merits of the case and it will be open to the Board to consider all submissions which might be made before it. In view of the above, the impugned order passed by the High Court would not survive and is, therefore, quashed and set aside. With the aforesaid observations and directions, the Civil Appeal is disposed of with no order as to the costs. It is made clear that Section 45 application filed by the Respondents shall be decided after the above Company Application is decided by the CLB. As requested, reply will be filed by the Respondents before the Board within 10 days from the date of receipt of this order and rejoinder, if any, will be filed within three days thereafter. 5.6 Pursuant to the order passed by the Hon'ble Supreme Court, the C.P. came up for hearing on 17/12/2013 on which date, by consent of the Parties, the following ad-interim orders were passed. i. That Respondent No. 1 shall not raise any new debt or issue any guarantees without the consent of the Petitioners. ii. That the Respondents shall not alienate, encumber or dispose of any of th....
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....ection with the implementation of this order and shall ensure that all employees and agents do co-operate and are directed to co-operate in the effective implementation of this order. xi. It shall be open to the Petitioners to hand over and make available to the auditors all the documents, data and informations specified in the clause No. (v) in connection with the exercise in terms of clause (v) above. xii. The Chairman of the committee shall decide on or before December 29, 2013 whether the data, documents and informations in regard to the Company in the possession of the E & Y is required to be made available to the auditors as specified in Clause (v) above, and if so, to pass appropriate directions in that regard. xiii. The auditors appointed under Clause (v) above shall submit an interim report to the Company Law Board, on or before January 4, 2014, with a copy to the Petitioners and Respondent No. 1. xiv. The auditor appointed under Clause (v) above shall submit a final report to the Company Law Board on or before January 31, 2014, with a copy to the Petitioners and Respondent No. 1. The auditor shall also make further interim reports, if r....
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....for the respective Parties in a better way, I deem it fit to reproduce the relevant provisions of law, relevant clauses of SHA and Articles of Association of the Company. 8. At the outset, I would like to reproduce the provision contained in Section 45 of the Indian Arbitration Act, here as under:- Section 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 made 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 Parties to arbitration, unless it finds that the said agreement is null and void, inoperative and incapable of being performed." Section 45 contemplates that a judicial authority must refer the Parties to arbitration provided the following requirements are fulfilled. a. A judicial authority is seized of an action in the matter of which the parties have made an agreement for arbitration. b. One of the Parties to the Agreement makes a req....
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....pute unless the arbitrators direct otherwise; The Parties shall cooperate in good faith to expedite, to the maximum extent practicable, the conduct of any arbitral proceedings commenced pursuant to this clause, and (vi) The existence of a dispute between any of the Parties, or the commencement or continuation of arbitration proceeding shall not, in any manner, prevent or postpone the performance of those obligations of Parties under the Shareholders Agreement which are not in dispute. c. Nothing shall preclude a party from seeking interim equitable or injunctive reliefs, or both, from any court having jurisdiction to grant the same. The pursuit of equitable or injunctive reliefs shall not be a waiver of the duty of the Parties to pursue any remedy for Losses through the arbitration described in this Clause 32.5. d. The Parties hereby agree and acknowledge that Part I (except Section 9) of the Arbitration and Conciliation Act, 1996 shall not apply and no Party to any dispute shall claim the application of Part I (except Section 9) of the Arbitration and conciliation Act, 1996. 10. It is further evident from perusal of the AOA of the Company tha....
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..... & Ors. [1994] 2 SCC 155, [8] Olive Healthcare V/s. Lannett Company Inc. & Anr. [2012] 3 Bom.C.R. 36 etc. the CLB cannot decline to make reference of disputes covered by the arbitration Agreement unless it comes to the conclusion that the Arbitration agreement is null and void, inoperative or capable of being performed. 15. Taking me through the relevant part of the decision in the case of world Sports Group (Supra), wherein the Hon'ble Apex Court has defined the scope of the words used "capable of being performed", Mr. Seervai submitted that in the case in hand, the arbitration agreement does not fall in any of the categories stated therein and therefore, the CLB has no option but to relegate the parties to settle their dispute through the mechanism of the Arbitration as contemplated in the SHA and AOA of the Company. 16. Elaborating on the reasoning of the aforesaid conclusion, Mr. Seervai submitted that the art of drafting of any petition containing the averments and reliefs, in such a manner which may indicate that the disputes raised in the petition and reliefs sought for therein are incapable of being arbitrable, cannot be a reason to defeat the right of the Partie....
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.... to make out a case for reference to arbitration in Arbitration Clause, as per the ratio laid down in the said decision, the court will have to further adjudicate any plea taken by a Non-Applicant that the arbitration agreement is null and void, inoperative or incapable of being performed. According to him, all these elements are independent of each other. He, therefore, submits that the said aspect as to whether the dispute is arbitrable in fact is an additional issue that requires consideration separately and independently. According to him, this issue did not come into their Lordships consideration in the case of World Sports Group (Supra) and therefore, the said decision is distinguishable from the case of Chloro Control (Supra). He added that the principle as laid down in the case of Chloro Control (Supra) supports his contention that for reference to Arbitration, the finding as to whether the disputes are arbitrable is a pre-condition. He further pointed out that the decision in the case of Chloro Control (Supra) was delivered by three judges namely Hon'ble Mr. Justice S.H. Kapadia, C.J. Mr. Justice A.K. Patnaik and Mr. Justice Swatanter Kumar, whereas the decision in the....
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.... However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression 'incapable of being performed' appears to refer to more practical aspects of the prospective arbitration 'proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal." 27. Albert jan Van Den Berg in an article titled "The New York Convention, 1958 - An Overview" published in the website of [www.arbitration-icca.org/media/0/12125884227980/new_york_convention_of-1958_overview.pdf], referring to Article II(3) of the New York Convention, states: "The words "null and void" may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence. The word "inoperative" can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties. ....
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....tions of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which cannot be inquired into by the Court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers & Ors. (supra) and Abdul Kadir Shamsuddin Bubere V/s. Madhav Prabhakar Oak (supra) were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention" to which Section 45 of the Act applies. In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the fraud or misrepresentation have to be inquired into while deciding the disputes between the Parties. b. In the case of Chloro Controls India Pvt. Ltd. V/s. Severn Trent Water Purification Inc. & Ors. [2013] 1 SCC 641, the Hon'ble Apex Court has held as under: 61. The language of Section 45 read with Sched....
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....ourt? 6. Is this dispute arbitrable? According to this Guide, if these questions are answered in the affirmative, then the parties must be referred to arbitration. Of course, in addition to the above, the court will have to adjudicate any plea, if taken by a non- applicant that the arbitration agreement is null and void, inoperative or incapable of being performed. In these three situations, if the court answers such plea in favour of the non-applicant, the question of making a reference to arbitration would not arise and that would put the matter at rest. 64........ 65........... 66....... 67.............. 68............... 69. We have already noticed that the language of Section 45 is at a substantial variance to the language of Section 8 in this regard. In section 45 the expression "any person" clearly refers to the legislative intent of enlarging the scope of the words beyond "the parties" who are signatory to the arbitration agreement. Of course, such applicant should claim through or under the signatory party. Once this link is established, then the court shall refer them to arbitration. The use of word "....
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....imited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the "group of companies doctrine". This doctrine has developed in the international context, whereby a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.) 72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, "intention of the parties" is very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties. ....
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....egard to this argument, no doubt the Company Law Board has vast powers under section 402 of the Act, yet, granting of relief depends on the facts of a particular case and if for granting the relief, determination of bona fide disputes is required and the same is covered by an arbitration agreement, then, it is for the arbitrator to decide these issues and not the Company Law Board. In this connection we may also refer to the Delhi High Court judgment in Gurnir Singh Gill's case [1987] 62 Comp Cas 197. In this case, the court itself, as pointed out by Shri Chagla, in exercise of the powers under section 402, referred the parties to arbitration. It did so because, in the facts of that case, it felt that the reliefs justified in that case could be granted by the arbitrator notwithstanding the fact that the powers under section 402 are very wide. This case settles the claim of Shri Chagla that since an arbitrator cannot grant the relief provided for under section 402, the matter cannot be referred to arbitration. Granting of relief in proceedings under section 397/398 is discretionary depending on the facts of a case. If the Company Law Board comes to a conclusion that appropriate ....
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....rom examination of six questions framed above, the court is also required to examine other three essential elements as to whether the agreement is null and void, inoperative or incapable of being performed, if the agreement is challenged on the said grounds by the Non-Applicants. In other words, all the elements are required to be considered independently while determining an Application under section 45 of the Arbitration Act. 24. It is true that in the case of World Sports Group (Supra), their Lordships have referred the decision of "Chloro Controls". However, upon close scrutiny of the said judgment of World Sports Group (Supra), it appears that the said issue as to whether the dispute is arbitrable was not raised before their Lordship. Therefore, it cannot be presumed that the ratio laid down in the case of Chloro Control India (Supra) is no more good law. 25. Furthermore, I have also examined the facts of the case of World Sports Group (Supra). Upon perusal, it is noted that a petition under Section 9 of the Arbitration Act against the BCCI came to be filed before the Hon'ble High Court of Bombay praying for permanent injunction against the BCCI from acting on the te....
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....t, signed by the Parties or contained in an exchange of letters or telegrams. 3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall at the request of one of the parties, refer the parties, to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. 29. In addition to above, from reading of the decisions in the case of Escorts Finance Ltd. (Supra) and Bhadresh Kanitlal Shah (Supra), it may be noted that in the said decisions also, it has been observed that in case the CLB comes to a conclusion that appropriate reliefs sought for in a particular case, can be granted by the Arbitrator, only then the matter can be referred to an Arbitrator. In other words, if the CLB comes to the conclusion that appropriate reliefs cannot be granted by the Arbitrator, then the matter cannot be referred to an Arbitrator. 30. I further find sufficient force in the submission of Mr. Janak Dwarkadas, that the CLB has been conferred with wide powers which an arbitrator does not enjoy under the Arbitration Act. In the ca....
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....he Petitioners' other contention that the Parties to the agreement and the parties to the petition are not common and therefore, due to non-commonalities of the parties, the application under Section 45 of the Arbitration Act is liable to be dismissed is concerned, I am of the view that the said contention is devoid of merits. It is evident from the perusal of the petition that the parties to the instant petition and the parties who are not parties to the agreement are in fact claiming through the Respondents which are parties to the Agreement. Therefore, keeping in view the law laid down in Chloro Controls (Supra) in para No. 63, I have come to the conclusion that the said objection is not tenable and liable to be rejected. It is rejected accordingly. 34. Referring the clause 30 of the SHA read with Article 149 of AOA of the Company, it was argued on behalf of the Petitioners that the Petitioners have option to approach for reliefs of injunction order etc. and therefore, the petitioner cannot be compelled to take recourse to arbitration. 35. Having considered the submission, I find no merits in this submission. Keeping in view of the law referred to and relied upon by th....
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....auditors; that E & Y to indicate the source of each item of data, information and documents i.e. whether the data, information and documents were secured directly from the Respondent No. 1 Company or its bankers or statutory auditors. Further, E & Y was also directed to hand over such proof in this regard as was available with them to Deloitte; that Deloitte was to provide copies of the data, information and documents to the Petitioners as well as Respondent No. 1 Company to enable them to give their comments thereon; that M/s. Deloitte would consider the comments of the Petitioners as well as Respondent No. 1 Company while preparing the report. 41. It was further submitted on behalf of the Respondents that in pursuance of the order dated 23/01/2014, E & Y sought to submit to Deloitte, data, information and documents vide their letters dated 13/02/2014, 17/02/2014 and 18/02/2014. The Respondents did not object to forward the data, information and documents to Deloitte to the extent that the same was secured by E & Y from the Respondent No. 1 or its bankers and/or statutory auditors. However, refused to accept the data, information and documents forwarded to Deloitte under cover ....
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...." According to the Ld. Sr. Counsel, inspite of such a strong disclaimer, Deloitte did not bother to get the data on which the reliance has been placed by Deloitte for the purpose of preparing the Interim Report authenticated by the Respondent No. 1 Company as was advised by the said Order of the Chairman of the Committee. According to him, a perusal of the Interim Report gives an impression that the E & Y data does not match with the 'Tally' data that would have been made available to M/s. BSR. However, Deloitte preferred not to revert to the Respondent No. 1 Company to have the authenticity of the data verified, but preferred hastily to submit the Interim Report. It was therefore argued that, the Interim Report is based on unauthentic and unreliable data and also refers suspected documents that were neither provided by the Respondent No. 1 Company to either E & Y or to Deloitte nor were gathered by E & Y either from the Bankers or the Statutory Auditors of the Respondent No. 1 Company. It was therefore argued that the Interim Report being substantially based on the data not authenticated by the Respondent No. 1 Company, is non-est and null and void ab-initio and ought to b....
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....xecutive of the Company to Deloitte personnel, but the Deloitte preferred to ignore the modified financial figures and submitted the Interim Report, in haste. 47. According to the Ld. Sr. Counsel, there is absolutely no erosion in the net worth of the Company and the asset base of the company is fully intact and protected. It was therefore contented that the conclusions drawn by Deloitte are incorrect and are based on incorrect data and information. He further pointed out that the Respondent No. 1 Company has obtained an independent report with detailed comments on the Interim Report from a qualified chartered accountant, which supports the version put forth by the Respondents. 48. On the basis of the above, the Ld. Counsel for the Respondents have sought to set aside the report. 49. On the other side, Mr. Janak Dwarkadas Ld. Sr. Counsel appearing for the Petitioner narrated chain of events that have happened right from 17/12/2013 upto 14/04/2014 to demonstrate that the Deloitte attempted to serve the documents upon the Company on multiple occasions in accordance with the Committee's order. However, the Company not only refused to accept the documents but also failed t....
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....m also not inclined to accept the contentions of the Respondents that since no physical verification regarding the alleged variation in the assets of the Company was made, the report is liable to be ignored on this ground. In the absence of full cooperation from the side of the Respondents, it was not possible for the Deloitte to physically verify the assets of the Company. I am therefore not convinced with the contentions of the Ld. Sr. Counsel that the interim report deservers to be set aside. Based on the above, I do not find any merits in the application. Prayers made in this application are thus declined. 53. Now, I proceed to consider the issue as to whether the Petitioners are entitled to further interim reliefs as contained in the C.A. No. 113 of 2014 and if so to what extent. While considering the said application, I will also deal and discuss as to whether the allegations made by the Petitioners against the respondents and the reliefs as sought for against them are of such nature which are capable of being adjudicated by an arbitrator, in case such disputes are referred to such Arbitrator in terms of Clause 32.5 of the SHA. 54. It is a settled proposition of law tha....
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....tified in connection with balance confirmation circularized received from certain vendors. The closing balances per the confirmations received by BSR directly from certain vendors were different from the balances per the records of the Company. c. Confirmations from other parties. There were nine customers/vendors of the Company from which BSR was unable to obtain balance confirmations, due to various reasons like the addresses being provided for the said entities by the Company being incorrect etc. d. Fixed Assets. The Unique Identification Number (UIN) of 240 containers claimed to have been purchased during the year were identical to the UIN of containers that were already appearing in the FAR of the Company for the year ended 31/03/2012. Further, when BSR reviewed the documents submitted by the Company to the Registrar of Companies in respect of hypothecation of its assets, it was evident that 39 containers that had been hypothecated to DBS Bank and 6 containers that had been hypothecated to Yes Bank did not appear in the FAR for the year ended 31/03/2013. e. Bank Confirmations. The bank confirmations received by BSR directly from Axis Bank (as at 31/0....
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....rd remittance to CXIC group ("CXIC"). Further the Company has not provided to Deloitte any documents that either confirm receipt of container or onward remittance of the said amount by SREI to CXIC. No information has been provided or the receipts of balance payment of INR 46 crores. 61. He further pointed out that the payment of INR 1.5 crores had been made to Jeevan Impex for onward remittance for the purchase of containers. The Company has not provided supporting receipts of this amount by CXIC and therefore, Deloitte has reserved its comments on the genuineness of the said transaction. Deloitte has also not been provided with any information evidencing receipt of the containers in lieu of the above payment. 62. It is next contended due to the aforesaid inconsistencies in the fixed assets data of the Company, Deloitte has requested the company to provide all invoices for the procurement of containers during the financial year 2012-2013 along with the supporting documents viz. Bill of Entry, Bill of Lading etc. However, since Deloitte has not received the aforesaid documents in entirely, Deloitte has not commented on the BSR query related to the discrepancies in the fixed a....
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....or the Respondents that the alleged variations in the Fixed Assets is absolutely incorrect. According to him, ICICI Bank who has physically verified the containers, has certified that there is no variation as contended by the Petitioners. According to him, on the other side, neither the statutory auditors nor Deloitte have physically verified the containers therefore their allegations in respect of discrepancies of the Fixed assets does not stand prima facie proved. 68. With respect to the variations in figures in the statement of Bank's accounts, it was submitted by Mr. Seervai that there were certain clerical errors in the statement of account which after having been noticed, have been corrected and it cannot be said that there is any misstatement in the statement of accounts maintained by the Company. In the course of arguments, Mr. Seervai has refuted all other allegations levelled by the Petitioners upon the Respondents. 69. Firstly, adverting to the question as to arbitrability of the disputes, having regard to the facts mentioned above, in order to determine as to whether the disputes are arbitrable in a petition for oppression and mismanagement in the affairs of t....
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....e conclusion that looking into the nature of the disputes raised in the petition and the reliefs sought for are not capable of being arbitrated by an Arbitrator nor as an Arbitrator empowered to grant such reliefs which the CLB enjoys by virtue of Section 402 of the Act. 71. Further, I am not impressed with the arguments advanced by the Ld. Counsel appearing for the Respondents that the process for adjudication of commercial disputes in a judicial forum is cumbersome, complicated and time consuming as against the arbitration proceedings. It is well known that the proceedings before the CLB in a petition u/s. 397/398 of the Act are summary in nature. The cases are decided on the basis of the affidavits and the documents filed by the parties in support of their respective cases. In my view, the petitions under section 397/398 of the Act are decided more expeditiously as compared to arbitration proceedings which also involves huge litigation expenses. Be that as it may, this by itself cannot be a ground for referring the disputes to arbitration. 72. Now, coming to the prayers for grant of further interim reliefs, I have given my anxious thoughts to the rival contentions. I am no....
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....d by various courts, in my opinion, granting of such reliefs would amount to granting of final prayers at the interim stage which is impermissible under law. I, therefore, keeping in mind the paramount interest of the Company and balancing the equities between the parties, allow the prayers for further interim reliefs in the following manner: a. The Respondent No. 1 shall not raise any new debt or issue any guarantee(s) without prior approval of this Board. b. The Respondent No. 1 Company shall not alienate, encumber, or dispose off any of its movable and/or immovable assets, save and except it is required in the usual course of business and with prior information to the Petitioners and this Bench. c. The Respondent Nos. 2 to 8 shall not open any new bank account in the name of Respondent No. 1 Company except with the ICICI Bank without prior approval of the Bench. The Respondents shall furnish the statement of Bank accounts of the Company on fortnightly basis to the Petitioners. Further, if any account is being maintained by the Company in other Banks, the same shall be disclosed by the Respondents to the Petitioners immediately. d. The Responde....
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.... at liberty to mention the C.P. by moving appropriate application in case they feel aggrieved by a decision taken in such meeting. It is made clear that the said Observer shall be entitled to observe the proceedings and will not be entitled to interfere in the proceeding of such meeting(s). i. The directions made above shall remain in force until the final decisions of the C.P. j. C.A. Nos. 271 of 2013 and C.A. No. 114 of 2014 are dismissed. C.A. No. 113 of 2014 stand disposed off in the above terms. k. Let copy of order be circulated to all the Parties. C.P. No. 103 of 2013 76. Pleadings are complete, C.P. is directed to be listed on August 27, 2014 at 10.30 a.m. for final hearing. Detailed order pronounced on a separate sheet. Operative order is as follows:- Order a. The Respondent No. 1 shall not raise any new debt or issue any guarantee(s) without prior approval of this Board. b. The Respondent No. 1 Company shall not alienate, encumber, or dispose off any of its movable and/or immovable assets, save and except it is required in the usual course of business and with prior information to the Petitioners and this Bench. ....