TaxTMI 
TaxTMI 
2022 (2) TMI 444
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....limited liability partnership firm registered under the Limited Liability Partnership Act, 2008. Respondent no.1 (Patanjali Ayurveda Limited - hereafter 'PAL') is a closely held public company and holds 48.1% of the shares issued by respondent no.5 company. 3. Respondent no.2 (Patanjali Parivahan Private Limited - hereafter 'PPPL') is a private company and holds 16.9% shares of respondent no.5. Respondent nos. 3 and 4 (hereafter referred to as 'DYMT' and 'PGN' respectively) are Public Charitable Trusts. Respondent no.4 holds 13.52% shares of respondent no.5. 4. Respondent no.5 (Ruchi Soya Industries Limited - hereafter 'RSIL') is a public company. 5. The petitioner states that respondent nos. 1 to 4 are a part of one group (Patanjali Group) and are effectively controlled and managed by the same set of persons. 6. Respondent nos. 1 to 4 formed a Special Purpose Vehicle known as a Patanjali Consortium Adhigrahan Private Limited (hereafter also referred to 'the SPV'), which has since merged with RSIL. Factual Context 7. A petition under the Insolvency and Bankruptcy Code, 2016 (hereafter 'IBC') was admitted by the National Company Law Tribunal (hereafter 'NCLT') in r....
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....iting. The arbitrators shall also decide on the costs of the arbitration procedure. The Parties hereto shall submit to the arbitrators' award and award and the same shall been forceable in any competent court of law. (emphasis added) 15.4. The MOU shall be governed and construed solely in accordance with the laws of India and the Parties hereby submit to the exclusive jurisdiction of Court at Delhi." 12. Clause 15 of the MOU-II provides that all documents executed on 25.11.2019 would form a part of the said MOU. Ashav claims that by virtue of the said clause, the Arbitration Agreement under MOU-I stands incorporated in MOU-II, as well. Clause 15 of the MOU-II reads as under:- "15. Documents : The Parties agree to execute such other documents in addition to this MOU to reflect the above understanding and such documents including all other documents executed on 25th November 2019 shall form part of this MOU." 13. In the meantime, the SPV has merged with RSIL. Ashav claims that by virtue of the merger, all rights and obligations of the SPV are assumed by RSIL and therefore, RSIL is also bound by the Arbitration Agreement under Clause -15 of the MOU-I. 14....
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....y transaction to acquire equity. He submitted that under the MOU-II, the commercial understanding was for acquisition of equity, whereby the petitioner had agreed to acquire 11% equity of RSIL on an investment of Rs.110.47 crores. He submitted that it is inconceivable that the MOU-I and MOU-II could be implemented together as a singular transaction, as one was destructive of the other. 18. Mr Prasad referred to Section 7 of the A&C Act and submitted that in terms of Sub-section (5) of Section 7 of the A&C Act, a reference to a contract or a document containing an arbitration clause constitutes an arbitration agreement only if the reference is such as to make that arbitration clause a part of the contract. He submitted that the use of word 'such' clearly indicates that the clause seeking to incorporate an arbitration agreement contained in any other document must expressly indicate the intention to do so. He submitted that Clause 15 of the MOU-II does not express any such intention. He referred to the decision of the Supreme Court in Nathi Devi v. Radha Devi Gupta: (2005) 2 SCC 271 and on the strength of the said decision, contended that while interpreting a statute, effort shoul....
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....would be bound by the arbitration agreement and the same was not so in this case. He stated that DYMT and PGN are Charitable Trusts and therefore, cannot be considered as a part of a group under the Group of Companies doctrine as referred to by the Supreme Court in Chloro Controls India Private Ltd. v. Severn Trent Water Purification Inc. And Ors.: (2013) 1 SCC 641. In addition, he submitted that the two MOUs do not represent a composite commercial transaction but contemplate completely different commercial transactions. He also referred to the decision of M.R. Engineers & Contractors Private Ltd. v Som Datt Builders Ltd. (supra) and submitted that a mere reference to a document would not amount to incorporating an arbitration agreement. The only exception is where the referred document is a standard format of terms and conditions of trade associations or regulatory institutions, which publish such standard terms and conditions, for the benefit of members. 23. Mr Jayant Mehta, learned senior counsel appearing for RSIL, submitted that RSIL was not a party to either MOU-I or MOU-II. He contended that the notice invoking arbitration dated 01.09.2021 was vague, cryptic and defective....
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....U-I is connected with the MOU-II. According to Ashav, the MOU-II is an extension of the understanding between the parties as contemplated under the MOU-I. However, the respondents, dispute the same. According to them, the MOU-I and MOU-II are two separate and independent agreements, which are not interrelated. DYMT and PGN were not parties to the MOU-I. They claim that they are not signatories to the Arbitration Agreement and therefore, are not bound to refer the disputes to arbitration. 29. In the aforesaid context, one of the principal questions to be addressed is whether the MOU-I and MOU-II are connected. The respondents contend that since the MOU-I cannot be performed in addition to MOU-II, the said agreements must be interpreted to be completely different transactions and treated accordingly. The said contention is unpersuasive. It is not necessary that both the MOUs should be capable of performance simultaneously for being construed as being connected or interrelated. According to Ashav, the MOU-II is a progression of the MOU-I. 30. It is important to refer to the recitals of the MOU-I to understand the context in which Ashav, PAL, PPPL and the SPV had entered the said....
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....id to the Investor; E. The broad terms and conditions of the ICD, including, conversion or repayment (as the case may be) is set out herein below and to be more particularly set out in the definitive documents; F. For the purpose of this MoU, the Parties set out the key terms and conditions on which the Investor will initially extend ICD to the Holding Companies followed by conversion or and repayment thereof. 31. It is clear from the recitals of MOU-I that Ashav had agreed to make available certain funds as an Inter-Corporate Deposit, which would eventually be converted into securities of RSIL. Clause 1 of the MOU-I sets out that Ashav had agreed to make available a sum of Rs.40,00,00,000/- to PAL and a sum of Rs.15,25,00,000/- to PPPL. Thus, make available an aggregate sum of Rs.55,25,00,000/- (Rupees Fifty Five Crores Twenty Five Lakhs). It was expressly stated that the primary intent and objective for infusing the funds by Ashav was to acquire the equity shares of RSIL soon after the merger of the SPV with RSIL. Clause 1.3 of the MOU-I also mentions that the said investment would be "initially termed as ICD Amount". It was also agreed that in the event such....
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.... differential voting shares of PPPL, equity interest representing 6% of the paid up capital of RSIL. 34. In connection with implementing the MOU-I, various other agreements were also entered into by certain parties. These include (i) Inter-Corporate Deposit and Pledge Agreement between Ashav and PAL (hereafter 'the ICD Agreement - I'), wherein Ashav had agreed to lend a sum of Rs.40,00,00,000/- to PAL; and (ii) Inter-Corporate Deposit and Pledge Agreement between Ashav and PPPL (hereafter the 'ICD Agreement - II'), wherein Ashav had agreed to lend a sum of Rs.15,25,00,000/- to PPPL (These agreements are hereafter collectively referred to as the 'ICD Agreements'). 35. In terms of the ICD Agreements, Ashav had agreed to transfer the respective loan amount once a demand to extend the same under the said agreement was raised. Recital (B), which is common in the ICD Agreements, is reproduced hereinbelow: "(B) The Lender shall, on demand from the Borrower, either deliver a demand draft of the Loan Amount drawn in favour of the Borrower or wire transfer the Loan Amount to the bank account specified by the Borrower;" 36. Ashav states that on 25.11.2019, PAL and PPPL, issu....
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.... Investor Rs. 110,47,50,000/- 3. Stages and Time Period of Investment : The Investor [Ashav] shall arrange to make the Total Investment of Rs. 110,47,50,000/- in two stages (a) Stage 1 - 50% amounting to Rs. 55,23,75,000/- at the time when the Principal Shareholders make payment to the lenders [ Rs. 12,28,50,000/- for 6% Equity Stake; Rs. 21,47,62,500 towards NCD's portion and Rs. 21,47,62,500 towards Preference Shares - Debt portion of the Investor]. The Free equity shall be allotted in the Stage 1 itself, against payment of 50% amount of the total Investment. This payment shall be against allotment of 6% Equity Shares (in unpledged form) of the Company by way of fresh issuance of shares by the Company (b) Stage 2 - Balance payment of 50% amounting to Rs. 55,23,75,000/- towards Issuance of 5% warrants convertible in Equity Shares as below: Date Amounts Remarks 12.12.2019 Rs. 2,55,00,000/- 25% Warrant Amount - equity portion first make payment to PAL and on repayment on 29.01.2020 make payment to the Company (stage 2) Within 10 months of warrant offer letter Rs. 7,68,75,000/- 75% Warrant Amount equity portion payable directly....
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....ated further investment to acquire additional 5% equity interest in RSIL at the second stage. 43. It is apparent from the above that the MOU-I and MOU-II are not unconnected. In terms of MOU-I, Ashav had agreed to make an investment to be utilized for acquiring the shares of RSIL. MOU is a more definitive as it also specifies the value at which the shares of RSIL would be Ashav. The contention that the MOU-I contemplates a loan transaction and the MOU-II contemplates a transaction for acquisition of shares is, prima facie, unmerited. It is apparent from the recitals of the MOU-I that Ashav had agreed to make an investment, which would be initially by way of an ICD, but the purpose and object of the investment was to acquire shares of RSIL. The amount was to be returned in twelve months, if the transaction did not fructify. 44. Undeniably, the disputes between the parties also arise in connection with the MOU-II and is not limited to the MOU-I. In this regard one of the principal question to be addressed is whether the Arbitration Agreement as contained in Clause 15 of the MOU-I, is incorporated in the MOU-II. As stated above, both the MOUs are connected and cannot be treated ....
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....transaction between the parties was required to be performed in terms of the MOU-II. According to Ashav, the MOU-II was a further evolution of the transaction with the same purpose and object, that is, to acquire certain equity interest in RSIL. 49. In any view of the matter, the connection between the MOU-I and MOU-II cannot be disputed. Even according to the respondents, the documents/agreements executed on 25.11.2019 that were in aid of the transaction under the MOU-I were incorporated as part of the MOUII. By virtue of Doctrine of Severability, an arbitration agreement even though it is embodied as a clause in an agreement is required to be considered as severable and independent of that agreement. The Arbitration Agreement was also executed on 25.11.2019 as a part of the MOU-I. Once the parties had agreed to incorporate all other documents executed on 25.11.2019 in the MOU-II, it is difficult to accept that the parties had consciously excluded the Arbitration Agreement executed on that date and their intention was only to incorporate other documents/agreements executed on 25.11.2019 and not the Arbitration Agreement. 50. The learned counsel for the respondents had also m....
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.... to carry-forward the transaction as initially agreed under the MOU-I in the manner as specified in the MOU-II and with an enhanced investment value. Therefore, the agreement appears to be to carry forward the transaction as agreed under the MOU-I except to the extent modified by the MOU-II. 53. Mr. Dewan has contended that DYMT and PGN are non-signatories to the Arbitration Agreement as they were not signatories to the MOU-I. He further submitted that they were not companies and therefore, could not be compelled to arbitrate under the Group of Companies doctrine. He also contended that the Group of Companies doctrine would apply only if there was a composite transaction. However, in the present case, the MOU-I is not required to be performed as the entire transaction had been re-negotiated and only the MOU-II was required to be performed. 54. This Court is not persuaded to accept that the Group of Companies doctrine under which a non-signatory may be compelled to arbitrate is limited only to incorporated entities. The doctrine would also apply to a cohesive group, which is acting for a common purpose. 55. In Chloro Controls India Private Ltd. v. Severn Trent Water Purific....
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.... referred to as 'P Group'. It is recorded that 'P Group' had agreed to acquire majority of the equity shares representing not less than 98.87% of the equity share capital and control of RSIL. Undisputedly, the respondents have acquired shares of RSIL on the merger of the SPV with RSIL. It is apparent that the respondents are part of the consortium referred to as 'P Group' in Recital 'A' of the MOU-I. 59. Undisputedly, the 'P Group' had proposed the Resolution Plan for RSIL and had also promoted the SPV for the said purpose. The recitals of MOU-I do indicate that PAL, PPPL and the SPV had entered into MOU-I with Ashav with a common object of financing the Corporate Resolution of RSIL. Recital 'C' of the MOU-I also expressly states that PAL and PPPL (the Holding Companies) had approached Ashav to make an investment to enable them "together with other companies of 'P Group' to invest in the Target Company [RSIL] and to implement the NCLT Resolution Plan". It is, thus, clear that Ashav had agreed to provide the investment for a common objective of PAL, PPPL, DYMT and PGN. It also appears that PAL, PPPL and the SPV were acting for a consortium referred to as 'P Group' in entering int....
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....tral Tribunal to decide. Paragraph 76 of the reply filed by the respondents to Ashav's application under Section 9 of the A&C Act [O.M.P.(I)(COMM.) No.259/2021] is relevant and reads as under: "76. Further, as there is a genuine controversy on the very existence of the arbitration agreement which is required to be gone into at length, it is fitting for the said issue to be determined by the arbitral tribunal with the benefit of substantial pleadings on the issue, and any relief sought can be granted under Section 17 of the Act." 65. There is merit in the aforesaid contention and the respondents cannot be permitted to resile from their stand in the reply to Ashav's petition under Section 9 of the A&C Act. 66. The Court will decline appointment of an arbitrator if it finally concludes that an arbitration agreement does not exist. However, the Court needs only to be prima facie satisfied as to the existence of an arbitration agreement for the arbitrator to be appointed. In this context, it is relevant to refer Paragraphs 32 and 33 of the Law Commission's 246th Report. The same are set out below: "32. In relation to the nature of intervention, the exposition of ....