TaxTMI 
TaxTMI 
2021 (6) TMI 1112
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.... stated in Appeal 2. Appellant No. 1 is a Company incorporated under the laws of Singapore. Appellant No. 2 is a Company incorporated under the Companies Act 1956 and is the trustee of SBI Macquarie Infrastructure Trust. Appellant No. 1 and 2 are engaged in investing in the infrastructure sector and are equity shareholders of Respondent No. 6, Soham Renewable Energy India Private Ltd. holding 5000 equity shares each, and also 10,85,00,00 and 4,15,00,000 Lacs Compulsory Cumulative Convertible Preference Shares (from now on referred as 'CCPS'), respectively. Respondent No's 1 to 5 are the Promoters of the Respondent No. 6, 'Soham Renewable Energy India Pvt. Ltd' (SREIPL), had filed Company Petition (CP 77/B.B./2020) ("Promoters Petition") under Section 241 and 242 of the Companies Act, 2013 ("Act") against the Appellants herein, who happens to be Investor Shareholders in the Company. 3. During the pendency of the Company Petition, CP No. 77/B.B./2020 filed U/S 241 and 242 of the Companies Act 2013, IA. No. 445 of 2020 was filed by K. Sadanand Shetty and four others U/S 242 (4) of the Companies Act 2013 r/w Rule 11 and 32 of NCLT Rules, 2016, inter-alia seeking a....
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....are not contesting Respondents concerning the present Appeal. 7. Pursuant to the investment, the Appellants subscribed to CCPS and equity shares of Respondent No. 6 by Shareholders Agreement (1st SHA) and also the Share Subscription Agreement (1st SSA) dated 25th June 2011 disputed between the Appellants the Respondent No. 6. 8. Subsequently, by a share Subscription Agreement dated 18th October 2014 (2nd SSA), Appellants No. 1 and 2 subscribe to additional CCPS in order to satisfy additional capital requirements of Respondent No. 6. The 2nd SSA was later amended through a Deed of Amendment dated 13th February 2015. The same day, the 1st SHA was substituted and replaced with an amended and restated Shareholders Agreement executed by Appellant No. 1 and 2, Respondents No. 1 to 6 and Respondent No. 13. 9. Subsequently, the disputes arose in January February 2020. Respondents No. 1 to 5 misused the majority of the Board to usurp control of Respondent No. 6 without any consideration for the interests of Appellant's No. 1 and 2, rendering their rights insignificant, having made the largest investment in the Company. The actions of Respondent No. 1 to 5 were prejudicial to Appellan....
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....icant, despite them having made the most significant investment in the Company, Respondents acted in breach of the 'SHA' and the 'AOA' and call upon them to remedy the breach and honour the conversion notice. 16. The disputes have arisen between the parties in relation to the contractual obligation under the SHA, which could have been resolved under SHA. However, instead of participating in the dispute resolution process, Respondent's No. 1 to 5 started to escalate issues and evade the dispute resolution process by making technical objections. The Respondent's No. 1 to 5 stated that as issues between the parties were sub-judice before the NCLT, Arbitration could not be sought. Respondents No. 1 to 5 further objected to the letter dated 30th September 2020 on the pretext that the only receipt of a physical copy of letters would amount to compliance of the SHA, and mere emails will not suffice. 17. The Appellant contended that Respondent No. 1 to 5 failed to discharge their obligations under the drag notice along with the conversion notices. The Appellant further contends that the Arbitration had not yet been invoked, and the Appellants had only been engaged....
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.... opportunity of being heard before granting an injunction, adversely affecting the rights and in continuing the ex-party interim Order endlessly until the final disposal of appeals before this Tribunal against a wholly unconnected order and then further delaying the hearing on the Application till the final disposal of the main Petition before the NCLT itself. Such an order is grossly unjust given that the NCLT by such an order has stalled Arbitration proceedings conducted under the London Court of International Arbitration Rules. 21. The Learned Counsel for the Appellant further argued that the NCLT has failed to consider that Arbitration proceedings are time-bound in nature and have to be progressed expeditiously. The Learned NCLT has abdicated its responsibility by refusing to dispose of the Anti-arbitration Applications until the main Petition and, in the same breath, granting an injunction on the Arbitration proceedings without even hearing the Appellants. 22. The Appellant further contends that the NCLT passed the injunction in effect against another Tribunal, stopping such Tribunal from exercising jurisdiction. It derives from a specialised statute and has expressly been v....
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....Relief Act, 1963, even while exercising its inherent powers. Accordingly, by an Interlocutory Application, reliefs can not be granted beyond the statute in an attempt to stall proceedings under the statute. 27. Only an Arbitral Tribunal and no other "Court" can exercise powers under Section 16 of the Arbitration Act to rule on its competence of adjudicating the dispute when prima facie a valid Arbitration Agreement exists. 28. The Learned Counsel for the Appellant further submits that, under Section 5, read with Section 2(e) of the Arbitration and Conciliation Act, only a Court has the power to supervise or injunct the commencement and continuation of the Arbitral proceedings. When the statutory provision itself provides for a mechanism of supervision over the jurisdiction of an Arbitral Tribunal, the Application before the NCLT is not maintainable. 29. The Learned Counsel submits that the NCLT is not a "Court" for the 'Arbitration and Conciliation Act' purposes. It does not possess the power to restrain any party from proceeding with the Arbitration, which power is solely exercisable by a Court. As such, the Application is liable to be dismissed. 30. It is a settled po....
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....s exercised, i.e. only on 19th June 2020. However, the Investor Petition subject matter, i.e. CP No. 78/BB/2020, more specifically, even the Promoter Petition CP No. 77/BB/2020 does not cover the reliefs sought in the Anti-Arbitration Application. 35. The Learned Counsel for the Appellant further submits that they have already made a prayer to the effect of referring the matter to Arbitration in reply to the Promoters Petition. The Application preferred by Respondents No. 1 to 5 is a mere attempt to render the Appellants' rights infructuous. 36. The Learned Counsel for the Appellant further emphasised that the impugned orders are against the settled principles which govern Section 8 of the Arbitration and Conciliation Act. Therefore, the NCLT erred in holding that in the absence of either party filing an Application under Section 8 of the Arbitration and Conciliation Act, it would not be able to refer the matter to Arbitration. The NCLT further held that "parties cannot be permitted to initiate Arbitration". This is contrary to the settled principles of law, which mandates a judicial authority to refer the matter to Arbitration if a valid Arbitration Agreement existed between....
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....he jurisdiction to decide disputes pending final determination before the NCLT. 40. In any event, in the light of the decision of this Appellate Tribunal in CA (AT) No. 134 and 135 of 2020 ("earlier Appeals"), the impediments cited by the NCLT for final hearing IA for 445 no longer exists. In fact, in terms of the Order of the NCLT dated 5th February 2021, the Appellant's were at "liberty to make a mention" and seek a final hearing on the interim Application. Accordingly, until such final determination by the NCLT, the Appellant cannot effectively seek transfer of the adjudication of IA No. 445 of 2020 from the NCLT to this Hon'ble Appellate Tribunal, as sought for in the present Appeal. 41. The disputes in the Promoters Petition and the Appellant's Petition (including the claims raised in the Arbitration notice) are governed by special legislation (Companies Act, 2013), which provides for a special statutory remedy (Sections 241 and 242) and expressly bars the jurisdiction of Civil Courts (Section 430). In cases where the jurisdiction of Civil Court is barred by a special statute that creates a special Tribunal for such a dispute, such disputes are not arbitrable. 4....
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....f) The Respondent further relies on the decision of the Hon'ble Supreme Court in the case of Emmar MGF Land Ltd. v Aftab Singh, (2019) 12 SCC 751, wherein it is held that where specific statutory remedy has been provided and opted for, reference to Arbitration ought to be refused. 43. The Respondent contends that disputes relating to operation and mismanagement are not arbitrable given the law laid down by the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Corporation. It is contended that such Company disputes involved the exercise of wide-ranging powers by the NCLT, which would affect the rights of Shareholders and other Stakeholders in the Company. The judgement above recognises the in rem nature of an action for oppression and mismanagement. 44. The Respondent further emphasised the plea of waiver of the Arbitration Agreement and contends that the Appellants have filed the Petition (Investors Petition) while being fully aware that there is an Arbitration Agreement under the SHA and unequivocally submitted to the jurisdiction of NCLT for breach of SHA. The conduct of parties submitting to the Court's jurisdiction constitutes a waiver under Section 8 of the A....
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....upreme Court in ONGC v Western company of North America (1987) 1 SCC 496 wherein the decision of Hon'ble Supreme Court in case of Cotton Corporation of India v United Industrial Bank (1983) 4 SCC 625 is clarified. Hon'ble Supreme Court has held that Section 41 (b) of the Specific Relief Act creates a bore about the Court of coordinate or superior jurisdiction. That is why the Hon'ble High Court of Bombay, in the case of Bay Capital Advisors Private Limited v ILFS. Financial Services Ltd. held that the NCLT/NCLAT does not have the power to restrain a party from initiating proceedings U/S 9 of the Arbitration and Conciliation Act, 1996. It is indisputable that the judgement in the Bay capital case proceeded on the basis that the High Court is "neither subordinate to the NCLAT, nor subject to its superintendence". The power of the NCLT to grant an Anti-arbitration injunction has not been considered or determined in this case. The power of the NCLT to grant Anti-Arbitration Injunctions has been affirmed in various decisions. (PPN power v PPN (Mauritius). 50. Based on the pleadings of the parties following question arises for the determination of this Appeal; 1. Whether t....
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....(b) is not qualified by an adjective, and therefore, it could comprehend both interim and perpetual injunction. A temporary injunction is granted during the pendency of the proceeding so that while granting final relief, the Court is not faced with a situation that the relief becomes infructuous or that during the pendency of the proceeding, an unfair advantage is taken by the party in default or against whom the temporary injunction is sought. But the power to grant a temporary injunction was conferred in aid or as auxiliary to the final relief that may be granted. If the final relief cannot be granted in terms of prayer, temporary relief in the same terms can hardly be granted. 54. Hon'ble Supreme Court has further observed that the Court can, in appropriate cases, grant a temporary injunction in the exercise of its inherent power in cases not covered by Order 39 CPC. But inherent powers of the Court cannot be involved to nullify or stultify a statutory provision. Therefore, while exercising this inherent power, the Court should not overlook the statutory provision, such as Section 41(b), which indicates that an injunction to restrain initiation of proceeding in a Superior C....
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....l or void, inoperative or incapable or being performed. Even if we assume that Part I of the 1996 Act was to apply, then also, because of the provisions of Section 8, the judicial authority would be obliged to refer the parties to Arbitration. We may point out that Section 8 and, in particular, sub-section (1) thereof has been recently amended with retrospective effect from 23.10.2015 to read as under:- "8. Power to refer parties to Arbitration where there is an arbitration agreement.- (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or Order of the Supreme Court or any Court, refer the parties to Arbitration unless it finds that prima facie no valid arbitration agreement exists. xxxx xxxx xxxx xxxx xxxx" 61. Thus, there is now a mandate to refer the parties to Arbitration unless the Court finds that prima facie no valid arbitration agreement exists. This is clearly not ....
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.... 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 or incapable of being performed. Thus, even if, under Section 9 read with Section 20 CPC, the Bombay High Court had the jurisdiction to entertain the suit, once a request is made by one of the parties or any person claiming through or under him to refer the parties to Arbitration, the Bombay High Court was obliged to refer the parties to Arbitration unless it found that the agreement referred to in Section 44 of the Act was null and void, inoperative or incapable of being performed. In the present case, the Appellant may not have made an application to refer the parties to Arbitration, but Section 45 of the Act does not refer to any application as such. Instead, it refers to the request of one of the parties or any person claiming through or under him to refer the parties to Arbitration. In this case, the Appellant may not have made an application to refer the parties to Arbitration at Singapore but has ....
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.... void, inoperative, incapable of being performed. This includes instances where the parties waive Arbitration by failing to properly invoke the Arbitration Agreement, such as in the present case. The learned NCLT has the power to grant an Anti arbitration injunction under Section 242 of the Act read with Rule 11 of the NCLT Rules 2016. 59. Furthermore, the Appellant's have also wrongly submitted that the Arbitral Tribunal has the exclusive power to rule on its own jurisdiction. Such an argument is in stark contradiction of recent judgements wherein it was held that the question of arbitrability must be considered before the parties are referred to Arbitration and parties must not be referred to Arbitration if it is ex-facie evident (as in this case) that the underlying dispute is not arbitrable. It has also been held in clear, specifically in unambiguous terms, that intracompany disputes such as the present must be determined by a special forum (here, the NCLT) which has exclusive jurisdiction to efficaciously and fully dispose of the entire matter, and are therefore not arbitrable. 60. The Learned Counsel for the Respondents has also placed reliance on the judgement of Hon&#....
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....held that intracompany disputes are not arbitrable and are within the exclusive jurisdiction of a statutory tribunal which can effectively resolve all the disputes. 64. The Learned Counsel for the Respondents further submits that the Appellants have waived the Arbitration Agreement. In any event, the Appellant's, having submitted to the jurisdiction of the NCLT in the Promoters Petition of their own volition, have not filed any separate/standalone Applications under Section 8 of the Arbitration and Conciliation Act ("Arbitration Act") as is mandated by law. Moreover, the Appellants have also invoked the jurisdiction of the NCLT about the same disputes in the Investor Petition and have, therefore, waived of abandoned the Arbitration Agreement. The NCLT has exclusive jurisdiction to determine the issues intended to be referred to Arbitration. The Learned Counsel for the Respondent placed reliance on the following case laws: Hon'ble Supreme Court in case of Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 at page 59 has held that: "49. Exclusion of actions in rem from Arbitration, exposits the intrinsic limits of Arbitration as a private dispute resolution mechanism, ....
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....rce and economic, legislation in all forms, taxation, eminent domain and police powers which includes maintenance of law and Order, internal security, grant of pardon, etc. as distinguished from commercial activities, economic adventures and welfare activities. [Common Cause v. Union of India, (1999) 6 SCC 667: 1999 SCC (Cri) 119 and Agricultural Produce Market Committee v. Ashok Harikuni, (2000) 8 SCC 61.] Similarly, decisions and adjudicatory functions of the State that have public interest element like the legitimacy of marriage, citizenship, winding up of companies, grant of patents, etc. are non-arbitrable, unless the statute in relation to a regulatory or adjudicatory mechanism either expressly or by clear implication permits Arbitration. In these matters the State enjoys monopoly in dispute resolution. 51. Fourth principle of non-arbitrability is alluded to in the Order of reference [Vidya Drolia v. Durga Trading Corpn., (2019) 20 SCC 406] which makes specific reference to Vimal Kishor Shah [Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4 SCC (Civ) 303], which decision quotes from Dhulabhai [Dhulabhai v. State of MP, (1968) 3 SCR 662 : AIR 1969 SC 78],....
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....aw the parties are quintessentially barred from contracting out and waiving the adjudication by the designated Court or the specified public forum. There is no choice. The person who insists on the remedy must seek his remedy before the forum stated in the statute and before no other forum. *********** 55. Doctrine of election to select Arbitration as a dispute resolution mechanism by mutual agreement is available only if the law accepts existence of Arbitration as an alternative remedy and freedom to choose is available.***** When Arbitration cannot enforce and apply such rights or the award cannot be implemented and enforced in the manner as provided and mandated by law, the right of election to choose Arbitration in preference to the courts or public forum is either completely denied or could be curtailed. In essence, it is necessary to examine if the statute creates a special right or liability and provides for the determination of each right or liability by the specified Court or the public forum so constituted, and whether the remedies beyond the ordinary domain of the civil courts are prescribed. When the answer is affirmative, Arbitration in the absence of special reaso....
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....Cas 423] in support of this plea. In Cotton Corporation case [(1983) 4 SCC 625 : (1983) 3 SCR 962 : (1984) 55 Com Cas 423] the question before the Court was whether in the context of Section 41(b) of the Specific Relief Act, the Court was justified in granting the injunction. The said provision runs thus: "41. An injunction cannot be granted- (b) to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought;" (emphasis added) This provision, in our opinion, will be attracted only in a fact-situation where an injunction is sought to restrain a party from instituting or prosecuting any action in a court in India which is either of co ordinate jurisdiction or is higher to the Court from which the injunction is sought in the hierarchy of courts in India. There is nothing in Cotton Corporation case [(1983) 4 SCC 625 : (1983) 3 SCR 962 : (1984) 55 Com Cas 423] which supports the proposition that the High Court has no jurisdiction to grant an injunction or a restraint order in exercise of its inherent powers in a situation like the one in the present case. In fact this Court had granted such a restraint ....
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....onsensus amongst the covenanting nations in regard to the execution of foreign arbitral awards in the concerned nations. The necessity for such a consensus was presumably felt with the end in view to facilitate international trade and commerce by removing technical and legal bottlenecks which directly or indirectly impede the smooth flow of the river of international commerce. Since India has acceded to this Convention it would be reasonable to assume that India also subscribes to the philosophy and ideology of the New York Convention as regards the necessity for evolving a suitable formula to overcome this problem. The Court dealing with the matters arising out of arbitration agreements of the nature envisioned by the New York Convention must therefore adopt an approach informed by the spirit underlying the Convention. It is no doubt true that if the arbitral award is set aside by the Indian Court, no amount would be recoverable under the said award. That however does not mean that the liability to pay the undisputed amount which has already been incurred by ONGC disappears. It would not be fair on the Part of ONGC to withhold the amount which in any case is admittedly due and pay....
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....the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to Arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators. *** 15. The relevant language used in Section 8 is: 'in a matter which is the subject of an arbitration agreement'. The Court is required to refer the parties to Arbitration. Therefore, the suit should be in respect of "a matter" which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of Application of Section 8. The words "a matter" indicate that the entire subject-matter of the suit should be subject to arbitration agreement. " (emphasis in original) Discussion and Finding 65. By the impugned Orders Learned, NCLT directed the Appellants to maintain the status quo regarding the Arbitration proceedings, stalling th....
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....Arbitral Tribunal is Courts having jurisdiction over the seat of Arbitration under the Arbitration act and having supervisory authority over the Arbitral Tribunal. 69. The learned counsel for the Respondent has laid much emphasis on the point of Commonality of issues in the arbitration proceedings and the proceedings pending before the NCLT in the Promoters as well as in the Investors Petition. 70. The Promoter Respondents have submitted that there purportedly exists a Commonality of issues between the Arbitration proceedings and the Company Petitions being CP No. 77/BB/2020 (Promoters Petition) and the CP No. 78/BB/2020 (Investors Petition). 71. The Appellants have contended that Promoters Petition under Sections 241 and 242 of the Companies Act 2013 is a dressed-up petition wherein the Promoter Respondents have sought reliefs regarding matters that are contractual (in nature). Promoters petition does not purport to contend that the rights as Promoter Shareholders are being infringed or prejudiced. Further, the Promoters Petition does not deal with the affairs of the Company being prejudiced on account of the Appellant's conduct. The grievance is limited to allegations that....
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.... Promoter Respondents. The Appellant's legitimately exercised their rights under the Arbitration Agreement. 76. It is also important to point out that Promoter Respondent to expand the scope of their Petition in a mala fide manner by agitating this issue through an additional affidavit, which was duly countered by the Appellant's who reiterated their rights under the contract between the parties and therefore is not an issue covered in the Promoters Petition. 77. The Learned Counsel for the Respondent vehemently argued that there exists waiver of rights to Arbitration by the Appellants. Promoter Respondents have submitted that the Appellants have waived their right to arbitrate by allegedly submitting to the jurisdiction of the NCLT in the Promoters Petition and by invoking the jurisdiction of NCLT in the Investor Protection. 78. The Appellants have challenged the Promoters Petition's maintainability at the very 1st stage and have prayed that the disputes raised in this Petition be referred to Arbitration. A special submission to this effect has been made in the statement of objections, which is sufficient in compliance with Section 8 of the Arbitration and Conciliat....
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....a separate Application to this effect. 83. The Learned counsel for the Promoter Respondents relying on the judgement of Hon'ble Supreme Court in Vidya Dolia (supra) emphasised that Intracompany disputes are not arbitrable disputes. The Promoter Respondents contend that the present dispute is not arbitrable as it is an intracompany dispute. 84. In response to the argument advanced by the Learned Senior Counsel for the Respondent, the Learned Counsel for the Appellant placed reliance on the judgement of Hon'ble High Court of Delhi in the case of Himachal Sorang Power Private Limited v The NCC Infrastructure Holdings Ltd., wherein Parameters for grant of anti-arbitration injunctions has been laid down. Hon'ble High Court has held; "82. This is, especially so, as what HSPL and TAQA, in effect, seek in terms of relief, both in the interlocutory Application and the suit, is an anti-arbitration injunction. The Courts, ordinarily, have been very slow in granting injunctions whereby arbitration proceedings are brought to a standstill. The fundamental reason for this appears to be that the parties by entering into a contract would have necessarily agreed, as in this case, tha....
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....ower to disallow commencement of fresh proceedings on the ground of res judicata or constructive res judicata. 86. The Learned Counsel for the Appellant has further placed reliance on the judgement of the Hon'ble Supreme Court in the case of Cotton Corporation of India v United Industrial Bank Ltd., (1983) 4 SCC 625. In this case, Hon'ble Supreme Court has held that; "7. Part III of the Act bears the heading "Preventive Relief" and fasciculus of sections therein included provide for injunctions generally. Section 36 provides that preventive relief is granted at the discretion of the Court by injunction, temporary or perpetual. Section 37 specifies the nature and character of temporary and perpetual injunctions. Temporary injunctions are such as are to continue until a specified time, or until the further Order of the Court, and they may be granted at any stage of a suit, and are regulated by the Code of Civil Procedure, 1908. Permanent injunctions can only be granted by the decree made at the hearing and upon merits of the suit and thereby defendant in the suit is perpetually enjoined from assertion of a right or from commission of an act, which would be contrary to the ....
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....on cannot stay proceedings in a Court of superior jurisdiction, it could certainly by an injunction restrain a party before it from further prosecuting the proceeding in other courts may be superior or inferior in the hierarchy of courts. To some extent this approach not only effectively circumvented the provision contained in Section 56 of the repealed Act but denuded it of its content. The legislature took notice of this judicial interpretation and materially altered the language of the succeeding provision enacted in Section 41(b) replacing Section 56(b) of the repealed Act while enacting Specific Relief Act of 1963. The legislature manifestly expressed its mind by enacting Section 41(b) in such clear and unambiguous language that an injunction cannot be granted to restrain any person, the language takes care of injunction acting in personam, from instituting or prosecuting any proceeding in a court not subordinate to that from which injunction is sought. Section 41(b) denies to the Court the jurisdiction to grant an injunction restraining any person from instituting or prosecuting any proceeding in a court which is not subordinate to the Court from which the injunction is sough....
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....ary injunctions. If final relief cannot be granted, a temporary injunction cannot be availed of either under Section 151 in the exercise of inherent powers or under Order 39 of CPC. Hon'ble Supreme Court, in clear language, has said that a subordinate Court is precluded from granting an injunction restraining any person from instituting, prosecuting any proceeding in a court of coordinate or superior jurisdiction. Section 41 (b) has curtailed the power to grant an injunction in personam. Moreover, Section 41 (b) was enacted in order to avoid the inevitable multiplicity of proceedings. 91. Based on the above discussion, we find that the impugned Order granting an Anti Arbitration Injunction and further passing an order that Interim Application shall be decided along with Company Petition after disposal of the Company Appeals are arbitrary self-contradictory. The 1st of the impugned Order grants an interim order to understand that the matter would be finally heard on the next date. The Learned NCLT, however, on the next date, refuses to hear the Application and posts the applications to be heard after the disposal of the matter before the Appellate Tribunal in matters which are ....