TaxTMI 
TaxTMI 
2021 (6) TMI 1112
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....or the sake of convenience. Brief facts as 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....
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....sent Appeal as they are parties to the 'Promoter Petition' but 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 t....
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....consideration for the interests of Appellant No. 1 and 2, rendering their rights insignificant, 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 con....
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....l to the Appellants. The impugned Order has been passed in grass violation of the principles of natural justice. The Appellants have not given an 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....
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....t are expressly stipulated which is not the case in the present matter. However, the NCLT cannot grant reliefs that supersede the provisions of the Specific 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 pa....
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.... a new cause of action and warranting initiation of separate proceedings. The cause of action based on Drag along right and conversion right accrued when conversion right was 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 Arbitra....
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.... this Hon'ble Tribunal may only pass orders "confirming, modifying or setting aside the order appealed against". Thus, the present Appeal is not maintainable as it seeks to invoke the 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....
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.... Supreme Court decision in Shashi Prakash Khemka v NEPC Micon, (2019) 18 SCC 569 wherein Hon'ble Supreme Court has held that the civil remedies barred in relation to the disputes proposed to be referred to Arbitration. (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 th....
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....ry, the statutory Tribunal ought to be considered as endowed with such incidental or ancillary powers for discharging its functions effectively. 49. The Learned Counsel for the Respondent further placed reliance on the decision of Hon'ble Supreme 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 ....
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....ny 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 to avoid the inevitable multiplicity of proceedings. The expression "injunction" in Section 41 (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....
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.... all have been granted in the facts and circumstances of the present case. We have already explained as to how, if the arbitration agreement was taken to be one which was covered under Section 44 of the 1996 Act, the arbitration proceedings could not be injuncted because the same was neither null 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 ....
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.... the laws and judicial decisions of another State or jurisdiction, not as a matter of obligation but out of deference and mutual respect. ******* 25. The language of Section 45 of the Act quoted above makes it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, 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 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 app....
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....n Act, as the IA No. 445 of 2020 does not involve the jurisdiction of the Court in terms of Arbitration Act. The power to grant an Anti arbitration injunction arises from inherent powers of the Court/Tribunal to prevent abuse of the process of law. Such injunction can be granted inter alia by the party seeking an injunction, demonstrating that the Arbitration Agreement is null and 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 ....
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....with Section 430 of the Companies Act 2013, the Learned Tribunal has exclusive jurisdiction to deal with the affairs of the Company, including the subject matter of the Promoters Petition and the Arbitration proposed to be initiated by the Appellants. It is also pertinent to note that recently, a three-judge Bench of the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Company has 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 determin....
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....as the exclusive right and duty to perform such functions. **For example, it is generally accepted that monopoly rights can only be granted by the State. Correctness and validity of the State or sovereign functions cannot be made a direct subject-matter of a private adjudicatory process. Sovereign functions for the purpose of Arbitration Act would extend to exercise of executive power in different fields including commerce 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 S....
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....n. Therefore, mere creation of a specific forum as a substitute for civil Court or specifying the civil Court, may not be enough to accept the inference of implicit non-arbitrability. Conferment of jurisdiction on a specific court or creation of a public forum though eminently significant, may not be the decisive test to answer and decide whether arbitrability is impliedly barred. 54. Implicit non-arbitrability is established when by mandatory law 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 Arbitratio....
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....ceedings in the American Court would be oppressive in the facts and circumstances discussed earlier. But before we pass an appropriate order in this behalf, we must deal with the plea that the High Court does not have the jurisdiction to grant such a restraint order even if the proceeding in the foreign Court is considered to be oppressive. Counsel for the Respondent has placed reliance on Cotton Corporation of India v. United Industrial Bank [(1983) 4 SCC 625 : (1983) 3 SCR 962 : (1984) 55 Com 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 ....
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....t unconditional but make it conditional to the extent indicated hereafter. There are good and valid reasons for making the restraint order conditional in the sense that ONGC should be required to pay the charges payable in respect of the user of the rig belonging to Western Company at the undisputed rate regardless of the outcome of the Petition instituted by ONGC in the High Court for setting aside the award rendered by the umpire. India has acceded to the New York Convention. One of the objects of the New York Convention was to evolve consensus 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 matte....
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....ral Tribunal. In paras 12, 13 and 15, the following has been held: (SCC pp. 535-36) "12. Further, the matter is not required to be referred to the Arbitral Tribunal, if: (1) the parties to the arbitration agreement have not filed any such application for referring the dispute to the Arbitrator; (2) in a pending suit, such Application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof. 13. Secondly, there is no provision in 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....
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.... by the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Corporation. 68. The Learned Counsel for the Appellant submits that the Arbitral Tribunal has the power to decide its jurisdiction, and the NCLT cannot injunct the Arbitration proceedings. It is contended that Section 16 of the Arbitration Act provides that the Arbitral Tribunal has exclusive power on its jurisdiction to adjudicate upon matters referred to it under a valid Arbitration Agreement. If any objections to the jurisdiction are to be agitated before the Arbitral Tribunal, the Competent Authority, decides such issues. The only Courts that can supervise the 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 Petiti....
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....rcement of contractual provisions between the parties. Therefore, there does not exist any commonality of issues in the proceedings in the NCLT due to the dressed-up Petition filed by the Promoter Respondents, i.e. Promoters petition. 75. It is pertinent to mention that in the Investor's Petition, no prayer or relief with respect to the breach of rights pertaining to the conversion notice has been sought by the appellants. This was a subsequent event and not within the scope of the Investor Petition. The fact was merely brought to the attention of the Learned NCLT in the rejoinder to the Investors Petition to demonstrate the conduct of the 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 th....
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....stence of an Arbitration Agreement. In the instant case, the Promoter Respondents have not disputed the existence of an Arbitration Agreement. Therefore, it is untenable to contend that the NCLT had rightly not referred the dispute to the Arbitration. 82. There are ample precedents to suggest that averments concerning the maintainability of the Petition and the fact that the action covered in the Petition is subject of an Arbitration Agreement, thereby seeking reference to Arbitration, raised at the 1st instance, i.e. in the response filed by the Respondents, qualified as a valid Application in terms of Section 8 of the Act. There is no requirement to file 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 Hig....
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....bitral Tribunal could adopt a procedure to deal with "re-arbitration complaint" (depending on the rules or procedure which govern the proceeding) as a preliminary issue." 85. In the case mentioned above, the Hon'ble High Court has held that only the Court is that can supervise or regulate the arbitration proceedings are 'Courts' having jurisdiction over the seat of Arbitration under the Arbitration Act and having supervisory jurisdiction over the arbitral Tribunal. The Hon'ble High Court has further laid down the parameters for grant of Anti-arbitration injunction in the case mentioned above. Accordingly, it is held that the Court with supervisory jurisdiction or even personal jurisdiction over the parties has the power 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 ....
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.... the injunction was sought. In other words, the Court could stay by its injunction a proceeding in a court subordinate to the Court granting injunction. The injunction granting stay of proceeding was directed to the Court and the Court has to be the court subordinate to the one granting the injunction. This is postulated on the well recognised principle that the superior Court can regulate proceedings in a court subordinate to it. It is implicit in this assumption and the language used in Section 56(b) that the Court could 'not grant injunction under Section 56(b) of the repealed Act to stay proceeding in a court superior in hierarchy to the Court from which injunction is sought. But by judicial interpretation, a consensus was reached that as injunction acts in personam while the Court by its injunction 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 co....
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....nacted to suppress, and to keep the path of access to justice through court unobstructed. Access to justice must not be hampered even at the hands of judiciary. 89. Neither under this Section 41 (b) and Section 37 of Specific Relief Act, 1963, nor under Section 151 and Order 39 Civil Procedure Code, 1908 Court has jurisdiction to grant a temporary injunction restraining a person from instituting any proceeding, where such person is otherwise entitled to institute in a court, not subordinate to that, from which the injunction is sought. In this case, Hon'ble Supreme Court has laid down the rationale of Section 41 (b) of Specific Relief Act 1963. 90. Hon'ble Supreme Court has further clarified that Section 41 (b) and Section 37 of a Specific Relief Act, 1963 covers perpetual injunction as well as temporary 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 ....