TaxTMI 
TaxTMI 
2024 (11) TMI 339
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....ence and expertise in the drilling fluid industry. 4. ASAP Fluids Pvt. Ltd. (hereinafter referred to as the "respondent no.1") is an Indian private limited company engaged in providing drilling fluids services to the oil and gas industry, whereas Gumpro Drilling Fluids Pvt. Ltd. (hereinafter referred to as the "respondent no. 2") is a private limited company that specializes in oil field services and offers mud services. 5. A Shareholders Agreement dated 25.07.2011 (hereinafter referred to as "Shareholders Agreement") was executed by and among the petitioner, respondent no.1, respondent no.2, Mr. Robert Wayne Pantermuehl, and Mr. Sunil B. Shitole. In terms of the said Shareholders Agreement, the petitioner was to hold 4,00,000 equity shares of respondent no. 1 and also participate in the management of respondent no.1 company. The relevant clauses from the same are reproduced hereinbelow: "4. RIGHT OF PRE-EMPTION FOR ISSUE OF NEW DILUTION INSTRUMENTS OR DILUTION OF SHAREHOLDING Present issued, subscribed and paid up share capital of the Company is Rs. 2,64,00.000/- divided into 26,40,000 equity shares of INR 10 each which is held by the members as menti....
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....ue appoint any reputed investment banker/ Chartered accountant to carry out a valuation of the Company. The Board shall ensure that the capital shall be raised at valuation no lower than the valuation set forth in the report of such investment banker/ Chartered Accountant. xxx xxx xxx 5 RESTRICTIONS ON TRANSFER OF SHARES AND PROVISIONS RELATING TO TRANSMISSION OF SHARES 5.1 Other Shareholder Share Sale Restriction. Notwithstanding anything contained elsewhere in this Shareholder's Agreement, the Other Shareholder agree that they shall not, whether collectively or individually, directly or indirectly, Transfer any part of their shareholding in the Company in whatever form, or any legal or beneficial interest therein, until the earlier of: (a) Gumpro ceasing to hold a minimum of two percent (2%) of its shareholding in the Company and (b) the completion of a Qualified Public Offering, except in compliance with this Shareholders' Agreement, particularly Section 6. Without prejudice to the generality of the foregoing. The Other Shareholder shall not Transfer any part of their individual shareholding until the expiry of three (03) years from the date of issue....
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.... xxx xxx xxx 10. TERM AND TERMINATION [...] 10.2 Aslam Khan shall not for a period of three (3) years from the Effective Date (Initial Term), terminate this Agreement. In case if he terminates his employment prior to Initial Term, he shall transfer all the equity shares held by him in favour of the Promoter of the Company at zero consideration implying his outstation from the register of members of the Company." 8. On the same day, i.e., on 18.10.2011, the petitioner signed an Agreement for Transfer of Commercial Expertise (hereinafter referred to as "Commercial Expertise Agreement") with respondent nos. 1 and 2 respectively, agreeing to the transfer of all his commercial expertise, knowledge and experience in the field of getting approvals from the government, and handling administrative and legal aspects of the business to respondent no. 1. In return, respondent no. 1 agreed to issue 4,00,000 equity shares of Rs. 10/- each to the petitioner for consideration other than cash. The relevant recitals and clauses from the same are reproduced herein below: " WHEREAS [...] 3. The Parties have agreed before starting this venture t....
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.... the relevant time." xxx xxx xxx 10. TERM OF THE AGREEMENT [...] 10.2 The term for this Agreement will start on Allotment of Shares by the Transferee to the Transferor and the such allotted Shares will be under Lock in for a period of three years from the date of its Allotment and the Transferor shall not leave the services with the Transferee for a period of three years from the date of Allotment of Shares in the Company as per terms of this Agreement" (Emphasis supplied) 9. Upon certain other issues arising between the parties, the petitioner tendered his resignation as the Director in respondent no. 1 and its Dubai subsidiary. The resignation was accepted by the Dubai subsidiary vide Director's Resolution dated 18.07.2013. 10. The petitioner was concerned with the failure of respondent no.2 in transferring 2,00,010 shares in respondent no.1 which belonged to the petitioner despite confirmation of the same vide letter dated 22.09.2011 and also the non-issuance of the share certificates evidencing allotment of additional 2,00,010 shares in the name of the petitioner by respondent no. 1. The petitioner further contended that despit....
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....r Section 11(6) of the Act, 1996, bearing Arbitration Application No. 50 of 2017 for adjudication of disputes pertaining to the 4,00,000 equity shares and Arbitration Application No. 51 of 2017 for adjudication of disputes pertaining to 2,00,010 equity shares, before the High Court of Bombay, praying for the appointment of an arbitral tribunal. 14. After nearly 10 months from the date of the arbitration notice, on 07.11.2017, the respondents sent a reply denying and disputing all the claims and allegations made by the petitioner. Without prejudice to the contentions in the reply, the respondents appointed two arbitrators in terms of clause 13.10 of the Shareholders Agreement and called upon the petitioner to nominate the third arbitrator. It was asserted that the alleged claim of 2,00,010 shares or the value thereof cannot be referred to arbitration as it does not fall within the remit of the dispute resolution clause of the Shareholders Agreement. 15. The High Court of Bombay vide Judgment and final order dated 22.02.2019 held that the petitioner is a Non-Resident Indian who habitually resides and works in Dubai. The proceedings would constitute an "international commercial ....
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....sel submitted that it is the case of the respondents that certain correspondence was exchanged between the parties in the period between 06.08.2015 and 15.10.2015. Therefore, the Arbitration Notice dated 23.01.2017 was sent within 3 years from 15.10.2015 which is the date of the last legal notice sent by the respondents to the petitioner. Thereafter, the petitioner filed two arbitration applications on 03.03.2017 before the High Court of Bombay which were ultimately dismissed on 22.02.2019. Immediately thereafter, on 09.04.2019, the present petitions were filed before this Court. Therefore, the arbitration petitions cannot be said to be ex-facie time barred and the implication or interpretation of the said correspondences could be looked into by the arbitral tribunal while deciding the claim and its maintainability on the question of limitation and merits. 22. It was submitted that, without prejudice to the aforesaid contention, even if it is assumed that the "cause of action" had arisen at any specific point of time, there is a continuing breach of contract since the respondents failed to provide the share certificates and abide by the Shareholders Agreement and the letter date....
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....eir issuance or conversion of it into equity shares. However, any right over the said shares would accrue only if the petitioner remained in employment. 28. Clause 3 of the Service Agreement indicates that the Director shall hold office for a period of 3 years commencing from the date of employment (w.e.f. 01.01.2011) which is a Lock-in Period. Further Clause 10.2 of the Service Agreement states that the petitioner shall transfer all the equity shares held by him in favour of the Promoter of respondent no.1 at zero consideration if he terminates his employment prior to the Initial Term of 3 years. Accordingly, the petitioner would in any case, have no valid right or claim over the subject shares having terminated his employment before a period of 3 years. 29. It was submitted that as per Recital 3, and Clauses 3.1 and 4.1 respectively of the Commercial Expertise Agreement, for the petitioner to hold the shares, he ought to have worked for a period of 3 years. Since the petitioner resigned on 18.07.2013, he is not entitled to these shares. In any case, any claim regarding the 4,00,000 equity shares, howsoever misconceived, can arise only upon the date of resignation i.e., 18.0....
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....l, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no-claim certificate" or defence on the plea of novation and "accord and satisfaction". As observed in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)] , it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen. xxx xxx xxx 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disp....
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....to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal. 48. Applying the law to the facts of the present case, it is clear that this is a case where the claims are ex facie time-barred by over 5½ years, since Nortel did not take any action whatsoever after the rejection of its claim by BSNL on 4-8- 2014. The notice of arbitration was invoked on 29-4-2020. There is not even an averment either in the notice of arbitration, or the petition filed under Section 11, or before this Court, of any intervening facts which may have occurred, which would extend the period of limitation falling within Sections 5 to 20 of the Limitation Act. Unless, there is a pleaded case specifically adverting to the applicable section, and how it extends the limitation from the date on which the cause of action originally arose, there can be no basis to save the time of limitation. 49. The present case is a case of deadwood/no subsisting dispute since the cause of action arose on 4-8-2014, when the claims made by Nortel were rejected by BSNL. The respondent has not stated any event which would extend the period of limitation, whi....
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....of these issues are answered against the party seeking referral of disputes to arbitration, the Court may refuse to appoint an Arbitral Tribunal." (Emphasis supplied) 37. However, subsequently, very pertinent observations were made by a seven- judge Bench of this Court in Interplay between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, In Re, reported in 2023 INSC 1066 regarding the scope of judicial interference at the Section 11 stage with a view to give complete meaning to the legislative intention behind the insertion of Section 11(6-A) of the Act, 1996. This Court referred to the Statement of Objects and Reasons of the 2015 Amendment Act and opined that the same indicated that the referral courts shall "examine the existence of a prima facie arbitration agreement and not other issues" at the stage of appointment of an arbitrator. These "other issues" would include the examination of any other issue which has the consequence of unnecessary judicial interference in the arbitral proceedings. The relevant observations are reproduced hereinbelow: "208. The Statement of Objects and Reasons of the 2015 Amen....
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....y us in Arif Azim (supra) do not require any clarification and should be construed as explained therein. xxx xxx xxx 132. Insofar as our observations on the second issue are concerned, we clarify that the same were made in light of the observations made by this Court in many of its previous decisions, more particularly in Vidya Drolia (supra) and NTPC v. SPML (supra). However, in the case at hand, as is evident from the discussion in the preceding parts of this judgment, we have had the benefit of reconsidering certain aspects of the two decisions referred to above in the light of the pertinent observations made by a seven-Judge Bench of this Court in In Re : Interplay (supra). 133. Thus, we clarify that while determining the issue of limitation in exercise of the powers under Section 11(6) of the Act, 1996, the referral court should limit its enquiry to examining whether Section 11(6) application has been filed within the period of limitation of three years or not. The date of commencement of limitation period for this purpose shall have to be construed as per the decision in Arif Azim (supra). As a natural corollary, it is further clarified that the ref....
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....nto the domain of the arbitral tribunal at the Section 11 stage and rejects the application of the claimant, we run a serious risk of leaving the claimant remediless for the adjudication of their claims. Moreover, the Courts are vested with the power of subsequent review in which the award passed by the arbitrator may be subjected to challenge by any party to the arbitration. Therefore, the Courts may take a second look at the adjudication done by the arbitral tribunal at a later stage, if considered necessary and appropriate in the circumstances. 41. In view of the above discussion, we must restrict ourselves to examining whether the Section 11 petitions made before us are within limitation. The petitioner herein issued a notice invoking arbitration on 23.01.2017 and the same was delivered to both the respondents on 24.01.2017. However, the respondents failed to reply to the said notice within a period of 30 days i.e. within 23.02.2017. Therefore, the period of limitation of three years, for the purposes of a Section 11(6) petition, would begin to run from 23.02.2017 i.e., the date of failure or refusal by the other party to comply with the requirements mentioned in the notice ....
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.... agreement, to refer all disputes arising between themselves to arbitration. However, some parties might take undue advantage of such a limited scope of judicial interference of the referral courts and force other parties to the agreement into participating in a time- consuming and costly arbitration process. This is especially possible in instances, including but not limited to, where the claimant canvasses either ex facie time-barred claims or claims which have been discharged through "accord and satisfaction", or cases where the impleadment of a non-signatory to the arbitration agreement is sought etc. In order to balance such a limited scope of judicial interference with the interests of the parties who might be constrained to participate in the arbitration proceedings, the arbitral tribunal may direct that the costs of the arbitration shall be borne by the party which the Tribunal ultimately finds to have abused the process of law and caused unnecessary harassment to the other party to the arbitration. V. CONCLUSION 45. The existence of the arbitration agreement as contained in Clause 13.10 of the Shareholders Agreement is not disputed by either of the parties. The submi....