2004 (10) TMI 335 - HC - Companies Law

Power of High Court to deal with the appeal - Rights of minority shareholders to take derivative action - Power Purchase Agreement ( PPA ), with the Tamil Nadu Electricity Board ( TNEB ) - Invocation of arbitration clause in the PPA - Applicability of the principle of res judicata - Whether the CLB erred in not granting anti-suit injunction as prayed for by the appellant-Company, restraining the respondents 1 and 2 from proceeding with the arbitration proceedings initiated by them before the ICC Arbitral Tribunal. HELD THAT - From the record, it is clear that this Court can interfere with the order of the CLB only if discretionary/inherent powers of the CLB, is exercised arbitrarily or capriciously or perversely or ignored the settled principles of law in granting interlocutory injunction. We can also interfere with the order if we are able to conclude that the CLB has not exercised its power in granting injunction in spite of the availability of facts which are prima facie established by overwhelming evidence and material available on record justifying the grant thereof and occasioned failure of justice and thereby the appellant sustained irreparable injury, but at the same time the appellate Court cannot reassess the material and reach a conclusion different from one reached by the CLB solely on the ground that if it had considered in a particular manner, it would have come to contrary conclusion. While reversing the order of the CLB, this Court must come into close quarters with the reasonings assigned by the CLB and then this Court has to assign its own reasonings in arriving at a different conclusion. In the present case, it cannot be said that there is a multiplicity of proceedings both before the CLB and ICC Arbitral Tribunal as the scope of the proceedings before them are different and each proceeding was taken with the respective forum which is having exclusive jurisdiction on the subject raised before it. Moreover, the appellant-Company has not come forward with necessary pleadings to grant anti-suit injunction by the CLB, which are required to establish the necessary facts to grant such order. In view of the above, it cannot be said that the CLB has committed error in not granting injunction as prayed for by the appellant-company. The CLB had rightly exercised its discretion in not exercising its inherent power in favour of the appellant-company and travelled on the carpet provided for it and so no interference is warranted by this Court. From the facts on record, it is clear that by taking the said proceedings, respondents 1 and 2 tried to get direction from the CLB to invoke alternative dispute resolution mechanism either by the administrator or by the directors of the company though such directors are nominee directors of respondents 1 and 2. The administrator, if appointed, would amount to replacing the Board and so the abovesaid prayers and orders passed by the CLB cannot be construed as if respondents 1 and 2 have come forward with the plea that they should be permitted to invoke alternative dispute resolution mechanism and so the action of respondents 1 and 2 in initiating such proceedings cannot be allowed to proceed further. The action that was sought to be taken against the TNEB is a right conferred under clause 16.2 of the PPA. Respondents 1 and 2 have approached the CLB for the above said reliefs and they have not sought for the relief to proceed with the alternate dispute resolution mechanism by themselves as minority shareholders. The proceedings in question taken by respondents 1 and 2 invoking arbitration clause under the PPA before the ICC Arbitral Tribunal is on different capacity and on their own right. The proceedings pending before the CLB is not for recovering money from the TNEB itself. So merely because on the basis of the same facts respondents 1 and 2 have taken proceedings before the ICC Arbitral Tribunal, it cannot be said that the orders passed by the CLB would prevent respondents 1 and 2 from exercising their independent right as minority shareholders. We are not going into the question whether they can sustain the petition before the ICC Arbitral Tribunal as minority shareholders, as such, an issue has already been framed and it has to be gone into and decided by the ICC Arbitral Tribunal. So, the orders passed by the CLB rejecting the request of respondents 1 and 2 to direct the Company to initiate proceedings against the TNEB either through administrator or through directors cannot stand in the way of respondents 1 and 2 to take derivative action to safeguard their interest as minority shareholders. Even in the request for arbitration filed before the ICC Arbitral Tribunal, the copy of which is produced before us, it is stated that such a proceeding has been taken to protect the interest of the Company by the minority shareholders. Even in the petition filed in C.A. No. 62/2004, in para 8, it is admitted that such action by the appellant-company was by way of derivative action. Learned Senior Counsel appearing for the appellant tried to impress upon this Court that a party who was not able to get permission from the CLB cannot be permitted to proceed with the same proceedings ignoring the orders passed by the CLB. If such a party, in this case, respondents 1 and 2, is given right to invoke such arbitration proceedings on different capacity and exercising different right, it cannot be said that the proceedings before the CLB seeking relief differently, cannot be put against respondents 1 and 2 as if they have ignored the orders of the CLB and proceeded with the proceedings before the ICC Arbitral Tribunal invoking arbitration clause under the PPA. The respondents 1 and 2 have not sought for any relief similar to the relief sought for before the ICC Arbitral Tribunal. To take derivative action by minority shareholders, no permission from CLB is necessary as the said action is distinct and separate from the proceeding pending before the CLB. The respondents 1 and 2 have come forward with the prayer seeking a direction to appoint administrator for the purpose of invoking clause 16.2 of the PPA or to permit the directors mentioned in the petition to invoke clause 16.2 of the PPA. They have not sought for, before the CLB, to appoint arbitrator, which can be done only as per clause 16.2 of the PPA. All these steps are being taken by respondents 1 and 2 only to safeguard the interest of the appellant-Company and according to respondents 1 and 2, if the proceedings are not initiated in time, it would become time-barred. Though there is dispute regarding the period of limitation, we need not decide the said issue in this appeal. Thus, it is clear that the appellants have not satisfied any one of the conditions mentioned above to sustain their claim that the respondents are estopped from taking proceedings before the ICC Arbitral Tribunal in view of the order passed by the CLB. Two remedies are available to the respondent s (1) Seeking a direction to take arbitration proceedings by the Company (either through administrator or directors) itself as a regular and normal action under the PPA and (2) as minority shareholders by way of derivative action invoking arbitration clause. In this case, the respondents 1 and 2 have invoked their first right before the CLB and the second right before the ICC Arbitral Tribunal. Moreover, the appellant-Company did not file Application in C.A. on the ground that respondents 1 and 2 have violated the orders of the Tribunal and so the injunction should be granted. The appellant-company mentioned the said facts regarding the orders passed by the CLB only as a passing reference. Thus, the submission made by the learned Senior Counsel appearing for the appellant on the ground of res judicata, we are not inclined to interfere with the order passed by the CLB on that ground. Reliefs - (1) The minority shareholders/respondents 1 and 2 initiated derivative action against the TNEB, in the name of the appellant-company without any appropriate authorisation as per the statutory requirement; (2) Civil Courts are having jurisdiction to restrain such a party to institute proceedings in foreign jurisdiction; (3) Such a derivative action cannot be taken when the decision of the Board of Directors was not to initiate proceedings against the TNEB; (4) Since the proceeding initiated in the foreign jurisdiction are wholly illegal and cause serious prejudice to the interest of the Company, the injunction should be granted. The above said basis on which the application is filed is only relying on the facts which has been done subsequent to the filing of the Company Petition. The cause of action to file the above C.A. No. 62/2004 arises after the filing of C.P. No. 8/2004 and orders passed in the Company Petition and Company Application. Even on this ground, the appellant-company cannot sustain their petition. The appeal was dismissed, and the court affirmed that respondents 1 and 2, as minority shareholders, have the right to initiate arbitration proceedings by way of derivative action. The principle of res judicata was not applicable, and the anti-suit injunction sought by the appellant-company was not warranted.

Summary

Issues Involved:
1. Inherent Powers of the CLB to Grant Anti-Suit Injunction
2. Prohibition under Clause 14.3 of the Shareholders Agreement and Principles of Res Judicata
3. Sustainability of the Petition in C.A. No. 62/2004
4. Legality of the CLB's Order Rejecting Anti-Suit Injunction

Summary:

1. Inherent Powers of the CLB to Grant Anti-Suit Injunction:
The appellant-Company sought an anti-suit injunction against respondents 1 and 2 to restrain them from proceeding with arbitration before the ICC Arbitral Tribunal. The CLB, vested with inherent powers u/s 402(g) and Regulation 44, can grant such injunctions to meet the ends of justice. However, the CLB rejected the petition, emphasizing that it cannot interfere with proceedings before a forum of natural and exclusive jurisdiction, such as the ICC Arbitral Tribunal. The CLB concluded that there was no prima facie case or balance of convenience in favor of the appellant, and no irreparable prejudice was established.

2. Prohibition under Clause 14.3 of the Shareholders Agreement and Principles of Res Judicata:
Clause 14.3 of the shareholders' agreement prohibits any party from acting as a legal representative or agent of another party. The CLB held that this clause cannot override the common law right of minority shareholders to take derivative action. The appellant argued that the respondents' actions were barred by res judicata due to previous CLB orders. However, the CLB found that the respondents' derivative action before the ICC Arbitral Tribunal was distinct and not prohibited by previous orders, as it was taken in a different capacity (as minority shareholders).

3. Sustainability of the Petition in C.A. No. 62/2004:
The appellant-Company filed C.A. No. 62/2004 seeking an anti-suit injunction, arguing that the arbitration proceedings initiated by respondents 1 and 2 were unauthorized and caused serious prejudice to the Company. The CLB found that the application was not sustainable as it was filed in the context of C.P. No. 8/2004, which dealt with different issues. The CLB emphasized that the relief sought was of a permanent nature, which could not be granted in an interlocutory application.

4. Legality of the CLB's Order Rejecting Anti-Suit Injunction:
The CLB's decision to reject the anti-suit injunction was based on the principles that the ICC Arbitral Tribunal had exclusive jurisdiction under the PPA, and the CLB could not interfere with such proceedings. The CLB also noted that respondents 1 and 2 had taken derivative action as minority shareholders, which is permissible under common law. The High Court upheld the CLB's decision, agreeing that the appellant-Company had not made out a case for anti-suit injunction and that the CLB had exercised its discretion appropriately.

Conclusion:
The High Court dismissed the appeal, affirming the CLB's decision to reject the anti-suit injunction and emphasizing the distinct nature of the arbitration proceedings taken by respondents 1 and 2 as minority shareholders. The Court found no grounds to interfere with the CLB's exercise of discretion.