2007 (3) TMI 795 - HC - Indian Laws

Summary

Issues Involved:
1. Interim relief due to arbitration dispute.
2. Impact of the Sick Industrial Companies (Special Provisions) Act on the shareholders' agreement.
3. Validity and enforceability of the non-compete clause in the shareholders' agreement.
4. Alleged frustration and termination of the shareholders' agreement.
5. Maintainability of the petition under Section 9 of the Arbitration and Conciliation Act, 1996.
6. Alleged suppression of material facts and delay in filing the petition.
7. Impact of the Foreign Investment Promotion Board (FIPB) approval on the enforceability of the shareholders' agreement.

Detailed Analysis:

1. Interim Relief Due to Arbitration Dispute:
The court examined whether a party could seek interim relief on the ground that the other side raised a dispute before the Arbitral Tribunal. The petitioner, MRL, sought interim relief to prevent the respondent, Guardian, from setting up a wholly-owned subsidiary that would compete with their joint venture, GGL. The court found that the petitioner had a prima facie case and that the balance of convenience and irreparable harm favored granting the interim relief.

2. Impact of the Sick Industrial Companies (Special Provisions) Act on the Shareholders' Agreement:
The respondent argued that due to the sickness of MRL under the Sick Industrial Companies (Special Provisions) Act, the shareholders' agreement was frustrated and terminated. The court noted that MRL's sickness did not automatically render the shareholders' agreement void. The agreement's termination could only occur under specific contractual terms, which were not met in this case.

3. Validity and Enforceability of the Non-Compete Clause:
Clause 14 of the shareholders' agreement prohibited MRL and Guardian from participating in any other float glass manufacturing projects in India. The court held that this clause was valid and enforceable, even though it was not incorporated into the Articles of Association of GGL. The court emphasized that the clause was intended to protect the joint venture's interests and was not contrary to public policy.

4. Alleged Frustration and Termination of the Shareholders' Agreement:
Guardian claimed that the shareholders' agreement was frustrated due to MRL's financial instability and internal disputes. The court found that the shareholders' agreement could only be terminated under specific conditions outlined in the agreement, which were not met. The court noted that Guardian's actions, such as seeking consent from MRL for setting up a subsidiary and filing a petition under Section 9 of the Arbitration and Conciliation Act, indicated that they treated the agreement as subsisting.

5. Maintainability of the Petition Under Section 9 of the Arbitration and Conciliation Act, 1996:
The court addressed the respondent's objection that the petition was not maintainable because the petitioner had not invoked the arbitration agreement. The court found that the petitioner was a party to the arbitration proceedings initiated by Guardian and was entitled to seek interim relief under Section 9. The court emphasized that Section 9 allowed either party to seek interim measures for protection.

6. Alleged Suppression of Material Facts and Delay in Filing the Petition:
The respondent argued that the petitioner suppressed material facts and delayed filing the petition. The court found that the petitioner had disclosed relevant facts and that the delay was not unreasonable. The court noted that the petitioner had taken steps to address the termination of the shareholders' agreement and the proposed subsidiary promptly.

7. Impact of the Foreign Investment Promotion Board (FIPB) Approval on the Enforceability of the Shareholders' Agreement:
The respondent argued that the FIPB's approval of their proposal to set up a wholly-owned subsidiary negated the enforceability of the shareholders' agreement. The court found that the FIPB's approval was an enabling decision and did not affect the contractual obligations between the parties. The court emphasized that the FIPB's approval was without prejudice to any existing contractual agreements.

Conclusion:
The court granted interim relief to the petitioner, restraining the respondent from participating, negotiating, or engaging in any other project for the manufacture of float glass in India. The court held that the shareholders' agreement, including the non-compete clause, was valid and enforceable. The court found that the petition was maintainable under Section 9 of the Arbitration and Conciliation Act, 1996, and that the petitioner had made a prima facie case for interim relief. The court emphasized that the decision was based on a prima facie view and did not constitute a final determination on the merits of the dispute pending before the Arbitral Tribunal.