2014 (1) TMI 633 - HC - Companies Law

Appointment of Court receiver - Jurisdiction of Court - whether this application filed under section 9 of the Arbitration & Conciliation Act, 1996, is maintainable - Held that - Even in the petition it was averred that this court had jurisdiction to entertain that petition. The petitioner was a party respondent to the said petition. It was prayed in the said petition that pending constitution of arbitral tribunal, arbitral proceedings adjudication and disposal of all disputes between the petitioner and respondent no. 1 (petitioner herein) by the arbitral tribunal by an award, Standard Chartered Bank should be restrained from releasing Rs.10 Crores. It is thus clear that both the parties have proceeded on the premise that not only Gujarat Court had jurisdiction but this court also has jurisdiction to entertain the proceedings arising between the parties - Therefore, court had jurisdiction to entertain try and dispose of this petition. There was no application filed by the petitioner under section 11 before Gujarat High Court in so far as the said SSA is concerned and thus question of applicability of section 42 of the Arbitration & Conciliation Act in respect thereof would thus not apply in respect of the subject matter of the said SSA - prima facie company had received notices from various authorities for payment of labour cess, income tax, entry tax liability, service tax liability, ESIS for the period subsequent to the date of the execution of the said two agreements - The demand from all such authorities is substantial amount as brought on record in the arbitration petition - Even if some part of the claim made by the petitioner before the arbitral tribunal is for damages, other than claims made arising out of notice of demand/claim made by various parties, claim made by the petitioner arising out of such notice of demand for payment of statutory dues is also substantial. Having taken prima facie view that respondent nos. 1 to 4 would be liable to reimburse the petitioner in respect of the said claims, in my view the petitioner s claim is liable to be protected/secured at least in respect of the said demand made by the parties against the said company. This court in my view has ample power under section 9 of the Arbitration and Conciliation Act, 1996 to grant interim measures even in respect of the properties which are not subject matter of the dispute in arbitration Claim made by the petitioner can be disproportionate to the consideration paid by the petitioner to respondent nos. 1 to 4 for acquisition of shares of the said company - prima facie, petitioners have good chance of succeeding in the arbitration proceedings and if the interim measures are not granted so as to secure the claim of the petitioner, even if the petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from respondents - Decided against Petitioner.

Issues Involved:
1. Jurisdiction of the Bombay High Court to entertain the petition under Section 9 of the Arbitration and Conciliation Act, 1996.
2. Alleged breaches of the Share Purchase Agreement (SPA) and Share Subscription Agreement (SSA) by the respondents.
3. Indemnification obligations of the respondents under the SPA.
4. Transfer of assets by the respondents and the creation of trusts.
5. Interim measures sought by the petitioner, including the appointment of a Court receiver and injunctions.

Detailed Analysis:

1. Jurisdiction of the Bombay High Court:
The petitioner filed an application under Section 11 for the appointment of an arbitrator before the Gujarat High Court prior to filing this Section 9 petition in the Bombay High Court. The respondents argued that only the Gujarat High Court had jurisdiction. However, the court noted that the application under Section 11 was not before a "court" as defined under Section 2(e) of the Arbitration Act. Additionally, both parties had previously proceeded on the premise that both Gujarat and Bombay courts had jurisdiction. Thus, the Bombay High Court held that it had jurisdiction to entertain the petition.

2. Alleged Breaches of SPA and SSA:
The petitioner alleged that the respondents made false representations and did not disclose all liabilities of the company, thereby breaching the SPA and SSA. The petitioner claimed that the respondents refused to allow an independent valuer to determine the actual value of the company, resulting in a significant financial discrepancy. The petitioner sought indemnification for various liabilities that emerged post-agreement, including tax liabilities and statutory dues.

3. Indemnification Obligations:
Under Clause 9.3(c) of the SPA, the respondents' obligation to indemnify the petitioner arises immediately upon incurring any liability, irrespective of any defense or right to appeal. Clause 5.6 of the SPA extends this obligation for three years from the execution date. The court found that the indemnity clauses were enforceable and that the respondents were liable to indemnify the petitioner for the claims and demands received from various authorities.

4. Transfer of Assets and Creation of Trusts:
The petitioner alleged that the respondents started disposing of their assets to various companies and created trusts to defeat any potential arbitration award. The court noted that the respondents had transferred almost every property to their own companies and created trusts where family members were beneficiaries. These transfers were seen as attempts to alienate or dispose of assets with the intention to defeat any potential arbitration award, thus warranting interim measures.

5. Interim Measures:
The petitioner sought interim measures including the appointment of a Court receiver and injunctions to secure the claim. The court, referencing previous judgments, held that it had the power to grant interim measures even if the property or things were not the subject matter of the dispute in arbitration. The court granted several interim measures, including:
- Transfer of escrow amount II into an interest-bearing fixed deposit.
- Direction to respondents to furnish documents for valuation.
- Disclosure of properties.
- Securing the petitioner's claim by restraining respondents from disposing of their assets.

Conclusion:
The Bombay High Court held that it had jurisdiction to entertain the petition and granted interim measures to secure the petitioner's claims. The court directed the respondents to comply with the SPA and SSA obligations, including indemnification and disclosure of assets, to prevent any attempt to defeat potential arbitration awards.

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