2015 (7) TMI 453 - Board - Companies Law

Charges of oppression and wilful misstatement u/s 397 & 398 - Wilful termination of MOU - Impact of Arbitration clause in agreement - Doctrine of Severability - Held that - This Doctrine of Severability will come into operation when the agreement has come into effect. Here the respondents filed this application saying though this agreement entered into has not been given effect, it has to be referred to arbitration for the reason that MoU has arbitration clause notwithstanding the fact whether it is given effect or not. When Dhanuka group made allotment to their group, Tulsian group filed this CP saying that earlier CP was disposed of taking MoU into consideration, the petitioner also agreed for withdrawal of earlier CP because the MoU proposed a solution to earlier allotments arbitrarily made to the Respondents apart from a proposal for investment from Gaggar group. But whereas these Respondents after disposal of earlier CP, turned around and made further allotments without giving any opportunity to the petitioners to participate in right issue. Looking at this scenario Dhanuka group causing Tulsain group withdraw earlier CP on the MoU with a proposal to set right earlier allotment, thereafter turning around and making allotment to their group at a price far lower than the price at which the shares were allotted to Tuisain group, I am of the view if it is not oppression, what else would become oppression? In view of the same, I am of the view that the acts of the respondents prima facie amount to prejudice to the rights of the petitioners, hence this arbitration clause is not binding upon the petitioners. The remedy available under sections 397 & 398 is statutory remedy, unless the lis is strictly within the Arbitration Clause, the court is under no obligation to refer the matter to Arbitration. Since the petitioner elected remedy u/s 397 & 398 proceedings, the Respondents cannot ask for implementation of clause under MOU dated 11.02.2012. The grievances of the petitioners are not covered by either MoU or Arbitration clause of MoU, because the alleged acts cannot be coined as mere violation of the clauses of the MoU, they are, I believe, beyond the ambit of MoU and arbitration clause amounting to oppression against the petitioners, hence I dismiss the relief sought under section 8 of Arbitration and Conciliation Act, 1996. - the petitioners failed to make the parties against whom serious aspersions are made and sought reliefs - they are not even named anywhere in the petition, hence the reliefs sought against non-parties are here by dismissed as envisaged under Order 1 Rule 9 of CPC. - Decided partly in favour of appellant.

Issues Involved:

1. Dismissal of CP 114/2013 and referral to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
2. Compliance with the MoU dated 11.02.2012.
3. Allegations of share allotment violations and financial misconduct.
4. Contempt proceedings for unilateral termination of the MoU.
5. Investigation into the ownership of benami/shell companies and financial irregularities.
6. Appointment of independent auditors and directors.

Issue-wise Detailed Analysis:

1. Dismissal of CP 114/2013 and Referral to Arbitration:

R1 to R3 filed CA 143/2014 seeking the dismissal of CP 114/2013 and referral to arbitration per Section 8 of the Arbitration and Conciliation Act, 1996. The respondents argued that the dispute should be referred to arbitration as per the arbitration clause in the MoU dated 11.02.2012. They cited various legal precedents to support their contention that the arbitration clause remains binding even if the agreement is terminated. However, the court noted that the MoU was never fully implemented, and the respondents unilaterally terminated it. The court held that the arbitration clause is not binding on the petitioners because the alleged acts go beyond the MoU and amount to oppression.

2. Compliance with the MoU dated 11.02.2012:

The petitioners argued that the respondents failed to comply with the MoU, which was intended to resolve disputes and revise shareholding structures. The MoU included an arbitration clause for resolving disputes. However, the respondents unilaterally terminated the MoU, leading to further disputes. The court found that the MoU was never given effect, and the respondents' unilateral termination and subsequent actions amounted to oppression. Therefore, the court dismissed the relief sought under Section 8 of the Arbitration and Conciliation Act.

3. Allegations of Share Allotment Violations and Financial Misconduct:

The petitioners alleged that the respondents made share allotments at undervalued prices, violating the MoU and causing financial prejudice. Specific instances included the allotment of shares to Umang Boards (Mumbai) Pvt. Ltd. and Jain Group at prices lower than the fair value. The court found that these actions were not covered by the MoU or its arbitration clause and amounted to oppression. The court held that these grievances were beyond the scope of the MoU and could not be referred to arbitration.

4. Contempt Proceedings for Unilateral Termination of the MoU:

The petitioners sought contempt proceedings against the respondents for unilaterally terminating the MoU, arguing that it amounted to contempt of court. The court acknowledged that the unilateral termination of the MoU by the respondents was prejudicial to the petitioners. However, the court did not explicitly order contempt proceedings but noted that the respondents' actions amounted to oppression.

5. Investigation into the Ownership of Benami/Shell Companies and Financial Irregularities:

The petitioners sought an investigation into the ownership of 231 and 1,500 multilayered benami/shell/hawala companies and alleged financial irregularities, including round-tripping and money laundering. The court noted that the petitioners failed to make these entities parties to the proceedings and dismissed the reliefs sought against non-parties as per Order 1 Rule 9 of CPC.

6. Appointment of Independent Auditors and Directors:

The petitioners requested the appointment of independent auditors and directors to oversee the financial affairs of R1 company. The court did not grant these specific reliefs but acknowledged the petitioners' grievances about financial misconduct and share allotment violations.

Conclusion:

The court held that the grievances of the petitioners were not covered by the MoU or its arbitration clause, as the alleged acts amounted to oppression. The court dismissed the relief sought under Section 8 of the Arbitration and Conciliation Act, 1996. The court also dismissed the reliefs sought against non-parties due to the petitioners' failure to make them parties to the proceedings. Accordingly, CA 143/2014 was partly allowed.

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