2015 (1) TMI 1511 - SC - Indian Laws

Seeking appointment of an Arbitrator to go into the disputes and differences that have arisen between the Petitioner and the Respondents under the Share Purchase Agreement - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT - A perusal of the relevant clauses of the Agreements providing for Arbitration and the facts set out herein adequately satisfies the Court that disputes and differences between the Petitioner and the Respondents have arisen which require resolution by a process of Arbitration as contemplated in the Agreements between the parties. The Petitioner had appointed its Arbitrator (Mr. Justice S.H. Kapadia, a former Chief Justice of India) and despite notice, the Respondents have failed to make the requisite appointment. The said lapse/failure would confer jurisdiction Under Section 11(6) of the Arbitration Act to appoint an Arbitrator on behalf of the Respondents. The facts stated in the present applications showing the involvement of the second Respondent and the decision of this Court in CHLORO CONTROLS (I) P. LTD. VERSUS SEVERN TRENT WATER PURIFICATION INC. ORS. 2014 (1) TMI 830 - SUPREME COURT would justify appointment of an Arbitrator on behalf of both the Respondents and permit the process of Arbitration to be conducted by lifting the corporate veil to ascertain the role of the second Respondent in the transactions in question as claimed by the Petitioner. Shri Justice A.K. Patnaik, a former judge of this Court, is appointed to act as the arbitrator on behalf of both the Respondents. The two learned Arbitrators will now proceed to appoint a third Arbitrator i.e. Umpire and thereafter the arbitration proceedings will commence and conclude as expeditiously as possible - petition allowed.

Summary

Issues Involved:
1. Appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
2. Disputes arising from the Share Purchase Agreement (SPA) and Licence Royalty Agreement (LRA).
3. Misrepresentations and breach of faith by the Respondents.
4. Joinder of non-signatory parties to the arbitration agreement.
5. Lifting the corporate veil to ascertain the role of the second Respondent.

Detailed Analysis:

1. Appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996:
The Petitioner sought the appointment of an Arbitrator to address disputes arising from the SPA and LRA. Both agreements contained identical Dispute Resolution clauses, which included arbitration under the Indian Arbitration and Conciliation Act, 1996. The Petitioner appointed Mr. Justice S.H. Kapadia as their nominee arbitrator and requested the Court to appoint an Arbitrator on behalf of the Respondents due to their failure to do so.

2. Disputes arising from the Share Purchase Agreement (SPA) and Licence Royalty Agreement (LRA):
The Petitioner was to purchase 99.96% shares in MIV India from the Respondents for US$ 3.17 million under the SPA and was entitled to use "products" under the LRA. Disputes arose when the Petitioner discovered an injunction against the Respondents, preventing the transfer of shares, and subsequent misrepresentations by the Respondents regarding the resolution of this litigation. The Petitioner transferred US$ 2.34 million and acquired 82.95% of the shares based on these assurances.

3. Misrepresentations and breach of faith by the Respondents:
The second Respondent, acting on behalf of the first Respondent, falsely represented that the litigation involving RHO had been settled. The Petitioner transferred additional funds based on these assurances, which were used by the second Respondent for personal settlement rather than resolving the litigation. The Petitioner received further demands and legal threats from RHO, leading to the issuance of a dispute notice and a Notice of Arbitration.

4. Joinder of non-signatory parties to the arbitration agreement:
The Petitioner argued that the second Respondent, although not a signatory to the arbitration agreements, should be bound by them as an alter-ego of the first Respondent. The Court referenced the decision in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc., which allows for the joinder of non-signatory parties based on implied consent, agency principles, and the piercing of the corporate veil.

5. Lifting the corporate veil to ascertain the role of the second Respondent:
The Petitioner claimed that the first Respondent was merely a corporate veil for the second Respondent, who performed all acts and transactions on behalf of the first Respondent. The Court found sufficient grounds to lift the corporate veil and ascertain the second Respondent's role in the transactions, justifying the appointment of an Arbitrator on behalf of both Respondents.

Conclusion:
The Court was satisfied that disputes requiring arbitration had arisen between the Petitioner and the Respondents. Given the Respondents' failure to appoint an Arbitrator, the Court appointed Shri Justice A.K. Patnaik as the Arbitrator on behalf of both Respondents. The two Arbitrators were directed to appoint a third Arbitrator (Umpire) and proceed with the arbitration expeditiously. The arbitration petitions were allowed in these terms.