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TMI Blog2012 (8) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... to as the Act of 1996 r/w Regulation 44 of the Company Law Board Regulation. 2. (A) Particulars of the Applicants/Respondents 2 to 5 also referred to as the Indian Strategic Partners (ISP) in the joint venture with Telenor Asia PTE Ltd. are as follows:- ( a ) Unitech Limited R-2 ( b ) Cestos Unitech Wireless Pvt. Ltd. R-3 ( c ) Simpson Unitec Wirless Pvt. Ltd. R-4 and ( d ) Acorus United Wirless Pvt. Ltd. R-5. (B) Admittedly, the Applicants are the minority shareholders and hold 32.75% shareholding in Unitech Wirless (Tamil Nadu) Pvt. Ltd. hereinafter referred to as "the Company" while Telenor Asia PTE Ltd. hereinafter referred to as "Telenor", the majority shareholder holds 67.25% equity shares in the Company. Admittedly, the Company is a Joint Venture between the Applicants and Telenor. 3. The above-mentioned applicants (ISP) are also the Petitioners No. 1 to 4 in CP No. 110 (ND) of 2011 filed u/s 397 398 of the Companies Act 1956 against the Company, its Managing Director and three nominee Directors and Telenor Asia PTE Ltd. and Telenor ASA, which is pending adjudication before the member, CLB, New Delhi Bench. An Application u/s 45 of the Act of 1996 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (iii) the applicants/Respondents No. 2 to 5 herein called the Indian Strategic Partners (ISP) and Unitech Wireless (Tamil Nadu) Pvt. Ltd., the Company herein on one hand and (i) Unitech Wirless (North) Pvt. Ltd., (ii) Unitech Wirless (South) Pvt. Ltd., ( iii ) Unitech Wirless (Kolkata) Pvt. Ltd. (iv) Unitech Wirless (Delhi) Pvt. Ltd., (v) Unitech Wirelss (East) Pvt. Ltd., (v i ) Unitech Wirless (Mumbai) Pvt. Ltd., and (vii) Unitech Wirless (West) Pvt. Ltd., collectively called the licensee companies on the other hand. ( iii ) The SSA inter alia contained the following representations and warranties made by the Indian Strategic Partners (ISP), i.e., the applicants herein. 1. The Indian Strategic Partner, the Indian nominee Partners and the Licensee Companies are companies duly organized and validly existing under the laws of India and have all requisitie power and authority to own its properties and assets and to carry on the business, as now conducted. 3. The execution, delivery and performance by the Indian Strategic Partner, the Indian nominee Partners and each Licensee Company of this Agreement and the compliance by them with and in accordance with the terms and provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr. Sanjay Chandra, Managing Director, confirmed that no person associated or directly/indirectly connected with the Indian Strategic Partner, the Licensee Companies and/or the Indian Nominee Partners, has, in relation to the obtaining of any licenses, approvals and permits which are material for the conduct of the respective businesses of the Indian Nominee partners including but not limited to any Unified Access Service License held by any of the Licensee Companies, indulged in any corrupt, dishonest and/or fraudulent act(s)/omission(s). ( iv ) Relying upon and believing the assurances made by the Indian Strategic Partners, the applicants herein, and trusting the warranties to be true the FSP decided to invest in the Licensee Companies and entered into a Shareholders Agreement (SHA) on 20/03/2009 with the Indian Strategic Partners and the licensee Companies and made an equity investment of INR 6135.62 crores in the erstwhile licensee companies. Additionally Telenor ASA ( an affiliate of the FSP) also provided guarantee support to the tune of INR 8700 crores to secure the debt facilities of the Company. ( v ) On 11th October 2011 the applicants herein filed CP No. 110 (N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted. The first hearing before the Arbitral Tribunal was conducted on 04/10/2011. The applicants herein filed its claim before the Arbitral Tribunal which is Annexure R-l from pages 42 to 120 filed with the Rejoinder by the Company in CA No. 585 of 2011 in CP No. 110 of 2011. ( viii ) Telenor Asia PTE Ltd., the Petitioner herein who opposes the Application CA No. 149 u/s. 45 of the Act of 1996 filed its counter-claim before the Arbitral Tribunal on 20/12/2011 praying the following reliefs from the Tribunal:- ( a ) declaration that there is a material breach of the terms of the SHA by Unitech; ( b ) to declare that Telenor Asia is entitled to exercise its buy-out right under the SHA; ( c ) to direct Unitech to sell its shares in Uninor to Telenor Asia at the Default Price of INR 33 per share ; [Emphasis supplied] ( d ) award of costs of arbitration under Article 31 of the SIAC Rules for Arbitration and award of legal and all other costs under Article 33 of the SIAC Rules for Arbitration borne by Telenor Asia and Telenor Mobile arising out of the present arbitral proceedings; and ( e ) such other reliefs as the Tribunal considers appropriate. ( ix ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A by the ESP stating that the consent of the Telenor Asia PTE Ltd. inter alia to enter into the SHA was clearly caused by fraudulent inducement and/or misrepresentation by the Indian Strategic Partners. It was stated that the FSP unequivocally rescinds the SHA in its entirety except section 13 which sets out a mechanism for resolution of disputes between the parties through Arbitration process, and therefore would continue to remain in force until agreed otherwise between the parties. The following passage of the notice which has triggered the filing of CP No.32 and CP No.33 is quoted below:- "As you are aware, the Articles of Association ("Articles") of the erstwhile Licensee Companies (now merged into Unitech Wireless (Tamil Nadu) Private Limited) were modified to ensure that such Articles are not in conflict with the SHA. Pursuant to such modifications of the Articles, the Indian Strategic partners enjoy certain special rights in respect of decisions on matters concerning Unitech Wireless (Tamil Nadu) Private Limited that are more favourable than those ordinarily available to 32.75% shareholder under the Indian Companies Act, 1956. These special rights that were provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired. Telenor Asia PTE Ltd. assumed that by rescinding the SHA the special right flowing from the SHA in favour of the minority shareholders stood nullified and the AOA as it stood prior to the amendment dated 20/03/2009 (the date on which SHA was executed) was restored. Therefore, on this premise Telenor Asia PTE Ltd. with a view that the Company should consider transfer of its entire business as a growing concern to a Telenor affiliate entity at a fair market value to be determined by an independent third party (a reserved matter) sent a notice dated 15/02/2012 Annexure P-8 to the ISP. Thereafter on 16/02/2012 the Agenda for the Board Meeting scheduled to be held on 17/02/2012 was sent to the Managing Director of the Company by Mr. Anil Rustagi of the Telenor Group. The Agenda sought approval of the Board of the Company to transfer its business to a Telenor affiliate entity at a fair market value to be determined by an independent valuer. The Board Meeting was postponed to 21/02/2012 as per convenience of the ISP Nominee Directors of the Company. However, the ISP Nominee Directors of the Company exercised its veto and did not approve of the circular resolutions as a result of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants (ISP) in CA 149/2012:- ( a ) Refer the Petitioners to arbitration proceedings already invoked by them in terms of the Arbitration Agreement contained in the SSA. ( b ) Grant any other relief(s) which this Hon'ble Board may deem fit. 10. The question which arises in CA 149/2012 for my consideration is whether the parties should be referred to Arbitration under section 45 of the Act of 1996. Part-II of Act of 1996 deals with enforcement of foreign awards. A foreign award is defined in section 44 which reads as under :- "44. Definition - In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960, ( a ) In pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies, and ( b ) In one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensee Companies, the Designated Executive shall be Mr. Sanjay Chandra and for the Foreign Strategic Partner, the Designated Executive shall be Mr. Sigve Brekke. Executive Vice-President, Head of Region Asia. In the event that the said individuals cease to hold offices, their successors in title shall be considered as the designated senior executives of the Parties for conciliation discussions. If a Dispute is not resolved by such senior executives within a period of 30 days, then each of the Party to the Dispute shall be entitled to refer the Dispute to arbitration in the manner described below. 13.2.2 Arbitration Procedure: Any Dispute not resolved by the senior executive within 30 days of commencement of discussions as stated above, if referred to by any Party to the Dispute, shall finally be resolved by arbitration irrespective of the amount in Dispute or whether such Dispute would otherwise be considered justifiable or ripe for resolution by any court. This Agreement and the rights and obligations of the Parties shall remain in full force and effect pending the award in such arbitration proceeding which award, if appropriate, shall determine whether and when any terminatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or in aid of this Section 13. 13.2.9 Survival: The provisions contained in this Section 13 shall survive the termination of this Agreement." 13. A plain reading of the averments by Telenor in CP 32 and a perusal of the documents annexed thereto leaves no room for any doubt that after the Licence Cancellation Judgment Telenor drew an inference that it was defrauded by the applicants/Respondent Nos. 2 to 5 by making the false representations and warranties mentioned in para 7(iii) (supra) based upon which it entered into the SSA. It therefore felt that the special privileges enjoyed by the applicants under the SHA and amended AOA were fruits of fraud which could no longer be enjoyed by the Applicants. The efforts of Telenor the majority shareholder, to hold a Board Meeting to resolve transfer of the business of the Company to a Telenor. Affiliate entity at a fair market value to be determined by an independent valuer were frustrated by the Applicants (ISP) by refusing to exercise its affirmative vote for holding a Board Meeting to consider such a resolution which related to a reserved matter. The main reliefs (a) to (d) claimed by Telenor in CP 32 lead to the irresistible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 4.11 to 4.26 as in this Company Petition and claiming indemnification by and against the Applicants herein of Rs. 6135.62 crores with interest @ 18% per annum and demanding that the dispute as detailed above arising in relation to the SSA be referred to Arbitration. 15. The substratum of the dispute arising in CP No. 32 lies in the fact that after the license cancellation judgment Telenor alleged that the Applicants herein committed a fraud on it by making false representation and warranties, which led to its induction in Uninor and therefore, it had the right to rescind the SHA and to declare the SHA a nullity, and to dictate that a Board Resolution be passed in Uninor that the Company should transfer its entire business to a Telenor affiliate entity at a fair market value to be determined by an independent values. It also assumed that due to the fraud the AOA of the Company is also restored to the situation existing prior to 20.3.2009 and being the majority shareholder Telenor could dictate terms and get a resolution passed at the Board Meeting to the above effect and the special privilege of an affirmative vote in relation to a reserved matter enjoyed by the ISP under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Uninor to Telenor Asia PTE Ltd. at a default price of Rs. 33 per share, after recording that due to a material breach of the term of the SHA by Unitech, Telenor Asia is entitled to exercise its buy out right under the SHA. This in sum and substance is what Telenor seeks to achieve by filing the petition CP 32 u/s. 397 and 398 of the Companies Act. I therefore, unhesitatingly hold that CLB is seized of an action in a matter in respect of which the parties have made an agreement for arbitration referred to in section 44 of the Arbitration and Conciliation Act, 1996. 16. Coming to the next requirement for application of section 45 of the Act of 1996 the Applicants, i.e., the Indian Strategic Partners have moved an application CA 149 requesting for referral to Arbitration which satisfies the second limb of section 45. 17. The question that remains to be answered is whether the Arbitration Agreement contained in the SSA is or has been rendered null and void, inoperative or incapable of being performed. Shri Mookherjee, ld. Senior counsel for the Petitioners vehemently argued that by filing CP No. 33 of 2012 u/s. 397 and 398 of the Companies Act and by specifically invoking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st act of oppression that can be contemplated. ( c ) Has recklessly been issuing numerous press statements with the sole objective of harassing the petitioner and in particular with a delibrerate intent to malign the Petitioners with the view that they would succumb to the evil designs of the respondents. ( d ) Has filed a frivolous and misconceived petition claiming reliefs which cannot be granted in Company Law, only with a view to pre-empt the petition of the petitioners herein. 4. It is submitted that these, as well as several other oppressive actions of the Respondents, irretrievably prejudice the petitioners and require urgent interference by this Hon'ble Board to protect their rights." 18. Reliance was placed on Magma Leasing Ltd. v. NEPC Micon Ltd. AIR 1998 Cal. 94 and Ramasamy Athappan v. Secretariat of the Court, International Chamber of Commerce, France [2009] 3 MLJ 84. The facts contained in Magma Leasing Ltd. are clearly distinguishable as it deals with the provision of section 8 of the Arbitration and Conciliation Act and not with section 45. The provision contained in section 8 is time-bound and not really substance-bound whereas the exercise of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en statement or before taking any other steps in the proceedings unmistakably pointed out that filing of the written statement discloses such conduct on the part of the party as would unquestionably show that the party has abandoned its rights under the arbitration agreement and has disclosed an unequivocal intention to accept the forum of the court for resolution of the dispute by waiving its right to get the dispute resolved by a forum contemplated by the arbitration agreement. When the party files written statement to the suit it discloses its defence, enters into a contest and invites the Court to adjudicate upon the dispute. Once the Court is invited to adjudicate upon the dispute there is no question of then enforcing an arbitration agreement by forcing the parties to resort to the forum of their choice as set out in the arbitration agreement. Interestingly, the Supreme Court did not merely look at the filing of the written statement as an act simplicitor, disentitling the defendant to seek arbitration in terms of Section 34, without anything more. In other words, the Supreme Court did not just think that the filing of the written statement by the defendant resulted in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what constitutes abandonment can be applied to a case under section 45 of the 1996 Act also. As stated earlier, an agreement may be made inoperative by waiver. For example, if a party to a contract chooses to invoke the jurisdiction of a particular law (governing law) or a particular court, ignoring the clause relating to "governing law and jurisdiction" contained in the contract between them, it may not be open to him thereafter to turn around and make a disclaimer of the action initiated by him, if the other party has submitted himself to the jurisdiction and obtained a relief or finding in his favour. .......But the party seeking to establish abandonment must show that the other party so conducted himself as to entitle him to assume and that he did assume, that the contract was agreed to be abandoned sub silentio.......... A second type of waiver is "waiver by estoppel". It arises when the innocent party so conducts himself as to lead the party in default to believe that he will not exercise that right This type of waiver is actually an application of the principle of equitable estoppel". 20. In my considered opinion, in the present case to constitute abandonment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, even after the filing of Company Petition No. 33/2012 by the Applicants herein (ISP) on 07/03/2012 Telenor invoked the Arbitration clause by giving a notice of arbitration to SIAC on 20.03.2012 making identical factual averments as in Company Petition No. 32 and claiming idemnification by and against the Applicants of Rs. 6135.62 crores with interest @ 18% per annum and demanding that the dispute in relation to the SSA be referred to Arbitration. In CA No. 149 the Applicants have also prayed for referral of the parties to Arbitration for adjudication of the dispute arising in relation to the SSA. Thus in no manner, Telenor construed the filing of CP No. 33 by the Applicants as an unequiocal abandonment of waiver of its right to seek resolution of dispute through Arbitration. 22. Another factor which merits consideration is the conduct of the Applicants after filing of CP No. 33 by them. Despite filing C.P. No. 33 on 07/03/2012 the Applicants moved an application u/s. 45 of the Act of 1996 in CP No. 32 on 23/03/2012, i.e., soon after the notice of arbitration dated 29/03/2012 by Telenor for resolution of the dispute in relation to the SSA by referral to Arbitration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellway LLC [2007] EWHC 1363 (Comm) it was held as under:- "13. In order to show a repudiation of that agreement to refer, it was not disputed that BEA would have to show that Bellway evinced an intention no longer to be bound by that agreement and that Bellway's conduct would have to be such that a reasonable person, in BEA's shoes, would understand bellway to be saying that it was not prepared to continue with the reference. It was common ground that it was not repudiatory merely to bring proceedings in branch of an arbitration agreement, even if the claims pursued in those proceedings were plainly ones which were subject to the arbitration agreement. It was undisputed that a breach of an arbitration agreement by bringing other proceedings was only repudiatory if it was done in circumstances that showed that the party in question no longer intended to be bound to arbitrate. It was also agreed that such an intention could not lightly be inferred and could only be inferred from conduct which was clear and unequivocal. If there was some other reason for the breaching of proceedings it would be hard to infer that the party bringing them intended to renounce its obligation to arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being performed. For the above reasons, hold that all the three limbs of section 45 of the Act of 1996 are satisfied in the present case. 28. A minute perusal of the averments in the Company Petition No. 32, the SSA, SHA and the notice, dated 21.02.2012 shows that Telenor has alleged breach of the warranties and representations that led to the execution of the SSA and SHA by and against only the Indian Strategic Partners who are 32.75% shareholders in the Company i.e. the applicants herein and not against the Company. No act of oppression or mismanagement is alleged against the Company except alleging that the purported use of Veto by the Unitech nominee Directors on the Board of UNINOR is oppressive of Telenor which is acting in the best interests of the company by providing to buy the business of Uninor at fair market value. At another place it is stated that the continued presence of Unitech in the Company (Uninor) is oppressive of Telenor and prejudicial to public interest. Thus the alleged breach of SSA and SHA is attributed only to a contracting party, i.e., the ISP and not to the Company. It is not alleged that on account of any representations or warranties made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame and dismissed the Company Petition". 29. The case of Booz Allen Hamilton Inc. v. SBI Home Finance Ltd. [2011] 5 SCC 532 relied by ld. Counsel for the Petitioner is also distinguishable. In that case the suit was for enforcement of a mortgage by sale. It was held that it should he decided by a Public Fora constituted under the law of the country and not by the Arbitral Tribunal. In the present case it is not in dispute that SSA and SHA both are in the realm of contract. The disputes arising due to the breach of SSA and SHA of the contract relate to breach of a right in personam and not in rem and therefore could be referred to arbitration, i.e. a mode of resolution of disputes specifically chosen by the parties. 30. The argument of learned counsel for the Petitioner that, nominee Directors of the Applicants in Uninor were not parties either to the SSA or SHA can also not be sustained as in Company Petition No. 110 the Petitioners herein had categorically taken a plea that by joining its nominee Directors as party Respondents No. 2 to 5 and 7 who were not a party to the SHA the Applicant herein were attempting to frustrate the Arbitral Agreement. 31. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. inoperative or incapable of being performed. The CLB is a judicial authority and this fact is not controverted. It is seized of a matter in which as elaborated earlier, there is an agreement between the parties for arbitration. Thus all the ingredients of section 45 of the Arbitration and Conciliation Act, 1996, are present. Once it is so, there is no further scope for me to take into consideration the arguments of Shri S.N. Mookherjee that the Company Law Board ought not to abdicate its jurisdiction. I am bound by what law mandates me to do and to refer the parties to Arbitration. A similar view was taken by me in Vijay Sekhri v. Tinna Agro Industries Ltd. [2010] 159 Comp. Cas. 336 (CLB) which has been upheld in Appeal by the High Court of Delhi by its judgment dated 29th November 2010 in WP(C) No. 758 of 2010. Besides, as held in Chatterjee Petrochem (I) (P.) Ltd. ( supra ) the breach of SSA and SHA by the Applicants herein being rooted in contract and there being no allegation against the Company in this regard there would be no occasion for the Company Law Board to make an order either under section 397, 898 or 402 of the Companies Act. 33. The case of Sudarshan C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of this order. It would not be out of place to mention here that Shri U.K. Chaudhary, ld. Senior counsel for the Applicants, during the course of arguments in C.A. 149 did make a statement on instructions that the Applicants herein who are the Petitioners in CP. No.33 shall not oppose referral of the Parties in CP. No.33 to Arbitration if it was held that the subject matter of C.P No. 33 fell under the Agreement containing the Arbitration Clause. Since the Company Petition No. 32 is founded on averments relating to breach of contract and fraud by the Applicants and under Article 13.2.2 of the SSA and SHA the Parties have left it entirely to the domain of the Arbitrator to decide whether termination of the SHA by notice of rescission by Telenor vitiates the SHA it is appropriate that the Parties are referred to Arbitration. Considering complicated questions of facts involved it is for the Arbitrator to hold after a full trial whether the SSA and SHA are vitiated due to fraud. Telenor by claiming reliefs identical to reliefs claimed in Company Petition No. 32 in its counter-claim before the Arbitral Tribunal has left no room for any doubt that adjudication of the dispute arising ..... X X X X Extracts X X X X X X X X Extracts X X X X
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