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TMI Blog2012 (10) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... be, therefore, difficult to say that the disputes relating to conversion price of the CCD issued by the JVC to the defendant would be outside the scope of the arbitration agreement contained in the JVA dated 15.12.2009. The interim relief sought by the plaintiffs before this Court is an injunction restraining the defendant from continuing with the arbitration proceedings before SIAC. If such an interim relief is granted, it would amount to almost decreeing the suit since it will not be possible for the defendant to continue with the arbitration proceedings already initiated before SIAC. It would be unrealistic to assume that this suit would be decided in a short span permitting resumption of arbitration in the event of the suit being ultimately decided on merits. On the other hand, it is also equally true that refusal of injunction would amount to frustrating the relief sought by the plaintiffs in the absence of injunction from this Court, the Arbitrator may go ahead with the proceedings above the award, thereby giving the full fait accomplice to the plaintiffs. The plaintiffs before this Court have not been able to make out a strong prima facie case but it appears that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 upon both the plaintiffs, forwarded by Singapore International Arbitration Centre (SIAC). It was stated in the notice that JV Company had become a party to the JVA by executing a Deed of Adherence dated 19.03.2010. It was alleged in the notice that this was the obligation of the JVC as well as the plaintiff before this Court to cause the JVC to ensure that the valuation specified in the Chartered Accountant certificate was reasonable, so that the conversion rate reflected a true value of the equity shares of the JVC that the CCDs would convert to when it was due. It was alleged in the notice that the plaintiff before this Court, at the back of the defendant filed Form FC-GPR, along with a Chartered Accountant Certificate in respect of the valuation of the JVC upon conversion of CCDs into equity, in a manner which would result in the receiving only 5.7% of the equity upon conversion, instead of claimant receiving approximately 24.14% of the equity shares of the JVC upon conversion. It was further alleged that the plaintiff before this Court (respondent in the arbitration proceedings) were involved in day-to-day operation of JVC when the valuation was carried out by the Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IAC Rules may exist and asked the plaintiff to nominate their arbitrator. The copy of the decision of the Committee, however, was not provided to the plaintiffs who were informed that they may raise the said issue before the Tribunal, once it is constituted. 4. The plaintiff has sought injunction restraining the defendant from continuing with the arbitration proceedings before SIAC. 5. The defendant is yet to file the written statement, but has filed reply to the application of the plaintiff for grant of ad interim injunction during pendency of the suit. In its reply, the defendant has made a preliminary submission that the reply may not be deemed to be a submission to the jurisdiction of the Court and the merits of the case are to be decided exclusively by the arbitral tribunal to be constituted under SIAC Rules. The defendant has taken a preliminary objection that since the arbitration agreement contained in JVA dated 15.12.2009 expressly provided that any dispute will referred to the Arbitration in Singapore as per the Rules of Singapore International Arbitration Centre (SIAC), it is the law of Singapore and not the Arbitration Conciliation Act, 1996 which applies to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh such consolations within 30 (thirty) Business Days (or such longer period as Disputing Parties may, by notice in writing to the other Parties, refer the dispute to arbitration in accordance with the arbitration rules of Singapore International Arbitration Centre (SIAC) 18.2.2 The arbitration shall be conducted as follows: (i) all claims, disputes and differences among the Disputing Parties arising out of or in connection with this Agreement shall be referred to or submitted for arbitration in Singapore; (ii) the arbitration shall be conducted in English by an arbitration tribunal consisting of 3(three) arbitrators (the Arbitration Panel ). For the purposes of the arbitration, the Promoters acting together shall appoint 1 (one) arbitrator, and Gumlink shall appoint 1 (one) arbitrator. The third arbitrator shall be appointed by mutual agreement by the 2 (two) arbitrators so appointed and such third arbitrator shall act as the chairman/presiding arbitrator. In the event that the two arbitrators to be nominated as aforesaid, are unable to reach an agreement on the appointment of the chairman/presiding arbitrator within a period of 15 (fifteen) days from the date of their bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 9 of the (Indian) Arbitration and Conciliation Act, 1996. 7. Article 25 of SIAC reads as under:- 25. Jurisdiction of the Tribunal 25.1 If a party objects to the existence, validity or scope of the arbitration agreement or to the jurisdiction of the Centre over a claim or counterclaim or claim relied on the purpose of set-off before the Tribunal is appointed, a Committee of the Board shall decide, without prejudice to the admissibility or merits of a claim or claims, if it is prima facie satisfied that an arbitration agreement under the Rules may exist. The arbitral proceedings shall be terminated if the Committee of the Board is not so satisfied. 25.2. The Tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, termination or validity of the arbitration agreement. For the purpose, an arbitration agreement which forms part of a contract shall be treated as an agreement independent of other terms of the contract. A decision by the Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration agreement..... 8. Two questions came up for consideration in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has noted that the consequential relief that would flow from the first prayer, viz. for the declaration that the letter dated 17.7.2009 invoking arbitration proceedings was invalid, would be that proceedings based thereon would also be invalid. Such a relief could not be granted as that would tantamount to restraint of arbitral proceedings, which is precisely what should be assiduously avoided where the existence of an arbitration clause is not in dispute. In National Insurance Company Ltd. vs. Boghara Polyfab Private Limited (2009) 1 SCC 26, Supreme Court, inter alia, held as under:- 22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 22.1) The iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised and a conjoint reading of sub sections (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court... 10. In Mr.Devinder Kumar Gupta vs Realogy Corporation Anr. 2011(125) DRJ 129, the appellant before the Court, Shri Devinder Kumar Gupta, alleged that he was not a party to the arbitration agreement. The appellant/plaintiff in his capacity as the Managing Director of defendant No.2 in the suit, however, had entered into an agreement with defendant No.1 in the suit. He had also executed a guarantee and indemnification agreement in favour of defendant No.1. The agreement between defendant No.1 and defendant 2 carried an arbitration clause. Defendant No.1 invoked arbitration not only against defendant No.2 but also against the plaintiff Devinder Kumar Gupta. He filed a civil suit claiming that there was no arbitration clause in the guarantee and indemnif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not making a statement under Section 8 of the A C Act, the Defendant has achieved indirectly what he could not have achieved directly, namely, making it inevitable for the Plaintiff to join arbitral proceedings without any consideration or adjudication of its plea that no arbitration agreement exists between the parties. It is for this reason that it seems to us essential that the Court should have proceeded under Section 8 or Section 45 of the A C Act, as the case may be and with a view to return a finding on the existence of an arbitration agreement between the parties. If the prima facie finding is in favour of the existence of an arbitration agreement, the Court would rightly leave it to the Arbitral Tribunal to go into and determine the details and the minute objections raised by the Plaintiff. The Court ought not to skirt this issue, as it would tantamount to running counter to the decisions of the Supreme Court in Kvaerner, SBP and Sukanya. 15. However, in an international arbitration where the venue is outside India and costs are indeed prohibitive, it is our opinion, predicated on pronouncements of the Supreme Court, that the responsibility to return at least a prima fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties and in view of the decision of Division Bench of this court in Devinder Kumar Gupta(supra), it is obligatory for the civil court even while dealing with international arbitrations, to return a prima facie finding with respect to existence of an arbitration agreement, in a case where the existence of such an agreement is disputed before the Court. In Yogi Agarwal .. 2009(1) SSC 372, Supreme Court, inter alia, held as under:- 9. When a defendant invokes section 8 of the Act by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration. Obviously, the existence of an arbitration agreement with reference to some other transaction/contract to which plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an arbitration agreement' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and Conciliation Act, 1996 seeking reference to an Arbitral Tribunal and stay of proceedings till final award was made by the Arbitral Tribunal. The plea taken by the defendants was that arbitration clause in some of the agreements covered all the Joint Venture Agreements and, therefore, the suit should be referred to an Arbitral Tribunal. The seven agreements executed between different companies, were inter-dependent for their performance. All the agreements were found to be a part of composite transaction to facilitate implementation of the principal agreement. Out of the seven relevant agreements, only three contained arbitration clause. The arbitration clause in two of these agreements required reference to the disputes to arbitration in London as per ICC rules. Both the notices of motion taken out by the plaintiff in the suit were dismissed by the Division Bench by the High Court. The notice of motion taken out by the defendant was dismissed by the Single Judge, but allowed by the Division Bench. Both the judgments of the Division Benches were assailed before the Supreme Court. Rejecting the appeals, the Supreme Court held that the disputes arising from multi party ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed. 104. Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those to the an action. But this general concept is subject to exceptions which are that when a third party, i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a subsidiary agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration. 130. This policy has found a favourable mention with reference to the New York Convention in some of the countries. This is one aspect. The more important aspect as far as Chapter I of Part II of the 1996 Act is concerned, is the absence of any provision like Section 16 appearing in Part I of the same Act. Section 16 contemplates that the arbitrator ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the disputes would be referred to arbitration. 13. Both the plaintiffs before this Court are party to the JVA dated 15.12.2009. A perusal of the JVA would show that plaintiff No. 2 Sanjay Kumar Gupta holds 51% of the equity of plaintiff No. 1-company. It further shows that the defendant had agreed to form a JVC with plaintiff No.1-company, on the explicit understanding that plaintiff No. 2 would cause plaintiff No. 1 to comply with its obligations arising under the said agreement and accordingly he had become a confirming party to the agreement. Under Clause 2.2.1 of the JVA, plaintiff No. 1 and the defendant agreed to use their best effort to promote the success of the JVC which they were seeking to form and to contribute to any issue of securities made by the JVC in accordance with the agreement. Under clause 2.2.2 (ii), they undertook that every person representing them in their capacity as shareholders and every person appointed as a director in terms of the agreement would exercise any power to vote or cause the power to vote to be exercised so as to enable the approval of any and every resolution necessary or desirable to procure that the affairs of JVC are conducted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. As per clause 5.2.1, it was agreed that there shall be six directors on the Board out of which three would be nominated by plaintiff No. 1 and the remaining three by the defendant and as long as the shareholding of plaintiff No. 1 and the defendant in the JVC was in equal ratio, they would have right to nominate equal number of directors on the Board. As per clause 5.10, it was agreed that till such time plaintiff No. 1 and the defendant held 50% each of the equity of the JVC, a decision on any of the Affirmative Vote Matters at a meeting of the Boards shall require the affirmative vote of at least one director each from both the companies. As per clause 6.2, so long as plaintiff No. 1 and the defendant hold 50% each of the equity of the JVC, a quorum for the meeting of the shareholders is to be at least one authorized representative each of both the companies. Clause 6.4.1 provides that a resolution by shareholders in respect of an Affirmative Vote Matter cannot be passed without affirmative vote of at least one authorized representative each of the defendant and plaintiff No. 1 appointed to vote on their behalf. Under clause 6.4.2 both the parties agreed to exercise votin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence agreeing to be bound by the terms of JVA before such a party is registered a holder of any share. Such a third party is to be bound by all the obligations under the JVA. The approved business plan agreed between the parties is Ex.A to the JVA. The Affiliate Deed of Adherence is schedule A to the DSA, whereas the Deed of Adherence is Schedule-B to this document. 14. It is an admitted position that the form of DSA formed part of the JVA being Schedule-F to the document. A perusal of the DSA dated 21.04.2010 would show that it expressly refers the clause 10 of the JVA which provides for initial funding of the JVC. It also shows that the funding by way of CCD was provided by the defendant in terms of its obligations under the JVA. A careful analysis of the JVA and DSA form of which was annexed to JVA as Schedule- F and the Deed of Adherence executed between the parties to the suit and the JVC clearly show that the JVA was the principal agreement between the parties and the DSA was an offshoot of this principal agreement, having been executed towards fulfilment of the obligations contained in the JVA. The JVC was set up only in furtherance of the JVA executed between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ds issued by JVC to the defendant is nothing but a dispute between the plaintiffs and the defendant, the JVC being only an alter ego of the parties to the suit. It is the conduct of JVC through the representative of the plaintiffs on its Board of Directors which has given rise to the dispute which the defendant wants to be adjudicated by the Arbitrator. It is, therefore, not be possible to keep the plaintiff out of the disputes which are subject matter of the arbitration initiated by the defendant. In the case of Chloro Controls (I) Pvt. Ltd. (supra), Supreme Court found that the intention of the parties was that all the agreements were to form parts of a composite transaction and the principal of agreements with an agreement could be safely applied. Same is the position in the case before this Court. It is the JVC dated 15.12.2009 which is the core agreement and which governed the other document, including the DSA dated 21.04.2010. It would be, therefore, difficult to say that the disputes relating to conversion price of the CCD issued by the JVC to the defendant would be outside the scope of the arbitration agreement contained in the JVA dated 15.12.2009. The interim relief s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udent. In my view, the plaintiffs before this Court have not been able to make out a strong prima facie case. The Board Committee of SIAC has considered the objection of the plaintiffs with respect to the scope of the arbitration agreement and has opined that an arbitration agreement does exist between the parties. The opinion formed by the Committee is in conformity with the prima facie view formed by this Court. In fact, prima facie it appears to me that the scope of the arbitration agreement contained in the JVA extends to the current disputes between the parties. No irreparable loss would be caused to the plaintiffs in case the defendant is not restrained from continuing with the arbitration to inasmuch they have an opportunity to establish before the Arbitrator that the current disputes between the parties are beyond the scope of the arbitration clause contained in the JVA. In case their plea is not accepted by the Arbitrator, they would be entitled to raise plea when execution of the award which may be passed against them, is sought. I, therefore, find no reasonable ground to restrain the defendant from proceeding with the arbitration proceedings invoked by it. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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