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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 ..... funding and a Debenture Subscription Agreement(DSA) dated 21.04.2010 was executed between JV Company and the defendant whereby the JV Company agreed to allot 46,68,678 CCDs for aggregate consideration of Rs.4,66,86,760/- to the defendant. The JV Company was required to file with the Reserve Bank to India (RBI) Form FC-GPR along with a certificate of Chartered Accountant specifying, inter alia, the conversion price for such CCDs. The said filing was done by JV Company on 07.05.2010. 2. The defendant served a notice of arbitration dated 2.4.2012 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the said tribunal. The plaintiff also sought appointment of a committee of the Board, as per Rule 25.1 of SIAC Rules, to decide their objections as to existence, validity and the scope of the arbitration agreement or to the jurisdiction of SIAC over the claim. SIAC agreed to place the objections of the plaintiffs before the Committee of Board and vide communication dated 25.07.2012 informed them that the committee, on consideration of the relevant documents had come to a prima facie conclusion that the arbitration agreement under SIAC 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 dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e defendant are party to the JVA dated 15.12.2009. Clause 18.2 of the JVA, to the extent it is relevant, reads as under:- "18.2 Arbitration 18.2.1 In the event a dispute arises out of or in relation to or in connection with the interpretation or implementation of this Agreement (including the validity of this Agreement), or any Section hereof, the Parties (the "Disputing Parties") shall attempt in the first instance to resolve such dispute through amicable consultations among the Disputing Parties. If the dispute is not resolved through 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any award made pursuant to this Agreement. 18.2.4. The provisions contained in this Clause 18.2 are severable and shall survive the termination of this Agreement. 18.2.5. The parties expressly agree that Part I of the Indian Arbitration & Conciliation Act, 1996 shall not apply to the arbitration provisions contained herein, and the aforesaid Part I is hereby expressly excluded, except that the relevant parties shall have the right to approach appropriate Courts in India for grant of interim measures of protection under Section 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Tribunal itself, on a conjoint reading of Section 16 and Section 5 of the A&C Act. According to the Respondent, the only exception to the general rule that Civil Courts possessed no jurisdiction over arbitral proceedings was the power conferred by the statute under Section 9 of the A&C Act to pass interim measures. Therefore, the suit was not maintainable. 13. We are also satisfied that the learned Single Judge has rightly concluded that the suit is barred under Section 34 of the Specific Relief Act, 1963. It 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 Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with which the Arbitration and Conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power on the arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the arbitral Tribunal has the power to 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 Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered on its merits, regardless of whether the Arbitration Proceedings are impeded in the process. 13. The learned Single Judge was statutorily bound to return a finding with regard to whether or not the action or suit was the subject matter of an arbitration agreement." The dismissal of the Suit or the rejection of the application for interim relief under Order XXXIX Rules 1 and 2of the Code of Civil Procedure, 1908 (CPC) has the effect of referring the parties to arbitration. By sagaciously 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act does not apply and it is Section 45 of the Act which needs to be applied in the matter. It would be seen from a perusal of Section 45 of the Act that if there is an arbitration agreement between the parties, the Court, on the request of one of the parties is required to refer the matter for arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. However, this Section pre-supposes existence of an arbitration agreement between the 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure Company. In two notices of motion taken out by the parties, the principal question for consideration before the High Court was with respect to the scope of the Joint Venture Agreement. The applicant had sought an injunction restraining respondents their foreign collaborators from acting upon the notice indicating termination of the Joint Venture Agreements and supplementary collaboration agreement. The defendant in the suit took out another motion under Section 8 read with Section 5 of Arbitration 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 agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an 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 dependi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of such dispute upon the arbitral tribunal itself. But wherever the Court decides in terms of categories mentioned in paras 22.1 and 22.2, the decision of the Court is unreviewable by the arbitral tribunal. With respect to challenge envisaged in Section 45 of the Act, the Court was of the view that it has to be serious challenge to the substantive contract and in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed 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 seek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e JVC as per the approved business plan. A perusal of clause 3.3 of the agreement would show that plaintiff No. 1 and the defendant were to hold 50% share each in the JVC. Clause 3.4.1(i) required the JVC to become a party to the agreement by executing a Deed of Adherence by passing necessary Board and Shareholder Resolution. A perusal of clause 3.4.1 (j) would show that the JVC was required to execute agreements mentioned therein, including supplementary agreement with the defendant. 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 def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under clause 11.1, it was agreed that the party shall not transfer any share/security or voting interest, except as required or permitted under the JVA and/or DSA. Any transfer of share/security/voting rights in violation of the JVA is to be treated null and void and neither the Board of JVC nor the parties to the agreement have to approve or ratify such transfers which would contravene the provisions of the JVA. Clause 12.4 of the JVA requires a third party to sign a Deed of Adherence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manner envisaged by the JVA dated 15.12.2009. If we separate the JVA from the subsequent documents, they would be referred ineffective for the simple reasons that the JVC was required to confirm to the provisions of the JVA and could not have acted in their contravention. JVC is nothing but a joint venture of plaintiff no.1 and the defendant. The plaintiff no.2 owns more than half of the equity of plaintiff no.1 company. The disputes with respect to conversion price of CCDs 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court and do violence to the sense of justice, resulting in injustice being perpetuated throughout the hearing, and at the end the Court would not be able to vindicate the cause of justice. Obviously such would be rare cases accompanied by compelling circumstances, where the injury complained of is immediate and pressing and would cause extreme hardship. The conduct of the parties shall also have to be seen and the Court may put the parties on such terms as may be prudent." 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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