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TMI Blog2014 (1) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... us question of applicability of section 42 of the Arbitration & Conciliation Act in respect thereof would thus not apply in respect of the subject matter of the said “SSA” - prima facie company had received notices from various authorities for payment of labour cess, income tax, entry tax liability, service tax liability, ESIS for the period subsequent to the date of the execution of the said two agreements - The demand from all such authorities is substantial amount as brought on record in the arbitration petition - Even if some part of the claim made by the petitioner before the arbitral tribunal is for damages, other than claims made arising out of notice of demand/claim made by various parties, claim made by the petitioner arising out of such notice of demand for payment of statutory dues is also substantial. Having taken prima facie view that respondent nos. 1 to 4 would be liable to reimburse the petitioner in respect of the said claims, in my view the petitioner's claim is liable to be protected/secured at least in respect of the said demand made by the parties against the said company. This court in my view has ample power under section 9 of the Arbitration and Conciliat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,81,022.50. Petitioner and respondent nos. 1 to 4 also entered into share subscription Agreement on 18th March, 2010 by which petitioner agreed and subscribed to 1,71,78,888/- shares of the said company from respondent nos. 1 to 4 for the consideration of Rs.211,30,03,224/- (for short said SSA ). It is the case of the petitioner that both these agreements were entered into by the petitioner on the strength of the representations, warranties, covenants, disclosures made and indemnities given by respondent nos. 1 to 4 as set out in the said two agreements. Petitioner accordingly acquired total of 2,19,31,233 shares in the said company for the total consideration of Rs.2,73,31,84,246.50. Petitioner deposited first trench of the purchase price of Rs.52,01,81,022.50 into escrow account pursuant to clause 3.1 of the said SPA. It was agreed by and between the parties that the payment of the purchase price including escrow account shall be conditional upon respondent nos. 1 to 4 completing conditions precedent to share closing and the said amount in escrow account (I) was not to be released to respondent no. 1 to 4 unless condition precedent to the share closing were applied by these resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt valuer to not to issue valuation certificate. According to the petitioner, the difference between the agreed value and actual value works out to Rs.41,29,00,000/-. It is alleged that the escrow account II is exhausted after accounting for the liability of the respondent nos. 1 to 4, thus respondents are liable to pay to the petitioner, entire amount of Rs.41,29,00,000/- being difference between the agreed value and actual value with interest. (c) Under clause 7.13 of the SPA, respondent nos. 1 to 4 undertook to obtain completion certificate for the IOECLEPCL-12 Panipat Project without any liquidated damages and agreed to reimburse the said company in the event of such company incurring any liquidated damages for the same. It was recorded in the said SPA that before signing of the said agreement, the said company had received notices from the concerned authorities for payment of the labour cess of Rs. 86 lacs. Under clause 9.1 of the said SPA, respondent no. 1 to 4 had agreed to indemnify the petitioner from and against any and all losses actually incurred by any of the indemnified persons resulting from any matter inconsistent with or in breach or inaccuracy of any representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/-. (g) Vide notice dated 31st October, 2011, petitioner alleged various breaches in detail in the said notice on the part of respondent Nos. 1 to 4 and called upon respondent nos. 1 to 4 to pay Rs.149 Crores by way of damages with interest making it clear that failing which the matter would be referred to arbitration as provided as provided in clause 10M(ii) and (iii) of the SSA and proposed name of a retired Judge of the Supreme Court as arbitrator. Petitioner issued similar notice in respect of the alleged breaches committed by respondent nos. 1 to 4 on the terms of the SPA and demanded various amounts from respondent nos. 1 to 4. (h) On 20th December, 2010, respondent nos 1 to 4 filed an application under section 9 of the Arbitration Conciliation Act, 1996 (Civil Misc. Application No. 1461 of 2010) in the court of the District Judge at Vadodara. The Petitioner and M/s. KPMG India Private Limited were impleaded as opponents in the said application. Respondent nos. 1 to 4 alleged in the said application that the learned District Judge at Vadodra had jurisdiction to entertain the said application being the court as defined under section 2(e) of the Arbitration Conciliat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gujarat High Court. By an order dated 5th November, 2012, on the joint request of the parties, the Supreme Court appointed Shri Justice C.K. Thakkar, former Judge of the Supreme Court to act as sole arbitrator. (k) Respondent nos. 1 to 4 have filed an application under section 16 of the Arbitration Act before the learned Arbitrator raising issue of jurisdiction that the claims made by the petitioner are not arbitrable. The learned arbitrator on such application has held that all the issues would be decided by the learned arbitrator together. 3. Mr. Tulzapurkar, learned senior counsel appearing on behalf of the petitioner submits that respondent nos. 1 to 4 have made false representation and have not disclosed all the liabilities of the said company. Though respondent nos. 1 to 4 have agreed to compensate and indemnify the petitioner for such losses suffered, as per provisions of the said SPA and SSA, respondent nos. 1 to 4 have not complied with any terms of the said agreements, did not allow independent valuer to submit report, did not obtain any NOC in respect of various projects. He submitted that several notices came to be received by the said company from various authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings all these clandestine transfers of assets are effected with a view to defraud the petitioner. The learned senior counsel invited my attention to various statements annexed to the petition to demonstrate that the control of respondent nos. 1 to 4 of respondent No. 8 to 33 in one or other way continues and transfer of their assets to these respondents are ex facie fraudulent. It is submitted that the petitioners are thus entitled to reliefs claimed in the petition and if no such reliefs are granted, petitioner would not be able to recover any amount from the respondents though petitioner has good chance of success in the arbitration proceedings. He submits that though the learned arbitrator has directed respondent nos. 1 to 4 to carry out the valuation process in accordance with clause 7.16 of the SPA by directing respondent No. 5, by order dated 30th October, 2013, respondent nos. 1 to 4 have not taken any steps so far. It is submitted that huge amount is deposited by the petitioner with respondent no. 6 in escrow account II which the petitioner is entitled to receive in view of respondent nos. 1 to 4 not complying with their obligations under the agreements. It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l regarding the orders sought by the plaintiff for direction to the defendants to disclose their assets is concerned, it is clear from the provisions of Sub-rule 2 of Rule 5 that the Court under that Rule is required to make, on being satisfied, an order against the defendants for furnishing securities, and in case the defendant fails to furnish the security within the period specified by the Court, then the Court can direct the defendant to place at the disposal of the suit the property that may be necessary or adequate for securing the claim of the plaintiff. Perusal of the provisions of Sub-rule (2) of Rule 5 of Order 38 also indicates that there is power vested in the Court to permit the plaintiffs to make an application for attachment before judgment without specifying the property in relation to which attachment is sought by the plaintiffs. Thus, provisions of Sub-rule (2) of Rule 5 of Order 38 envisage the case where the plaintiff does not know as to in relation to which property of the defendant, attachment is to be sought. In such a case, therefore, it is the Court, which will have to direct the defendant to disclose his property so that the Court can order its attachment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d senior counsel placed reliance on the judgment of the Division Bench of this court in the case of Deccan Chronicle Vs. L T Finance Ltd in Appeal (l) No. 130 of 2013 delivered on 8th August, 2013 and in particular paragraph 10 in support of his submission that though underlying basis of order 38 rule 5 has to be born in mind while deciding application under section 9 by the court, rigours of every procedural provision of Code of Civil Procedural cannot be put into place to defeat grant of relief which would subserve the paramount interest of justice. The Court has discretion to mould the relief in appropriate cases to secure interest of justice to preserve sanctity of arbitral process. Paragraph 10 of the judgment of the Division Bench in the said matter reads thus : 10. The principle is that when the Court decides a petition under Section 9, the principles which have been laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory reliefs furnish a guide to the Court. Similarly in an application for attachment, the underlying basis of Order XXXVIII Rule 5 would have to be borne in mind. At the same time it needs to be noted that the rigors of eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having jurisdiction to decide the dispute between the parties, this petition under section 9 cannot be filed in this court. Learned senior counsel fairly admits that it is not the submission of respondent no. 1 to 4 that merely because application under section 11 is filed in prior point of time by the petitioner before the Gujarat High Court, in view of section 42 of the Arbitration and Conciliation Act, this petition also ought to have been filed before the Gujarat High Court. Submission of learned senior counsel is however that since even according to petitioner, only Gujarat High Court had jurisdiction to entertain the petition under section 11 in respect of the subject matter of the arbitration, this court has no jurisdiction to entertain the proceedings under section 9. 11. Mr. Kadam, the learned senior counsel then submits that in so far as arbitration petition filed by respondent no. 1 to 4 under section 9 before the District Judge, Gujarat is concerned, without any contest by any parties, respondent nos. 1 to 4 had withdrawn the said arbitration petition by filing pursis in view of KPMG stating that there was no question of submitting fresh valuation report. It is submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no orders can be passed against those parties in this proceedings. Learned senior counsel submits that all the transfers effected by respondent nos. 1 to 4 are by registered documents and no relief for setting aside of these transfers can be granted by this court in those proceedings or by the learned arbitrator against respondent nos. 5 to 33. 14. Mr. Kadam, learned senior counsel and Mr. Kapadia placed reliance on the judgment of this court in the case of Gajanan Moreshwar Parlekar Vs. Moreshwar Madan Mantri AIR 1942 Bombay 302 and would submit that unless a person indemnified has incurred a liability and that liability is absolute, he is not entitled to call upon the indemnifier to save him from that loss and to pay it off. Relevant paragraph of the said judgment read thus : It is true that under the English common law no action could be maintained until actual loss had been incurred. It was very soon realized that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 CPC in particular, is to prevent any defendant from defeating the realization of the decree that may ultimately be passed in favour of the plaintiff, either by attempting to dispose of, or remove from the jurisdiction of the court, his movables. The Scheme of Order 38 and the use of the words 'to obstruct or delay the execution of any decree that may be passed against him' in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied that the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well-settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in so far as arbitration petition filed in this court by respondent nos. 1 to 4 is concerned, respondent nos. 1 to 4 has referred to various provisions of SPA in the said petition entered into between the petitioner and respondent nos. 1 to 4. Standard Charted Bank was appointed as escrow agent pursuant to the SPA and KPMG India Limited was appointed as independent valuer. Learned senior counsel invited my attention to paragraph 15 of the said petition in which it is averred by respondent nos. 1 to 4 that clause 11(m) of the SPA provides for arbitration in case of dispute between the parties. In prayer clause (a), respondent nos. 1 to 4 have prayed that pending constitution of arbitral tribunal, arbitral proceedings adjudication and disposal of all disputes between the petitioner and respondent no. 1 by the arbitral tribunal by an award, Standard Chartered Bank should be restrained from releasing Rs.10 Crores. It is submitted that thus respondent nos. 1 to 4 cannot be allowed to urge that the said petition was filed by invoking arbitration agreement under escrow agreement and not under SPA. It is submitted that thus both the parties have agreed that not only Gujarat court had jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is moved first in point of time becomes entitled to exercise jurisdiction to the exclusion of all other courts in relation to that arbitration. In other words, when more than one Court has jurisdiction in relation to the subject matter of arbitration, the parties to the arbitration have choice of moving any of those Courts, but if one of the parties moves one of those Courts, because of the provisions of Section 42 of the Act, the other parties lose their entitlement to move the other Court or Courts who otherwise have the jurisdiction. Thus, the provisions of Section 42 of the Act have drastic consequences. Considering that the provisions have drastic consequences, it will have to be so construed that it is not misused by a party to deny the remedies created by the Act to the other party. The object for which the provision has been incorporated is that once an application is filed in a particular Court that Court and no other Court will entertain the subsequent applications. The provisions is enacted to avoid conflict and scramble. 20. Mr. Tulzapurkar, learned senior counsel also placed reliance on the judgment of the Supreme Court in the case of Petine Shipping Incorporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d secure claim of the petitioner in the ongoing arbitration proceedings. Shareholdings and directorship of respondent nos. 1 to 4 in the other companies in which shares of respondent no. 7 are transfered, still continues with respondent nos. 1 to 4. 23. In so far as submission of respondents that since respondent nos. 5 to 33 are not parties to the proceedings, no orders under section 9 can be passed against those parties is concerned, the learned senior counsel submits that those parties are impleaded since reliefs are sought against them by way of garnishee. Such parties cannot be allowed to oppose in these proceedings on merits of the dispute between the petitioner and respondent nos. 1 to 4. These parties have to pay substantial amount to respondent nos. 1 to 4 and are accordingly impleaded in this proceedings so as to secure the claim of the petitioner. He submits that respondent nos. 1 to 4 have disclosed some of the properties of HUF without disclosing the shares of respondent nos. 1 to 4 as co-parcenors in such HUF which can be attached by the petitioner. In so far as three trusts are concerned, it is submitted that respondent nos. 1 to 4 and/or their family member are be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Chief Justice of the Gujarat High Court. In my view since the said application was not before a court as defined under section 2(e) of the Arbitration Conciliation Act, 1996, averments made by the petitioner in that application that only Gujarat High Court had jurisdiction to entertain the petition under section 11 would be of no significance. 26. It is not in dispute that even the respondent nos. 1 to 4 had filed arbitration petition under section 9 before the District Judge, Gujarat against the petitioner and M/s. KPMG. Even in the said proceedings it was averred by the respondent nos 1 to 4 that the District Judge, Gujarat had jurisdiction to entertain the said petition. The said petition was ultimately withdrawn by respondent nos. 1 to 4. 27. Respondent nos. 1 to 4 also had filed petition under section 9 of the Arbitration Act, before this court. Even in that petition it was averred that this court had jurisdiction to entertain that petition. The petitioner was a party respondent to the said petition. It was prayed in the said petition that pending constitution of arbitral tribunal, arbitral proceedings adjudication and disposal of all disputes between the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demnified person incurring any liability pursuant to a claim irrespective of any defence or right to appeal available to it. Clause 5.6 of the said agreement, clearly provided that the obligations of the promoters with respect to the representations and warranties including relating indemnity would survive for the period of three years from the date of the execution of that agreement. On conjoint reading of clause 5.6 and clause 9.3(c) of the agreement makes it clear that the promoters have to indemnify the petitioners on receipt of any such demand and/or claim irrespective of any defence or right to appeal available to the petitioner. In view of these peculiar clauses of the agreement, law laid down by this court in the case of Gajanan Moreshwar Parlekar (supra), holding that unless a person indemnified has incurred a liability and that liability is absolute, he is not entitled to call upon the indemnifier to save him from that loss and to pay it of would not apply to the facts of this case. It is not in dispute that the said company has received various such claims/demand after execution of the said two agreements between the petitioner and respondent nos. 1 to 4. In my view to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disposing of their assets to various companies. Respondent nos. 1 to 4 have invested sum of Rs.7.5 Crores and Rs. 7 Crores in respect of the respondent company in which they had already secured investment. The audited balance sheet of respondent no. 7 for financial year 2011-12 would indicate that the total investment made by respondent nos. 1, 2 and 4 with respondent no. 7 i.e. on 31st March, 2012 is approximately Rs.35,22,14,000/-. Respondent Nos. 1, 2 and 4 held to the extent of 99% shares of the said company. The investments of respondent nos. 1, 2 and 4 and respondent no. 7 have been transferred through several account downstream investment directly or indirectly into various other companies such as respondent nos. 8 to 33. Respondent nos. 1 to 4 held sizable portion of the equity shares held by respondent nos. 8 to 33 directly or indirectly owns, control respondent nos. 8 to 33 companies. Respondent no. 1 to 4 have also created various trusts and have transferred assets of respondent nos. 1, 2 and 4 pending arbitration proceedings. The shareholdings of respondent nos. 1 to 4 in various companies and their control is not disputed by respondent nos. 1 to 4 or by other res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said claims, in my view the petitioner's claim is liable to be protected/secured at least in respect of the said demand made by the parties against the said company. The record indicates that the respondent nos. 1 to 4 have transferred the most of their assets after appointment of the arbitrator by the Supreme Court to their own companies in which respondent nos. 1 to 4 have control and/are part of the management. The properties are also transferred to the trusts in which respondent nos. 1 to 4 and/or their family members are the beneficiaries. Said transfers though may be by a registered document, prima facie indicates that all these transfers effected by respondent nos. 1 to 4 are with a view to alienate or dispose of their assets with an intention to defeat the decree that may be passed in the arbitration proceedings against respondent nos. 1 to 4 and are in the nature of clandestine transactions. This court in my view has ample power under section 9 of the Arbitration and Conciliation Act, 1996 to grant interim measures even in respect of the properties which are not subject matter of the dispute in arbitration. I am bound by the judgment of this court in the case of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, petitioner has thus made out case for also issuance of direction to respondent no. 5 to carry out valuation process in accordance with clause 7.16 of the SPA. 39. In so far as the amount lying with respondent no. 6 in Escrow account II is concerned, this amount is not fetching any interest and thus it would be appropriate if the said amount is directed to be invested in the fixed deposit which would bear interest on the same terms as escrow agreement II dated 18th March, 2010. 40. I, therefore, pass the following order : (a) In so far as Arbitration Petition (L) No. 1796 of 2013 is concerned, the same is made absolute in terms of prayer clauses (a),(c ), (i), (ii), (iii), (v), (d) and (g). Respondent no. 6 is directed to transfer escrow amount II into interest bearing fixed deposit on the same terms as escrow agreement II dated 18th March, 2010 within two weeks from today. (b) Respondent nos. 1 to 4 are directed to furnish all the documents and details to respondent no. 6 to enable the respondent no. 6 to submit valuation report/certification to the arbitral tribunal. Respondent no. 5 shall submit such report before the arbitral tribunal within eight weeks from today. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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