9911796707
TMI Blog2014 (1) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... h are relevant for the purpose of deciding these two petitions are as under : (a) Respondent No. 1 to 4 are the erstwhile promoters and shareholders of the company Welspun Projects Ltd (Formerly known as MSK Projects (India) Limited), (hereinafter referred to as "said company"). Respondent nos. 1 to 4 were desirous of disposing of their entire share holding of the said company and petitioner agreed to purchase the same. On 18th March, 2010, petitioner and respondent nos.1 to 4 entered into a share purchase agreement. By the said Purchase Agreement (for short "said SPA"), petitioner agreed to purchase 47,32,545 shares in the said company from respondent nos 1 to 4 for the total consideration of Rs.62,01,81,022.50. 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 indemniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deviation between the two values was more than Rs.5,00,00,000/-, the negative deviation would be subtracted from Escrow account II. According to the petitioner, since Escrow account II was no longer available due to be released to the petitioner, respondent nos. 1 to 4 were required to pay differential amount to the petitioner forthwith and in any event within seven days from the date of the report of the independent valuer. (b) It is the case of the petitioner that respondent nos.1 to 4 by their various communications refused to allow independent valuer to carry out valuation for the purposes of determining the actual value and have committed breach of the said SPA and have instructed the independent 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, resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to petitioner, as on 11th October, 2012, respondent Nos 1 to 4 became liable to pay Rs.51,76,25,033/- to the petitioner with further interest thereon under the said SPA. (e) In so far as the said SSA is concerned, according to petitioner, respondent nos.1 to 4 committed several breaches of the said agreement and as a result thereof, respondent nos. 1 to 4 became liable to pay to the petitioner sum of Rs.1,64,91,73,248/- and Rs.2,62,50,39,273/- with interest thereon. (f) It is the case of the petitioner that since respondent nos. 1 to 4 did not allow the independent valuer to submit report on the difference in value of the agreed value and actual value, petitioner obtained a report from an independent valuer and according to such report, there was difference of Rs.41,29,00,000/-. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (6) of the Arbitration Act before the High Court of Gujarat at Ahmedabad for appointment of arbitral tribunal against respondent nos. 1 to 4 and Ashoka Khurana (HUF) under the said SSA. In Paragraph 15 of the said application, it was stated that High Court at Gujarat alone had jurisdiction to entertain, try and dispose of the said application as the respondents were residents of Vadodara Gujarat and principal civil court having jurisdiction to decide the dispute between the parties fell within the local limits of Gujarat High Court. The Gujarat High Court appointed Shri Justice D.A. Mehta, former Judge of Gujarat High Court as sole arbitrator. Respondent Nos. 1 to 4 filed special leave petition against the said order dated 6th July, 2012 passed by Gujarat High Court nominating Shri Justice D.A. Mehta, retired Judge of 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nos. 1, 2 and 4 have also created three trust known as Madhav Trust, Madhav Ashok Trust, Armaan Amit Trust for the purposes of transferring the assets of respondent nos. 1, 2 and 4 or to part with their assets pending the arbitration proceedings in those trusts with a view to defeat the award that may be passed in favour of the petitioner and against them. The learned senior counsel submits that the members of the family of respondent nos. 1, 2 and 4 are beneficiaries of those trusts. It is submitted that though respondent nos. 1, 2 and 4 have alleged to have transferred their shares in respondent no. 7 company, It is clear that respondent nos. 1, 2 and 4 continues to be directors or have control of the respondent no. 7 company and other respondents. It is submitted that during the pendency of the arbitration proceedings 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by this court recording the statement made by the respondent nos.1 to 4 through their learned counsel. 6. Mr. Tulzapurkar learned senior counsel placed reliance on the judgment of this court in the case of Marine Container Versus Rajesh Vora, 2002 Vol.104(1) Bom.L.R. 273 and in particular paragraph 6 in support of his submission that under order 38, Rule 5 of Code of Civil Procedure, 1908, the court has power to permit the plaintiff to make an application for attachment before judgment without specifying the property in relation to which attachment is sought by the plaintiff and has power to direct the defendant to disclose his property so that the court can pass order of attachment. Relevant part of Paragraph 6 of the said judgment reads thus : "Insofar as the objection of the learned Counsel 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct matter of the dispute in arbitration. It is clear that for granting interim measures or protection, the Court would not have power to grant such interim measures, if it is for preservation, interim custody or sale of any goods, the detention, preservation or inspection of any property or thing or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried unless such goods or property are subject matter of arbitration. I am, thus, not inclined to accept the submission of the respondent that if the petitioner gives up its claim for enforcement of mortgaged properties, no interim measures can be granted under section 9 by this Court for recovery of money claim simpliciter." 8. Mr. Tulzapurkar, learned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... territorial jurisdiction. It is submitted that the petitioners had filed arbitration application under section 11 of the Arbitration & Conciliation Act before Gujarat High Court, much prior to the date of filing of this application under section 9 before this court. My attention is invited to para 15 of the arbitration application filed by the petitioners before Gujarat High Court in which petitioners have averred that Gujarat Court alone had jurisdiction to entertain, try and decide the said petition and as the respondents to that petition were residents of Vadodara, Gujarat which is Principal Civil Court having jurisdiction to decide the said dispute between the parties. It is submitted that considering such averments, Gujarat Court was pleased to appoint an arbitrator. Learned senior counsel submits that since it was petitioner's own case that application under section 11 would fall within jurisdiction of Gujarat High Court as the said court only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liabilities are crystalized and unless any payment is made by the company arising out of said notices issued by the authorities, the petitioner cannot invoke these indemnities and call upon the respondent to make any payment. 13. In so far as creation of various trusts and transfer of shares to various companies are concerned, it is submitted that respondent nos. 1 to 4 have received consideration from respondent nos. 1 to 4 for transfer of those shares and are free to invest those amounts in any of their companies. Such transfer is not fraudulent or is effected with a view to defeat any claims of the petitioner. It is submitted that in any event, since the claim of the petitioner is false and frivolous and in any event is for damages, no interim orders by way of garnishee orders can be issued by this court. Respondent nos. 5 to 33 are neither parties to the arbitration proceedings nor are even parties to the arbitration agreement and thus 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that since these respondents are not parties to the arbitration agreement or any arbitration proceedings, no orders can be passed by this court under section 9. It is submitted that this court has no jurisdiction to pass any order against those parties. 16. Learned counsel placed reliance on the judgment of the Supreme Court in the case of Raman Tech & Process Engg. Co. and anotehr Vs. Solanki Traders, 2008(2) SCC 302, in support of his submission that the purpose of order 38 rule 5 is not to convert unsecured debt into secured debt. Before exercising power under Order 38 rule 5, the court has to be satisfied that there is a reasonable chance of decree being passed in the suit against the defendant. Paragraph 4 and 5 of the said judgment, read thus : "4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 CPC in particular, is to prevent any defendant from defeating the realization of the decree that may ultimately be passed in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceedings. 18. Mr. Tulzapurkar learned senior counsel for the petitioner in rejoinder submits that there was no application filed under section 11 by the petitioner before the Gujarat High Court in so far as SSA is concerned. Section 42 of the Arbitration Act thus in any event, would not apply in respect of the subject matter of the said SSA. In so far as issue of jurisdiction raised by respondent nos. 1 to 4 in respect of the arbitration petition filed by the petitioner arising out of the said SPA is concerned, the learned senior counsel submits that even if respondent nos. 1 to 4 had withdrawn the petition filed under section 9 before the District Judge, Vadodara, it was contended by respondent nos. 1 to 4 in the said proceedings that the District Judge had jurisdiction to entertain the said petition being court under section 2(e) of the Arbitration Act, being principal Civil Court of the original jurisdiction in the district and the parties in the said SPA had agreed to the jurisdiction before that court. Mr. Tulzapurkar then submits that 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 vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent by the Award or in the alternative security. (e) That present petition was filed in the Court on 29.6.2005. (f) That till 29.6.2005 neither the respondent nor the Baroda Court informed the petitioner that on 5.5.2005 application under Section 9 of the Act has been filed. (g) That the period of three months provided by Section 34 of the Act for filing petition under that provision expired on 7.7.2005. (h) That the petitioner got knowledge that application under Section 9 of the Act has been filed by the respondent because he was served with the notice from the Baroda Court either on 14.7.2005 or on 20.7.2005. The submission of the petitioner is that the provisions of Section 42 of the Act should be so interpreted that they cannot be used by the party in whose favour an award has been made to deny the party who is aggrieved by the Award, the remedy provided by the Act for challenging the Award. Reading of the provisions of Section 42 of the Act shows that in case where more than one Court has the jurisdiction over the subject matter of the arbitration, the Court which is moved first in point of time becomes entitled to exercise jurisdiction to the exclusion of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el also invited my attention to clause 5.6 of the agreement which provides 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 execution of the agreement. It is submitted that thus it cannot be urged by the respondents that unless the liabilities are crystallized and paid by the petitioners, respondent nos. 1 to 4 cannot be directed to indemnify in respect of such demand. 22. In so far as submission of Mr. Kadam and Mr.Kapadia that respondent nos.1 to 4 became active in business after selling of the shares in the said company to the petitioner is concerned, it is submitted that the respondent nos. 1 to 4 already held shares in respondent no. 7 company when the agreement were entered into with the petitioner. These transfers are affected within fifteen days from the date of order of Supreme Court appointing arbitrator which indicates that the same are clandestine transfers. It is submitted that this court has thus ample powers under section 9 to protect and secure claim of the petitioner in the ongoing arbitration proceedings. Shareholdings and directorship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the date of filing of this application under section 9 before this court. The learned senior counsel appearing for the respondent led emphasis on the averments made by the petitioner in that application filed under section 11 by which the petitioner herein had averred that the Gujarat Court alone had jurisdiction to entertain, try and decide the said application as the respondents to that petition were residents of Vadodara Gujarat. In my view since the said application filed by the petitioner under section 11 before the Chief Justice of Gujarat High Court was not before the court, section 42 of the Arbitration Act would not be attracted to this petition filed under section 9 on the basis of the earlier application filed under the said agreement before the Gujarat High Court. Mr. Tulzapurkar learned senior counsel rightly placed reliance on the judgment of the Division Bench of this court in the case of Vachaspati Sharma (supra) in support of his submission that section 42 would not be attracted to the arbitration application filed by the petitioner under section 11 before the Chief Justice of the Gujarat High Court. In my view since the said application was not before a cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded those parties so as to secure the claim of the petitioner. Any parties who are likely to be affected by any reliefs claimed in petition under section 9 can be made parties to such petition even though such parties may not be party to the arbitration agreement. In my view, there is no merit in the submission of Mr. Kadam learned senior counsel and Mr. Kamat learned counsel appearing for some of the respondents that no orders can be passed against such parties in this petition under section 9. 29. In so far as submission of respondent nos. 1 to 4 that since claims made by the petitioner are for damages and part of it arising out of the notices issued by some of the authorities against the said company for recovery of their alleged dues, and such liabilities not having been crystallized and are not absolute petitioner could not have invoked the indemnity clause is concerned, a perusal of clause 9.3(c) of the said SPA in my prima facie view provides for obligation of the promoters to indemnify the petitioner which arises immediately upon the working promoters and/or the indemnified person incurring any liability pursuant to a claim irrespective of any defence or right to appeal av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MG. The said amount of Rs. 10 Crores is lying in escrow account with respondent no. 6 and is not fetching any interest. 32. On perusal of the record, I am of the prima facie view that the 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. In my prima facie view on interpretation of the clause 9.3(c) and 5.6 I am of the view that the promoters are liable to indemnify the petitioner for such liability demanded by various authorities irrespective of the fact whether the petitioner would have any defence or right to challenge those notices of demand/claim. The demand from all such authorities is substantial amount as brought on record in the arbitration petition. Respondent Nos.1 to 4 have not disputed the factum of receipt of such notice/demand from various authorities by the said company. 33. Perusal of the record also indicates that since September/October, 2013, respondent nos. 1 to 4 have started disposing of their assets to various companies. Respondent nos. 1 to 4 have invested sum of Rs.7.5 Crores and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitral process. 35. The Supreme Court in the case of Raman Tech (supra), relied upon by Mr. Kadam appearing for respondent no. 1 to 4 has held that before exercise of powers under Order 38 rule 5, the court should be satisfied that there is reasonable chance of decree being passed in the suit against the defendant and plaintiff has prima facie case. It is held that merely because there is chance or valid claim or prima facie case, plaintiff would not be entitled to order of attachment before judgment unless he deposes that the defendant is attempting to alienate or dispose of his assets with an intention to defeat the decree that may be passed. 36. 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al capacity are thus entitled to file this petition for interim measures. In my view, there is no merit in the submission of the learned senior counsel about the locus of the petitioners for filing this petition. 38. In my prima facie view, petitioners have good chance of succeeding in the arbitration proceedings and if the interim measures are not granted so as to secure the claim of the petitioner, even if the petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from respondent nos. 1 to 4. Learned counsel for the petitioner and respondent nos. 1 to 4 submits that the arbitral tribunal has already passed an order directing respondent no. 5 to carry out valuation process. It is the case of the petitioner that inspite of the said order passed by the arbitral tribunal, respondent nos.1 to 4 have not submitted documents to enable the respondent no. 5 to carry out valuation process in accordance with clause 7.16 of SPA and/or have not taken any steps to comply with the order passed by the arbitral tribunal. In my view, petitioner has thus made out case for also issuance of direction to respondent no. 5 to carry out valuation process in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
