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TMI Blog2012 (9) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... Kavasmaneck Versus Maharukh Murad Oomrigar Percy Rutton Kavasmaneck, Aban Rutton Kavasmaneck, Colin Mario Rebello of Mumbai, Conrad Anthony Rebello, And Godrej Industries Limited MOHIT S. SHAH, C J AND N.M. JAMDAR, JJ. Mr.Anil Divan, Senior advocate, Mr. V. Dhond Senior advocate and Mr. Anil Jamsandekar, Mr.Pravin Samdani, Mr. Anil Divan, Mr. V. Dhond, and Mr. Anil Jamsandekar Snehal Shah a/w Shriraj Dhruv, Khyati Ghevaria and Manish Acharya i/by Dhru Co. for the applicants Mr.Rohit Kapadia, Senior advocate, Mr. Pravin Samdani, Mr. Snehal Shah, Mr. Shriraj Dhruv, Khyati Pandit and Manish Acharya i/b. Dhru Co, Mr. Simil Purohit,. Mustafa Kachwala, Mr. R.M. Kadam, Ankita Singhania, Mr. Saurabh Gadkari Mr. Ranjit Shetty, Shri Venkatesh Dhond, Mr.Rohit Kapadia, Senior advocate, Mr. Pravin Samdani, Mr. Snehal Shah, Mr. Shriraj Dhruv, Khyati Pandit and Manish Acharya i/b. Dhru Co, Mr. R.M. Kadam, Ankita Singhania. D.H. Law Associates, Mr. Saurabh Gadkari with Mr. Ranjit Shetty, Little Co., for the respondent JUDGMENT : N.M. JAMDAR, 1. These four appeals arise from the orders passed in two Arbitration Petitions, which were heard together by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avasmaneck and Maharukh Oomarigar 8115 13% 3 Colin and Conrad Rebello 2640 4% Total : - 34% (approx) Minority shareholders together hold about 34% equity share capital of the Company. Majority share holding is owned and controlled by Dr.Keki Hormusji Gharda. Thus, Kavasmanecks and Rebellos together constitute a sizable minority in the Company. 6. Gharda Chemicals Limited is a closely held Company belonging to Gharda and Kavasmaneck families. The Company was formed by taking over family partnership of M/s Gharda Chemicals Industries. The Company was incorporated as a Private Company, which later became a deemed public Company, by virtue of its turnover, under Section 43A of the Companies Act, 1956. On 24 August 1989, Dr. Gharda issued a circular, informing the share holders that he has decided to transfer his share in the Company to Gharda Research Foundation. It was a Company incorporated under Section 25, held and controlled by Dr Gharda. The Circular requested other shareholders to donate their shares to the foundati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ews. The Minority shareholders also confirmed that they were not intending to sell their shares. However, in view of these news reports, Godrej filed Arbitration Petition No.346 of 2009 in this Court. By an order dated 12 March 2009, this Court restrained the minority shareholders from selling, transferring and/or in any manner whatsoever dealing with the shares owned by them in the Company. On 6 October 2009, Arbitration Petition No. 346 of 2009 was finally disposed of and the injunction was continued till the constitution of the Arbitral Tribunal and six weeks thereafter. By an order dated 12 March 2011, a sole Arbitrator came to be appointed and the Godrej filed an application under Section 17 of the Arbitration Act before the Arbitrator. The Arbitral Tribunal continued the injunction granted against the minority shareholders restraining them from dealing with the shares. Thus all the minority shareholders were restrained from selling the shares. However, to the surprise of the petitioners, Godrej suddenly sought to withdraw the Arbitral proceedings and prayed that the interim injunction granted by Arbitral Tribunal should be vacated. This appeared to have been done since there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sought to be referred for the Arbitration, and since the shares are irreplacable and have a special value, pending the Arbitration Proceedings, no party be permitted to dispose of or deal with these shares. Godrej opposed the petition contending that the petitioners have failed to repay the loan, and have committed several breaches of the MoU. Godrej contended that the MoU is being misinterpreted and the petitioners not acting as per MoU. On one hand petitioners are contending that the shares should not be dealt with till the Company becomes public while on the other hand are taking steps to oppose the Company going public. The negative covenant sought to be relied upon does not bind Godrej. In fact the covenant is incorporated to safeguard the interest of Godrej. On behalf of Percy and Aban it was contended that there is no arbitration agreement amongst the Minority shareholders and, therefore, there is no question of granting any relief under Section 9 of the Arbitration Act. They urged that in fact the minority shareholders interse are governed by a separate MoU and significantly that separate MoU does not contain any Arbitration clause. 13. After hearing the arguments, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants, Shri Anil B. Divan and Shri V.R.Dhond, learned Senior advocates appeared on behalf of Godrej. Shri R.M.Kadam, learned Senior advocate appeared on behalf of Percy and Aban Kavasmaneck. For respondents, Shri Rohit Kapadia, and Shri Pravin Samdani, learned Senior advocates appeared on behalf of Jer and Darius Kavasmaneck. Shri Simil Purohit, learned advocate appeared on behalf of the Rebellos. No appearance was entered on behalf of Maharukh Oomarigar. 16. On behalf of Godrej, Shri Divan and Shri Dhond, learned Senior advocates submitted : (a) While granting order under Section 9 of the Act, principles which govern the grant of injunction have to be kept in mind namely : prima facie case; balance of convenience and conduct of the parties. On all these counts the petitioners have failed to make out any case. (b) Apart from the MoU, the Kavasmanecks have executed loancumpledge agreement and power of attornies which give absolute right to Godrej to deal with the shares. (c) PetitionersJer and Darius Kavasmaneck have suppressed loan pledge agreement and power of attornies and this conduct alone disentitles these petitioners from any equitable relief. These documents have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse of Lords in the case of Alghussein Establishment v Eton College[1991] 1 All ELR 267) (k) The shares having been pledged, the loan having not been repaid, the respondents committing breaches of the MoU, Godrej Industries, was constrained to take steps to perfect its security and no injunction can be granted against the Godrej from doing so. (l) Finding of the learned single Judge that since there was an interim injunction operating between the parties in the arbitration proceedings filed by Godrej Industries same should be continued in the present case also, is erroneous as the rights of Godrej and minority shareholders stand on different footing. (m) The grant of injunction by the learned Judge without considering that the respondents are opposing the status of the Company, as a public Company, has created a situation whereby Godrej will not be able to recover its monies in forseeable future. (n) The MoU is impossible to be enforced since the respondents are in minority and cannot convert the Company into a Public Limited Company on the strength of the shares they hold. (o) Godrej Industries is also fully entitled to deal with the shares as the MoU and agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Petitions have referred to the documents alleged to be concealed and, therefore, there is no question of any suppression of any documents. Since the Godrej was fully aware of these documents and the interim order was being sought after notice to the Godrej, no benefit or advantage was tried to be obtained, or was obtained by not annexing these documents. (c) The argument made on behalf of Godrej Industries that it is entitled to deal with shares in their own right is completely contrary to the stand taken by them in the pleadings whereby they have reiterated that the shares are only pledged with them. There is a variance in the argument of the Counsel appearing in two appeals, on this aspect. (d) Till date, Godrej has never demanded repayment of loan and nor has it demanded payment of dividend. The respondents are ready to repay the principal amount of loan to the Godrej and since the shares are only pledged, Godrej should return the shares back to them. In a letter written by Adi Godrej, dated 13 June 1992 which is suppressed by Godrej, interest is specifically not claimed. (e) The interpretation of the MoU clearly shows that the MoU uses different expressions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els Ltd v. Orissa Manganese and Minerals Pvt Ltd. (AIR 2007 SC 2563) emphasized the above position by observing as under. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well known rules and it is difficult to imagine that the legislature while enacting S.9 intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the section itself brings in, the concept of 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of the section, 'and the Court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it' also suggest that the normal rules that govern the Court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary Court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that Court would govern the exercise of power conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering. [see Sudarshan Trading Co. v. Govt. of Kerala (1989) 2 SCC 38 and State of U.P. v. Allied Constructions (2003) 7 SCC 396]. In M/s Sudarshan Trading Co. vs. The Govt. of Kerala and another(AIR 1989 SC 890) Apex Court observed in paragraph 32 as follows The High Court in the judgment under appeal referred to the decision of the Division Bench of the Kerala High Court in State of Kerala v. Poulose, (19871 Ker LT 781) (supra). Our attention was also drawn to the said decision by the counsel for the respondents that if an arbitrator or the umpire travels beyond his jurisdiction and arrogates jurisdiction that does not vest in him, that would be a ground to impeach the award. If an arbitrator, even in a nonspeaking award decides contrary to the basic features of the contract, that would vitiate the award, it was held. It may be mentioned that in so far as the decision given that it was possible for the court to construe the terms of the contract to come to a conclusion whether an award made by the arbitrator was possible to be made or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se shares. According to the petitioners, they have not given any cause to warrant appropriation of security by Godrej. The contention of Godrej is that the petitioners breached the MoU and thus the Godrej Industries is entitled to perfect their security. Thus, we will have to consider whether the interpretation of the MoU and the documents on record show that the petitioners have committed the breach of the MoU and have acted in such a manner that they are not entitled to the protection granted by single Judge before the dispute is adjudicated by the Arbitrator. 28. The MoU is a peculiarly complicated arrangement. The MoU is executed between Kavasmanecks, Oomarigar and Rebellos individually with Godrej, for finance. The MoU refers that the Minority shareholders are entitled to preemption rights in respect of the shares of the Company and they had requested Godrej Industries to finance the acquisition of shares. The MoU records that Godrej Industries will make available finance available to purchase the shares that may be offered to the Minority shareholders. For that purpose certain modalities were laid down as under : (Party of the First Part = five shareholders in minority/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Other Part shall return to the party of the First Part equal number of shares of the party of the First Part pledged by them with the party of the Other Part in the first instance along with (i) Share Transfer Forms signed in blank; (ii) Proxy Forms; (iii) Irrevocable Power of Attorney in favour of the party of the Other Part in respect thereof (b) In the event of the party of the Other Part requiring the party of the First Part to offer for sale any of the share purchased with the finance made available by the party of the Other Part, the party of the Other Part shall hand over to the party of the First Part such shares along with the documents mentioned hereinabove and shall receive from the party of the First Part in substitution of such shares equal number of its shares along with all the documents. The shares received as aforesaid shall be returned to the party of the First Part on receiving the sale proceeds of the shares required to be sold or on the party of the First Part executing the required transfer forms in favour of the party of the Other Part or its nominees on due compliance with the provisions of Article 57 of the Articles of Association of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock Exchange. 31. The petitioners filed the present petition under Section 9 of the Arbitration Act because the Godrej unilaterally tried to lodge shares of the petitioners with the Company and the Arbitration petition filed by Godrej was sought to be withdrawn by them and it came to light that Minority Shareholders were no longer together, and the break away group was supporting Godrej. In the Arbitration Petition, the Petitioners enumerated their apprehension and the reason for moving an application under Section 9, in the following words 6. In the circumstances, it is submitted that there is a valid and subsisting Memorandum of Understanding dated June 3, 1992 between the Petitioners and the Respondents. Under the Godrej MOU the parties thereto have undertaken that they shall not sell, alienate, dispose of or transfer the shares held by any one or more of them until the shares of GCL are listed on any recognised Stock Exchange. The Godrej MOU has been acted upon and implemented by the parties thereto and is binding on all parties and the covenants contained therein enure for the benefit of all parties equally. The 6th Respondent invoked the Godrej MOU and sought an injun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners would fetch in a listed company cannot be compared to the value of an unlisted company. Besides, the value of the Petitioners' shartes that are in custody of the 6th Respondent is far in excess of the amount financed by the 6th Respondent. It is significant that the 6th Respondent in Godrej's Arbitral Proceedings has stated that it has advanced an amount of ₹ 10.34 Crores to the minority shareholders. It has, Godrej's Arbitral Proceedings also stated that it is in possession of 6221 equity shares. As per the news report relied upon by the 6th Respondent the value of GCL is in the region of ₹ 2400 crores and consequently the value of the shares that the 6th Respondent holding on will be in the region of ₹ 233 Crores. The Petitioners are always ready and willing to abide by and comply with and perform the Godrej MOU . 32. First question is whether the parties are still bound by the MoU. The petitioners have asserted that the MoU continues to operate and is binding on all the parties. A reply has been filed on behalf of Godrej in which it is acknowledged and asserted that the MoU is subsisting and binding on all the parties. Thus we proceed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to have the transfer of the shares registered by the Company in the name of the party of the Other Part . Clause 21 : Both parties agree, confirm and declare that it is their intention to convert the Company into a public limited Company listed with a recognized stock exchange as soon as possible. 35. It was contended that the petitioners have taken steps contrary to Clauses 9 and 21. The original petitioners have taken steps to ensure that the Company does not become public and have opposed the declaration of the Company becoming public. It was, contended that the Petitioners have opposed registration and transfer of 3199 shares and also obstructed transfer of 461 shares. Furthermore the petitioners have not been paying dividends on the shares purchased from the loans advanced by Godrej. Reliance is placed on the judgment of the learned Company Judge of this Court in Company Appeal No.24/2010. In this appeal, the original petitioners contended that the Company is not a public Company. Thus, the original petitioners are creating a situation whereby Clause 16 will never come to an end and monies advanced by Godrej will continue to be locked up and if injunction is grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shares become freely tradable. It is for this purpose, MoU was entered into and free marketibility of shares is the end situation the Minority Shareholders have been striving for. There is no question of opposing the status of the Company becoming a public company as the company any way by virtue of its turnover was already a deemed public company. The MoU was not regarding the Company becoming Public Company alone, but making it's shares become fully tradable on the stock exchange. We have not been shown that the petitioners anytime opposed the listing of the shares on a recognised stock exchange. According to us therefore the petitioners have not committed breach of Clause 21 of the MoU. The attempt of the petitioners is only to ensure that the petitioners are not deprived of their shareholding before the shares become fully tradeable on the stock exchange. 37. The second breach of the MoU alleged was that the petitioners were opposing registration and transfer of 3199 shares and obstructing transfer of 461 shares. It is submitted on behalf of petitioners that as far as 461 shares are concerned they have never opposed are not opposing registration in the name of Godrej I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elying on the MoU, do not constitute any breaches. 39. It was then urged on behalf of Godrej that the Clause 16 of the MoU cannot be pressed into service as it is inoperative on account of impossibility. It was urged that since the original petitioners are in minority they do not have enough share holding to ensure that the Company is listed on a Stock Exchange. This argument has been countered by the petitioners by pointing out that Godrej Industries have taken contradictory stand in the Arbitration Petition filed by them and also that the collective share holding of the Minority Shareholders has, in fact, gone up from 26% to 33%. We have been shown averments made on behalf of the Godrej in the Arbitration Proceedings filed by Godrej. In those proceedings Godrej had categorically asserted that parties are bound by the MoU, which is valid and subsisting. It was also asserted that MoU is not impossible to be performed, and not void for uncertainty. 40. The argument of Godrej based on impossibility is thus contradictory to the stand taken on affidavit filed by it in the earlier arbitration petition. Apart from this position, petitioners have pointed out that when the MoU was en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court is being abused. Property grabbers, taxevaders, bankloandodgers and other unscrupulous persons from all walks of life find the courtprocess a convenient lever to retain the illegalgains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation. 6. ..... Nonproduction and even nonmentioning of the release deed at the trial is tantamount to playing fraud on the court. We do not agree with the observations of the High Court that the appellantsdefendants could have easily produced the certified registered copy of Ex.B15 and nonsuited the plaintiff. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party . In K.D.Sharma's case (2008) 12 SCC 481) (supra) in paragraph 27 the Apex Court observed as under : The Court defined fraud as an act of deliberate deception with the design of securing somethi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement and power of attorney. It has been pointed out that Mr.Adi Godrej had agreed by letter dated 13 June 1992 not to claim interest or recall loans under these pledge agreements and power of attorneys. These documents were thus not the principal documents on which relief was being sought. These documents were the part of defence of Godrej, which had full opportunity to defend the application. Matter was fully heard by the learned Judge and then impugned relief was granted. In view of these circumstances, we do not find that the conduct of Jer, Darius Kavasmaneck was blameworthy, as alleged. On the other hand, the conduct of Godrej Industries in not placing on record letter dated 13 June 1992 wherein Mr Adi Godrej reiterated that notwithstanding the loancumpledge agreement, Godrej Industries will not enforce loans or claim interest, needs to be noticed. In any case, no such allegation can be made and has not been made against Rebellos that they have suppressed any documents. 45. We now turn to the principal argument on behalf of Percy and Aban Kavasmanecks that the Clause 28 of the MoU does not provide for arbitration between the minority shareholders. Clause 28 reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rally same rule as in document. It has been said that no further rules of construction should be placed upon statutes than upon any other legal document, and Bowen L.J. Said : The rules for the construction of statues are very like those which apply to the construction of other documents, especially with regard to one crucial rule, viz., that, if possible, the words of an Act of Parliament must be construed so as to give a sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat. It is said that the court draws no distinction between statues and other written documents. I am not prepared to say that this is true to the full extent. 1. [Curtis v. Stovin (1989) 22 Q.B.D. 512 at p.517: see also Conadian Pacific Steamships Ltd v. Bryers [1958] A.C. 485 p. 501 per Viscount Kilmuir. 2. Camden (Marquis) v. I.R.C. [1914] 1 K.B. 641 at p. 648 per CozensHardy M.R.] 47. There is no absolute bar in employing the rules relating to interpretation of statutes, for the purpose of interpretation of deeds and documents, in a given case. One of the settled principles of interpretation of statutes is, when in relation to the same subject matter different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the MoU. The phrase ' parties hereto ' employed in clause 28 is followed by use of the same phrase in the concluding recital which immediately followed by names of all the minority shareholders individually and Godrej Industries indicates that 'parties hereto' means all the signatories to the MoU. If this is the position then on the plain reading of Clause 28, it cannot be said that the Arbitration Agreement provided therein, applies only to Minority Shareholders on one side and Godrej Industries on the other side. As noted earlier this reasoning will apply to interpretation of Clause 16 wherein also the phrase 'parties hereto' applies, to conclude that the negative covenant therein applies to Godrej also. 49. Apart from the language of this Clause, the surrounding circumstances indicate that the arbitration clause is to cover all the signatories to the MoU. The MoU came to be executed when minority shareholders were struggling against Dr.Gharda employing oppressive tactics to squeeze Minority Shareholders out of existence. It was crucial for the minority shareholders to stay together to remain as a significant minority. Individual holding of each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but will tilt the precarious balance of shareholding in the Company. These shares are not to be treated as mere pledge, but a device to gain control of the Company. The injunction sought is that the shares should remain as they are till the parties go for arbitration. The importance of this status quo till the dispute is resolved by the Arbitrator, is immense for the petitioners, as otherwise they will lose their toehold in the Company. With Godrej allegedly siding with Dr Gharda and two Kavasmanecks going along with them, the petitioners will be reduced to a nonsignificant minority. Once this takes place before the Company is listed on registered Stock Exchange, position of the petitioners will be gravely prejudiced. The position will become irreparable once a significant majority is reached in favour of Dr.Gharda taking his shareholding closer to 75%. Important decisions in the Company will be taken swiftly and any opposition of the petitioners will be crushed. If that happens, the whole purpose of the MoU will be defeated. 51. Inspite of the detailed arguments made on behalf of the Godrej, no special reason why shares cannot remain in the same position till the arbitration pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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