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TMI Blog2012 (12) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... the International Chamber of Commerce. They wanted resolution, by arbitration, of the disputes arising out of the agreement dated 12th January, 2002. Before proceeding any further, I come to the agreement dated 12th January, 2002. It was an agreement between the Government of West Bengal (Go. WB), being the fifth defendant, West Bengal Industrial Development Corporation (WBIDC), being the sixth defendant, Chatterjee Petrochemical (Mauritius) Company (CP(M)C), being the first defendant and Haldia Petrochemicals Ltd. (HPL), being the plaintiff. It was recited in it that HPL was in need of "financial and managerial restructuring". CP(M)C had agreed to bring in further funds for the smooth running of the Company. WBIDC and Go. WB had agreed to hand over the majority shareholding in HPL and its management to CP(M)C. In Clause 5 of the agreement Go. WB agreed to arrange for WBIDC to transfer to CP(M)C, its shareholding in HPL shares of ₹ 360 crores from time to time to enable CP(M)C to hold 51% of the total paid up equity share capital of HPL. The transfer would be effected within 10 days of acceptance of "letters of comfort" by Go. WB and upon payment of ₹ 53.5 crores by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n subsidiary or group company of CP(M)C, Go. WB, WBIDC and others, after obtaining leave under Clause 12 of the Letters Patent and making the following claims: " (a) A decree for declaration that the Impugned Arbitration Agreement contained in clause 15 of the Agreement dated January 12, 2002 is void and/or unenforceable and/or has become inoperative and/or incapable of being performed; (b) a decree of permanent injunction restraining the defendant no. 1, their officers, employees and successors-in-interest from initiating and/or continuing with the Impugned Arbitration proceedings bearing case No. 18582 /ARP pursuant to the Impugned Arbitration Agreement contained in clause 15 of the Agreement dated January, 12, 2002 and the Request for Arbitration dated March 21, 2012 and the communication dated April 02, 2012 issued by the defendant no. 8 and any other proceeding connected therewith or incidental thereto. (c) a decree of permanent injunction prohibiting the defendant no. 8, its agents, officers and employees from acting upon and further proceeding with any proceeding pursuant to the Impugned Arbitration Agreement dated January, 12, 2002 and the Request for Arbitration d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Court to finally dispose of this application latest by 20th December, 2012. Now, I come to the heart of the matter. Hindustan Petrochemical Ltd. (HPL) was incorporated in 1985. It was to have a petrochemical complex in Haldia in West Bengal. It was to be established by West Bengal Industrial Development Corporation (WBIDC) and the RP Goenka Group. The RP Goenka Group pulled out of the Company 1990. Tata Chemicals and Tata Tea were inducted between 1990 and 1993 but not much headway could be made. Dr. Purnendu Chatterjee is a nonresident Indian. In June, 1994 he entered the field. He claimed to be an industrialist and financer. On 3rd May, 1994 a Memorandum of Understanding was entered into between WBIDC, the first defendant, (CP(M)C) and the Tatas. The cost of establishing the project was estimated at ₹ 3,600 crores. It was to be funded with a debt of ₹ 2,400 crores and equity of ₹ 1,200 crores. Initially equity of ₹ 700 crores was to be contributed by WBIDC, CP(M)C and the Tatas in the ration of 3:3:1 respectively. It was provided that the Board of the Company would consist of four nominees, one of WBIDC, one of CP(M)C and two from the Tata Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions made by the 8th March, 2002 agreement. Go. WB by their letter of 17th December, 2004 to HPL with a copy to CP(M)C said they were "committed to transfer of shares to CP(M)C." It further appears from the records that after the approvals came the shares would be transferred to CP(M)C. Disputes arose between the parties in January and February, 2005. HPL had decided to issue equity shares of the value of ₹ 150 crores at par to Indian Oil Corporation. CP(M)C and CP(I)PL had objection to such issue. According to them, WBIDC and Go. WB were in breach of their obligation to transfer 36% of their shares to them. They approached in Company Law Board with a Company Petition No. 58 of 2009. They applied under Sections 397, 398, 399, 402 and 406 of the Companies Act, 1956. These were the prayers before the Company Law Board: "a) An order be passed directing the company to take immediate steps for modifying and/or altering and/or amending the Articles of Association of the Company to incorporate therein the complete agreement by and between the join venture partners and special rights of the petitioner in relation to the Company, as provided in the Agreements dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation of the petitioner's rights as majority shareholders in the company and the petitioner's right to control the management of the Company, including without limitation by way of scale of shares of the Company held by any of them to any third party except the petitioners; j) ………………………………………………………….. k) …………………………………………………………. l) Direct the reconstitution of the Board of the Company to reflect the majority control and the special rights accorded under the Agreements between the shareholders to the petitioners; m) ……………………………………………………….. n) ………………………………………………………… " Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the following conclusions: - (a) That the dispute between the parties was a private dispute regarding transfer of shares and that there was no case of oppression under Section 397, of the Chatterjee Group by the other parties. (b) The Court held that in exercise of powers under Section 402 of the Companies Act, 1956 the Company Law Board could not direct transfer of the above shares. The relevant contentions before the Supreme Court and its findings are set out below : - "66. Even the allegations of oppression remained unproved, since the entire content related to the transaction between WBIDC and CP(I)PL, which was not the act of the Company, as contemplated in Section 397, but a private dispute between two groups of shareholders. Mr. Desai submitted that the appeals were liable to be dismissed with appropriate costs. 74. Mr. K.K. Venugopal, learned Senior Advocate, who appeared for the Government of West Bengal and its officials, urged that the relief prayed for in the Company Petition for specific relief, could not be granted under Section 397 of the Companies Act …. 75. Mr. Venugopal submitted that the proceedings under Section 397 of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P(I)PL could not, strictly speaking, be taken to be failure on the part of the company, but it was the failure of one of the parties to a private arrangement to abide by its commitments. The remedy in such a case was not under Section 397 of the Companies Act ….. 104. In our view, the appellants have failed to substantiate either of the two grounds canvassed by them for the CLB to assume jurisdiction either under Section 397 or 402 of the Companies Act, 1956, and it could not, therefore, have given directions to WBIDC and GoWB to transfer 520 million shares held by them in HPL to the Chatterjee Group and the High Court quite rightly set aside the same and dismissed the company petition ……" It is also necessary to read the following other observations and findings of the Supreme Court: "94. The law relating to grant of relief on a petition under Sections 397, 398 and 402 of the Companies Act, 1956, has been crystallized in various decisions of this Court, including those cited on behalf of the parties. The common refrain running through all these decisions is that in order to succeed in an action under Sections 397 and 398 of the Companies Act, the complai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... million shares in favour of CP(I)PL, and having received the full price therefore, the Company had not registered the same in the Company's Register of Share-holders, thereby depriving the Chatterjee Group from exercising its right to vote in respect of the said shares. The third grievance of the Chatterjee Group is that by not registering the transfer of the 155 million shares in their favour, but, on the other hand, transferring 150 million shares in favour of IOC, the character of the Company was altered from a Private Company into a Government Company and also reduced the Chatterjee Group to a minority, despite the promises held out earlier and as incorporated in the Agreements dated 20th August, 1994, 12th January, 2002 and 8th March, 2002. 99. The case of the Chatterjee Group is woven around two particular issues, namely, that it had been induced to invest in HPL so as to make it a successful commercial enterprise on the promise that the Company would always retain a private character and the Chatterjee Group would have control over its management, but such a promise had not been adhered to and, on the other hand, negotiations were undertaken by WBIDC to induct IOC, a Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the management of the Company and also to retain its private character. It is at a stage when there was a threat to the supply of Naphtha, which was the main ingredient used by HPL for its manufacturing process, that it finally agreed to induct IOC into the Company as a member by transferring 150 million shares to it. It may not be out of place to mention that it was on Dr. Chatterjee's initiative that it had been decided to induct the IOC as a member of the Company at meetings of the Directors which were chaired by Dr. Chatterjee himself. Of course, as explained on behalf of the Chatterjee Group, even the induction of the IOC as a member of the Company is concerned, was part of a conspiracy to deprive the Chatterjee Group of control of the Company since GoWB and WBIDC never intended to keep its promise regarding transfer of at least 60% of its shareholdings in favour of the Chatterjee Group. Such a submission has to be considered in the context of the financial condition of the Company and the response of the Chatterjee Group in meeting such financial crunch. In our view, if in the first place, the Chatterjee Group had stood by its commitment to bring in equity and had subscribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in arbitration. The Supreme Court by its judgment and order dated 30th September, 2011 had held against the first and second defendants and their group companies. The Supreme Court held that it had the power under Section 402 of the Companies Act, 1956 to grant reliefs to the said defendants but was not exercising the power in the facts and circumstances of the case. F. In those circumstances the present claim of the first defendant in arbitration was barred by the law of res judicata and/or constructive res judicata. G. The claim ceased to be a live claim. H. The claim of the said defendant was barred by the laws of limitation. GoWB, WBIDC had terminated their agreement with the first and second defendants by their letter dated 28th September, 2005. The present claim made before the arbitral tribunal was hopelessly barred. Defendant Nos. 1 and 2: The following submissions on behalf of the first and second defendants, were advanced by Mr. Sudipto Sarkar, and Mr. Siddhartha Mitra, learned Senior Advocates : - A. The concept of arbitration implied minimum interference by the Court. The principles of Section 5 of the Arbitration and Conciliation Act, 1996 were applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 14 of the Limitation Act, 1963, as the same issues are involved in the Arbitration as were involved in the Company Law Board, High Court and the Supreme Court and the first and second defendants had proceeded bona fide in these fora. In numerable judgments were cited by either side. I will discuss only the relevant judgments at the time of discussing the merits of the rival claims. DISCUSSION & FINDINGS: The issue of novation is most important. The law is codified in the Indian Contract Act, 1872. Sections 62 and 63 are material. They are in the following terms: "62. Effect of novation, rescission, and alteration of contract. - If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. 63. Promisee may dispense with or remit performance of promise. - Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit." The letter of 8th March, 2012 written by CP(M)C to WBIDC has a great bearing on the subject. It recorded an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable here, in my opinion. By the letter dated 8th March, 2002 read with the formal agreement of the same date, the entire obligations, in my opinion, were changed. CP(I)PL did not act as a nominee but became a party to the transactions. Not only were the shares to be transferred in its favour, it would directly provide the consideration, partly by cash and party by obtaining a loan from WBIDC against pledge of the shares, just in the way CP(M)C had done by the 12th January, 2002 agreement. Only the Kolkata Court would have jurisdiction. Hence there were large scale and fundamental alterations to the 12th January, 2002 agreement, binding the original parties and bringing in a new party CP(I)PL. The case of Heyman Vs. Darwine Ltd. reported in 1942 (1) ALLER 337 cited by Mr. Sarkar was about the arbitration clause, held to be surviving after repudiation of the contract. The question in the case of The Union of India Vs. Kishorila Gupta & Bros. reported in AIR 1959 SC 1362 cited by Mr. Kapur was, inter alia, whether after supersession of the contract, the arbitration clause fell with it. The answer of the Supreme Court was yes affirming the decision of Bachawat J. of our Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvention applies. 45. Power of judicial authority to refer parties to arbitration. - Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have been an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed." Mr. Pratap Chatterjee, learned Senior Advocate appearing for the plaintiff submitted that the power under Section 45 of the Act could be invoked to stop the foreign arbitration. He submitted that the arbitration agreement dated 12th January, 2002 had become "null and void, inoperative and incapable of being performed" under Section 45. He distinguished this provision from Section 8 of the Act relating to domestic arbitration. He said that the jurisdiction of the Court to adjudicate whether the arbitration agreement had become null and void, inoperative or incapable of being performed was not provided in Section 8. Section 45 contained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land to establish before an Arbitral Tribunal that there was no arbitration agreement. When it has been established here that there is no arbitration agreement surviving, the Arbitral Tribunal, does not have any jurisdiction over the subject matter of this dispute. And this is very fundamental. In domestic arbitrations, the Supreme Court has said that the Court can go into the question of the validity of an arbitration agreement or whether a particular arbitration agreement bound a particular party, whether a live issue remained to be tried and so on.(See the case of SBP Vs. Patel Engineering reported in (2005) 8 SCC 618). I apply the same principles here. I would also borrow the principle enshrined in the case of Visa International Limited Vs. Continental Resources (USA) reported in 2009 (2) SCC 55 and Anil Kumar Vs, B. S. Neelkanta And Others reported in (2010) 5 SCC 407 to hold that there is no issue to go before the arbitrator. All these cases were cited by Mr. Kapur and Mr. Chatterjee. The above facts would also show that the arbitration agreement became null and void or inoperative or incapable of being performed as held in the case of Mr. Ramasamy Athappan & Anr. vs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion the decision of the Privy Council in the case of Upendra Nath Bose Vs. Lall and others reported in AIR 1940 Privy Council 222 cited by Mr. Sarkar, that a Court which declines jurisdiction cannot bind the parties by its reasons while declining jurisdiction, is applicable. With all humility I say that the Supreme Court did not bind the parties by its judgment on the issue of specific performance of the agreement to transfer 155 million shares issue. I do not agree with Mr. Kapur's arguments based on constructive res-judicata. He relied on explanations IV and V of Section 11 of the Code Civil Procedure Code to argue that since the Supreme Court could have granted the reliefs under Section 402 but refrained from granting them, the reliefs were deemed to be refused. It is true that the Supreme Court stated in its judgment and order of 30th September, 2011 that the Court had plenary powers under Section 402 of the Companies Act, 1956 to give relief to any applicant but that the facts and circumstances of the case did not warrant grant of this relief. There is no constructive res-judicata for the simple reason that the Supreme Court expressly stated that the Company Law Board did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of this case the Supreme Court felt that the Company Law Board had no jurisdiction to pass any orders under Section 397, 398 read with S. 402 of the Companies Act, 1956. Therefore, in my opinion the Supreme Court perceived a defect in jurisdiction to pass the order prayed for by the Chatterjee Group. This cannot be interpreted as taking away the rights of the first and second defendants to seek any other appropriate remedy. Therefore, I am of the opinion that they proceeded bona fide before the Company Law Board, High Court and the Supreme Court. I would give them the benefit of Section 14 of the Limitation Act,1963. Hence the Arbitral reference was made within time. The other ground advanced on behalf of the first and second defendants was that because of the interim order passed by the Company Law Board and extended from time to time restraining dealing in the shares of the Company, their cause of action was suspended, I am of the view that under Article 54 of the Limitation Act time began to run against the said defendants from the above date of termination of the contract in 2005. Unless there is an injunction restraining filing of a suit (Section 15 of the Limitation A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court and the Arbitral Tribunal. For want of jurisdiction the issues could not be decided by those Courts. The first and second defendants had proceeded with the litigation before the Courts, bona fide. On the basis of my above findings I allow the application (G.A. 1191 of 2012) by affirming the existing order of injunction passed by the Appeal Court on 18th May, 2012 till the disposal of the suit. I am cautious to say that all the findings above are prima facie. The protection under S. 14 would only apply for a period of eight weeks from date, by when the first and second defendants would have to institute an appropriate proceeding to claim transfer and registration of the above shares, subject to all questions regarding its maintainability, its merits, including the point of limitation. Now, I come to the application made by the third defendant (G.A. 1598 of 2012 and the application made by the fourth defendant (G.A. 1603 of 2012) for deletion of their names from the cause title. The ground is that no cause of action is disclosed against them. I agree. The suit is for adjudging the 12th January, 2002 agreement as void, inoperative and incapable of being perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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