TMI Blog2003 (8) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... business of providing Cellular Mobile Telephone Services in the local area served by Madras Telephone District, with the petitioner holding 68.65 per cent of the equity shares and the respondents 2, 9 10 holding 20.76 per cent and 10.41 per cent and 0.18 per cent respectively. The petitioner and the tenth respondent are controlled by the RPG Group. The third respondent is holding company of the second respondent. The second and third respondents are under the control of the fourth and fifth respondents, constituting the Vodafone Group. The seventh and eighth respondents are directors of the Company. Later, the RPG Group, second respondent belonging to the Vodafone Group and the ninth respondent had entered into the SHA on 19.08.1995 (Annexure A- 2) stipulating elaborate terms and conditions for the management and operation of the business of the Company. The terms of the SHA were supplemented by means of the Agreements dated 10.12.1997, 03.07.2001 and 31.07.2001 (Annexures A-3, A-4, A-5). Pursuant to the SHA as well as the Supplementary Agreements, the Memorandum and Articles of Association of the Company were suitably amended from time to time. Clauses 17.2, 18.2.3, 18.3.1, 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second respondent in the Company to the petitioner contrary to the SHA and the Articles of Association of the Company as amended from time to time. 3. According to Shri Janak Dwarkdas, Senior Counsel appearing for the second respondent, the proposal of the Vodafone Group for sale of its shareholding in the second respondent in favour of the sixth respondent is well within the knowledge of the petitioner and does not in any way violate Clause 18.2.3 of the SHA, especially when the sixth respondent is not engaged in any business which competes with the business of the Company. Shri Dwarkdas pointed out that Clause 18.2.3 does not prohibit any such change in favour of a non-competitor. Consequently no event of default has occurred as contemplated in Clause 18.2.3 requiring the Vodafone Group to give notice to the Company and the other shareholders for exercising their option to purchase the shareholding of the Vodafone Group in the Company at par value. Accordingly, the Vodafone Group has not issued any notice pursuant to Clauses 18.2.3 of the SHA. Shri Dwarkdas further emphasized that Clause 17.2 and 18.8 of the SHA do not apply to sale of shares of and in the second respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Counsel referred to Srikanta Dutta Narasimha Raja Wadiyar v. Sri Venkateswara Real Estate Enterprises (Pvt.) Ltd and Ors,. (1991 (72) Comp. Cases 24). The construction of the SHA, which is the foundation of the rights of parties necessarily raises a question of law as held in Sir Chunilal V. Mehta v. Century Spinning and Manufacturing Companies Ltd. (AIR 1962 SC 1314). The intention of the parties must be ascertained by giving effect to the bargain of the parties and from the words used in the contract, unless there is ambiguity, for which learned Senior Counsel referred to Central Bank of India Ltd. v. The Hartford Fire Insurance Co. Ltd. (AIR 1965 SC 1288). The SHA contained in Clause 23.1 resolving any dispute arising out of the SHA by arbitration assumes the widest amplitude including without limitation any question as to the existence, validity or termination or scope of the arbitration agreement, for which he referred to Renusagar Power Co. Ltd v. General Electric Company (AIR 1985 SC 1156). In the present case, Clause 23.1 is unambiguous, according to which the disputes arising out of the SHA shall be resolved by arbitration and the governing law of the SHA as per Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be referred to arbitration. In this connection, reference is made to Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr. - (2003) 3 Comp LJ 68 (SC) and Bhadresh Kantilal Shah v. Magotteaux International and Ors. - (2000) 2 Comp LJ 323 (CLB) to show that where the proceedings are commenced as to a matter which lie outside the arbitration agreement, there is no question of application of Section 8 of the Act, 1996 and further that the parties in both the legal proceedings and the arbitration agreement, should be common, which is one of the main requirements of Section 45 of the Act, 1996. (b) The entire subject matter of the Company Petition is not covered by the SHA. The petitioner has claimed reliefs against the various respondents, not being parties to the SHA, as they have acted in breach of the SHA and the Articles of Association of the Company. The respondent Nos.6 to 8 have abetted acts with the object of depriving the petitioner of its rights under the SHA and the Articles of Association of the Company; thereby acting in a manner oppressive to other shareholders of the Company and causing prejudice to the interest of the Company. There cannot be any bifurcation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dismissed for the following reasons: (a) The parties to the Company Petition are different from the parties to the SHA. As there is no commonality of parties, the disputes cannot be referred to arbitration as held in (i) Madras Refineries Ltd. v. Southern Petrochemicals Industries Corporation Limited (HC, Madras) (ii) H.G. Oomor Sait v. O. Aslam Sait - 2001 (3) CTC 269 (Mad). (b) The dispute before the CLB in this case is the alleged breach of the SHA by the second respondent through respondents No. 3 to 5. This dispute cannot be adjudicated by the arbitral tribunal, as the arbitrator has no power to pierce the corporate veil of respondents No. 3 to 5, as enunciated in Madras Refineries Ltd. v. Southern Petrochemicals Industries Corporation Limited. (c) The entire subject matter of the Company Petition is not the subject of the SHA. Section 8 will apply only when the action brought in the matter and subject of the arbitration agreement are the same, in support of which reference has boon made to the following decisions: - (i) Gay a Electric Supply v. State of Bihar - AIR 1953 SC 182 (ii) Garden Finance Ltd v. Prakash Industries Ltd -AIR 2002 Bom 8 (iii) Benga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sputes by arbitration reads as under: Any dispute arising out of or in Connection with this Agreement including without limitation, any question regarding its existence, validity or termination which cannot be resolved pursuant to Clause 16, shall be referred to and finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce which rules are deemed to be incorporated by reference to this Clause. Each entitled shareholder may appoint an arbitrator at its choice and the arbitrators so appointed ( First Arbitrators ) shall then jointly appoint an arbitrator within 10 days of appointment of the First Arbitrators, who shall arbitrate the dispute to the exclusion of the First Arbitrators. The venue of the arbitration shall be in London. This Clause 23 and the arbitration agreement contained herein among the shareholders and the procedure of the arbitration will be governed by the laws of England and the award passed by the arbitrator shall be enforceable as a foreign award under the Convention for Recognition and Enforcement of Foreign Arbitral Awards dated 10th June, 1958 ( the New York Convention ) and the Foreign Awards (Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of the action before the CLB, in which case the decision in Sukanya Holdings (P) Ltd. does come to the aid of the petitioner. Thus, there is no doubt that the entire foundation of the petition is on the SHA and there is substance in the arguments of Shri Dwarkdas, learned Senior Counsel for the applicant that the matters agitated in the Company Petition are arising out of and in connection with the SHA. Accordingly, this issue is answered in the affirmative. ISSUE NO. (ii): The SHA has been made among the second respondent, the petitioner and the ninth respondent. The Company is not a party to the SHA. It is on record that the SHA was supplemented on three occasions, the last one being on 31.07.2001. By virtue of the Agreement dated 31.07.2001 (Annexure A-5), the second respondent, the ninth respondent, the petitioner and the Company made amendments to certain terms of the SHA. Thus, even though the Company is not a party initially to the SHA, yet, later through the Supplementary Agreement (Annenxure A-5), the Company adopted the SHA and as such in my view the SHA is binding on the Company. Moreover, pursuant to and in accordance with the SHA as amended and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SHA. ISSUE NO. (iii): In regard to the plea of Shri Sarkar that an arbitrator is not vested with any jurisdiction to adjudicate the proceedings under Section 397/398 which confer statutory rights on shareholders or grant relief under Section 402/403 of the Act, or any reference of the proceedings under Section 397/398 to an Arbitrator would be against public policy, it is no doubt that the CLB has very wide powers under Section 402/403 of the Act to give appropriate directions regulating the conduct of the Company's affairs. Nevertheless, granting of remedies depends on the facts and circumstances of a particular case and no uniform yardstick can be prescribed. The CLB had on an earlier occasion considered these issues in Magotteaux International cited supra and came to the conclusion by referring to the decision in Gurnir Sing Gills' case -- (1987) 62 Comp. Cases 197 that even in a Section 397/398 proceeding, if the party applying for referring the disputes to arbitration is able to establish that there are bonafide disputes arising out of an arbitration agreement and that the arbitrator could settle the disputes by appropriate reliefs, then, the CLB will have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carrying on business of the Company in accordance with the Shareholders Agreement. The respondent Nos. 2 3 are the alter ego of respondent nos. 4 5 and the respondent No. 2, in reality, represents the investment and interest of Vodafone Group in the Company... It is, therefore, free from doubt that the third respondent is holding company of the second respondent. The respondents 2 3 are under the control of the respondents 4 5. In these circumstances, the question of piercing the corporate veil of respondents 3 to 5 does not arise and therefore, the decision in Madras Refineries Limited relied on by Shri Datar is not applicable to the facts and circumstances of the present case. The argument of Shri Sarkar that various decisions of the CLB cited on behalf of the applicant are no more good law in the light of the decision in Sukanya Holdings (P) Ltd., does not hold good, in view of the law laid down by the Apex Court that there cannot be any bifurcation of the subject matter of an action before a judicial authority and, therefore, the said decision, in my view, has no application to the facts and circumstances of the present case. Against this background, it is be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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