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2011 (8) TMI 962 - HC - Companies LawDiversion of money - Arbitration clause - arbitration proceedings - joint venture agreement - the appellants initiated/participated substantially in various litigation proceedings. - held that - in compliance of the order of the Company Law Board the appellants offered to pay the amount of Rs. 545.52 lakhs as the sum refundable to N. Athappan in full settlement. The waiver is clearly implicit from the acts of the appellants which indicates their intention not to proceed with the arbitration. On the facts and circumstances of the case and in view of the pitched battle of litigations between the parties the learned single judge rightly held that there is a waiver by estoppel and that the arbitration clause in JVA has become inoperative . Criminal proceedings - injunction - held that - On the mere fact that OARC and ORE have included several causes of action the prayer in respect of the JVA does not make it scandalous or frivolous. Nothing can be scandalous which is relevant for the determination of the suit. In our considered view the learned single judge was not right in striking off the words joint venture agreement dated January 30 2004 including the investment of the second plaintiff in Cheran Enterprises P. Ltd. in the relief A to the plaint. In the light of our findings in O. S. A. Nos. 2 to 5 of 2009 the order of the learned single judge in Application No. 5848 of 2007 in C. S. No. 709 of 2007 is liable to be set aside and O. S. A. No. 258 of 2009 is allowed.
Issues Involved:
1. Validity and applicability of the arbitration agreement. 2. Allegations of mismanagement and oppression in the company. 3. Criminal and civil proceedings initiated by both parties. 4. Jurisdiction and powers of the Company Law Board (CLB). 5. Compliance with the Foreign Exchange Management Act (FEMA) regarding property ownership by a foreign entity. 6. Review and modification of CLB orders. Issue-wise Analysis: 1. Validity and Applicability of the Arbitration Agreement: The primary contention was whether the arbitration clause in the Joint Venture Agreement (JVA) dated January 30, 2004, was valid, operative, and enforceable. The single judge found that the arbitration agreement had become inoperative due to the conduct of the parties, who had engaged in extensive litigation in various forums, including civil suits and criminal complaints. The judge held that the arbitration clause was abandoned and waived by the parties, making it inoperative. 2. Allegations of Mismanagement and Oppression: The CLB dealt extensively with allegations of financial mismanagement and siphoning of funds by K.C. Palanisamy (KCP). The CLB found that KCP had misappropriated funds and acted in violation of the JVA. The CLB directed the return of investments made by ORE Holdings and Nandakumar Athappan with interest. The CLB's findings were based on an audit report by Deloitte Haskins and Sells, which traced unauthorized movements of funds. 3. Criminal and Civil Proceedings: Both parties had initiated multiple civil and criminal proceedings against each other. KCP filed several criminal complaints against the plaintiffs, alleging fraud and misappropriation. Conversely, the plaintiffs also filed criminal complaints against KCP. The court noted that the plethora of criminal complaints and civil suits indicated that the parties had abandoned the arbitration agreement. 4. Jurisdiction and Powers of the Company Law Board (CLB): The CLB, in its order dated August 13, 2008, directed the return of investments made by ORE Holdings and Nandakumar Athappan. The CLB also permitted the use of fixed deposits held by CEPL for this purpose. The CLB's order was challenged, and the court found that the CLB had the power to make such orders under sections 397 and 398 read with section 402 of the Companies Act. The court also held that the CLB's subsequent order dated August 3, 2009, modifying its earlier order, was not justified and was set aside. 5. Compliance with FEMA Regarding Property Ownership by a Foreign Entity: The CLB directed that in the event of failure to return the investments, the properties of VML would be conveyed to ORE Holdings or its nominee. The court modified this order, stating that any such conveyance should be subject to applicable laws and regulations, including necessary approvals under FEMA. 6. Review and Modification of CLB Orders: The court held that the CLB does not have the power to review its own orders except in cases of fraud or misrepresentation. The CLB's order dated August 3, 2009, which modified its earlier order, was found to be perverse and arbitrary. The court set aside the order, restoring the original directive to return the investments to ORE Holdings and Nandakumar Athappan. Conclusion: The court dismissed the appeals challenging the single judge's order that the arbitration agreement had become inoperative. The court allowed the appeal against the CLB's order modifying its earlier directive, reinstating the original order for the return of investments. The court also emphasized compliance with applicable laws and regulations, including FEMA, for any conveyance of properties to a foreign entity.
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