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2007 (10) TMI 609

Dated:- 29-10-2007 - S Balasubramanian,J. ORDER 1. In this order I am considering C.A. 494/2007 filed under Section 8 of the Arbitration and Conciliation Act 1996 (the Act)( originally filed under Section 45 of the Act and later amended to Section 8) seeking for referring the parties to the proceeding to Arbitration in terms of arbitration agreements. This application has been filed by the 2nd respondent in CP 121/2007 which has been filed under Sections 397/398 of the Act in respect of M/s Ener .....

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gs, directorships etc. It contains an arbitration clause also (Article XVI). Most of the terms, particularly relating to transfer of shares and directorship were thereafter incorporated into the Articles of the company. As per the terms of the SHA, Articles provide for equal representation of both the petitioner and Mehra group on the board of the company. Similarly, in line with the SHA, the Articles also provide that the MD of the company would be a nominee of Mehra group and the Chairman that .....

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ts. In the petition, the petitioner has alleged that the 2nd and 3rd respondents, being in exclusive management of the company, are guilty of systematic concealment of the state of affairs of the company, financial mismanagement, like indiscriminate borrowings, indiscriminate investments in subsidiaries and associate companies, manipulation of accounts etc, non supply of required information by the petitioner, non payment of royalty to the petitioner, non inclusion of certain items in the balanc .....

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. 4. Moving CA 484/2007, Shri Dave, Sr. Advocate for Mehra group submitted: The disputes raised in the petition have arisen squarely out of the terms SHA and the TKA both of which contain arbitration clauses. The main prayer of the petitioner in the petition is removal of the 2nd and 3 rd respondents as MD and whole time director, respectively as also directions to Mehra group to sell their shares to the petitioner. In terms of Article 2(5) of the SHA, Mehra group is entitled to appoint one of i .....

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draft. Therefore, if the petitioner has any grievance relating to payment royalty, it has to seek remedy in an appropriate court of law and not through a petition under Sections 397/398. Since the Articles have been amended in consonance with the terms of the SUA., the petitioner cannot seek amendment to the Articles in a petition under Sections 397/398 and has to go before the arbitrator. 5. Shri Sarkar, Senior Advocate for the petitioner submitted: In terms of Section 8, to refer the parties .....

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ents. Further in the petition, the petitioner alleged mismanagement and there is no provision regarding the same in either of the two agreements. Even in respect of removal of the 2nd and 3rd respondents and also relating to transfer of shares, the petitioner has relied on the Articles and not on the terms of the SHA. Therefore, in view of the fact that there is no commonality of parties, and that many of the allegations particularly in relation to financial mismanagement are not matters arising .....

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hri Gautam Kapoor v. Limrose Engineering Manu/CL/0123/2004 CLB: The test to determine as to whether a matter in a petition under Sections 397/398 is to be relegated to arbitration is to examine as to whether the allegations of oppression & mismanagement contained therein can be adjudicated without reference to the terms of arbitration agreement. If it can be, then, the question of referring the matter to arbitration does not arise even if the agreement covers the same matter. Further, there .....

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this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in - (a) a .....

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al arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 8. It is evident from the provisions of Section 8 that if the subject matter brought before this Board is the subject matter of arbitration agreement, the Board is bound to refer the parties to arbitration. Therefore commonality of .....

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hat the company is not a party to SHA and Mehra group is not a party to TKA. As a matter of fact, Shri Sarkar pointed out that the currency of TKA has expired by a flux of time and that is why IPLA relating to supply of technical know how was entered into in September 2006, the existence of which has also been challenged by Mehra group. On the basis of the reliefs sought, Mehra group is contending that the reliefs sought arise out of the SHA. It is on record that the terms relating to shareholdi .....

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could be examined without reference to the terms of the agreements containing arbitration clause, then the parties need not be referred to arbitration even if the subject mater is covered in the arbitration agreement. Even otherwise, as rightly pointed out by Shri Sarkar, allegation of financial management cannot be traced to any of the terms of SHA. Even otherwise, in view of the judgment of the Apex Court in Sukanya Holdings, there is no possibility of bifurcation of the subject matter between .....

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f the company for the year ending 31.3.2007 and also for the current year and take copies thereof, for maintenance of status quo in regard to the assets of the company as also of the subsidiaries and associate companies, for investigation into the affairs of the company/its subsidiaries and associate companies, for restraining Mehra group from dealing with their shares in any manner and to maintain status quo as on date and also for restraining respondents 1 to 35 from divulging or diverting the .....

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oceeding under Section 397/396, only a director/secretary or an officer of the company can affirm an affidavit on behalf of the company and not an advocate who has no knowledge about the affairs of the company. On these grounds alone, the petition should be dismissed. Further, the petition has been filed with an ulterior and oblique motive to force Mehra group to transfer/sell their shares to the petitioner. It is on record that negotiations took place between the 2nd respondent and the petition .....

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l. When the 2nd respondent expressed his protest, while resuming the supplies in March, the petitioner also hiked the prices by 300%. From July onwards, the petitioner has again stopped further supplies and now the company is not in a position to execute any of the orders. The petitioner also withdrew its guarantee given to the ABM Amro Bank which has asked the company to repay the loans. The company has to pay a sum of ₹ 20 crores because of the action of the petitioner. The petitioner wh .....

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These false allegations are designed to only put pressure on Mehra group to come to a negotiation table to purchase the shares held by them at a low price. 14. He further submitted: The allegation of the petitioner that the 2nd and 3rd respondents have kept the petitioner in dark about the affairs of the company is wholly incorrect and malafide. At the instance of the petitioner, the company has installed a system developed by the petitioner, known as 'SAP'. The company has implemented E .....

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ng out the due diligence was appreciated by the petitioner by a letter dated 25.4.2007. However, till now the petitioner has not given a copy of the due diligence report to Mehra group. Even though, un-audited financial statements up to 31.12.2006 have been given to the petitioner, the company is unable to complete the audit as the petitioner has instructed the auditors by an e-mail dated 10.4.2007 to postpone the commencement of audit. Thus, it is the petitioner who is responsible for non fmali .....

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res held by Mehra group to an outsider does not arise as Mehra group has strictly complied with the provisions of Article 58(a)(1) of the AOA relating to preemption rights. In Sangramsinh P. Gaekwad v. Shanta Devi P. Gaekwad it has been held that " it is now well settled that only one pre-emptive offer is to be made which is otherwise to be accepted or not at all. The existing shareholders are not entitled to be given further pre-emptive rights in respect of those unaccepted shares. Even su .....

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oner has stressed the need to adopt the agreement at the earliest. By a communication dated 24.11.2006, the petitioner expressed its regret for delay in sending the final agreements as certain discrepancies compared to the agreed principles had to be resolved. By a communication dated 5.12.2006, the 2nd respondent desired to know when final IPLA and the other agreements would be ready for fmalization. By a communication dated 10.1.2007, the petitioner informed Mehra group that revised drafts of .....

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17. The company is completely dependent on the petitioner not only for technology but also for various components. In the meeting held on 4.2.2006, the production target for 2006-2007 was agreed to and the petitioner had agreed to supply all the necessary material/components to meet with the production. By a communication dated 26.8.2006, the petitioner guaranteed continuous material supply. By a communication dated 10.6.2006, the petitioner had complemented its Indian colleagues for the petiti .....

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tions 397/398 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view the wide and far reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that alleged illegality in the conduct of majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or evidence adduced in the proceedings remain unsatisfactory to arrive at a definite conclusi .....

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the Code of Civil Procedure will be applicable in a proceeding under the Companies Act. (208) Begam Sabiba Sultan v. Nawab Mohd. Mansoor Ali Khan : The plaint should be read in a meaningful manner to find out the real intention behind the two; Before a court can be held to have jurisdiction to decide a particular matter, it must not only have jurisdiction to try the suit abroad but also have the authority to pass orders sought for. It is not sufficient that it has some jurisdiction in relation .....

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laying fraud on the court as well as on the opposite party. 19. Shri Sarkar submitted: The petitioner is the 4th largest producer of wind turbine and it uses the scientific innovations, discoveries and inventions of the Respondent 36, who is a pioneer in the field of wind energy and who has numerous patents and intellectual properties to his credit. The petitioner is supplying to the company the technology and know how developed by the respondent No 36 and without the same the company cannot fun .....

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006 i.e. the next day of signing the IPLA i.e. on 30.9.2006, he sent a letter to respondent No. 36 stating "I signed the agreement even without reading it only because I trust you". This would indicate that what he signed was not a draft agreement but the final agreement. Having, done so, now he is disputing that agreement had not been signed. Further, again by a communication dated 10.1.2007 the 2nd respondent was informed that revised drafts of Outstanding contracts would be sent to .....

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. Even today, the petitioner is prepared to resume the supply provided the company/Mehra group adhere to the terms of IPLA. Therefore, the petitioner has not acted in any way prejudicial to the interest of the company but only with a view to protect the interest of the petitioner itself. 21. In regard to transfer of shares, Shri Sarkar submitted: The proposal for transfer of 6% shares was discussed between respondent No. 36 and the 2nd respondent in Feb. 2006 and they had agreed that 6% shares w .....

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for both parties. The termination should be executed in a fair reasonable manner. A detailed proposal on the two options we discussed will be prepared by us as soon as possible". In the same letter, he also informed that a due diligence would be carried out by a team of lawyers and Chartered Accountants. While the due diligence was on, certain information was sought for and certain adjustments were proposed in the accounts, which the 2nd respondent did not agree/consider. Having agreed to s .....

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oup cannot have any representation on the board and as such cannot appoint its nominee as the MD. Even now, the petitioner is prepared to purchase the entire shares of Mehra group in accordance with the Articles i.e. on a fair price to be determined by an independent chartered accountant appointed by the CLB. 22. The learned Counsel further submitted: The 2nd respondent has not finalized the account for 2006-2007 only with a view to hide the real financial position of the company from the petiti .....

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ease hardly works out to 3%. Therefore the allegation that the petitioner has hiked the prices is not correct. Even though Mehra group has contented that through SAP, the petitioner is petitioner is fully aware of the entire affairs of the company on line, the grievance of the petitioner is that the company has not furnished information to complete the Balance Score Card, that the petitioner has introduced in July 2006 for the whole Enercon group, inspite of repeated reminders. 23. The learned C .....

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. 24. I have considered the arguments on interim reliefs. The learned Counsel for the respondents has questioned the maintainability on various grounds more particularly on the ground that the matters complained of are contractual disputes; that with a view to gain advantage, the petitioner has suppressed vital documents; that the petition has been filed with an ulterior motive and that the affidavit affirmed by a lawyer in Germany is not valid. In so far as the matter being contractual disputes .....

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the other side has produced all the documents, then, the question of suppression of material documents to apply the decision of the Supreme Court does not arise. The other contention of the respondents is that this petition has been filed with an ulterior motive of putting pressure on the respondents to sell their shareste to the petitioner. Whether the petition is a motivated one or not can be determined only after pleadings are complete and at the final stage and not at the threshold. In so fa .....

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d on personal knowledge. Therefore, I do not find any impediment in considering the interim relief sought. 25. From the arguments of the counsel as elaborated above, it is evident that there are a number of contested issues, which require a detailed examination after the pleadings are completed. It is settled principle that at the interim stage, the court is not justified in embarking on anything resembling a trial in order to evaluate the strength of either party's case. It is also a settle .....

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s would require detailed examination after completion of pleadings, I shall examine whether a case has been made out for granting interim reliefs taking into Consideration, that, unlike a suit, where the interest of the parties have to be taken care of, in a petition under Sections 397/398 of the Act, the interest of the company is also vitally important. 26. There are two main interim reliefs that have been sought. The first relates to maintenance of status quo with regard to the shares. This r .....

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nce is definitely in its favour. Accordingly, I direct both the sides to maintain status quo with regard to their shareholdings, till the petition is disposed of. 27. The stoppage of supplies by the petitioner, without looking into whether the said action is justified or not, has affected the company enormously. In the reply filed by respondent Nos. 2 to 8 to the interim reliefs, they have pointed out the effects of stoppage of supplies. I am reproducing their averments. Para 30 - Respondent No. .....

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omponents by Petitioner can result into lower production resulting in inability on part of Respondent No. 1 to submit the six monthly return of the "End Use Certificates" required to be filed with the Government of India. The failure on the part of Respondent No. 1 to file the aforesaid return can attract penalties of upto 500% of the duty concession apart from exposing all the Directors of Respondent No. 1 to criminal prosecution on account of such breach. Para 31. It is submitted tha .....

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eir business. The answering Respondents submit that such third party contractors and vendors would be in excess of about 10,000 in number. Para 32. lit is submitted that the Respondent No. 1 company has huge orders on hand worth ₹ 4,000/- crores from major companies in India". Further, during the hearing the learned Counsel for Mehra Group pointed out that as of date this group is exposed to more than ₹ 700 crores given as personal guarantees. 28. The above averments would indic .....

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not exercised the said right so far. When such an appointment would be in the interests of the company, I am inclined to grant the said prayer, taking into consideration that in terms of Section 403 of the Act, this Board has the power to regulate the conduct of the company during the pedency of the proceeding. However, with the view to protect the interests of Mehra Group also will be with checks and balances. 29. Accordingly, I authorize the petitioner to appoint one of its nominees as the Jo .....

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s entire holding of 44% to the petitioner on a fair value. 2. If, it agrees so, an independent valuer will be appointed by this Board in consultation with both the sides to determine the fair value. 3. The fair value will be determined in line with the note prepared by M/s Deloitte as indicated in the Agreed Principles dated 29.9.2006. 4. Since the Balance sheet as on 31st March 2006 is the last available audited Balance sheet, and disputes have started relating the balance sheet as on 31st Marc .....

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