TMI Blog2012 (12) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 CP(M)C. The shares would be transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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 dated March 21, 2012 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 Group. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the 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 Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny manner acting in derogation 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) After allotment of the shares to IOC the above two Companies filed an application for amendment of the petition to challenge the allotment in favour of IOC seeking cancellation thereof. These two Companies complained of mismanagement and oppression. According to them the decision to allot shares of ₹ 150 crores to IOC interfered with the prospect of CP(I)PL having control of HPL. They complained that in spite of having received payment for 155 million shares and those shares being transferred to CP(I)PL, HPL did not complete the transfer by registering the shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated 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 Act should not have been allowed to be made a vehicle for relief which was available to the Chatterjee Group under the provisions of the Specific Relief Act, 1963. 79. On account of the several financial crunch being faced by HPL and in view of the stand of IOC, which was the main supplier of Naphtha to HPL, on 2nd August, 2005, HPL allotted 150 million shares to IOC and a return of allotment was also filed with the Registrar of Companies in respect thereof. On 3rd August, 2005, the cheque given to IOC for Rs. 150 Crores was encashed by HPL. 85. Mr. Sundaram repeated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup 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 complainant has to prove that the affairs of the Company were being conducted in a manner prejudicial to public interest of in a manner oppressive to any member or members. For better appreciation of the above, Section 397 of the above Act is extracted hereinbelow: 397. Application to [Tribunal] for relief in cases of oppression. 1) Any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members apply to the Tribunal for an order under this section, provided such members have a right so to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 Central Government Company, with the intention of ultimately handing over the management of the Company to IOC. The aforesaid case of the Chatterjee Group is also based on the grievance that while keeping the Chatterjee Group under the impression that it intended to ensure that the Chatterjee Group had the requisite number of shares to allow it to have a majority shareholding and thereby control of the Company s management, the Company carried on clandestine negotiations with WBIDC to transfer all the shares held by it in the Company to IOC to give it management and control over the Company s affairs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven 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 to the Rights Issue, which was a decision taken by the Company to infuse equity in the running of the Company, it would neither have been reduced to a minority nor would it perhaps have been necessary to induct IOC as a portfolio investor with the possibility of the same being converted into a strategic investment. 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 applicable to foreign arbitrations. B. Section 45 of the Arbitration and Conciliation Act was not available as the plaintiff had not filed any judicial action mentioned in that Section. Neither were the first and second defendants asking the Court to refer them to arbitration. Arbitration had already been commenced by those defendants by filing a claim before the Arbitral Tribunal. The plaintiff had filed a suit claiming an injunction restraining arbitration. This was different from the situation contemplated by Section 45 of the Act. C. By 8th March, 2002 sale of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 agreement between these two parties. At the foot of the letter WBIDC endorsed we agree . It was signed by their Managing Director. It said that WBIDC would transfer the 155 million shares to CP(I)PL. Not only that, it provided for payment of consideration by CP(I)PL by means of a similar loan agreement as between CP(M)C and WBIDC, provided for in the 12th January, 2002 agreement. However, the letter went on to say that the rights of CP(M)C in the agreement dated 12th January, 2002 would not be prejudiced. On the same day i.e. 8th March, 2002 another agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 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 the case of Union of India Vs. Kishorilal Gupta Bros. reported in AIR 1953 Cal 642. The Division Bench of Delhi High Court spoke on similar lines in the case of M/s. Dadri Cement Co. and another Vs. M/s. Bird and Co. Pvt. Ltd. reported in AIR 1974 Delhi 223 also cited by Mr. Kapur. The agreement was terminated by the Go. WB/WBIDC on 28th September, 2005. If it had been just termination and nothing more, it could not have been said that the arbitration clause also perished. The English decision Heyman Vs. Darwine Ltd. (Supra) wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apable 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 the power. He cited a Madras High Court decision in the case of Mr. Ramasamy Athappan Anr. vs. The Secretariat of the Court, International Chamber of Commerce Ors. reported in 2009-3-L.W. 580. He also said that the dictum of the Supreme Court in the case of SBP Vs. Patel Engineering reported in (2005) 8 SCC 618, although the same related to domestic arbitration, empowered the Court to go into this question. Mr. Sarkar on the other hand referred to the case of Dresser Rand S.A. Vs. Bindal Agro Chem. Ltd. , an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Secretariat of the Court, International Chamber of Commerce Ors. reported in 2009-3-L.W. 580 (Supra). Hence, I am not called upon to decide whether the first defendant had abandoned the remedy of Arbitration. Next is the question of res-judicata. The facts of the case as narrated by the Supreme Court in the case of Chatterjee Petrochem (I) Pvt. Ltd. Vs. Haldia Petrochemicals Ltd. Ors. show that the Chatterjee Group had asked before the Company Law Board, inter alia, the selfsame reliefs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 not have the jurisdiction to pass the order for transfer of shares as prayed for, on the ground that it was a private dispute and did not involve the Company. According to it, the order of the Company Law Board was erroneous. The Supreme Court was not interfering with that order. The Supreme Court made it express that it was not deciding the issue with regard to specific performance of the contract. I do not think that there is any foundation in facts for the application of the decisions in sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Act), there is no other provision under it to help the said defendants, in this kind of alleged suspension of right. This point is rejected. The summary of my findings are as follows : - a) The terms of the agreement dated 12th January, 2002 were substantially altered by the agreements dated 8th March, 2004 and 30th July, 2004 for the following reasons : - i) A new party CP(I)PL was added. ii) CP(I)PL was not a mere nominee of CP(M)C. It had independent and substantial obli ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
