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TMI Blog2008 (10) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned senior counsel for the defendants 6 & 10, Mr. J. Sivanandaraj, Learned Counsel for the plaintiffs, Mr. Satish Parasaran, Learned Counsel for defendants 3 to 5 and P.H. Arvind Pandian, Learned Counsel for 2nd defendant. 2. In brief, the history of this litigation is as follows:- (a) On 30.01.2004, the Plaintiffs, the 2nd defendant and defendants 6 to 10 entered into a Joint Venture Agreement at New Delhi, by which the 9th defendant was floated as a Joint Venture Company with the object of purchasing, constructing and developing a hotel property, a shopping complex and an information technology park and to develop and sell the properties owned by defendants 7 and 8. For achieving these objects, the Joint Venture Company was to obtain a Syndicated Credit Facility and the facility was to be secured by a Corporate Guarantee issued by the 4th defendant. (b) In September 2005, disputes arose between the Joint Venture partners and the 10th defendant was removed from the post of Managing Director of the Joint Venture Company (D-9). (c) In November 2005, the defendants 6 and 10 filed a petition in C.P.65 of 2005 under sections 397, 398, 402and 403of the Companies Act, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take a reasoned decision. Therefore, by a communication dated 25.08.2006, the defendants 6 and 10 informed the plaintiffs that if they did not hear from the plaintiffs, their response within 7 days, they would place a request with the Secretariat of the International Court of Arbitration. (i) On 02.09.2006, the plaintiffs sent a reply through counsel contending that the defendants 6 and 10 had waived their right to seek arbitration and that they were attempting to agitate disputes before multiple fora. (j) On 23.01.2007, defendants 7, 8 and 10 joined together and filed a suit in O.S. No. 90 of 2007 on the file of the District Munsif Court, Kangeyam against the plaintiffs, the 9th defendant and 2 others, seeking a declaration that the allotment of shares in favour of the 2nd plaintiff herein, at the instance of the first plaintiff herein, in the Joint Venture company (9th defendant herein), is tainted by fraud and misrepresentation and also null and void and for consequential reliefs. Along with the suit, the defendants 7, 8 and 10 herein (Plaintiffs in O.S. No. 90 of 2007) also sought an interim order of injunction in I.A. No. 411 of 2007 restraining the first plaintiff here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 22 of the Joint Venture Agreement is null and void and for a consequential injunction restraining defendants from the proceeding with the Arbitration. On 7.3.2008, this Court granted an ad interim ex parte injunction, in O.A. No. 277 of 2008, restraining the defendants in the suit from proceeding with the Arbitration. (q) On 28.03.2008, the International Court of Arbitration, by itself, appointed Prof. James Crawford on behalf of 6th defendant and the 2nd plaintiff, pursuant to the Arbitration Clause. On 07.05.2008, the ICC also appointed Sir Ian Barker QC as the Chairman of the Arbitral Tribunal. (r) But the Arbitrators did not proceed further in view of the interim order of injunction granted in O.A. No. 277 of 2008. Therefore, on 13.06.2008, defendants 6 and 10 filed applications A. Nos. 2670 and 2671 of 2008, seeking respectively (i) to refer the parties to Arbitration under section 45of the Arbitration and Conciliation Act, 1996 and (ii) to vacate the interim order of injunction granted in O.A. No. 277 of 2008. Hence all the applications were taken up together. 3. Before proceeding further, an interesting fact situation is to be taken note of and it is this. The plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile selecting the third arbitrator, ICC shall not select a person of Indian or American or nationality. The Arbitration shall be conducted in the English language. The seat of arbitration tribunal shall be London, England. Any arbitration award by the Arbitration Tribunal shall be final and binding upon the parties, shall not be subject to appeal and shall be enforced by judgment of a Court of competent jurisdiction. 22.4. The losing party, as determined by the Arbitral Tribunal, shall pay all reasonable out-of-pocket expenses (including, without limitation, reasonable attorney's fees) incurred by the prevailing Party, as determined by the arbitral tribunal, in connection with any such dispute. Notwithstanding any other provision of this Agreement, any Party shall be entitled to seek injunctive or other provisional relief against immediate, irreparable loss or damage from any Court of competent jurisdiction pending the final decision or award of the arbitrator. When any Dispute occurs and is referred to Arbitration, expect for the matters under dispute, the Parties shall continue to exercise their remaining respective rights and fulfill their remaining respective obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud of very large magnitude and that some of the parties to the fraud were even convicted by a criminal court in Korea for various offences including bribery. Therefore a civil suit was filed for restraining the Defendants from acting on the Memorandum of Understanding and License Agreement and an interim order of injunction came to be issued. In such circumstances, the Supreme Court refused even to appoint an Arbitrator under Section 11. 7. The plaintiffs and some of the defendants resist the application under Section 45on the ground inter alia ? (a) that the Arbitration Agreement is null and void, inoperative and incapable of being performed; (b) that the issues raised before the Arbitrators are already in issue before various Courts and Special Forums in India and hence the defendants 6 and 10 who have themselves initiated such proceedings in India cannot seek to agitate the very same issues for the very same prayers before the Arbitrators; (c) that the defendants 6 and 10 are not only challenging the Joint Venture Agreement as vitiated by fraud, but have also initiated criminal proceedings in India and hence they have made the Arbitration Agreement a dead letter and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention set forth in the Schedule applies, or any person claiming through or under him commences any legal proceedings in any Court against any other party to the submission or any person claiming through or under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings apply to the Court to stay the proceedings and the Court, unless satisfied that the agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings. 10. The Schedule to Foreign Awards (Recognition and Enforcement) Act, 1961 contained the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Article II.3 of the Schedule to the 1961 Act reads as follows:- The Court of a contracting State, when seized of an action on a matter in respect of which the parties have made an agreement within the meaning of this Article, shall at the request of one of the parties, refer the parties to Arbitration, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption. 14. The agreements which are void, are dealt with under Sections 20, 23 to 30and 36of the Contract Act. In brief: (i) Section 20declares an agreement to be void, if both parties to the agreement, are under a mistake as to a matter of fact; (ii) Section 23lists out the circumstances under which the consideration or object of an agreement would be illegal; (iii) Section 24declares agreements whose considerations and objects are unlawful in part, to be void; (iv) Section 25declares an agreement without consideration to be void except under certain contingencies; (v) Sections 26and 27declare agreements in restraint of marriage and trade to be void; (vi) Section 28declares agreements in restraint of legal proceedings to be void (with a few exceptions); (vii) Section 29declares agreements to be void for uncertainty; (viii) Section 30declares agreements by way of wager to be void (with the exception of horse racing), and (ix) Section 36declares all agreements contingent upon the happening of impossible events, to be void. 15. While the provisions of Sections 20, 23 to 30and 36of the Contract Act, deal with agreements which are void from their very inception, Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific Relief Act. (iv) Some of the defendants are not parties to the Arbitration Agreement. (v) The very claim of the defendants 6 and 10 before the Arbitrators is that the Joint Venture Agreement is null and void. Therefore the Arbitration Agreement which forms part of it, is also null and void. (vi) Complicated issues, which cannot be decided by arbitration, are involved. (vii) The conduct of the defendants 6 and 10 disentitles them from seeking Arbitration. 18. The challenge to the Arbitration Agreement on the ground that it is null and void is found only in sub paragraph V of paragraph-16 of the plaint. But there, the plaintiffs have not specifically pleaded any question of fact that rendered the Arbitration Agreement null and void. None of the parameters prescribed in sections 20, 23 to 30, 35or 36of the Contract Act, is pleaded with any kind of precision by the plaintiffs, to enable this Court to come to the conclusion that the Arbitration Agreement is null and void. The plaintiffs seek a declaration that the Arbitration Agreement is null and void only on the basis that the defendants 6 and 10 themselves have sought a declaration in their Arbitration Claim Petition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . V in paragraph-16 of the plaint, the plaintiffs have not laid a foundation, strong enough for their claim, that the Arbitration Agreement is null and void, for some acceptable reasons of their own. The plaintiffs have just pleaded that even according to the defendants 6 and 10, the Joint Venture Agreement has become null and void. This is not, in my considered opinion, a pleading, sufficient to hold that the Arbitration Agreement is null and void, for the purpose of rejecting an application under Section 45of the Act. 21. INCAPABLE OF BEING PERFORMED: The next limb of the rider contained in section 45is the word inoperative. But before examining the question as to whether the arbitration agreement in this case has become inoperative, let me, for the purpose of convenience, examine whether the agreement has become incapable of being performed. The phrase incapable of being performed signifies, in effect, frustration and the consequent discharge. If, after the making of the contract, the promise becomes incapable of being fulfilled or performed, due to unforeseen contingencies, the contract is frustrated. 22. When the rule of frustration was at its infancy, in the 17th Century, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, contemplates 3 situations, namely (i) agreement to do an act which is impossible in itself (ii) agreement to do an act which becomes impossible after the making of the contract and (iii) agreement to do an act, which becomes unlawful later, on account of some event which the promisor could not prevent. 26. But the case on hand will not fall either under the category of an agreement to do an act impossible in itself or under the category of an agreement to do an act, which became unlawful by reason of some event which the promisor could not prevent. It will also not fall under the category of a contract to do an act which became impossible after the contract was made. We must remember that we are here concerned with the arbitration agreement and not the main joint venture agreement. The arbitration by itself is not incapable of being performed, even if the joint venture agreement between the parties is presumed to be incapable of being performed. Therefore, I do not accept the contention that the arbitration agreement became incapable of being performed. 27. The reliance placed by the plaintiffs on section 16of the Specific Relief Act, 1963, is misconceived. Section 16speaks o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portles {(1968) 1 Lloyd's Rep. 163}, where an agreement contained a clause, the first part of which mandated the reference of any dispute to Arbitration in England and the latter part of it mandated the reference of any other dispute to Arbitration in Russia. Therefore the Court held that the Arbitration Agreement was void for ambiguity and was neither effective nor enforceable. But the case on hand poses no such conundrum. 31. One of the circumstances when an arbitration agreement may become inoperative is, when the dispute arising out of the underlying contract is resolved. The Supreme Court of New South Wales, Commercial Division, Australia, took such a view in Shanghai Foreign Trade Corporation (PR China) vs. Sigma Metallurgical Co. Pty. Ltd., (Yearbook Commercial Arbitration, Vol. XXII-1997 page 609). An agreement may be rendered inoperative even by acts of omission or commission, on the part of the parties. Waiver, abandonment, renunciation, election, acquiescence etc., are some of the acts of commission or omission, by which an agreement may be made inoperative by a party. In his "The Law and Practice of Arbitration and Conciliation (2nd Edition) Mr. O.P. Malhotra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of dispute as provided in the arbitration agreement must be clearly manifested by the step taken by such party. Once such unequivocal intention is declared or abandonment of the right to claim the benefit of the agreement becomes manifest from the conduct, such party would then not be entitled to enforce the arbitration agreement because there is thus a breach of the agreement by both the parties disentitling both to claim any benefit of the arbitration agreement. Section 34provides that a party dragged to the Court as defendant by another party who is a party to the arbitration agreement must ask for stay of the proceedings before filing the written statement or before taking any other step in the proceedings. That party must simultaneously show its readiness and willingness to do all things necessary to the proper conduct of the arbitration. The legislature by making it mandatory on the party seeking benefit of the arbitration agreement to apply for stay of the proceedings before filing the written statement or before taking any other steps in the proceedings unmistakably pointed out that filing of the written statement discloses such conduct on the part of the party as would u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove cases arose out of section 34of the Arbitration Act, 1940, relating to stay of legal proceedings. Section 34of the old Act entitled a party against whom legal proceedings were initiated, to seek a stay of the proceedings, on the basis of the arbitration agreement. But the right so conferred was restricted by the prescription that it should be exercised before the filing of a written statement or taking any other steps in the proceedings. Therefore, the Supreme Court held that the action of the defendant in filing a written statement or taking other steps in the legal proceedings would tantamount to abandonment of the right to seek arbitration. 36. Interestingly, the Supreme Court did not merely look at the filing of the written statement as an act simplicitor, disentitling the defendant to seek arbitration in terms of section 34, without anything more. In other words, the Supreme Court did not just think that the filing of the written statement by the defendant resulted in the forfeiture of a right to seek arbitration. The filing of the written statement was considered by the Apex court, as an abandonment of the right itself. 37. A similar rider, as found in section 34of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be open to him thereafter to turn around and make a disclaimer of the action initiated by him, if the other party has submitted himself to the jurisdiction and obtained a relief or finding in his favour. 41. Abandonment may also arise when the contract is followed by a long period of delay or inactivity. But the party seeking to establish abandonment must show that the other party so conducted himself as to entitle him to assume and that he did assume, that the contract was agreed to be abandoned sub silentio. The abandonment of a right may arise by virtue of a party making an election. Some times this is also called waiver by election. It would arise when a person is entitled to alternative rights inconsistent with one another and that person acts in a manner which is consistent only with his having chosen to rely on one of them. Such cases do not require detriment to the other party as foundation for their application {R. Samudra Vijayam Chettiar Vs. Srinivasa Alwar and Others AIR 1956 Madras 301 = (1956) 69 L.W. 62. A second type of waiver is waiver by estoppel. It arises when the innocent party so conducts himself as to lead the party in default to believe that he will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of D-6 Plaintiffs, D-2, 4 &5 120-B, 406, 409, 420 IPC Stayed by High Court in Crl. O.P. 19448/07 Crime No. 466 of 2007, Kangeyam Police Chenniappan Director of D-6 Plaintiffs, D-2 & 4 406, 409, 420, 471, IPC Stayed by High Court, Madras in Crl. O.P. No. 20886 to 20889 of 2007 Crime No. 468 of 2007, Kangeyam Police Chenniappan Director of D-6 Plaintiffs, D-2 & 4 406, 409, 420, 467, 471, 472, 477 IPC Stayed by High Court, Madras in Crl. O.P. No. 20886 to 20889 of 2007 45. The above table contains details of only those criminal complaints filed by the defendants 6 and 10. There are also complaints filed by the plaintiffs and others against the 10th defendant leading to the arrest and detention of the 10th defendant by the police. Serious allegations of fraud, breach of trust, cheating etc., are made by the parties against one another. 46. Thus it is clear that the defendants 6 and 10 themselves, have taken recourse to civil suit, company petitions and police complaints against the plaintiffs herein and various other persons. If the defendants 6 and 10 had been faithful to the arbitration agreement, they should have invoked the arbitration clause at the earliest. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the CLB has enlisted the reasons on account of which disputes arose between the parties. Non fulfillment of the terms and conditions of the JVA is one of the reasons cited there. In the same paragraph (16), at page 38 of its order, the Company Law Board has elicited in a nutshell the nature of the dispute in the following words:- The whole of the controversies have spurred out of the JVA dated 30-1-2004. KCP (D-10) is accusing ORE (D-2) of non fulfillment of the terms and conditions of the JVA, whereas the latter is finding fault with KCP for having grossly violated the provisions of the JVA. 50. It is in the above context that the CLB pointed out in the later portion of paragraph 16 of its order (at page 41) that none of the complaints made as regards violation of contractual rights derived from the JVA can be agitated in a proceeding under section 397of the Act and that therefore the grievances of KCP or ORE on account of the purported breach of the terms of the JVA are not amenable to the jurisdiction of CLB. After saying so, the CLB also noted the existence of clause 22 of the JVA for dispute resolution. 51. At the end of an elaborate discussion, the CLB noted at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order. In the event of any failure to make the repayment within the specified time, CEPL, CG Holdings. KCP and VML will duly convey the immovable properties of VML, namely, 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable laws, as consideration for reduction of capital and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG Holdings and KCP. CEPL is consequently authorised to reduce its share capital and in the meantime, operation of the impugned agreements is suspended, to expedite and ensure due completion of the modalities of exit by ORE and Athappan, thereby, bringing to an end the acts complained of in the present proceedings. CEPL shall ensure necessary statutory compliances till the whole process, in accordance with the aforesaid directions, is properly completed. The parties are at liberty to apply in the event of any difficulty in implementation of the smooth exist of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of title to immovable property (also prayed before the arbitral tribunal) has already been substantially decided by the CLB. Therefore, the arbitration agreement has been rendered inoperative by the defendants 6 and 10. 56. There is also one more issue. A set of persons namely, the plaintiffs and defendants 2, 6 to 10 alone are parties to the joint venture agreement, of which the arbitration agreement is a part. But the arbitration claim is made not only against persons who are parties to the joint venture agreement (and the arbitration agreement), but also against defendants 3, 4 and 5. In paragraph 2.3 of the Claim Petition filed before the arbitrators, the defendants 6 and 10 seek to justify the impleadment of defendants 3, 4 and 5 on the ground that they are the altar ego of the second defendant and that they had participated in the pre contract negotiations and made representations on behalf of the other defendants. The paragraph relating to reliefs claimed, is not confined to the parties to the arbitration (or joint venture) agreement alone. Thus there is an attempt on the part of defendants 6 and 10 to seek reliefs before the arbitrators, against persons who are not boun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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