TMI Blog2022 (2) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... of an arbitration agreement for the arbitrator to be appointed - this Court is prima facie satisfied as to the existence of an arbitration agreement. Thus, this Court considers it apposite to allow the present petition. It is, however, clarified that this would not preclude the respondents from contesting the existence of an arbitration agreement before the Arbitral Tribunal. Justice (Retd.) Aftab Alam, a former Judge of the Supreme Court, is appointed as the Sole Arbitrator to adjudicate the disputes between the parties subject to the learned Sole Arbitrator making the necessary disclosure as required under Section 12(1) of the A C Act and not being ineligible under Section 12(5) of the A C Act. The parties are at liberty to approach the learned Sole Arbitrator for further proceedings. Petition allowed. - ARB.P. 905/2021 - - - Dated:- 31-1-2022 - HON BLE MR JUSTICE VIBHU BAKHRU Advocates who appeared in this case: For the Petitioner : Mr. Mukul Rohatgi Mr. Sandeep Sethi, Sr. Advs. with Mr. H.S. Chandhoke, Mr. Prashant Mishra, Mr.Shalim Arthwan, Ms. Aimen Reshi, Advocate. For the Respondent : Mr. Ravi Shankar Prasad, Senior Advocate with Mr. NPS Chawla, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Understanding dated 25.11.2019 (hereafter the MOU-I ), whereby Ashav agreed to make available a sum of ₹40,00,00,000/- to PAL and a sum of ₹15,25,00,000/- to PPPL to be used for the resolution of RSIL. 10. Thereafter, on 09.12.2019, Ashav entered into another Memoranda of Understanding (hereafter the MOU-II ) with respondent nos. 1 to 4. Ashav states that disputes have arisen between the parties in connection with the said Memorandums of Understanding (MOU-I and MOU-II) and prays that an arbitrator be appointed to adjudicate the said disputes. 11. Clause 15 of the MOU-I embodies an Arbitration Agreement. The said clause reads as under :- 15. Dispute Resolution and Governing Law 15.1 If any dispute, claim, controversy or disagreement of any kind whatsoever (a Dispute ) arises at any time between the Parties out of or in connection with this MOU or the respective rights and liabilities of the Parties, including without limitation, any question regarding its existence, validity . scope, interpretation or termination such Dispute shall, to the extent possible be settled amicably in the first instance by prompt and good faith negotiations between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that (a) there is no arbitration agreement in existence with all the respondents as arrayed in the present petition; (b) that the notice invoking arbitration issued by Ashav is vague and does not crystallise the claim sought to be referred to arbitration; (c) that the disputes, essentially, relate to the MOU-II and therefore, cannot be referred to arbitration under the Arbitration Clause as contained in the MOU-I; and (d) that the Arbitral Tribunal constituted under the MOU-I cannot examine the intention of the parties for entering into the MOU-II. 16. The respondents state that Clause 15 of the MOU-II cannot be read to mean that the parties had any intention to incorporate the Arbitration Agreement as articulated in Clause 15 of the MOU-I in MOU-II. Submissions of Counsels 17. Mr Ravi Shankar Prasad, learned senior counsel appearing for PAL and PPPL, submitted that Ashav s claim for allotment of shares in RSIL clearly arises under MOU-II alone. He submitted that the MOUI and MOU-II are two separate agreements and the commercial understanding under the two MOUs are completely different. Therefore, the same cannot be considered as a part of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows the intention to incorporate the arbitration clause as contained in that document. He also submitted that the said view was reinforced by the Supreme Court in a later decision in Inox Wind Ltd. v. Thermocables Ltd. : (2018) 2 SCC 519. 20. Next, he submitted that the Clause 15 of the MOU-II merely referred to documents that were executed on 25.11.2019 and not MOUI. He submitted that there were a number of documents executed on that date, which were intended to provide security to Ashav in respect of its investment and the import of Clause 15 of MOU-II was to incorporate those documents and not the Arbitration Clause in MOU-I. 21. Mr Prasad submitted that in any event, the disputes sought to be raised were outside the scope of the Arbitration Clause and thus, an arbitrator could not be appointed. He referred to the decision in Vidya Drolia and Ors. v. Durga Trading Corporation: (2021) 2 SCC 1 , in support of his contention that even at a referral stage, it is necessary for the court to briefly examine the dispute between the parties. He also referred to the decision of the Supreme Court in DLF Home Developers Private Ltd. v. Rajapura Homes Pvt. Ltd.: (2021) SCC OnL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents were obliged to ensure that 11% of the equity shares of RSIL are available to Ashav for its benefit. In its notice, Ashav had referred to the MOU-I as well as MOUII. In addition, it had also referred to other agreements executed on 25.11.2019. 25. The contention that the notice under Section 21 of the A C Act is vague and non-est is erroneous. It is not necessary for a party invoking arbitration to set out all claims; it is sufficient if indicates the disputes sought to be referred. In this case Ashaav had indicated that it is entitled to acquire equity shares in RSIL. The respondents are disputing the same. The amount invested by Ashav has been remitted to its bank account. Ashav has not accepted the same and at the outset had volunteered to deposit the same with the Registry of this court. 26. There is no dispute that an agreement to refer the disputes to arbitration exists between the parties to MOU-I. Clause 15 of the MOUI is not disputed. PAL, PPPL and the SPV are parties to MOU-I and thus, parties to the Arbitration Agreement. It is also not disputed that the SPV stands merged with RSIL and RSIL has assumed the obligations of the SPV under the contracts entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies of the P Group to invest in the Target Company (RSIL) and to implement the Resolution Plan. It was agreed that pending the investment by PAL and PPPL (the Holding Companies) in the SPV and the investment by SPV in RSIL, Ashav would extend a loan to PAL and PPPL in the form of an Inter-Corporate Deposit (ICD), which would be eventually converted to or replaced by securities of RSIL or the Holding Companies. The recitals of MOU-I are relevant and are set out below:- A. The Holding Companies are a part of a consortium of companies lead by the SPV (the P Group ), and P Group has agreed to acquire the majority of the equity shares (representing not less than 98.87% of the equity share capital) and control of Ruchi Soya Industries Limited ( Target Company ) pursuant to a resolution plan approved by the NCLT on 24.07.2019 04.09.2019; B. The Investor has the financial capability and resources to make investment and/or give loan; C. The Holding Companies have approached the Investor with a request to make investment in the Holding Companies, to enable the Holding Companies, together with other companies of P Group, to invest in the Target Company and to implement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of RSIL, either directly or indirectly, by holding P4 Clause B Shares (shares in PPPL). Clauses 1.3 and 1.4 of the MOU-I are set out below:- 1.3 The primary intent and objective of infusion of the funds by the Investor in P4, initially termed as ICD Amount, is (A) (i) to acquire the equity shares of the Target (soon after merger of the SPV with the Target) and (ii) in the event such acquisition is not immediately feasible for any reason whatsoever then to acquire the P4 Class B Shares (as defined later), and (B) only if such acquisition is not feasible or achievable due to statutory reasons, lack of necessary approvals or limitations under any material contract or law, then the Holding Companies shall repay the ICD amount to the Investor (which is secured by, and the terms of which, are set out later) at the end of twelve (12) months, along with earlier repayment by P1 to the Investor. 1.4 The acquisition in Clause 1.3 shall entitle the Investor to receive (whether by way of issue, transfer or otherwise), such number of equity shares of the Target Company representing six percent (6%) of the paid up capital of the Target Company (directly, in case of (A)(i) or indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10.12.2019 and thus, it had complied with its obligations under the ICD Agreements and MOU-I. 38. The parties entered into MOU-II, wherein Ashav agreed to acquire 11% of the total subscribed share capital of RSIL for an amount of ₹110,47,50,000/-. In terms of MOU-II, the investment by Ashav was contemplated in two stages. Under the first stage, Ashav agreed to deposit ₹55,23,75,000/- against allotment of 6% of equity shares and, in the second stage, Ashav agreed to invest the balance amount, that is, ₹55,23,75,000/- towards issuance of 5% warrants convertible in equity shares. The understanding and intention of the parties as set out in MOU-II, is reproduced hereinbelow: 1. Co-Investors: The Parties are co-investors where the Investor shall have stake upto 11% of the total subscribed share capital of the company. Parties have acquired Ruchi Soya Industries Limited (Company) as per below: (a) Investor [Ashav] shall be allotted 11% equity stake in the Company in form of unpledged equity shares out of which for 1% equity stake no payment will be made by the Investor (b) The Investment of the Investor towards the Debt portion shall be repaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt Portion payment to PAL (stage 2) Within 1 year of warrant offer letter ₹ 37,50,00,000/- Debt Portion payment to PAL (stage 2) Total ₹ 55,23,75,000/- Note: An excess payment of ₹ 1,25,000/- against stage 1 shall be adjusted as per mutually agreed terms. (c) For stage payment 2 of debt portion payable on or before 01.12.2020 to PAL, as above and amounting to ₹ 37,50,00,000/-, the Investor shall not be charged any interest until 09.06.2020 and interest @ 10% per annum shall be charged after 09.06.2020 on the amount of ₹ 37,50,00.000/-. 39. In terms of the MOU-II, Ashav was obliged to make a payment of ₹55,23,75,000/- under Stage I for acquisition of 6% equity shares. Ashav states that under the MOU-I, it had already deposited an amount of ₹55,25,00,000/- and thus, had already complied with Stage I payment of ₹55,23,75,000/- under the MOU-II. Ashav further states that the terms of MOU-I were incorporated under the MOU-II as it records that the differential amount, which is also the exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated in the MOU-II. As stated above, both the MOUs are connected and cannot be treated as totally disjunct. Prima facie, the investments made by Ashav in terms of the MOU-I are required to be adjusted in the manner as indicated in the MOU-II. In that sense, there is some continuity of the investment made by Ashav. It is also apparent that the object and purpose of the investment was to acquire equity interest in RSIL, either directly or indirectly. This is material in determining whether the parties intended to incorporate the Arbitration Agreement as contained in the MOU-I in the MOU-II. 45. Clause 15 of the MOU-II expressly provides that parties had agreed to execute such other documents in addition to the MOU (MOUII) to reflect the understanding between the parties and such documents including all other documents executed on 25.11.2019 would form a part of the MOU-II. 46. Mr Dewan, learned senior counsel, had contended that the documents executed on 25.11.2019 merely referred to the ICD Agreements and Share Pledge Agreements executed on 25.11.2019, but did not refer to MOU-I. It was also contended on behalf of the respondents that the expression documents would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. 50. The learned counsel for the respondents had also made a feeble attempt to contend that the term documents would not include agreements and therefore, the reference to documents could not be to the MOU-I. This contention is clearly unmerited and militates against the respondents stand that the documents referred to in Clause 15 of the MOU-II are only the ICD Agreements, Share-Pledge Agreements and Deeds of Guarantees. These documents also record the agreement between the parties and therefore, no distinction can be drawn between these agreements and the Arbitration Agreement as included in the MOU-I. 51. There is merit in Mr Prasad s contention that the reference in an agreement must be such as to incorporate an arbitration agreement in another document and language of Clause 15 of the MOU-II does not specifically refer to the Arbitration Agreement. There is no cavil with the proposition that the question whether an arbitration agreement is incorporated by reference must be answered by ascertaining the intention of the parties. In M.R. Engineers Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd (supra), the Supreme Court had explained that a general referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Chloro Controls India Private Ltd. v. Severn Trent Water Purification Inc. And Ors. (supra), the Supreme Court had referred to two theories under which non-signatories to an arbitration agreement could be compelled to arbitrate. The relevant extract of the decision of the Supreme Court referring to the said two theories is set out below: 103.1 The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. 103.2 The second theory includes the legal doctrines of agent-principal relations, apparent authority, piercing of veil (also called the alter ego ), joint venture relations, succession and estoppel. They do not rely on the parties intention but rather on the force of the applicable law. 56. The applicability of the said theories is also not contingent upon the entities being incorporated. 57. In the present case, Ashav has asserted that there is identity of the parties and all of the parties are under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting for a consortium referred to as P Group in entering into MOU-I with Ashav. Thus, even on the principle of agency, DYMT and PGN are required to be joined as parties to arbitration. 60. Ashav had asserted that the funds provided by it were used by the P Group for the resolution of RSIL. In that sense, DYMT and PGN had derived benefit from the said funds as they are also part of the consortium that had proposed the Resolution Plan for RSIL. In Life Techs. Corp. v. AB Sciex Prop. Ltd.: 803 F.Supp. 2d 270, 273-274 (S.D.N.Y. 2011), it was held that a non-signatory may be estopped from avoiding arbitration where it knowingly accepted the benefits of an agreement with an arbitration clause. The benefits must be direct which is to say, flowing directly from the agreement . 61. In Mahanagar Telephone Nigam ltd. v. Canara Bank Ors: (2020) 12 SCC 767, the Supreme Court had, inter alia, observed as under: 10.3. A non-signatory can be bound by an arbitration agreement on the basis of the group of companies doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non signatory parties. Courts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234], (in the context of Section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie. 33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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