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TMI Blog2022 (2) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Limited Liability Partnership Act, 2008. Respondent no.1 (Patanjali Ayurveda Limited - hereafter 'PAL') is a closely held public company and holds 48.1% of the shares issued by respondent no.5 company. 3. Respondent no.2 (Patanjali Parivahan Private Limited - hereafter 'PPPL') is a private company and holds 16.9% shares of respondent no.5. Respondent nos. 3 and 4 (hereafter referred to as 'DYMT' and 'PGN' respectively) are Public Charitable Trusts. Respondent no.4 holds 13.52% shares of respondent no.5. 4. Respondent no.5 (Ruchi Soya Industries Limited - hereafter 'RSIL') is a public company. 5. The petitioner states that respondent nos. 1 to 4 are a part of one group (Patanjali Group) and are effectively controlled and managed by the same set of persons. 6. Respondent nos. 1 to 4 formed a Special Purpose Vehicle known as a Patanjali Consortium Adhigrahan Private Limited (hereafter also referred to 'the SPV'), which has since merged with RSIL. Factual Context 7. A petition under the Insolvency and Bankruptcy Code, 2016 (hereafter 'IBC') was admitted by the National Company Law Tribunal (hereafter 'NCLT') in respect of RSIL. It is stated that certain entities of the Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reto shall submit to the arbitrators' award and award and the same shall been forceable in any competent court of law. (emphasis added) 15.4. The MOU shall be governed and construed solely in accordance with the laws of India and the Parties hereby submit to the exclusive jurisdiction of Court at Delhi." 12. Clause 15 of the MOU-II provides that all documents executed on 25.11.2019 would form a part of the said MOU. Ashav claims that by virtue of the said clause, the Arbitration Agreement under MOU-I stands incorporated in MOU-II, as well. Clause 15 of the MOU-II reads as under:- "15. Documents : The Parties agree to execute such other documents in addition to this MOU to reflect the above understanding and such documents including all other documents executed on 25th November 2019 shall form part of this MOU." 13. In the meantime, the SPV has merged with RSIL. Ashav claims that by virtue of the merger, all rights and obligations of the SPV are assumed by RSIL and therefore, RSIL is also bound by the Arbitration Agreement under Clause -15 of the MOU-I. 14. Ashav claims that the two MOUs represent a composite commercial transaction, whereby Ashav had agreed to provide fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had agreed to acquire 11% equity of RSIL on an investment of Rs.110.47 crores. He submitted that it is inconceivable that the MOU-I and MOU-II could be implemented together as a singular transaction, as one was destructive of the other. 18. Mr Prasad referred to Section 7 of the A&C Act and submitted that in terms of Sub-section (5) of Section 7 of the A&C Act, a reference to a contract or a document containing an arbitration clause constitutes an arbitration agreement only if the reference is such as to make that arbitration clause a part of the contract. He submitted that the use of word 'such' clearly indicates that the clause seeking to incorporate an arbitration agreement contained in any other document must expressly indicate the intention to do so. He submitted that Clause 15 of the MOU-II does not express any such intention. He referred to the decision of the Supreme Court in Nathi Devi v. Radha Devi Gupta: (2005) 2 SCC 271 and on the strength of the said decision, contended that while interpreting a statute, effort should be made to ensure that effect is given to each and every word used by the legislature. 19. Next, Mr Prasad, referred to the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as a part of a group under the Group of Companies doctrine as referred to by the Supreme Court in Chloro Controls India Private Ltd. v. Severn Trent Water Purification Inc. And Ors.: (2013) 1 SCC 641. In addition, he submitted that the two MOUs do not represent a composite commercial transaction but contemplate completely different commercial transactions. He also referred to the decision of M.R. Engineers & Contractors Private Ltd. v Som Datt Builders Ltd. (supra) and submitted that a mere reference to a document would not amount to incorporating an arbitration agreement. The only exception is where the referred document is a standard format of terms and conditions of trade associations or regulatory institutions, which publish such standard terms and conditions, for the benefit of members. 23. Mr Jayant Mehta, learned senior counsel appearing for RSIL, submitted that RSIL was not a party to either MOU-I or MOU-II. He contended that the notice invoking arbitration dated 01.09.2021 was vague, cryptic and defective and therefore, was non-est. He also reiterated the contentions as advanced by Mr Prasad and Mr Dewan. Reasons and Conclusion 24. The scope of examination under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute the same. According to them, the MOU-I and MOU-II are two separate and independent agreements, which are not interrelated. DYMT and PGN were not parties to the MOU-I. They claim that they are not signatories to the Arbitration Agreement and therefore, are not bound to refer the disputes to arbitration. 29. In the aforesaid context, one of the principal questions to be addressed is whether the MOU-I and MOU-II are connected. The respondents contend that since the MOU-I cannot be performed in addition to MOU-II, the said agreements must be interpreted to be completely different transactions and treated accordingly. The said contention is unpersuasive. It is not necessary that both the MOUs should be capable of performance simultaneously for being construed as being connected or interrelated. According to Ashav, the MOU-II is a progression of the MOU-I. 30. It is important to refer to the recitals of the MOU-I to understand the context in which Ashav, PAL, PPPL and the SPV had entered the said agreement. PAL and PPPL are referred to as the 'Holding Companies' in MOU-I. MOU-I records that PAL, PPPL and the SPV had agreed to acquire majority of the equity shares representing not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F. For the purpose of this MoU, the Parties set out the key terms and conditions on which the Investor will initially extend ICD to the Holding Companies followed by conversion or and repayment thereof. 31. It is clear from the recitals of MOU-I that Ashav had agreed to make available certain funds as an Inter-Corporate Deposit, which would eventually be converted into securities of RSIL. Clause 1 of the MOU-I sets out that Ashav had agreed to make available a sum of Rs.40,00,00,000/- to PAL and a sum of Rs.15,25,00,000/- to PPPL. Thus, make available an aggregate sum of Rs.55,25,00,000/- (Rupees Fifty Five Crores Twenty Five Lakhs). It was expressly stated that the primary intent and objective for infusing the funds by Ashav was to acquire the equity shares of RSIL soon after the merger of the SPV with RSIL. Clause 1.3 of the MOU-I also mentions that the said investment would be "initially termed as ICD Amount". It was also agreed that in the event such acquisition of equity shares of RSIL was not feasible for any reason whatsoever, then Ashav would acquire 'P4 Class B Shares'. However, if such acquisition was not feasible or achievable due to statutory reasons then the Holding C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Deposit and Pledge Agreement between Ashav and PAL (hereafter 'the ICD Agreement - I'), wherein Ashav had agreed to lend a sum of Rs.40,00,00,000/- to PAL; and (ii) Inter-Corporate Deposit and Pledge Agreement between Ashav and PPPL (hereafter the 'ICD Agreement - II'), wherein Ashav had agreed to lend a sum of Rs.15,25,00,000/- to PPPL (These agreements are hereafter collectively referred to as the 'ICD Agreements'). 35. In terms of the ICD Agreements, Ashav had agreed to transfer the respective loan amount once a demand to extend the same under the said agreement was raised. Recital (B), which is common in the ICD Agreements, is reproduced hereinbelow: "(B) The Lender shall, on demand from the Borrower, either deliver a demand draft of the Loan Amount drawn in favour of the Borrower or wire transfer the Loan Amount to the bank account specified by the Borrower;" 36. Ashav states that on 25.11.2019, PAL and PPPL, issued a drawdown notice under the ICD Agreements requesting Ashav to disburse an amount of Rs.5,00,00,000/- and Rs.4,00,00,000/- respectively as the first tranche payment. Ashav states that the said request was duly complied with. 37. Subsequently, on 07.12.2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000/- for 6% Equity Stake; Rs. 21,47,62,500 towards NCD's portion and Rs. 21,47,62,500 towards Preference Shares - Debt portion of the Investor]. The Free equity shall be allotted in the Stage 1 itself, against payment of 50% amount of the total Investment. This payment shall be against allotment of 6% Equity Shares (in unpledged form) of the Company by way of fresh issuance of shares by the Company (b) Stage 2 - Balance payment of 50% amounting to Rs. 55,23,75,000/- towards Issuance of 5% warrants convertible in Equity Shares as below: Date Amounts Remarks 12.12.2019 Rs. 2,55,00,000/- 25% Warrant Amount - equity portion first make payment to PAL and on repayment on 29.01.2020 make payment to the Company (stage 2) Within 10 months of warrant offer letter Rs. 7,68,75,000/- 75% Warrant Amount equity portion payable directly to Company (stage 2) on 09.12.2020 29.01.2020 Rs. 7,50,00,000/- Debt Portion payment to PAL (stage 2) Within 1 year of warrant offer letter Rs. 37,50,00,000/- Debt Portion payment to PAL (stage 2) Total Rs. 55,23,75,000/- Note: An excess payment of Rs. 1,25,000/- against stage 1 shall be adjusted as per mutually agreed terms. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that the MOU-I contemplates a loan transaction and the MOU-II contemplates a transaction for acquisition of shares is, prima facie, unmerited. It is apparent from the recitals of the MOU-I that Ashav had agreed to make an investment, which would be initially by way of an ICD, but the purpose and object of the investment was to acquire shares of RSIL. The amount was to be returned in twelve months, if the transaction did not fructify. 44. Undeniably, the disputes between the parties also arise in connection with the MOU-II and is not limited to the MOU-I. In this regard one of the principal question to be addressed is whether the Arbitration Agreement as contained in Clause 15 of the MOU-I, is incorporated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action under the MOU-I were incorporated as part of the MOUII. By virtue of Doctrine of Severability, an arbitration agreement even though it is embodied as a clause in an agreement is required to be considered as severable and independent of that agreement. The Arbitration Agreement was also executed on 25.11.2019 as a part of the MOU-I. Once the parties had agreed to incorporate all other documents executed on 25.11.2019 in the MOU-II, it is difficult to accept that the parties had consciously excluded the Arbitration Agreement executed on that date and their intention was only to incorporate other documents/agreements executed on 25.11.2019 and not the Arbitration Agreement. 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not companies and therefore, could not be compelled to arbitrate under the Group of Companies doctrine. He also contended that the Group of Companies doctrine would apply only if there was a composite transaction. However, in the present case, the MOU-I is not required to be performed as the entire transaction had been re-negotiated and only the MOU-II was required to be performed. 54. This Court is not persuaded to accept that the Group of Companies doctrine under which a non-signatory may be compelled to arbitrate is limited only to incorporated entities. The doctrine would also apply to a cohesive group, which is acting for a common purpose. 55. 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 discernib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso promoted the SPV for the said purpose. The recitals of MOU-I do indicate that PAL, PPPL and the SPV had entered into MOU-I with Ashav with a common object of financing the Corporate Resolution of RSIL. Recital 'C' of the MOU-I also expressly states that PAL and PPPL (the Holding Companies) had approached Ashav to make an investment to enable them "together with other companies of 'P Group' to invest in the Target Company [RSIL] and to implement the NCLT Resolution Plan". It is, thus, clear that Ashav had agreed to provide the investment for a common objective of PAL, PPPL, DYMT and PGN. It also appears that PAL, PPPL and the SPV were 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 hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 17 of the Act." 65. There is merit in the aforesaid contention and the respondents cannot be permitted to resile from their stand in the reply to Ashav's petition under Section 9 of the A&C Act. 66. The Court will decline appointment of an arbitrator if it finally concludes that an arbitration agreement does not exist. However, the Court needs only to be prima facie satisfied as to the existence of an arbitration agreement for the arbitrator to be appointed. In this context, it is relevant to refer Paragraphs 32 and 33 of the Law Commission's 246th Report. The same are set out below: "32. In relation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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