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IAAP/44/2004 13/ 15 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN.
UNDER ARBITRATION ACT No. 44 of 2004
For
Approval and Signature:
HONOURABLE
MR.JUSTICE D.A.MEHTA
Sd/-
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1
Whether
Reporters of Local Papers may be allowed to see the judgment ? NO
2
To
be referred to the Reporter or not? NO
3
Whether
their Lordships wish to see the fair copy of the judgment ? NO
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ? NO
5
Whether
it is to be circulated to the civil judge ? NO
======================================
NIMISH
K VASA - Petitioner(s)
Versus
ANIL
JAIN - Respondent(s)
=============================================
Appearance
:
MR MIHIR THAKORE, SENIOR
ADVOCATE WITH MR MANAV A MEHTA for Petitioner(s) : 1,
MR MIHIR
JOSHI, SENIOR ADVOCATE, MR PERCY KAVINA, MR RASHESH SANJANWALA, MR
SANDEEP SINGHI WITH MR A.M.HAVA FOR SINGHI & CO for Respondent(s)
: 1,
======================================
CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
Date
: 29/02/2008
ORAL
JUDGMENT
1 On
26.04.2006 the Designated Judge had made an order appointing sole
Arbitrator. However, when the said order was carried by way of
appeal before the Apex Court, vide order dated 18.09.2006 in Civil
Appeal No. 4175 the following order came to be made by the Apex
Court :
?SWe, accordingly,
set aside the order passed by the learned Single Judge dated
26.4.2006 and remit the case back to the learned Single Judge to
decide the issue afresh in light of the decision of this Court in
the case of Patel Engineering Ltd. (supra) by a detailed reasoned
order. It is expected that the learned Single Judge will dispose of
the matter expeditiously??.
Hence,
this matter has been heard afresh and the following order is made :
2 This
petition for appointment of an Arbitrator under the provisions of
section 11(6) of The Arbitration and Conciliation
Act, 1996 (the Act) is based on a share holders agreement
(the Agreement) stated to have been entered into by the parties on
04.04.2000 (when the said Agreement has been actually executed
sometime in October/November 2001) and Memorandum of Understanding
(MoU) executed on 10.04.2000.
3 On
10.04.2000 when the MoU between the petitioner and the respondent was
entered into the project was for manufacture and sale of Para
Anisic Aldehyde and other related products and the objective was :
?STo float a joint venture company, 50:50 equity sharing by NKV
and AMJ for entering into a new product line of PAA and its related
derivatives. NKV & AMJ to invest an amount of Rs.10 lacs
each as equity in the new JV Company Profit and Loss will be equally
shared (50:50) by NKV/AMJ??. Pursuant to the MoU a sum
of Rs.10 lacs in the form of share application money was forwarded by
the petitioner by two cheques of Rs. 5 lacs each to the respondent.
According to the petitioner the MoU was acted upon by the parties
and for this purpose various inter office correspondence has been
relied upon by the petitioner. According to the petitioner the
share holders agreement though shown to have been executed on
04.04.2000 was admittedly executed on or around October/November,
2001 and this fact has been accepted in paragraph No. 6 of the
additional affidavit dated 28.06.2007 filed by the petitioner. This
additional affidavit came to be preferred because a preliminary
objection was raised on behalf of the respondent that the petition is
required to be rejected solely on the ground that the petitioner has
made false statements in the petition (Paragraph Nos. 2 and 10) which
are contrary to the record. According to the respondent though the
petitioner claims that the statement by the petitioner that the MoU
was in furtherance of the Agreement was made as per oral
understanding, the said statement is false, and the petitioner,
knowing such averment to be false made the statement consciously
because in absence of the MoU being linked up with the Agreement,
Clause No.10 of the Agreement relating to appointment of an
Arbitrator could not have been invoked by the petitioner.
4 In
additional affidavit dated 28.06.2007 filed by the petitioner the
averments made in paragraph Nos. 2 and 10 of the petition have been
explained in the following manner :
?S3. I state that
from the above paragraphs of the petition it would be evident that
I have stated as under : (i) The share holder agreement was entered
into on 4.4.2000 at Ahmedabad, (ii) immediately after the execution
of the share holders agreement the petitioner and the respondent
entered into a Memorandum of Understanding on 10.4.2000 (iii) The
MOU is in furtherance of the agreement.
4. I say that the
aforesaid statements were made on the apparent reading of the
aforesaid documents. More than four and half years had elapsed since
the execution of the document and I did not remember the exact
sequence in which the same were executed. I state that had I
remembered the sequence I would have stated : (i) Memorandum of
Understanding was entered into on 10.4.2000 (ii) the Share Holders
Agreement was entered into in furtherance of the MOU (iii) The Share
Holder’s agreement though entered into in furtherance of the MOU
was to also govern the relations between the parties. The parties
felt that it should be predated to the MOU and accordingly by
mutual understanding it was predated.
5. I state that
there was absolutely no oblique motive in making statement made by
me in para 2 and 10 of the petition. The incorrect sequence makes
absolutely no difference in so far as the relief sought in the
petition is concerned for the only relief which I am seeking is
appointment of arbitrator pursuant to the Clause 10 of the share
holder’s agreement for determination of my civil rights. I state
that such error in stating the sequence of the execution of
agreements more so when parties mutually agreed to predate it cannot
deprive me to my rights to obtain adjudication from an appropriate
forum.
6 I say in the
affidavit in reply, the respondent stated (i) that no company by
the name of Ascent Fine Chemicals Pvt. Ltd. , was at all in
existence on the purported date of the alleged share holders
agreement i.e. on 4.4.2000 (ii) no reference to the clause of the
said agreement can be made since it was not acted upon or implemented
at all and subsequently abandoned (iii) there is no Arbitration
Agreement at all (iv) disputes raised do not even purport to have
arisen in respect of legal relationship contemplated under the share
holders agreement (v) that it is denied that MOU was executed after
the share holders agreement or that it was in furtherance of share
holders agreement (vi) the dispute raised are under the MOU and not
under the share holders agreement (viii) MOU was only partly acted
upon for a limited period and then given a go by (vii) to avoid my
obligations under the MOU, I requested the respondent to execute a
share holders agreement in or about October/November 2001, in a
manner to be purportedly effective from the beginning??.
5 In
light of the fact that the petitioner has accepted that though the
Agreement is dated 04.04.2000 despite having been executed in
October/November 2001, the Agreement is admittedly predated it is not
necessary to record the facts and evidence, available on record, as
contended by the respondent. Suffice it to state that the only
question that would then survive is whether MoU and the Agreement
are required to be read in conjunction so as to bring the MoU
within the scope of Clause No.10 of the Agreement.
6 For
this purpose the relevant part of the Agreement may be considered.
Clause No. 1.2 of the Agreement under the head ‘BUSINESS OF THE
COMPANY’ stipulates that each of the party agrees to exercise its
rights hereunder and as a shareholder so as to ensure that AFPL
performs and complies with all obligations on its part under this
Agreement and complies with the restrictions imposed upon it
herein. Under Clause No. 2.3.1 relating to ‘MANAGEMENT OF THE
COMPANY’ it is provided that the Board shall comprise of 2 Directors
or such other number as mutually agreed, subject to a maximum of
12 Directors unless the parties agree otherwise in writing. Mr.
Anil Jain/Mr.Nimish K Vasa will be appointed as Managing Directors
and they shall not be liable to retire by rotation. Thereafter under
Clause No. 2.3.4 the rights of both the parties to act as Directors
have been specified. However, what is material is that the rights
available both to the petitioner and the respondent are available
so long as the petitioner and the respondent own 50% shares of
AFPL. The ‘TERM’ of the Agreement is specified vide Clause No.8 of
the Agreement. Under the ‘GENERAL’ clause viz. Clause No.9 none of
the parties to the Agreement are entitled to assign or transfer its
rights or obligations under the Agreement without the prior written
consent of the parties to the Agreement, except as expressly
provided in the Agreement.
7 Clause
No. 10 relating to ‘ARBITRATION’ reads as under :
?S10 ARBITRATION
This Agreement shall
be governed by and construed in accordance with the substantive
laws of India and any dispute or difference of whatever nature
arising under out of or in connection with this Agreement,
including any question regarding its existence, validity or
termination, shall be referred to and finally resolved by
arbitration under the Arbitration and Reconciliation Act, and the
place of Arbitration shall be in Ahmedabad??.
8
If the Agreement and the MoU are read closely there is nothing to
indicate that the MoU is in furtherance of the Agreement, as claimed
by the petitioner. This is not only apparent from the language
employed both in MoU and the Agreement, but also from the fact that
the Agreement was in fact executed almost after a year and half
from the date of execution of the MoU. It is in this context that
the contention of the petitioner as regards the dispute stated to
have arisen between the parties regarding the profits from the joint
venture shall have to be appreciated.
9 Though
the correspondence on record might prima facie reveal that certain
steps were taken to give effect to MoU those steps cannot go to
establish that the MoU has to be read as being either dependent on
the Agreement or vice versa;OR the MoU being in conjunction with the
Agreement or vice versa; OR the MoU being in furtherance of the
Agreement. According to the petitioner, AFPL was not being properly
run and this was because the respondent was not serious in
implementing the Agreement and the MoU. That in fact the proprietary
information regarding ?SPara Anisic Aldehyde and
other related products?? provided by the petitioner was
being used by the respondent in collusion with one other company
named ?SMetro Chem Industries Ltd.??,
wherein the elder brother of the respondent was Chairman/Managing
Director. Therefore, the petitioner was entitled to the share of
profits which were being earned by such user but the respondent was
not parting with such profits. Another claim made by the petitioner
was that the petitioner having proposed and initiated the joint
venture the petitioner was entitled to be adequately compensated for
such efforts.
10 As
against that according to the respondent due to prevalent market
situation there was steep fall in the realisable price of the
products and therefore the respondent had at one point of time
suggested payment of fixed commission to the petitioner on the sales
made for a period of five years. That till the date the dispute was
raised by the petitioner viz. sometime in April, 2002, the
respondent was ready and willing to pay Rs. 20 lacs to the petitioner
being one-half of profits stated to have been earned by AFPL. The
offer made by the respondent was not acceptable to the petitioner.
According to the petitioner, the petitioner was entitled to atleast
a sum of Rs.20 crores by way of compensation for the product
manufactured by the respondent otherwise than as per the Agreement
and the MoU. The basis for such computation, according to the
petitioner is 50% of the profits on the estimated manufacture of such
product for a period of ten years from 01.04.2003. According to the
petitioner this claim arises because of breach of the MoU and the
Agreement and the manufacture being not undertaken by AFPL. The
respondent on the other hand submits that the Agreement was never
effective and there is no breach of the Agreement. It was therefore
contended on behalf of the petitioner that whether the petitioner was
entitled to compensation/damages as claimed, or any lesser amount,
can be decided by the Arbitrator to be appointed.
11 It
is an accepted position between the parties that the amount of Rs.10
lacs paid by the petitioner towards share application money has been
returned to the petitioner and deposited by the petitioner in his
Bank Account on 15.05.2003. This has been followed by an amount of
Rs.1,10,384/- paid to the petitioner towards interest on the equity
contribution made by the petitioner as the funds were utilised in the
meantime without any shares being allotted to the petitioner. The
record further reveals that the petitioner has received in all sum
of Rs.20 lacs in two tranches, each of Rs. 10 lacs, on 01.07.2003 and
9.7.2003 towards share of past profits arising out of the joint
venture. Further sum of Rs. 8.88 lacs towards the amount of
commission on sales has also been paid to the petitioner on
19.08.2003.
12
In light of the aforesaid position the respondent has resisted
appointment of an Arbitrator as according to the respondent nearly
after 13 months of accepting aforestated payments, on 14.09.2004,
the petitioner for the first time claimed a sum of Rs.20 crores as
compensation while seeking appointment of an Arbitrator by suggesting
name of one Shri Mahendrabhai G. Lodha. The respondent has resisted
the claims made by the petitioner pointing out that in so far as MoU
is concerned there is no clause for arbitration and the Agreement
(which has an arbitration clause) does not talk of any distribution
of profits. That in fact the Agreement was never given effect to in
as much as no shares were allotted to either of the parties and only
because of payment of share application money the Agreement which
was between proposed share holders cannot be given effect to so as to
read the same in conjunction with MoU.
13 Though
both the sides have placed reliance on various decisions it is not
necessary to enumerate the same. Suffice it to state that all the
cited decisions have been taken into consideration bearing in mind
the ratio laid down in each of the judgments. The only question as a
Designated Judge, in exercise of powers u/s. 11 of the Act, which is
required to be considered and decided is whether [a] there is an
existence of arbitration agreement between the parties; [b] the
contract between the parties stands concluded/exhausted by the
parties having mutually satisfied their rights and obligations under
the contract without any demur; [c] the dispute, if any, is within
the scope of the arbitration agreement;[d] the claim for arbitration
is not barred by limitation.
14 As
already noticed hereinbefore, Agreement dated 04.04.2000, admittedly
executed in October/November,2001 was in relation to subscribing to
the share capital of the company to be floated by the parties to the
Agreement for which the petitioner had paid Rs. 10 lacs. However, no
shares were in fact issued, not only to the petitioner but to anyone
else, including the respondent. Therefore, neither the petitioner
nor the respondent could describe themselves as shareholders in
strict sense of the term qua the Agreement. A faint attempt on behalf
of the petitioner was made to contend that the term ‘shareholder’ has
to be understood in context of each of the parties being
shareholders of some other limited companies. The said contention
does not merit acceptance when one reads Agreement as a whole. In
the circumstances, it cannot be stated that the Agreement had come
into effect.
15 The
alternative contention of the respondent in this regard also merits
acceptance. Even if the Agreement had come into existence the day
the petitioner was refunded the share application monies without any
issuance of shares at any point of time the Agreement stood
terminated as the petitioner could no longer describe himself as a
shareholder of AFPL. Even otherwise by virtue of the correspondence
exchanged between the parties, the Agreement came to be substituted
by a novatio when the petitioner agreed to accept the commission on
sales at a stipulated percentage and in fact accepted the payment
of Rs.8.88 lacs.
16 In
light of the facts recorded hereinbefore, and more particularly in
light of the payments received by the petitioner, it becomes apparent
that the contract between the parties exhausted itself as the mutual
rights and obligations were satisfied by the conduct of the receiving
party. The respondent is right in contending that thereafter, after a
span of nearly a year and half, the petitioner could not have raised
a fresh claim dehors the Agreement, more particularly considering the
fact that the MoU and the Agreement are not shown to be operative in
conjunction.
17 Lastly,
it is not possible to accept the submission of the petitioner that
the claim of Rs.20 crores viz. disputed amount, is an issue which
arises either from the Agreement or MoU. In fact in none of the
documents is there any clause which stipulates compensation towards
future profits on an estimated basis. Therefore, it is not possible
to state that any dispute in relation to such sum of Rs.20 crores
arises between the parties. In fact, as admitted by the petitioner,
the said figure has been worked out on the project profits for the
future period of 10 years from 01.04.2003. In the circumstances, it
is not possible to accept the stand of the petitioner that the
petitioner has been deprived of such future profits, which may or may
not be earned by the respondent, as a consequence of termination of
the Agreement between the parties.
18 In
the circumstances, in light of settled legal position, more
particularly the Apex Court decision in the case of
SBP & Co. Vs. Patel Engineering Ltd.& Anr. (2005) 8 SCC 618
the petition does not merit acceptance as prima facie no case is made
out by the petitioner for appointment of an Arbitrator in light of
the parameters enunciated by the Apex Court.
19 The
petition is accordingly rejected with no order as to costs.
Sd/-
(D.A.
Mehta, J.)
M.M.BHATT
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