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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
ARBITRATION PETITION NO.346 OF 2009
Godrej Industries Ltd.
A public limited company incorporated
and registered under the provisions of
The Companies Act, 1957, having its
Registered office at Phirojshahnagar,
Vikhroli, Mumbai 400 079ig ....
Petitioner
vs
1 Jer Rutton Kavasmaneck
(Alias Jer Jaswahar Thadani)
residing at 193, Jupiter Apartment,
Cuffe Parade,
Mumbai 400 005.
2 Darius Rutton Kavasmaneck
residing at 626, Parsi Colony,
Dadar,
Mumbai 400 014.
3 Maharukh Murad Oomrigar
Residing at 701-A, Foreshore,
Juhu Tara Road,
Santacruz (W), Mumbai 400049,
4 Percy Rutton Kavasmaneck
134, Olivera Way,
Palm Beach Garden
33418, Florida, USA
also through their
constituted Attorney
Ms.Houfarish Hirji, residing at
628, Dadar Parsi Colony,
Dadar, Mumbai 400014.
5 Aban Percy Kavasmaneck
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134, Olivera Way,
Palm Beach Garden
33418, Florida, USA
also through their
constituted Attorney
Ms.Houfarish Hirji, residing at
628, Dadar Parsi Colony,
Dadar, Mumbai 400014.
6 Colin Mario Rebello
1, Kostka House,
St Peter's Co-op Hsg. Society,
31, Manual Gonsalves Road,
Bandra, Mumbai 400 050.
7 Conrad Anthony Rebello,
1, Kostka House,
St Peter's Co-op Hsg. Society,
31, Manual Gonsalves Road,
Bandra, Mumbai 400 050. ....
Respondents
Dr. Virendra Tulzapurkar, Sr. Counsel, Mr.Virag Tulzqapurkar, Sr.Counsel,
with Mr.Venkatesh Dhond, Mr.Amit Jamsandekar, Mr.Dara Mehta, Ms.Rajas
Kasbekar, Ms.Pratibha Mehta and Ms.Ranya Mahesh i/b. M/s.Little & co.
for the petitioner.
Mr .C. U. Singh, Sr. Counsel with Mr.Sidharth Shrivastav and Mr.Sharon
Jagtiani i/b. M/s.D.H.Law Associates for the respondents.
CORAM: ANOOP V. MOHTA, J.
DATE : 6th October, 2009
JUDGMENT:
1 By consent of the parties, heard finally.
2 The petitioner has invoked Section 9 of the Arbitration and
Conciliation Act, 1996 (for short, the Act) as dispute arose between the
parties arising out of the Memorandum of Understanding (MOU) having
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arbitration clause No.28 which reads as under:
“28 Any dispute or difference between the parties
hereto including in respect of any breach or alleged breach
hereof, shall be referred to the sole arbitration of a person to
be mutually agreed upon by the parties hereto. The solearbitrator shall have summary powers and the Arbitrator shall
not be required to give reasons for his award. The place for
arbitration shall be at Bombay.”
3 The basic facts/events, as per the petitioner, are:
The petitioner is a public limited company incorporated and
registered under the Companies Act, 1956 inter alia carries on the business
of manufacturing, marketing and distribution of various industrial
chemicals, chemicals, etc.
4 The respondents are shareholders of Gharda Chemicals Limited
(hereinafter referred to as “GCL”), a public limited company incorporated
and registered under the Companies Act, 1956. The majority shares of GCL
are owned by Dr.Keki Gharda and the respondents are minority
shareholders of GCL.
5 In 1992, the respondents offered for sale 461 shares of GCL owned by
them as the respondents were unable to repay the loan amount given to
the respondents by the petitioner. The petitioner is the owner of 461
shares of GCL which are sold by the respondents to the petitioner after
following the detail provisions of the Articles of Association of GCL.
6 The petitioner agreed to make available to the respondents loan to
purchase the shares of GCL as and when offer for sale is made in
accordance with the Articles of Association of GCL. On 03.06.1992, the
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terms and conditions of loan agreed to make available by the petitioner to
the respondents are contained in the Memorandum of Understanding
(“MOU”).
7 Between 1992 to 2000, as agreed and in terms of MOU, the
petitioner made available to the respondents a sum of Rs.10.34 crores to
purchase the shares of GCL offered for sale in accordance with the Articles
of Association of GCL. The respondents have accepted the loan amount
and have pledged the shares which are owned by them with the petitioner
towards the security of the loan. The respondents have accepted the loan
amount and have pledged the shares owned by them. The respondents
have executed the irrevocable Power of Attorney and Loan cum Pledged
Agreements in favour of the petitioner.
8 The petitioner has performed the terms and conditions of the MOU
and has not acted contrary to the terms and conditions of the same. In
terms of the MOU, the respondents also agreed that they shall not enter
into a compromise or agreement or arrangement directly or indirectly or
otherwise howsoever with any other shareholder of GCL or with GCL itself
in respect of the shares of GCL or with regard to any other matter
pertaining to the participation of the parties to the MOU in the business
affairs, management, properties, technical know how arrangement,
engineering or process development or engineering etc. of GCL.
9 Except as permitted, in terms of MOU, the respondents shall not be
entitled to pledge, charge or offer as security in any manner or form the
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shares held by them in GCL for securing any of their borrowings.
10 The respondents had filed a Company Petition being Company
Petition No.77 of 1990 before the Bombay High Court alleging oppression
and mismanagement by the majority shareholders of GCL. The petitioner
was subsequently made party to the said company Petition but no relief was
sought against the petitioner.
11 In 2005, the petitioner lodged the shares which are pledged by the
respondents with the petitioner for transferring the same in the name of the
petitioner with GCL. The shares were lodged for transfer in the name of
the petitioner and/or its nominees with GCL but the said GCL alleged
refused to transfer the shares in the name of the petitioner.
12 GCL filed a Suit against the petitioner and the respondents herein
before this Court being Suit No.1170 of 2005. The petitioner had filed
Company Petitions before the Company Law Board challenging the refusal
of GCL to transfer the shares in the name of the petitioner. On 27.09.2008
the Company Law Board dismissed the Company Petitions. The petitioner
preferred an Appeal under Section 10(F) of the Companies Act, 1956
before this Court. This Court was pleased to allow the respondents 1, 2, 3,
6 and 7 to withdraw the said Company Petition. On 14.11.2008, the said
Company Petition No.77 of 1990 was dismissed by this Court.
13 The petitioner apprehends that the respondents are trying to sell their
shares of GCL in collusion with Dr.Keki Gharda so as to cause loss, damage
and injury to the petitioner and in breach of the terms and conditions of
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MOU. Hence the petition.
14 The basic prayer of the petitioner is as under:
(a) that the pending the hearing and final disposal of
the proposed arbitration proceedings and the making and
implementation of the Award herein, the Respondents, their
agents, servants or any other person claiming through or under
them be restrained by a temporary order and injunction of this
Hon’ble Court from, in any manner, directly or indirectly,
dealing, selling, offering for sale, causing it to be offered for
sale, transferring, causing to be transferred, parting with
possession of, delivering, creating or causing to be created any
third party rights of whatsoever nature, or any right, title and
interest in the shares owned by the Respondents of Gharda
Chemicals Limited, other than to the petitioner AND be further
restrained from committing any breach of the Memorandum of
Understanding dated 3rd June 1992 or acting contrary to the
terms and conditions of the same.
15 The whole submissions of the parties revolve around the MOU duly
signed and executed by the parties and same is intact till this date. The
parties in fact acted upon the same without any objection. The petitioner
has made available to the respondents a sum of Rs.10,34,00,000/- since
1992 to 2000 to purchase the shares of the company. The loan amount was
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admittedly disbursed to the Advocates of the respondents M/s. Federal &
Rashmikant as agreed. The parties have acted accordingly without any
objection.
16 The important clauses of the negative covenants are 15 to 18 of the
MOU are :
“15 The parties hereto covenant and agree that either
of the parties shall not enter into a compromise or agreement
or arrangement directly or indirectly or otherwise howsoever,
with any other shareholders of the Company or the Companyitself in respect of the shares of the Company or with regard to
any other matter pertaining to the Participation of the partieshereto in the business affairs, management, properties,
technical knowhow arrangement, engineering or process
development or engineering etc. of the Company.
16 The parties hereto agree and undertake that till the
Company goes public and or its shares are listed in any
recognized stock exchange, the parties shall not sell, alienate,
dispose of or transfer or create any interest or right in the thirdparty rights in any shares registered in their respective names
or in which they have a beneficial interest. It is clarified that
nothing herein will restrict the transfer among the designated
nominees/limited nominees defined hereinabove”.
17 The party of the First Part shall be bound to sell
and/or transfer or dispose of any rights in respect of any
shares, whether purchased with the finance made available by
the party of the Other Part or not, only to the party of the Other
Part. In respect of shares that are not purchased with the
finance made available by the party of the Other Part, the saleand/or transfer etc. shall be made at the fair value as
determined in accordance with the Articles of Association of
the Company. In respect of shares purchased with the finance
made available by the party of the other part, the value shall be
determined in accordance with Clause 10 hereof.
18 Except as permitted herein the parties hereto shall
not be entitled to pledge charge or offer as security in any
manner or form the shares held by them in the Company for
securing any of their borrowings.”
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17 The petitioner moved the present petition after receiving the
information/news that Dr. Keki Gharda, who is a 60% shareholder was
proposing to sell 75% shares of the Company to private parties like
Blackstone and Morgan Stanley. The respondents are not entitled to sell the
shares as they are bound by the negative covenants as referred above, this
Court, therefore, after considering the averments so raised granted interim
reliefs on 12th May, 2009 in the following terms:
“3
Admittedly, there is a Memorandum of
Understanding (MOU) dated 03.06.1992 which provides an
arbitration clause. Pursuance to this MOU, as the petitionershave paid about Rs.10 crores and approximately 3000 shares
have been pledged. Therefore, considering the averments
made in paragraph 28 and as case is made out and further to
secure the amount/claim as contemplated under Section 9 of
the Act, I am inclined to grant ad-interim relief to the extentthat the respondents shall not sell, transfer, part with
possession or create any third party right or interest of
whatsoever nature in the shares owned by the respondents of
GHARDA CHEMICALS LIMITED, if not already transferred or
created any right party right or interest thereon.”
18 Respondent no.2, in response to their letter dated 25.05.2009 stated
that they were not selling and/or intend to sell the shares of the company.
However, there is no appearance on behalf of respondent no.2 though
served. Respondents 4 and 5 appeared and resisted the petition by reply
dated 20.07.2009.
19 It is clear that there exists a valid MOU between the parties with the
arbitration clause. The said MOU is, therefore, binding to all the parties,
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unless it is set aside. There is no denial by respondents 4 and 5 to the
apprehension raised by the petitioner that they are likely to sell and
dispose of or create third party rights in the shares. On the contrary, the
submission is that they are free and entitled to sell their shares.
Respondent no.2 though not appeared, expressed otherwise by letter.
Therefore, there is clear a conflict and dispute between the petitioner and
respondents 4 and 5 and also between respondent no.2 and respondents 4
and 5.
20
Admittedly, Company Petition No.77/1990 has not been dealt with
and/or decided the validity and/or legality of the MOU as sought to be
contended by respondents 4 and 5, including of the Power of Attorney-cum-
Pledge Agreement executed by the respective respondents. The judgment
and the relevant paragraphs so referred from the Company Petition No.
7/1990 is of no assistance and/or sufficient to overlook the averments
made by the petitioner and now substantiated by the Affidavit filed by
respondents 4 and 5 itself.
21 The respective interpretation of the clauses as sought to be contended
by the parties is again, in my view, in the present facts and circumstances,
is a matter of detail trial and inquiry. The MOU is a composite contract and
the clauses thereof cannot be read in isolation. The subsequent documents
executed, based upon the same and as the parties have already acted since
long and never challenged the same at the earliest point of time and now
when the petitioner has invoked present proceeding in view of the
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apprehension so raised denying and/or challenging the clauses of the
MOU with regard to their obligations and liabilities, in my view, is
unsustainable.
22 The allegations of collusion by the petitioner with respondents 1, 2,
3, 6 and 7; and/or misrepresentation and/or that respondents 4 and 5
never used and utilised; and/or received any such amount or
consideration; and/or it was never intended for their respective shares;
and/or got benefited out of this MOU at any point of time, need detail
inquiry, based upon substantive material and pleadings and above all, detail
inquiry and trial. These challenges itself unless it is accepted and/or
granted in favour of respondents 4 and 5, shows that there is a prima facie,
material substantiated by the above facts.
23 The plain reading of the MOU itself provides that all respondents are
collectively bound by the terms. The interse dispute between the
respondents in no way sufficient to overlook the express and clear terms of
the MOU specially at this stage of the arbitration proceedings. The
submissions with regard to the benami transaction and/or suppression and
and/or of Section 9 of the Companies Act, even if any, at this stage, unless
decided finally in favour of respondents 4 and 5 and as the respondents
being “Party of the First Part” in the MOU they are bound by the same,
specially in view of the negative covenants as referred above. The
commercial minded parties having full knowledge of trade, practice of
business, signed the MOU and, accordingly, acted also now cannot be
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permitted to agitate the issue at this prima facie stage revolving around the
Doctrine of Restraint of Trade.
24 The submission with regard to the status of the company that the
company is a Public Limited Company referring to clause 16 of the MOU
which provides that “The company goes public and/or its shares are listed
in any recognised Stock Exchange”, in my view, also interpreted to mean till
the Company goes public and its shares are listed on the Stock Exchange.
Clause 17 of the MOU also binds the respondents 4 and 5 to sell the shares
held by them only to the petitioner. This itself means that clause 16 shall
operate as long as company does not go “public” and the shares are not
listed on the recognised Stock Exchange. The words “goes public”, in my
view, also cannot be construed to mean become public by operation of law.
The Company, as noted, had already become a public company in the year
1988 even before the signing of the MOU dated 3 rd June, 1992 by the
parties including respondents 4 and 5. Therefore, the contesting
respondents were fully aware that the company has been a public limited
company since 1988.
25 The submission that the MOU is not enforceable and/or its broad
understanding between the parties so that they could seek finance and
enter into binding agreement known as “Loan-cum-Pledge Agreement” and
restrictive covenants have ceased to exists and have no force in law and any
interpretation of clause 16 will run contrary to the Companies Act and the
Company being a Public Company, there can be no restriction on the
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transferability of its shares, in view of above facts itself, is not acceptable,
without considering due and supportive material and evidence by the
Arbitral Tribunal, but not at this preliminary stage of the proceedings under
Section 9 of the Act to decide the issues finally. It is not a question of
blanket restriction on the transfer of all shares, but it is the question of
terms and conditions of duly signed MOU of the year 1992, specially when
respondents 4 and 5 are only agitating and making this submission, but not
by other respondents. Therefore, the said MOU, if not under challenge by
other respondents and definitely by the petitioner, at the instance of
respondents 4 and 5, at this interlocutory stage, even if the interpretation so
sought to be made is accepted, that itself cannot be the reason to declare
the said MOU null and void and/or enforceable, because the other
respondents are supporting the case of the petitioner and in fact a
statement is also made and recorded by letter that they are not intending to
sell and/or transfer the shares. On the contrary , it is respondents 4 and 5
insisting and claiming right inspite of above to sell the shares. Therefore
also, to avoid further complication by allowing such transfer of shares, I am
of the view that let the Arbitral Tribunal finally decide these issues so that
the parties can proceed accordingly. The submission so raised by
respondents 4 and 5 with regard to the validity and/or enforceability of the
MOU and/or right to transfer the shares after such long period and as it is
question of interpretation of the clauses read with the conduct of the
parties, I am of the view that the submission of respondents 4 and 5, based
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upon Affidavit filed on record, just cannot be accepted in defence to the
positive case led by the petitioner with material on record to support the
same apart from supporting respondent’s statement.
26 Importantly, there is no power or jurisdiction under Section 9 of the
Arbitration Act to declare such action or inaction, void or illegal on merits.
It is a matter of detail trial and inquiry before the Arbitral Tribunal as
parties have themselves decided to settle the matter through the sole
Arbitrator. Therefore, if no finality can be given to the decision under
Section 9 of the Act, there is no point in deciding those issues while considering
the interpretation of the rival parties at this prima facie stage of the
proceedings. The basic requirement of existence of Agreement and the live
subject matter of disputes between the parties are sufficient to grant the
interim order as sought by the petitioner. In my view, there is no point to
permit to introject such submissions at this stage of the proceedings, only
because respondents 4 and 5 have agitated that the MOU is void under
Sections 23 to 32 of the Indian Contract Act.
27 The petitioner, therefore, in my view, has made out a sufficient case
under Section 9 of the Act read with Order 40, Rules 1 and 2 and/or Order
39, Rules 1 and 2 of the Code of Civil Procedure (CPC) for appropriate
order and/or interim measure as sought, unless and until the case of
respondents 4 and 5 is accepted and/or decided finally in their favour
through the Arbitral Tribunal which the parties are free to
appoint/constitute as per the MOU.
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28 There is no power under Section 9 of the Act to decide and declare
such MOU null and void finally. The Arbitral Tribunal may do so.
Therefore, unless it is declared so, in view of the agreed and signed MOU
and the respective clauses referred above, that itself, in my view, sufficient
to maintain the interim order already granted and/or pass such interim
measure/protection as prayed.
29 All relevant elements of balance of convenience, equity, irreparable
injury lies in their favour. The delay and latches on the part of
respondents 4 and 5 including their conduct to challenge the MOU now
also goes against respondents 4 and 5. I have also observed referring to
the above elements in Arbitration Petition No.423/2009-Unity Realty and
Developers Ltd. vs. BW Highway Star Pvt.Ltd. decided on 24.09.2009 as
under:
71 The Supreme Court in Adhunik Steels Ltd. vs. Orissa
Manganese and Minerals (P) Ltd. (2007) 7 SCC 125 has
observed as under:
“Moreover, when a party is given a right to approach an
ordinary court of the country without providing a special
procedure or a special set of rules in that behalf, the ordinary
rules followed by that court would govern the exercise of power
conferred by the Act. On that basis also, it is not possible tokeep out the concept of balance of convenience, prima facie
case, irreparable injury and the concept of just and convenient
while passing interim measures under Section 9 of the Act.”
Similarly so expressed in Arvind Constructions Co.;(P) Ltd. v.
Kalinga Mining Corporation & ors., (2007) 6 SCC 798.
72 The Apex Court in Kishorsinh Ratansinh Jadeja v. Maruti
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15any interim injunction/reliefs, has observed in the following
words:
“12 In addition to the above, Mr.Ranjit Kumar also referred to the
decision of this Court in Mandali Ranganna & others v. T. Ramchandra
[2008 (11) SCC 1] wherein an additional principle was sought to be
enunciated relating to grant of injunction by way of an equitable relief.
This Court held that in addition to the three basic principles, a Court while
granting injunction must also take into consideration the conduct of the
parties. It was observed that a person who had kept quiet for a long time
and allowed others to deal with the property exclusively would not be
entitled to an order of injunction. The Court should not interfere only
because the property is a very valuable one. Grant or refusal of injunction
has serious consequences depending upon the nature thereof and in dealing
with such matters the Court must make all endeavours to protect the
interest of the parties.”
30 Resultantly, the interim order already granted on 12th May, 2009
which has been in force since then shall continue until the constitution of
the Arbitral Tribunal and six weeks thereafter.
31 I do not deny the rights of the parties to raise their appropriate pleas
or defences before the Arbitral Tribunal, if so constituted.
32 Rule is made absolute accordingly. No order as to costs.
(ANOOP V. MOHTA, J.)
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