IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF MARCH 2017 BEFORE THE HON’BLE MR. JUSTICE A S BOPANNA C.M.P.No.33/2013 BETWEEN:
CITICORP FINANCE INDIA LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT CITI CENTER, 5TH FLOOR, BANDRA KURLA COMPLEX BANDRA(E), MUMBAI-400051 ... PETITIONER (BY SRI. P CHINNAPPA, ADV. FOR SRI. V SRINIVASA RAGHAVAN & SRI. V ABHINAY, ADVS.) AND:
1. MR. RAJU M. MAHTANEY ADULT, INDIAN INHABITANT, HAVING OFFICE ADDRESS AT 503 AND 503A 5TH FLOOR, NORTH BLOCK FRONT WING, MANIPAL CENTRE, 47, DICKENSON ROAD, BANGALORE-560042 AND RESIDING AT B-2, EPSILON, YEMLUR MAIN ROAD OFF. AIRPORT ROAD BANGALORE-560037 2. MR V BALAJI BHAT ADULT, INDIAN INHABITANT HAVING OFFICE ADDRESS AT 503 AND 503A, 5TH FLOOR, NORTH BLOCK, FRONT WING MANIPAL CENTRE, 47 DICKENSON ROAD, BANGALORE-560042 AND RESIDING AT NO. 302 II FLOOR, EMBASSY ORCHID 8TH MAIN, RMV EXTENSION BANGALORE-560037 3. MR. P SUDHIR RAO ADULT, INDIAN INHABITANT HAVING OFFICE ADDRESS AT 503 AND 503A, 5TH FLOOR, NORTH BLOCK, FRONT WING MANIPAL CENTRE, 47 DICKENSON ROAD, BANGALORE-560042 AND RESIDING AT 12F, REGALIA 3, SARDAR PATEL ROAD, CHENNAI-600113 4. MS. POOJA R MAHTANEY ADULT, INDIAN INHABITANT HAVING OFFICE ADDRESS AT 503 AND 503A, 5TH FLOOR, NORTH BLOCK, FRONT WING MANIPAL CENTRE, 47 DICKENSON ROAD, BANGALORE-560042 AND RESIDING AT B-2 EPSILON, YEMLUR MAIN ROAD OFF AIRPORT ROAD BANGALORE-560037 5. UNIT TRUST OF INDIA INVESTMENT ADVISORY SERVICES LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT CONCORDE BLOCK 16TH FLOOR, UB CITY, VITTAL MALLYA ROAD BANGALORE-560001 6. THE OFFICIAL LIQUIDATOR OF PRIMUS RETAIL PVT. LTD.
NO. 26-27, RAHEJA TOWERS M.G.ROAD, BANGALORE - 560 001 … RESPONDENTS (BY SRI. DHANANJAY JOSHI M, ADV. FOR R1 & R4 SRI. ARAVIND KAMATH, ADV. FOR R2 SRI. K S MAHADEVAN, ADV. FOR R6 R3 IS SERVED) THIS PETITION IS FILED U/S.11(6) OF THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING FOR THE REASONS STATED THEREIN, THIS COURT BE PLEASED TO APPOINT ANY RETIRED SUPREME COURT OR HIGH COURT JUDGE AS THIS COURT MAY DEEM FIT AS AN ARBITRATOR ALONG WITH MR. JUSTICE R.V. RAVEENDRAN (RETD.) (THE PETITIONER'S NOMINEE) AND MR. JUSTICE R.G. VAIDYANATHA (RETD.) (RESPONDENT NO.5’S NOMINEE) THREBY CONSTITUTING THE ARBITRAL TRIBUNAL UNDER CLAUSE 18.2 OF THE SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT DATED 16/05/2007 TO ADJUDICATE ON THE DISPUTES BETWEEN THE PETITIONER AND RESPONDENT NOS.1 TO 4 IN RELATION TO THE AGREEMENT.
THIS PETITION HAVING BEEN RESERVED FOR ORDERS ON 21.03.2017, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT PRONOUNCED THE FOLLOWING :
O R D E R The petitioner in this petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’ for short) is seeking that an Arbitrator be appointed in the manner as prayed in the petition.
2. The petitioner is before this Court contending that it is a non-banking financial company incorporated under the Companies Act, 1956. The petitioner had entered into the Subscription and Share Holders agreement dated 16.05.2007 (‘SSH agreement’ for short) with Primus Retail Pvt. Ltd (PRPL for short), the respondents and one Ms.Geethanjali R.Mahtaney. the said PRPL has been ordered to be wound up by an order dated 08.10.2012 in Company petition No.181/2011, 1/2012 and 30/2012. The respondents No.1 to 4 are the promoters and shareholders of PRPL and are parties to the said agreement. Through clause 4.8 (iii) of the agreement they have given an unconditional and irrevocable guarantee to bridge the entire shortfall in the event of PRPL failing to redeem the debentures issued to the petitioner. Respondent No.5 is an investor of the company and presently the other respondents have settled with respondent No.5 and as such the consideration as against respondent No.5 does not arise herein.
3. Subsequently a supplemental subscription and shareholders agreement dated 04.07.2007 was entered into between the parties. The agreement dated 16.05.2007 provide for resolution of dispute between the parties through arbitration as provided under clause 18 of the agreement. Since certain disputes have arisen between the parties, the petitioner having invoked the said clause had got issued a notice dated 04.05.2012 seeking appointment of the Arbitrator. The respondent through their reply dated 12.01.2013 have contended that the reference to the agreement dated 16.05.2007 is misplaced as according to the respondent the agreement dated 04.07.2007 governs the rights and obligations amongst the parties. In that light it is contended that the agreement dated 04.07.2007 does not contain any provision for resolution of disputes by arbitration. It is in that view the petitioner is before this Court in this petition.
4. The respondents No.1 to 4 have filed their objection statement. The contention in the objection statement is in fact a magnification of the contention that was put forth in the reply notice. Though contentions are also raised with regard to the nature of the transaction between the parties, they have further disputed that the respondents No.1 to 4 are liable under any guarantee. Those issues being on the merit of the dispute would not arise for consideration herein. However, the contention in the objection statement is also that the rights and obligations of the parties are governed under the agreement dated 04.07.2007 which is in novation of the earlier agreements. In that light, it is contended that the agreement dated 04.07.2007 which governs the parties does not contain a provision to have the disputes resolved through arbitration and as such the present petition is not maintainable.
5. The contentions as put forth by the learned counsel for the parties would indicate the fact that the SSH agreement dated 16.05.2007 entered into relating to the transaction between the parties, provides for Arbitration as the mode of dispute resolution as contained in Clause 18 thereof. However, the contention of the respondents to oppose this petition seeking appointment of the Arbitrator is that the subsequent agreement dated 04.07.2007 entered into between the parties does not contain an Arbitration clause and therefore does not provide for Arbitration. There being novation, the subsequent agreement will prevail is the contention. The learned counsel for the respondent has relied on the decisions in the case of M.R.Engineers and Contractors Pvt Ltd., V/s. Somdatt Builders Ltd., [(2009) 7 SCC 696]; in the case of Young Achievers Vs. IMS Learning Resources Pvt. Ltd., [(2013) 10 SCC 535] and in the case of The Union of India Vs. Kishorilal Gupta and Brothers[AIR 1959 SC 1362] to buttress such contention.
6. The cumulative effect relating to the law on that aspect is that the scope and intent of Section 7(5) of the Arbitration Act is that the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract and the clause should be appropriate. When the parties enter into an agreement making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. It can be made only by a specific reference to the arbitration clause. If the agreement containing arbitration clause is superseded/novated by subsequent agreement between the parties, the arbitration clause will not survive. In the last of the decisions, it is held that when there is a substituted contract in terms of Section 62 of the Contract Act, the Arbitration clause in the old contract goes with the old contract.
7. The learned counsel for the petitioner on the other hand has relied on the decisions in the case of J.K.Jain and others Vs. Delhi Development Authority and others [(AIR 1996 SC 318)]; in the case of Lata Construction & Others Vs. Dr.Rameshchandra Ramniklal Shah and another[(AIR 2000 SC 380)] and in the case of Mulheim Pipecoatings GmbH Vs. Welspun Fintrade Limited (Appeal(L) No.206/2013). The Hon’ble Supreme Court in the first two decisions has held to the effect that to constitute an Arbitration Agreement, it is not necessary that there should be a formal agreement or that the terms should all be contained in one document. All that is necessary is that from the documents it must appear that parties had agreed to submit present or future differences to Arbitration. The agreement was examined and it was held that mere denial of the existence of the contract by one party does not denude the Arbitrator of the jurisdiction. One of the essential requirements of novation as provided under Section 62 of Contract Act is that there should be complete substitution of a new contract in place of the old one. Substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract has to be by agreement between the parties. In the facts therein it was found that the rights under the original contract were not given up. The Division Bench decision refers to the law on the doctrine of seperability and in that light the consideration to be made based on the terms in the agreement is emphasised.
8. Though the respondents have referred to the agreement dated 21.11.2005, the same is the genesis of the shareholders agreement, subsequent to which on procuring the long term loan the SSH agreement dated 16.05.2007 is entered. Both these agreements contain the arbitration clause. Thereafter when there was investment by subscribing to further shares, an agreement dated 04.07.2007 was entered into between the parties. The said agreement does not contain a clause in it with regard to arbitration and it is in that view a contention is raised by the respondents as noticed above. In that view in order to determine whether the subsequent agreement is in the nature of novation or as to whether it is an independent agreement so as to exclude the arbitration clause contained in the earlier agreement dated 16.05.2007 the scope of both the said agreements are to be noticed and determined.
9. A perusal of the agreement dated 16.05.2007 after referring to the purpose for which it is entered would through clause 3.4 make provision for promoters, investors and other investors mutually acceptable to the investors to invest further to the extent indicated therein and Clause 4.8 provides the methodology about redemption etc and the entire transaction is regulated under the different clauses in the agreement which is detailed. It is in that background the supplemental subscription and shareholders’ agreement dated 04.07.2007 is entered into between the parties to provide for additional investment. The preamble thereto indicates that the right is exercised in terms of clause 3.4.1 of the earlier agreement dated 16.05.2007 which is referred as SSHA. The covenants contained in the subsequent agreement in clause 1, 2 and 5 relating to definitions, interpretation and incorporation read as hereunder;
“1. DEFINITIONS 1.1 In this Agreement all capitalized terms, to the extent not inconsistent with the context thereof, and to the extent not defined herein, shall have the meanings assigned to them in the SSHA.
2. INTERPRETATION 2.1 All rights and obligations of the parties to this Agreement and all rules of interpretation enshrined in the SSHA shall, to the extent not modified herein, apply mutatis mutandis to this agreement.
5. INCORPORATION All the terms and conditions relating to the Promoter Round II Preference Shares of the SSHA shall be deemed to apply mutatis mutandis to the Promoter III Preference Shares issued under this Agreement.”
10. In the remaining portion of the agreement the reference available is relating to the share pattern and the mode of payment etc. The above extracted terms in the agreement dated 04.07.2007 would leave no room for confusion that it does not novate or terminate the earlier agreement dated 16.05.2007 but is in extension of the same and all terms of the agreement contained will apply mutatis mutandis which obviously will include the arbitration clause as well and as such the non-mentioning of the arbitration clause is of no relevance in the instant facts.
11. In that light having arrived at the conclusion that the parties are governed by the arbitration clause, it is in that regard seen that the petitioner got issued the notice dated 04.05.2012 referring to the dispute and invoking the arbitration clause. Thus on nominating their Arbitrator had sought for the respondents to nominate their Arbitrators. The Unit Trust of India also appointed their Arbitrator. However the respondent through their reply did not appoint their Arbitrator. The proceedings under Section 9 of the Arbitration Act in AA No.385/2012 was also initiated by the petitioners. In that view, keeping all these aspects in perspective this Court at this juncture is required to appoint a sole Arbitrator to resolve the dispute between the parties.
12. In the result, the following ORDER (i) The petition is allowed with no order as to costs.
(ii) Sri Justice V. Gopala Gowda, Former Judge, Supreme Court of India, is appointed as the sole arbitrator to resolve the dispute between the parties.
(iii) A copy of this order be dispatched to the Arbitration Centre, Khanija Bhavan, Bengaluru for necessary action in that regard.
(iv) Learned counsel for the petitioner to also approach the Arbitration Centre with the relevant papers to be filed therein.
(v) The learned Arbitrator appointed herein shall thereupon enter reference and proceed with the matter in accordance with law and the Rules governing the Arbitration Centre.
(vi) Registry to return the papers, if any sought for by the learned counsel for the parties.
Sd/- JUDGE akc/bms