IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF AUGUST, 2019 BEFORE THE HON’BLE MR.JUSTICE B.VEERAPPA CMP NO 153 OF 2018 BETWEEN MR MALLANAGOUDA B PATIL S/O MR BASANAGOUDA PATIL AGED ABOUT 54 YEARS R/A 31, AKKAMAHADEVI ROAD BIJAPUR, KARNATAKA-586101 ALSO HAVING ADDRESS AT NO.5 ALI ASKAR ROAD, BANGALORE-560052 ... PETITIONER (BY SRI.K.SHASHIKIRAN SHETTY – SENIOR COUSNEL A/W. MS.ANUPARNA BORDOLOI – ADVOCATE ) AND 1. SHRI A SRINIVASAN S/O. MR ARUNACHALAM AGED ABOUT 73 YEARS R/A 274C, THURAIYUR ROAD PERAMBALUR, TAMIL NADU-621212 2. SHREE BASAVESHAR SUGARS LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, HAVING ITS REGISTERED OFFICE AT ‘SRIKRISHNA’ CLUB ROAD, MUDHOL BAGALKOT DIST, KARNATAKA-587313 REPRESENTED BY ITS MANAGING DIRECTOR ... RESPONDENTS (BY SRI M.B.ANIRUDH FOR GANAPATHI HEGDE- ADVOCATES FOR R1 & R2) THIS CIVIL MISC. PETITION IS FILED UNDER SEC.11(5) AND (6) OF THE ARBITRATION AND CONCILIATION ACT 1996, PRAYING THIS HON'BLE COURT TO EXERCISE ITS JURISDICTION AND POWER UNDER SECTION 11(6) OF THE ARBITRATION AND CONCILIATION ACT, 1996 AND TO APPOINT AN ARBITRAL TRIBUNAL TO ADJUDICATE AND RESOLVE THE DISPUTES THAT HAVE ARISEN UNDER THE SHARE SUBSCRIPTION AND SHAREHOLDERS AGREEMENT DATED 14.09.2010 (ANNEXURE A) BETWEEN THE PETITIONER AND THE RESPONDENTS.
THIS CIVIL MISCELLANEOUS PETITION COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER The petitioner filed the present civil miscellaneous petition under the provisions of Section 11(5) and (6) of Arbitration and Conciliation Act 1996 (hereinafter referred to as the Act for brevity) to appoint Arbitral Tribunal to adjudicate the dispute in terms of clause 13 of the Share Subscription and Shareholders Agreement dated 14.9.2010 entered into between the parties.
2. It is the case of the petitioner that he is a share holder and promoter of respondent No.2-Company. Respondent No.1 is presently one of the directors of the Company. The Company has been incorporated, inter alia, for the business of manufacture and distribution of sugar and related products. The petitioner represented himself and other share holders in the Company and they are collectively referred to as ‘promoter group’. Respondent No.1 and his associates are collectively referred to as ‘investor group’.
3. It is further contended that the investor group represented by respondent No.1 were desirous of investing in the share capital of the Company and for subscribing to the equity shares of the company. Therefore, the investor group represented by respondent No.1 herein and the promoter group represented by the petitioner entered into a Share Subscription and Shareholders Agreement (hereinafter referred to as the ‘agreement') dated 14.9.2010 for transfer of shares from the promoter group to the investor group as per the terms and conditions of the agreement.
4. It is further contended that the promoter group under the said agreement dated 14.9.2010 had the option to exit by exercising ‘put option’ of their shares as per clause 7.2.2. which reads as under :-
“7.2.2. The investor shall have the absolute obligation to purchase and / or cause the purchase of all the shares held by the Promoter Group at any point in time from June 30, 2012 at the option of the Promoter Group (“Purchase Period”), at the corresponding exit values set out in the table below. The Investor shall purchase all the shares held by the Promoter Group in a single transaction.
Sl.
No.
Purchase Period Exit Value 1 From June 30, 2012 to June 29, 2013 Rs.23,00,00,000/-
2 From June 30, 2013 to June 29, 2014 Rs.26,00,00,000/-
3 From June 30, 2014 to June 29, 2015 Rs.30,00,00,000/-
4 From June 30, 2015 to June 29, 2016 Rs.40,00,00,000/-
5 From June 30, 2016 to June 29, 2017 Rs.52,00,00,000/-
6 From June 30, 2017 to June 29, 2018 Rs.64,00,00,000/-
7 From June 30, 2018 to June 29, 2019 Rs.74,00,00,000/-
8 From June 30, 2019 to June 29, 2020 Rs.85,00,00,000/-
5. It is further contended that respondent No.1 and his investor group as per the agreement dated 14.9.2010 had 180 days to complete the purchase of the said shares from the petitioner and the promoter group. However, since respondent No.1 and his investor group failed to respond to the letter dated 3.8.2013 sent by the petitioner, the petitioner sent a reminder letter dated 7.1.2014 to the respondents and the investor group to adhere to the terms and conditions of the agreement dated 14.9.2010 and accordingly, notified the details of the purchase of shares in view of exercising ‘put option’ by the petitioner, as stated supra.
6. It is the further case of the petitioner that respondent No.1 replied to the letter dated 29.1.2014 seeking for extension of time limit of 180 days for making purchase of the shares in furtherance to exercise of ‘put option’ made by the petitioner in view of delay in commissioning the project and lack of funds. Respondent No.1 also undertook to purchase the shares from the promoter group by 30.6.2015. The petitioner having no other alternative and after mutual discussion agreed for the requests made by respondent No.1 on behalf of the investor group vide letter dated 21.4.2014, as per the terms and conditions of the agreement dated 14.9.2010 sought for payment for purchase of the shares at the exit value corresponding to that period i.e. Rs.40,00,00,000/- (Rupees Forty Crores).
7. It is further contended that in furtherance of the said understanding between the parties, sufficient time lapsed but respondent No.1 and his investor group failed to adhere to the terms and conditions of the agreement dated 14.9.2010 and therefore the petitioner sent another reminder letter dated 1.6.2015 seeking confirmation of the date as to when payment would be made as per the mutual understanding. In spite of the repeated reminder and requests made by the petitioner herein, respondent No.1 and his investor group failed to understand their obligations and make payments for purchase of shares as per the agreement dated 14.9.2010. Therefore the petitioner and his associates forming the investors group met the petitioner on 10.8.2015 and it was amicably decided that respondent No.1 and his investor group shall purchase such shares at the said corresponding exit value as per the schedule agreed thereupon starting from 20.12.2015 and complete the transaction by 31.3.2015. The said understanding was also reduced in writing in the letter dated 25.8.2015.
8. The petitioner further contended that the respondent No.1 and his associates forming the investor group of the said mutual understanding failed to make payments for purchase of the said shares. However, respondent No.1 and his associates forming the investor group started making small payments by virtue of RTGS to the account of the petitioner herein from 4.2.2016. the said payments were made in total derogation to the mutually agreed terms and conditions stipulated under the agreement dated 14.9.2010. It is further contended that respondent No.1 under the capacity of Managing Director of respondent No.2 sent a letter dated 2.6.2016 to the petitioner informing that respondent No.1 and his investor group have started paying under the agreement dated 14.9.2010 and assured that they will complete the balance payment on or before 15.2.2017 and for the delay they shall pay interest at the rate of 12% p.a. and further they shall pay the exit value at Rs.40,00,00,000/- (Rupees Forty Crores only).
9. It is further contended that since respondent No.1 and investor group assured that they shall make the entire payments by 15.2.2017, the petitioner sought payment to the value of Rs.52,00,00,000/- as per clause 7.2.2 of the agreement. Respondent No.1 and investor group failed to fulfil their obligation in terms of the agreement dated 14.9.2010 and did not even complete the said transaction of purchase of shares as assured by them. As on the date of filing the petition, respondent No.1 and investor group have paid a sum of Rs.21,40,00,000/- to the petitioner under the agreement entered into between the parties. Therefore, the petitioner was constrained to issue legal notice on 25.9.2017 calling upon respondent No.1 and investor group to unconditionally comply with the obligations under the agreement dated 14.9.2010. Respondent No.1 replied the said legal notice on 25.9.2017 refuting the claim of the petitioner and offering Rs.40,00,00,000/- along with nominal interest as consideration for purchase of share under the agreement dated 14.09.2010. The respondents in order to defraud the petitioner, after inordinate delay are seeking to pay sale consideration at much lower value and in contravention to the agreement dated 14.9.2010 and pay nominal interest over the same. Therefore, the petitioner has no other course except to file the present petition in terms of the agreement entered into between the parties. Therefore, he sought to allow the petition.
10. Respondents filed objections to the main petition and contended that without prejudice to any other contention, the invocation of the arbitration clause is illegal and contrary to law and facts of the case; the petitioner does not have any rights as regards the claims he has made in the petition and documents annexed thereto; the subject matter of claims by the petitioner cannot be adjudicated by an arbitral tribunal; the petitioner is not entitled to any right or claim he has purported to assert in the above petition. Further, all the allegations made in the petition are denied and contended that the petition is not maintainable and sought for dismissal of the petition.
11. I have heard the learned counsel for the parties to the lis.
12. Sri K.Shashikiran Shetty, the learned Senior counsel for the petitioner reiterating the averments made in the Civil Miscellaneous Petition has contended that there is no dispute with regard to existence of the Share Subscription and Shareholders Agreement dated 14.09.2010 entered into between the parties and Clause 13 of the same indicates a dispute resolution between the parties by appointing the Arbitral Tribunal.
13. He would further contend that the petitioner issued a legal notice as contemplated under the provisions of Section 7(5) of the Act on 21.02.2018. The respondent has not filed any reply to the said legal notice. He would further contend that in view of the amended provisions of sub-section 6-A of Section 11 of the Act, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), the Court shall notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. In support of his contention, the learned Senior counsel relied upon the dictum of the Hon’ble Supreme Court of India in the case of DURO FELGUERA S.A. Vs. GANGAVARAM PORT LIMITED reported in (2017) 9 SCC 729 (para Nos.47 and 59). Therefore, he sought to allow the civil miscellaneous petition.
14. Per contra, Sri M.B.Anirudh, learned counsel appearing for the respondents reiterating the averments made in the objections, has contended that the very civil miscellaneous petition filed by the petitioner invoking the provisions of sub-sections (5) and (6) of Section 11 of the Act is not maintainable and is liable to be rejected. He would further contend that Mr.Dilip Desai who has issued the legal notice to respondent No.1 is not a party to the agreement entered into between the parties. Therefore, the petitioner has not complied with the provisions of sub- section (5) of Section 11 of the Act. He would further contend that the petitioner has not paid the stamp duty on the agreement entered into between the parties as per Annexure-A and therefore, this Court cannot entertain the petition in view of the provisions of Article 5(e)(i) and (ii) of the Stamp Act, 1957 and unless and until the stamp duty is paid, the petitioner is not entitled to the relief before this Court.
15. In support of his contention, learned counsel for the respondents relied upon the judgment of the Supreme Court of India in the case of S.N.PRASAD, HITEK INDUSTRIES (BIHAR) LIMITED Vs. MONNET FINANCE LIMITED AND OTHERS reported in (2011) 1 SCC 320 at para No.25 and he sought to dismiss the petition.
16. Having heard the learned counsel for the parties, it is an undisputed fact that the present petitioner and first respondent entered into a Share Subscription and Shareholders Agreement dated 14.09.2010. It is also not in dispute that both the parties have duly signed the said agreement as contemplated under the provisions of Section 7 of the Act. It is also not in dispute that if any dispute arises among the parties, the arbitration exists under Clause-13.2, which reads as under:-
“13.2. If the Parties fail to resolve the dispute in the manner set out above within thirty (30) days from the date when the dispute arose, the dispute shall be referred to a panel of three (3) arbitrators, with the Promoter Group appointing one arbitrator and the Investor and, if required, the Company jointly appointing one arbitrator, and the arbitrators so appointed shall jointly appoint a third presiding arbitrator. The venue for arbitration shall be Bangalore. The arbitration proceedings shall be governed by the Arbitration and Conciliation Act, 1996 and shall be conducted in the English language. The arbitral panel shall also decide on the costs of the arbitration proceedings.”
17. Though Sri M.B. Anirudh, learned counsel appearing for the respondents has raised a contention that the notice issued by Mr.Dilip Desai is not maintainable to entertain the present civil miscellaneous petition. But a careful perusal of the Share Subscription and Shareholders Agreement entered into between the parties dated 14.09.2010, which clearly depicts that Mr.Dilip Desai has signed the document as the then Managing Director on behalf of the present petitioner on each and every page and admittedly, when the said notice was issued, respondent-Company has not replied the said notice and not raised any such objections. For having entered into the agreement and signed the said document, the first respondent has not raised any objections. Now, when the civil miscellaneous petition is filed before this Court by the petitioner in terms of the agreement entered into between them, it is not open for the first respondent to raise such objections, in view of the principle of law of estoppel.
18. Though the learned counsel for the respondents has relied upon the judgment of the Hon’ble Supreme Court in the case of S.N.Prasad as stated supra to the effect that as there was no arbitration agreement between the parties (first respondent and the appellant), the impleading of the applicant as a respondent in the arbitration proceedings and the award against the appellant in such arbitration cannot be sustained. As a consequence, both the arbitration awards as against the appellant are liable to be set aside. If the first respondent wants to enforce the alleged guarantee of the appellant, it is open to the first respondent to do so in accordance with law. The facts of the said case has no application on the facts and circumstances of the present case.
19. Admittedly, in the present case, there is no dispute with regard to existence of the agreement dated 14.09.2010 entered into between the parties. After careful perusal of the said agreement, it reflects at Clause-4.3 that Mr.Mallanagouda Patil will be the Promoter Director and Mr.Dilip Desai as one of the shareholders comprising of the Promoter Group shall be entitled to attend all Board meetings as an observer, but he shall not be entitled to vote. A Director shall be entitled at any time and from time to time to appoint any person to act as his alternate and to terminate the appointment of such person and in that connection, the provisions of the Article of Association shall be complied with.
20. The notice was issued by the present petitioner through Mr.Dilip Desai, the then Managing Director of the petitioner. When the said contention was not raised either at the time of entering into an agreement between the parties or Mr.Dilip Desai, the then Managing Director signed the document. The petitioner has issued legal notice through the said Dilip Desai on behalf of the promoter group and while replying to the learned advocate for the petitioner, the respondent has not disputed by filing any reply. Now, it is not open for the respondent to raise any such objections for the first time before this Court, in view of the amended provisions of sub-section (6-A) of Section 11 of the Act which reads as follows:-
“11(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under Sub Section (4) or Sub Section (5) or Sub Section (6) shall, notwithstanding any judgment, decree or order of any Court, confining to the examination of the existence of an arbitration agreement.”
21. The Hon’ble Supreme Court, while considering the provisions of Sections 11(6) and (6-A) of the Act in the case of Duro Felguera S.A. as stated supra, has held at para Nos.47, 48 and 59 as under:-
“47. What is the effect of the change introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the 2015 Amendment”) with particular reference to Section 11(6) and the newly added Section 11(6-A) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”) is the crucial question arising for consideration in this case.
48. Section 11(6-A) added by the 2015 Amendment, reads as follows:
“11.(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.”
(emphasis supplied) From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect – the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple –it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.
59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. and Boghara Polyfab. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists – nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected”.
22. Insofar as the oral arguments advanced by the learned counsel for the respondents with regard to payment of stamp duty in respect of the Share Subscription and Shareholders Agreement in view of the Articles 5(e)(i) and 20 of the Stamp Act,1957 cannot be entertained, as the respondent has not raised any objection on the legal notice issued dated 21.2.2018 or in the statement of objections with regard to stamp duty. This Court cannot venture to conclude to direct the petitioner to pay the stamp duty in the absence of any objection being raised on the legal notice or in the statement of objections to the main petition. If sufficient stamp duty is not paid, it can always be raised by the respondents before the learned Arbitrator and it is for the learned Arbitrator to adjudicate the same if it is inadmissible in evidence. Therefore, the said contention cannot be accepted in the present civil miscellaneous petition for the first time.
23. In terms of Clause-13 of the agreement dated 14.09.2010, there shall be a panel of three (3) Arbitrators Promoter Group appointing one arbitrator and the Investor and, if required, the Company jointly appointing one arbitrator, and the arbitrators so appointed shall jointly appoint a third presiding arbitrator.
24. At this stage, Sri.M.B.Anirudh, learned counsel appearing for the respondents fairly submits that he has no objection to appoint a sole arbitrator, though Clause-
13.2 depicts Arbitral Tribunal. The said submission made by the learned counsel for the respondent-Company is not opposed by the learned Senior counsel appearing for the petitioner.
25. As per Clause-13 of the Share Subscription and Shareholders Agreement dated 14.09.2010 entered into between the parties and the petitioner having complied the provisions of Section 7(5) of the Act by issuing legal notice, there is no impediment to appoint a sole arbitrator in view of the admitted facts and fair submissions made by the learned counsel for the petitioner and the learned counsel for the respondents.
26. For the reasons stated above, the Civil Miscellaneous Petition is allowed. Hon’ble Sri. Justice T.S.Thakur, Former Chief Justice of India is appointed as a sole arbitrator to adjudicate the dispute in terms of Clause 13.2 of the Share Subscription and Shareholders Agreement dated 14.09.2010 entered into between the parties.
27. Registry is directed to send copy of this order to the Hon’ble Sri Justice T.S.Thakur, Former Chief Justice of India and to the Arbitration Centre forthwith.
All the contentions urged by the learned counsel for the parties are left open.
Sd/- JUDGE rs/pyr