Delhi High Court
Alstom T And D India Ltd. vs Schneider Electric Infrastructure ... on 29 June, 2015
Author: Manmohan Singh
Bench: Manmohan Singh
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment pronounced on: 29th June , 2015
+ I.A. Nos.7292/2014 & 24002/2014 in CS(OS) No.1121/2014
ALSTOM T AND D INDIA LTD. ..... Plaintiff
Through Mr.Sandeep Sethi, Sr. Adv. with
Mr.Sunil Dalal, Mr.Sanjeev Narula
& Ms.Sanjana Sharma, Advs.
versus
SCHNEIDER ELECTRIC INFRASTRUCTURE LTD.
..... Defendant
Through Mr.A.S. Chandhiok, Sr. Adv. with
Mr.Rishi Kapoor, Adv. with
Mr.Parijat Kishore, Ms.Harleen
Singh, Mr.Ranjit Pandey and
Mr.Parminder Singh, Advs.
CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH
MANMOHAN SINGH, J.
1. The plaintiff has filed the above mentioned suit, inter alia, praying for declaration, decree of recovery of Rs.3,87,18,000/- along with interest and costs, and also a decree of permanent injunction against the defendant.
2. Along with the plaint the plaintiff has filed an application being I.A. No. 7292/2014 under Order XXXIX Rule 1 and 2 CPC read with Section 151 of the Code of Civil Procedure, 1908 praying, inter alia, for restraining the defendant from making any claim regarding the CS(OS) No.1121/2014 Page 1 of 34 capability of manufacturing and servicing the products and systems including the SAS System which are operating on voltage above 52 KV, for the period prior to coming into effect of the scheme of demerger, i.e. the 'appointed date' (1st April, 2011) and also to restrain from using any property of the plaintiff/ erstwhile Areva T & D Ltd. in respect of "Remaining Business", as per the scheme of Demerger, particularly the Performance Certificates in respect of the work done by Areva T & D India Ltd. with respect to the "Remaining Business".
3. Brief facts of the case as per plaint are that: a) the plaintiff is a part of the ALSTOM group of companies, which is engaged in manufacturing of power transmission instruments business globally and the defendant is a part of the Schneider group of companies and is engaged in the electricity distribution business.
b) M/s Areva SA, a French public multinational industrial conglomerate, was involved in the business of transmission and distribution of electricity. Areva SA conducted a competitive open bidding process for the transfer of its global electricity transmission and distribution electrical business. For participating in the bid process, the ALSTOM and Schneider groups of companies entered into a consortium. The consortium agreement provided inter alia for the separation of the global business of Areva SA, such that the transmission business was to be allocated to the ALSTOM group and the distribution business was to be allocated to the Schneider group.
c) Consequent to the global acquisition pursuant to the consortium agreement and in line with agreement between the CS(OS) No.1121/2014 Page 2 of 34 parties, an open offer was made to the public shareholders of the Areva T&D India Ltd. The open offer documents provided that transmission and distribution business of Areva T&D India Ltd., was to be separated such that the transmission business would be allocated to the ALSTOM group and the distribution business would be allocated to the Schneider group.
d) The plaintiff and the defendant created a special purpose vehicle (SPV) which was incorporated by the name of Alstom Sextant 5 for the purpose of acquisition of Areva SA globally, the terms and bindings of that vehicle are no longer in operation as alleged.
e) The demerger of the plaintiff was actually the distribution of the acquired business of the Areva T&D India Ltd. whereby the transmission business (system operating above 66 kv/52 kv) was allocated to the ALSTOM group and the distribution business (system operating below 66 kv/52 kv) was allocated to Schneider group. There was a clear cut demarcation of division of business between the Transferor and the Transferee.
f) A scheme of arrangement of demerger of Areva T&D India Ltd. was proposed. Under this scheme of arrangement of demerger, the distribution business of Areva T&D was given to the defendant, while the remaining business, i.e. the transmission business was given to the plaintiff.
g) It was agreed in the scheme of demerger under Clause 1.2.1
(c) and (d) that:
"(c) all permits, licenses, permissions, approvals, consents, benefits, registrations, rights, entitlements, CS(OS) No.1121/2014 Page 3 of 34 certificates, allotments, quotas, no-objection certificates, exemptions, concessions, liberties and advantages including those relating to privileges, powers, facilities of every kind and description of whatsoever nature and the benefits thereto (collectively "Licenses") that pertain exclusively to the Demerged Undertaking......
(d) all contracts, agreements, purchase orders, export orders memoranda of understanding, memoranda of undertakings, memoranda of agreements, memoranda of agreed points, bids, tenders, expression of interest, letters of intent, hire and purchase arrangement, other arrangements, understanding, deeds, and other instruments of whatsoever nature and description, whether written, oral or otherwise "
h) The scheme defined the business that was to be transferred or demerged as the "Demerged Undertaking". As per well established industry standards, the "Distribution Business" is understood to be one dealing with products and systems operating at a low or medium voltage, usually lower than 66 kv/ 52 kv. The "Transmission Business" is understood to be one dealing with products and systems, which operate on voltage higher than 66 kv/ 52 kv. Consequently, even the scheme of demerger defined the "Demerged Undertaking" on the lines of voltage, as the business dealing with products and systems operating at a voltage lower than or equal to 52kv.
i) This scheme of demerger was sanctioned by this Court and by the High Court of Gujarat through order dated 24th October, 2011.
CS(OS) No.1121/2014 Page 4 of 34j) As per the demerger agreement at clause 1.1.6.the defendant was originally known as "Smartgrid Automation Distribution and Switchgear Ltd." (hereinafter referred to as "Smartgrid"), a company incorporated on 12th March, 2011, under the Companies Act, having its registered office at Milestone 87, Vadodara, Halol Highway, Village, Kotambi, Post Office Jarod, Vadodara, 391510, Gujarat. It is thus evident from Clause 1.1.6 that the defendant having incorporated on 12th March, 2011 can't possess an experience of 7 years. And thus was unable to fulfill "Essential Qualifications Criteria"
as required by Notice Inviting Tender ("NIT") bearing number:
IRCON/ ELECT/ 5020/ DMRC.CE-6 LOT-l/CRP&SAS/14 of IRCON International Limited on 13th February, 2013. That the instant Application under reply is liable to be dismissed on this ground alone.
k) On 13th February, 2013 IRCON International Limited issued a NIT for the supply, testing and commissioning of substation automation system (SAS). The NIT stipulated certain eligibility criteria which required inter alia, that the bidder must have relevant experience of operation on 220kv system or higher. The bidders were required to submit performance certificates from clients having successfully completed the work in the last seven years.
l) In order to meet the criteria stated in the NIT, the defendant submitted a performance letter issued by Jindal Power Limited dated 4th December, 2009 and a letter by L&T Construction dated 19th June, 2013. These letters indicated that an SAS & CRP Package for 400/220kv switchyard project was successfully executed by AREVA.
These letters are the goodwill/property of the plaintiff and the CS(OS) No.1121/2014 Page 5 of 34 defendant has falsely claimed to have experience of operation on 220KV system or higher. The determination was wrongly used for certificates with regard to transmission business which forms part of the transmission business and the defendant is not entitled to use them as alleged by the plaintiff.
m) The plaintiff wrote a letter dated 10th October, 2013 and brought to the notice of the defendant that in terms of the scheme of arrangement of demerger between AREVA T&D India Ltd. and Smartgrid, the boundary limits for the business operations of the demerged entity, were clearly defined as less than 52 kv segment (Distribution Segment only) and in any case it could not use the Property/Certificate pertaining to the experience of the Plaintiff .The plaintiff accordingly called upon the defendant to immediately withdraw the documents submitted to IRCON.
n) In reply to plaintiff's notice dated 10th October, 2013, the defendant replied through a letter dated 24th October, 2013 misinterpreting the provisions of the demerger scheme and alleged that the 52 KV qualification as mentioned in the definition of "demerged undertaking" (under Clause 2.1 at page 13 of the Demerger Scheme) is limited and applicable to SDS, PDS and DTR only. The defendant mischievously and wrongly stressed on the use of punctuation, "semi colon (;)" and contended that the punctuation disjoined the provision associated with SDS, PDS and DTR from the provision associated with SAS; alleging that 52kv qualifications associated with SDS, PDS and DTR did not spill over to SAS.
CS(OS) No.1121/2014 Page 6 of 34o) It is averred in the plaint that the defendant does not dispute the plaintiff's contention with respect to rationale of the scheme and the understanding between the parties with respect to the division/demarcation of the "Transmission Business" and "Distribution Business" of AREVA T&D, being based and linked with the voltage, i.e. 52 kv. This is further borne out of Clause 1.1.7 of the Scheme which unequivocally and explicitly states that "Transferor Company proposes to transfer its distribution business to Transferee Company". "Distribution Business" intended to be transferred is mentioned in Clause 1.1.4(b) which includes only "Medium and low voltage protection relays and electricity distribution and automation system". There is no ambiguity that "High Voltage relays and power system automation equipment" was kept out of the business transferred to the defendant. Further, the objective of the Demerger is further evident from Clause 1.1.7 (b), which provides that the demerger shall be in the larger interest of both companies and is to "Enable the transferor company and transferee company to focus and Enhance their respective core business operations, which is "Transmission Business" and Distribution Business" respectively. The defendant in its reply has not disputed the above, but has merely raised misconceived objection. Besides, the only other objection is with respect to the certificates being that of Noida Unit, which property forms part of "Demerged Undertaking". The said reliance is also misplaced as alleged by the plaintiff. Even otherwise, the suit of the plaintiff is not confined only to the two certificates in question, but is in respect of any property of the plaintiff/erstwhile AREVA T&D in CS(OS) No.1121/2014 Page 7 of 34 respect of the "Remaining Business". With respect to the Experience Certificate pertaining to the capabilities of the factory situated at Sector 57, Noida, it is stated that even if the property at Noida did come to the share of the defendant as part of the "Demerged Undertaking" it does not mean that the experience certificates in question are the property of the defendant. The facility at Noida had nothing to do with the right of the parties in respect of their individual businesses. It is totally misconceived to allege that the experience certificates are of the defendant merely because they are in respect of the Noida unit. The experience certificates are in respect of the supplies pertaining to the projects of Transmission Business prior to 1st April, 2011. Besides, the plaintiff's relief is not confined to the two experience certificates. Such certificates can be in respect of any facility, but the essential factor is the nature of business, for which the certificate is issued. Any supplies, references, credentials, predating appointed date are the property of the plaintiff, if they were a system above 52 Kv and therefore, the defendant's contention is completely against the sanctioned scheme of Demerger.
p) The two certificates, which the plaintiff could lay its hands on, inter-alia being the subject matter of challenge in the present suit, are evidently in respect of the period, when the demerged undertaking did not even exist. The defendant has unlawfully procured such certificates in its name and misused the same for participating in the tender. The defendant would have otherwise be ineligible to participate in the tender and therefore it is the defendant who is guilty of unlawful conduct. The defendant has misused the properties of the CS(OS) No.1121/2014 Page 8 of 34 plaintiff, which in the nature of the experience certificates pertaining to transmission business, which belong exclusively to the plaintiff, being part of the 'Remaining Business'.
4. In a nut-shell the case of the defendant is that :
i) The plaintiff admits that the "transfer of the assets including the properties, assignment of contracts etc. continues to be done smoothly between the plaintiff and the defendant." Once implementation of the demerger scheme is admitted, jurisdiction of the Company Court gets attracted for, in terms of mandate of law, Company Courts alone have the jurisdiction to oversee the implementation and in the event of any dispute between the parties in relation thereto, the Company Courts alone will have the jurisdiction to entertain and try such an application, if at all the same is maintainable.
ii) The plaintiff, for the first time after the orders of 2011, placed an order on the defendant for equipment ranging beyond 52 KV on 6th September, 2013, to which the defendant had sent a detailed response on 24th October, 2013. There was a complete silence on the part of the plaintiff thereafter till filing of the present suit in April, 2014. This itself disentitled the plaintiff from seeking any interim order.
iii) In terms of the Scheme, not only the said factory stood vested into the defendant, but the contracts assigned to it as well, which was within the knowledge of the plaintiff. The purchase order with respect to Control of Relay Panel of 220 KV also stood vested into the CS(OS) No.1121/2014 Page 9 of 34 defendant and the remaining part of the purchase order was completed by the defendant and items delivered, after the said order was amended on 19th May, 2011.
iv) After the orders of the Company Courts the said factory, all certificates, contracts assigned to it etc., stood vested into the defendant. The plaintiff itself accepted the fact that the said factory stood vested into the defendant with all pending contracts, services and placed order on the defendant on 24th November, 2012, with respect to manufacturing and delivery of CRP 132 KV Feeder Panels and Control and Relay Panels of 132 KV. Similarly orders were placed for products which could be manufactured by the defendant alone, at its Noida factory which were successfully performed by the defendant in whole and in part. Orders were continued to be placed by the plaintiff on the defendant and even as late as on 21st October, 2013, it had placed an order on the defendant.
v) The certificates to which the plaintiff claims right have been issued by Jindal Power Limited dated 4th December, 2009 and by L&T Constructions based on facilities, experience and capacities of the above factory and the work carried out therein. Once there is no dispute that the said factory stood vested into the defendant, then nothing can be claimed to the contrary. As admittedly, the said unit stood vested into the defendant, the said certificates which formed integral part of the NOIDA unit, would also stand vested into the defendant to the exclusion of anyone else, including the plaintiff who is vested with any right to use or rely upon the said certificate dated CS(OS) No.1121/2014 Page 10 of 34 4th December, 2009 and the communication dated 9th June, 2013.
There is no agreement between the parties to show that the plaintiff can claim exclusive right in respect of past experience and capacities and facilities vested with the plaintiff alone.
vi) It is alleged by the defendant that the plaintiff has, inter alia, got many orders and successfully performed many of them, from Power Grid Satna, Essar Mahan, JSPL Angul, Malwa, GMR Emco, Essar Oil, GETCO, Essar Steel, WBSETCL Pkg 6, WBSETCL Pkg 7, WBSETCL BANGAN. The defendant carried out tests in relations to the main server of Essar Steel. Thereafter, a joint meeting took place on 3rd October, 2012, in which the representatives of Essar Steel, the plaintiff and the defendant deliberated upon the products and it was agreed that if Essar Steel was to face any issue then the defendant alone will assist them within thirty days thereof. The present suit has been filed just to harass the defendant.
vii) The plaintiff has deliberately omitted to mention that automation equipment is independent of voltage class as it works on secondary voltage. An electricity transformer transforms the voltage level. The side that carries electricity at lower voltage is said to be on secondary voltage. For purpose of automation, electricity is passed through a voltage transformer, which reduces voltage to 100 volts and a current transformer which changes current from 1 Ampere to 5 Ampere. The electricity signal is then fed to the panel. In this manner, there is a proportionate correlation/equation between the voltage class of the sub-station and the electricity being fed into the panel. This CS(OS) No.1121/2014 Page 11 of 34 correlation is then used to measure electricity passing through the sub-station.
viii) Sub station automation consists of the following components :
a. Panels; b. Relays; c. Human Machine Interface (HMI). This is the display that gives readings.
These components are then integrated by an embedded software. The software has pre-defined protocols and parameters, which activates safety tripping on the grid, depending on the signals received through the panels and relays, which are arrayed on the secondary voltage as described above. It is this automated feature, that is the crux of sub station automation.
ix) There is no clause which restricts the demerged undertaking, viz., the defendant from utilising its services and capacities. The plaintiff itself admits that it has no objection if the defendant manufactures equipment for over 52 KV, but alleges it cannot use or take benefit of certificates issued to its predecessor, viz., AREVA, pertaining to the factory at Noida.
5. When the suit along with injunction application was listed before Court for first time on 23rd April, 2014, the following order was passed:
CS(OS) No.1121/2014 Page 12 of 34"6. It is the case of the plaintiff that under a scheme of demerger of Areva T and D India Ltd., part of the business of Areva T and D India Ltd. came to the plaintiff and the plaintiff is entitled to the benefit of the experience of the works done by the said Areva T and D India Ltd.; how the defendant, to whom/in which the other businesses of Areva T and D India Ltd. stand transferred and/or stand vested in, is illegally taking benefit of the said experience and which the defendant under the scheme of arrangements sanctioned by this Court and by the High Court of Gujarat is not entitled.
7. It has been enquired from the senior counsel for the plaintiff whether not the same will involve the interpretation of the scheme/arrangement and whether not the jurisdiction to deal with the said aspect is of the Company Court only under Section 392(1) of the Companies Act, 1956; it may be mentioned that Section 392(2) further provides for the consequences of the scheme of compromise or arrangement sanctioned being unworkable and it will not be possible for the Civil Courts to review as provided under Section 392(2); thus it appears that the exclusive jurisdiction in this respect is of the Company Court only.
8. The senior counsel for the plaintiff has argued that the plaintiff, besides the declaration to the said effect, has also claimed the relief of recovery of monies equivalent to the benefit already enjoyed by the defendant of wrongfully relying upon the said Experience Certificate and the relief of injunction restraining the defendant from in future availing the benefit of the said experience.
9. Though prima facie it appears that the reliefs aforesaid claimed are also within the domain of the Company Court, as the language of Section 392(1)(b) is found to be all pervasive, but it is deemed expedient to CS(OS) No.1121/2014 Page 13 of 34 give an opportunity to the plaintiff to address on this aspect, after notice has been issued to the defendant.
10. Issue summons of the suit and notice of the application to the defendant by all modes including dasti and through electronic mode, returnable on 29th April, 2014.
11. The senior counsel for the plaintiff states that date for opening of the technical bids made by the plaintiff as well as the defendant for other contracts are falling due on 30th April, 2014 and soon thereafter.
12. The claim if any by the defendant in the said bids on the basis of aforesaid experience certificates shall be subject to further orders in this suit. However, the plaintiff to not communicate this order to any of the parties, who have invited the bids."
6. It is submitted on behalf of the plaintiff that Section 392 of the Companies Act (hereinafter referred to as the 'Act'), does not bar the filing of the present suit or effect the maintainability. The scheme of Demerger, sanctioned by this Court, is absolutely clear and there is no ambiguity. The plaintiff is not required to seek any modification in the scheme of Demerger. The understanding between the parties with respect to scheme of Demerger, is unambiguous and the various clauses in the scheme of Demerger and the subsequent action taken by the parties to give effect to the terms of the scheme of Demerger, leaves no room for doubt. The scheme of Demerger as sanctioned by this Court, takes care of all eventualities and also provides for the rights vested in the parties to the present suit in respect of the property of AREVA T&D relating to the "Demerged Undertaking" as CS(OS) No.1121/2014 Page 14 of 34 well as "Remaining Business". The scheme of Demerger is also detailed enough to consider the various contracts entered into between AREVA T&D and the third parties. It also categorically provides that in case of "mixed contracts", the predominance of the contracts would be the deciding factor for either party to be vested with the rights arising out of such contracts. In case a mixed contract pertains to both transmission business as well as the distribution business, then the predominant aspect of such a contract would decide as to whether the rights vested in such a contract would be a part of the "Demerged undertaking" or the "Remaining Business".
7. It is also submitted by the plaintiff that Section 392(1) of the Act deals with the power of the Court to supervise the carrying out of the compromise or an arrangement and is limited to giving directions with regard to any matter connecting therewith or make modifications in the compromise or arrangement for its proper working. Further the scope of Section 392 (2) of the Act, is limited and deals with the power of the Court to make an order winding up the company, in the event the Court is satisfied that the compromise or an arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications. The aforesaid provisions do not deal with the subject matter of the present suit which is specifically in respect of the enforcement of the right of the plaintiff to prevent the misuse of its property by the defendant and to recover the damages caused on account of such misuse. The case of the plaintiff is that the defendant is wrongly and unlawfully misusing the properties of the plaintiff which pertains to "Transmission Business"/ "Remaining Business" and that CS(OS) No.1121/2014 Page 15 of 34 the defendant, to sustain such misuse, is wrongly misinterpreting the definition of "Demerged Undertaking". Therefore it is wrong to say that the plaintiff admits that the disputes relate to the rights of Demerged Undertaking or that the present suit is regarding the rights of the parties under the implementation of the scheme of Demerger.
8. The plaintiff has no cause to seek any modification in the scheme of Demerger. The scheme of Demerger and the definition of "Demerged Undertaking" and "Remaining Business" are clear and unambiguous. The rights of the parties are also well provided for. In clause 3.8 regarding the conduct of business, it is provided that all the assets, liability and obligations pertaining to the remaining business, arising prior to, on or after appointed date, shall continue to belong to, be vested in and be managed by the transferor company. The experience certificates are part of the assets of the Remaining Business and the same belong exclusively to the plaintiff.
9. Therefore, the objection raised by the defendant has no application in the facts and circumstances of the present case and even observation made in the order dated 23rd April, 2014 have no consequence.
10. The case of the plaintiff is that the defendant had used the goodwill/ properties of the plaintiff inter-alia being the certificates referred above and had falsely claimed to have experience of operation on 220KV system or higher and to have successfully completed the works in last seven years. The defendant falsely claimed to be having the requisite qualifications to satisfy the eligibility criteria under the NIT referred above. The certificates CS(OS) No.1121/2014 Page 16 of 34 wrongly used by the defendant are related to the transmission business which forms part of the "Remaining Business" and not "Demerged Undertaking" that stood transferred to the defendant.
11. It is argued by Mr.A.S.Chandhiok, Senior counsel appearing on behalf of the defendant that the certificates to which the plaintiff claims right have been issued by Jindal Power Limited dated 4th December, 2009 and by L & T Constructions based on facilities, experience and capacities of the above factory and the work carried out therein. Once there is no dispute that the said factory stood vested into the defendant, then nothing can be claimed to the contrary. As admitted in the plaint that the said unit stood vested into the defendant, the said certificates which formed integral part of the Noida unit, would also stand vested into the defendant to the exclusion of anyone else, including the plaintiff.
12. As far as objection of the defendant with regard to jurisdiction with the Company Court under Section 392 is concerned, this Court is inclined to decide these two pending applications as it is felt that the said issue is a subject matter of disputed fact. The same can be postponed and may be considered at the time of framing of issues. With regard to injunction sought by the plaintiff, it is to be decided as to whether as per facts of this matter, the plaintiff is entitled for injunction as prayed or not.
13. As per the terms of Section 14 (a) of the Specific Relief Act, 1963 there are cases where compensation is an adequate relief, Section 14 (b) are those cases where contracts run into minute details or is dependent on personal qualifications of parties, and CS(OS) No.1121/2014 Page 17 of 34 Section 14 (d) are cases wherein performance of continuous duty is required. Under the provisions of Section 16 of the Specific Relief Act, specific performance of a contract cannot be enforced in cases where the party is not ready and willing to perform essential terms of the contract.
14. It is rightly observed in the case of Lalbhai Dalpatbhai & Co. vs. Chittaranjan Chandulal Pandya, AIR 1966 Guj 189 as under:
"The Court has a discretion whether or not to enforce the negative stipulation by grant of an injunction that discretion is declared in no uncertain terms by Section 36 and is further emphasized by Section 38. Sub-sections (1) and (2). The language of Section 42 also shows that the discretion of the Court is not intended to be taken away by anything stated in the section. The words used are "the circumstance that the Court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction" so that Section 41, Clause (e) shall not stand in the way of the Court in granting an injunction; but the Court would still have to consider whether in the exercise of its discretion it should grant the injunction or not."
x x x x "If this principle is to be applied, it is clear that two conditions must be fulfilled before a restraint imposed by a negative covenant can be held enforceable by an injunction in the first place if must be reasonable in reference to the interest of the contracting parties and secondly it must be reasonable in reference to the interest of the public. In the case of each condition the lest of reasonableness must be satisfied. To be reasonable in reference to the interest of the contracting parties the restraint must afford no more than adequate CS(OS) No.1121/2014 Page 18 of 34 protection to the party in whose favour it is imposed. To be reasonable in reference to the interest of the public, it must be in no way injurious to the public".
15. The defendant does not dispute the understanding between the parties with respect to the division/demarcation of the "Transmission Business" and "Distribution Business" of AREVA T&D.
16. It is not denied by the plaintiff that IRCON International Ltd., had placed an order on the defendant as the defendant succeeded in the open bid for the same. The entire material was examined by IRCON International and on being satisfied about the capacity quality and delivery, the order was placed.
17. It is also admitted in the plaint that the plaintiff also participated in the bidding process. However, the defendant was declared as L1, while the plaintiff was declared as L2. The tender was allotted to the defendant, despite it not being qualified to bid in the tender process, as the defendant could not use the Certificate of past experience of Areva.
18. The plaintiff has admitted the fact that the said factory stood vested into the defendant with all pending contracts, services and placed order on the defendant on 24th November, 2012 with respect to manufacturing and delivery of CRP 132 KV Feeder Panels and Control and Relay Panels of 132 KV. Similarly orders were placed for products which could be manufactured by the defendant alone, at its Noida factory which were successfully performed by the defendant in whole and in part. Orders were continued to be placed by the CS(OS) No.1121/2014 Page 19 of 34 plaintiff on the defendant and even as late as on 21st October, 2013, it had placed an order on the defendant.
19. There is no clause which restricts the demerged undertaking, viz., the defendant from utilising its services and capacities. The plaintiff itself admits that it has no objection if the defendant manufactures equipment for over 52KV, but alleges it cannot use or take benefit of certificates issued to its predecessor, viz., AREVA, pertaining to the factory at Noida. Even Mr. Sandeep Sethi, learned Senior counsel appearing on behalf of plaintiff has confirmed the same. He even informed the Court on behalf of his client that it is open to both parties to contact any company, government authority in order to offer manufacturing equipment of any kind and the plaintiff has no objection if deals with the equipment far beyond 52KV. However his objection that the defendant is not entitled to use the experience certificate for the past seven years as claimed in the tender process, the statement was made therein. The said statement is false within its knowledge as the defendant came into the picture of said activities in the year 2011. The said act of the defendant would definitely harm the business of the plaintiff and such claim of seven years experience made by the defendant is contrary to the spirit of demerged undertaking despite no specific prohibition in this respect.
As far as the claim of past experience of seven years is concerned, there is a force in the submission of the learned Senior counsel for the defendant that at this stage the plaintiff cannot conclude by himself that the defendant has no experience of seven years as the defendant is in its business for many years and CS(OS) No.1121/2014 Page 20 of 34 therefore the defendant is entitled to take the advantage of experience prior to 2011 also. In view of rival two versions, at the present stage, no final conclusion can be drawn as to whether the defendant has past experience of seven years or not. As it is a disputed question of fact and the same has to be considered after trial.
20. It is the admitted position that there is no negative covenant and the defendant cannot work on commissioning of systems working on high voltage or cannot venture into the transmission business, however, the only embargo/restriction on the defendant is that it cannot use the past experience of the plaintiff qua transmission business working on high voltage >52KV. The only condition of the demerger scheme must not be flouted by the defendant whereby the past experience of commissioning the systems working on high voltage >52 KV rests only with the plaintiff. The power Grid Corporation of India Ltd. grated approval to the defendant company on 31st May, 2012, regarding manufacturing and quality plan of the defendant in relation to a contract for Control and Relay Panel, which are to the knowledge of the plaintiff.
21. Therefore, the plaintiff is not entitled to get any benefit to enforce the contract under the exception clause. At the best, the plaintiff may be entitled to compensation, damages and interest thereon. No injunction can be granted by the Court to prevent its breach as such a contract is not specifically enforceable as it is settled law that even where a contract has been breached, the aggrieved party would be able to claim damages.
CS(OS) No.1121/2014 Page 21 of 3422. In case the plaintiff in trial would be able to establish that the defendant has violated the understanding and undertaking with respect to the division and demarcation of the transmission business and distribution business of Areva T & D, the plaintiff may be entitled for damages as the plaintiff itself at present has filed suit for recovery of Rs.3,87,18,000/- along with interest suffered by them on the date of filing the suit. The plaintiff is also entitled to enhance the damages if so required. The plaintiff at present is not able to establish its case on fact to the exception of Section 14 and 41 of the Specific Relief Act.
23. There is no thumb rule that injunction must or must not be granted rather each case depends upon its own facts and circumstances. Prima facie, in the present case, facts and circumstances do not call for passing the interim order as prayed for rather, it is directed to the defendant to maintain the accounts particularly to the business carried out on the basis of past experience certificate and they shall file copy of statement of account every six months before Court. The first statement would be filed from the date of suit till the date of order within four weeks. The view taken by this Court is prima facie, which shall have no bearing when the suit is finally decided on merit after recording the evidence of the parties.
24. I.A. No.7292/2014 under Order 39 Rule 1 and 2 CPC is disposed of accordingly.
CS(OS) No.1121/2014 Page 22 of 3425. Let me now consider another application filed by the defendant during the course of hearing being I.A. No. 24002/2014 under Order 12 Rule 6 CPC. Relevant clause of the Consortium Agreement reads as under :
"Article 23.1: This Agreement is governed by the provisions of French Law.
Article 23.2: The parties undertake to seek an out of court settlement in case of any disagreement or dispute arising from this agreement particularly with regards to its validity, interpretation, performance or cancellation. Failing that any disagreement or dispute arising after or at the time of this agreement shall be resolved by Arbitration according to French Arbitration Association (association Francaise d'Arbitrage) which parties declared to accept. Arbitration shall be conducted in French and Arbitration shall take place in Paris."
26. Mr. A.S. Chandhiok, learned Senior counsel appearing on behalf of defendant submits that it is admitted position that :
a) Existence of consortium agreement dated 9th November, 2009 and amendments to the agreement.;
b) Plaintiff and defendant form part of Alstom and Schneider group, and are part of the Consortium Agreement dated 9th November, 2009;
c) Scheme of demerger is in pursuance to the Consortium Agreement; and
d) Disputes and differences arise out of the Consortium Agreement.
27. It is submitted by him that admittedly, the demerger was the outcome of the consortium agreement with its amendments.
CS(OS) No.1121/2014 Page 23 of 34Therefore, the demerger scheme on the admission of the plaintiff, is incorporated by reference and forms an integral part of the consortium agreement.
28. In para 9 of the application, defendant has stated as under, which is also not rebutted:
"it is pertinent to state herein that the amendment dated 17.05.2010 was qua the Indian acquisition, in other words any dispute of differences necessarily have to arise within the ambit of the said agreement as amended and is subject to the same arbitration clause. The amendment agreement sought to modify or vary the terms of the consortium agreement solely to the extent that they relate to the Indian companies. It is submitted that the amendment agreement for part of the consortium agreement. It was further agreed in between the parties that in case of dispute arising out from the amendment agreement particularly with regards to its validity, interpretation, performance or cancellation the parties undertook to seek out of court settlement. Failing that any disagreement or dispute arising after or at the time from this agreement shall be resolved by arbitration according to the rules of the French arbitration association (association Francaise d'Arbitrage) which parties declared to accept. It was further agreed that the arbitration shall be conducted in French. Arbitration shall take place in Paris. Consequently the parties agreed that the Hon'ble Court in Paris alone will conduct the arbitration proceedings or give the award."
29. It is argued on behalf of defendant that once disputes or differences are covered by the Arbitration Agreement, the clause therefore, ousts the jurisdiction of the Court; both Territorial and the subject matter, the governing laws being French law and the venue of arbitration being Paris.
30. The following decisions are referred by Mr. Chandhiok, CS(OS) No.1121/2014 Page 24 of 34 learned Senior counsel for the defendant :
i) In the matter of Bhushan Steel Ltd. vs. Singapore International Arbitration Centre and Anr., ILR (2010) VI Delhi 295 it was held that the parties by agreement have expressly and impliedly excluded the provisions of the Arbitration and Conciliation Act, 1996. Thus, the suit is not maintainable and has observed as under:
"42. The governing law, in the case at hand, is clearly submitted to be 'international law' the meaning of which has been discussed above at length. The place or venue of the arbitral proceedings is also clearly mentioned to be the SIAC which is at Singapore.
43. It is evident from above that the arbitration clause in the sales contract clearly provides the governing law as well as the place of arbitration in case of disputes between the parties. The 'International Law' which is stated to be applicable to the dispute clearly excludes this Court's jurisdiction in the present matter.
44. In the case of Citation Infowares Ltd. v. Equinex Corporation (2009) 7 SCC 220 in paragraph 25 of the judgment, it is stated that the law of arbitration is normally the same as the proper law of the contract and it is only in exceptional cases that it is not so, even where the proper law of contract is expressly chosen by the parties; it was further held that there is a presumption that the law of the country where the arbitration is agreed to be held is the proper law of arbitration.
47. In the present case, it is evident that the parties by agreement have expressly and impliedly excluded the provisions of the Arbitration and Conciliation Act, 1996. Thus, the suit is not maintainable."CS(OS) No.1121/2014 Page 25 of 34
ii) In the case of Ultra Home Construction (P) Ltd vs Choice Hotels International Inc. & Ors., 194 (2012) DLT it was held as under:
"28. It is well settled principle of law that once it has been established that all the necessary pre-requisites enshrined under Section 8 of the Act are fulfilled and there is no dispute regarding the validity of the Arbitration Agreement, then in such circumstances, the judicial authority ceases to exercise jurisdiction and the dispute is to be adjudicated upon by the learned Arbitrator as Section 8 of the Act is mandatory in nature."
43. In view of the facts in the present case and for the aforesaid reasons given in earlier paras of, my order, it is clear that the suit filed by the plaintiff is merely to circumvent the arbitration proceedings..."
iii) In the case of Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Service, Inc., 2012 (9) SCC 552, it was held that a suit is barred and not maintainable which reads as under:
"175. In our view, such a suit would not be maintainable, because an interlocutory injunction can only be granted during the pendency of a civil suit claiming a relief which is likely to result in a final decision upon the subject in dispute. The suit would be maintainable only on the existence of a cause of action, which would entitle the Plaintiff for the substantive relief claimed in the suit. The interim injunction itself must be a part of the substantive relief to which the Plaintiffs cause of action entitled him. In our opinion, most of the aforesaid ingredients are missing in a suit claiming injunction restraining a party from dealing with the assets during the pendency of CS(OS) No.1121/2014 Page 26 of 34 arbitration proceedings outside India. Since the dispute is to be decided by the Arbitrator, no substantive relief concerning the merits of the arbitration could be claimed in the suit. The only relief that could be asked for would be to safeguard the property which the Plaintiff may or may not be entitled to proceed against.
179. In matters pertaining to arbitration, the suit would also be barred Under Section 14(2) of the Specific Relief Act. Although the provision exists in Section 37of the Specific Relief Act, 1963, for grant of temporary/perpetual injunction, but the existence of cause of action would be essential under this provision also. Similar would be the position under Section 38 of the Specific Relief Act."
31. The contention of Mr. Sandeep Sethi, learned Senior counsel for the plaintiff is that the suit is maintainable as consortium has worked itself out. There is no dispute of any nature about consortium being left out. On the other hand counsel for the defendant has referred para 16 of the plaint wherein the following averments was made :
"that the transfer of the assets including the properties, assignment of contracts etc. was done, and continues to be done smoothly between the plaintiff and the defendant " (Emphasis supplied)
32. It is submitted by Mr. Sethi that it was agreed between the parties that all assets will jointly be owned by the parties and the dispute in relation to distribution of the assets is governed by the Consortium Agreement. Thus, the matter relating to the assets will be governed by the Arbitration. Therefore, on these admissions the suit must be dismissed.
CS(OS) No.1121/2014 Page 27 of 3433. It appears from the pleadings and documents filed by the parties that they entered into a consortium only for participating in the bid of taking over the gobal business of Areva SA and the separation of the T and D business, thereof. The relevant para of the consortium states as under:
"Article 17 Entry into force - Duration 17.1 This Agreement shall be effective as from the date of its signature by the Parties, and shall remain in force under the conditions set forth under the conditions set forth below:
(b) In the event of acceptance of the Offer, this Agreement shall remain in force until the latest of the following dates:
fulfilment by the Seller of all the obligations deriving from all documents relating to the Acquisition, including the guarantees granted by the latter in respect of the Acquisition;
the full and final settlement of all accounts and settlement of all disputes relating to the Acquisition, Separation and transactions provided for in this Agreement, both between the Parties and the Seller and between the Parties themselves; "
34. There is no arbitration agreement between the plaintiff and the defendant. The defendant company -'Schneider Electric Infrastructure Ltd.' is a company under the Companies Act and has a separate legal personality. The defendant company was incorporated only on 12th March, 2011, while the Consortium Agreement was entered into on 9th November, 2009 and was amended inter alia on 17th May, 2010.
CS(OS) No.1121/2014 Page 28 of 34Thus, the defendant company was not even in existence when the Consortium Agreement was entered into.
35. Section 7 of the Arbitration and Conciliation Act, 1996 requires an arbitration agreement to be in writing. Section 7 states:
"...
(3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in--
(a) a document signed by the parties;
..."
36. There is no document signed by the parties to the present suit which contains an arbitration clause.
37. The alleged Arbitration clause in the Consortium Agreement has not been incorporated by reference in any agreement between the parties at all as alleged. The contention of the defendant that the amendment agreement dated 17th May, 2010 which was qua the Indian acquisition would lead to incorporation by reference is completely baseless. It is rightly submitted by the plaintiff that an arbitration clause can only be incorporated by reference when the reference is such so as to make the arbitration clause part of the contract. Such reference has to be clear and specific. Reliance is placed on M.R. Engineers and Contractors P. Ltd. Vs. Som Datt Builders Ltd., (2009) 7 SCC 696. In the Demerger Scheme there is no reference, either express or implied, to the arbitration clause of the Consortium Agreement.CS(OS) No.1121/2014 Page 29 of 34
38. It is trite law that reference can only be made if the subject matter of the dispute is covered by the arbitration agreement. Section 8 of the Arbitration and Conciliation Act, 1996 expressly states that reference to arbitration is to be made where "an action is brought in a matter which is the subject of an arbitration agreement." Section 45 of the Arbitration and Conciliation Act expressly states that reference is to be made "when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44..."
(emphasis supplied). Reference can only be made if the subject matter of the dispute is covered by the arbitration agreement.
39. In the present case, the dispute arises from the Scheme of Demerger and not the Consortium Agreement. The Consortium Agreement primarily deals with the acquisition of Areva T & D globally and matters incidental thereto. It also lays down broad principles for the subsequent segregation of T Business and D Business. The properties which were separated have been specified only in the Scheme of Demerger. The plea of the defendant that the property at Noida was allocated to it arises solely from the Scheme of Demerger and not from the Consortium Agreement. Thus the dispute between the parties arises entirely from the Scheme of Demerger.
40. The alleged arbitration clause of the Consortium states that "in case of disagreement or dispute arising from this Agreement..." (emphasis supplied). However as shown above, the dispute between the parties arises only from the Scheme of Demerger. Thus, the CS(OS) No.1121/2014 Page 30 of 34 defendant's contention that the present dispute has to be settled by arbitration is devoid of any merits.
41. Even the defendant has waived his right to invoke the Arbitration in the present case by filing a reply to the plaintiff's suit. According to Section 8 of the Arbitration and Conciliation Act 1966 "(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration."
"A right once waived by a party in respect of the course to be adopted for settlement of a dispute between himself and the other side is lost forever and that followed such waiver of the right to specific course to which he was entitled to as a matter of right. This is so because when a party to an arbitration agreement gives up his right to refer the dispute to arbitration, a right comes to vest in the other party take recourse to the other remedies that are open to him in law and when such a recourse is resorted to by other party, the party who had waived his right to settle the dispute in an arbitration cannot be permitted to turn round and say that he is entitled to the remedy of arbitration and the recourse to the suit by the other party is bad in law." (reliance upon Ramakrishna Theatre Ltd. V General Investments & Commercial Corp. Ltd. , AIR 2003 Kant 502: 2004(1) Kant Lj 611).
42. The defendant has not prayed for the suit to be referred to Arbitration, merely raising an objection that there is an arbitration clause will not automatically make the court refer the matter to Arbitration. In the case of Bharat Sanchar Nigam limited & Ors. V. CS(OS) No.1121/2014 Page 31 of 34 BMW Industries Limited & Ors. AIR 2007 (NOC) 1715 CAL (DB), it was held that in order to take advantage of provisions of Sec.8 the respondent has to apply formally enclosing arbitration agreement and with a specific prayer for referring the disputes to arbitration. Mere taking of the point as a matter of objection is not good enough and one must demonstrate its readiness and willingness by conducting himself positively to go to arbitration meaning thereby one has to make application before disclosing its defence in the subject-matter and furthermore it has to take steps for appointment of arbitrator if it has power to do so.
43. The defendant's plea that suit be dismissed, merely because there is an arbitration clause in the agreement is devoid of merits. The Supreme Court in the case of Sukanya Holdings Pvt. Ltd. V Jayesh H. Pandya and Anr., (2003) 5 SCC 531 has held as under:
"This would, therefore, mean that Arbitration Act does not oust the jurisdiction of the Civil Court to decide the dispute in a case where parties to the Arbitration Agreement do not take appropriate steps as contemplated under Sub- sections (1) & (2) of Section 8 of the Act."
44. This Court in the case of Roshan Lal Gupta vs Parasram Holdings Pvt. Ltd., 157 (2009) DLT 712 has held as under:
"A civil court cannot dismiss a suit instituted before it, even though found to be subject matter of an arbitration agreement, at the threshold It is always open to the defendant to the suit to waive, give up and abandon the plea of arbitration and if that were to happen then the suit CS(OS) No.1121/2014 Page 32 of 34 will continue before the civil court. The manner in which the defendant in a suit which is the subject matter of an arbitration agreement is to setup the plea of arbitration has been prescribed in Section 8 of the Act. Such a plea has to be raised not later than when submitting the first statement on the substance of the dispute. If such a plea is not raised while submitting the first statement on OMP 205/1997 & RSA 131/2002 Page 9 of 25 the substance of the dispute, the defendant is thereafter barred from raising such a plea and if that be the position then it cannot be argued that even though the plea is not raised in the manner prescribed in Section 8 of the Act, it is open to the defendant thereafter also to contend that the suit is barred by virtue of section 5 of the Act." .
45. It is the admitted position that there is no Arbitration clause in the Demerger Agreement. The Consortium Agreement is not in operation anymore, its sole objective is described in Article 1 as under:
The Article 1.1 of the Consortium Agreement reads as under:
"1.1 Principles of the Consortium The parties acknowledge that the key principles governing this Agreement are as follows:
The objective of the Parties is to complete the Acquisition with a view to the Separation of the T Business and D Business as soon as possible:
The consortium set up under the terms hereof is the instrument for achieving this objective."CS(OS) No.1121/2014 Page 33 of 34
46. It is evident from the perusal of clause 1.1 that the sole purpose of the consortium agreement was acquisition and separation (demerger) of the acquired business.
47. There is no logic to raise such plea which is apparently would show that it is an afterthought as the defendant in his reply to the plaintiff's application under Order 39 Rule 1 and 2 CPC in paragraph 5 to 11 has challenged the jurisdiction of this Court. The defendant has alleged that this Court has no jurisdiction to entertain this suit as the subject matter of the dispute between the parties can only be adjudicated upon by the Company Courts.
48. In the light of the reasons mentioned above, the present application under Order 12 Rule 6 CPC filed by the defendant is not maintainable and the same is dismissed.
CS(OS) No.1121/2014List the matter before Joint Registrar on 14th September, 2015 for admission/denial of documents.
(MANMOHAN SINGH)
JUNE 29, 2015 JUDGE
CS(OS) No.1121/2014 Page 34 of 34