Calcutta High Court
Emta Coal Ltd vs Damodar Valley Corporation on 27 July, 2015
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
O-639
AP No.418 of 2015
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
EMTA COAL LTD.
-Versus-
DAMODAR VALLEY CORPORATION
Appearance:
Mr. Kishore Dutta, Sr. Adv.
Mr. Joydeep Kar, Sr. Adv.
...for the petitioner.
Mr. Sudip Deb, Adv.
Mr. Rishav Medora, Adv.
...for the respondent.
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE Date : July 27, 2015.
The Court : This has been a complete waste of Court time for the sheer ineptitude of certain draftsmen and for the obvious frivolity of this request under Section 11 of the Arbitration and Conciliation Act, 1996.
In the year 2005 Damodar Valley Corporation (DVC) entered into an agreement with firm EMTA that envisaged the setting up of a joint venture company (JVC) in which the partners of EMTA would hold 76% shares and DVC would hold the remaining 24% shares. The relevant clauses as contained in the agreement of April 13, 2005, including the arbitration clause, should be noticed as appearing in the agreement:2
"ARTICLE 1 DURATION OF THE AGREEMENT AND TERMINATION
1. DURATION OF THE AGREEMENT This agreement shall come into force on the date of its execution by the parties and shall continue to remain in force for a period of 35 years from the date of actual commencement of coal supply by the company to DVC or till the time that the mining lease proposed to be granted to the company stands determined, whichever is earlier, subject to renewal for further period(s) on such terms and conditions that may be mutually agreed to between the parties. In the event the partners of EMTA decide to form a limited company, this Agreement shall inure to the benefit of such limited company, subject to the following conditions:-
(i) 76% of the paid up capital of such limited liability company being held and maintained at all time by those who are at present partners of EMTA. However this is to be read with Clause 7 of Article 10 of this Agreement.
(ii) Such limited company agreeing in writing to assume all obligations and liabilities of EMTA under this Agreement."
"ARTICLE 14 ASSIGNMENT
3. EMTA or its partner(s) shall be entitled to assign otherwise the rights, benefits and/or obligations of this Agreement to any limited company in the manner provided herein-above in Article 1 with due written consent of DVC."
*** *** ***
"Settlement of Disputes
3
In case of any dispute or difference arising between DVC and EMTA in respect of any of the terms or conditions of this Agreement or the interpretation or the implementation thereof or any dispute regarding the management or functioning of the company, the same shall be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996 or any statutory modification thereto. The Chairman, DVC shall have the sole and exclusive authority to nominate an arbitrator for such purpose within a period of one month from the date of receipt of a request from either party.
This arbitration clause, to the extent applicable, would be incorporated in the Articles of Association of the company and would apply, to any dispute arising between the parties hereto in relation to the functioning or management or business of the company and in respect of any dispute that may arise between the company and either party hereto and the same appointing procedure of arbitrator would be followed. In case of any variance of the arbitration clause contained in the Articles of Association of the company, the provisions contained in the Agreement shall prevail."
In course of time, the JVC was formed. It also appears that firm EMTA became company EMTA with the petitioner herein apparently the resultant entity. The convoluted memorandum of association of company EMTA talks about the weather, the geography and history but does not include the simple sentence that firm EMTA was being taken over as a going concern by company EMTA.
Company EMTA has inherited the licence that firm EMTA had to extract coal. It is evident from the correspondence relied on by the petitioner that company EMTA would extract coal and supply the same on behalf of the JVC to DVC at its power plants; 4 and, company EMTA would raise its bills on the JVC and the JVC would raise bills on DVC. The obligation of the JVC to pay company EMTA does not appear to have been dependent on the JVC receiving payment from DVC.
There appears to be a deadlock in the board of directors of the JVC, which was not unexpected since DVC had a right to appoint five directors on the board of the JVC though it was only a 24% share-holder in the JVC. Company EMTA also has five nominees on the board of the JVC. As a consequence, without the support of at least one of DVC's nominees on the board of the JVC, the JVC cannot make a demand for a reference on DVC. To circumvent such problem, company EMTA took it upon itself to make a vicarious claim on behalf of the JVC and the invocation which is cited is for company EMTA's claim against the JVC which apparently remains unpaid on account of DVC not releasing the money due to the JVC. Such position will be evident from the letter of invocation of December 2, 2014 in the following paragraphs:
"DECML made series of communications from the very inception of supply, demanding payments from DVC in regard to the aforesaid claims but DVC did not respond to such claims of DECML."
"As per the joint venture agreement, the adverse financial impact arising out of non-payments and/or lesser payments as indicated above is being directly transferred to EMTA by DECML. Therefore, EMTA is being adversely affected by reason of the above short payment by DVC."
The matter requires no further consideration once it is seen that the petitioner herein, company EMTA, has no right of 5 recourse against DVC for the money claim that it has against the JVC. However, the primary agreement, the clauses thereof, the articles of association of both the JVC and company EMTA provide a veritable comedy of errors. Apart from the fact that company EMTA cannot espouse the cause of the JVC, it does not appear that the arbitration agreement contained in the joint venture agreement of April 13, 2005 has been specifically incorporated in the Articles of Association of the JVC. In any event, by virtue of clause 3 of Article 14 of the joint venture agreement, it was incumbent on firm EMTA to obtain the consent of DVC before it stood converted into company EMTA; but this was not done.
The petitioner would interpret clause 3 of Article 14 of the joint venture agreement to imply that in the event firm EMTA was desirous of assigning any right under the joint venture agreement unto a limited company, the permission of DVC would be necessary for such purpose; but the question of permission would not arise if firm EMTA were to convert itself to company EMTA.
Whatever may have been intended by the parties while entering into the joint venture agreement, what falls for interpretation is the agreement itself. Clause 1 of the first Article of the agreement envisages firm EMTA being converted into company EMTA, though the wording of the clause is not as happy as the apparently expensive agreement would have warranted. Again, clause 3 of Article 14 confines the "limited company" referred to therein to that company which is envisaged in clause 1 of Article 6
1. In other words, the net effect of clause 3 of Article 14 is that an additional condition has been appended to clause 1 of Article 1 : that the conversion of firm EMTA to company EMTA would require the "due written consent" of DVC.
Since it appears that the disputes in respect whereof arbitration has been sought are not matters that can be carried to a reference under the arbitration clause even if its incorporation by reference is presumed in the context, the present request has been an exercise in abject futility. The arbitration agreement envisages a reference pertaining to the JVC if there were to be a dispute between company EMTA and DVC (if the irregularity in the conversion of firm EMTA to company EMTA is disregarded) in respect of a matter covered by the joint venture agreement, any dispute between the JVC and DVC and any dispute between the JVC and company EMTA (again, ignoring the irregularity). The disputes between company EMTA and DVC that can be accommodated within the arbitration agreement have to be confined to matters covered by the joint venture agreement or matters pertaining to the management or functioning of the JVC. The arbitration agreement cannot be stretched to imply that a money claim of company EMTA against the JVC, whether or not because of DVC refusing to release the JVC's bills, would fall within the ambit of the matrix contract governed by the arbitration agreement. Even if a dispute between company EMTA and the JVC is capable of being referred to arbitration under the arbitration agreement by virtue of the 7 expression "between the company and either party hereto" contained therein, the appropriate invocation has to be by company EMTA on the JVC; and not on DVC. The prejudice suffered by company EMTA as a consequence of DVC's alleged refusal to pay the JVC is not an arbitrable dispute within the folds of the subject arbitration agreement.
AP 418 of 2015 is dismissed. For the petitioner needlessly flogging a dead - rather, a still-born - horse, it shall pay costs assessed at Rs.2 lakh to DVC.
Urgent certified website copies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(SANJIB BANERJEE,J.) /S.Chandra A/s.