Madras High Court
Proceedings Sch-5480: Teledata vs . Euram, Pending Before The
Author: Senthilkumar Ramamoorthy
Bench: Senthilkumar Ramamoorthy
Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Comp. A.Nos.77 and 78 of 2017
and
Comp.A.Nos.489 to 491 of 2017
in
C.P.No.275 of 2010
SENTHILKUMAR RAMAMOORTHY J.
Comp. A.Nos.77 to 79 of 2017 were filed by the company
in liquidation represented by its ex-Directors and by a contributory.
In the said applications, the following relief is prayed for:
PRAYER IN COMP.A.NO.77 OF 2017: To transfer Arbitration
Proceedings SCH-5480: Teledata vs. Euram, pending before the
Vienna International Arbitration Centre between the first Applicant
and first Respondent to the file of this Court.
PRAYER IN COMP.A.NO.78 OF 2017: Pending transfer to stay all
further proceedings SCH-5480: Teledata vs. Euram.
PRAYER IN COMP.A.NO.79 OF 2017: To direct the Respondents 2
to 6 to jointly and severally pay the company in liquidation, the
sum of US $ 32,470,974.97 together with interest at 6% per annum
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
from 30.11.2011 along with future interest at the rate of 6% per
annum till the date of payment.
2.Upon receipt of notice in Comp.A.Nos.77 to 79 of 2017, the
European American Investment Bank AG(EURAM) filed
Comp.A.Nos.489 to 491 of 2017 praying for the following relief:
PRAYER IN COMP. A.NO.489 OF 2017: To dismiss Comp.
A.No.77 of 2017 in C.P.No.275 of 2010 as not maintainable.
PRAYER IN COMP. A.NO.490 OF 2017: To dismiss Comp.
A.No.78 of 2017 in C.P.No.275 of 2010 as not maintainable.
PRAYER IN COMP. A.NO.491 OF 2017: To dismiss Comp.
A.No.79 of 2017 in C.P.No.275 of 2010 as not maintainable.
3.While the above applications were pending adjudication, it is
the admitted position that the first Applicant in Comp. A.Nos.77 to
79 of 2017 withdrew the Arbitration Proceeding pending before the
Vienna International Arbitration Centre. As a consequence, Comp.
A.Nos.77 and 78 of 2017, which are to transfer the said Arbitration
Proceedings to the file of this Court and pending such transfer for
stay of the said Arbitration Proceedings, are rendered infructuous.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Accordingly, the said Applications are liable to be dismissed as
infructuous.
4. As a corollary, Comp. A.Nos.489 and 490 of 2017, which are
filed to dismiss the Comp. A.Nos.77 and 78 as not maintainable, are
also rendered infructuous. Therefore, the said Applications are liable
to be dismissed as infructuous. As a result, it is proposed to dispose
of Comp. A. Nos.77 and 78 of 2017 and Comp. A.Nos.489 and 490
of 2017 as infructuous. Comp. A.No.79 of 2017 is for the payment
of the sum specified therein to the company in liquidation and this
Application is required to be decided notwithstanding the withdrawal
of the Arbitration Proceedings. Consequently, Comp. A. No.491 of
2017, which is an Application to dismiss Comp. A.No.79 of 2017 as
not maintainable, also survives notwithstanding the withdrawal of
the Arbitration Proceedings. By this Order, it is proposed to dispose
of the infructuous applications, as indicated above, and
Comp.A.No.491 of 2017 which relates to the maintainability of
Comp.A.No.79 of 2017. For the sake of convenience, the Applicant
in Comp.A. Nos. 489 to 491 of 2017 is referred to as Euram or the
Applicant and the Respondents in the said applications are referred
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
to as Respondents, as per their respective rank in the said
Applications, in this Order.
5.The learned counsel for Euram, Mr. Anirudh Krishnan, opened
his submissions by referring to a diagrammatic representation of the
transactions and also narrated the sequence of events that resulted
in the filing of the present applications. He pointed out that the
Applicant/Euram is a bank in Austria and that Euram provided a
subscription loan to an entity called Vintage FZE, Respondent 7
herein(FZE). By utilising the said subscription loan, the said Vintage
subscribed to Global Depository Receipts(GDRs) issued by various
issuer companies, including the company in liquidation. On receipt
of the subscription money, these issuer companies issued GDRs to
Vintage. The subscription money was, in turn, remitted by the
issuer companies into the account maintained by such companies in
Euram. The subscription loan, which was extended by the Applicant
to Vintage, was, inter alia, secured by a pledge of the amounts
remitted into the accounts of the issuer companies in Euram. For
this purpose, one such issuer company, i.e. the company in
liquidation, executed both an Escrow Agreement and a Pledge
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Agreement with Euram. Both these agreements contain an
arbitration clause. On the basis of an alleged breach of the terms of
the said agreements, Euram invoked the pledge and thereby debited
the account of the company in liquidation. This action was
challenged by the company in liquidation, through its ex-director, by
filing a suit before the Commercial Court in Austria. The said suit
was dismissed on the ground that an arbitration clause is contained
in the Escrow Agreement between the parties. In response to the
contention that the Pledge Agreement is disputed by the company in
liquidation, the Courts in Austria held that the execution of the
Escrow Agreement is not in dispute and that, therefore, the
Arbitration Proceeding should be conducted under the Escrow
Agreement and that the arbitration clause contained therein is
sufficient to assume and exercise jurisdiction over the dispute
relating to the Pledge Agreement. This position was confirmed in
appeals up to the Supreme Court of Austria. Accordingly, the
company in liquidation, through its ex-director, commenced an
Arbitration Proceeding before the Vienna International Arbitration
Centre. After commencing Arbitration Proceedings, the company in
liquidation, through its ex-director, and a contributory filed Comp.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
A.Nos.77 to 79 of 2017 praying for the remedies specified supra.
Moreover, the company in liquidation failed to prosecute the
Arbitration Proceedings by remitting the requisite deposit/fees and,
therefore, the Arbitration Proceedings were terminated.
6.In these circumstances, the thrust of the submissions of the
learned counsel for Euram was that this Court does not have or
should decline to exercise jurisdiction and, therefore, hold that
Comp. A.Nos.77 to 79 of 2017 are not maintainable. In this regard,
the first contention of the learned counsel was that when the seat of
arbitration is specified as Vienna and when the governing law is
Austrian law, the jurisdiction of this Court is ousted. In support of
this submission, the learned counsel referred to the judgments,
which are set out below along with context and principle:
(i)Enercon (India) Ltd vs. Enercon GMBH [2014] 5 SCC
1, wherein, at paragraphs 137 and 138, the Hon'ble Supreme Court
held that “once the seat of arbitration has been fixed in India, it
would be in the nature of exclusive jurisdiction to exercise the
supervisory powers over the arbitration and the Courts in England
cannot exercise concurrent jurisdiction.”
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
(ii)Reliance Industries Limited and another vs. Union of
India [2014] 7 SCC 603, wherein, at paragraph 45, the Hon'ble
Supreme Court held that “the parties had consciously agreed that
the judicial seat of the arbitration would be London and that the
Arbitration Agreement will be governed by the laws of England, it
was no longer open to them to contend that the provisions of Part I
of the Arbitration Act would also be applicable to the arbitration
agreement.”
(iii)Union of India vs. Reliance Industries Limited and
others [2015] 10 SCC 213, wherein, at paragraph 18, the Hon'ble
Supreme Court held that “ Part I of the Arbitration Act, 1996 would
not apply where the juridical seat of arbitration is outside India or
the law governing the arbitration agreement is a law other than
Indian law.”
(iv)Indus Mobile Distribution (P) Ltd vs. Datawind
innovations (P) Ltd and others [2017] 7 SCC 678, wherein, at
paragraph 19, the Hon'ble Supreme Court held that “the moment
the seat is designated, it is akin to an exclusive jurisdiction clause.”
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
7.The second contention of the learned counsel for Euram was
that the principles of comity of courts requires that this Court refrain
from exercising jurisdiction. In support of this submission, the
learned counsel referred to and relied upon the judgments, which
are set out below along with the context and principle:
(i)World Sport Group (Mauritius) Ltd. vs. MSM
Satellite(Singapore) Pte. Ltd [2014] 2 ABR 349, wherein, at
paragraph 21, the Hon'ble Supreme Court held that “the Bombay
High Court was obliged to refer the parties to arbitration unless it
found that the agreement referred to in Section 45 of the Act was
null and void, inoperative or incapable of being performed.”
(ii)Surya Vadanan vs. State of Tamil Nadu and others
[2015] 5 SCC 450, wherein, at paragraph 50, the Hon'ble Supreme
Court held that “the principle of “comity of courts” should not be
jettisoned, except for special and compelling reasons. The Hon'ble
Supreme Court further held that if the principle of comity of courts is
accepted, we must give due respect even to such orders (interim
orders) passed by a foreign court.”
(iii)GOLDEN ENTRANCE SHIPPING SA vs. RMA WATANYA
SA AND TWO OTHERS [2016]EWHC 2110(Comm), wherein, at
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
paragraph 28, the High Court of England held that “it is the principle
of the common law that a litigant who has voluntarily submitted
himself to the jurisdiction of the Court by appearing before it cannot
afterwards dispute its jurisdiction.”
(iv)O.P.Verma vs. Lala Gehrilal and another, AIR 1962
Raj 231, wherein, at paragraph 27, the Division Bench of the
Rajasthan High Court held that a party having taken a chance of a
judgment in his favour by submitting to the jurisdiction of the Court
should not be allowed to turn round when the judgment goes
against him to say that the Court had no jurisdiction.
(v)Potluri Rajeswara Rao vs. Syndicate Bank [2000] ALD
508, wherein, at paragraph 11, the Andhra Pradesh High Court held
that mere submission is not sufficient but the relevant foreign court
should have jurisdiction from the point of view of private
international law.
8.The third contention of the learned counsel for Euram was
that Section 446(2) of the Companies Act,1956 (CA 1956) does not
have overriding effect over a subsequent statute. In specific, the
learned counsel pointed out that the non obstante clause in Section
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
446(2) would override statutes existing as of the date of enactment
of Section 446(2) but not subsequent statutes such as the
Arbitration and Conciliation Act,1996(the Arbitration Act). In this
connection, he referred to the judgment of the Hon'ble Supreme
Court in National Insurance Company Limited vs. Sinitha and
others[2012] 2 SCC 356, wherein, at paragraphs 13 to 16, the
Hon'ble Supreme Court held that the non-obstante clause in
Section 144 of the Motor Vehicles Act, 1988 would not override
Section 163-A thereof because Section 163-A was introduced
subsequently with effect from 14.11.1994.
9.The fourth contention of the learned counsel for Euram was
that the jurisdiction of the Court under CA 1956 is limited to the
territory of India and is not extra-territorial. In this regard, he also
referred to the judgment in MST JAGIR KAUR AND ANOTHER vs.
JASWANT SINGH, AIR 1963 SC 1521, wherein, the Hon'ble
Supreme Court held that Section 488(8) of the Cr.P.C, which uses
the words “resides and last resided”, would only apply to residents
within the territory of India because the Cr.P.C is territorial in
operation. By relying on the said judgment, the learned counsel
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
submitted that CA 1956 is also restricted in its operation to the
territory of India and cannot be applied extra-territorially. By
contrast, he submitted that the Information Technology Act, 2000,
the Foreign Exchange Management Act, 2000 and the Indian Penal
Code 1860 have been expressly extended beyond the territory of
India.
10.The fifth contention of the learned counsel for Euram was
that only the Provisional Liquidator or Official Liquidator can initiate
proceedings on behalf of the company in liquidation. In support of
this submission, he referred to and relied upon the judgments,
which are set out below along with the context and principle:
(i)M/s.Bakshi Chemicals (P) Ltd vs. Punjab National
Bank and others, 2016 SCC Online P & H 2846, wherein, at
paragraph 6, the High Court of Punjab and Haryana referred to the
fact that only the Official Liquidator has the power to prosecute the
proceedings on behalf of the company in liquidation once a winding
up order is passed.
(ii)Great Indian Motor Works Ltd. Vs. Employees and
another, [1960] 1 SCC 13, wherein, at paragraph 9, the Hon'ble
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Supreme Court held that it is only the Liquidator who is authorised
with the sanction of the Court to institute any suit or other legal
proceedings in the name and on behalf of the company in
liquidation.
(iii)Assistant Commissioner, Ernakulam. vs. Hindustan
Urban Infrastructure Limited and others, [2015] 3 SCC 745,
wherein, at paragraph 47, the Hon'ble Supreme Court held that the
powers conferred upon the liquidator under Section 457 of the
Companies Act,1956 can be exercised by him alone and he cannot
authorise any other person to exercise those powers.
11.The learned counsel also pointed out that the Securities and
Exchange Board of India (SEBI) had conducted an investigation and
concluded that Euram is not liable to be prosecuted and concluded
the proceedings as against Euram by merely warning Euram. He
further submitted that for all the above reasons, the Applications
filed by the company in liquidation, through its ex-directors, and the
contributory are not maintainable.
12.In response, Mr. Krishna Ravindran, the learned counsel for
Respondents 4 and 5, namely, Mr. Arun Panchariya and Pan Asia
Advisors Ltd.(now Global Finance and Capital Limited), in Comp. A.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Nos.489 to 491 of 2017 submitted that the Applicants in Comp.
A.Nos.77 to 79 of 2017 do not have the locus standi to maintain the
Applications and that the Applications constitute an abuse of
process. The learned counsel further submitted that in the suit and
arbitration in Austria, these Respondents were not parties.
Therefore, he submitted that the said persons are neither necessary
nor proper parties and should not have been joined as parties in
these Applications. He further submitted that the Applications are
premature because SEBI only recently initiated proceedings in
respect of the company in liquidation by issuing notices to all
concerned, including the ex-directors of the company in liquidation.
In this regard, he pointed out that the earlier proceedings of SEBI
did not relate to the company in liquidation whereas the present
proceedings do. For all these reasons, he concluded his submissions
by contending that there is no basis to entertain Comp. A.Nos.77 to
79 of 2017 under Section 446(2) of CA 1956.
13.Thereafter, submissions were advanced by Mr. Karthik
Seshadri, the learned counsel for Respondents 1 and 2 (i.e. the
Applicants in Comp. A.Nos.77 to 79 of 2017). He opened his
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
submissions by pointing out that the Pledge Agreement was not
disclosed to the ex-Directors of the company in liquidation and that
the company in liquidation became aware about the pledge only
when the pledge was invoked and the amounts that were earlier
credited in the account of the company in liquidation in Euram were
debited. In order to substantiate the submission, he referred to the
statement of account at Page No.204 of the typed set of papers filed
by the said Respondents ( as applicants in Comp. A. Nos.77 to 79 of
2017). The said statement of accounts reflects that a sum of USD
36,966,927.05 is available in the account of the company in
liquidation as of 08.11.2011. He, thereafter, referred to the
statement of account at Page No.222 of the same typed set of
papers, which shows that a sum of USD 32,360,849.93 was debited
by invoking the pledge. The learned counsel further submitted that
this amount of USD 32,360,849.93 is the money of the company in
liquidation and that Comp. A.Nos.77 to 79 of 2017 were filed in
order to ensure that the money is brought back into the account of
the company in liquidation.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
14.He, thereafter, referred to various provisions of CA 1956,
namely, Section 441 and 446(2) and pointed out that the debit was
made on 18.11.2011, i.e. after the commencement of winding-up as
per Section 441 of CA 1956. Consequently, he submitted that the
said debit is liable to be declared as void as per the provisions of the
CA 1956, including Section 531 thereof.
15.On the question of locus standi, he referred to the
judgment of the Hon'ble Supreme Court in Rishabh Agro
Industries Ltd vs. P.N.B. Capital Services Ltd, [2015] 5 SCC
515 (the Rishab Agro Industries case), wherein, at paragraph
10, the Hon'ble Supreme Court held that “despite appointment of
the Official Liquidator, the Board of Directors continue to hold all
residuary powers for the benefit of the company which includes the
power to take steps for its rehabilitation. The Board of Directors, in
the instant case, were not in any way by any judicial order debarred
from taking recourse to the provisions of the Act for the purpose of
rehabilitation of the Company.”
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
16.In response to a question as to why Mr.Arun Panchariya and
others were not made parties to the suit and Arbitration Proceedings
in Vienna, he submitted that the ex-Directors were not aware about
the complicity of the said persons in the transaction in question until
proceedings were initiated before this Court. On that basis, he
justified the fact that the said persons had not been impleaded
previously. In this regard, he also adverted to the averments in the
affidavit filed in support of Comp.A. 77 to 79 of 2017, wherein the
role played by each of the Respondents therein is set out.
17.His next contention was that this Court has extremely wide
jurisdiction under Section 446(2) of CA 1956 and that Comp.
A.No.79 of 2017 is clearly maintainable. In support of this
submission, he referred to and relied upon the judgments, which are
set out below along with context and principle:
(i)V.Radhakrishnan and 3 others vs. P.R.Ramakrishnan
and 10 others, 1994 – 1 – L.W. 163(the V.Radhakrishnan
case), wherein, at paragraph 34, the Division Bench of this Court
held that a creditor or contributory has the right to approach the
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Court and complain about the non-exercise of powers by the Official
Liquidator under Section 457 of CA 1956.
(ii)Sudarsan Chits (I) Ltd. vs. O.Sukumaran Pillai and
others, [1984] 4 SCC 657, wherein, at paragraphs 8 and 9, the
Hon'ble Supreme Court recognized the wide jurisdiction of the Court
under Section 446(2) and that the said power could be exercised at
any time after the appointment of the Official Liquidator as the
Provisional Liquidator.
(iii)Rajratna Naranbhai Mills Co. Ltd. vs. New Quality
Bobbin Works, [1973] 43 Comp Cas 131, wherein, at paragraph
16, the Gujarat High Court held that Section 446(2) conferred a
special jurisdiction on the Court and that it is necessary to place a
liberal construction on Section 446(2) so as to widen the jurisdiction
of the High Court in dealing with all questions arising in the course
of winding up.
(iv)Jetivia SA and another vs. Bilta (UK) Limited and
others, [2015] UKSC 23, wherein, at paragraphs 108 to 110, the
UK High Court held that Section 213 of the Insolvency Act has extra
-territorial application. Similar conclusions are contained in
Paragraph 213 to 215 of the said judgment.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
(v)Chatan Arvind Bhagat and others vs. M/s.Maxworth
Orchards (I) Ltd and others, in O.S.A.Nos.384 to 386 of 2007,
order dated 21.07.2009, wherein, at Paragraph Nos.13 and 14,
the Division Bench of this Court concurred with the view expressed
by the Gujarat High Court in Rajratna Naranbhai Mills Co. Ltd.,
vs. New Quality Bobbin Works(cited supra) and held that an
order of winding up under Section 447 operates in favour of all the
creditors and contributories of the company as if it had been made
on the joint petition of all the creditors and contributories. It was
further held therein that the object of winding up proceedings of a
company is to collect all the assets, properties and choses-in-action
belonging to a company under liquidation and to distribute them to
various persons as per the provisions of CA 1956.
18.By relying upon the above judgments, the learned counsel
for Respondents 1 and 2 concluded his submissions by pointing out
that Comp. A.No.79 of 2017 is maintainable under Section 446(2) of
CA 1956 and that, therefore, Comp. A.Nos.489 to 491 of 2017 are
liable to be dismissed. The other counsel for the Respondent
adopted the arguments of Mr. Karthik Seshadri.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
19.By way of rejoinder submissions, the learned counsel for
Euram explained as to why the company in liquidation offered a
pledge of amounts remitted in the account of the company in
liquidation in Euram as a security for the loan taken by Vintage. He
reiterated that Section 446 of CA 1956 does not override Section 45
of the Arbitration Act, which mandates that the dispute should be
referred to arbitration, if an arbitration clause is contained in the
agreement between the parties. He also pointed out that the view
taken by the Austrian Courts to the effect that the Escrow
Agreement is valid and that the Arbitration Proceedings should be
conducted under the Escrow Agreement should be respected as per
the comity of nations. He further submitted that the only relevant
consideration under Section 45 of the Arbitration Act is whether the
arbitration agreement is valid and whether the dispute is capable of
settlement by arbitration. In this regard, he submitted that there
are no averments in the affidavit in support of Comp. A.Nos.77 to 79
of 2017 to the effect that the arbitration agreement is void.
20.By relying upon the judgment of the Hon'ble Supreme Court
in National Thermal Power Corporation vs. The Singer
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Company and others, AIR 1993 SC 998, the learned counsel
submitted that where the governing law is Austrian law and the seat
of arbitration is in Vienna, only Austrian law applies.
21.His next submission was that while the winding up
proceedings are proceedings in rem, the relief requested in the
Applications filed by the ex-Directors is a relief in personam. In this
connection, he referred to and relied upon paragraph 23 of the
judgment of the Hon'ble Supreme Court in Booz Allen and
Hamilton Inc. vs. SBI Home Finance Ltd and others, AIR
2011 SC 2507. He also relied upon the judgment of the Hon'ble
Supreme Court in The Rajah of Vizianagaram vs. Official
Receiver, Vizianagaram, AIR 1962 SC 500, wherein, at
paragraph 13, the Hon'ble Supreme Court held that the courts of a
country dealing with the winding up of a company can ordinarily
deal with the assets within their jurisdiction and not with the assets
of the company outside their jurisdiction. He also relied upon the
judgment of the Delhi High Court in Morepen Finance Ltd. vs.
Reserve Bank of India, 2004 SCC Online Del 685, wherein, at
paragraph 24, the Delhi High Court held that the essence of
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fraudulent preference is the giving of an improper benefit to a few
creditors leading to inequality between them and the generality of
creditors. By relying upon the said judgment, he contended that the
creditors were not treated unequally in this case and, therefore,
there is no fraudulent preference.
22. In response to a question as to whether the transaction in
Austria is void under Section 536(2) of CA 1956, he submitted that
the enforcement of a pledge is not a disposition of property as per
Section 536(2) of CA 1956. In order to substantiate this
submission, he referred to and relied upon the judgment in Bank of
Maharashtra vs. Official Liquidator, Navjivan Trading Finance
Pvt. Ltd, (1999) 96 Comp. Cas 234(Guj)(the Bank of
Maharashtra case), wherein, at paragraph 20, the Division Bench
of the Gujarat High Court held that Section 536(2) of CA 1956 only
applies to a disposition of property made after the commencement
of winding-up and that the creation of the charge over the FDRs is
the disposition and not the subsequent action to enforce the said
charge.
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23.The records were examined and the oral and written
submissions of all the parties were considered carefully. In this case,
the Provisional Liquidator was appointed on 18.06.2014 and,
thereupon, as per Section 441 of the CA 1956, the winding up is
deemed to have commenced from the date of presentation of the
winding up petition, which is in July 2010. Keeping the above
material dates in mind, the relevant transactions should be
examined. The relevant transactions took place in the year 2010,
when the loan agreement, Escrow Agreement and Pledge Agreement
were executed on or about 26.02.2010. The enforcement of security
by debit happened, later, on or about 06.03.2012. Therefore, it is
clear that the creation of the security took place before the
commencement of winding-up but the security was called in or
enforced and the account of the company in liquidation was debited,
as a consequence, after the commencement of winding-up. In this
connection, it may be noted that the Pledge Agreement was
executed in Mumbai, India, and pertains to two assets, namely, the
Pledged Securities and the Pledged Time Deposit Account, with the
latter being relevant for the purposes of this case. In addition, there
is no doubt that powers under Section 446(2) of CA 1956 may be
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invoked at any time after the appointment of the Provisional
Liquidator as held by the Hon'ble Supreme Court in Sudarsan Chits
(I) Ltd. vs. O.Sukumaran Pillai and others, [1984] 4 SCC
657(cited supra).
24.The contentions of the learned counsel for Euram should be
examined in the above background. Even before considering the
jurisdictional challenge on the basis of the arbitration clause, the
challenge on the basis that CA 1956 does not have extra-territorial
operation may be considered. This contention was canvassed mainly
on the basis that Section 1(3) states that CA 1956 extends to the
whole of India. According to the learned counsel for Euram, this
implies that it does not apply extra-territorially. However, many
provisions of CA 1956, including but not limited to Sections 4, 50,
125(5), 125(6), 156, 157, on a plain reading, apply extra-
territorially. Consequently, it is clear that CA 1956 applies, where
appropriate, both to assets and persons situated outside India albeit
subject to the caveat that there would be an interplay between the
laws of that country and CA 1956 and each law may apply for a
different purpose. By way of illustration, this would be clear if the
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relevant clauses of Section 125 of CA 1956 are examined. Therefore,
this contention of the learned counsel for Euram is rejected. The
principal ground on which the learned counsel for Euram contends
that the jurisdiction of this Court is ousted or, in any event, should
not be exercised is on account of the existence of an arbitration
clause in the Escrow Agreement and Pledge Agreement between the
Bank and the company in liquidation. The ancillary ground is that
the governing law under both the Escrow Agreement and Pledge
Agreement is Austrian law and the seat of arbitration is in Vienna,
Austria and, therefore, this Court should direct the company in
liquidation and Euram to resolve their disputes through arbitration
as per the contractual mechanism in this regard. However, it is to
be noted that there are multiple parties in Comp. A.Nos.77 to 79 of
2017, namely, Respondents 3-8 therein, who are admittedly not
parties to the arbitration clause in the Escrow Agreement or the
Pledge Agreement and the direction for payment of money is
requested jointly and severally against Respondents 2-6 in
Comp.A.79 of 2017. Further, it is evident from the proceedings
initiated by SEBI that all these parties appear to be involved in the
transactions relating to the GDR issue, which is closely linked to this
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transaction. In recognition of such involvement, SEBI has issued
notices to all these persons, including the ex-Directors of the
company in liquidation, Euram and Respondents 4 and 5 in C.A. Nos.
489 to 491 of 2017 and the SEBI proceedings relating to the
company in liquidation are at a nascent stage. In these facts and
circumstances, it cannot be concluded, at this juncture, that the said
parties are neither necessary nor proper parties to these
Applications. If it cannot be concluded that these parties are not
necessary or proper parties and keeping in mind the fact that relief
is requested jointly and severally against Respondents 2-6, the
principles laid down in Sukanya Holdings Pvt. Ltd. vs. Jayesh H.
Pandya (2003) 5 SCC 531 and, in particular, in paragraphs 13-17
thereof, albeit in the context of an application under Section 8 of the
Arbitration Act, would apply and the dispute cannot be bifurcated
and referred to arbitration only as regards the company in
liquidation and Euram. Indeed, even in Chloro Controls India Pvt.
Ltd. vs. Severn Trent Water Purification Inc. (2013) 1 SCC
641, which arose out of an application under Section 45 of the
Arbitration Act, the Hon'ble Supreme Court held, in paragraph 99,
that the question as to whether the dispute can be referred to
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
arbitration would turn on the facts although, in that case, in light of
the fact that all the parties were claiming through or under
agreements that contained arbitration clauses, and only two parties
were not signatories thereto, the dispute was referred to arbitration.
By contrast, as stated above, in this case, except two parties, the
others are not parties to an arbitration agreement and it cannot be
said that the non-signatories claim through the signatories.
Therefore, in the facts and circumstances of this case,
notwithstanding the arbitration clause in the Escrow Agreement and
the Pledge Agreement, the dispute cannot be bifurcated and referred
to arbitration and all the judgments cited by the learned counsel for
Euram with regard to the arbitration clause and its implications are
distinguishable because of the existence of non-signatories, in this
case, who do not claim through the signatories.
25.This leads to the next contention as to whether this Court
should decline to exercise jurisdiction on account of the need to
maintain comity of nations. In this regard, it is relevant to note that
the arbitration proceedings in Vienna, Austria, were terminated and
legal proceedings are not pending in any court currently. In effect,
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
there are no legal proceedings in relation to the relevant
transactions except for the Applications before this Court. This is an
additional reason as to why this Court is not required to decline to
exercise jurisdiction on the ground of comity of nations and the
judgments cited in support of the principle of comity of nations are
distinguishable on the above basis and because no decision on the
merits of the dispute was pronounced by any other court or tribunal
either in arbitration or otherwise. Moreover, the learned counsel for
Euram also contended that the Official Liquidator is the only person
who is entitled to represent the company in liquidation in legal
proceedings, including arbitration proceedings. This contention is
tenable to the extent that the Official Liquidator is the person vested
with the responsibility of managing the assets and affairs of the
company in liquidation and, therefore, has the primary responsibility
but that does not mean that the ex-directors or other interested
persons cannot apply to the Companies Court to protect the interest
of the company in liquidation as held both in the Rishab Agro
Industries case, in the specific context of a company under
provisional liquidation, and the V.Radhakrishnan case (both cited
supra). Moreover, in this context, the question that arises for
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
consideration is whether the Official Liquidator should be compelled
to initiate or prosecute arbitration proceedings in Vienna, Austria
notwithstanding Section 446(2) of CA 1956. While on this issue, the
contention of the learned counsel for Euram that the non-obstante
clause in Section 446(2) of CA 1956 does not override Section 45 of
the Arbitration Act may be also dealt with. There is no doubt that, in
the event of incompatibility or conflict, the said non-obstante clause
would only override provisions in other statutes that had been
enacted previously and were on the statute book on the date of
entry into force of Section 446. Nevertheless, in this case, there is
no application under Section 45 of the Arbitration Act at present.
Besides, as discussed above, in view of the fact that there are
several non-signatories to the arbitration agreement, reference to
arbitration cannot be made in this case. Therefore, in effect, it is
immaterial that Section 446 of CA 1956 does not override Section
45 of the Arbitration Act. The Hon'ble Supreme Court in Sudarsan
Chits (I) Ltd case(cited supra) explained the object and purpose
of Section 446(2) of CA 1956 and, in particular, stated that it is
intended to enable the company in liquidation to consolidate claims
and proceedings in respect of the company in liquidation and
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
thereby ensure that the Official Liquidator is in a position to carry
out liquidation effectively and efficiently. Keeping this object and
purpose in mind, the distinction that the learned counsel for Euram
made between the winding-up proceeding being a proceeding in
rem, and this action- to recover the amounts that were in the bank
account of the company in liquidation in Euram-being a proceeding
in personam, may be technically valid but becomes immaterial given
its impact on the proceeding in rem. It is also true that the powers
of this Court under Section 446(2) of CA 1956 are extremely wide
and there is every reason to construe such powers liberally and
widely as held by the Gujarat High Court in Rajratna Naranbhai
Mills Co. Ltd. vs. New Quality Bobbin Works(cited supra). In
such circumstances, it would be totally inequitable and unnecessary
to direct the Official Liquidator to initiate arbitration proceedings in
Austria for this purpose and, in any event, as discussed above, many
of the respondents in Comp. A.Nos.77 to 79 of 2017 are not parties
to the arbitration agreement. Therefore, such arbitration
proceedings, if initiated, would not be effective and separate
proceedings would be required to be prosecuted before this Court
against non-parties to the arbitration agreement.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
26. It is also to be noted that the learned counsel for Euram
has not produced a single judgment to the effect that the Court
should decline to exercise jurisdiction under Section 446(2) of CA
1956 on account of the existence of an arbitration clause. In other
words, all the judgments relate to civil proceedings and not to the
exercise of special jurisdiction by the Companies Court.
27.Notwithstanding the above conclusions, needless to say, no
opinion is being expressed, at this juncture, with regard to the
validity of the claim made by the ex-Directors and contributory of
the company in liquidation in Comp. A.No.79 of 2017. The validity
and sustainability of the said claim would have to be independently
decided, when the said application is taken up for disposal. In such
proceedings, issues such as the validity of the security in favour of
Euram, whether the enforcement thereof is valid against the Official
Liquidator of the company in liquidation and other related issues
would need to be examined. Indeed, this exercise can only be
carried out effectively by this Court in a manner that balances the
interest of all stakeholders, including that of the company in
liquidation. The above constitutes another reason as to why it is just
and necessary that this Court exercises jurisdiction in this case.
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
Consequently, keeping in mind the wide powers and jurisdiction
under Section 446(2) of CA 1956 and in light of the foregoing
analysis, I have no hesitation in holding that Comp. A. No.79 of
2019 is maintainable. Consequently, Comp. A.No.491 of 2017 is
liable to be dismissed.
28.As stated at the outset, Comp. A.Nos.77 and 78 of 2017
have been rendered infructuous in view of the termination of the
arbitration proceedings in Austria. Therefore, the said Applications
are liable to be dismissed. Similarly, Comp. A.Nos.489 and 490 of
2017, which relate to the maintainable of Comp. A.Nos.77 and 78 of
2017 are also, consequently, infructuous and are, therefore, liable to
be dismissed.
29.In the result, Comp. A.Nos.77 and 78 of 2017 and,
consequently, Comp. A. Ns. 489 and 490 of 2017 are dismissed as
infructuous. In addition, Comp. A.No.491 of 2017 is also dismissed
for reasons discussed above. Therefore, Comp.A.No.79 of 2017 is
directed to be listed for disposal on 01.11.2019.
23.10.2019
Speaking/Non Speaking order
Index: Yes/No
Internet: Yes/No
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Comp.A.Nos.77 to 79 and 489 to 491 of 2017
SENTHILKUMAR RAMAMOORTHY, J.
rrg Pre Delivery order in Comp. A.Nos.77 and 78 and 489 to 491 of 2017 23.10.2019 http://www.judis.nic.in 32 of 32