Madras High Court
Urban Infrastructure Trustees Limited vs Ozone Propex Private Limited on 3 February, 2022
Author: Senthilkumar Ramamoorthy
Bench: Senthilkumar Ramamoorthy
Arb.O.P (Comm.Div.) No.281 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 03.02.2022
Coram:
THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P (Comm.Div.) No.281 of 2021
Urban Infrastructure Trustees Limited,
(Acting on behalf of Urban Infrastructure
Venture Capital Fund and its Scheme
Urban Infrastructure Opportunities Fund),
Represented by its authorized signatore,
46-47 Maker Chambers VI, Nariman Point,
Mumbai – 400 021. .. Petitioner
Vs.
1.Ozone Propex Private Limited
Previously at, 51/7-2, Ratna Avenue,
Off Richmond Road,
Civil Station, Bangalore – 560 025,
having its registered office at
No.38, Ulsoor Road, Bangalore – 560 042.
2.Ozone Projects Private Limited,
having its registered office at
New No.63, G.N.Chetty Road, T.Nagar,
Chennai – 600 017.
3.S.Vasudevan
4.C.P.Bothra
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Arb.O.P (Comm.Div.) No.281 of 2021
5.HDFC Ventures Trustee Company Limited
(Acting on behalf of HDFC Property Fund
Scheme HIREF) Ramon House,
HT Parekh Marg,
169 Backbay Reclamation Churchgate,
Mumbai – 400 020. .. Respondent
This Original Petition has been filed under Section 11(6) of the
Arbitration and Conciliation Act, 1996 praying to appoint a Sole Arbitrator to
hear and decide the arbitral dispute between the petitioner and the respondent.
For Petitioner : Mr.AR L.Sundaresan, Senior Counsel.
For R1 to R4 : Mr.Vinod Kumar
For R5 : Mr.Rajinth Shetty
For Mr.K.Ashok Kumar
ORDER
The petitioner seeks the constitution of an arbitral tribunal to adjudicate the disputes arising out of the Ozone Projects Shareholders Agreement dated 02.03.2006 (the SHA).
2. The aforementioned SHA was executed by and between an entity called Ozone Propex Private Limited, which is the 1st respondent herein, Ozone Page No.2/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 Project Private Limited, which is the Company under the SHA, four investors in the Company (the Investors) and two promoters (the Promoters) thereof. The SHA confers Rights of First Refusal (ROFR), Tag Along Rights and Drag Along Rights on investors in case other investors exit. Upon a decision by the 5th respondent to sell its shares in the Company, a dispute arose between the petitioner and the 5th respondent as to whether the petitioner is entitled to exercise Tag Along Rights under the SHA. The petitioner issued a Section 21 notice dated 24.12.2020 only to the 5th respondent although it was copied to one of the Promoters of the Company, namely, the 3 rd respondent herein. However, a subsequent Section 21 notice was issued on 21.09.2021 to all the respondents herein. By such notice, the petitioner called upon the respondents to consent to the appointment of the sole arbitrator proposed by the petitioner. The respondents refused to consent to the appointment of the sole arbitrator. The present petition is filed under these facts and circumstances.
3. Respondents 1 to 4 object to the constitution of an arbitral tribunal on the ground that the arbitration clause prescribes a procedure and mechanism for the constitution of the arbitral tribunal. In terms thereof, it is submitted that Page No.3/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 unless parties agree on a sole arbitrator, the SHA envisages the constitution of a three member arbitral tribunal. Therefore, it is submitted that the petitioner should have endeavoured to appoint a common arbitrator for the Investors and provided an opportunity to the Company, Ozone Propex and the Promoters to appoint the second arbitrator. Thus, the contention is that the present petition is liable to be rejected because it deviates from the procedure prescribed in the arbitration clause and, if allowed, would deprive respondents 1-4 of the benefit of a three member arbitral tribunal.
4. The 5th respondent also objects to the present petition. The first objection of the 5th respondent is that the petitioner is not a party to the SHA. Although the petitioner executed a Deed of Adherence dated 12.06.2006, it is submitted that such Deed of Adherence was executed only by and between one of the original Investors, namely, Dharti Investment and Holdings Limited, and the petitioner. The second objection of the 5th respondent is that the 5th respondent has concluded the sale of shares in favour of a third party to the SHA. Such third party has been joined as a respondent in the Section 9 application and interim relief has been prayed for against the third party. On Page No.4/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 such basis, it is submitted that the disputes should not be referred for arbitration.
5. In light of the rival contentions, the arbitration clause should be examined closely. Clause 12.7 is set out below:
“12.7 Arbitration Clause
(a)If the Dispute is not resolved through friendly consultations as provided in Clauses 13.1 to 13.4 above, the Dispute shall be referred to binding arbitration.
(b)The arbitration shall be conducted as follows:
(i)The Parties shall mutually appoint a sole arbitrator to resolve the aforesaid disputes or differences. If the Parties are unable to agree upon a sole arbitrator, two arbitrations shall be appointed, one jointly by Ozone Propex, the Promoters and the Company and the other jointly by the Investors. The said two arbitrators will in turn appoint a third arbitrator in accordance with the Arbitration and Conciliation Act, 1996.
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(ii)All proceedings in any such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be Chennai, India and shall be governed by the Arbitration and Conciliation Act, 1996.
(iii)The arbitrator(s) shall be free to award costs as they think appropriate.
(iv)The arbitration award shall be final and binding on the Parties, and the Parties agree to be bound thereby and to act accordingly.
(c)To the extent the Company is party to a Dispute, the Shareholders agree and confirm that the Company shall be entitled to take all actions as may be necessary to make and pursue such claim and the Affirmative Vote provisions of this Agreement shall not apply to that extent.”
6. Clause 12.7(b)(i) provides for the appointment of a sole arbitrator if agreed to mutually. The said clause further provides that if the parties are unable to agree upon the sole arbitrator, two arbitrators shall be appointed in the following manner: one arbitrator jointly by Ozone Propex, the Promoters Page No.6/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 and the Company; and the other jointly by the Investors. Thereafter, it envisages that the two arbitrators would appoint the third arbitrator.
7. From the facts on record it appears that the dispute in the present case is primarily between the petitioner and the 5th respondent. Both the petitioner and the 5th respondent are Investors under the SHA. Therefore, it is a dispute between two Investors. Clause 12.7 does not envisage a situation where there is dispute between the Investors. Therefore, it provides for the appointment of an arbitrator jointly by the Investors. In the current situation, the constitution of an arbitral tribunal in the manner specified in Clause 12.7(b)(i) is unworkable. However, the SHA discloses beyond doubt that the parties intended to resolve disputes through arbitration. Hence, the petition cannot be rejected merely because the procedure prescribed for the constitution of the arbitration tribunal is unworkable given the nature of the dispute.
8. The objections raised by the 5th respondent should also be dealt with. As indicated above, the first objection was that the petitioner is not a party to the SHA. The petitioner has executed a Deed of Adherence dated 12.06.2006. Page No.7/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 Clause 3 thereof provides that the transferee shall be entitled to all the rights of the transferring party under the agreement. Clause 4 provides that the terms and conditions of the agreement regarding arbitration and other terms and conditions shall be deemed to have been incorporated in the Deed. It is no doubt true that only one of the original Investors, Dharti Investment and Holdings Limited, and the petitioner executed this agreement. Therefore, one of the questions that could arise is whether the Deed of Adherence is binding on the non-signatories thereto. On this issue, the petitioner pointed out that notices were issued by the 5th respondent to the petitioner in terms of specific clauses of the SHA. Therefore, it is not open to the 5th respondent to contend that the petitioner is not a party to the SHA or that the petitioner cannot seek the constitution of an arbitral tribunal under the SHA. Prima facie, there is considerable merit in this contention.
9. The 5th respondent also contended that the 3rd respondent is a necessary party and that, therefore, the matter should not be referred for arbitration. Whether the 3rd respondent is a necessary party or not will turn on the nature of claims made by the petitioner before the arbitral tribunal. At this Page No.8/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 juncture, the claim statement has not been filed. Therefore, the petition cannot be rejected on this ground.
10. For reasons set out above, the petitioner has established a case for the constitution of an arbitral tribunal. Accordingly, Mr. Justice K.Kannan, retired judge of the Punjab and Haryana High Court, New No.22, Gilchrist Avenue, Opp. Harrington Road, Chetpet, Chennai – 600 032(Mobile No.97800 08145) is appointed as the Sole Arbitrator. The Sole Arbitrator is directed to enter upon reference and adjudicate the dispute in accordance with law. It is open to the Sole Arbitrator to fix his fees and expenses in relation to the arbitral proceedings. It is open to the parties to raise all claims, contentions and objections, including objections with regard to arbitrability, before the Arbitral Tribunal.
03.02.2022 (1/2) Internet: Yes/No Index: Yes/No smv Page No.9/10 https://www.mhc.tn.gov.in/judis Arb.O.P (Comm.Div.) No.281 of 2021 SENTHILKUMAR RAMAMOORTHY, J.
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