Delhi High Court - Orders
Smt. Uma Baweja vs M/S. Sirdanval Overseas on 10 April, 2023
Author: Yashwant Varma
Bench: Yashwant Varma
$~8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 11/2019
SMT. UMA BAWEJA ..... Plaintiff
Through: Mr. Manish Kumar, Adv.
versus
M/S. SIRDANVAL OVERSEAS ..... Defendant
Through: Mr. Ajay Khanna, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
ORDER
% 10.04.2023 I.A. 11136/2019 (U.O. VII R. 10 r/w S. 151 CPC)
1. This application has been moved for the instant suit being returned since it raises a commercial dispute. The dispute emanates from an agreement executed between the parties in terms of which the plaintiff is stated to have made an investment of Rs.15 lakhs in the company of the respondent. It is in the aforesaid backdrop that learned counsel for the applicant contends that the dispute would clearly fall within the ambit of Section 2(c) (ii) and (xi) of the Commercial Courts Act, 2015 [the 2015 Act].
2. It becomes pertinent to note that Section 2(c)(ii) of the 2015 Act relates to disputes that may arise in relation to export or import of merchandise or services. Merely because the defendant is engaged in the export of merchandise, it would not place the dispute which stems from the agreement aforenoted within the ambit of Section 2(c)(ii).
3. Insofar as the submission of the applicant that the investment amounts to the creation of a joint venture is concerned, the same is noticed only to be rejected for the following reasons.
4. The concept of a joint venture has been duly explained by the Court in a recent decision rendered in ITD Cementation India Limited v. SSJV-ZVS Joint Venture and Others, [2023 SCC Signature Not Verified Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 Online Del 1391] where it was held has follows:-
"6. Dr. George while explaining the concept of a joint venture firstly relied upon a judgment rendered by the Division Bench of the Gujarat High Court in Asia Foundations & Constructions Ltd., Bombay v. State of Gujarat1. While rendered in the context of a tendering process that was assailed, the said High Court described the essential attributes of a joint venture in the following terms: -
"47. The different forms "A" to "G" which have been referred to in the facts narrated hereinabove containing requisite particulars to be furnished by the applicants seeking prequalification, inter alia, relate to joint venture also. The particulars which are to be furnished in form "C"
relating to joint venture consist of (1) name and address of joint venture; (2) name and address of all the partners of joint, venture; (3) the responsibility of the firm leading the joint venture and the responsibility of the other joint venture partners; (4) the name of bankers and (5) the financial participation of each firm in the joint venture. Thus, it is clear that in case of a group of firms, the applicant-has to give, more particulars which have been set out above, namely, which firm will be responsible for applying for and submission of tender and for completion of the contract document, and also the responsibility of the lead firm as well as other member-firms is to be clearly stated. The effect of the conjoint reading of the Memorandum of instructions and information as well as the forms in which the particulars were to be furnished clearly indicates that the authorities had visualized and envisaged the group of firms as well as the joint venture consortia as different entities which could seek pre- qualification. It appears from the particulars which are required to be furnished in form "C" that the authorities envisaged that there may be cases of joint venture consortia where one of the partner-firms may have a leading role to play, and the responsibility of their joint venture partners may not be so leading and important. It is in respect of such cases that the particulars are to be furnished about the responsibility of the firm leading the joint venture, and the responsibility of the other partners thereof. The legal concept of the joint venture is very well recognised, and we do not think that the authorities in these High Powered Committees can be oblivious of this recognised legal concept. If they are, they have completely misdirected themselves. The common law did not recognise the relationship of co-adventures but with the passage of time, the judicial decisions recognised what is known as „joint adventure‟ of two or more persons undertaking to combine, their property or labour in Signature Not Verified 1 1985 SCC OnLine Guj 93 Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 conduct of particular line of trade or a general business for joint profits. The Courts do not treat a joint adventure as identical with a partnership though it is so similar in nature, and in the contractual relationship created by such adventurers that the rights as between them are governed practically by the same rules that govern the partnership. This relationship has been defined to be a special combination of persons undertaking jointly some specific adventure for profit without any actual partnership. It is also described as a commercial or a maritime enterprise undertaking by several persons jointly; a limited partnership not limited in the statutory sense as to the liabilities of partners but as to its scope and duration. Generally speaking the distinction between a joint adventure and a partnership is that former relates to a single transaction „though it may comprehend a business to be continued over several years‟ while the later relates to a joint business of a particular kind (see: 48 American Law Reports at p. 1055 under the caption "what amounts to a joint adventure" at pages 1056-57 and 1060). It is generally agreed that in order to constitute a joint venture, there must be community of interest and right to joint control. It is recognised on authority that each of the parties must have an equal voice in the matter of its performance and control over the agencies used therein, though one authority may entrust the performance, to another. There, is also an authority to the effect that a joint venture may exist although the parties have unequal control of operations. The rights, duties and liabilities of joint venturers are similar or analogous to those which govern the corresponding rights, duties and liabilities of the partners. As in the case of partners, joint venturers may be jointly and severally liable to third parties for the debts of the venture (see: American Jurisprudence, Second Edition, Vol. 46, para 12 at pages 33-34 and para 57 to p.
76). Joint Venture groups are internationally recognised in form of cooperation in the joint fulfilment of the construction contract obligations. Joint venture groups in the construction, industry come about through agreements for combination of legally independent contractors for the joint rendering of construction services limited in both time and content. Typically they are restricted to a single project in which case the members of the group act jointly at both the tendering and award stages. Joint venture groups are generally unincorporated associations. The legal systems in general have not kept pace with the growing economic means of joint venture groups and there is no special legal form for this type of co-operation which has come to stay in construction industry. However, in Australia and Germany, joint venture groups as also unincorporated civil law partnerships are subjected to law Signature Not Verified of partnership. In United States also the law of partnership Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 is applied to joint venture consortia. It is only in France that a special legal form has been created in this behalf. The joint venture groups have got, inter alia, the characteristics of joint organisation, joint action through co-operation of all members of all individual persons acting on the instructions of the members, and joint liability for rendition of services to third parties, and the relation between the partners inter se to be governed according to the joint venture group agreements. The economic importance of joint venture consortia on the one hand, and absence of specific legal provisions on the other has raised a host of problems of interpretation in individual cases since a wide variety of model contracts and pre-printed contract forms are adopted to suit the needs and convenience of a particular construction project. These problems have direct effect on the partners inter se and indirect effect on the third parties, such as customers. If several construction enterprises tender jointly and have been jointly awarded the construction contract, they are obliged to perform the contract jointly as joint venture group. One of the difficult problems which is likely to arise when a construction contract is about to be entered into since the customer when concluding the contract with a joint venture is dealing with all the members of the group, who are jointly committed to rendering the services. The contract has, therefore, to be concluded by an authorised representative of all the members of such a group en-bloc for the simple reason that joint venture groups are unincorporated associations. The services to be rendered by the group are to be allocated amongst the members of the same by internal agreement, and consequently the rights and duties of the members inter se are also regulated by the group agreement. These internal agreements are not effective vis-a-vis the third parties, and they operate amongst the members inter se. Thus, all the members are jointly and severally liable for performance of the construction work jointly undertaken irrespective of internal division of the work. If one member of the joint venture group does not fulfil his commitments, the others are under joint and several obligation to carry out such obligations vis-a-vis the customer. Such a situation may arise when a member of a joint venture group drops out prematurely because of the liquidation or insolvency. When a contract is concluded with a joint venture group all members are made jointly and severally liable even if only one is capable of rendering the service in question. The joint and several liabilities of the members of a joint venture group may cover the marginal areas of the contract performance such as late performance, faults, deficiency of goods and services etc. It is, therefore, very necessary while entering into such contracts with joint Signature Not Verified venture group that the construction contracts are carefully Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 drafted, and the members of such group must also enter into detailed agreements amongst themselves, (see: Article on Joint Venture Groups -- Effects of construction Contract: Dr. Manfred Straube, Professor of Commercial Law, Technical University, Vienna in "International Business Lawyer", March 1985, a monthly published by a Section of Business Law of International Bar Association, London)
48. In India, a person can become a partner with another person in a particular adventure or undertaking (see: S. 8 of the Partnership Act, 1932). This is described as a particular partnership also since it is confined to a particular adventure or undertaking, or it may be one limited even to a particular advantage or undertaking or an isolated transaction in course of trade or business. However, the three elements of partnership, namely, agreement, business and mutual agency must exist as a matter of course. The only difference between such partnership in nature of joint venture and an ordinary partnership is that in joint venture partners incur no responsibility beyond the limits of the particular adventure or business or undertaking and the rights and obligations are, therefore, less extensive than those of partners in ordinary partnership (See: Karmali v. Karimji, 39 ILR Bom 261 : (AIR 1914 PC 132))."
7. The views as expressed in Asia Foundations were reiterated again by the Gujarat High Court in Continental Construction Ltd. and Ors. v. State of Gujarat & Anr.2 as would be evident from the following observations as appearing in paragraph 14 of the report:-
"14. It should not be lost sight of that internal agreements between the members of a joint venture group are not generally effective vis-a-vis the third parties, and they merely constitute the basis for mutual services and entitlements within the joint venture group. The members of joint venture are jointly and severally liable for performance of the construction work jointly undertaken irrespective of the internal division of work. If a member of a joint venture group does not fulfil his commitments, the other members thereof are under obligation to provide the missing services to the customer. If the customer enters into a contract with a joint venture group, it increases the liability of the members of the joint venture for due performance of the construction work. As noted above, when a contract is concluded with a joint venture group, all members are made jointly and severally liable, even if only one is capable of rendering the services 2 1986 SCC OnLine Guj 16 Signature Not Verified Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 in question. The justification for such liability is the possibility of bringing pressure to bear on a member of the group in order to induce him to render his share of the services or, if necessary, to arrange for a substitute. Of course, members of a joint venture group who do not fulfil their commitments remain liable to co-share to indemnify their co-venturers (see : Articles on Join Venture Groups (supra)). The joint and several liability of co-venturers is not only for the execution of the works but also in respect of any claims for damages by the customer and in respect of all joint financial commitments to suppliers, planners and architects and also in respect of fees, dues, penalties or other payments to public authorities. In any case the internal agreements regarding liability have no force vis-a-
vis third parties."
8. Dr. George also drew the attention of the Court to the decision of the Supreme Court in New Horizons Ltd. v. Union of India3. which explained the concept of a joint venture in the following terms:-
"24. The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. (Black's Law Dictionary, 6th Edn., p. 839) According to Words and Phrases, Permanent Edn., a joint venture is an association of two or more persons to carry out a single business enterprise for profit (p. 117, Vol. 23). A joint venture can take the form of a corporation wherein two or more persons or companies may join together. A joint venture corporation has been defined as a corporation which has joined with other individuals or corporations within the corporate framework in some specific undertaking commonly found in oil, chemicals, electronic, atomic fields. (Black's Law Dictionary, 6th Edn., p. 342) Joint venture companies are now being increasingly formed in relation to projects requiring inflow of foreign capital or technical expertise in the fast developing countries in East Asia, viz., Japan, South Korea, Taiwan, China, etc. [See Jacques Buhart : Joint Ventures in East Asia -- Legal Issues (1991).] There has been similar growth of joint ventures in our country wherein foreign companies join with Indian counterparts and contribute towards capital and technical know-how for the success of the venture. The High Court has taken note of 3 (1995) 1 SCC 478 Signature Not Verified Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 this connotation of the expression "joint venture". But the High Court has held that NHL is not a joint venture and that there is only a certain amount of equity participation by a foreign company in it. We are unable to agree with the said view of the High Court.
25. As noticed earlier, in its tender NHL had stated that it is a joint venture company established by TPI, LMI and WML and IIPL wherein TPI, LMI and WML and other companies in the same group as well as Mr Aroon Purie own 60% shares and IIPL owns 40% shares. It was also stated that the joint venture has received approval of the Government of India and is currently in operation and that the promoter will increase their capital/contribution to commensurate with the project need and that the company has been established as an information and database management company with expertise in database processing, publishing, sales/marketing and the dissemination of related information. In the tender it is also stated that as a joint venture in the true sense of the phrase, the company will have access to expertise in database management, sales and publishing of its parent group companies. It would thus appear that the Indian group of companies (TPI, LMI and WML) and the Singapore-based company (IIPL) have pooled together their resources in the sense that TPI, LMI and WML have made available their equipment and organisation at various places in the country while IIPL has made available its wide experience in the field as well as the expertise of its managerial staff. All the constituents of NHL have thus contributed to the resources of the Company (NHL). This shows that NHL is an association of companies jointly undertaking a commercial enterprise wherein they will all contribute assets and will share risks and have a community of interest. We are, therefore, of the view that NHL has been constituted as a joint venture by the group of Indian companies and IIPL, the Singapore-based company and it would not be correct to say that IIPL which has a substantial stake in the success of the venture, having 40% of shareholding, is a mere shareholder in NHL.
26. Once it is held that NHL is a joint venture, as claimed by it in the tender, the experience of its various constituents namely, TPI, LMI and WML as well as IIPL had to be taken into consideration if the Tender Evaluation Committee had adopted the approach of a prudent businessman."
13. As would be manifest from the aforesaid principles which stand enunciated, a joint venture may be recognized as a quasi partnership where two or more entities jointly undertake a particular transaction or contract for mutual profit. It essentially Signature Not Verified represents a concept where two or more persons jointly take on the Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21 obligation to implement a contract or undertake an enterprise for gain and profit. While not strictly understood in law to be a legal person, a joint venture by virtue of entering into a contract binds itself to the various obligations that stands placed thereunder and to exercise all rights conferred therein. It could also be a consortium where either two or more persons or companies come together to discharge obligations."
5. A mere investment or infusion of equity in a corporate entity would not result in the creation of a joint venture.
6. The prayers as made are consequently refused. The application shall stand dismissed.
CS(OS) 11/2019
7. Let the matter be placed before the concerned Joint Registrar on 10.07.2023 for taking further steps on suit.
YASHWANT VARMA, J.
APRIL 10, 2023/bh Signature Not Verified Digitally Signed By:NEHA Signing Date:12.04.2023 17:49:21