Calcutta High Court
Rishima Sa Investments Llc vs Shristi Infrastructure Development ... on 11 October, 2018
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
1
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
ORIGINAL JURISDICTION
ORIGINAL SIDE
A.P. No. 682 of 2018
Rishima SA Investments LLC
VS
Shristi Infrastructure Development Corporation Limited & Anr.
BEFORE:
The Hon'ble JUSTICE ASHIS KUMAR CHAKRABORTY
Dated : 11.10.2018
Mr. Jayanta Kumar Mitra, Adv.
Mr. Sanjay Ginodia, Adv.
Ms. Ansuka Misra, Adv.
Ms. Pubali Sina Chaudhury, Adv.
....for the petitioner
Mr. Ratnanko Banerji, Sr. Adv.
Mr. Utsav Mukherjee, Adv.
Mr. Shivam Pandey, Adv.
....for the respondent
The petitioner, in this application under Section 9 of the Arbitration and Conciliation Act, 1996, as amended by Act No. 3 of 2016 (in short "the Act of 1996") is a company duly incorporated under the appropriate laws of Mauritius, having its registered office at Mauritius. The petitioner currently holds 35 per cent of 1 2 the paid up share capital of the respondent no. 2, on a fully diluted basis.
The respondent no. 1 is a company, incorporated under the Companies Act, 1956 and being within the meaning of the Companies Act,2013 and currently holds 65 per cent of the paid up share capital of the respondent no. 2, on a fully diluted basis.
The respondent no. 2 is also a company incorporated under the Companies Act, 1956 and being within the meaning of the Companies Act, 2013. The respondent no.2 is engaged in the business of setting up and operating a hotel, The Westin, Kolkata. The respondent nos.1 and 2 are part of the SREI Group of companies and have their respective registered offices at the same address in Kolkata.
On August 07, 2008 the petitioner had entered into an agreement dated August 07, 2008 (hereinafter referred to as the "shareholder's agreement") with the respondent nos. 1 and 2 and a company known as Shristi Hotel Pvt. Ltd.(hereinafter referred to as "the company"). By an addendum dated August 31, 2008 the said shareholder's agreement was amended to certain extend. Under the shareholder's agreement, wherein the petitioner is described as the 'investor', the respondent no. 1 is described as the 'promoter', the respondent no. 2 is described as the 'promoter 1' and the said Shristi Hotel Pvt. Ltd. is described as the 'company', respectively the petitioner invested INR 80, 00,00,000 2 3 (Rupees Eighty Crore) in the company as capital infusion for the purposes of construction and development of a five star hotel by the company at Rajarhat, Kolkata. The name of the Company was Shristi Hotel Pvt. Ltd. As per the said share purchase agreement the petitioner obtained allotment of 31,965,000 of Class-A Equity Shares and 35000 Class-C Equity Shares of the company, which were locked in for a period of two years from the First Tranche Completion Debt ("Investor Locked-in period") and the petitioner as the investor was not entitled to transfer its share or any other investor securities during the said investor locked-in period without the express written consent of the respondent no. 1 promoter. However, after the expiry of the said investor lock-in period, the petitioner was entitled to sell any of the shares held by it in the said company to any third party after first offering such shares for sale to the respondent no. 1 promoter and upon receipt of the said sale notice the respondent no. 1 promoter shall have the right to make a written offer to the petitioner setting out the price at which it intends to purchase the said shares. Further, one of the purposes of the shareholder's agreement was to implement the project of construction of the hotel at Rajarhat, Kolkata within a fixed budgeted project cost of INR 375 crore and any excess cost in that regard was to be incurred by the present respondents as the promoters by an unsecured, subordinate loan. The shareholder's agreement has been 3 4 incorporated in the articles of the company. Under clause 6.2 (a) of the said shareholder's agreement, the petitioner is entitled to nominate two Directors to the Board of the Company and not less than a minimum ten (10) days' prior written notice is required to be given to each Director of any Board Meeting which could be accompanied by the agenda. The quorum for a Board Meeting of the Company under the said shareholder's agreement, inter alia, requires presence of at least one Director nominated by the petitioner. So far as the convening of a General Meeting of the shareholders of the said Company, the same must be held only after issuance of at least 21 days' notice, accompanied by the agenda setting out all particulars of the business proposed to be transacted at such General Meeting. Under the said shareholder's agreement, the quorum for a General Meeting of the Company, inter alia, requires presence of at least one representative or proxy of the petitioner and no action can be taken by the Company at any General Meeting or at any Board Meeting or by resolution by circulation, with respect to any matters set out in Schedule 3, which is hereinafter referred to as "Affirmative Vote Items", without the affirmative vote of at least one of the Directors nominated by the petitioner. The 36 Affirmative Vote Items listed Schedule 3, inter alia, include: (a) Altering the Charter Documents, (b) Appointment and changing internal or external auditors of the Company, (c) Adopting or approving the annual 4 5 accounts of the Company, (d) Creating any Encumbrance upon in respect of whole or part of the Business or the assets of the Company, and (e) Entering into any debt/financing transactions, any amendment, modifications or termination thereof including key terms of the loan agreements.
Clause 24.1 of the shareholder's agreement contemplates all disputes arisen between the parties relating to the said agreement shall be first sought to be resolved amicably, failing which the same shall be referred to and finally resolved by arbitration under the aegis of the Rules of Arbitration, 2012 of the International Chamber of Commerce. The seat, or legal place of arbitration shall be in Singapore and any award shall be treated as an award made at the seat of arbitration. During pendency of the arbitration proceeding the parties are required to continue to perform their respective obligations under the said shareholder's agreement. In this regard, it may be noted that the parties agreed that the provisions of part I of the Act of 1996 (save and except for the provisions of Section 9 thereof and any appeal made specifically in relation to Section 9 under Section 37 thereof) shall not apply to the arbitral proceeding between the parties. In other words, the parties agreed that sections 9 and 37 of the Act of 1996 would be applicable to the arbitral proceeding, if any between the parties.
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Disputes having arisen between the parties pertaining to the petitioner's right under the said shareholder's agreement, on February 11, 2016 the petitioner commenced arbitration against the respondents under the aegis of the Rules of Arbitration, 2012 of the International Chamber of Commerce, which is styled as ICC, case no. 21674/CYK/PTA (hereinafter referred to as "the Arbitration"). The Arbitral Tribunal in the Arbitration comprises Lord Collins of Mapesbury, Mr. Harish Salve, Sr. Advocate and Mr. Nigel Pleming, Queen's Counsel (hereinafter referred to as "Arbitral Tribunal"). The petitioner has made a substantial claim of INR. 472 Crore against the respondent no. 1 in the arbitration. As stated by the petitioner, the disputes referred to the the learned Arbitral Tribunal, inter alia, comprises the following issues:
i) breaches pertaining to the accounts of the said company,
ii) approval of the appointment/reappointment of auditors,
iii) improperly calling for/conducting Board and General Meetings of the said company,
iv) failing to reverse expenses falsely charged by the respondent no. 1 to the books of the said company,
v) unilaterally, increasing the budget for the project (without adequate authority) and 6 7
vi) improperly drawing down loans/ modifying the same.
The petitioner claims to have made a substantial claim of INR 472 crore against the respondent no.1 The respondents are contesting the arbitral proceeding before the Arbitral Tribunal in Singapore.
During pendency of the arbitration, by two separate letters dated March 23, 2017, the respondents sought to terminate the said shareholder's agreement. The petitioner challenged the said purported termination of the said shareholder's agreement before the Arbitral Tribunal in Singapore. On July 03, 2017, the Arbitral Tribunal made an order directing the respondents, by their officers and agents to take necessary steps to preserve all the company's books and accounting records and that the respondents shall not take any action on their purported termination of the said shareholder's agreement. By the said order, the Arbitral Tribunal further directed that the parties to the arbitration proceeding shall refrain from taking any action which could aggravate the disputes or impair the ability of the Tribunal to address any issue or any party to present its case. Thereafter, the respondent no. 1 filed an application being Company Petition No. 149 of 2017, under Sections 241, 242 and 243 of the Companies Act of 2013 before the National Company Law Tribunal, Kolkata Bench (hereinafter referred to as "the NCLT") alleging oppression and mismanagement of the affairs of the company by the petitioner. 7 8 According to the petitioner, the said application was a parallel proceeding initiated by the respondent no.1 relating to the same issues pending adjudication before the Arbitral Tribunal in Singapore. The petitioner approached the Arbitral Tribunal and obtained an interim order dated April 25, 2017 directing the respondents not to take further step in the NCLT proceeding until disposition of the petitioner's application or until order of the Singapore Court. The petitioner also approached the Singapore Court and obtained an order dated April 27, 2017. Subsequently, it was the application filed by the petitioner before the NCLT under Section 45 of the Act 1996 which was allowed by the order dated November 23, 2017 and the disputes raised in the said application have been referred to arbitration before the Arbitral Tribunal. The petitioner has further alleged that the respondent no.1 did not disclose the fact that its Board of Directors had already approved a scheme of amalgamation and demerger, with effect from the Appointed Date of January 1, 2017, proposing to hive off its shareholding, obligations and liabilities in relation to the said company to another company wholly owned by itself and the respondent no.1 submitted the said scheme before the NCLT for its sanction. According to the petitioner, the respondent no.1 has prepared the said scheme of demerger, inter alia, to divest its shareholding in the Company and to assign all its obligations and liabilities, including those arising from the arbitration, in 8 9 relation to the company to one of its subsidiary which does not appear to have any businesses. This amounted to initiation of commencement of parallel proceeding before the NCLT, placing for adjudication of the very same issues in arbitration. According to the petitioner, since the respondent no. 1 had mala fide moved the said application before the NCLT for sanctioning of its said claim of demerger, it approached the Arbitral Tribunal for an appropriate relief under the Singapore Law, that is, the Law of the seat of arbitration, to prevent perpetuation of further breaches of the said shareholder's agreement and the said order dated July 3, 2017. The petitioner sought for a direction from the Arbitral Tribunal to restrain the respondent no. 1 from pursuing the said scheme, in so far as it relates to / otherwise affects the interest and liability of the respondent no. 1 in the said Company. By an order dated June 8, 2018, the Arbitral Tribunal ruled that the institution and continuance of the scheme of arrangement by the respondent nos. 1 and 2 is an action which would aggravate the dispute or impair their ability to make an effective award. After passing the said order dated June 8, 2018 the Arbitral Tribunal concluded the hearing in the arbitration proceeding and it is expected to render the award in the arbitration by the end of 2018. Meanwhile, in March 2018, the petitioner filed an application before the NCLT to intervene and file objection to the said scheme application filed by the 9 10 respondent no. 1. By an order dated July 31, 2018, the NCLT allowed the petitioner to intervene and file objection to the said scheme, holding, inter alia, that non-inclusion of the petitioner as a contingent creditor in the application of the respondent no. 1 herein in its financial statement "seems to be unfair" given the nature of the of the claim of the petitioner in the arbitration. Accordingly, the petitioner is contesting the said scheme application filed by the respondents herein before the NCLT.
The grievance of the petitioner in this application is against the conduct of the respondent no. 1 in holding Board Meetings of the Company held on May 21, 2018, June 18, 2018 as well as the Annual General Meeting of the said Company held on August 10, 2018. The petitioner claims each of the said meetings dated May 21, 2018, June 18, 2018, and August 10, 2018 of the Company has been held as well as the resolutions passed therein are ultra vires of the terms of the said shareholder's agreement which also forms the articles of the Company.
It is the case of the petitioner that on May 14, 2018, one of its two nominee directors, Prakash Kalothia received a purported notice from the Company calling for the Board Meeting proposed to be held on May 21, 2018, along with proposed agenda and draft resolutions proposed to be passed at the proposed Board Meeting. Since the said notice was not keeping with the shareholder's agreement and the articles of the Company and the said Prakash 10 11 Kalothia was scheduled to travel out of India from May 18, 2018 to May 26, 2018, he promptly sent an email to the Company requesting that the proposed Board Meeting be rescheduled to a convenient date after May 26, 2018 but in the said email, the said Mr. Prakash Kalothia pointed out to the Company that despite several requests, the latter had failed to appoint Mangesh Vamsi Gali, who has been nominate by the petitioner to be one of its nominee directors but his appointment to the Board was not on the proposed agenda of the proposed meeting of the Company to be held on May 21, 2018. However, by an email dated May 16, 2018, composed to the said Prakash Kalothia, the Company expressed its inability to reschedule the said Company proposed to be held on May 21, 2018. In response by an email dated May 17, 2018, the said Prakash Kalothia suggested the Company should appoint Mangesh Vamsi Gali as a Director of the Board. As per the petitioner's letter dated February 27, 2018, by way of a resolution by circulation prior to May 21, 2018, so that Mangesh Vamsi Gali could attend the Board Meeting and the quorum could be met. The Company, however, without complying that the request made by the said Prakash Kalothia and despite lack of affirmative consent from the petitioner, held an inquorate Board Meeting on May 21, 2018 and purportedly approved the annual financial statements of the Company for the financial year 2017-18. Thus, according to the petitioner, the purported approval of the annual financial statement for the financial year 11 12 2017-18 of the Company was invalid and void. Even the reappointment of M/S RSBC & Co (formerly known as SS Kothari & Co) as the statutory auditors of the Company at the purported meeting held on May 21, 2018 was invalid and illegal. It is further alleged that from the recent filings made by the Company that the Ministry of Corporate Company Affairs, it has come to learn that the Company has also purportedly conducted a Board Meeting on June 28, 2018, without any notice being issued to the petitioner's nominee director, Prakash Kalothia and, as such, the latter could not attend the said purported Board Meeting. According to the petitioner, it has now come to know that in the said purported Board Meeting held on May 21, 2018, the Company passed illegal Board resolution including one that since that said Prakash Kalothia absented himself from all meetings of the Board of Directors of the Company held during a period of 12 months beginning from April 1, 2014 to March 21, 2015, without seeking leave of absence of the Board. In view of the provisions of Section 167 (1) (b) of the Companies Act, 2013, the said Prakash Kalothia vacated the office as a Director of the Company with effect from May 21, 2018.
It is the further case of the petitioner that in contravention of the shareholder's agreement and articles, in the absence of the nominee directors of the petitioner and the requisite quorum, the respondent no. 1 has caused a resolution of the Company being 12 13 passed, with regard to an affirmative vote items, adopting the Company's audited annual financial statement as at March 31, 2018 and re-appointed the same auditor, M/S RBSC & Co (formerly known as SS Kothari & Co) as the statutory auditor in place of Deloitte Haskins & Sells, when the illegal appointment of SS Kothari & Co as the Company's statutory auditor in place of Deloitte Haskins & Sells is an issue in the ongoing arbitration between the parties. According to the petitioner, the special resolution passed by the Board of the Company at the instance of the respondent no. 1 approving an increase in the Company's borrowing limit from Rs. 233 crore to Rs. 1,000 crore at the said inquorate Annual General Meeting held on August 10, 2018 is also invalid and void and ultra vires of the shareholder's agreement and articles. The purported resolution to change the name of the Company from Shristi Hotel Pvt. Ltd. to Sarga Hotels Pvt. Ltd. and consequential changes to the Chartered Documents is also ultra vires of the shareholders' agreement and the articles. All the acts of the respondents in holding the said meetings dated May 21, 2018, June 21, 2018, August 10, 2018 and the purported resolutions passed therein are in blatant violation of the Arbitral Tribunal's binding directions including the said order dated July 03, 2017. Based on the aforementioned allegations the petitioner has filed this application under Section 9 of the Act of 1996 before this Court praying for, inter alia, an order of injunction restraining the 13 14 respondents from giving any effect to the resolution passed in the said Board Meetings of the Company held on May 21, 2018, June 18, 2018 and the AGM held on August 10, 2018. The petitioner has also prayed for an interim order restraining the respondents from taking any action in contravention of the shareholders' agreement in respect of any affirmative vote items without its express prior consent and restraining the respondents from dealing with and disposing of or encumbering any of the moveable or immovable assets of the Company.
Urging the aforementioned statements made in the application, Mr. Jayanta Mitra, learned Senior Advocate appearing for the petitioner strenuously urged that in spite of subsistence of the said direction passed by the Arbitral Tribunal by the said order dated July 03, 2017 and the other directions as mentioned above when the respondents have committing the aforementioned illegal acts, the petitioner has been constrained to file this application under Section 9 of the Acts of 1996 before this Court. In support of the right of the petitioner to file the present application, under Section 9 of the Act of 1996, during pendency of the arbitration proceeding before the Arbitral Tribunal, Mr. Mitra referred to the provisions contained in the shareholder's agreement and Section 2(2) of the Act of 1996. He also relied on an order dated June 20, 2017 passed by a learned Single Judge of this Court in T. No. 7 of 2017 ( Srei Equipment Finance Ltd. Vs. 14 15 Marg Ltd.). Learned Senior Counsel appearing for the petitioner Reliance was also placed on an unreported judgement dated October 07, 2016 passed by a learned Single Judge of the High Court of Delhi at New Delhi in O.M.P. (I) (COMM.)23/2015 & CCP(O) 59/2016, IA Nos. 25949/2015 & 2179/2016 (Raffles Design International India Pvt. Ltd. & Anr. Vs. Educomp Professional Education Ltd. & Ors.) as well as the Division Bench decision of the High Court of Delhi at New Delhi in the case of Energo Engineering Projects Ltd. Vs. TRF Ltd. reported in 2016 OnLine Del 6560. It was strenuously urged by the petitioner that in view of the facts of this case as stated in the petition.
When in spite of the direction passed by the Arbitral Tribunal by the said order dated July 03, 2017 directing the parties to refrain from taking any action aggravating their disputes, the respondents have been continuing with their wrongful and illegal acts resulting in violation of the petitioner's rights in respect of the affairs of the Company under the said shareholder's agreement. According to the learned Senior Counsel appearing for the petitioner, the wrongful and illegal acts continued to be committed by the respondents in the present case, there is no effective remedy available to the petitioner before the Arbitral Tribunal to pray for the interim reliefs claimed in this application. According to the petitioner, in view of the fact that in the arbitral agreement contained in the shareholders' 15 16 agreement the parties have expressly agreed to have their right to approach this Court under Section 9 of the Act of 1996, this Court would allow the interim relief as claimed in this application.
On the other hand Mr. Ratnanko Banerjee, learned Senior Advocate appearing for the respondent nos. 1 and 2 raised strong objection with regard to the maintainability of the present application before this Court. He submitted that the arbitration proceeding between the parties herein is still pending before the Arbitral Tribunal. He further submitted that from time to time approached the Arbitral Tribunal seeking for various interim reliefs and the arbitral tribunal passed various orders and directions therein. Referring to a copy of the statement of claim filed by the petitioner before the Arbitral Tribunal. Mr. Banerjee argued that in the statement of claim, the petitioner has claimed various reliefs with regard to its affirmative voting rights to be exercised in the Board Meeting or the General Meeting of the said Company. Therefore, according to him, the relief claimed by the petitioner in this application, are the subject matter of dispute before the Arbitral Tribunal and, as such, this Court would be pleased not to entertain this application. He further submitted that in any event, the petitioner was well aware of the meeting of the Company held on May 21, 2018 and, as such, when the order dated June 08, 2018 was held by the Arbitral Tribunal, the petitioner did not complain about the said meeting. It was 16 17 further submitted even if this Court is inclined to entertain the present application before passing any interim order, an opportunity should be granted to the respondent to file his affidavit-in-opposition.
It was strenuously contended that the Arbitral Tribunal has not yet become functus officio and the petitioner can approach the Arbitral Tribunal to seek similar leave. According to the respondents, the petitioner has not been able to make out any case to substantiate that any decision if at all passed by the Arbitral Tribunal with regard to the disputes raised by the petitioner in this application, the same cannot be enforced. Thus, according to the respondents, the present application filed by the petitioner under Section 9 of the Act of 1996 and, as such this Court would not entertain this application.
I have considered the materials on record as well as the arguments advanced by the learned senior Counsel appearing for the respective parties. Admittedly, the disputes arisen between the parties relating to the said shareholder's agreement are pending before the Arbitral Tribunal. The copy of the statement of claim produced by the respondents before this Court, discloses that the relief claimed by the present petitioner in the arbitral proceeding includes a declaration that any action taken by the respondent in respect of any affirmative vote item will be invalid unless it is taken after obtaining the claimant's express consent 17 18 and no Board Meeting or General Meeting of the company will be valid unless, it is held and conducted with proper notice to and with the participation of the claimant or its representatives, (including Investor Directors.
The present petitioner, as the claimant in the arbitral proceeding has claimed further relief with regard to the exercise of their voting rights towards any affirmative vote item and calling and conducting any Board or General Meeting of the company. From the documents disclosed in the application, it is evident that as and when the petitioner, as the claimant has sought for various interim relief, the same were considered by the Arbitral Tribunal and in appropriate cases the Arbitral Tribunal has also passed orders and/ or directions. The last sitting of the Arbitral Tribunal appears to have taken place on June 1, 2018 when the petitioner, as the claimant, was already aware of the meeting of the company held on May 21, 2018. From the order dated June 8, 2018 passed by the Arbitral Tribunal it is evident that it had taken note of all the relevant facts occurred before June 8, 2018 which were placed by the claimant petitioner. Until the award is made and published, it cannot be said that the Arbitral Tribunal has become functus officio, nor can it be said that the Arbitral Tribunal has ceased to have any authority/ jurisdiction to hear any further interim application at the instance of either of the parties. In the instant case, when the interim relief 18 19 claimed by the petitioner in this application relate to its rights under the shareholders' agreement and the Arbitral Tribunal has repeatedly considered the interim applications of the petitioner, I cannot convince myself to accept the contention of the petitioner that there exists any circumstances rendering the remedy provided by Section 17 of the Act of 1996 is inefficacious. The facts involved in the cases cited by the petitioner as mentioned above are different from those of the present case and as such, the said decisions have no application in this case.
For the reasons as aforesaid, I find that the petitioner has not been able to substantiate any case to maintain this application under Section 9 of the Act of 1996.
Accordingly, the application A.P. No. 682 of 2018 stands rejected. There shall, however, be no order as to costs.
It is, however, made clear that this order shall not stand in the way of the petitioner approaching the Arbitral Tribunal to seek appropriate relief on the self-same cause of action.
(ASHIS KUMAR CHAKRABORTY, J.) MG 19