Bombay High Court
Rohini Industrial Electricals Limited vs Mr.Gopal M.Kandoi on 4 October, 2012
Author: R.D. Dhanuka
Bench: R.D. Dhanuka
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ARBP746.12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 746 OF 2012
IN
SUMMARY SUIT NO. 1009 OF 2012
Rohini Industrial Electricals Limited )
a company incorporated and registered)
under the Companies Act, 1956, having)
its registered office at Voltas Premises, )
T.B.Kadam Marg, Chinchpokli, )
Mumbai - 400 033. ) ..... Petitioner
Versus
1. Mr.Gopal M.Kandoi, an Indian )
Inhabitant, currently residing at )
E/1102 Abhishek Apartments, Behind )
ESIC Nagar, Andheri (West), )
Mumbai - 400 033 )
2. Mr.Prashant G.Kandoi, son of )
Mr.Gopal M.Kandoi, Indian Inhabitant)
residing at E/1102 Abhishek Apartments)
Behind ESIC Nagar, Andheri (West), )
Mumbai - 400 033 ) ..... Respondents
Mr.Darius Khambatta, Ms.Anuradha Agnohotri, Ms.Shreya Gupta, i/b. Bharucha &
Partners for the Petitioner.
Mr.Pradeep Sancheti, a/w. Mr.Jatin Pore, Mr.Parag Khandhar, i/b. DSK Legal for the
Respondents.
CORAM : R.D. DHANUKA, J.
RESERVED ON :24th SEPTEMBER, 2012
PRONOUNCED ON : 4th OCTOBER, 2012
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ARBP746.12
JUDGMENT :
By this Petition filed under Section 8 of the Arbitration and Conciliation Act, 1996 (for short 'the said Act'), the Petitioner seeks that the Respondents be referred to arbitration under Clause 17(b) of the shareholders agreement or in the alternative under Clause 14.1.5 of the share purchase agreement.
2. Some of the facts emerge from the pleadings and documents filed by the parties are as under :-
3. The Petitioner is wholly owned, managed and controlled by the Respondents and their affiliates. Respondent No.1 is the shareholder of the Petitioner and was a Executive Director till 31st March, 2010 and thereafter continued as a Director till 28th March, 2011 when he retired. Respondent No.2 is a shareholder and Director of the Petitioner.
4. On 12th August, 2008 the Petitioner, Respondents and Voltas Ltd. entered into a share purchase agreement (for short "the said SPA"). The Petitioner was a confirming party to the said SPA. Under the said agreement, Respondents agreed to sell 855367 shares held by the Respondents in Petitioner Company aggregating 46.85% of the existing Equity Capital on a Fully Diluted Basis to Voltas Ltd. for consideration of Rs.
56,43,71,147/-.
5. Clause 7.2.11 of the said SPA provides that the Promoters shall grant an interest free loan of Rs.1,81,20,000/- to the Petitioner on the terms and conditions stated therein. Clause 7.4 provided that upon completion, the capital structure and ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 3 ARBP746.12 shareholding pattern of the Company, on a Fully Diluted Basis shall be as under :-
1. Sellers (Respondents) 49%
2. Purchaser Voltas Ltd.
51%
6. Clause 12.3 of the said SPA provides that the said agreement constitutes the whole agreement between the parties in respect of the sale of said Shares and supersedes any previous written or oral agreement between the parties in relation to the matters dealt with in the said agreement.
Recital H reads as under :-
H. The parties have also agreed to execute and sign an agreement governing the inter se rights and obligations of the Shareholders viz-a-vis the Company ("Shareholders Agreement") after completion of the sale to the Purchaser of the Sale Shares and issue by the Company and subscription by Purchaser to Shares pursuant to the Share Subscription Agreement. This Agreement, Share Subscription Agreement and the Shareholders Agreement shall collectively constitute the "Contractual Documents".
Clause 14.1.1 and 14.1.5 of the said 'SPA' which provides for arbitration procedure reads as under :-
14.1.1 The formation, validity, interpretation, execution, termination of and settlement of disputes and differences under this Agreement, and any and all claims arising directly or indirectly from the relationship between any of the Parties, as the case may be (such dispute, difference or claim hereafter referred to as "Dispute" and "each being referred to as "Parties to the Dispute") shall be governed by the laws of India.::: Downloaded on - 09/06/2013 19:13:02 :::
kvm 4 ARBP746.12 14.1.5 For the purposes of avoidance of doubt, it is hereby clarified that notwithstanding the cause of action of a Dispute, every dispute amongst different sets of Parties to the Dispute shall be subject matter of a separate dispute resolution process amongst the respective Parties to the dispute, in accordance with the provisions of this Clause 14, provided however, unless all Parties to the Dispute agree in writing, a dispute resolution process in accordance with the provisions of this Clause 14 shall not be merged with another dispute resolution process in accordance with the provisions of this Clause 14.
The said 'SPA' dated 12th August, 2008 was signed by the Respondents, Voltas Ltd. and by the Petitioner through the Respondent No.2 as a Managing Director of the Petitioner.
7. On 4th September, 2008 the Petitioner, Respondents and Voltas Ltd. executed shareholders agreement (for short the said 'SHA'). It was recorded that on the date of execution of the said 'SHA', Voltas Ltd. had 51% shareholding of the Petitioner Company and the remaining 49% belonged to the HUF of the Respondents and other Promoters. Recital E provides that the Petitioner was being joined as a party, as the matters contained in that agreement materially affect the administration of the Company. Clause 2(A) of the said 'SHA' provides that board shall consist of five directors. Voltas Ltd. shall at all times have the right to nominate a majority of the directors on the board. The promoters shall have a right to appoint/nominate two directors for appointment on the board till such time as the promoters hold not less than 66.67% of the residual shares. Clause further provided that during the time if the promoters hold less than 66.67% but 33.33% or more of the residual shares, they shall ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 5 ARBP746.12 have a right to appoint/nominate one director on the board of the Petitioner.
8. Clause 4 provides the matters related to the business of the company. It was agreed that the balance shareholding of 49% was to be purchased by Voltas Ltd. in three tranches (16.33% each) spread over a three year period. Accordingly first tranche of 16.33% of the shareholding was purchased by Voltas Ltd. from Respondents and other shareholders of the Petitioner, based on the audited annual results of the Petitioner for 2008-09.
9. Clause 17(b) of the said 'SHA' dated 4th September, 2008 reads as under :-
(b) In the case of any dispute or claim arising out of or in connection with or relating to this Agreement, or the breach, termination or invalidity hereof, the Parties shall attempt to first resolve such dispute or claim through discussions between senior executives of each Party. For the avoidance of doubt, Deadlock Issues shall not be deemed to be disputes for the purposes of this Clause 17(b) and shall only be resolved in accordance with Clause 15(b). If the dispute is not resolved through such discussion within ten (10) Business Days after one Party has served a written notice on the other Party requesting the commencement of consultation, such dispute shall be finally settled by arbitration under the Arbitration and Conciliation Act, 1996 (the "Arbitration Act") as is in force at the time of any such arbitration and as may be amended by the rest of this Clause 17(b). For the purpose of such arbitration, there shall be three arbitrators, one each to be appointed by Voltas and the Promoters. The arbitrators so appointed shall appoint a third arbitrator (the "Arbitration Board"). All arbitration proceedings shall be conducted in the English language and the place of arbitration shall be in Mumbai. The arbitrators shall decide any such dispute or claim strictly in accordance with the governing law specified in Clause 17(a).
Judgment upon any arbitral award rendered hereunder ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 6 ARBP746.12 may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.
The said 'SHA' dated 4th September, 2008 was signed by Respondents, Voltas Ltd., and by the Petitioner through its then Managing Director Mr.Prashant G.Kandoi, the 2nd Respondent herein.
10. It is the case of the respondents that on 2nd November, 2010 they received a notice alongwith a Note to the Board, from the petitioner calling upon a board meeting on 3rd November, 2010 to consider proposal to avail of temporary loan from the respondents. A Note circulated alongwith the said notice dated 2nd November, 2010 recorded that due to shortfall in the projected collections by almost Rs.18.82 crores in the past few months, the company was in urgent need of funds to meet its present working capital requirements. The respondents who were directors of the company proposed to give temporary loan of Rs.2.50 crores each., aggregating Rs. 5 crores to be repaid on 30th December, 2010 togetherwith interest at the rate of 10% per annum. It is recorded that based on actual cash flow position, the company would have a discretion to refund these amounts any time before 30th December, 2010. The projected cash flow for the months of November-December 2010 was enclosed to the said note. The board was requested to consider the said proposal.
11. On 3rd November, 2010, a meeting of the board of directors of the petitioner was held. It was recorded that the petitioner was facing severe liquidity crunch and was in urgent need of funds to meet its working capital requirements. The 2 nd Respondent ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 7 ARBP746.12 stated that earlier collection target for October 2010 had not materialized. Major payment of Rs. 6 crores from VSP was delayed and expected by end November or early December 2010. It was recorded that the company had issued post-dated cheques aggregating to Rs.2.88 crores to various vendors which were due for payments during the period between November 2010 and January 2011. In order to meet the temporary cash flow requirements, the Respondents, Promoter Directors had proposed to give temporary loan of Rs.2.50 crores each, aggregating to Rs.5 crores at an interest of 10% per annum for a short period upto end December 2010 to ensure that payments to vendors were honoured. It was recorded that the company had projected realization of Outstandings of Rs.25 crores in each month. The projected cash outflow was Rs.
21.76 crores for November 2010 and Rs.24.95 crores for December 2010 including repayment of temporary loan of Rs.5 crores to the promoter directors. It was recorded that the board had approved the proposal of availing temporary loan of Rs.2.50 crores each from the respondents, aggregating to Rs. 5 crores at an interest rate of 10% per annum. The respondent No.2 stated that in case the company had better cash flow position or if additional overdraft facility was approved by the Board during the interim period, the promoter's loan could be repaid earlier. I must mention that the respondents, did not admit the contents of the said minutes fully and circulated draft minutes of the said meeting held on 3rd November, 2010 with various changes.
12. By a letter dated 22nd March, 2011 to the board of directors of the petitioner, the respondents contended that loan of Rs.5 crores extended by the promoters was a temporary loan so as to enable the petitioner to meet its urgent requirements of honouring certain post-dated cheques and the same was repayable by the petitioner to ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 8 ARBP746.12 the promoters by 31st December, 2010. By the said letter, the respondents requested the petitioner to repay the said loan immediately.
13. On 28th March, 2011, the 1st respondent retired as a director of the petitioner.
On 15th April, 2011, 2nd respondent sent a reminder to the petitioner to repay the loan with accrued interest. On 21st April, 2011, the petitioner addressed letters both dated 21st April, 2011 to the respondents confirming that as per the books of accounts of the petitioner as on 31st March, 2011 Rs.2.5 crores was appearing as loan amount payable to the respondents and interest of Rs.5,54,796/- on that amount was payable to each of the respondent. The respondents were requested to confirm the same. The respondents confirmed the said statement in the month of April 2011. The respondents thereafter by letter dated 22nd June, 2011 requested the petitioner to repay the loan amount accrued with interest immediately. The petitioner by two separate letters dated 15th July, 2011 to the respondents confirmed that as per the books of accounts of the petitioner as on 30th June, 2011 a sum of Rs.2.5 crores was appearing as loan amount and interest of Rs.5,60,958/- was payable to each of the respondent. The respondents confirmed the said statement on 16th July, 2011. Voltas Ltd. by its letter dated 10th August, 2011 to the 1st respondent (a copy forwarded to the 2nd respondent) confirmed that loan of Rs.5 crores was granted to the Company in view of the liquidity crunch and the urgent need of funds to meet the working capital requirement and further stated that the financial position of the petitioner had still not improved and there was negative cash flow position. It was stated that in view thereof, loan was not presently repayable and the petitioner was not in a position to accede the request of the respondents for premature repayment of the loans aggregating to Rs.5 crores at the ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 9 ARBP746.12 juncture. The respondents by their letter dated 26th September, 2011 denied the statements made by Voltas Ltd. and once again called upon Voltas Ltd. to repay the loan amount.
14. The petitioner by two letters both dated 5th October, 2011 to the respondents requested to confirm that Rs.2.5 crores with interest at Rs.5,67,123/- was payable by the petitioner to the respondents each as on 30th September, 2011. There was further correspondence exchanged between the parties. By letter dated 12th December, 2011 the petitioner to the respondents herein, the petitioner stated that post-dated cheques to vendors were issued by the 2nd respondent during the tenure as an MD and in the course of normal business transactions. It was contended that loan was advanced by the respondents in view of issuance of such post-dated cheques and in order to meet the temporary cash flow requirements and such proposal was given by the respondents themselves. It is recorded that the financial condition continued to remain precarious and the company was not in a position to accept the request for repayment of the loan at that time. The petitioner requested the respondents to support the company in that regard as Promoters and shareholders of 16.33% share capital.
15. On 20th March, 2012 the respondents filed a Summary Suit (1009 of 2012) in this Court against the petitioner for an order and decree to pay to each of the respondents a sum of Rs.2.5 crores with accrued interest. In the plaint, respondents referred to the Share Subscription Agreement dated 12th August, 2008, Share Purchase Agreement dated 12th August, 2008, Supplemental Share Purchase Agreement dated 12th December, 2008, Share Holder Agreement dated 4th September, 2008 and ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 10 ARBP746.12 Supplemental Shareholder Agreement dated 24th July, 2009. It is averred that in relation to Share Purchase Agreement and/or other agreements, certain other disputes had arisen between the parties and as a result of which the parties had commenced arbitration proceedings. There is no dispute between the parties that other disputes between the parties arising out of the aforesaid agreements have commenced. The said summary suit (1009 of 2012) is pending in this Court.
16. On 14th June, 2012, the Petitioner filed this Petition under Section 8 seeking a direction from this Court to refer the Respondents to arbitration under Clause 17(b) of the shareholders agreement. The Petitioner was allowed to amend the petition by an Order dated 16th July, 2012. The Petitioner has made an alternate plea to refer the respondents to arbitration under Clause 14.1.5 of the Share Purchase Agreement.
There is no dispute that the parties to this proceedings are parties to the Summary Suit (1009 of 2012) filed by the Respondents in this Court.
17. The Learned Advocate General appearing for the petitioner made the following submissions :-
(i) Various post-dated cheques were signed by one of the respondent being the part of the Management of the Petitioner in favour of third party. Precarious condition of the petitioner was known to the respondents. There was delay in recovery of large amount due to the petitioner from the third party. The respondent No.1 who was a Managing Director of the petitioner till 31st ::: Downloaded on - 09/06/2013 19:13:02 ::: kvm 11 ARBP746.12 March, 2010 and thereafter continued as a director till 28th March, 2011 when he retired. Respondent No.2 is a shareholder and director of the petitioner. Due to such relationship of the respondents with the petitioner and with a view to avoid any untoward situation, due to the post-dated cheques having been signed by one of them as office bearer of the petitioner, by and under various agreements referred as aforesaid between the parties and Voltas Ltd., the respondents had offered loan to the petitioner. The dispute between the parties is thus due to such relationship between the parties. The respondents are not outsiders but had given such assistance to the petitioner being part of the Management and thus such proposal was discussed and approved by the board of directors of the petitioner. The respondents thus can not be permitted say that the loan given to the petitioner has no connection whatsoever with the 'SPA' and 'SHA',
(ii) Under Clause 17(b) of the 'SHA' dated 4th September, 2008 to which the respondents were parties, any dispute or claim arising out of or in connection with or relating to that agreement is required to be settled by the arbitration under the provisions of Arbitration and Conciliation Act, 1996. In the alternative Clause 14.1.1 ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 12 ARBP746.12 of 'SPA' dated 12th August, 2008 which categorically provided that dispute, difference or claim regarding formation, validity, interpretation, execution, termination of and settlement of disputes and differences under that agreement and any and all claims arising directly or indirectly from the relationship between any of the parties, as the case may be is required to be referred to under the provisions of Arbitration and Conciliation Act, 1996.
The Learned Advocate General placed strong reliance on Clause 14.1.5 which provides that every dispute amongst different sets of parties to the dispute shall be subject matter of a separate dispute resolution process amongst the respective parties to the dispute in accordance with the provisions of Clause 14. It is thus submitted that the dispute which is subject matter of the summary suit filed by the respondents thereby making claim against the petitioner by the respondents is arising directly or indirectly from the relationship between the parties and is thus required to be referred to the arbitration as per the procedure prescribed under Clause 14.1,
(iii) Though Voltas Ltd. was a party to various ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 13 ARBP746.12 agreements referred as aforesaid alongwith the Petitioner and the Respondents and not being a party to the summary suit, the dispute in the summary suit shall still be referred to the arbitration in view of Clause 14.1.5 which permits the arbitration to adjudicate upon every dispute amongst different sets of parties to the agreement. It is submitted that merely because Voltas Ltd. is not party to the summary suit, it is not fatal to refer the dispute to arbitration,
(iv) That arbitration clauses provided in 'SPA' and 'SHA' are very wide and dispute forming part of the summary suit are required to be referred to arbitration.
The Learned Advocate General has placed reliance on the Judgment of Renusagar Power Co. Ltd. vs. General Electric Company and another1 , in the case of Union of India vs. M/s.D.N.Revri & Co. and others2, in case of Fili Shipping Co.Ltd. and others vs.Premium Nafta Products Ltd. & Ors. 3
18. On the other hand, Mr.Sancheti, the learned senior advocate appearing for the respondents submits as under :-
1 AIR 1985 SUPREME COURT 1156 2 (1976) 4 Supreme Court 147 3 (2007) Bus LR 1719 ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 14 ARBP746.12
(i) The suit filed by the respondents was for recovery of temporary bridge loan given by the respondents to the petitioner. The petitioner was only a confirming party to the 'SPA' dated 12th August, 2008 by which respondents had agreed to transfer their 51% share holdings in the petitioner's Company to Voltas Ltd.,
(ii) Voltas Ltd., one of the party to the agreements entered into between the parties is not a party to the suit filed by the respondents. 51% shares agreed to be transferred under the said 'SPA' dated 12th August, 2008 has been implemented,
(iii) the dispute or claim made by the respondents in the summary suit is not in connection with or relating to the agreements entered into between the parties and thus cannot be referred to arbitration under Clause 17(b) of the 'SHA' dated 4th September 2008 or under Clause 14.1 of the 'SPA' dated 12th August, 2008. The disputes and differences arisen between the parties which is the subject matter of the suit does not arise under any of these two agreements and thus cannot be referred to Arbitration under Clause 14.1.1 of the 'SPA' ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 15 ARBP746.12 dated 12th August, 2008 or under Clause 17(b) of the 'SHA' dated 4th September, 2008. The personal loan given by the respondents to the petitioner has nothing to do with the valuation or any other transaction under the agreements relied upon by the Petitioner. Loan is not given due to any relationship between the parties as contended by the learned Advocate General,
(iv) the petitioner has admitted its liability to re-pay the loan advanced by the respondents to the petitioner and by this application the petitioner seeks to postpone the decree likely to be passed against the petitioner based on such admission,
(v) the claims made by the respondents in suit does not arise directly or indirectly from any relationship of any of the parties and thus the dispute cannot be referred to the arbitration under Clause 14.1.1 read with 14.1.5 of the 'SPA' dated 12th August, 2008. If dispute between some of the parties to the agreement is referred to the arbitration under Clause 14.1.1 read with 14.1.5, it would mean that any private dispute between the parties which has not arisen under that agreement and is of personal nature, can also be referred to arbitration at ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 16 ARBP746.12 any point of time even in future. Such broad meaning cannot be given to the term "from relationship between any of the party" or "dispute amongst different set of parties to the dispute",
(vi) there is no dispute regarding the administration of the company which is the subject matter of the suit filed by the respondents and thus it cannot be referred to arbitration,
(vii) that the judgments relied upon by the Learned Advocate General are clearly distinguishable and/or not applicable to the facts of this case.
19. In rejoinder, the Learned Advocate General submitted that both the agreements shall be read together and shall be given proper meaning considering the commercial application. The loan was given by the respondents to the petitioner for smooth functioning of the petitioner. Post-dated cheques were signed by one of the respondents on behalf of the petitioner. The petitioner was not able to recover all its dues from the third parties. Entire shareholding of the respondents in the Petitioner's Company were agreed to be transferred to Voltas Ltd. Respondents are not outsiders and/or not in money lending business. The Learned Advocate General fairly conceded that the dispute which is the subject matter of the suit is not arising out of or in connection with the agreement. It is submitted that Clause 14.1.1 is very wide and ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 17 ARBP746.12 provides that any and all claims arising directly or indirectly from the relationship between any of the parties shall be referred to arbitration. It is submitted that the petitioner and the respondents are parties to the arbitration agreement. The loan was given by the respondents to the petitioner after same having being approved by the board of directors of the petitioner in the meeting in which the respondents were personally present being the shareholders and part of the board. He referred to the correspondence placed on record by both the parties which shows that the loan was given by the respondents to the petitioner after consultation with each other and also Voltas Ltd. It is pointed out that the term "parties" has been defined under 'SPA' dated 12th August, 2008 which reads as "Parties" means collectively the Promoters, the Company and Purchaser and "Party" means individually each of the Parties.
20. It is thus submitted that the petitioner was admittedly a party to both these agreements. Respondent Nos. 1 and 2 were directors and shareholders of the Petitioner at the relevant time. Respondent No.2 continues to be shareholder and director even after loan transaction. The respondents had agreed to give loan to the petitioner as director/shareholder. Claim thus made in the suit arose due to such relationship between the parties and the dispute thus has to be referred to the arbitration once all the conditions of the arbitration agreement read with section 7 of the Arbitration and Conciliation Act, 1996 having been satisfied.
21. The Supreme Court in the case of S.B.P. And Co. vs. Patel Engineering Ltd.1 which is being followed by the Supreme Court in case of Booz Allen and Hamilton 1 2005(8) SCC 618 ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 18 ARBP746.12 Inc. vs. SBI Home Finance Ltd. & Ors.2 while dealing with Section 8 of the Arbitration Act, 1996 has held as under :-
Where a suit is filed by one of the parties to an arbitration agreement against the other parties to the arbitration agreement, and if the Defendants file an application under Section 8 stating that the parties should be referred to arbitration, the court (judicial authority) will have to decide (i) whether there is an arbitration agreement among the parties; (ii) whether all parties to the suit are parties to the arbitration agreement; (ii) whether the disputes which are the subject matter of the suit fall within the scope of arbitration agreement; (iv) whether the Defendant had applied under Section 8 of the Act before submitting his first statement on the substance of the dispute; and (v) whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration.
22. There is no dispute that there is arbitration agreement between the parties who are parties to the suit filed by the respondents in this Court. The petitioner which is defendant to the suit has applied under Section 8 of the Arbitration Act, 1996 before submitting first statement on the substance of the dispute.
23. The question now arises for consideration of this Court is as to whether (1) the dispute which are the subject matter of the suit fall within the scope of any of arbitration agreement between the parties; (2) whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration.
24. In the light of the aforesaid two issues which in my opinion arise for consideration of this Court, I shall refers to few facts which emerge from the pleadings
2 AIR 2011 SC 2507 ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 19 ARBP746.12 and documents. It is not in dispute that when the loan was granted by the respondents to the petitioner, each of the respondent was a shareholder and director of the board of the petitioner. The first respondent retired as a director of the petitioner on 28th March, 2011. Respondent No.2 even continue to be a director and shareholder of the Petitioner till today. The respondents had entered into the aforesaid two agreements with Voltas Ltd. to which the petitioner was also a party. The respondents have proposed to transfer their shareholding with the Petitioner alongwith others at a consideration agreed upon. It was, therefore, agreed that on transaction of such shares, the respondents would be ceased to be directors and part of the management. All the terms and conditions were reduced to writing by and between the parties. Recital H of 'SHA' dated 4th August, 2008 provides that the petitioner was being joined as a party to the said agreement as the matter contained in that agreement materially affect the administration of the Company. Respondents have referred to the agreements arrived at between the parties in suit. The proposal of availing the loan by the petitioner from the respondents was considered in the board meeting of the petitioner held on 3rd November, 2010. The re-payment of the loan was made dependent on the recoveries to be effected by the petitioner. Various post-dated cheques were issued by the petitioner duly signed by one of the respondent. There was delay in realisation of the outstandings by the petitioner. Copies of various documents sent by e-mail relied upon by both the parties indicates that the loan was given after having discussion also with Voltas Ltd. who were transferee of the shareholding of the respondents held by them with the petitioner Company. The correspondence relied upon by the parties also indicates that the loan was proposed by the respondents to the petitioner they being directors of the petitioner. It is not the case of the respondents that they are in business ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 20 ARBP746.12 of money lending. Recital H of the 'SPA' provides that the said agreement, Share Subscription Agreement and Share Holders Agreement shall collectively constitutes a "contractual documents".
25. In my view, on perusal of the Clause 14.1.1 read with Clause 14.1.5 of the 'SPA' dated 12th August, 2008, it is clear that any claim arising directly or indirectly from the relationship between any of the parties has to be referred to arbitration in accordance with Clause 14.1 to 14.1.5. In my opinion, the loan was given by the respondents to the petitioner in the peculiar facts and circumstances setout in the earlier part of this judgment, being shareholder and director of the petitioner company.
In my opinion, the loan was given due to such relationship of the respondents, as shareholders and the director that with the petitioner. The suit filed by the Respondents admittedly is for recovery of such loan given by the respondents to the Petitioner which was sanctioned by the board of directors of the petitioner of which the respondents were part of the Board of Management. In my opinion, the subject matter of the suit thus falls within the scope of arbitration agreement arrived at between the parties. I am therefore not inclined to accept the submission made by the Learned Senior Advocate Mr.Sancheti on behalf of the respondents that the loan given by the respondents to the petitioner was a private bridge loan and had no connection whatsoever with the 'SPA' or 'SHA' and not covered by the arbitration procedure prescribed in the Clause 14.1 to 14.1.5.
26. In so far as the submission of the respondents that Voltas Ltd. is party to the agreement is admittedly not party to the suit and therefore dispute between only some ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 21 ARBP746.12 of the parties to agreement cannot be referred to arbitration is concerned, in my view, there is no substance in this arguments advanced by the Learned Senior Advocate appearing on behalf of the Respondents. Clause 14.1.5 clearly provides that notwithstanding cause of action of a dispute every dispute amongst different sets of Parties to the Dispute shall be subject matter of a separate dispute resolution process amongst the respective Parties to the dispute, in accordance with the provisions of this Clause 14. It is however provided that unless all parties to the dispute agree in writing, a dispute resolution process in accordance with Clause 14 shall not be merged with another dispute resolution process in accordance with the provisions of Clause
14. In my opinion, the conjoint reading of Clause 14.1.5 read with 14.1.1 makes it clear that any dispute even between the parties inter se who were parties to the agreement arising directly or indirectly from the relationship between any of the parties are required to be referred to arbitration. Both these clauses are very wide in nature.
27. Though the learned Advocate General cited three judgments, in my view reference to the judgment of House of Lords in the case of Fili Shipping Co.Ltd.
(supra) would be relevant. Relevant paragraphs of the said judgment reads thus :-
3. I start by setting out the arbitration clause in the Shelltime 4 form :
" 4 I (a) This charter shall be construed and the relations between the parties determined in accordance with the laws of England.
"(b) Any dispute arising under this charter shall be decided by the English courts to whose jurisdiction the ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 22 ARBP746.12 parties hereby agree.
"(c) Notwithstanding the foregoing, but without prejudice to any party's right to arrest or maintain the arrest of any maritime property, either party may, by giving written notice of election to the other party, elect to have any such dispute referred ... to arbitration in London, one arbitrator to be nominated by owners and the other by charterers, and in case the arbitrators shall not agree to the decision of an umpire, whose decision shall be final and binding upon both parties. Arbitration shall take place in London in accordance with the London Maritime Association of Arbitrators, in accordance with the provisions of the Arbitration Act 1950, or any statutory modification or re-enactment thereof for the time being in force. (i) A party shall lose its right to make such an election only if : (a) it receives from the other party a written notice of dispute which - (1) states expressly that a dispute has arisen out of this charter; (2) specifies the nature of the dispute; and (3) refers expressly to this clause 4 1 (c); and (b) it fails to give notice of election to have the dispute referred to arbitration not later than 30 days from the date of receipt of such notice of dispute ...."
6. In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.
7. If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 23 ARBP746.12 arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court? If, as appears to be generally accepted, there is no rational basis upon which businessmen would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention.
8. A proper approach to construction therefore requires the court to give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause. But the same policy of giving effect to the commercial purpose also drives the approach of the courts (and the legislature) to the second question raised in this appeal, namely, whether there is any conceptual reason why parties who have agreed to submit the question of validity of the contract to arbitration should not be allowed to do so.
11. With that background, I turn to the question of construction. Your Lordships were referred to a number of cases in which various forms of words in arbitration clauses have been considered. Some of them draw a distinction between disputes "arising under" and "arising out of" the agreement. In Heyman v Darwins Ltd [1942] AC 356, 399 Lord Porter said that the former had a narrower meaning than the latter but in Union of India v E B Aaby's Rederi A/S [1975] AC 797 Viscount Dihorne, at p 814, and Lord Salmon, at p 817, said that they could not see the difference between them. Nevertheless, in Overseas Union Insurance Ltd v. AA Mutual International Insurance Co Ltd. [1988] 2 Lloyd's Rep 63, 67, Evans J said that there was a broad distinction between clauses which referred "only those disputes which may arise regarding the rights and obligations which are created by the contract itself" and those which "show an intention to refer some wider class or classes of disputes." The former may be said to arise "under" the contract while the latter would arise ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 24 ARBP746.12 "in relation to" or "in connection with" the contract. In Fillite (Runcorn) Ltd v Aqua-Lift (1989) 26 Con LR 66, 76 Slade LJ said that the phrase "under a contract" was not wide enough to include disputes which did not concern obligations created by or incorporated in the contract. Nourse LJ gave a judgment to the same effect. The court does not seem to have been referred to Mackender v Fledia AG [1967] 2 QB 590, in which a court which included Lord Denning MR and Diplock LJ decided that a clause in an insurance policy submitting disputes "arising thereunder" to a foreign jurisdiction was wide enough to cover the question of whether the contract could be avoided for non-disclosure.
12. I do not propose to analyse these and other such cases any further because in my opinion the distinctions which they make reflect no credit upon English commercial law. It may be a great disappointment to the judges who explained so carefully the effects of the various linguistic nuances if they could learn that the draftsman of so widely used a standard form a Shelltime 4 obviously regarded the expressions "arising under this charter" in clause 4 1 (b) and "arisen out of this charter" in clause 4 1 (c) (1) (a) (i) as mutually interchangeable. So I applaud the opinion expressed by Longmore LJ in the Court of Appeal [2007] Bus LR 687, para 17, that the time has come to draw a line under the authorities to date and make a fresh start. I think that a fresh start is justified by the developments which have occurred in this branch of the law in recent years and in particular by the adoption of the principle of separability by Parliament in section 7 of the 1996 Act. That section was obviously intended to enable the courts to give effect to the reasonable commercial expectations of the parties about the questions which they intended to be decided by arbitration. But section 7 will not achieve its purpose if the courts adopt an approach to construction which is likely in many cases to defeat those expectations. The approach to construction therefore needs to be re-examined.
13. In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 25 ARBP746.12 have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. As Longmore LJ remarked, at para 17: "if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so".
28. In my view, considering the expression "claims arising directly or indirectly from the relationship between any of the parties" shows that parties had agreed to refer their dispute inter se arising directly or indirectly from the relationship between them. Considering such clause, in my view Court shall implement the intention of the parties so as to give commercial meaning to such wide clause agreed by the parties in the agreement. Once it is clear that both parties intended that their inter se dispute between them shall be referred to the arbitration, it is duty of the court to bind parties and to refer them to the arbitration. I am satisfied that condition of Section 8 of the Arbitration Act, 1996 are satisfied and the parties are required to be referred to arbitration.
29. I, therefore, pass the following order:-
(a) The Petition is made absolute in terms of prayer (aa). It is made clear that this Court has not expressed any opinion on the merits of the claims and disputes in the suit and has not recorded any finding.
(b) Parties to the Summary Suit No. 1009 of 2012 are ::: Downloaded on - 09/06/2013 19:13:03 ::: kvm 26 ARBP746.12 referred to arbitration under Clause 14.1.1 read with 14.1.5 to Share Purchase Agreement dated 12th August, 2008.
(c) The Petition is disposed of accordingly.
(d) There shall be no order as to costs.
(R.D. DHANUKA, J.)
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