Delhi High Court
Arun Kapur vs Vikram Kapur And Ors. on 8 October, 2001
Equivalent citations: AIR2002DELHI420, 95(2002)DLT42, 2002(61)DRJ495A
Author: J.D. Kapoor
Bench: J.D. Kapoor
JUDGMENT J.D. Kapoor, J.
1. This order shall dispose of the main petition as well as the application under Order 39 Rule CPC.
2. In this petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act') an ex parte order was passed on 5th of April 2001 whereby status quo was to be maintained with regard to the functioning and management of the Atlas Cycle's Malanpur Unit in view of the following:-
(i) Clause 1 of the Memorandum of Understanding dated 20th of August 2000 executed between the parties to the effect that the petitioner will continue to look after the production, Tool Room, Corporate Law, Human Resources Development, Industrial Relations and Security Department for Atlas Cycles Industries Sonepat Unit and also the entire functioning of Limrose Engineering Works Pvt. Ltd. and the Atlas Cycle Malanpur Unit as before;
(ii) Terms of settlement of interim arrangement reached between the parties before the learned Sole Arbitrator on 10th of September, 2000 to the effect that each of the family members shall continue to hold the post/designation that they are holding in the Company and shall continue to look after the work and exercise the powers within the framework of the office order which they have been looking after till now.
3. Through application filed under Order 39 Rule 4 CPC the respondents have sought setting aside the stay order firstly because it was obtained by making a false and misleading statement in relation to the material particulars by not disclosing the proceedings before the Hon'ble Arbitrator wherein identical prayer was made before the Hon'ble Arbitrator which was declined and second attempt was also made by the petitioner in obtaining the injunction from the Hon'ble Arbitrator and secondly the observations of the Auditors as well as the Hon'ble Arbitrator as to the conduct of the petitioner in siphoning off the funds of the company in clandestine manner from Malanpur Unit to Limrose and further transferring it into the accounts of 10 other shall companies owned by him, his wife and children.
4. The relevant extracts of the order of the Hon'ble Arbitrator with regard to the application moved by the petitioner on 31st March, 2001 seeking identical relief are as under:-
"I was taken through the directions issued by consent of parties on 10th September, 2000. Detailed submissions were made in respect of the application by the learned counsel, Shri Sundaram. As the application was faxed at about 2.45 p.m. to the other parties (hard copy delivered later), counsel for the other parties did not have time to prepare a reply to the application. However, they were willing to come for the hearing and in fact did, make their submissions on the merit of the application. However, in the course of reply Mr. Sundaram sought certain directions in regard to the auditing of the Sonepat Unit and stated that he would file an application in that behalf although there was a mention about the same in paragraph (g) of the present application and a prayer in regard to all the units. However, the reasons for seeking such a direction have not been brought out in detail in the application. He therefore stated that he would like to supplement this application by a detailed application giving reasons for seeking auditing of the Sonepat Unit."
5. Another relevant order passed on 4th April, 2001 by the Hon'ble Arbitrator pointed out by Dr. A.M. Singhvi, learned senior counsel appearing on behalf of the respondent is as under:-
"In fairness I thought it appropriate to inform both Mr. Om Khaitan and Mr. Makkar about the above telephonic talk. Mr. Om Khaitan was not in town. My Secretary was told that he was in Hyderabad. I could speak to Mr. Makkar who, after speaking to his clients, informed me that there was no such matter on the agenda but there were complaints, in regard to financial misdemeanour against Mr. Arun Kapur.
I tried to impress upon Mr. Makkar that as far as possible family peace should be maintained in the spirit of the MoU for a smooth termination of the reference. I am aware that the reference under the MoU is limited and it may not be possible for me to issue any directive to the Board but since his clients are on the Board, they could exercise restraint to avoid aggravation of the dispute unless Mr. Arun Kapur has not been candid and is found to be acting against the interest of the company. He said in any case if there is anything against him he will be given an opportunity to explain. I may also draw the attention of the parties to the last sentence of the last but second paragraph of the MoU and the spirit of the arrangement dated 10th September, 2000."
6. So much so the petitioner also concealed the factum of moving the instant application from the Hon'ble Arbitrator. Observations of the Arbitrator in order dated 2.6.2000 are as under:-
"I deem it appropriate to mention that even at the meeting on 7.4.2001 I was not informed either by Shri Arun Kapur or his counsel that he had moved an application in the High Court of Delhi under Section 9 of the Arbitration and Conciliation Act 1996. Even in yesterday's fax message circulated for Ms. Himalyani Gupta there is no mention of the contempt application moved before the High Court. I deem it appropriate to briefly recapitulate some of the events that took place since the meeting of 7.4.2001."
7. Dr. A.M. Singhvi, Learned senior counsel for the respondent contends that the petitioner did not disclose any of the aforesaid proceedings that took place before the Hon'ble Arbitrator between 30th of March 2001 and 4th of April 2001 but by way of a clever device he attached the whole bunch of the papers along with the petition without making any reference in the petition to the aforesaid facts and also various orders passed by the Hon'ble Arbitrator. According to Dr. Singhvi had these facts been disclosed in the petition these would have disentitled the petitioner an ex parte injunction as he would have been found guilty of riding two horses and seeking the same relief before two forums which is in violation of the mandatory provisions of Sections 5 and 16 of the Arbitration Act.
8. The second limb of the argument of Dr. Singhvi is that since it is manifestly clear from the conduct of the petitioner that he has been indulging in embezzlement and siphoning funds of the Company and squandering the money of the shareholders, the petitioner, under the cover and garb of ex parte order of injunction, cannot be allowed to continue these acts by operating upon the Unit as it would amount to giving advantage of his own wrongs.
9. Dr. Singhvi referred to the order dated 7th of April 2001 of the Hon'ble Arbitrator to demonstrate the dubious conduct of the petitioner. It reads like this:-
"Shri Arun Kapur circulated by fax a supplementary application along with copies of statements concerning the Malanpur plant on 6.4.2001 but did not serve copies thereof to Counsel or any of the other parties until now. I enquired of Ms. Himalyani Gupta if she wanted Shri Arun Kapur's application dated 31st March 2001 to be heard today but she fairly stated that pursuant to the order made on that application at the hearing on that very day her client had circulated the letter of 6th April 2001 which should be read as forming part of that application. She states that copies of that letter have been handed over to the Counsel for the other side today. Right now it may not be fair for her to press for the hearing of that application. Counsel for the other parties also stated that they would like to file a reply to the same but at the same time tried to impress that the matter is of urgency."
10. Aforesaid order shows that the petitioner even concealed the factum of having obtained ex parte ad interim order from the Court on 5th of April 2001 and, even on 7th of April 2001 he continued to pursue his remedy before the Hon'ble Arbitrator.
11. Thus according to Dr. Singhvi by keeping the Hon'ble Arbitrator in the dark about the order dated 5th of April 2001 an impression was given as if no such order was passed and by pressing for decision on the application dated 31st of March 2001 the petitioner demonstrated his unclean conduct. Dr. Singhvi referred to the statement made by Mr. Arun Kapur before the Arbitrator on 9th April 2001, which according to him is admission of fraud committed by him. The said statement is as under:-
"There is an account of Limrose in Standard Chartered Grindlays Banks, Connaught Place Branch. There are other accounts in the same branch belonging to me and or members of my family in the names of various companies/firms including Atlas Flora, Atlas Telecom, Arush Exports, Dintara Uppals, Kapfam Builders, Majestic Merchandise, Karath Engineering P Ltd. I shall furnish a statement of the account names, account numbers and the amount in each account as on today. The statement would be furnished by the end of 10.4.2001. The money lying in these accounts will not be dealt with until further orders of the Hon'ble Arbitrator.
Sd/-
Arun Kapur"
12. Dr. Singhvi also relied upon the letter dated 10th April, 2001 of the petitioner to fortify the fraud. The said letter reads:-
"Dear Sir, Please find enclosed herewith the relevant account of Limrose Engineering Works Pvt. Ltd. from 1.4.2000 to 9.4.2001. The said Account with Standard Chartered Grindlays Bank, Connaught Place Branch - No. 32376793 was operational only with effect from August 2000 and was not in existence prior to August, 2000.
There has been a net outflow of Rs. 5,95,60,400/- from Malanpur Unit which is also reflected in the said account. The same is after adjusting the sum of Rs. 3 crores, which has been returned to the Malanpur Unit.
The payments in the normal course of business for supplies made by Limrose have not been credited in the above mentioned account and, therefore, are not included.
Please let me know in the event any further details are required."
13. According to Dr. Singhvi the above statement of Mr. Arun Kapur and the letter of defendant No. 1 brings out the following admitted facts.
(i) That the Atlas is the Company of which Malanpur is a Unit and in charge thereof is Mr. Arun Kapur. Rs. 8.95 crores have been transferred from Malanpur Unit to Limrose which is a family company owned by Mr. Arun Kapur, his wife and children. Rs. 8.95 crores have travelled out of Limrose into 10 companies. Out of Rs. 8.95 crores, Rs. 3 crores have been returned after case of fraud was found out. Furthermore, Rs. 5.95 crores was returned later because during arbitration proceedings in the presence of counsel of Mr. Arun Kapur the Hon'ble Arbitrator clearly stated that entire amount be frozen unless Rs. 5.95 crores was refunded. It shows the admission of guilt.
(ii) Fraud was detected because of the statutory audit. The Board of Directors on being informed, issued him a show cause notice and a resolution was made on 7th of April after the matter was reported and Mr. Arun Kapur gave in writing his letter that he will return the money to the company. This fraud was committed on opening a special account of Limrose who is supplier and seller of parts of Atlas and it was Limrose who was to receive money. This amount was for parts supplied by Limrose but Mr. Arun Kapur admittedly stated that these were not payments in the normal course of business of supplies made.
(iii) Limrose has a normal account in Central Bank. Rs. 8.95 crores travelled through a new account of Limrose opened in the name of Limrose in August 2000 in Standard Chartered Grindlays Bank where Mr. Arun Kapur and his family and several other accounts. August 2000 is of great significance as at that point of time the arbitration proceedings had also commenced. The very fact that it was mentioned in the letter dated 10th of April 2001 that the payments of Rs. 8.95 crores have not been made in the normal course of business towards supplies made by the Limrose shows that these payments were withdraw by Malanpur Unit and credited to Limrose and the money did not remain in Limrose but was further transferred to as many as 10 companies of the family of Mr. Arun Kapur.
(v) The letter dated 10th April, 2001 was sent only after the Arbitrator found embezzlement of Rs. 9 crores or so from Malanpur unit and called upon the petitioner Mr. Arun Kapur to explain withdrawal of this amount from Malanpur unit and the purpose. All this started in August 2000 when the matter was referred to the arbitrator.
(vi) Since it was not payment in the normal course of business of supplies made to the Limrose, the amount ultimately reached the coffers of the family of Mr. Arun Kapur.
(vii) Interestingly this fraud and embezzlement was detected by the brother of Mr. Arun Kapur who was overall in charge of the finance. The undertaking of 9th of April, 2001 and the aforesaid letter of Mr. Arun Kumar to the arbitrator were in pursuance of the orders dated 9th of April 2001 of the Hon'ble Arbitrator.
14. Dr. Singhvi pointed out the order dated 12th of April 2001 of the Hon'ble Arbitrator which shows that pursuant to the admission and the undertaking of Mr. Arun Kapur regarding transfers of Rs. 8.95 crores made not against supplies made by Limrose but to his own dummy companies, he agreed to return the same and gave post-dated cheques to his brother Vikram Kapur adjusting Rs. 5.95 crores.
15. While demonstrating the dubious design of the petitioner, Dr. Singhvi contended that before the learned Arbitrator not only on 9th of April 2001 but on 12th of April 2001 also Mr. Arun Kapur agreed or rather gave the undertaking that no action shall be taken by him in the instant petition and in view of this it was observed by the learned Arbitrator that once the issues were resolved other family members of Mr. Arun Kapur would have no hesitation in restoring the management of Limrose unit to Mr. Arun Kapur as may be considered by the Hon'ble Arbitrator but under the cover of interim orders, Mr. Arun Kapur still continues to be the beneficiary as he opened the account of the Limrose on the day when the proceedings before the Hon'ble Arbitrator were initiated and so much so after detection of this fraud he was forced to return the said amount.
16. Further that on 3rd of May 2001 Mr. Arun Kapur moved the application seeking clarification of orders dated 12th and 22nd of April 2001 and sought modification to the effect that he shall deposit the remainder if the Board of Directors revoked the resolution. By order dated 7th of April 2001 he was placed under suspension by the Company.
17. Dr. Singhvi has contended that the relief sought in the said application was identical to the prayer made in the interim application and, therefore, Mr. Arun Kapur has concealed the fact that similar remedy was sought before this Court. However, the Hon'ble Arbitrator disposed of the application on the same date. By consent the Ernest and Young was appointed on 12th of May 2001 to look into the account of Malanpur unit. On 31st of May 2001 the petitioner approached this Court and got an ex parte order. The last relevant order is of 2nd of June 2001 which refers to the aforesaid events in detail wherein the Arbitrator has made observations about the conduct of Mr. Arun Kapur. Some of the observations are as under:
"None of the counsel of Mr. Arun Kapur was present in the meeting despite the convenience made pursuant to the procedure laid down."
18. Even at the meeting of 7th of April 2001 the learned Arbitrator was neither informed by Mr. Arun Kapur nor by his counsel that he has moved an application in the High Court under Section 9 of the Act. Even contempt application was not moved by the petitioner.
19. Dr. Singhvi vehemently urged that since the matter is pending before the Arbitrator and transfer of huge amount by Mr. Arun Kapur has been unearthed, Mr. Kapur should not be allowed to function under the cover of this Court's orders and whether Mr. Arun Kapur should be allowed to continue as in charge of the Malanpur unit should be left to the wisdom of the Hon'ble Arbitrator as he is fully seized of the matter including day-to-day conduct of the petitioner. A person not coming with clean hands has no right to stand in the court.
20. Mr. Parag Tripathi, learned senior counsel appearing for respondents 1 to 3 has furthered the contentions of Dr. Singhvi. According to Mr. Tripathi, there is recognised rule of full and complete disclosure of facts which applies to every litigant who approaches the Court for any relief particularly so when the litigant asks for an ex parte order and, therefore, incomplete case or incomplete disclosure of facts disentitles a party such an order. Concealment of any event, even if it may bi in the opinion of the party an irrelevant fact, is to be visited with adverse effect. Mr. Tripathi placed reliance upon Satish Khosla v. Eli Lilly Ranbaxy Limited and Anr. wherein even the nondisclosure of the previously instituted suit was held to be insufficient and incomplete disclosure. It was held therein that it is obligatory upon the respondent to disclose to the Court that in the application filed in the earlier suit a similar relief had been claimed, however, the Court had not granted the said relief.
21. Mr. Rajiv Nayar, learned senior counsel appearing for the petitioner has contested the contentions of the respondent with great vehemence as according to him, the petitioner has disclosed all relevant facts and proceedings before the Hon'ble Arbitrator and therefore accusation of concealment is ill founded.
22. Mr. Nayar contends that Clause 2 of MOU shows that the scope of the proceedings before the Arbitrator is only to split the companies, private limited companies, partnership firms, charitable trusts and the assets in three equal lots and the Arbitrator has nothing to do with the running of the management or control of the Company. The management and control is to be handed over in the same proportion after the lots are drawn i.e. in three equal baskets.
23. It is further contended by Mr. Nayar that after the formation of the JMC an interim arrangement between the parties was agreed to evolve a mechanism to run the day to day affairs of the Companies and to say that the Board of Directors was a party to the arrangement is not correct.
24. As regards the allegation of non-disclosure of full facts in the petition Mr. Nayar has contended that the factum of the pendency of the arbitration proceedings has been referred in paras 4 to 6, 8, 23, 24, 29, and 33 to 35 and as regards the factum of filing of an identical application the same is disclosed in para 22. As regards the allegation that the plaintiff did not disclose the events that took place between 30th March, 2001 and 4th April, 2001 the attention was drawn by Mr. Nayar to paras 16, 17, 18, 19, 21 and 22 wherein factum of the application filed before the Arbitrator was disclosed and the true question on which directions were sought before the Arbitrator was the question of audit and the removal of the services of K.K. Sharma. The events leading to these two aspects were explained in paras 16 to 21 and ultimately in para 22 the petitioner mentioned about the factum of the filing of application for interim orders before the Arbitrator.
25. Similarly Mr. Nayar contended that the fact that the Arbitrator was pleased to take up the application and seven days time was given to the respondent to submit their reply has been disclosed in para 23 of the petition. The cause of action for the present application under Section 9 was with regard to a meeting called by Board of Directors wherein it was apprehended that the petitioner would be removed and the basis of the apprehension has been disclosed in para 31 of the petition.
26. As regards the note dated 4.4.01 of the Hon'ble Arbitrator, it is contended that it was not part of the proceedings but merely a personal note informing the petitioner that his telephonic request to give direction to the Board of Directors cannot be given effect to and therefore the question of disclosing these proceedings in the instant petition did not arise.
27. Mr. Nayar emphasized that the allegation that on 31.3.01 time had been sought by the petitioner to supplement the application by a detailed application and the hearing of the application was postponed at the instance of the petitioner and instead of filing detailed application present petition under Section 9 has been filed in the court is of no relevance as the extension of time for filing the supplementary application was in respect of the selective statutory audit as averred in para g of the application before the Arbitrator wherein request was made that ostensibly necessity of a daily audit lacks the bonafide left out which is facing maximum financial crunch. There was no question of referring to the proceedings dated 31.3.01 as these were not relevant.
28. Further the factum of filing an application for clarification in the interim order before the Arbitrator was alone mentioned in para 22 and also the adjournment of the application in para 23. Moreover no identical relief in the form of para g of the application has been sought in the proceedings.
29. Mr. Nayar referred to the minutes of the meeting of the Board of Directors held on 30.8.00 which, according to him show that the Board of Directors were well aware of the MoU entered into between the parties and the order of the Arbitrator dated 28.8.00 and further the draft of the minutes was approved by each representative of the three families and so much so the Board also confirmed the resolution subject to the order dated 28.8.00 of the Arbitrator.
30. Mr. Nayar relied upon the agenda of the meeting of the Board of Directors circulated vide letter dated September, 2000 shows that the Board of Directors approved a draft and considered the terms of the settlement arrived at between the parties whereby the JMC came into existence. This draft was signed and approved by all the three representatives. One of the terms of the settlement was that each of the family member shall continue to hold the post/designation that they were holding in the Company and shall continue to look after the work and exercise the powers within the frame work of the office order which they have been looking after till now except the offer which require the approval of the JMC.
31. According to Mr. Nayar all this goes to show that the Board of Directors had agreed to the aforesaid terms of the settlement and were aware of the order dated 28.8.00 of the Hon'ble Arbitrator and, therefore, it is not open to the Board of Directors to disturb the arrangement on the ground that the Company is not a party to the arbitration agreement and as such the Company has nothing to do with the arbitration proceedings and the family members of Kapoor's only who are the some of the shareholders of the company and the agreement between the shareholders is not binding upon the company. It is pertinent to mention here that the Board of Directors comprise of outsiders and not members of the Kapoor family.
32. Mr. Nayar further contended that the petitioner consented for the MoU and also terms of the settlement and submitted himself to the arbitration proceedings with a clear view that the status quo shall not be disturbed in respect of the designation or holding of position in the Malanpur Unit. Had the petitioner known that the Board of Directors can disturb the status quo he would not have submitted to arbitration proceedings or agreed for the MoU. Status quo was accepted by all the parties till the trifurcation of the Companies was completed.
33. As regards the objection of non-impleadment of the Board of Directors as a party against whom the restraint order was prayed Mr. Nayar's contention is that the petitioner was only maintaining the position of the parties and therefore there was no need for making the company or Board of Directors as one of the parties. It is pertinent to mention here that when the Board of Directors did not comply with the order and committed the breach of the orders of this Court maintaining status quo the Company has been arrayed as a party in the Contempt Petition.
34. As regards the allegation of siphoning off of the funds of the Company by the petitioner which was the sole ground of his removal from the management of the Malanpur Unit by the Board of Directors it is contended that alleged diversion to Limrose is in the nature of advances duly reflected in the respective books of accounts both of Malanpur Unit as well as Limrose Unit and have been shown as outstanding debts in the books of the Company. Secondly these are fully disclosed transactions and there is no question of clandestine removal of money by cash.
35. Mr. Nayyar took a simplistic view of the withdrawal of Rs. 8.95 crores from the company and contended that out of the total amount of Rs. 8.95 crores which are alleged to have been siphoned off by the petitioner three crores were returned prior to the beginning of the controversy and as on 9.4.2001 when the ex parte order was subsisting only a sum of Rs. 5.95 crores was outstanding and since the petitioner did not want to enter into any further controversy he volunteered to return the balance amount and he actually returned the same. According to Mr. Nayar this controversy was raised on 9.4.2001 itself and not at the earlier point of time and bonafide of the petitioner is projected through act of returning the amount.
36. It is further contended that the question of concealment of this fact did not arise as this was done only to continue the Malanpur Unit as all the respondents had been working in unison and were bent upon to strangle this Unit and since Limrose was the supplier and it was a family concern these advances were made and withdrawn to keep the Unit running and the moment it was objected the petitioner immediately returned the same.
37. According to Mr. Nayar there is independent MoU between the petitioner and his brothers whereby the petitioner was given the right to look after the production, tool room, corporate law, HRD etc. and the other two were given EDP, publicity and research respectively. This MoU is not subject matter before the Arbitrator. What is before the Arbitrator is the main MoU whereby the assets of the company are to be trifurcated and as such the question of the other two brothers of the petitioner being aggrieved of the ex parte order does not arise.
38. Further the letter dated 24th March of Statutory Auditor at the most shows the suspicion entertained by the Auditors with regard to the running of the Company and its wrong doings and not the allegations of siphoning off or withdrawal of funds. The factum of letter of Auditor has been disclosed in para 16 of the petition and the document has been enclosed with the petition.
39. Lastly Mr. Nayar justified the non-impleadment of the Company i.e. Board of Directors and contended that Section 9 is of wider amplitude and encompasses the relief against those who are even not a party to the arbitration agreement nor are before the Arbitrator whereas Section 17 confines, the relief against a party to the dispute. The petitioner approached this Court when the Arbitrator made the observations that "since the company ATLAS Cycle Industries Limited and the non-family Directors are not party to the MoU, it would be difficult for me to issue any directive to the Board of Directors".
40. According to Mr. Nayar Section 9 is available in both the eventualities namely where the similar relief has been sought before the Arbitrator and secondly where the party against whom the relief is sought is not before the Arbitrator or a party to the arbitration proceedings.
41. Mr. Nayar further contended that since the ex parte order was passed in terms of MoU dated 8.1.99 and MoU between the family members of the petitioner dated 28.8.2000 and terms of settlement dated 10.9.2000 were effected between the parties before the Arbitrator, the Company cannot assume the character of a stranger and is, therefore, bound by the terms of settlement and MoUs, and therefore it is Section 9 which is attracted and not a separate civil suit.
42. In this regard Mr. Nayar has placed reliance upon following observations in Coppee-Lavalin SA/NC v. Ken-Ren Chemicals and Fertilizers Ltd (in liq) 1994 (2) All.E.R. 449:-
"However,in determining whether to grant interim measures in support of the agreement to arbitrate under the ICC rules, the English court, as the local court, should have regard to (a) the fact that arbitration was a consensual process and that the court should strive to make the consensus effective by identifying, so far as possible, the king of arbitrational process that the parties either expressly or impliedly indicated that they were contemplating when they entered into the arbitration agreement."
43. I have accorded careful consideration to the rival contentions.
44. It is settled that Section 9 is attracted only if the nature of dispute is subject matter of arbitration proceedings or agreement. It does not contemplate any such relief which does not stem from the arbitration proceedings or the disputes referred to the arbitration for adjudication. Section 9 is distinct from Section 17 inasmuch as that the petition under Section 17 is moved before the Arbitrator for an order against a party to the proceedings whereas Section 9 vest remedy in a party to the arbitration proceedings to seek interim measure of protection against a person who need not be either party to the arbitration agreement or to the arbitration proceedings.
45. The crucial question to be determined in these proceedings is whether the petitioner can be allowed to approach this Court and seek remedy under Section 9 of the Act firstly in view of his conduct, secondly in view of suppression of significant facts, thirdly whether the JMC is subservient to the Board of Directors or vice versa and lastly when identical prayer is pending before the Hon'ble Arbitrator, the petitioner is entitled to seek remedy under the garb of Section 9 of the Act.
46. Suspiciousness about the conduct of the petitioner is writ large. In normal course of business the amount paid by Atlas to Limrose for 12 months period used to the less than one crores or one crore at the maximum but during the period of 4-5 months from the commencement of the arbitration proceedings, more than Rs. 9 crores have been paid to Limrose which means there is a nine fold increase in half of the time.
47. In the past the amount paid to Limrose was in the Central Bank of India where all the three members of the family group were signatories for operation of the account. But the amount of Rs. 9 crores has gone to a new account where Arun Kapoor and his wife are signatories.
48. From Limrose the amount was further siphoned off in as many as 10 different companies which are shell companies exclusively owned by Arun Kapoor, his wife and children and had nothing to do with the Company and Limrose.
49. Even if it is assumed that the party has a case on merits still it cannot be allowed to suppress facts or suggest false hood. The main edifice of the relief of the injunction is based upon disclosure of all facts whether these are relevant or not. It is for the Court to find or assess their significance or relevance. Party cannot be allowed to assume or arrogate the function of the Court.
50. In this case though all documents including the proceedings before the Arbitrator were enclosed which were voluminous but non-disclosure of the most material facts particularly the rejection of the request of the petitioner by the Arbitrator not once but twice was rather a clever and clandestine device as the petitioner thought that when he would be confronted with suppression he would take refuge that he had enclosed all the documents and therefore had not suppressed anything.
51. The rule of full disclosure in a case like the present one not only required the disclosure that in the proceedings before the Arbitrator application seeking similar relief filed by the petitioner is either pending decision or has been rejected or deferred but the act of non-disclosure of the non-granting of the interim order amounts to playing fraud upon and over-reaching the Court. The consequences of the breach of this rule is that the interim ex parte injunction shall stand vacated and the suit itself would be dismissed as an abuse of the process of the Court.
52. Next, to say that JMC is a superior body to the Board is not correct as JMC was brought into existence only for administrative convenience and as coordinating body. It does not have any statutory status whereas Board of Directors is creation of a statute. Supremacy or paramountcy of Board of Directors cannot be dwindled down or wiped out by a body like JMC. Even the parties knew about the legal status of JMC. This is apparent from the terms of settlement that created JMC. The relevant extracts are as under:-
"In case there is difference of opinion and if any member disagrees then in that event the matter shall be referred to the Board of Directors of the company for their decision."
"The Board shall take decision based on the written comments received from the members of JMC. In case the members of the board need any clarification, they shall be entitled to invite members of the JMC for clarification and in such an event all three members of the JMC shall be invited by the Board. The members of the JMC after giving necessary clarification shall withdraw from the meeting and the decision shall be taken by the Board after JMC members have left and shall be communicated to JMC in writing. The decision of the Board on any of the matters referred by the JMC shall be final and binding on all parties."
53. Merely because the Board was not a party to the terms of settlement does not mean that the Board is debarred or precluded from taking any statutory action or exercise its powers under the Companies Act. The very fact that the parties agreed that the decision of Board would be binding and final in case there is difference of opinion between Board and the JMC shows that the Board of Directors is all powerful to take decision as per law governing the Companies and is not bound by the terms of settlement or MoU or decision of JMC. The Board is neither a helpless creature nor can sit like a silent spectator if the affairs of the Company are not managed or conducted as per provisions of law or against the interests of the Company and the public .
54. The present proceedings are related to and in continuation of the pending arbitration proceedings. In these proceedings the petitioner has not chosen to make the Board a party. The matter is pending before the Arbitrator who has substantial powers under Section 17. Without making the Board a party to the proceedings the petitioner cannot claim any relief under Section 9 of the Act. Further by agreeing to the terms of settlement that the decision of the Board would be final and binding the petitioner has indirectly accepted the ultimate authority of the Board. Body like JMC was created purely for administrative reasons and by no stretch of imagination the JMC can have the status of the statutory body like that of the Board of Directors. It is just an internal mechanism evolved for running day-to-day affairs or taking administrative decisions till the trifurcation process is completed. Board of Directors, by no stretch of imagination can be deemed subservient to JMC. It is other way round.
55. The relief sought by the petitioner before the Hon'ble Arbitrator itself can take care of the relief sought by the petitioner in the instant petitioner which is to the following effect:
"M(iii). direct that all parties shall ensure that interim arrangement as agreed between the parties on 10.9.2000 not be disturbed, in particular through any form of interference or hindrance in the management of the Malanpur Unit and the functioning of the applicant."
56. It is cardinal rule that if the party invokes preliminary alternative remedy before the arbitral tribunal, it is debarred from invoking the jurisdiction of the court under Section 9 of the Act. Ordinarily if the arbitrator is seized of the matter the interim relief should not be entertained and the parties should be advised to approach the Arbitrator for interim relief unless and until the nature of relief intended to be sought falls outside the jurisdiction of the Arbitrator or beyond terms of the agreement or reference of disputes. Otherwise the very object of adjudication of disputes by arbitration would stand frustrated. A party should always be discouraged to knock the door of the court particularly when the Arbitrator is seized of all the relevant or even ancilliary disputes. This concept has been universally recognised. Following observations were made in Channel Tunnel Group Limited and Anr. v. Balfour Beatty Construction Limited and Ors. 1993 (1) All. ER 664 to fortify this view:-
"In these circumstances, I do not consider that the English court would be justified in granting the very far-reaching relief which the appellants claim. It is true that mandatory interlocutory relief may be granted even where it substantially overlaps the final relief claimed in the action; and I also accept that it is possible for the court at the pre-trial stage of a dispute arising under a construction contract to order the defendant to continue with a performance of the works. But the court should approach the making of such an order with the utmost caution, and should be prepared to act only when the balance of advantage plainly favors the grant of relief. In the combination of circumstances which we find in the present case I would have hesitated long before proposing that such an order should be made, even if the action had been destined to remain in the High Court. These hesitations are multiplied by the presence of Clause 67. There is always a tension when the court is asked to order, by way of interim relief in support of an arbitration, a remedy of the same kind as will ultimately be sought from the arbitrators: between, on the one hand, the need for the court to make a tentative assessment of the merits in order to decide whether the plaintiff's claim is strong enough to merit protection, and on the other the duty of the court to respect the choice of tribunal which both parties have made, and not to take out of the hands of the arbitrators (or other decision-makers) a power of decision which the parties have entrusted to them alone. In the present instance I consider that the latter consideration must prevail. The court has stayed the action so that the panel and the arbitrators can decide whether to order a final mandatory injunction, there will be very little left for the arbitrators to decide."
57. Taking overall view of the matter it would be proper and in the fitness of things for this Court not to entertain the petition as the Hon'ble Arbitrator is not only seized of all the disputes between the parties but has also been approached for substantially identical relief.
58. With these observations I do not find any merit in the petition and dismiss the same.