Delhi High Court
Siva Industries And Holdings Ltd. vs Tata Teleservices Ltd. & Ors. on 26 April, 2017
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 26th April, 2017
+ CS(COMM) No.246/2017 & IA No.4079/2017 (u/O XXXIX R-1&2
CPC).
SIVA INDUSTRIES AND HOLDINGS LTD. ..... Plaintiff
Through: Mr. Anirudh Wadhwa, Mr. Akash
Chandra Jauhari and Mr. Vipul
Kumar, Advs.
Versus
TATA TELESERVICES LTD. & ORS. ..... Defendants
Through: None.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. The plaintiff has instituted this suit pleading,
(i) that the plaintiff, by virtue of a Share Subscription Agreement
dated 24th February, 2006, subscribed to 520 million shares of
defendant no.1 Tata Teleservices Ltd. (TTL) at a Subscription Price of
Rs.17/- per share;
(ii) pursuant to a rights issue announced by the defendant no.1 TTL in
July / August, 2007, the plaintiff subscribed to additional 20.8 million
equity shares, increasing its shareholding to 540.8 million shares;
(iii) that pursuant to a re-structuring exercise done by the defendant
no.1 TTL, plaintiff‟s shareholding stands at 270.4 million shares of
Rs.34/- each, representing 8.19% of the total paid-up equity capital of
defendant no.1 TTL;
(iv) the defendant no.1 TTL and the defendant no.2 Tata Sons Ltd.
(TSL) issued and allotted 84,38,79,801 equity shares of defendant no.1
CS(COMM) No.246/2017 Page 1 of 13
TTL representing about 20% of the post-issue paid up equity capital to
the defendant no.3 NTT Docomo Inc. (Docomo);
(v) defendant no.3 Docomo also entered into Secondary Share
Purchase Agreements with other existing shareholders of the
defendant no.1 TTL including the plaintiff, defendant no.2 TSL and
group companies of defendant no.2 TSL;
(vi) consequent thereto, shareholding of the defendant no.3 Docomo
constituted 26% of the post-issue paid up equity capital of defendant
No.1 TTL;
(vii) on 25th March, 2009, defendant no.1 TTL and defendant no.2
TSL executed a Shareholders Agreement with defendant no.3 Docomo
as regards inter se rights, obligations and duties with respect to
defendant no.3 Docomo‟s shareholding in defendant no.1 TTL;
(viii) on the same day, the plaintiff also executed an inter se
Agreement with the defendant no.1 TTL and defendant no.2 TSL,
agreeing to indemnify certain losses that the defendant no.1 TTL and
defendant no.2 TSL may suffer on account of certain claims that could
be made by the defendant no.3 Docomo under the Shareholders
Agreement dated 25th March, 2009;
(ix) that the Shareholders Agreement dated 25th March, 2009 between
defendant no.1 TTL and defendant no.2 TSL on the one hand and
defendant no.3 Docomo on the other hand provides for an exit (put)
option at an assured / pre-determined price, inter alia providing that in
the event of failure of defendant no.1 TTL to achieve certain
CS(COMM) No.246/2017 Page 2 of 13
performance indicators, the defendant no.3 Docomo would have a
right to divest its shareholding at a pre-determined price;
(x) that the inter se Agreement Dated 25th March, 2009 between the
plaintiff on the one hand and the defendant no.1 TTL and defendant
no.2 TSL on the other hand, without any consideration and /or on a
mistaken and erroneous basis provides for indemnification by the
plaintiff to the defendant no.1 TTL and defendant no.2 TSL of the
losses suffered by them as a result of any indemnification claim made
by the defendant no.3 Docomo;
(xi) that on account of gross mismanagement of defendant no.1 TTL
by the defendant no.2 TSL and defendant no.3 Docomo, the defendant
no.1 TTL failed to achieve the key performance indicators and which
caused grave prejudice to the legal rights of the plaintiff as a minority
shareholder;
(xii) on 25th April, 2014, on account of failure of the defendant no.1
TTL to meet the performance indicators as set out in the Shareholders
Agreement dated 25th March, 2009, the defendant no.3 Docomo
informed the defendant no.1 TTL and defendant no.2 TSL about its
election to exercise its sale option and requested the defendant no.1
TTL and defendant no.2 TSL to acquire its shareholding in the
defendant no.1 TTL for a consideration of 50% of the acquisition
price, amounting to Rs.72.5 billion or the fair market value whichever
is higher;
(xiii) that under the Foreign Exchange Management Act, 1999, the
Foreign Exchange Management (Permissible Capital Account
CS(COMM) No.246/2017 Page 3 of 13
Transactions) Regulations, 2000 and Foreign Exchange Management
(Transfer or Issue of Security by a person resident outside India)
Regulations, 2000 and various Circulars / Notifications / Amendments
issued thereunder or related thereto, the transfer of security by a non-
resident cannot be at a price which is more than the fair market value
of such security, without prior special permission from the defendant
no.4 Reserve Bank of India (RBI);
(xiv) in fact as on 25th March, 2009, when the Shareholders
Agreement was executed, the "optionality" clauses set out therein
were in contravention of applicable law and hence void ab initio and
any indemnity obligation of the plaintiff pursuant to the inter se
Agreement dated 25th March, 2009 would be contrary inter alia to
Foreign Exchange Management (Guarantees) Regulations, 2000 and
as such void ab initio;
(xv) that the defendant no.2 TSL on 6th May, 2014 for the first time
informed the plaintiff that defendant no.3 Docomo had announced its
intention to exercise the sale/exit option under the Shareholders
Agreement dated 25th March, 2009;
(xvi) on 11th February, 2015, the defendant no.2 TSL informed the
plaintiff that the defendant no.2 TSL had applied to defendant no.4
RBI for purchase of 1,248,978,378 shares held by the defendant no.3
Docomo in the defendant no.1 TTL at a value of Rs.58.045 per share
and that the defendant no.3 Docomo had filed a request for Arbitration
alleging breach of Shareholders Agreement dated 25th March, 2009;
CS(COMM) No.246/2017 Page 4 of 13
(xvii) on 22nd June, 2016, the Arbitral Tribunal passed an Award in
favour of defendant no.3 Docomo and against the defendant no.1 TTL
and defendant no.2 TSL;
(xviii) on 8th July, 2016 the defendant no.2 TSL claimed amounts
allegedly payable by the plaintiff in terms of inter se Agreement Dated
25th March, 2009;
(xix) the defendant no.3 Docomo has filed OMP (EFA) (COMM)
No.7/2016 in this Court seeking execution of the Arbitral Award
against the defendant no.2 TSL; and,
(xx) that the defendant no.2 TSL in the aforesaid proceedings has
contended that since the defendant no.4 RBI has refused permission to
make payment to the defendant no.3 Docomo for transfer of shares,
the Arbitral Award cannot be enforced.
2. The plaintiff, on the aforesaid pleas, has sought the reliefs in this suit
of (i) declaration that the inter se Agreement dated 25th March, 2009
particularly Clause 4 thereof whereunder the plaintiff has agreed to
indemnify the defendant no.1 TTL and defendant no.2 TSL is unenforceable,
illegal, null and void and not binding on the plaintiff; (ii) declaration that
Clauses 5.7 and 5.8 of the Shareholders Agreement dated 25th March, 2009
between the defendant no.1 TTL and defendant no.2 TSL on the one hand
and defendant no.3 Docomo on the other hand are unenforceable, illegal,
null and void and not binding on the plaintiff; and, (iii) permanent injunction
restraining the defendant no.1 TTL, defendant no.2 TSL and defendant no.3
Docomo from in any manner making, pursuing and / or enforcing any claim
against the plaintiff in respect of and / or arising out of inter se Agreement
CS(COMM) No.246/2017 Page 5 of 13
dated 25th March, 2009 and the Shareholders Agreement dated 25th March,
2009.
3. The suit came up before this Court first for admission on 19 th April,
2017, when the following queries (coupled with my reasons / observations)
were made from the counsel for the plaintiff:-
"4. I have enquired from the counsel for the plaintiff
the need for the plaintiff to file the present suit and have put
it to the counsel for the plaintiff, whether not the plaintiff
can take all the pleas as taken in this plaint in its defence to
the proceedings if any initiated against it in enforcement of
the agreements aforesaid whereunder the plaintiff is
obligated to so re-purchase the shares sold by it to Docomo.
5. I am of the view that a person against whom a
demand with a threat of legal proceedings is made cannot
be permitted to rush to the Court to seek declaration that
the demand is bad and that the remedy of such person is to
contest the legal proceedings and to take all the pleas on
which the relief of declaration is claimed in the defence to
the suit.
6. For institution of a suit, a cause of action is a must
and a legal demand enforceable with a legal proceeding,
even if coupled with threat of the legal proceedings, cannot
in my view constitute a cause of action. If all persons to
whom notices preceding legal proceedings are issued are
permitted to so rush to the Court, the same will result in
multiplicity of proceedings.
7. The words „Cause of Action‟ are not empty words
and imply that the plaintiff should have a grievance for
redressal of which it is necessary for the plaintiff to
approach the Court. A threat of legal proceedings cannot
be such a grievance. It is for this reason only that Section
41 of the Specific Relief Act, 1963 also prohibits injunctions
from being granted to restrain any person from prosecuting
a judicial proceeding unless such restraint is necessary to
CS(COMM) No.246/2017 Page 6 of 13
prevent multiplicity of proceedings.
8. In fact, the relief claimed by the plaintiff of
permanent injunction is in the teeth of the bar contained in
the said Section 41 of the Specific Relief Act.
9. Whenever the Legislature felt a need to constitute a
legal notice as a cause of action, it has provided so.
Mention in this regard may be made of Section 60 of the
Copyright Act, 1957 and Section 142 Trade Marks Act,
1999 pari materia which enables a suit to be filed against
threats of infringement. However as per proviso thereto,
the said provision also does not apply once the legal
proceedings as consequence of threat are instituted.
10. The counsel for the plaintiff has candidly stated
that if the plaintiff awaits the legal proceedings, Tata Sons
would invoke arbitration under the arbitration clause
contained in the agreement aforesaid.
11. The aforesaid rather shows the suit to be also in
abuse of the process of this Court. It is clear that the suit is
intended as a spoke in the arbitration proceedings
anticipated by the plaintiff. Though the existence of an
arbitration clause is not a bar to the very maintainability of
the suit, till the defendants invoke Section 8 / Section 45 of
the Arbitration and Conciliation Act, 1996 but the Court
will certainly not allow its jurisdiction to be invoked to
defeat / delay the right of another to invoke arbitration.
12. The counsel for the plaintiff, on enquiry as to why
the plaintiff has not invoked the arbitration clause, states
that Docomo, Reserve Bank of India (RBI) impleaded as
defendant No.4 and Union of India (UOI) impleaded as
defendant No.5 are not parties to the arbitration agreement
and their presence is necessary for adjudication of the pleas
as raised by the plaintiff in this suit.
13. In this regard it is stated that though Tata Sons
since the filing of this suit has applied for recording of the
compromise of its disputes with Docomo pending before this
Court but RBI / UOI raised objection thereto.
CS(COMM) No.246/2017 Page 7 of 13
14. I am doubtful whether for such reasons RBI / UOI
can be said to be necessary or proper parties to the disputes
which may arise in arbitration. Taking a plea, of an
agreement being against the public policy within the
meaning of Section 23 of the Indian Contract Act, 1872,
does not require impleadment of UOI as a party to the
proceedings where such a plea is taken. It is for the Court /
Arbitral Tribunal to decide on the basis of the material
before it the agreement which is sought to be enforced in the
proceedings is against the public policy and hit by Section
23 of the Contract Act or not.
15. The need for the presence of Docomo in the
arbitration is pleaded on the ground that the plaintiff is
being called upon to re-purchase directly from Docomo.
However, the counsel agrees that the agreement aforesaid
itself provides for the plaintiff to re-purchase directly from
Docomo. It will always be open to the plaintiff, if it is so the
contention, to contend that Tata Sons cannot enforce the
said obligation and in the event of Docomo enforcing the
said obligation, again all defences would remain open to the
plaintiff.
16. The arbitration clause aforesaid is for arbitration
proceedings to take place at Mumbai.
17. I have enquired from the counsel for the plaintiff
the basis on which the territorial jurisdiction of this Court
in invoked.
18. The counsel for the plaintiff states that since the
registered office of Tata Teleservices which is a party to the
agreement is situated at Delhi and since meetings have
taken place at Delhi, this Court would have territorial
jurisdiction.
19. The registered office of Tata Sons is admittedly at
Mumbai and the agreement aforesaid was executed at
Mumbai. The notices issued by Tata Sons to plaintiff have
also been issued from Mumbai. The enforcement of the
agreement / obligation has been claimed not by Tata
Teleservices but by Tata Sons. The presence of Tata
CS(COMM) No.246/2017 Page 8 of 13
Teleservices as a party to the agreement was merely as a
confirming party with no rights and obligations and the
existence of its registered office at Delhi cannot furnish
jurisdiction to the Courts at Delhi. The agreement
aforesaid provides for enforcement of the decision of the
arbitration also in the Courts at Mumbai, displaying an
intention of the parties of having agreed to the exclusive
jurisdiction of the Courts at Mumbai only.
20. The counsel for the plaintiff seeks time to make
further submissions, if any.
21. List on 26th April, 2017."
4. The counsel for the plaintiff has today referred to:
(i) Radnik Exports Vs. Standard Chartered Bank 2014 SCC
OnLine 3404 (appeal whereagainst is informed to have been
dismissed as withdrawn) in para 27 whereof I have held:
(a) that under Section 34 of the Specific Relief Act, 1963,
negative declaration can also be claimed; it is thus
possible thereunder to sue for declaration that the
plaintiff is free of debt; and,
(b) that Section 34 is not the sole repository for the relief of
declaration and it is open to every person against whom a
bank or financial institution may have a claim for
recovery of a debt to sue in a Civil Court on the same
grounds on which he may have a defence before the Debt
Recovery Tribunal (DRT) to such claim of a bank /
financial institution, for declaration that he is not a debtor
of the bank / financial institution and is not liable to pay
any amount to the bank / financial institution.
CS(COMM) No.246/2017 Page 9 of 13
(ii) Rolls-Royce Plc Vs. Unite the Union
MANU/UKWA/0375/2009 holding:-
(A) that the power of the Court to grant declaratory relief is
discretionary;
(B) there must, in general, real and present dispute between
the parties before the Court as to the existence or extent
of a legal right between them;
(C) however, the claimant does not need to have a present
cause of action against the defendant; and,
(D) that the fact that the claimant is not a party to the relevant
contract in respect of which a declaration is sought is not
fatal to an application for declaration, provided that it is
directly affected by the issue.
(iii) Gouriet Vs. H.M. Attorney-General 1978 A.C. 435 holding
that:-
(I) for the Court to have jurisdiction to declare any legal
right, it must be one which is claimed by one of the
parties as enforceable against an adverse party to the
litigation, either as a subsisting right or as one which may
come into existence in future, conditionally on the
happening of an event;
(II) a party applying for declaratory relief need not have a
subsisting cause of action or a right to some other relief
as well;
CS(COMM) No.246/2017 Page 10 of 13
(III) relief in the form of a declaration of a right is generally
superfluous for a plaintiff who has a subsisting cause of
action; and,
(IV) it is, when an infringement of the plaintiff‟s rights in
future is threatened or when, unaccompanied by threats,
there is a dispute between parties as to what their
respective rights will be if something happens in the
future, that the jurisdiction to make declaration of rights
can be most usefully invoked.
5. I have considered the aforesaid and am still unable to find the plaint to
be disclosing a cause of action for the reliefs claimed.
6. As far as the reliance placed on my judgment in Radnik Exports supra
is concerned, I was therein concerned with a suit for declaration that the
"Structured Currency Option" Agreements entered into by the plaintiff with
the defendant Bank were agreements by way of wagers hit by the bar of
Section 30 of the Indian Contract Act, 1872 and consequently void and
unenforceable and for permanent injunction restraining the defendant Bank
from in any manner acting upon or seeking to enforce any transaction under
the said agreements. What the counsel for the plaintiff has relied upon is not
what was held in that case; rather the suit was found to be not maintainable
and was dismissed reasoning (i) that if it were to be held that the suit was
maintainable and the defendant Bank initiated proceedings under the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT
Act), the possibility of the Civil Court and the DRT rendering conflicting
findings could not be ruled out and in which case the finding of the Civil
CS(COMM) No.246/2017 Page 11 of 13
Court will prevail over the finding of the DRT; (ii) however, such an
interpretation would set at naught the very reason for the enactment of the
DRT Act and establishment of the DRT and would lead to a waste of effort
on the part of DRT in adjudication, if the same were not binding; (iii) the
same could not be permitted; (iv) that the jurisdiction of the Civil Court to
entertain a suit for declaration is thus necessarily barred and it matters not
whether on the date of institution of the suit the bank had initiated any
proceedings before the DRT or not and whether the said proceedings were
pending or not; and, (v) as long as the declaration claimed in the suit is the
same as the defence which could be raised by the plaintiff to a claim by the
defendant Bank before the DRT, the jurisdiction of the Civil Court would be
barred and the consequential relief of permanent injunction against recovery
would also be barred.
7. It would thus be seen that Radnik Exports is against the plaintiff
herein rather than being in favour of the plaintiff who has relied upon the
same.
8. What has been held by me in Radnik Exports in the context of the
DRT Act and Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act), would apply
equally to the present case. The inter se Agreement between the plaintiff on
the one hand and the defendant no.1 TTL and defendant no.2 TSL on the
other hand and which TTL and TSL have made the claim against the
plaintiff which is pleaded as the cause of action for this suit, provides for
arbitration. If the claim made by the defendant No.1 TTL and defendant no.2
TSL against the plaintiff is not settled, the defendant No.1 TTL and the
CS(COMM) No.246/2017 Page 12 of 13
defendant no.2 TSL would have to invoke the arbitration clause contained
therein. It is not in dispute that what the plaintiff has pleaded in the plaint in
the present suit would be the defence of the plaintiff in the said arbitration
proceedings. If the suit for declaration were to be entertained and
simultaneously the arbitration is also invoked, the same will again result in
the possibility of conflicting findings by this Court and by the Arbitral
Tribunal.
9. Just like the DRT Act and the SARFAESI Act bar the jurisdiction of
the Civil Court, similarly Section 5 of the Arbitration and Conciliation Act,
1996, wording whereof commences with a non obstante clause, bars judicial
intervention except as provided in Part-I of the said Act. Part-I of the said
Act certainly does not provide for a person against whom a claim which if
not settled has been agreed to be subject matter of arbitration, rushing to the
Civil Court for a declaration that he is not liable for the claim. The dicta in
Radnik Exports, thus squarely applies.
10. Else, I confirm my observations contained in the order dated 19th
April, 2017 relevant part whereof has already been reproduced hereinabove.
11. The suit is found to be not maintainable and is dismissed. Resultantly,
the pending application being IA No.4079/2017 under Order XXXIX Rules
1&2 of the Code of Civil Procedure, 1908 (CPC) is also infructuous.
12. Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J.
APRIL 26, 2017 „pp‟..
(corrected & released on 14th October, 2017) CS(COMM) No.246/2017 Page 13 of 13