1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 423 OF 2009 Unity Realty and Developers Ltd., A company incorporated under the Companies Act, 1956 having its registered office at K.K. Tower G.D.Ambedkar Marg,Parel Tank Road, Parel, Mumbai 400 012. ...Petitioner. Vs. 1 BW Highway Star Pvt. Ltd. K.K.Tower, Parel Tank Road, G.D.Ambedkar Marg, Mumbai 400 012. 2 Kamat Hotels (India) Limited 70/C, Nehru Road, Adjacent to Domestic Airport, Vile Parle (East), Mumbai 400099. 3 Clearwater Capital Partners(Cyprus) Limited 12 Esperidon Street, 4th floor, 1087, Nicolsia, Cyprus, And 201, 2nd floor, Central plaza, 166 CST Road, Kalina, Mumbai, And 4, Battery Street, Bank of China Building, Singapore. 4 BSEL Infrastructure Reality Limited, BSEL Tech Park, Sector 30-A, Plot 2 No.3915, 3915A, Vashi, Navi Mumbai 400705. ...Respondents. Mr. Navroj Seervai, Sr. Counsel a/w Chetan Kapadia, Mr. Manish Desai, Mr. Amit Jajoo, Mr. Saket Mone, Ms. Nidhi Singh i/by M/s. Paras Kuhad & Associates for the Petitioner. Mr. C.U. Singh, Sr. Counsel a/w Mrs. Soma Singh i/by Mr. T.R. Yadav for Respondent No.1. Mr. Rajendra Pai with Mr. Alokik Pai i/by Ms. Bina Pai for Respondent No.1. Mr. T. Subramaniam, Sr. Counsel i/by Ms. Suvarna Joshi for Respondent No.2. Mr. Anand Desai with Ms. Raksha Kothari with Mr. Munaf Virjee i/by M/s. DSK Legal for Respondent No.3. Mr. P.A.Kabadi with Mr. Shrikant Doijode i/by M/s. Doijode Associates for Respondent No. 4. CORAM :- ANOOP V. MOHTA, J. DATED :- 24th September, 2009. JUDGMENT: The parties have no objection if this Bench heard this matter finally. Accordingly, heard the parties. 2 The Government of Maharashtra (The GOM),some time in November, 2006 invited a tender for development and construction of a Hotel and Mall Project (The project) on Built, Operate and Transfer (BOT) basis at Balewadi, Pune. The project was for a period of 60 years to build hotels with all amenities and facilities for participants of the 3rd Commonwealth Games which were to be 3 held in Pune in October, 2008. The time was of essence for the project. 3 The Unity Infrastructure Projects Ltd., (UIL) and Respondent no.4- BSEL Infrastructure Reality Limited (BSEL) were the joint successful bidders. A Letter of Acceptance dated 02.01.2007 (LOA) was issued in favour of the Unity Infrastructure Projects Ltd. (UIL) which is 100% holding company of the petitioner (URDL). 4 On 31.01.2007 a Joint Venture Agreement (JVA) entered into between UIL, BSEL and respondent no.2-Kamat Hotels (India) Limited (KHIL). 5 The parties proceeded accordingly, held various meetings and took various decisions including to raise finance for the project. 6 On 21.04.2007, respondent no.1-BW, (the company) was incorporated with equal promoters subscription by URDL, KHIL and BSEL. Mr. Kishore K. Avarsekar became first Director and Chairman of the Company under the Articles of Association. 7 The Articles of Association of the company (the Articles) provides an Arbitration clause which is reproduced as under: “71 Any dispute, controversy, claim or disagreement of any kind whatsoever between or among the Company and/or the Shareholders in connection with or arising out of these Articles or any inter se arrangement between them shall be referred to and finally resolved by arbitration in accordance with the Rules of the Singapore International Arbitration Centre held at Mumbai, irrespective of the amount in dispute or whether such dispute would otherwise be considered justifiable or ripe for resolution by any court, and the arbitration award shall be final and binding on both the Company and the Shareholders.” The other arbitration clause 18.5 of SHA is as under: 4 “Any Disputes and differences whatsoever arising under or in connection with this Agreement which could not be settled by parties through negotiations, after the period of 30 (thirty) days from the service of the Notice of Dispute, shall be finally settled by arbitration in accordance with the Rules of the Singapore International Arbitration Centre: (a) All proceedings shall be conducted in English; (b) The arbitral tribunal would comprise of 3 (three) arbitrators. 1(one) arbitrator shall be appointed by Clearwater, one arbitrator shall be appointed jointly by the company and the JV Partners and the two arbitrators so appointed, would jointly appoint the third; and (c) The venue of arbitration shall be in Mumbai.” 8 The company entrusted the construction of the hotel project to UIL by contract dated 01.05.2007. The execution of the project was under the supervision of KHIL. Therefore, at its instance, various plans, the scope and the specification of hotel designs of the projects were revised. That escalated the total project cost also. 9 A Power of Attorney was given to Mr.V.S.Kamat to represent respondent no. 1 through a Resolution dated 28.06.2007 of the company. 10 On 16.07.2007 a Concession Agreement executed by the company with the GOM as per the LOA. 11 The Company thereafter availed further loan of Rs.100 crores from ICICI Bank between July to August 2007. The same was increased upto Rs.150 crores which was secured by Corporate Guarantees of UIL, the holding company of URDL. URDL contributed a sum of Rs.20 crores as unsecured loan to the company. These funds are alleged to have been misappropriated by the 5 petitioner and UIL under the direction and control of Mr.Kishore Avarsekar and Mr.V.S.Kamat. 12 On 1st October, 2007, Mr.Avarsekar resigned as Director of the company and Mr.V.S.Kamat was appointed as an Additional Director of the company. 13 On 15.11.2007 the Company entered into a “Hotel Operating Agreement” with KHIL. 14 As cost was escalated because of revision, it was decided to allow respondent no.3-Clearwater Capital Partners(Cyprus) Limited (CCPL) or (Clearwater) to invest Rs.48.51 crores in exchange of 57,64,706 Class “A” Equity shares of the company. Clearwater which holds 3.90% Equity capital of KHIL agreed to participate as investor shareholders in the company. In this background, two mutual (the definitive documents) co-existing Agreements dated 1.11.2007 were executed recording the agreed terms between the parties called as “Share Subscription Agreement” (SSA), and a “Shareholders Holding Agreement” (SHA) between CCPL, URDL, KHIL, BSEL and the company. 15 The Company, some time in June, 2008, secured further loan of Rs.50 crores from ICICI Bank. There are allegations & counter allegations of the defaults and the misappropriation of the funds. 16 Respondent no.2-KHIL, some time in August, 2008, acquires 9% of the shares of Respondent no.4-BSEL.The petitioner agrees to acquire 8% of the shares of respondent no.4-BSEL. However, the petitioner acquired only 2% of the shares as defaulted in the payments thereof. Since August 2008, Respondent no.2 held 26% and the petitioner 19.35% shareholding. The petitioner did not object to the 6 permitted interse-transfer between respondent no.2-KHIL and respondent no.4- BSEL. 17 It is alleged that Mr. Avarsekar and Mr. V.S.Kamat, some time in September, 2008, procured Certificates from the Architect Mr.Upasani Design Cell for an amount of Rs.275 crores which includes Rs.9 crores towards working capital, which is also alleged to have been misappropriated by the petitioner and UIL. 18 In this process, as alleged, the project was in incomplete stage and not ready for the desired commercial use. Therefore, some time in October, 2008, respondent no.2-KHIL took possession of incomplete and unfurnished hotel held by the company in terms of Management and Operation Agreement. They are compelled to improve the condition of the hotel for the purpose of achieving the object for which it was developed and constructed. All the representatives and Directors of respondent no.1-the company, in view of various commissions and omissions on the part of the petitioner and UIL, protested in the Board meetings and recorded accordingly in the Minutes of the company dated 5.12.2008 and 12.12.2008 which were prepared by Mr.Mahesh Kondoi, who was authorised to draft the same. 19 Between January, 2009 to April, 2009 various Board Meetings were held to discuss issues including change of address of Registered Office. These Minutes were forwarded to Mr.V.S.Kamat for signing. However, he alleged to have refused to sign these Minutes. 20 Another Board meeting was called by Mr. V.S. Kamat by Notice dated 18.05.2009. The meeting was scheduled to be held on 21.05.2009. The 7 provisional agenda was also circulated. On 18.05.2009 Clearwater sold 49% shares to KHIL, without prior consent/notice/intimation to other JVA Partners. 21 On the same day, Clearwater appointed Mr.Vithal Kamat and Mr.Vikram Kamat as its nominee and Directors in exercise of the power conferred upon it under Articles 44 and 46. The letter was communicated to all the representatives of the company, including Mr.V.S.Kamat. 22 On 19.05.2009, a representative Director of respondent no.2-KHIL on the Board of the company gave his conditional consent for holding Board Meeting on 21.05.2009, subject to inclusion of additional items of agenda. 22-A The first Resolution dated 21.05.2009 was of the company (Ex.I). 23 On 21.05.2009 the Board meeting of the company was duly convened as per the respondents, which is recorded in the Minutes at Exhibit J. There are two disputed minutes of the Board meetings of respondent no.1 on the record. The second set of resolutions (Exh. J) was circulated by a letter dated 22/05/2009 under the signature of Dinkar Jadhav as a Director of respondent no. 1. 24 The petitioner received on 21.05.2009 a Winding Up Notice issued by UIL by e-mail through its Advocate. KHIL resisted and replied the same. 25 As per letter dated 22.05.2009, KHIL as transferee of Clearwater adopted and accepted Mr.Vithal Kamat and Mr.Vikram Kamat as its nominee Directors on the Board of the company dated 21.05.2009 (Ex. J) and proceeded and passed resolution accordingly. It is also stated that on & from 21.05.2009, respondent no.1 has became a subsidiary of respondent no.2. 8 26 On 01.06.2009, the petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, the Act) for various interim injunctions and measures and protections. 27 The existence of arbitration clause and the subject matter of the dispute arising out of the same, in the present case, need to be judged from the two arbitration clauses i.e. Article 71 and clause 18.5 of the SHA. There is no dispute with regard to the above clauses of the written agreement between the parties. Considering the above facts/events, I am not inclined to accept that the present dispute is primarily between the petitioner and respondent no.2. I am also not accepting the submission that other respondents have no right or claim or dispute with regard to the allegations and/or averments and right so claimed by the petitioner. The whole action or inaction of the parties in the present case are interlinked and interconnected. They cannot be separated only for the purposes of settling their dispute through Article 71 or clause 18.5 of the SHA. The submission, therefore, that clause 18.5 of the SHA deals with and provides a dispute between respondent no.3 and respondents 1, 2 and 4 only is unacceptable. Both these clauses of arbitration provides resolution of disputes in accordance with the Arbitration Rules of the Singapore International Arbitration Centre, in Mumbai, (SIAC Rules), therefore, at this prima facie stage, I am convinced that there exists an arbitration clause between the parties and the dispute so raised need to be adjudicated as per the SIAC Rules. 28 Articles 19 and 71, therefore, just cannot be read to accept that there exists interse dispute only between the shareholders. The fact that there exists written arbitration clauses between the parties but which should prevail, as contended, 9 in my view, in the present case, is a matter of detail trial and interpretation of the documents. It is difficult to dissect and decide as contended by the counsel for the respondents that the dispute in question is not arbitrable for the purposes of Sections 7 and 9 of the Act. Article 71 constitutes an arbitration agreement/clause between the parties which is a binding contract. In Claude Leela Parulekar (Smt.) vs. Sakal Papers (P) Ltd. & ors., (2005) 11 SCC 73, it is held that the Articles constitute a contract not merely between the shareholders of the company, but between individual shareholders also. The modality and/or the procedure, even if is different (clause 18.5 of the SHA and Article 71), but this itself means the existence of basic arbitration agreements between the parties. 29 In view of this, the reliance on Sumitomo Corporation vs. CDC Financial Services (Mauritius) Ltd., (2008) 4 SCC 91, by the respondents with regard to the arbitrability of the dispute and coverage of the said dispute and that the Company Law Board (CLB) would have only jurisdiction is also not acceptable. The facts and circumstances in Sumitomo (supra) are distinct and distinguishable. 30 Having once held that there exists arbitration clauses and the arbitral dispute and as there is no bar of any kind and as all ingredients of Sections 7 and 9 of the Act are present and as parties have agreed to settle their dispute through the SIAC Rules, the present proceedings cannot be said to be not maintainable. On the contrary, if there exists such arbitration clause, it is necessary for the Court to pass appropriate orders under Section 9 of the Act. 31 Apart from above, the petitioner has already approached the Singapore 10 International Arbitration Centre (SIAC) and has taken steps for constitution of the Arbitral Tribunal of Mr.Manoj Thakar. The notice dated 04.08.2009 and the statement of dispute as required under clause 3 of the SIAC Rules has been submitted to SIAC along with filing fees. The Advocate for KHIL by letter dated 6.6.2009 addressed to the petitioner’s Advocate to place on record the procedure to be followed for invoking arbitration clause. The petitioner addressed to suggest the names of Arbitrators for the purposes of constitution of the Arbitral Tribunal. In this background also, it is sufficient to hold that there exists arbitration clause and dispute falls within the ambit of Articles i.e. Article 71. 32 Respondent no.4-BSEL, though part of Consortium with UIL who got the project and who decided to have experience of respondent no.2-KHIL and, accordingly, formed respondent no.1-the Company has not denied the averments made by the petitioner in any way. No submission or written submission made on their behalf also. Respondent no.4 is also party to the arbitration clause along with respondent no.2-KHIL. Therefore, there is no objection of any kind raised by respondent no.4 about the existence of arbitration clause and the arbitrability of the issue. The presumption is that respondent no.4 is also supporting the petitioner in all respects. 33 Respondent no.1-the company has been represented by two Counsel. Mr.Pai, the learned Counsel has represented Mr.Vithal Kamat and Mr.Vikram Kamat, who alleged to have conducted the meeting after the first Board meeting dated 21.05.2009 (Ex.J.). Mr. C. U. Singh, the learned Senior Counsel appeared on behalf of Mr. V. S. Kamat, who called upon the Board meeting by notice dated 18.05.2009 and circulated the agenda for 21.05.2009 11 and as recorded in Ex. I. The Court has allowed the learned Counsel to make submissions so as to give opportunity to all, to submit their respective cases and based upon the events prior to 21.05.2009’s Board meeting and the events thereafter. As of today Mr.Vikram Kamat and Vithal Kamat, as recorded, are the elected Chairman/Director of respondent no.1-company, but their nomination/election, based upon the various resolution, Exhibit “J” which are under challenge. The resolution, Exhibit “I” was passed by the Board Meeting, based upon the Chairman/Director/Authorised person Mr.V.S.Kamat who circulated the agenda/notice dated 18.05.2009. 34 The rival submissions are made by the parties revolving around these resolutions i.e. Exhibit “I” and Exhibit “J”. It is, therefore, very clear that the company which is involved needs to resolve the disputes raised and/or cropped up between the shareholders. The transfer of shares of respondent no.3- Clearwater, to respondent no.2, has drastically changed shareholding of the company. Whether such transfer is validly made or not and whether such transfer is permissible or not and whether notices before such transfer ought to have been given or not to other JV Partners and whether the meeting of the company was conducted in accordance with the Rules and clauses of the company and all related aspects further show that all the issues are inter-linked and inter-connected. It is difficult to accept that there is a dispute only between the two JV Partners. The basic requirement is the existence of arbitration clause between the parties. Admittedly, all the parties in the present petition are the parties to the said arbitration clauses. Though, respondent no.1-company formed in 2007 and two definitive documents (SSA and SHA) have been 12 executed by all the parties, yet on 29.11.2007 the company’s Articles of Association were amended. Therefore, as of today, prima facie, all these parties are bound to resolve their dispute through Arbitration clause 71 of the Articles of Association. I am not accepting the submissions that all the parties are not governed by these arbitration clauses. 35 Now, the issue is whether a case is made out by the petitioner for the interim reliefs as prayed. Those prayer clauses are as under: “a. Pending hearing and final disposal of the Arbitration proceedings, the Respondent Nos. 2 and 3 be restrained from exercising any rights including rights of transfer and or voting rights in respect of and in relation to the 57,64,706 (Fifty seven lakhs sixty four thousand seven hundred and six only) equity shares of the respondent no.1 being distinctive nos. from 60,00,001 to 1,17,64,706 transferred by respondent No.3 to respondent no.2. b. That pending the hearing and final disposal of the Arbitration proceedings Respondent No.2 it servants, nominees agents be restrained from and in any manner participating on the Board of Respondent No.1 except through one Nominee director as provided in the Articles of Respondent No.1; c. That pending the hearing and final disposal of the Arbitration proceedings the Respondent No.3, its servants, agents, nominees be restrained from and in any manner participating on the board of the Respondent No.1; 13 d. That pending the hearing and final disposal of the arbitration proceedings and the implementation of the Award therein, the Respondents, their assignees, representatives be restrained by an Order and Injunction of this Hon’ble Court from and in any manner acting upon the purported resolutions copi9es of which are annexed at Exhibit J; e. That pending the hearing and final disposal of the arbitration proceedings and the implementation of the Award therein, the Respondent No.1 Company be restrained by Order and Injunction of this Hon’ble Court from modifying or amending the register of shares held by each shareholder or in any other manner transferring the shares of Respondent No.3 in favour of Respondent No.2 or amending the Memorandum of Association or Articles of Respondent No.2; f. That pending the hearing and final disposal of this petition, the respondent Nos. 2 and 3 be directed to disclose the price and the terms and conditions and other details upon which the Respondent No.3 has illegally transferred its 49% share holding in the Respondent No.1 to the Respondent No.2; g. ad-interim reliefs in terms of prayers (a) to (f) above; h. that, such other incidental relief as this Hon’ble Court may deem fit and proper; 14 i. that costs of this petition be provided for.” 36 The relevant clauses of the articles which the parties have made submissions are as under: Some of the definitions are as under : “ “Competitor” shall mean any person whose primary business is of owning and operating hotels or malls in India. “Hotel Operating Agreement” shall mean the hotel operating agreement entered into between the Company and KHIL. “JV Partners” shall refer to URDL, KHIL and BSEL collectively and “JV Partner” shall refer to any of them individually. “Person” shall mean and include an individual, an association, a firm, a corporation, a partnership, a joint venture, a trust, an unincorporated organisation, a joint stock company, governmental or statutory authority, including a government or political sub-division, or agency or instrumentality thereof or other entity or organisation. “Proposed Transferee” shall have the meaning ascribed to it in Article 23(a). “Reserved Board Matters” shall mean the matters which require the affirmative vote of any one Clearwater Director and any one of the JV Partner Directors as set out in Article 56. “Shareholders” shall mean and collectively refers to the JV 15 Partners and Clearwater and any person who becomes a shareholder of the Company pursuant to the terms of these Articles. “Transfer” shall mean (i) any transfer or other disposition of the Equity Shares or voting interests or any interest therein, including, without limitation, by operation of law by court order, by judicial process, or by foreclosure, levy or attachment; (ii) any sale, assignment, gift, donation, redemption, conversion or other disposition of such Equity Shares or any interest therein, pursuant to an agreement, arrangement, instrument or understanding by which legal title to or beneficial ownership of such Equity Shares or any interest therein passes from one person to another person or to the same person in a different legal capacity, whether or not for value; (iii) the granting of any security interest, lien, pledge, mortgage, hypothecation or charge in or extending or attaching to such Equity Shares or any interest therein; the term “Transferred” shall be construed accordingly.” “17 The Board may decline to register any Transfer of any certificates representing Shares or issue any certificates in lieu thereof unless the Transfer is in compliance with all the provisions of these Articles of Association. A purported Transfer that is not in accordance with the Articles of Association shall be void. 18 Without prejudice to the generality of the aforesaid power but subject to the provisions of these Articles, the Board may refuse to register any Transfer of Shares: 16 (a) where the Company has lien on a Share, or (b) in case of Shares not fully paid up, where it is not proved to their satisfaction that the proposed transferee is a responsible person, or ( c ) where the Directors are of the opinion that the proposed transferee (not being already a member) is not a desirable person to admit to membership, or ( d) where the result of such registration would be to make the number of members exceed the limit fixed by Article 4. 19 The Shareholder(s) shall not, directly or indirectly, Transfer all or any of the Shares held by them except in accordance with these Articles. Any Transfer in breach of these Articles, including this Article 19, shall be null and void, and shall not be binding on the Company. Notwithstanding any restrictions stated herein, the Equity Shares may be transferred in accordance with Article 20 (Transfer of Shares by JV Partners), Article 21 (Transfer to Affiliates), Article 22 (Permitted Transfers), Article 23 (JV Partners’ Right of First Refusal) Article 24 and 25 (Tag Along Rights) and Article 31 (Drag Along Rights) hereinafter. 20 No JV Partner (“Transferring JV Partner”) shall transfer any of the Class B Equity Shares held by it to any person other than the JV Partners till such time as Clearwater continues to hold any 17 Class A Equity Shares of the Company, without the prior consent of the remaining JV Partners. The terms of such Transfer by the Transferring JV Partner shall be decided by mutual consent between all 3 (three) Partners. 21 Clearwater may Transfer its Shares to an Affiliate without attracting the provisions of Article 22 (Permitted Transfer). 22 (a) Clearwater may Transfer its Shares to any person, subject to Article 23 (JV Partners Right of First Refusal). Article 24 (JV Partners Tag Along Right), Article 28 (Joint Exit), Article 29 (Purchasing Shareholder Offer), Article 30 (Clearwater Exit) and Article 31 (Drag Along Right). Any Transfer of Shares by Clearwater shall, other that as specified in Article 24(d), be along with all rights pertaining to such Shares. (b) No JV Partner shall Transfer the Shares held by it for a period of 18 (eighteen) months from the date on which the construction of the Hotels is completed and a