1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.302 OF 2007 WITH CHAMBER SUMMONS NO.1458 of 2007 IN ARBITRATION PETITION NO.302 OF 2007 Novartis Vaccines & Diagnostics Inc. ..Petitioner. V/s. Aventis Pharma Ltd. & Ors. ..Respondents. WITH ARBITRATION PETITION NO.348 OF 2007 Chiron Behring Vaccines Pvt.Ltd. ..Petitioner. V/s. Aventis Pharma Ltd. & Ors. ..Respondents. WITH ARBITRATION PETITION NO.375 OF 2007 Novaris Vaccines & Diagnostic Inc. ..Petitioner. V/s. Aventis Pharma Ltd. & Ors. ..Respondents. WITH NOTICE OF MOTION NO.2490 OF 2007 IN SUIT NO.1847 OF 2007 Aventis Pharma Ltd. ..Plaintiff. V/s. Novartis Vaccines & Diagnostics Inc. & Ors. ..Defendants. Mr.Harish Salve and Mr.Janak Dwarkadas, Senior Counsel 2 a/w Mr.Rahul Narichania,Ms.Meenakshi Grover, Mr.M.N. Mulla and Mr.Siddharth Thacker i/b.Mulla and Mulla for Novartis Vaccines & Diagnostics Inc. Mr.F.S.Nariman, Sr.Counsel, Mr.D.J.Khambatta, Sr.Counsel with Mr.S.R.Kathawalla i/b. Bachubhai Munim & Co. for the Plaintiff. Mr.Iqbal Chagla & Mr.L.Pereira, Counsel a/w Mr.Vikram Trivedi, Mr.Sachin Chandarana & Ms. Sanaya Dadachanji for the Defendant No.5, Chiron Behring Vaccines Pvt.Ltd. Mr.Rohit Kapadia, Sr.Counsel a/w Mr.Ashish Kamat i/b. Mr.Parvez Rustomkhan for Defendant No.2. Mr.F.Devitre, Sr.Counsel a/w Mr.Zal Andhyarujina i/b. Ms.Meena Phulbande for Defendant No.3. Mr.Atul Rajadhyaksha, Sr.Counsel a/w Mr.S.Jagtiania and Mr.Kavas i/b. Vikram Philip & Associates for Defendant No.4. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : OCTOBER 3, 2007. DATE : OCTOBER 3, 2007. DATE : OCTOBER 3, 2007. P.C. : P.C. : P.C. : 1. All the above proceedings can be considered together. In this Judgment, for the sake of convenience, I shall refer to the parties as per their description in the Plaint in Suit No.1847 of 2007. 2. The Arbitration Petition No.302 of 2007 has been filed by the Defendant No.1, under Section 45 of the Arbitration and Conciliation Act, 1996(hereinafter referred to as the Act), praying that the Defendant No.1 and the Plaintiff be referred 3 to Arbitration in accordance with the Article 8 of the Shareholders’ Agreement dated 22nd April, 1998 and Article 13.10 of the Joint Venture Agreement(hereafter referred to as JVA) dated 22nd April, 1998. 3. The Defendant No.1 has taken out Chamber Summons No. 1458 of 2007 in the above-said Arbitration Petition, for amendment of the Arbitration Petition, as per the draft amendment set out in Schedule "A" thereto. 4. The Arbitration Petition No.348 of 2007, has been filed by the Defendant No.5, under Section 45 of the Act, requesting this Court to refer the Defendant No.5 and the Plaintiff to Arbitration in accordance with the Arbitration clause contained in Article 16.11 of the Marketing and Distribution Agreement(hereinafter referred to as MDA) dated 1st May, 1998. 5. The third Arbitration Petition, being Arbitration Petition No.375 of 2007, has been again filed by the Defendant No.1, under Section 45 of the Act, requesting the Court to refer the Defendant No.1 and the Plaintiff to arbitration in accordance with 4 the Clause 13.10 of the JVA dated 22nd April, 1998. This Petition has been filed in response to the objection taken on behalf of the Plaintiff of mis-joinder of reliefs in the foremost Arbitration Petition. At the same time, the Defendant No.1 has filed the abovesaid Chamber Summons No.1458 of 2007, amongst others, for amending prayer clause (a) of the former Arbitration Petition No.302 of 2007 so as to restrict the relief to refer the Defendant No.1 and the Plaintiff to Arbitration in terms of Article 8 of the Shareholders’ Agreement dated 22nd April, 1998 only. 6. Whereas, the Notice of Motion No.2490 of 2007 has been taken out by the Plaintiffs in the main Suit for Interim relief during the pendency of the Suit. However, for the present the Plaintiffs are claiming appropriate ad-interim relief to operate during the pendency of the Notice of Motion. POINTS FOR CONSIDERATION: 7. Essentially, two points are required to be addressed in the present Judgment in all these proceedings taken out by the respective parties. Firstly, whether an order under section 45 of the Act 5 is necessitated in the fact situation of the present case? And whether such an order ought to be passed to refer the Plaintiff and Defendant No.1; Plaintiff and Defendant No.5 to a separate Arbitration or a consolidated Arbitration between Plaintiff, Defendant No.1 and Defendant No.5 ? Secondly, whether the appropriate ad-interim relief ought to be granted in favour of the Plaintiff during the pendency of the Notice of Motion ? BRIEF FACTS: 8. The background in which the stated proceedings have been filed between the parties before this Court can be briefly stated as under : . The Plaintiff, then a Constituent of the Hoechst Group, was established in India on 2nd May, 1956 as Hoechst Fedco Pharma Ltd. In the year 1984, Plaintiff’s name was changed to Hoechst India Limited. It was again changed to Hoechst Marion Roussel Limited(HMRL) in 1996; and from the year 2001 adopted the present name. It is stated that since 2004, the Plaintiff is a constituent of the multinational Sanofi Aventis Group. The Plaintiff is in the business of manufacturing and marketing of 6 pharmaceuticals. It claims to have exclusive right to distribute and market ‘Rabipur’ anti-rabies vaccine in India. 9. It is stated that the Defendant NO.1 was earlier known as ‘Chiron Corporation USA’. Prior to the takeover of Chiron Group by Novartis Group, the Defendant No.1 was a Corporation existing according to the laws of the State of Delaware, U.S.A and has its principal place of business at Philadelphia, Pennsylvania, U.S.A. The Defendant No.1 carries on business of manufacture and sale of pharmaceuticals. 10. The Defendant No.2 formerly known as Behringwerke AG and then Chiron Behring GmbH & Co., which according to the Plaintiff is wholly owned subsidiary of Defendant No.1 and controlled by Defendant No.3. 11. Defendant No.3, according to the Plaintiff, is a multinational conglomerate existing according to the laws of Switzerland having its principal place of business at Basel, Switzerland. It is engaged in the business of manufacturing and marketing of pharmaceuticals by itself and through its affiliates and/or subsidiaries throughout the world. 7 12. The Defendant No.4 is a Public Limited Company, whose shares are listed on Stock Exchange of India and is incorporated and registered under the Companies Act, 1956. It is an affiliate and/or a subsidiary and also a constituent of the Novartis Group, engaged in the business of manufacturing and marketing of pharmaceuticals in India. 13. Defendant No.5 is a private limited company established in October, 1997 as a joint venture company in the nature of a partnership between Chiron Corporation of USA and the Plaintiff to continue to manufacture rabies vaccine under the trade mark/brand name "Rabipur Vaccine" jointly. 14. The said product was earlier exclusively manufactured by the Plaintiff in India prior to formation of the Joint Venture(Defendant No.5). As per the Joint Venture Agreement(JVA) dated 22nd April, 1998, which formed the Defendant No.5 a Joint Venture Company, it stipulates that the Plaintiff shall have holding of 49% of the equity and the Novartis Group through Defendant No.1 shall hold balance 51% of the equity in the Defendant No.5. It is the case of the Plaintiff that Novartis Group of 8 Companies includes the Defendant Nos.1,2 and 4 which in turn, are directly or indirectly controlled and managed by the Defendant No.3, namely, Novartis AG. The 51% of shares to be held by the Defendant No.1 in the Defendant No.5 Joint-venture company within the meaning of the Shareholders Agreement dated 22nd April, 1998, are "beneficially owned" by Defendant No.3 Novartis AG. 15. In substance, the case of the Plaintiff is that prior to formation of the Joint Venture company(Defendant No.5), the Plaintiff was manufacturing the stated pharmaceutical products and exclusively distributing and marketing its product in India, Nepal, Bangladesh and Srilanka, which is referred to as the "HMR Territory". According to the Plaintiff, it is in the business of pharmaceuticals and vaccine in India since 1956. It is the case of the Plaintiff that prior to 1956, Behringwerke then a subsidiary of Hoechst Group was the first inventor of the Rabipur anti-rabies Vaccine(hereinafter referred to as the "Rabipur Vaccine"); and had developed proprietary technical know-how for the manufacture and production thereof consisting of technical data, documents, designs, plans, methods, process, drawings, procedures, specifications, proprietary 9 formulae and process for manufacture of the vaccine. After the establishment of the Plaintiff Company in 1956, the business of the Plaintiff was to manufacture some of the pharmaceutical products of Hoechst Group, import some products and exclusively distribute and market all products in the HMR Territory. It is stated that until 1989, Rubipur Vaccine was imported and exclusively marketed by the Plaintiff in the HMR Territory. All matters associated with importing and marketing- such as packing of the finished product upto the administering of the Vaccine to the affected person, the handling, transporting, distribution, marketing and storing requires special know how, technology and expertise, was provided by the Plaintiff, involving huge costs. The Plaintiff claims to have exclusive right of marketing and distribution of Rabipur Vaccine within the HMR Territory in particular. The said network(hereinafter referred to as "RMN" for Rabipur Market Network), which was the sole and exclusive properties of the Plaintiff. In 1989, the Plaintiff established an undertaking for the manufacture of Rabipur Vaccine at Ankleshwar, Gujarat and commenced manufacturing and production of Rabipur Vaccine. The Rabipur Vaccine so produced was and continues to be distributed and marketed through RMN 10 by the Plaintiffs. 16. It is the case of the Plaintiff that in or around February, 1996, the vaccine business of Behringwerke including that of Rabipur Vaccine was transferred to Chiron Corporation, excluding the business of the Plaintiff of manufacturing and marketing Rabipur Vaccine in HMR Territory. The Plaintiff however, continued to exclusively manufacture, market and distribute Rabipur Vaccine in HMR Territory even after the said transfer in favour of Chiron Corporation. Lateron, Chiron Corporation entered into a Secrecy Agreement on 5th February, 1997 for a possible joint venture in India for vaccine business. The said Chiron Behring, Germany, and the Plaintiff, also executed a Registered User Agreement in respect of the trade mark "Rabipur" to enable the Plaintiff to continue to use the said trade mark in relation to the manufacture of Rabipur Vaccine in India. Thereafter, an Agreement for supply of Seed Virus dated 5th May, 1997 was executed between the Chiron Behring and the Plaintiff. The said Seed Virus is one of the raw materials for the manufacture of Rabipur Vaccine. The said Chiron Behring then executed a license and Technical Collaboration Agreement dated 6th May, 1997 in 11 relation to technical information for the manufacture of Rabipur Vaccine, which license was intended and used solely to apply to the Indian Government for its permission under Foreign Exchange Regulation Act, 1973 to pay to Chiron Behring a royalty on the Rabipur Vaccine. 17. In due course, the letter of intent was signed between the Plaintiff and Chiron Corporation on 17th July, 1997 setting out proposed terms and conditions for establishing a joint venture to jointly "manufacture" Rabipur Vaccine in a joint venture company to be established in which Chiron Corporation will have 51% equity and the Plaintiff would have 49% equity. It was proposed that Joint venture company will purchase and the Plaintiff will sell "only the manufacturing facility" for the production of Rabipur Vaccine for the price noted therein as on 31st March, 1997. 18. To consummate the said letter of Intent, the parties executed following definitive agreements: (a) Financial Collaboration Agreement dated 21st April, 1998 between the JV Company(Defendant No.5), Chiron Corporation 12 USA(Defendant No.1) and the Plaintiff, which provided Defendant No.1 and the Plaintiff to subscribe for and acquire equity shares in the JV Company(Defendant No.5) in the proportion of 51:49 respectively. (b) Joint Venture Agreement dated 22nd April, 1998 between Defendant No.1 and the Plaintiff, which provides for the terms and conditions of the joint venture between the parties. (c) Shareholders Agreement dated 22nd April, 1998, between Defendant No.1 and the Plaintiff, wherein parties agreed to maintain ownership and control of joint venture company between themselves in the manner and on the terms set forth in the JVA. The said agreement is for the purpose of ensuring continuity of the management of their investment in the joint venture company and agreed to exercise their votes at general meeting fully and faithfully in terms of the Agreement. (d) Marketing and Distribution 13 Agreement(HMR Territory) dated 1st May, 1998, between the Defendant No.5 company and the Plaintiff, providing for terms and conditions on the basis of which the Plaintiff shall purchase from the Defendant No.5 and Defendant No.5 shall sell to the Plaintiff stated quantity of products, as the Plaintiff may order from time to time in accordance with the terms of the Agreement. (e) Marketing and Distribution Agreement(Chiron Territories) dated 1st May, 1998, between the Defendant No.5 and Defendant No.1 which provides for the sale of the Rabipur Vaccine manufactured by the Defendant No.5 to Defendant No.1 for sale in territory other than HMR Territory. (f) Service contract dated 1st May, 1998, between the Plaintiff and Defendant No.5, providing for certain services and supplies to be offered by the Plaintiff to the joint venture company(Defendant No.5). (g) The Trade name and Trade Mark licence Agreement dated 1st May, 1998 between the 14 Defendant No.2 and Defendant No.1, whereunder the Defendant No.2 and Defendant No.1 as Licensors granted to Defendant no.5 a license to use "Chiron" mark and "Behring" mark as part of the trade mark "Chiron Behring" for use in connection with the Defendant No.5-J.V.Company’s product and to use said marks as part of the corporate and trade name of the Defendant No.5(JV company) and the "Rabipur mark" for use in connection with the rabies vaccine. (h) License and Technical Collaboration Agreement dated 1st June, 1998 between the Defendant No.2 and Defendant No.5, whereunder the Defendant No.2 granted to the Defendant No.5 an exclusive non-transferable license under the Patents & Technical Information to manufacture the Rabipur Vaccine in India, Nepal, Sri Lanka and Bangladesh. 19. It is the case of the Plaintiff that as per the JVA, the Plaintiff sold and transferred to the Defendant No.5 joint venture company, only the manufacturing facility consisting of land, building, plant and machinery situated at Ankleshwar. The 15 Plaintiff then asserts that until early 2006, the parties to the joint venture faithfully adhered to the fundamental basis of the understanding, terms and conditions of the joint venture. However, the trouble started after Novartis Group took over Chiron Corporation USA and its subsidiaries and affiliates and succeeded to the rights and obligations of Defendant No.1 and of Chiron Behring in the joint venture and the JV company. It is the case of the Plaintiff that in an attempt to take over the distribution and marketing of Rabipur Vaccine in the HMR Territory which exclusively vested in the Plaintiff and preserved under the JVA, Novartis Group formed a vaccine division and identified India as a strategic country for future vaccines growth in the name of Defendant NO.5 JV company. That has been done in breach of JVA and the Distribution Agreement. The Novartis Group also caused to issue notice of non-renewal dated 27th September, 2006 of the Distribution Agreement from 1st May, 2008. According to the Plaintiff, to create false evidence of participation of the directors of the Plaintiff and having consented to the issuance of Notice of non-renewal, Ms.Phoebe Kornfeld a nominee director of Novartis Group on the Board of the JV company as the Chairperson of that meeting has forged and fabricated 16 minutes of the Board Meeting dated 27th September, 2006. In paragraph-26 of the Plaint, the Plaintiff has asserted that by such illegal action the Novartis Group threatened to violate the Plaintiff’s exclusive right to distribute and market Rabipur Vaccine in the HMR Territory, which were not transferred by the Plaintiff to the joint venture company and in fact have been specifically excluded from the JV Agreement, which was sole and exclusive property of the Plaintiff. From paragraph-27 to 45 of the Plaint, the Plaintiff has given the events as unfolded, resulting in issuance of Notice of non-renewal of the Distribution Agreement dated 1st May, 1998 which is to expire by the end of 30th April, 2008. In paragraphs-46 to 57 of the Plaint, the Plaintiff has adverted to the reasons as to why the Notice of non-renewal was expressly in breach of the provisions of JV Agreement and the Distribution Agreement. In paragraph 58 of the Plaint, it is asserted that the Novartis Group is already in the process of preparing itself to take over the marketing of the Rabipur Vaccine in India by appointing Novartis India Ltd.(Defendant No.4) as a distributor of Rabipur Vaccine in India. In paragraph-59 the Plaintiff has asserted that they are holders of 49% of the equity share in the joint 17 venture company (Defendant No.5) and were entitled to file the present Suit as a derivative action for and on behalf of and for the benefit of the JV company on account of unlawful acts of Novartis Group committing breach, which was clearly against the interest of JV company. More importantly, on account of the oppression of the Plaintiff who were the minority group and also in public interest. In paragraph-60 of the Plaint the Plaintiff asserts that in the meeting of 14th June, 2007, for considering the accounts of the JV Company for the financial year ending 31st March, 2007, representative director of Novartis Group suggested that provision be made in the accounts for litigation expenses anticipating litigation by the Plaintiff. The Plaintiff apprehends that the Novartis Group will cause the Defendant No.5 joint venture company to spend on the litigation expenses, which will not be in the interest of the Defendant No.5-joint venture company. It is stated that such suggestion was indicative of the mis-management of the affairs of the joint venture company, being conducted in a manner prejudicial to the public interest and to the interest of the joint venture company by the Novartis Group who were in majority. In this background, the Plaintiff has approached this Court for the following 18 reliefs: "The Plaintiff, therefore, prays: (a) that it be declared that the Marketing & Distribution Agreement(HMR Territory) dated 1st May, 1998 shall stand renewed from 1st May, 2008 to 30th April, 2018 with all its terms and conditions including Article 5.9 of the Joint Venture Agreement dated 22nd April, 1998; (b) it be declared that the Notice of Non-renewal dated 27th September, 2006 (Exhibit"I" hereto) is void, illegal and ineffective; (c) it be declared that the Minutes of the Board Meeting of Defendant No. 5 held on 27th September, 2006 as written up in its Minutes Book with regard to the item "to review the Company’s distribution arrangement" are void and of no effect; (d) it be ordered and decreed that Defendant No.5 do cancel the Minutes of the Board Meeting of Defendant No.5 held on 27th September, 2006 as written up in its Minutes Book with regard to the item "to review the Company’s distribution arrangement". (e) by a permanent order and injunction of this Hon’ble Court the Defendants their officers, employees and agents, be restrained from directly or indirectly giving effect to or acting in any manner on the basis of the said Notice of non-renewal dated 27th September, 2006 (Exhibit "I" hereto); (f) by a permanent order and injunction the Defendants, their officers, employees and agents, be restrained from in any manner directly or indirectly obstructing or interfering with or preventing the automatic renewal of the the Marketing & Distribution Agreement(HMR Territory) dated 1st May, 1998 from 1st May, 2008 to 30th April, 2018; (g) the Defendant No.5 be ordered and decreed to sell to the Plaintiff Rabipur 19 Vaccine on the terms and conditions of the Marketing & Distribution Agreement throughout the balance of the initial term of ten years ending on 30th April, 2008 and thereafter for the further renewed period of ten years ending 30th April, 2018 and thereafter until such time as the Joint Venture Agreement or the Marketing & Distribution Agreement is not validly terminated as provided by the Joint Venture Agreement; (h) by a permanent order and injunction the Defendants their officers, employees and agents, be restrained from directly or indirectly selling the Rabipur Vaccine in the HMR Territory or any part thereof except to the Plaintiff as provided in the Joint Venture Agreement dated 22nd April, 1998 and the Marketing & Distribution Agreement (HMR Territory) dated 1st May, 1998; (i) by a permanent order and injunction Defendants, their officers, employees and agents, be restrained from marketing or distributing Rabipur Vaccine in the territory of India and Nepal or any part thereof in breach of the Plaintiff’s exclusive right to market and distribute the Rabipur Vaccine in those territories; (j) by a permanent injunction Defendant Nos. 1 to 4 or any other affiliate or subsidiary of the Novartis Group be restrained from directly or indirectly carrying on in India any anti-rabies vaccine business. (k) permanent injunction restraining Defendant Nos. 1 to 4 their officers, employees and agents from utilizing any of the funds of Defendant No.5 to contest these proceedings; (l) such orders be passed as to this Hon’ble Court may deem fit to bring to an end and/or prevent the affairs of Defendant No.5 being conducted by Defendant Nos. 1 to 4 in a manner prejudicial to the public interest and in a manner oppressive to the Plaintiff; (m) pending the hearing and final 20 disposal of the suit, this Hon’ble Court will be pleased to pass: (i) temporary order and injunction restraining the Defendants their officers, employees and agents from directly or indirectly giving effect to or acting in furtherance of the Notice of non-renewal dated 27th September, 2006(Exhibit "I" hereto); (ii) temporary order and injunction restraining Defendant No.5, its officers, employees and agents from in any manner directly or indirectly selling the Rabipur Vaccine in the HMR Territory i.e. Territory of India and Nepal or any part thereof except to the Plaintiff as provided in the Joint Venture Agreement dated 22nd April, 1998 and the Distribution Agreement dated 1st May, 1998; (iii) temporary order and injunction restraining Defendant No.5, its officers, employees and agents from appointing either of the Defendants No.1 to 4 or any third party as a distributor or in any other capacity to distribute and market the Rabipur Vaccine in the HMR Territory i.e. Territory of India and Nepal; (iv) temporary order and injunction restraining Defendant No.5, its officers and employees from in any manner directly or indirectly contributing or paying towards the costs, charges and expenses of Defendant Nos. 1 to 4 in the proceedings in this suit; (v) temporary order and injunction restraining Defendant Nos. 1 to 4 or any of them from directly or indirectly carrying on anti-rabies vaccine business in India. (vi) temporary order and 21 injunction restraining Defendant Nos. 1 to 4, their officers, employees and agents from utilizing any of the funds of Defendant No.5 to contest these proceedings; (vii) pass such interim orders as to this Hon’ble Court may deem fit including order appointing a fit and proper independent person to preside as a Chair person at the meetings of the Board of Directors and at the Shareholders meetings of the Defendant No.5. (n) for interim and ad-interim reliefs in terms prayer clause (m), (i) to (vii) above; (o) for costs of this suit; and (p) for such further and other reliefs as the nature and circumstances of the case may require." 20. Besides, the Plaintiff has taken out Notice of Motion No.2490 of 2007 alongwith the above said Suit praying for interim relief during the pendency of the Suit. Reliefs claimed in the Motion read thus: "(a) that pending the hearing and final disposal of the Suit, this Hon’ble Court may be pleased to