1 arbp327-11 vai IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.327 OF 2011 Sav Steels Private Limited ....Petitioner V/s. Vennelakanti Subramanyam & Ors. ....Respondents Mr.D.D. Madon, Senior Counsel with Mr.Amit Vyas i/b Rajani Associates for the Petitioner. MR.Jaideep Mitra i/b Ms.Sabeena Mahadik for Respondent Nos.1 to 12 and 14. Mr.Nailn Tripathi i/b Anup Khaitan & Co. for Respondent No.13. CORAM : S.J. VAZIFDAR, J. DATE : 7TH DECEMBER, 2011. P.C. :- 1. This is a petition under section 9 of the Arbitration and Conciliation Act, 1996. 2. The petitioner seeks an order restraining respondent Nos.1 to 13 from encumbering the shares held by them in respondent No.14 – Sesha Saila Power and Engineering Private Limited. 3. The petitioner entered into a share purchase agreement dated 31.7.2010 with respondent Nos.1 to 12 and a share purchase agreement dated 28.10.2010 with respondent No.13. Respondent Nos. 1 to 12 hold 65% and respondent No.13 holds 35% of the equity 2 arbp327-11 shares in respondent No.14 respectively. 4. As far as the share purchase agreement dated 28.10.2010 between the petitioner and respondent No.13 is concerned, this Court does not have territorial jurisdiction. As rightly submitted by the learned counsel appearing on behalf of respondent No.13, the subject matter of the dispute is not situated within the jurisdiction of this Court. The power plant and business of respondent No.14 is situated in Raipur, outside the jurisdiction of this Court. The share purchase agreement was executed in Raipur. No part of the cause of action has arisen within the jurisdiction of this Court. 5. The petition, as against respondent No.13 is, therefore, dismissed. 6. This Court however, has territorial jurisdiction in respect of the first share purchase agreement dated 31.7.2010 between the petitioner and respondent Nos.1 to 12. 7. The petitioner had agreed to purchase the shares of respondent Nos.1 to 12 in respondent No.14 for a consideration of Rs. 4.50 crores. Clause 2.3(a) records that Rs.10.00 lacs was to be paid on the signing of the agreement. Under clause 2.3(b), Rs.20.00 lacs per month was payable after two months of signing of the agreement till the end of the fifth month. Thus an amount of Rs.20.00 lacs was payable in the months of October, November and December of the year 2010. 8. The petitioner has to date paid only a sum of Rs.15.00 lacs. 3 arbp327-11 It is difficult to conclude at the interlocutory stage that the same constituted a breach on the petitioner’s part in view of the order of the Company Law Board dated 3.8.2010. Respondent No.13 who holds 35% of the equity shares of respondent No.14 filed the proceedings before the Company Law Board. By an interim order dated 3.8.2010, the learned member issued notice to respondent Nos.1 to 12 and in the meantime directed respondent Nos.1 to 12 to maintain status-quo with regard to the share holding pattern of the company. 9. In view of the said order, it is doubtful whether the agreement dated 31.7.2010 could have been implemented by respondent Nos.1 to 12 transferring the shares to the petitioner. It was submitted on behalf of respondent Nos.1 to 12 that the order only directed them to maintain status-quo as regards the share holding pattern of respondent No.14 and that the order did not prevent them from transferring the shares to the petitioner. Prima-facie the submission is not well founded. The order appears to be wide enough to restrain respondent Nos.1 to 12 from transferring the shares for a transfer of the shares would affect the share holding pattern of respondent No.14. The share holding pattern is not confined to any particular aspect thereof. The submission that this only restrains respondent No.14 from issuing rights shares or bonus shares is not well founded. To say the least, this aspect would require further consideration. 4 arbp327-11 10. I will assume, as submitted by the learned counsel for respondent Nos.1 to 12 that this was only an excuse for the petitioner not to make payment and that after the second share purchase agreement with respondent No.13 was entered into, the order could have been vacated at the instance of the petitioner and the petitioner could have made payment under both the share purchase agreements. I see no reason why the burden of having the order vacated ought to lie on the petitioner. If indeed the matter had been settled between respondent Nos.1 to 12 on the one hand and respondent No.13 on the other, they ought to have made the necessary application to the Company Law Board. They admittedly did do so. 11. It is important to note that despite the same, the petitioner had paid an amount of about Rs.3.93 crores to the creditors of respondent No.14 in terms of the said agreement. 12. The respondents rely upon clause 10 of the agreement which reads as under :- “10. Covenants of the Purchaser 10.1 The Purchaser hereby agree that it shall, within 3 months from the execution of this Agreement, provide adequate securities / personal guarantees / collaterals to the Banks / Financial Institutions for the loans and facilities availed from them by the Confirming Party and arrange to release the securities / personal guarantees / collaterals presently provided by the Vendors. 10.2 The Purchaser shall undertake, on execution of this agreement, to manage and settle all the notified liabilities relating to operations, finance or 5 arbp327-11 other dues of the Confirming Party as per Annexure C and indemnify and free the Vendors of any responsibility or liability in relation thereto after the Cutoff date till execution of Definitive Agreement. 10.3 On execution of this agreement, the Purchaser shall indemnify the Vendors and the Confirming Party from any claims, loss and damages or law suits or any other disputes that may arise or filed by the remaining other share holders of the Confirming Party holding 35% share capital of the Confirming Party, in respect of any compliance required under the present Articles of Association of the Confirming Party and the Share Purchase cum Joint Venture Agreement dated 12th day of November, 2008 between them. 10.4 On execution of this agreement, the Purchaser shall indemnify the Vendors and the Confirming Party for any acts of omission and/or commission and any financial loss, damages or any claim arise in respect and out of managing the affairs of the Confirming Party in the intervening period between signing of this Agreement and the execution of Definitive Agreement.” 13. The respondents contended that the petitioner had failed and neglected to comply with its obligations under clause 10 of the said agreement. Firstly, it is a moot point whether the petitioner was bound and liable to comply with its obligations under this agreement, including under clause 10 thereof during the subsistence of the order of the Company Law Board dated 3.8.2010. Despite the same, the petitioner has paid an amount of about Rs.3.93 crores to the creditors. 14. Mr.Madon submitted that there were in fact various breaches by the respondents including a supression of the proceedings by the Chattishgarh State Electricity Board (CSEB). According to him the CSEB has filed the proceedings against respondent No.14 for fraud 6 arbp327-11 and breach of the contract and that the CSEB had directed that the power connection would not be resumed unless and until the proceedings were settled even if the balance outstanding was paid. 15. Mr.Mitra, the learned counsel appearing on behalf of respondent Nos.1 to 12 and 14 submitted that the proceedings were adopted by the CSEB on account of the petitioner having failed to comply with its obligations under the agreement and in particular clause 10 by not paying the electricity dues. 16. However, in view of what is stated above, it is unfair to expect the petitioner to make payment of all the dues during the subsistence of the injunction from the Company Law Board. 17. It was further submitted by the respondents that by a letter dated 29.1.2011, the petitioner called upon the respondents to comply with the requisitions contained therein and that if they did not do so they ought to refund the amount with interest at 18% p.a. It was submitted that in view of this, specific performance of the agreement in any event cannot be granted. 18. I will assume for the purpose of this application under section 9 of the said Act that specific performance cannot be granted. The petitioner would nevertheless be entitled to interim reliefs in view of clause 8 of the agreement, which reads as under :- “8. Termination and Termination consequences 8.1 The Vendors shall in no event can terminate 7 arbp327-11 this Agreement except that the consideration for the Sale Shares are not paid by the Purchaser within six months time from the date of this Agreement or any further time which may be extended mutually by the Parties. 8.2 The Purchaser can terminate this Agreement if : (d) There is breach of warranties, representation and covenants by the Vendors under this Agreement. (e) The liabilities in the Confirming Party exceeds the liabilities by 10% then what is mentioned under Annexure C attached hereto. 8.3 In any event if the transaction contemplated under this Agreement could not be completed or the Definitive Agreement could not be executed between the Parties and the Closing does not occur within six months from the date of this Agreement or if there is breach of any warranty, representation or covenants given by the Vendors in this Agreement, then the Vendors shall return all the consideration paid to them by the Purchaser and the funding made by the Purchaser in the Confirming Party, within 7 working days from the date of intimation of Termination of the Agreement by the Purchaser. However in case of any breach of warranty or representation or covenants given by the Vendors, the Purchaser has option either to terminate this Agreement or waive the right of termination and if the Purchaser opt for termination, in that event the Vendors shall return forthwith all consideration paid by the Purchaser to them and the funding made by the Purchaser in the Confirming Party within 7 working days from the date of intimation of Termination of the Agreement by the Purchaser. In case the Vendor fail to make the payment good to the Purchaser, the Vendors agree that the Purchaser has right to notify the Escrow Agent and get the Sale Shares released in the name of the Purchaser.” 19. Clause 8.3 is very wide. Even if the petitioner exercises the option of seeking a refund of all the amounts paid by it, it would make 8 arbp327-11 no difference to this application under section 9 of the said Act. For even in that event, if the amounts are not paid by respondent Nos.1 to 12, the petitioner is still entitled to have the shares released by the escrow agent in its name. Thus, even assuming that specific performance cannot be granted of the agreement, as such, in view of clause 8, if the amounts are not paid, the petitioner is entitled to have the shares transfered to its name. The respondents are not ready to even deposit the amounts in this Court. The petitioner has paid the amount of Rs.1.90 crores under the second share purchase agreement. 20. In the circumstances, the petition is made absolute only as against respondent Nos.1 to 12 and 14 in terms of prayer (a). 21. The ad-interim order dated 20.4.2011 shall continue as against respondent No.13 upto and including 13.1.2012. This order shall stand vacated in the event of the petitioner not adopting proceedings for appointment of an arbitrator by 13.1.2012.