1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Arbitration Petition No. 222 of 2008 Rajiv Vyas ) of Bombay Indian Inhabitant ) having his address at 601-A, ) Meghdoot Apartments, Samarth ) Prasanna CHS, Lokhandwala ) Complex, Andheri(West), ) Mumbai 400 059 ).Petitioner vs. 1. Johnwin Manavalan s/o Shri ) Shri Groge Mandavalan ) having his resident/office ) at M/30, Himen Shopping ) Centre, Opp: ratna Hotel ) S.V.Road, M.G.Road junction) Goregaon West,Mumbai 400062) 2. Mr.Ganesh Naidu ) S/o Shri Govindraj Naidu ) having his office at Naidu ) 2 House, Shimpoli village ) Borivli West, 400 092 ) 3.SCOD 18 Networking Pvt. ) Limited Flat No.3/4, ) Prathmesh Horizon, Link ) Road,Opp. Don Bosco School) Borivli West, Mumbai 91 ).Respondents Judgment Reserved on:3.3.2009. Judgment Delivered on:6.7.2009. Mr.C.U.Singh, Sr.Counsel with Ms.Soma Singh i/b Sanjay Udeshi and Co. for petitioners. Mr.Janak Dwarkadas, Sr.Counsel with Mr.F.Devetri, Sr.Counsel and Mr.Shaqran Jagtiyani i/b Federal Rashmikant for respondent nos. 1 and 2. Mr.V.R.Dhond i/b M/sKartikeya and Associates for respondent no.3. CORAM: S.J.KATHAWALLA J Date : 6th July, 2009. J U D G M E N T : 1. This petition is filed by the petitioner under section 9 of the Arbitration and Conciliation Act, 1956 (the Act). 2. The learned Senior Advocate 3 appearing for the petitioner has at the commencement of the final hearing of this petition clarified that the petitioner is not seeking any reliefs against defendant no.3 (SCOD 18 Networking Pvt. Ltd.) and is also not seeking any relief pertaining to or arising out of the management agreement dated 5 th September, 2006 entered into between the Company called SCOD Networking Pvt. Ltd. and the petitioner. The main grievance of the petitioner in the present petition is that the respondent nos. 1 and 2 have breached Clause 12 of the Shareholders Agreement (Exhibit-A to the petition) i. e. the non compete and non solicitation clause. The petitioner by the present petition is, therefore, desirous of restraining respondent nos. 1 and 2 from in any manner committing breach of clause 12 of the said shareholders agreement. 3. According to respondent nos. 1 and 4 2 the Agreement containing the Arbitration Clause is not a concluded Agreement, but is incomplete, inchoate and has not come into existence. It is submitted that if the underlined agreement has not been concluded or is not in existence, the arbitration agreement would not be a valid and existing arbitration agreement and cannot be independently enforced. The question therefore of granting any relief under section 9 of the Act cannot arise. It is submitted that in view of the decisions of the Hon ble Supreme Court in SBP and Co. Vs.Patel Engineering Ltd. reported in (2005) 8 SCC 61 and Sundaram Finance Ltd. Vs. NEPC India Ltd.,reported in 1999 2 S.C.C.479, it is a settled position that if there is no arbitration agreement in existence between the parties, the Court will not exercise jurisdiction under section 9 of the Act. Equally, the Court before which a section 9 petition has been 5 filed has to satisfy itself of the existence of an arbitration agreement. 4. Briefly set out are the facts in the matter. i) On 1 st September, 1996, SCOD Networking Pvt. Ltd. (hereinafter referred to as the said Company ) was incorporated as a private limited company under the provisions of the Companies Act, 1956 with an object of carrying on the business as Multi-System Operators (MSO) and distribute TV channel and provide broadcasting services. The idea of the said company was conceived and conceptualized by the petitioner and respondent nos.1 and 2. According to the petitioner, the idea behind forming the said company was to bring together a group of 18 odd cable operators and distributors who would give access to their networking and customer base for transmission of cable video services. The benefits which 6 the said company offered to various cable operators was far more favourable than what was being offered by other MSOs and Distributors. The model was designed on the basis of a cooperative like AMUL where the cable operators would have continuous revenues and additionally have a stake in the company which they would be able to unlock after three years. ii) On 5 th September, 2006 the Management Contract was signed between the said company through respondent no.2, and the petitioner, setting out the terms of engagement of the petitioner as Executive Director and CEO of the company and to provide management services for the period and subject to the terms and conditions set out therein. iii) In January, 2007, YOU Telecom India Pvt. Ltd. (for short YOU )expressed an interest in the said company and negotiations commenced. On 19 th January, 7 2007 the said company engaged the services of Edelweiss Capital Limited (for short Edelweiss) as merchant bankers. Though the term of services of Edelweiss expired in October, 2007, Edelweiss continued to represent the said company till March, 2008. iv) On 9 th August, 2007 the term sheet/letter of intent came to be executed between the parties to confirm YOU s interest in equity investment in the said company. Pursuant to the term sheet, YOU conducted due diligence activities. In the term sheet the Founder group is described as follows: The Initial shareholders of SCOD Networking Private Ltd. ( Company ) both collectively and severally shall be known as the Founder Group These will consist of not less than 15 distributor shareholders from 8 those mentioned in the list of 21 distributors attached vide Annexure 1 . Annexure I contains the names of 21 distributors/authorized personnel along with their areas of operation set out under the caption Head-end . v) On 10 thAugust, 2007, a Shareholders Agreement was executed between the petitioner, respondent no.1 and respondent no.2 (first share-holders agreement). According to the petitioner, the petitioner is not in possession of the first shareholders Agreement and, therefore, the same is not produced before the Court. vi) In September, 2007, Articles of Association of the said company were amended to include the petitioner as a permanent director of the company along with respondent nos.1 and 2. 9 vii) On 3 rd September, 2007, the second Shareholders Agreement (for short agreement ) was executed between the petitioner and respondent nos.1 and 2 at the office of M/s Paras Kuhad and Associates, Advocates in presence of Mr.Manish Desai, a senior partner in the said firm. The date on which the said agreement is made and entered into is not filled in and is left blank in the agreement. At the out set, it is set out that the said agreement is between the share holders of the said company whose names are listed in Schedule A to the agreement and who were referred to in the agreement as group A share holders. Recitals A, C and D in the agreement are reproduced hereunder: A) The Group A shareholders listed in Schedule A have agreed to jointly engage in the business of the Company more 10 particularly described in Clause 1.1.(c) of this Agreement. The Group A shareholders are further divided into promoter shareholders and distributor shareholders as mentioned in Schedule A to this Agreement; C) The Group A Shareholders (except Mr.Rajiv Vyas) have agreed to provide to the business of the company access to their entire networking and customer base transmission of cable (video) services in the areas more particularly set out against their names in Schedule A. D). The group A shareholders of the Company have agreed to reduce to writing their agreement concerning the 11 ownership, shareholding, management, operation and control of the Company. Immediately after the recitals it is provided: NOW, THEREFORE, in view of the foregoing recitals and in consideration of the mutual covenants and promises set forth in this Agreement, and for valuable consideration, the parties hereby set forth their commitments and agreements as follows: viii) Clauses 1.1(b),(c), (h),(i), (j), (p),(q), (r) and (s) define the words/phrases Agreement , Business , date of Execution , Distributor Shareholders , Group A Shareholders , R.V.Co. , R.V.Co.shareholding , shares , shareholder as under: (b) Agreement shall mean this agreement including the Schedule (s) hereto. 12 (c) Business for the purposes of this Agreement means doing business as distributors and providers of telecommunication services including but not limited to broadcasting services and distribution of T.V. Channels which amongst other businesses primarily includes business of providing broadcasting services, receiving and distributing signals from broadcasters of various television channels both free to air and encrypted, broadcasted by either satellite or terrestrial means and re- transmission/distribution of all or few of the broadcasting signals so received from the broadcasters to the cable operators affiliated to the Company directly or through the authorized distribution agency or agencies of the Company or to the user directly by means of all media and technology (now or hereafter created) including but not limited to diffusing or 13 re-distributing such channels by means of co-axial cable and/or optical cable and such other available means of transmission and the equipment associated with them. It also includes re-transmission/ distribution of the broadcasting channels which will be done by the Company through the Cable Operators affiliated with the Shareholder and/or the Company or directly on a subscription basis. It further includes sale by the Company of air time of the local channels to advertisers and acting as an Internet Service Provider ( ISP ) to carry on the business of Internet distribution services, to offer users access to the Internet and related services including, but without limitation, services relating to Internet transit, domain name registration and hosting, dial-up or DSL access, leasedline access and colocation and development of its infrastructure to provide to the end 14 users a single platform from where they can access broadcasting, internet and telephony related services integrated with existing technologies or various future technologies and advancements like Voice Over Internet Protocol ( VOIP ), Telephony, Video on Demand services etc. using Digital Encrypted Boxes or otherwise; (h) Date of Execution means the date of signing of this Agreement or the date set out hereinabove as the date of making this Agreement, whichever is earlier. (i) Distributor Shareholders are shareholders listed in Part II of the Schedule A of this Agreement including any new distributor of the Company unless otherwise specified. (j) Group A Shareholders are shareholders listed in Schedule A of this 15 Agreement including any new shareholder inducted as a Group A shareholder. (p) RV Co. shall mean Mr.Rajiv Vyas and SVJ Networking Private Limited jointly. (q) RV Co.shareholding means the total percentage of the paid up capital of the Company held by Mr. Rajiv Vyas and SVJ Networking Private Limited Jointly. (r) Shares means all the issued and outstanding shares of the company. (s) Shareholder of the Company means each party to this Agreement as well as every person who is subsequently inducted as Shareholder of the Company and who signs the Deed of Adherence . ix) Clause 2 of the agreement pertains to the share capital, shareholding and price. It is provided in clause 2.1 that the authorized capital of the company is Rs.1,00,00,000/- (Rupees One crore only), divided into 1,00,00,000/- (One Crore) 16 equity shares of Rs.1/- (Rupee One only) each. The shareholders agree that they shall increase the share capital of the Company to Rs.10,00,00,000/- (Rupees Ten crores only) divided into 10,00,00,000 (Ten Crores) equity shares of Rs.1/- (Rupee one only only) each and Memorandum of Association and the Articles of Association of the company shall be amended accordingly. It is provided in clause 2.2 that the Group A shareholders, with the exception of Mr.Rajiv Vyas (petitioner) and SVJ Networking Private Limited (hereinafter jointly referred to as RV Co. ), have contributed and made cash payments totalling to a sum of Rs. 3,33,00,000/- (Rupees Three Crore and Thirty Three lakhs only) and each shall be allotted shares of the Company, as and when the authorised share capital of the Company is increased. It is further agreed and provided in clause 2.3 of the 17 Agreement that in consideration of the contribution made by Mr.Rajiv Vyas (petitioner) in terms of the conceptualization, formation of the company, consultation, providing legal and investment banking tie up as well as actively participating in all aspects to funding of the company and for negotiations to be held in the future, the RV Co. shall be initially allotted 26,00,000/- (Twenty Six Lakhs only) shares of the Company, out of which 13,00,000/- (Thirteen lakhs only) shares will be held by Mr.Rajiv Vyas (petitioner) and 13,00,000 (Thirteen lakh only) shares will be held by his company SVJ networking Pvt. Ltd. Under Clause 2.4 of the Agreement it is agreed between the parties that at all times the share holding of R.V. Co shall be at-least 10% of the Group A shareholding. The remainder 90% Group A shareholding shall, as far as practicable 18 and subject to what is stated in the agreement, be held by the remainder Group A shareholders in agreed proportion. It is agreed that at no point of time shall the RV Co. Shareholding fall below 10% of the Group A shareholding. In the event, the Group A shareholders are required to dilute their shareholding, the dilution shall take place in such a manner that the agreed proportion of the Group A shareholders remains intact. It is further agreed that R.V. Co. Shareholdings will be equally held between Mr.Rajiv Vyas (petitioner) and his SVJ Networking Private Limited. Under clause 2.5 of the Agreement, the shareholders have authorized the Board of Directors of the Company to identify strategic or financial investors interested in investing in the Company and further negotiate and finalize all the terms and conditions subject to which the investment shall be 19 made in the company. Upon such identification and finalization of the terms and conditions of the investment, the company shall, authorized by an ordinary resolution passed in the General Body meeting, issue shares to such Investor provided such investor executes a Deed of Adherence agreeing to be bound by the terms and conditions of the Agreement. The investor(s) upon issue of such shares would be referred as the Group B shareholders. x) Under clause 3(a) of the agreement, it is provided that the Board of Directors shall consist of minimum of 3 (three) and a maximum of 6 (six) Directors appointed by Group A shareholders, out of which 3 (three) Directors shall be the permanent Directors and shall not be liable to retire by rotation. It is clarified in clause 3(b) of the Agreement that the permanent Directors of the 20 Company will be Mr.Johnwin Manavalan, (respondent no.1) Mr.Ganesh Naidu (respondent no.2) and Mr.Rajiv Vyas (petitioner). Under clause 4 of the Agreement, it is provided that the Distributor Shareholders are required to achieve certain performance parameters as determined by the permanent Directors at the end of each half year and in the event of failure on the part of the distributor shareholder to achieve performance parameters for half year, he will be required to transfer his/its shareholding in the said company to the rest of the Group A shareholders in the manner provided in the Agreement. Clause 6 of the said agreement deals with the subject pertaining to the issue of shares to the new/additional share holders of the company. Clause 7 deals with the general instructions of transfer and right of first refusal for Group A shareholders. It 21 is provided in clause 9 of the agreement that the revenue generated by the company from the broadcasting and distribution of cable channels will be distributed amongst Group A share holders in the proportion determined by the permanent Directors. Clause 10.1 deals with the effective date and provides that the agreement shall come into force for all purposes and intents from the date of its signing i.e. the date of execution. xi) Clause 12 of the agreement deals with Non Compete & Non Solicitation and the said clause is reproduced hereunder. 12. Non Compete & Non Solicitation 12.1: The Shareholders covenant that during the term of this Agreement and for a period of atleast 6 months thereafter, the Shareholder shall not directly or indirectly carry on, assist, engage in, be concerned or participate in any business 22 (whether directly or indirectly, as a partner, shareholder, principal, agent, director, affiliate, Executive, consultant, distributor or in any other capacity or manner whatsoever) which is similar to the business of the Company nor engaqe in any activity that conflicts with the Shareholder s obligations to the Company. 12.2: Further, it is the clear intention of the parties for the purpose of this Agreement, the Shareholder would be deemed to be competing with the business of the Company, if the Shareholder owns, manages, operated, consults or renders services or is employed in a business substantially similar to, or competing with, the present business of the Company or such other business activity in which the Company may substantially engage during the Term of this Agreement or during such extended period. 23 12.3: Solicit business: During the term of this Agreement and for a period of at least 1 year thereafter, the Shareholder shall not solicit, endeavour to solicit, influence or attempt to influence any client, customer or other person directly or indirectly availing the services of the Company to use the services of himself or any person, firm, corporation, institution or other entity in competition with the business of the company; 12.4: Solicit Personnel: During the term of this Agreement and for a period of at least 1 year thereafter, the Shareholder shall not solicit or attempt to influence any person employed or engaged by the Company to terminate or otherwise cease such employment or engagement with the Company or become the distributor/employee of or directly or indirectly offer services in any form or manner to himself or any person or entity which is a 24 competitor of the Company. 12.5: The shareholder acknowledges and agrees that the above restrictions are considered reasonable for the legitimate protection of the business and goodwill of the Company, but in the event that such restriction shall be found to be void, but would be valid if some part thereof was deleted or the scope, period or area of application were reduced, the above restriction shall apply with the deletion of such words or such reduction of scope, period or area of application as may be required to make the restrictions contained in this Article valid and enforceable. 12.6. The Shareholder acknowledges and agrees that the covenants and obligations with respect to non-compete and non -solicitation as set forth above relate to special, unique and extraordinary matters, and that a violation of any of the Terms 25 of such covenants and obligations will cause the Company, irreparable injury. Therefore, the Shareholder agrees that the Company shall be entitled to an interim injunction, restraining order or such other equitable relief as a Court of competent jurisdiction may deem necessary or appropriate to restrain the Shareholder from committing any violation of the covenants and obligations contained in this Article. These injunctive remedies are cumulative and are in addition to any other rights and remedies that the Company may have at law or in equity. Xii) Clause 13.6 of the Agreement provides that the Agreement contains the whole Agreement between the Parties relating to the Project, and supersedes all previous agreements and understandings between the parties in so far as these relate to the subject matter of the 26 Agreement. (emphasis supplied.) Xiii) Clause 14 deals with the Dispute Resolution and the same is reproduced hereunder: 14.DISPUTE RESOLUTION: 14.1: Settlement of Disputes through Good Faith Negotiations. (a) The Parties shall endeavour, in the first instance, to resolve any dispute, disagreement or difference arising out of or in connection with this Agreement, including any question regarding its performance, existence, validity, termination and the rights and liabilities of the parties to this Agreement (a Dispute ) through good faith negotiations. (b) If a Settlement is not reached within thirty (30) days after the date of receipt of the Dispute Notice by the non initiating Party, such Dispute shall be 27 referred for conciliation to one Conciliator in accordance with the provisions of Arbitration and Conciliation Act, 1996. 14.2: Arbitration: (a) If good faith negotiations and conciliation have not been able to resolve a Dispute, such Dispute shall be referred to and be finally resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996 and the rules made thereunder. Each party to the Dispute shall appoint one arbitrator and the two arbitrators so appointed shall mutually agree to and appoint the third arbitrator. The arbitral agency so constituted, shall be the Arbitral Tribunal . The provisions of the Arbitration and Conciliation Act, 1996 as may be amended from time to time and the Rules, if any, made thereunder, shall apply to such arbitration proceedings. The place of 28 arbitration shall be Mumbai, India. The language of the arbitration shall be English. (b) Any decision or award of the Arbitral Tribunal, subject to correction/ recourse provided for under the Arbitration and Conciliation Act, 1996 be binding upon the Parties. The Arbitral Tribunal shall give a speaking award. xiv) Under Clause 16 of the Agreement the parties/signatories thereto have consented to and agreed to be bound by, all the terms and conditions of the Agreement. (emphasis supplied) xv) The said agreement is signed by the promoters shareholders i.e. the Petitioner, his company S.V.J.networking, respondent nos. 1 and 2 and distributor shareholders. The signatories to the Agreement, according to petitioner, are around 15 including the promoter 29 shareholders and 11 according to the respondent nos. 1 and 2. It is true that after the promoter and distributor shareholders have signed the Agreement, the word signature is typed several times and a blank has been shown i.e. signature ..... It is also true that under Schedule A of Group A shareholders, though numbers 1 to 16 are set out under the caption Distributor Shareholders , the names of distributor shareholders and their areas of operation are not set out. It is also an admitted fact that the Distributor shareholders who are signatories to the agreement are less than 16. Admittedly, the distributor shareholders have put their initials under Schedule A of the agreement. It is the case of the petitioner that the promoter directors have signed the said agreement on 3 rd September, 2007 and that some of the distributor shareholders have also signed 30 the same on 3 rd September, 2007 and the remaining distributor shareholders have attended the office of M/s Paras Kuhad and Associates of the said company and have signed the said agreement in the week after 3 rd September, 2007, i.e. upto 10 th September 2007. xvi). Pursuant to the share holders agreement over Rs.2.5 crores were received by the company towards the subscription of the share capital from incoming share holders. xvii). Between November/December, 2007, exhaustive correspondence (on e- mail) took place between YOU Telecom, petitioner, respondent nos. 1 and 2, Edelweiss, Paras Kuhad and Associates and the Advocates of YOU Telecom with regard to finalisation of the share subscription agreement to be entered into between YOU Telecom and the Company. A separate compilation of such e-mails is submitted 31 by the petitioner to this Court. The petitioner has pointed out that between September 2007 to February, 2008 various amounts were utilized from the Bank account of the company for purchase and installation of Fibre Optic Cable for the business of the company. It is also pointed out that on 13 th December, 2007, YOU Telecom conducted the physical audit which confirms the purchase and laying of fibre optic cables and existence of the network. xviii). The petitioner has pointed out that on 29 th January, 2008, behind the back of the petitioner, respondent nos. 1 and 2 surreptitiously proceeded to incorporate defendant no. 3 company i.e. SCOD 18 Networking Pvt.Ltd. (SCOD 18) as can be seen