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High Court of Judicature at Bombay
R.D. DHANUKA, J.
Mulheim Pipecoatings GmbH
Versus
Welspun Fintrade Limited & Another
Arbitration Petition No. 1070 of 2011 In Suit (L) No. 2344 of 2011
Decided on : 20-12-2012
Petitioner sought direction to refer respondent to arbitration under clause 11.13 of Share Purchase Agreement (SPA) and dismissal of suit filed by respondent. Respondent contended SPA was substituted by Memorandum of Understanding (MoU) and arbitration clause perished. Court held SPA was substituted by MoU and arbitration clause perished. MoU was not preparatory document and was binding on parties. Petitioner failed to prove SPA was valid, subsisting, operative, capable of being performed and not null and void. Disputes in suit were not capable of being adjudicated by arbitral tribunal. MoU was final and conclusive and not preparatory document. Petitioner failed to satisfy ingredients of section 45 read with section 44 of Arbitration & Conciliation Act, 1996.
Fact of the Case:
Petitioner and respondent entered into SPA for purchase of shares in respondent company. Arbitration clause was included in SPA. Dispute arose and respondent filed arbitration petition. Parties entered into MoU which provided SPA would stand null and void upon signing MoU. Respondent withdrew arbitration petition. Petitioner filed petition to refer respondent to arbitration under SPA and dismissal of suit filed by respondent. Respondent contended SPA was substituted by MoU and arbitration clause perished.
Finding of the Court:
Court found SPA was substituted by MoU and arbitration clause perished. MoU was not preparatory document and was binding on parties. Petitioner failed to prove SPA was valid, subsisting, operative, capable of being performed and not null and void. Disputes in suit were not capable of being adjudicated by arbitral tribunal. MoU was final and conclusive and not preparatory document. Petitioner failed to satisfy ingredients of section 45 read with section 44 of Arbitration & Conciliation Act, 1996.
Issues: Whether SPA was valid, subsisting, operative, capable of being performed and not null and void. Whether disputes in suit were capable of being adjudicated by arbitral tribunal appointed under SPA. Whether MoU was not final and conclusive but was only preparatory document and was not binding on the parties.
Ratio Decidendi: Court held SPA was substituted by MoU and arbitration clause perished. MoU was not preparatory document and was binding on parties. Petitioner failed to prove SPA was valid, subsisting, operative, capable of being performed and not null and void. Disputes in suit were not capable of being adjudicated by arbitral tribunal. MoU was final and conclusive and not preparatory document. Petitioner failed to satisfy ingredients of section 45 read with section 44 of Arbitration & Conciliation Act, 1996.
Final Decision: Arbitration Petition dismissed.
1. By this petition filed under section 45 of the Arbitration & Conciliation Act, 1996, the petitioner seeks direction to refer respondent no. 1 to arbitration under clause 11.13 of Share Purchase Agreement (for short “SPA”) and seeks dismissal of the suit (2287/11) filed by the first respondent in this court against the petitioner.
2. Some of the relevant facts for the purpose of deciding this petition are summarized as under:
(a) The Petitioner is a company incorporated under the laws of Germany and is constituent of the Europipes Group carrying on business in the large diameter pipes Industries. The Petitioner is a substantial share holder of respondent no. 2 company. The respondent no. 1 is incorporated under the laws of India and is constituent of Welspun Trading Ltd. The first respondent is a promoter and share holder of second respondent. The shares in the capital of second respondent are listed on the National Stock Exchange and Stock Exchange, Mumbai.
(b) On 10th December, 2004, Welspun Trading Limited (referred to as transferor/ M/s. Eupec PipeCoatings GmBH (referred to as the “transferee”) and Welspun Gujarat Stahl Rohren Limited (referred to as the company or WGSRL), the first respondent agreed to sell to the petitioner M/s. Eupec PipeCoatings 4469793 equity shares of WGSRL. The transferor agreed to transfer to the transferee at the price of Rs. 51 only per equity shares so as to ensure that the transferee shall hold 8% of the post merger equity share capital of WGSRL. Clause 8 of the said SPA which provides for the pre-emption rights reads thus:
“8. PRE-EMPTION RIGHTS:
8.1. Subject to applicable law, the parties hereby agrees that in the event that the Transferee wishes to sell any of its shares in WGSRL to any third party, the Transferee shall offer the same on the same terms and conditions to the Transferor or any of its associates as may identified by the Transferor by way of a notice in writing (the “Notice of Offer”).
8.2 The Transferor may accept the offer within fifteen (15) days of the date of the Notice of Offer and if the Transferor has accepted the offer, the Transferor and the Transferee shall complete the transaction within fifteen (15) days of such acceptance of the offer subject to compliance with applicable laws. In the event that the Transferor does not accept the offer in accordance with the terms hereof, the Transferee shall have the right to sell the shares (whether in whole or part) to any third party as it may deem fit. ”
(c) Clause 11.1 provides that such agreement shall be construed in accordance with the applicable laws in India and shall be governed accordingly. The urchase consideration agreed under the said SPA was in the aggregate equivalent to Euro 4 Millions in Indian Rs.22,80,00,000/- at the time of execution of SPA. Clause 11.11, 11.13 and 11.15 of the said SPA reads thus:
“11.11 Variation: No variation of this Agreement shall be valid unless it is in writing and signed by or on behalf of each of the Parties to this Agreement.
11.13 Dispute Resolution : The Parties shall try and amicably resolve all claims, disputes, questions or controversies or claims arising out of or in connection with this agreement or the execution, interpretation, validity, performance, breach or termination hereof. All disputes arising out of or in connection with the present agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce (ICC) by one Arbitrator appointed in accordance with the said Rules. The Arbitration shall take place in Dhubai, The language of the Arbitration shall be English.
11.15 Termination: Subject to the provisos of Clause 5 above, this Agreement may be terminated by the Transferee if the Transferor has failed to fulfill the conditions precedent as provided in Clause 5 of this Agreement or if the requisite consents and permissions for transfer of Sale Shares cannot be obtained in good faith as aforesaid. The Transferee ma
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