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2014 Supreme(Bom) 56
High Court of Judicature at Bombay
R.D. DHANUKA, J.
Welspun Infratech Limited
Versus
Ashok Khurana & Others
Arbitration Petition (L) Nos. 1793 of 2013 & 1796 of 2013
Decided On: 10-01-2014
For the Petitioner:Virag Tulzapurkar, Sr. Advocate along with Sameer Pandit along with Ms. Bindi Dave along with Ankita Godbole i/by Wadia Ghandy & Co., Advocates.
For the Respondents:R1 to R4, Ravi Kadam, Sr. Advocate along with Chetan Kapadia along with S.K. Srivastava along with Ms. Manorama Mohanty i/by S.K. Srivastav & Co., & R15, R17, R21, R26 & R31, Ashish Kamat i/by Simeen Shaikh, Advocates.
The court held that the application filed under section 9 of the Arbitration & Conciliation Act, 1996, was maintainable before it. The court also held that the claims made by the petitioner, based on such notices/demand received from various authorities towards alleged liability of the said company after execution of the said agreements were prima facie maintainable under the indemnity clause referred to aforesaid. The court further held that the petitioner had made out a case for attachment before judgment by applying the principles of order 38 rule 5 of the Code of Civil Procedure. The court also held that the petitioners had good chance of succeeding in the arbitration proceedings and if the interim measures were not granted so as to secure the claim of the petitioner, even if the petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from respondent nos.1 to 4.
Headnote:
ARBITRATION - Appointment of Court Receiver and Injunction - SPA and SSA - Claims - Indemnity - Valuation - Jurisdiction - Maintainability - Interim Measures - Garnishee Orders - Transfer of Shares - Trusts - Locus Standi - Balance of Convenience - Locus Standi - Valuation Process - Escrow Account.
Fact of the Case:
Petitioners sought appointment of Court receiver and injunction in respect of various properties of the respondents. Petitioners and respondent nos.1 to 4 entered into a share purchase agreement (SPA) and share subscription agreement (SSA). Petitioners alleged that respondent nos.1 to 4 procured release of escrow account I through misrepresentation and committed breach of SPA. Petitioners claimed difference between agreed value and actual value with interest. Respondent nos.1 to 4 alleged that petitioners refused to allow independent valuer to carry out valuation. Petitioners obtained a report from an independent valuer and according to such report, there was difference of Rs.41,29,00,000/-. Petitioners alleged various breaches in detail in the notice on the part of respondent Nos. 1 to 4 and called upon respondent nos. 1 to 4 to pay Rs.149 Crores by way of damages with interest. Respondent nos.1 to 4 filed an application under section 9 of the Arbitration & Conciliation Act, 1996 (Civil Misc. Application No. 1461 of 2010) in the court of the District Judge at Vadodara. Respondent nos.1 to 4 filed Arbitration Petition no. 47of 2011 before this court under section 9 of the Arbitration Act and impleaded petitioner and Standard Chartered Bank as respondents inter alia praying for an order and injunction restraining the Standard Chartered Bank from releasing the amount of Rs.10 Crores lying in the escrow account II in pursuance of the escrow agreement dated 18th March, 2010. Respondent nos.1 to 4 ultimately withdrew the said arbitration petition which was filed in this court. Petitioners filed an application under section 11(5) and (6) of the Arbitration Act before the High Court of Gujarat at Ahmedabad for appointment of arbitral tribunal against respondent nos.1 to 4 and Ashoka Khurana (HUF) under the said SSA. Respondent Nos.1 to 4 filed special leave petition against the said order dated 6th July, 2012 passed by Gujarat High Court nominating Shri Justice D.A. Mehta, retired Judge of Gujarat High Court. Respondent nos.1 to 4 filed an application under section 16 of the Arbitration Act before the learned Arbitrator raising issue of jurisdiction that the claims made by the petitioner are not arbitrable. Petitioners came to know in the month of September/October, 2013 that respondent nos.1 to 4 had started disposing of their assets to various companies and with a view to defeat any award that may be passed against them in arbitration proceedings filed by the petitioner.
Finding of the Court:
The court held that the application filed under section 9 of the Arbitration & Conciliation Act, 1996, was maintainable before it. The court also held that the claims made by the petitioner, based on such notices/demand received from various authorities towards alleged liability of the said company after execution of the said agreements were prima facie maintainable under the indemnity clause referred to aforesaid. The court further held that the petitioner had made out a case for attachment before judgment by applying the principles of order 38 rule 5 of the Code of Civil Procedure. The court also held that the petitioners had good chance of succeeding in the arbitration proceedings and if the interim measures were not granted so as to secure the claim of the petitioner, even if the petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from respondent nos.1 to 4.
Issues: Whether the application filed under section 9 of the Arbitration & Conciliation Act, 1996, was maintainable before the court.
Ratio Decidendi: The court held that the application filed under section 9 of the Arbitration & Conciliation Act, 1996, was maintainable before it. The court also held that the claims made by the petitioner, based on such notices/demand received from various authorities towards alleged liability of the said company after execution of the said agreements were prima facie maintainable under the indemnity clause referred to aforesaid. The court further held that the petitioner had made out a case for attachment before judgment by applying the principles of order 38 rule 5 of the Code of Civil Procedure. The court also held that the petitioners had good chance of succeeding in the arbitration proceedings and if the interim measures were not granted so as to secure the claim of the petitioner, even if the petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from respondent nos.1 to 4.
Final Decision: The court made absolute the Arbitration Petition (L) No. 1796 of 2013 in terms of prayer clauses (a),(c ), (i), (ii), (iii), (v), (d) and (g). Respondent no. 6 was directed to transfer escrow amount II into interest bearing fixed deposit on the same terms as escrow agreement II dated 18th March, 2010 within two weeks from the date of the order. Respondent nos.1 to 4 were directed to furnish all the documents and details to respondent no. 6 to enable the respondent no. 6 to submit valuation report/certification to the arbitral tribunal. Respondent no. 5 was directed to submit such report before the arbitral tribunal within eight weeks from the date of the order. Affidavit disclosing list of properties in terms of prayer clause (a) and (d) was directed to be filed within four weeks from the date of the order. The Arbitration Petition (L) No. 1793 of 2013 was disposed of in view of the reliefs granted in Arbitration Petition (L) No. 1796 of 2013. There was no order as to costs.
1. By consent of parties both the petitions are heard together and are being disposed of by the common order. By these two petitions filed under section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as “Arbitration Act”), petitioner seeks appointment of Court receiver and injunction in respect of various properties of the respondents.
2. Some of the relevant facts which emerge from the pleadings and documents filed by the parties and which are relevant for the purpose of deciding these two petitions are as under:
(a) Respondent No.1 to 4 are the erstwhile promoters and shareholders of the company Welspun Projects Ltd (Formerly known as MSK Projects (India) Limited), (hereinafter referred to as “said company”). Respondent nos.1 to 4 were desirous of disposing of their entire share holding of the said company and petitioner agreed to purchase the same. On 18th March, 2010, petitioner and respondent nos.1 to 4 entered into a share purchase agreement. By the said Purchase Agreement (for short “said SPA”), petitioner agreed to purchase 47,32,545 shares in the said company from respondent nos 1 to 4 for the total consideration of Rs.62,01,81,022.50/-. Petitioner and respondent nos.1 to 4 also entered into share subscription Agreement on 18th March, 2010 by which petitioner agreed and subscribed to 1,71,78,888 shares of the said company from respondent nos.1 to 4 for the consideration of Rs.211,30,03,224/- (for short “said SSA”). It is the case of the petitioner that both these agreements were entered into by the petitioner on the strength of the representations, warranties, covenants, disclosures made and indemnities given by respondent nos.1 to 4 as set out in the said two agreements. Petitioner accordingly acquired total of 2,19,31,233 shares in the said company for the total consideration of Rs.2,73,31,84,246.50/-. Petitioner deposited first trench of the purchase price of Rs.52,01,81,022.50/- into escrow account pursuant to clause 3.1 of the said SPA. It was agreed by and between the parties that the payment of the purchase price including escrow account shall be conditional upon respondent nos. 1 to 4 completing conditions precedent to share closing and the said amount in escrow account (I) was not to be released to respondent no.1 to 4 unless condition precedent to the share closing were applied by these respondents to the satisfaction of the petitioner as described in clause 4.1 of the said SPA. It is the case of the petitioner that respondent nos.1 to 4 however, have procured release of escrow account I through misrepresentation. The second trench of price of Rs.10 Crores was deposited by the petitioner into separate escrow account II vide escrow agreement II dated 18th March, 2010 which was entered into between petitioner, respondent nos. 1 to 4 and the escrow agent. It was agreed between the parties that unless respondent nos.1 to 4 satisfy certain conditions described in the said escrow agreement II, the entire escrow amount II shall be released to the petitioner. Under clause 9.1 of the said SPA, the respondent nos.1 to 4 agreed to indemnify the petitioner and other indemnified persons for all the losses suffered by them on account of any breach, misrepresentation etc. by those respondents and on account of any liability not disclosed in the disclosure letter and incurred by the said company for the period prior to the share sale closing date i.e. 16th August, 2010. Under the said SPA agreed value was worked out to approximately Rs.1,96,91,00,000/-. Under clause 7.16 of the said SPA, it was agreed that actual value would be determined by mutually appointed independent valuer (KPMG). Respondent No.1 to 4 were required to deliver to the said independent valuer within reasonable period of time, consolidated trial balance of the said company along with all such information that the independent valuer may request for. The said valuation was to ascertain the actual value of the company in accord
