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IN THE HIGH COURT OF JHARKHAND AT RANCHI
SUJIT NARAYAN PRASAD, J.
Kumar Sachin, Son of Late Harihar Prasad Sahu – Appellant
Versus
Manoj Kumar Sahu, Son of Late Ambika Prasad Sahu – Respondent
Arbitration Application No. 13 of 2021
Decided on : 16-06-2022
PALI HILLS BREWERIES PRIVATE LIMITED - APPOINTMENT OF ARBITRATOR - ARBITRATION AND CONCILIATION ACT, 1996 - SECTION 11(6) - DISPUTE BETWEEN PARTIES - MoU - ARBITRATION CLAUSE - NON-ARBITRABILITY - FORGERY OF SIGNATURE - PENDING CRIMINAL CASE - NCLT PROCEEDINGS - JURISDICTION - COURT ANALYSIS AND CONCLUSION - The Court held that the instant application for appointment of arbitrator is not maintainable at this stage due to the following reasons: (i) Suppression of material facts by the petitioners, such as the passing of interim orders by the NCLT, Kolkata Bench, staying the alleged resignation of the respondent and transfer of shares, and the subsequent appointment of an interim Board of Directors; (ii) Petitioners have filed an application under Section 8 of the Act, 1996 for referring the matter to arbitration, and the outcome of the said application is pending before the NCLT, Kolkata Bench; (iii) The MoU contains an arbitration clause, but the Court, following the judgment in Vidya Drolia & Ors Vs. Durga Trading Corporation, held that the dispute is non-arbitrable due to the pendency of a criminal case and the ongoing NCLT proceedings; (iv) The judgment relied upon by the petitioners, Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited, is not applicable in the facts of the given case.
Fact of the Case:
The petitioners, being shareholders of Pali Hills Breweries Private Limited, entered into an agreement/memorandum of understanding (MoU) with the respondent, another shareholder, to resolve disputes through arbitration. However, the respondent approached the NCLT, Kolkata Bench, alleging oppression and mismanagement by the petitioners and obtained interim orders staying the alleged resignation of the respondent and transfer of shares. Subsequently, the NCLT appointed an independent Chairperson and constituted an interim Board of Directors. The petitioners filed the instant application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve the dispute.
Finding of the Court:
The Court held that the instant application for appointment of arbitrator is not maintainable at this stage due to the following reasons: (i) Suppression of material facts by the petitioners, such as the passing of interim orders by the NCLT, Kolkata Bench, staying the alleged resignation of the respondent and transfer of shares, and the subsequent appointment of an interim Board of Directors; (ii) Petitioners have filed an application under Section 8 of the Act, 1996 for referring the matter to arbitration, and the outcome of the said application is pending before the NCLT, Kolkata Bench; (iii) The MoU contains an arbitration clause, but the Court, following the judgment in Vidya Drolia & Ors Vs. Durga Trading Corporation, held that the dispute is non-arbitrable due to the pendency of a criminal case and the ongoing NCLT proceedings; (iv) The judgment relied upon by the petitioners, Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited, is not applicable in the facts of the given case.
Issues: 1. Whether the instant application for appointment of arbitrator is maintainable at this stage? 2. Whether the dispute between the parties is arbitrable?
Ratio Decidendi: 1. The Court held that the instant application for appointment of arbitrator is not maintainable at this stage due to the following reasons: (i) Suppression of material facts by the petitioners, such as the passing of interim orders by the NCLT, Kolkata Bench, staying the alleged resignation of the respondent and transfer of shares, and the subsequent appointment of an interim Board of Directors; (ii) Petitioners have filed an application under Section 8 of the Act, 1996 for referring the matter to arbitration, and the outcome of the said application is pending before the NCLT, Kolkata Bench; (iii) The MoU contains an arbitration clause, but the Court, following the judgment in Vidya Drolia & Ors Vs. Durga Trading Corporation, held that the dispute is non-arbitrable due to the pendency of a criminal case and the ongoing NCLT proceedings; (iv) The judgment relied upon by the petitioners, Pravin Electricals Private Limited Vs. Galaxy Infra and Engineering Private Limited, is not applicable in the facts of the given case. 2. The Court held that the dispute between the parties is non-arbitrable due to the pendency of a criminal case and the ongoing NCLT proceedings.
Final Decision: The Court dismissed the instant application for appointment of arbitrator.
JUDGMENT :
The instant application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator.
2. The brief facts of the case, as per the pleadings made in the application, read as under:
The father of the applicants, namely, Late Harihar Prasad Sahu and his friend and business associate, Shri Kumud Prasad Sahu having interest in setting up business of manufacturing beer in the State of Jharkhand and incorporated a company in the name and style of “Pali Hills Breweries Private Limited’ in the year 2013.
The said Harihar Prasad Sahu had the technical knowledge of liquor business was the prime moving force behind setting up the said company and arranged finance from his personal resources, besides mortgaging his personal immovable properties in favour of Bank for establishing the said business. The Bank of India provided term loan facilities to the Company on the basis of security given by both Harihar Prasad Sahu and Kumud Prasad Sahu. The respondent herein is the nephew of Sri Kumud Prasad Sahu and applicants are the sons of said Harihar Prasad Sahu.
It is the case of the applicants that audited balance-sheet of the said company as on 31st March, 2019 submitted to the Bank revealed huge accumulated losses which exceeded the paid up share capital of the company. Under such circumstances, the Bank requested the said two Directors of the company to increase the debt equity ratio by injecting fresh capital into the company as otherwise the loan account would have to be marked as Non-Performing Asset and to further ensure repayment of the loan continues timely in future.
The applicant no. 1 and the respondent approached the said Harihar Prasad Sahu, who was a shareholder of the Company to infuse fresh capital into the Company as was done by him on previous occasion. Said Harihar Sahu shown his inability to infuse further fund due to various reasons.
The respondent and his associate including Sri Kumud Prasad Sahu were holding majority of shares in the company. It was decided that the loan required for the company must be commensurate with their position as majority shareholders of the company. Accordingly, more than 50% of the loan should be brought by the respondent and balance loan to be provided by said Harihar Prasad Sahu and his son namely, Kumar Sachin, applicant no. 1. But the aforesaid proposal was not accepted by the respondent and the respondent and his associate were not willing to inject further fund in the company and there being disagreement between the parties in respect of future strategies and policies of the company, the respondent decided to withdrew from the company and transfer his shares to Mr. Harihar Prasad Sahu and his associates and resign from the directorship of the company.
In view of the aforesaid developments, the applicants and respondent entered into an agreement/memorandum of understanding dated 30.10.2019 at Ranchi mentioning the aforesaid fact, whereby it was agreed between the parties that the respondent will resign from the directorship of the company and also transfer his entire shareholding in the Company comprising of 46,69,300 number of equity shares of face value INR 10 each to the party of the third part (Applicant No.2) at such value as mutually decided after obtaining valuation report from a competent Chartered Accountant.
It is further case of the applicants that a Memorandum of Understanding (MoU) that was entered into between the parties specifically has a clause for arbitration. The clause 5 of the MoU states that “In the event of any dispute or differences between the parties herein, arising out of or in connection with the said memorandum of understanding and/or its scope and/or interpretation thereof, and/or relating to matters covered thereunder, the same shall be referred to arbitration of two arbitrators to be appointed by the parties herein, who shall then appoint the third arbitrator who shall be the presiding officer. The decision
The issue of non-arbitrability is required to be decided at the referral stage, and the Court has the jurisdiction to review the non-arbitrability aspects at the initial stage.
Issues of non-arbitrability arise in cases with ongoing criminal proceedings or where crucial agreements are disputed.
Appointment of Arbitrator - Existence of arbitration agreement - Plea of agreement being unstamped also does not prevent this court in appointing an arbitrator while exercising jurisdiction under sec....
Court has limited jurisdiction under Section 11 of Arbitration and Conciliation Act, 1996.
The court ruled that allegations of fraud do not negate the enforceability of an arbitration agreement, which operates independently from the underlying contract.
Point of Law : If an allegation of fraud can be adjudicated upon in course of a trial before an ordinary civil court, there is no reason or justification to exclude such disputes from ambit and purvi....
The main legal point established in the judgment is the validity and enforceability of the arbitration agreement, the arbitrability of the disputes, and the jurisdiction of the court to appoint an ar....
The existence of an arbitration agreement under Section 11(6) allows for disputes related to a memorandum of family settlement to be arbitrable, reinforcing the principle of kompetenz-kompetenz.
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