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2020 Supreme(Mad) 1766
IN THE HIGH COURT OF JUDICATURE AT MADRAS
N. SATHISH KUMAR, J.
Small Industries Development Bank of India, Chennai & Others - Appellant
Versus
Creation Investments Equitas Holdings LLC A wholly owned subsidiary of Creation Investments Social Ventures Fund II LP, United States of America & Others - Respondents
O.A.No. 1137 of 2019 & A.Nos. 1979, 9728, 9729, 1316, 1315, 1981, 1317, 1983, 1984, 1985, 1980 & 1982 of 2020
Decided on : 06-10-2020
For the Applicant :P.H. Arvindh Pandiyan Senior Counsel, Edward James, Advocate.
For the Respondents:P.S. Raman, Senior Counsel, Vinod Kumar for M/s. J. Sagar Associates, Advocates.
The main legal point established in the judgment is the application of the 'group of companies doctrine' and the piercing of the corporate veil to establish the binding legal relationship between a holding company and its dissolved subsidiary, in the context of an arbitration agreement.
Headnote:
Arbitration and Conciliation Act - Share Purchase Agreement - Section 9, Section 151 of CPC - [SHARE PURCHASE AGREEMENT] - [ARBITRATION] - [Section 9, Section 151 of CPC]
Fact of the Case:
The case involved a dispute arising from a Share Purchase Agreement (SPA) between Small Industries Development Bank of India and Creation Investments Equitas Holdings LLC. The dispute was referred to arbitration, resulting in an arbitral award. The applicant sought an ex parte ad interim order of injunction to restrain the respondents from dealing with the shares held in Sonata Finance Private Limited. The respondents contested the application, arguing that the arbitration agreement was not enforceable due to the dissolution of the first respondent, and the second respondent was not a party to the arbitration agreement.
Finding of the Court:
The court found that the dissolution of the first respondent and the conduct of the second respondent indicated a commonality of interest and interlinking transactions between the two entities. The court held that the second respondent, as a holding company, was bound by the acts of the first respondent, and granted the injunction to prevent potential fraudulent activities.
Issues: The main issue was whether the second respondent, as a holding company, could be held liable for the acts of the dissolved first respondent and whether the arbitration agreement was enforceable.
Ratio Decidendi: The court applied the 'group of companies doctrine' and pierced the corporate veil to establish the commonality of interest and interlinking transactions between the first and second respondents. The court held that the dissolution of the first respondent to avoid legal consequences and the conduct of the second respondent indicated a binding legal relationship between the two entities.
Final Decision: The court made the interim injunction absolute, dismissed the application to vacate the injunction, and ordered the respondents to furnish details. The court's decision was subject to any order that may be passed by the Supreme Court in a related application.
JUDGMENT :
(Prayer in O.A.No.1137 of 2019, A.No.9728 of 2019: Application filed under XIV Rule 8 of Original Side Rules, 1956 r/w. Section 9 of the Arbitration and Conciliation Act, 1996.
Prayer in A.No.1979, 1316, 1981, 1317, 1983, 1984, 1980, 9729 of 2020: Application filed under XIV Rule 8 of Original Side Rules, 1956 r/w. Section 9 (ii) (e) of the Arbitration and Conciliation Act, 1996 r/w. Section 151 of CPC.)
O.A.No.1137 of 2019 has been filed to pass an ex parte ad interim order of injunction restraining the respondents from dealing with and/or selling and/or transferring and/or disposing of and/or alienating and/or encumbering and/or creating third party interest in any manner whatsoever in respect of the shares held by the second respondent in Sonata Finance Private Limited, as detailed in the Judges Summons.
2. A.No.1979 of 2020 has been filed to dismiss the Application No.9729 of 2019 filed by the applicant with exemplary costs.
3. A.No.9728 of 2019 has been filed to direct the respondents 2 to 4 to furnish security in the form of a bank guarantee for the sum of Rs.76,77,69,577/- (Rupees Seventy six crore seventy seven lakhs sixty nine thousand five hundred seventy seven) together with interest at the rate of 11% (being the Current SIDBI Prime Lending Rate) calculated from 28/8/2019 till the date of furnishing such security or in the form of a deposit in cash in this Court and/or in any other form that Hon'ble Court may deem fit in order to secure recovery and realisation of the applicant's compensation under the Undertaking.
4. A.No.9729 of 2019 has been filed
(i). to pass an ex-parte ad interim order of injunction restraining the respondents from dealing with and/or selling and/or transferring and/or disposing of and/or alienating and/or encumbering and/or creating third party interest in any manner whatsoever in respect of the shares held by the respondent No.2 in Sonata Finance Private Limited, as detailed in the Schedule to the Judges Summons
(ii). To direct the respondents Nos.2 to 4 to furnish security in the form of a bank guarantee for the sum of Rs.76,77,69,577/- (Rupees Seventy Six Crore Seventy Seven Lakhs Sixty Nine Thousand Five Hundred Seventy Seven) together with interest at the rate of 11% (being the Current SIDBI Prime Lending Rate) calculated from 28/8/2019 till the date of furnishing such security or in the form of a deposit in cash in this Court and/or in any other form that Hon'ble Court may deem fit in order to secure recovery and realisation of the applicant's compensation under the Undertaking.
(iii). To direct the respondent Nos.2 to 4 to disclose on affidavit the matters in respect of the following (a). All assets of second respondent in India (including details of all investments held in India through special purpose vehicles/subsidiaries); (b). All bank accounts owned and operated by the second respondent along with latest bank statements; and (c). Amounts realized from the sale of 1,73,13,912 shares held by first respondent in Equitas Holdings Limited including dates of such sale and parties to whom the shares were sold.
5. Application Nos.1315, 1316 of 2020 have been filed to dismiss Application No.9728 of 2019 filed by the applicant with exemplary costs.
6. Application No.1315 of 2020 has been filed to dismiss O.A.No.1137 of 2019 filed by the applicant with exemplary costs.
7. A.No.1981 of 2020 has been filed to vacate the order of ad interim injunction dated 19/12/2019 (which has been subsequently extended) restraining the second respondent from dealing with selling, transferring, alienating, disposing, encumbering or creating third party rights in respect of its shares held in Sonata.
8. A.No.1317 of 2020 has been filed to dismiss A.No.9729 of 2019 filed by the applicant with exemplary costs.
9. A.No.1983 of 2020 has been filed to dismiss A.No.9728 of 2019 filed by the applicant with exemplary costs.
10. A.No.1984 of 2020 has been filed to dismiss A.No.9729 of 2019 filed by the applicant with exe
