BHARTI TELEVENTURES LIMITED v. DSS ENTERPRISES PRIVATE LIMITED
2001-05-14
J D Kapoor
body2001
DailyLaw.ai
J. D. Kapoor ( 1 ) THROUGH these applications moved under Section 45 of the arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act ), the defendants 1 to 3 namely, DSS Enterprises Limited (hereinafter referred to as the dss), Bell South International Inc. (hereinafter referred to as the bellsouth ) and millicom International Cellular S. A. (hereinafter referred to as millicom ) have questioned the maintainability of the instant suit filed by the plaintiff-Bharti televenture Limited (hereinafter referred to as bharti ) being barred by the provision of Section 45 of the Arbitration and Conciliation Act, 1996 and have sought reference of the disputes raised by it to arbitration. The defendants Bell South and millicom are foreign shareholders holding 40. 5% equity together while DSS, an indian Partner holds 10. 8% equity. The defendant No. 4crompton Greaves Limited (hereinafter referred to as cgl ) alone held 40. 5% equity before it was purchased by the plaintiff. They all are partners/co-promoters of defendant No. 5 company skycell Communication Limited (hereinafter referred to as Skycell ). ( 2 ) THE plaintiff through this suit has sought a decree for declaration and permanent injunction as its claim of having acquired the status of a partner in the defendant No. 5-Skycell by virtue of having purchased the equity held by its erstwhile partner defendant No. 4-CGL and its rights accruing from the Joint venture Agreement (hereinafter referred to as the JVA) to which all the five defendants including CGL were parties is being resisted jointly by defendants 1 to 3. . ( 3 ) THE main ground of challenge is that the plaintiff, as per its own claims and pleadings has stepped into the shoes of the CGL as successor-in-interest and has given the undertaking to observe the terms of the JVA and is, therefore, refrained from seeking any remedy by way of a suit as Article 21 of the JVA provides that any and all disputes arising out of or in connection with the negotiations, execution, interpretation, performance and non-performance of this agreement shall be solely and finally settled by a Board of three Arbitrators in accordance with the Rules and conciliation and Arbitration of the International Chamber of Commerce (hereinafter referred to as the ICC Rules ). ( 4 ) RELEVANT provisions of the Act are Sections 44 and 45.
( 4 ) RELEVANT provisions of the Act are Sections 44 and 45. These fall in Part-11 of chapter-1 of the Act which pertains to enforcement of foreign awards. These are as under: "44. Definitionin this chapter, unless the contest otherwise requires, foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the laws in force in India, made on or after the 11th day of October, i960, (a) in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies; and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the official Gazette, declare to be territories to which the said convention applies. 45. Power of Judicial Authority to refer parties to arbitrationnotwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908, a Judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. " ( 5 ) AT the outset, the background leading to the policy of the Government in throwing open the sensitive and strategically important sector of Telecommunication to the foreign investors and the conspectus of facts in chronological events that led to the instant suit of the plaintiff and the applications of the defendants need to be put in brief. ( 6 ) TILL early 1990 s Telecommunication Sector was exclusively owned and operated by the Government and its instrumentalities. It did not produce the desired results. Rather its existence became shaky. It was in 1992 that the Government of India came out with its decision popularly known as new Telecom Policy allowing private participation in providing the telecom services. The said policy also provided that the foreign equity holding in a Telecom Service Operator company must not exceed 49% whereas Indian shareholders shall not only have minimum 51 % of equity but also the management and control of the telecom service operation shall vest in their hands.
The said policy also provided that the foreign equity holding in a Telecom Service Operator company must not exceed 49% whereas Indian shareholders shall not only have minimum 51 % of equity but also the management and control of the telecom service operation shall vest in their hands. Obviously the provisions of 51% equity to be held by the Indian shareholders and also the management and control of the company by them was to mainly protect the economic sovereignty. Thus the Indian domination by way of management was pre-dominant feature of the said policy. ( 7 ) PURSUANT to this policy the Central Government decided to licence out the entire operations in respect of Cellular Mobile Telephone Service initially in four metropolitan towns, namely Delhi, Mumbai, Calcutta and Chennai to various private entrepreneurs. By taking the advantage of the aforesaid policy a collaboration agreement was signed by the defendants on 22/03/1992 for carrying on the business of providing cellular services through defendant No. 5-Skycell pursuant to a licence proposed to be obtained from the Government of India. On being reasonably certain that the licence would be granted in the name of defendant No. 5-Skycell, a draft JVA was duly and unanimously approved and signed at the meeting of the Board of Directors of Skycell on 12/08/1992. ( 8 ) THE applications were made to the RBI and FIPB for their approval for allotment of shares to Bellsouth and Millicom as they were foreign companies. Bid of defendantno. 5-Skycellwasevaluated by the Departmentof Telecommunications (hereinafter referred to as the Dot ). The defendant No. 5 was granted the licence subject to the condition that the management of the operating company shall vest in Indian hands. Of course, the benefit of expertise and experience of foreign partners was allowed to be availed by the defendant No. 5. ( 9 ) UNFORTUNATELY stars did not favour Skycell. It started running into losses. There became an acute shortage of working capital and the company was unable to cater to the demands of the customers due to financial constraints. Though it is disputed, as according to the defendants the decision to locate a buyer for their entire shareholding was taken for strategical reasons but it was agreed that all the members would simultaneously and together exit from defendant No. 5 after transfer of shares to any outside buyer.
Though it is disputed, as according to the defendants the decision to locate a buyer for their entire shareholding was taken for strategical reasons but it was agreed that all the members would simultaneously and together exit from defendant No. 5 after transfer of shares to any outside buyer. It was at this stage that the plaintiff-Bharti was introduced to the defendants. ( 10 ) ON 5/10/1999 a Memorandum of Understanding was entered into between the CGL and DSS as the proposed sellers and the plaintiff as the proposed buyer, for the sale of equity held by CGL and DSS aggregating 51%. However the agreement ran into rough weather and on 1/11/1999 a supplementary memorandum of Understanding was executed whereby the plaintiff was given the option to purchase the shareholding of either CGL or DSS. As per requirement of article 7. 2 of the JVA, CGL issued a transfer notice dated 11. 10. 1999 to Skycell, DSS, bell South and Millicom informing them of its proposal to sell its entire 40. 5% shares held by it in Skycell. DSS and Bellsouth gave their consent in writing while Millicom gave its consent by transfer notice. DSSgaveitsconsentthroughsatwantsingh. DSS also issued a similar transfer notice on 28/10/1999 pursuant to aforesaid agreement at about the same time as was done by CGL. However, Millicom cautioned DSS against such sale except upon securing its interests. An escrow agreement was entered into between DSS and plaintiff-Bharti whereby an escrow agent was appointed. This process was delayed between DSS and Bharti along with that of CGL. On 14th of December, 1999, a meeting of the Board of Directors took place where they proposed sale of shares of CGL to Bharti and took note of the fact that CGL s offer of sale to Bharti was approved by two other Joint Venture Partners, namely, Millicom and DSS while the third Joint Venture Partner namely Bellsouth sought certain information about the proposed buyer.
( 11 ) VOLTE-FACE of DSS has been attributed to its being a facade or a protege of bellsouth and Millicom as inquiries revealed that it is under their heavy financial obligation inasmuch as that equity participation of DSS in Skycell had been arranged and guaranteed by Millicom through a loan by way of extremely commercial borrowing through CIA and it has subsistent agreement with Bell- south wherein it is in its consultancy service against payment of monthly fees and other considerations and thus it is wholly under the influence and control of Bell- south and Millicom and arm-twisting by them has forced DSS to retract. These facts came to the notice of the plaintiff when it stumbled upon an agreement of DSS and bellsouth dated 15. 7. 1986 which was amended on 8. 8. 1993 whereby it agreed to act as adviser to Bellsouth with regard to market objectives and proposed marketing and distribution plans against the payment of monthly fees and other considerations. ( 12 ) IT is averred that Bell South not only breached the agreement with Bharti but induced the other Joint Venture Partners, namely, CGL and DSS to join it to prevent the entry of Bharti into their realm. Was it a commercial back out or an unholy somer-sault ? Bharti says both because during the intervening period they were offered higher price. ( 13 ) ULTIMATELY on 14/12/1999 the Board of Directors resolved to approve inprinciple the sale of 40. 5% equity shares held by CGL to Bharti, subject to receipt of consent from Bellsouth and approval from Dot and Institutional lenders. Approval of Government of India was granted subject to the condition that the management and control of licensee company shall remain in Indian hands. Bellsouth withheld the consent and sought certain information from Bharti. ( 14 ) IN the midstream and without waiting for the information, Bellsouth moved a petition under Section 9 of the Act against the CGL before the Madras High court wherein though an order of ex-parte injunction was passed but ultimately the parties were directed to convene a meeting on 3/05/2000 and make an attempt to amicably resolve the disputes. Pursuant to the directions of the Madras High Court the meeting. took place on 3. 5. 2000 at the office of the Skycell in which all the promoters were present.
Pursuant to the directions of the Madras High Court the meeting. took place on 3. 5. 2000 at the office of the Skycell in which all the promoters were present. At this meeting the sale of CGL/dss shares to Bharti was reaffirmed. However, CGL, DSS, Bellsouth and Millicom conveyed their decision to Bharti and Bharti in turn conveyed its re-affirmation or acceptance. ( 15 ) ON 8/05/2000 the plaintiff, pursuant to the agreements of 3/05/2000 (hereinafter referred as Mou) forwarded three separate drafts of Share Purchase agreements to each of the three promoters who had agreed to sell the shares. Accordingly, Bellsouth on 24/05/2000 caused Skycell to submit applications to the Dot, Government of India, ICICI Limited and ABN Amro Bank N. V. for approvals of transfer of its shareholding to the plaintiff Bharti. Bharti and Bellsouth exchanged drafts of proposed share purchase agreements. Finally draft was accepted. It was even not disputed by Bellsouth. Again the Dot, Government of india sent a communication on 29/06/2000 wherein it was stated that certain conditions were required to be accepted by the Board of Directors of Skycell before permission/approval for transfer of shareholdings of CGL, DSS and Bellsouth in favour of Bharti could be granted. The condition was obvious. That the management and control of licensee company shall remain in Indian hands. ( 16 ) IN their resolution dated 13/07/2000 the Board of Directors accepted all the conditions and informed the Dot accordingly. Again, Bharti forwarded the draft of Share Purchase Agreement on 8/05/2000. However, the Millicom wrote to Bharti informing that it was not satisfied with the amendment proposed by it and sought to secure the money owed by DSS to CIA and proposed amendments to the aforesaid escrow agreement. ( 17 ) HOWEVER, this forced the plaintiff to file an independent suit against the bellsouth restraining the latter from selling or entering into sale of its shares to any third party than the plaintiff. Since the plaintiff had already acquired 40. 5% equity of CGL and other rights for the value of Rs.
( 17 ) HOWEVER, this forced the plaintiff to file an independent suit against the bellsouth restraining the latter from selling or entering into sale of its shares to any third party than the plaintiff. Since the plaintiff had already acquired 40. 5% equity of CGL and other rights for the value of Rs. 140 crores and had also made substantial investment in diverse manners in CGL whereas the remaining three promoters did not invest any money in Skycell, it is averred that by acting upon the agreement arrived at on May 3,2000 i. e. Mou, the plaintiff-Bharti had purchased the shares and become partner of the company in place of CGL on and w. e. f. 7/08/2000. As per requirement of JVA, Bharti also executed an undertaking which was forwarded to all the parties to the JVA agreeing to the observation of terms and be part ofjva as a successor of CGL. ( 18 ) ON 7/08/2000 itself the Board of Directors of Skycell approved the transfer of equity shares held by CGL in favour of Bharti and thereupon entered upon the name of the principal of the company as required by the Articles of the company as per provisions of the Companies Act. Since Article 9 of the JVA provides that the Board of Directors of Skycell shall consist of 10 members out of which 5 shall be nominated by CGL and two by Bellsouth and two by Millicom and one by DSS, the plaintiff asked for at least five Directors as successor-in-interest of cgl. ( 19 ) SINCE the original claim of Bharti was denied by Skycell in the Board meeting and instead the parallel meetings of the Board of Directors were held without informing or inviting the plaintiff inspite of its being the largest single shareholder who had made huge investment of Rs. 140 crores or so by way of acquiring 40.
( 19 ) SINCE the original claim of Bharti was denied by Skycell in the Board meeting and instead the parallel meetings of the Board of Directors were held without informing or inviting the plaintiff inspite of its being the largest single shareholder who had made huge investment of Rs. 140 crores or so by way of acquiring 40. 5 per cent equity on the understanding of the promoters that it will also acquire the equity held by DSS and Bellsouth which they had agreed to sell to the plaintiff on 3/05/2000, a declaraton has been sought that AGMs held by the defendants and particularly Board meetings held by them on August 26 as also the resolutions passed by them be declared null and void and a decree be passed restraining them permanently from exercising their voting rights prejudicial to the interest of the plaintiff and also restraining from exercising their voting rights otherwise in any manner than the understanding of the parties and in furtherance of JVA and also from committing any act or exercising their voting rights in respect of shares held by them in a manner prejudicial to the interest of Skycell and voting against the appointment and re-appointment of five Directors nominated by the plaintiff to the Board of Directors and also directing them to elect as Managing director from the Directors nominated by the plaintiff to the Board of Directors of skycell. ( 20 ) AS omens always have whiff of impending events, DSS rushed to file the reply to the injunction application while the defendants 1 to 3 filed the applications under Section 45 of the Act questioning the maintainability of the suit and for referring the parties to arbitration. Obviously they kept their cards close to their chest. DSS declared in unequivocal terms that the plaintiff is not a party to the JVA and there is no agreement between the plaintiff on the one hand and defendants 1 to 3 and 5 on the other hand and thus question of the plaintiff being a member of and vested with any right under the JVA does not arise.
DSS declared in unequivocal terms that the plaintiff is not a party to the JVA and there is no agreement between the plaintiff on the one hand and defendants 1 to 3 and 5 on the other hand and thus question of the plaintiff being a member of and vested with any right under the JVA does not arise. It further said that JVA clearly provides that no person shall be entitled to participate in the company i. e. Skycell except with prior written consent of other shareholders and since the other shareholders have not given any prior consent, the question of the plaintiff participating in defendant No. 1 as a shareholder does not arise. Thus defendant No. 1 minced no words and refused to accept the plaintiff as one of the partners of defendant No. 5. ( 21 ) THE rights the plaintiff seeks to enforce emanate from Article 9 of the JVA which provides that as long as the shareholders continue to hold shares in Skycell in the proportions set forth in Article 3. 1, five (5) Directors shall be nominated by cgl, two (2) shall be nominated by Bell South, two (2) shall be nominated by millicom, and one (1) shall be nominated by DSS. Article 3. 1 pertains to equity participation of shareholders and is as under: cgl forty and half per cent (40. 5%) bellsouth twenty four and half per cent (24. 5%) millicom twenty four and half per cent (24. 5%) dss ten and half per cent (10. 5%) ( 22 ) BATTERY of Senior Counsel, namely, S/shri P. Chidambaram, Rajeev sawhney, Shanti Bhushan and P. N. Lekhi representing the defendants/applicants supplemented each other in contending that the dispute as to the validity of the purchase of shares by Bharti from the CGL is referable to the arbitration under section 45 of the Act and in terms of Article 21. 2 of the JVA. ( 23 ) IN order to avoid repetition, the contentions of the learned Counsel for the defendants need to be summed up in brief. These are : (i) That the statement of facts pleaded by the plaintiff when read in totality demonstrates that as per its own understanding it has succeeded to and acquired the rights of CGL under the JVA after having obtained approval of all the co-promoters and consequently had furnished the undertaking as prescribed under Article 3.
These are : (i) That the statement of facts pleaded by the plaintiff when read in totality demonstrates that as per its own understanding it has succeeded to and acquired the rights of CGL under the JVA after having obtained approval of all the co-promoters and consequently had furnished the undertaking as prescribed under Article 3. 6 of the JVA that it shall observe and be bound by all the provisions of the JVA, it is no more open to the plaintiff to redress its grievance through the suit as the only remedy available to the plaintiff is under Articles 21. 1 and 21. 2 of the jva which are as under : "21. 1 -Amicable Resolutionif any dispute arises out of or in connection with the negotiation, execution, interpretation, performance or non- performance of this agreement, the parties shall seek to solve the matter amicably through discussions between them. Only if the parties fail to resolve such controversy or claim within thirty (30) days by amicable arrangement and compromise, the aggrieved party may seek arbitration as set forth below. 21. 2 - Arbitration Agreementany and all disputes arising out of or in connection with the negotiation, execution, interpretation, performance and non-performance of this agreement shall be solely and finally settled by a Board of three (3) Arbitrators in accordance with the Rules and Conciliation and Arbitration of the International Chamber of commerce (ICC Rules ). " (ii) That Article 3. 4 and Article 7. 4 of the JVA when read together will show that even the person claiming himself as a new shareholder binds himself to the terms of the agreement for settling the future or past dispute including the dispute as to the validity of his locus standi as a new shareholder and since the plaintiff is raising the dispute in the suit which is covered under Article 9 so the Arbitration Clause will come into play and not an independent suit. The above referred Articles of the JVA are as under: "3.
The above referred Articles of the JVA are as under: "3. 4 - Restriction on Transfer of Sharesubject to Article 22, unless otherwise mutually agreed by all the shareholders, no shareholder shall sell or otherwise transfer or dispose of any of its shares in Skycell for the longer of: (a) three years after the date the license is awarded to skycell, or (b) such other period as maybe required by the Department of Telecommunications, Government of India. 7. 4 - Agreement of New Shareholdersif any shareholder shall sell, assign or otherwise transfer all or any part of its shares to a third party (including but not limited to an Affiliate of such shareholder) in accordance with this Agreement and the Articles, such shareholder shall cause the third party acquiring or receiving an interest in such shares/as a condition of such acquisition, to furnish a written undertaking to the other shareholders and to Skycell in form and substance acceptable to such other shareholders and Skycell, agreeing to observe and be bound by all the provisions of this Agreement as if it had sold the shares. In addition, as set forth in Article 3. 6 no person or entity shall be invited to participate in Skycell without the prior written consent of all the shareholders. " (hi) That Article 15. 1 provides for resolution of adeadlock by the Arbitrator. In the case of deadlock any shareholder by written notice to each other shareholder can convene a meeting of at least one representative of each shareholder and if the deadlock is not resolved by such meeting the same is to be referred to arbitration in accordance with Article 21 and in the instant case the deadlock exists as to whether the plaintiff has purchased the shares of CGL in conformity with the provisions of JVA and has a legal right or rightful claim to nominate five Directors or not. (iv) That Article 22 even binds the devisee i. e. a new shareholder to the terms of the JVA and since the plaintiff claims himself to be a new shareholder he is bound by the terms of the JVA and, therefore, has no other remedy except by way of arbitration.
(iv) That Article 22 even binds the devisee i. e. a new shareholder to the terms of the JVA and since the plaintiff claims himself to be a new shareholder he is bound by the terms of the JVA and, therefore, has no other remedy except by way of arbitration. (v) That the tenor of the plaint shows the admission on the part of the plaintiff that there exists arbitration clause to settle any or all disputes and the nature of dispute raised by the plaintiff not only comes within the ambit of the JVA but also arises out of the JVA, (vi) That this is a case where obligations under the alleged Mou can only have effect if the requisite conditions prescribed in the JVA for transfer of shares stand fulfilled. In the instant case Bharti has purchased shares from CG L which according to it were purchased strictly in terms of JVA but according to the defendants the shares were purchased without compliance of the requirements of the JVA. Assuming that shares of cgl stand transferred to or purchased by the Bharti strictly in terms of jva still the plaintiff does not step into the shoes of CGL as it is not the case of assignment as referred in Article 22 of the JVA which is as under: "article 22 - Assignment this agreement and every covenant, term and condition hereof shall be binding upon and inure to the benefit of the parties and their respective heirs, devisees and successors. No party may asign this agreement or its rights or obligations hereunder without the prior written consent of each other party except to an Affiliate of such party. If such Affiliate ceases within three (3) years after such assignment to be an Affiliate of the assignor shareholder, then unless otherwise agreed by all shareholders such Affiliate snail, prior to such cessation, retransfer the shares of Skycellheld by it to the transferor shareholder or to another affiliate of such transferor. In any event the original party shall guarantee the obligations of its assignee under this agreement.
In any event the original party shall guarantee the obligations of its assignee under this agreement. " (vii) That the plaintiff has nowhere pleaded that the provisions of Section 44 and 45 of the Act do not apply nor is there any such plea that the agreement i. e. JVA is null and void, inoperative or incapable of being performed, the defendants are under the provisions of Section 45 of the act entitled to apply to the Court for referring the parties to arbitration. (viii) That the arbitration clause is of extremely widest amplitude as it refers to any or all disputes arising out of or in connection with interpretation, performance or non-performance of the JVA and since the nature of disputes raised by the plaintiff comes within the ambit of interpretation, performance or non-performance of the agreement these have to be referred to arbitration. (ix) That the question whether there has been a compliance of the terms of the JVA in the transfer of shares by the CGL to Bharti or not is again a question that arises out of the JVA and, therefore, falls within the jurisdiction of the Arbitrator. Arbitrator has even the powers to decide its jurisdiction to adjudicate upon any or all disputes arising from the jva. (x) That plaint is liable to be rejected under the provisions of Order 7 Rule 11 of the Code of Civil Procedure that provide that the plaint shall be rejected where the suit appears from the statement in the plaint to be barred by any law. ( 24 ) SINCE in the instant case the plaintiff has pleaded that it has purchased the shares of CGL in strict terms of the JVA and had furnished the undertaking to observe and be bound by the provisions of the JVA and according to the JVA any or all disputes arising between the parties have to be referred to arbitration, the suit itself is barred by the provisions of Section. 45 of the Act as this section mandates the judicial Authority when seized of an action in a matter in respect of which an arbitration agreement subsists to refer the parties to arbitration. ( 25 ) PITTED against the volley of the above contentions, learned Senior Advocate and Counsel for the plaintiff Mr. Kapil Sibal has advanced suffusive arguments.
45 of the Act as this section mandates the judicial Authority when seized of an action in a matter in respect of which an arbitration agreement subsists to refer the parties to arbitration. ( 25 ) PITTED against the volley of the above contentions, learned Senior Advocate and Counsel for the plaintiff Mr. Kapil Sibal has advanced suffusive arguments. To be succinct, these are: (i) That the defendants/applicants are estopped and debarred from taking the plea of arbitration as they themselves waived and abandoned this plea by filing an application under Section 9 of the Act before the madras High Court and a civil suit for injunction before the Court at delhi. (ii) Since there are no corresponding provisions in the form of Sections 5 and 16 in Chapter I which prohibit the intervention of any Judicial authority and empower the Arbitral Tribunal to rule even on its jurisdiction including ruling, on any objections with respect to the questions mentioned in arbitration agreement. Court has the powers to rule upon the jurisdiction of the Arbitrator. Had there been any intention on the part of the legislature to exclude or limit the jurisdiction of the Court from deciding the jurisdiction of the Arbitrator or the nature of instant dispute to be arbitered upon, similar provisions would have been included in Part II. If Part II is interpreted to exclude the jurisdiction of the Indian Courts, inequality and unfairness would let loose. (iii) That Section 45 of the Act does not apply as it assumes existence of agreement of arbitration that too in writing between the parties. The defendant/applicants dispute the status of the plaintiff as a member of the JVA ie, a party to the agreement. Since the parties are not in agreement as to whether or not the plaintiff is a party to the JVA, Section 45 of the Act cannot be invoked. The very holding of the parallel AGM or Board Meetings suggest ?nd show that the defendants/applicants have not accepted the plaintiff as their partner. So much so in reply to the application under Order 39 Rules 1 and 2, DSS has in categorical and unequivocal terms stated that the plaintiff is not a party to the JVA and there is no agreement between the plaintiff and defendants 1,2,3 and 5.
So much so in reply to the application under Order 39 Rules 1 and 2, DSS has in categorical and unequivocal terms stated that the plaintiff is not a party to the JVA and there is no agreement between the plaintiff and defendants 1,2,3 and 5. (iv) That the definition and meaning of the term arbitration agreement provided in Section 7 of the Act which though relates to the domestic arbitration is applicable in respect of any agreement that contains arbitration clause irrespective of the fact whether that section preovigore does not relate to Part II Chapter I. ( 26 ) THE definition of arbitration agreement as provided in Section 7 is as under: "7. Arbitration agreement (1) In this part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in, (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. " (v) That Clauses 1 and 2 of the Article 2 of the First Scheduled Section 44 pertaining to Convention on the recognition and enforcement of arbitral awards provide that only an agreement in writing shall be recognised and the term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in exchange of letters or telegrams. Section 44 recognises the foreign awards only if it is made in pursuance of an agreement in writing for arbitration.
Section 44 recognises the foreign awards only if it is made in pursuance of an agreement in writing for arbitration. Thus unless and until there is undisputed agreement in writing between the parties the provisions of section 45 cannot be invoked. (vi) That any unilateral statement made by the plaintiff that it has stepped into the shoes of CGL or has acquired a status of a new shareholder or devisee or unilateral undertaking given by the plaintiff that it would abide by the terms and conditions of the JVA cannot form the basis of the agreement on the basis of which me defendants can maintain an action for arbitration. (vii) That the basic claim of the plaintiff is based upon the agreement dated 3/05/2000 and subsequent acts culminating in the purchase of equity of CGL by Bharti and the policy of Government of India while granting the licence that the management shall always be in the hands of the Indians and assurances given by the defendants/applicants from time to time that Bharti not only will have controlling interest in the company but also run and manage its affairs. ( 27 ) LET me deal with the doctrine of waiver raised by Mr, Sibal first. It is contended that once Bell South had moved an application under Section 9 of the Act before the Madras High Court and DSS had filed a suit for injunction before the delhi Court restraining CGL from selling or transferring its shares it is no more open to them to invoke clause of arbitration as by these acts they waived and abandoned it. I am afraid this contention holds water like a sieve. ( 28 ) MERE seeking a relief under Section 9 of the Act though this provision was not applicable because the JVA fell under Part 11 Chapter I, being foreign arbitration and was governed by New York Convention cannot constitute waiver as this provision is in the form of seeking an interim relief before or during the arbitral proceedings. This provision provides an interim protection to the aggrieved party either before or during arbitral proceedings.
This provision provides an interim protection to the aggrieved party either before or during arbitral proceedings. To say that by moving an application under Section 9 of the Act a party abandons the arbitration agreement is not correct as relief sought by the party under these provisions is in the form of interim injunction or such interim measure of protection as may appear to the Court to be just and convenient. ( 29 ) THOUGH the provisions of Section 9 cannot be resorted to for interim measure or injunction where the parties have chosen a foreign Forum for arbitration still the fact remains that such a step cannot constitute a waiver or abandonment of arbitration clause. ( 30 ) IF the argument of Mr. Sibal is accepted then this tantamount to waiver of arbitration clause by a person who seeks an interim protection before or during the arbitral proceedings. In Sundram Finance Limited v. NEPC India Limited, it has been held that when a party applies under Section 9 of the 1996 Act it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral Tribunal and further contemplates arbitration proceedings shall take place between the parties. When such an application is filed before the commencement of arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings. Thus the mere filing of an application under section 9 of the Act by any of the parties does not operate waiver or estoppel from invoking the arbitral proceedings, ( 31 ) MERELY because one of the partners has resorted to an action which was firstly not permissible under the law and secondly because of misconceived notion that it can remedy its grievance by way of interim relief does not mean that the other partners have also consented for such an action. The very fact that the remaining partners have filed the applications under Section 45 of the Act shows that they have not agreed to the waiver, if any.
The very fact that the remaining partners have filed the applications under Section 45 of the Act shows that they have not agreed to the waiver, if any. ( 32 ) SIMILARLY slut filed by DSS does not operate waiver as it was a suit for injunction restraining CGL from selling or transferring its shares in Skycell and was not covered by the provisions of Section 62 of the Indian Contract Act nor was it a suit with regard to the provisions of JVA. It related to Articles of Association of a company. Section 62 of the Indian Contract Act provides that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. ( 33 ) THUS neither does action under Section 9 nor an independent suit as filed by DSS amount to waiver or abandonment of the arbitration clause. ( 34 ) AS regards the contention of Mr. Sibal that the absence of provisions of sections 5,9 and 16 in Part II of the Act shows that there is no bar to the jurisdiction of the Judicial Authority to entertain any proceedings arising from the arbitration agreement and even to decide the jurisdiction of the Arbitrator it is again difficult to accept as Section 45 of the Act is a self-contained provision so far as the jurisdiction of the Court is concerned. ( 35 ) THOUGH Section 5 contemplates number of eventualities that confer jurisdiction upon the Judicial Authority to entertain an action in respect of which there is an agreement of arbitration yet it limits the jurisdiction of the Judicial authority to great extent. Section 9 provides jurisdiction to the Court for granting interim injunction or interim protection before or during the arbitral proceedings. Section 16 confers powers upon the Arbitrator to even decide the question of its own jurisdiction to arbitrate upon the disputes. But Section 45 of the Act ousts the jurisdiction of a Judicial Authority to entertain any action in a matter in respect of which the parties have made an agreement referred to in Section 44 and makes it mandatory to refer on the request of any of the parties to arbitration. It can refuse such a request in three eventualities.
But Section 45 of the Act ousts the jurisdiction of a Judicial Authority to entertain any action in a matter in respect of which the parties have made an agreement referred to in Section 44 and makes it mandatory to refer on the request of any of the parties to arbitration. It can refuse such a request in three eventualities. These are : (i) if the agreement is null and void; (ii) if the agreement is non-operative; (iii) if the agreement is incapable of being performed. ( 36 ) THUS absence of the corresponding provisions of Sections 5,9 and 16 in Part ii Chapter I of the Act does not show that the Legislature had intended to provide jurisdiction to the Court for deciding on the jurisdiction of the Arbitrator or grant interim injunction or protection either before or during the arbitral proceedings. ( 37 ) THE intention of the Legislature was clear and unambiguous. It was to oust the jurisdiction of any Judicial Authority to intervene either before or during the arbitral proceedings and make it mandatory to refer the parties to arbitration as and when it is seized of an action arising from the agreement on the request of one of the parties or any person claiming through or under him. Judicial Authority was conferred powers to refuse to refer the parties of arbitration only if it found that the agreement was null and void, inoperative or incapable of being performed, and rightly so. Once the parties have chosen a foreign Forum to decide their disputes by way of arbitration, it is no more open to them to stultify or subvert the arbitration agreement and render it nugatory or tautologous. ( 38 ) EXCLUSION of the provisions of Sections 5,9 and 16 in Part II Chapter I, was with the object to attract foreign investors to infuse life into otherwise dying or sinking industry. If the foreign investors know that on the drop of a hat their Indian partners can drag them in Indian Courts where they have no roots at all they would not even faintly or remotely venture to pump in their investments. It is they whom we seek to make investments and not vice versa. Thus in order to avoid an element of inequality or unfairness and to give incentives for investments that Section 45 of the Act was brought on the Statute Book.
It is they whom we seek to make investments and not vice versa. Thus in order to avoid an element of inequality or unfairness and to give incentives for investments that Section 45 of the Act was brought on the Statute Book. ( 39 ) ARTICLE 2 (iii) of the Convention corresponds to Section 45. This Article imposes a mandatory duty on the Courts of a contracting State to recognize and enforce an agreement to arbitrate. In Ledcee v. Ceramicne Rango,684 F 2nd D184 and riley v. Kingsley Underwriting Agencies Limited, 969 F. 2d 953,959, it was observed that when asked to enforce an agreement under the Convention, the Court performs a very limited inquiry to decide the following four questions : (i) Is there an agreement in writing to arbitrate the subject of the dispute? (ii) Does the agreement provide for arbitration in the territory of asignatory of the Convention ? (iii) Does the agreement arise out of a legal relationship, whether contractual or not, which is considered as commercial ? (iv) Does the commercial relationship have some reasonable relation with one or more foreign States ? ( 40 ) IF the answers are in the affirmative, a Court is required to order arbitration unless the Court finds the agreement to be null and void, inoperative or incapable of being performed. ( 41 ) HOWEVER, there is no doubt that the Court acquires its jurisdiction to refer the matter to arbitration only at the request of one of the parties or any person claiming through or under that party to the arbitration agreement and the onus to show that the agreement is null and void or inoperative or incapable of being performed is upon the party opposing reference to arbitration. In nutshell Section 45 has an overriding effect and prevails over anything contrary thereto contained in Part I of 1996 Act or the Code of Civil Procedure, 1908. ( 42 ) LET us examine as to what do Sections 44 and 45 of the Act contemplate so far as the import and meaning of the words a party , parties and agreement are concerned.
( 42 ) LET us examine as to what do Sections 44 and 45 of the Act contemplate so far as the import and meaning of the words a party , parties and agreement are concerned. Meaning of the word a party , as per the Webster s Dictionary, in context of legal affairs is one of the litigants in a legal proceeding, the plaintiff or defendant or a signatory to a legal instrument and the Chambers Dictionary defines a party as each of the individuals or groups concerned in a contract, agreement, law suit etc. As per Oxford Dictionary the word parties refers to a person or persons forming one side in an agreement or dispute. Whartan s Law Lexican 14th Edition defines the word parties as persons jointly concerned in any deed or act; litigants. Thus the word a party or parties signify and encompass those who are signatories to the agreement. ( 43 ) AS per Oxford. Dictionary the word agreement means an arrangement between the parties as to a course of action. As per the Whartan s Law Lexican agreement means a consensus of two or more minds in anything done or to be done. Chambers Dictionary describes the word agreement as a contract or term; a joint decision made after discussion. Thus in common as well as legal parlance the term a party to agreement or parties to agreement refer to undisputed joint decision or contract of two or more persons. ( 44 ) NOW comes the crucial question. Whether the plaintiff comes within the definition of a party to the "agreement" i. e. JVA or not, though the defendants have ventured to project that as per its own claim, the plaintiff has purchased the shares of CGL in strict conformity of the requirements of the JVA and has become its successor-in-interest and is, as per its own claim, a party to the JVA. ( 45 ) THE First Schedule under Section 44 of the Act pertains to Convention of me Recognition and Enforcement of Foreign Arbitral Awards. Clause (1) of Article ii provides that "each contracting State shall recognize an "agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of denned legal relationship, whether contractual or not, concerning a subject-matter capable of settlement byarbitration".
Clause (1) of Article ii provides that "each contracting State shall recognize an "agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of denned legal relationship, whether contractual or not, concerning a subject-matter capable of settlement byarbitration". Clause (2) provides that the term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. ( 46 ) THOUGH Section 7 of Chapter II of the Act relates to domestic arbitration but the concept of agreement is couched and clothed in the same language. Sub-section (3) of Section 7 provides that an arbitration agreement shall be in writing. Similarly sub-section (4) provides that an arbitration agreement is in writing if it is contained in exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or contained in exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. ( 47 ) THE only difference in Sub-section (4) of Section 7 and Clause (2) of Article 2 is that in Clause (2) the phrase "other means of telecommunication which provide a record of the agreement or contained in exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other" does not figure. ( 48 ) AS is apparent, the term "agreement in writing" is of inclusive nature and the first and foremost condition to invoke the provisions of Sections 44 and 45 of the act or for that purpose Section 7 is the existence of an "agreement in writing which should be beyond the pale. of dispute. ( 49 ) THE claims and counter claims of the parties show that the main controversy or dispute is as to the validity of the purchase of share-holding of CGL by Bharti. According to the plaintiff the shares were purchased in strict terms of the JVA but the defendants/applicants contest this claim as according to them the sale of equity by CGL to Bharti was in contravention of the requirements of JVA.
According to the plaintiff the shares were purchased in strict terms of the JVA but the defendants/applicants contest this claim as according to them the sale of equity by CGL to Bharti was in contravention of the requirements of JVA. But at the same time the defendants/applicants have also ventured to aver that as per its own claim the plaintiff is successor-in-interest of CGL and is, therefore, found by the terms of the JVA. ( 50 ) ARBITRATION clause can be invoked only if the parties agree in writing to such an arrangement cannot be gainsaid. Unilateral claim of the plaintiff of having become the successor-in-interest of CGL or for that purpose of a new shareholder or devisee strictly in terms of the JVA and unilateral undertaking arising out of this claim that it will observe and be bound by terms of the JVA, by no stretch of imagination, can bring the plaintiff within the net of a party to the agreement . . ( 51 ) BEMUSINGLY DSS in reply to the application under Order 39 Rule 1,civil Procedure Code has adopted a defiant posture by declaring that the plaintiff is not a party to the JVA and there exists no agreement between the parties. DSS said it openly whereas the remaining defendants laboured under the misconception that by moving the applications under Section 45 of the Act, they would succeed in keeping the cards under the wrap. I feel tempted to quote Shakespeare "virtue is bold and never fearful". Defendants/applicants forgot that words always express the purpose and bare the truth. ( 52 ) THE defence that though the shares were neither transferred by CGL nor purchased by Bharti as per provisions of the JVA and still the dispute has to be determined on the basis of the claims of the plaintiff that being the successor of CGL it is bound by the terms of the JVA as it purchased the shares after obtaining the approval of all the co-promoters is brewed with confusion and contradiction. I don't even see a little puff in this argument that may blow their case onward.
I don't even see a little puff in this argument that may blow their case onward. ( 53 ) ON the one hand they do not accept Bharti as one of their co-partners and have denied it the seat once occupied by their erstwhile partner CGL while on the other hand they are forcing the plaintiff to knock the door of the Arbitrators to not only get its status and slot in the Company decided that is whether the shares purchased by it from the CGL were in accordance with the terms of the JVA or not. Unless they accept Bharti as member of their conglomerate they cannot ram the arbitration clause down the throat of the plaintiff. It seems the posture assumed and adopted by the defendants/applicants vis-a-vis the plaintiff has landed them in a catch 22 problem. ( 54 ) MOST intriguing and perfidious aspect is that Satwant Singh, are presentative of DSS which has only 10% equity and as per JVA has a right to nominate only one director has been made Chairman and Managing Director of the Company. This is not only to deceive themselves but the Government of India as not even a knaive would believe that by making him the Chairman of the Company, the condition of the licence that the Management shall be in the Indian hands stands fulfilled. ( 55 ) EVEN if for a moment it is ignored that DSS is a front or puppet of Millicom or Bell South still appointment of a representative of a partner having 10 per cent equity as Chairman whereas it has the right to nominate only one Director does not amount to vesting the management in Indian hands. It is ridiculous and nothing short of logic chopping. Management and control of a partner in a Company flows from the number of Directors it has and its right to appoint a Chairman and managing Director of the Company and not by making a partner who has the right to appoint only one Director as Chairman or Managing Director. Mere fact that 51 % equity was reserved for Indian partners or promoters shows that the management of the Company has to be necessarily in the hands of Indians which means majority of Directors have to be necessarily Indians.
Mere fact that 51 % equity was reserved for Indian partners or promoters shows that the management of the Company has to be necessarily in the hands of Indians which means majority of Directors have to be necessarily Indians. ( 56 ) BUT the defendants want the plaintiff to first identify its birth mark and that too before the Arbitrators as according to the defendants, Bharti is a stranger to the skycell Company which itself is a party to the JVA and as such cannot be allowed to enter into their realm. This pre-supposes that the plaintiff is a non-entity so far the jva is concerned. ( 57 ) THERE is no dispute that the clause of arbitration is of widest possible amplitude as all and every kind of disputes arising out of the agreement including even disputes as to its jurisdiction fall within the purview of the Arbitrator. I deem it needless to refer to the catena of authorities in this regard as there is unvarying unanimous current of judicial opinion supporting the view that clause of arbitration as the one contained in the JVA embraces and envelopes any and every kind of dispute which includes dispute as to the jurisdiction of the Arbitrator also. But the condition precedent is that there should be an undisputed arbitration agreement between the concerned parties and that too in writing. Here the concerned parties are the plaintiff and defendants 1 to 3 but defendants 1 to 3 do not accept the plaintiff as one of their partners or co-promoters of Skycell as CGL once used to be and as such the plaintiff cannot be termed as 'a party to the agreement'. ( 58 ) LASTLY, the contention that the suit is barred by the provisions of Order 7 rule 11,civil Procedure Code as it provides that the plaint shall be rejected where the suit appears from the statement in the plaint to be barred by any law and in this rase the provisions of Section 45 of the Act bar the jurisdiction of any Judicial Authority to entertain any action in a matter in respect of which an arbitration agreement subsists is wholly devoid of merit.
( 59 ) SINCE in the instant case the defendants/applicants are not ready to accept the plaintiff as a party to the agreement and as such any unilateral statement of facts made by the plaintiff in support of its claim in the plaint cannot come within the ambit and purview of law of arbitration, the instant suit cannot be held as barred by this law. This argument is not only argumenti causa but also argumentum per impossible as it arises from contradictory supposition. ( 60 ) CONSPECTUS of above facts and circumstances point out ineluctably that the provisions of Section 45 of the Arbitration and Conciliation Act, 1996 are not invokable as the reliefs sought by the plaintiff in the instant suit are such that can be entertained even de hors the JVA as these emanate chiefly from the agreement dated 3. 5. 2001 concomitant with series of communications inter se the parties and the Dot and other authorities leading to the transfer of shares of CGL in order to keep the management of the Company in the Indian hands. . ( 61 ) OUT of all this, the following conclusions emerge: (I) The first and foremost condition to invoke Section 45 of the Act is the existence of written agreement which should neither be denied nor be disputed by any of the parties as according to Clause (2) of Article II of the First Schedule the definition of the 'agreement in writing' is of inclusive nature and is in substance at par with that of Section 7 of the act. (II) Unless the contending parties accept each other as parties to the agreement, none of the parties or any person claiming through or under that party can request for referring the dispute to arbitration under section 45 of the Act. (III) The exclusion of provisions of Sections 5,9 and 16 in the Act in Part II of Chapter I does not mean that Part II of Chapter I confers power upon the Judicial Authority to adjudicate upon the jurisdiction of the arbitrator. Section 45 of the Act has an overriding effect and prevails over anything contrary thereto either contained in Part I of 1996 Act or in Code of Civil Procedure, 1908.
Section 45 of the Act has an overriding effect and prevails over anything contrary thereto either contained in Part I of 1996 Act or in Code of Civil Procedure, 1908. (IV) Section 45 is a complete Code in itself so far as the power of the Judicial authority to entertain an action in a matter in respect of which the parties made an agreement referred to in Section 44 of the Act is concerned. Section 45 makes it mandatory for the Judicial Authority when seized of an action in a matter in respect of which in a arbitration agreement exists to refer parties to arbitration unless it finds that the agreement is null and void/inoperative or in capable of being performed. It imposes a mandatory duty on the Courts of contracting State to recognize and enforce agreement to arbitrate. (V) The question whether arbitration clause is null and void or inoperative or incapable of being performed as envisaged in Section 45 of the Act would arise only if both the parties have such an agreement in writing. The onus to prove these elements lies upon the party opposing the reference. (VI) Once the parties have chosen a foreign arbitration Forum to decide their disputes, it is no more open to them to subvert or stultify the arbitration agreement by approaching the Judicial Authority for any interim protection before or during the arbitral proceedings as it would render the agreement nugatory and tautologous. (VII) The main basis for determining whether the remedy sought for by the plaintiff can be considered by way of a suit or not is the series of events as set out in the plaint that culminated in sale of the shares by the CGL to Bharti as the defendants have refused to accept the plaintiff as one of their partners by way of questioning the validity of the sale of shares of cgl. (VIII) The claims and counter-claims of the parties can be adjudicated only by way of an independent suit as for the defendants the plaintiff is a stranger and is forcing its entry into their domain as a trespasser whereas the plaintiff claims that it is his legal right to have the same place as was once occupied by CGL.
(VIII) The claims and counter-claims of the parties can be adjudicated only by way of an independent suit as for the defendants the plaintiff is a stranger and is forcing its entry into their domain as a trespasser whereas the plaintiff claims that it is his legal right to have the same place as was once occupied by CGL. (IX) The application under Section 9 of the Act though filed on erroneous presumption that the parties were governed by domestic arbitration and the suit for injunction filed by DSS do not operate waiver nor do they amount to abandonment of the arbitration clause in the agreement. In the result the applications prove damp squib and are hereby dismissed being misconceived. Applications dismissed.