Research › Search › Judgment

Madras High Court · body

2013 DIGILAW 384 (MAD)

Arkay Energy v. Tidel Park

2013-01-17

VINOD K.SHARMA

body2013
Judgment : VINOD K..SHARMA, J. 1. The plaintiff/defendant No.1 has filed this application under Order XIV, Rule 8 of the O.S. Rules read with section 8 of Arbitration and Conciliation Act, 1996, to refer the dispute raised by the respondent No.1/plaintiff under the Power Supply Agreement, dt.10.11.2005 for adjudication by arbitration under Article 10 of the Power Supply Agreement, dated 10.11.2005. 2. M/s. Tidel Park Limited, company registered under the Companies Act, has filed the suit for declaration that M/s.Arkay Energy (Rameswaram) Limited has defaulted in the supply of contracted demand of power and is liable to pay a sum of Rs.4,85,32,773/-(Rupees four crores eighty five lakhs thirty two thousand seven hundred and seventy three only) for the quantity of power not supplied under the Power Supply Agreement, dt.10.11.2005. 3. The plaintiff/non applicant also prayed for recovery of interest on this amount. The plaintiff/non applicant has also prayed for interest @ 16% p.a. on the investment of Rs.90,00,000/- (Rupees ninety lakhs only) from 5.12.2005 with consequential direction for payment of Rs.77,79,945/- (Rupees seventy seven lakhs seventy nine thousand nine hundred and forty five only) as interest payable till 29.4.2011. 4. The plaintiff/non applicant has further prayed for Preliminary decree, that the second defendant is liable to purchase the whole of the shares of the first defendant company, i.e. applicant herein, held by the plaintiff/non applicant in terms of the Shareholders' Agreement, dated 10.11.2005. 5. It is submitted that the plaintiff/non applicant has filed the suit based on the claims falling under two separate agreements, both dt.10.11.2005 i.e. Power Supply Agreement entered into between the applicant/defendant No.1 and the plaintiff/non applicant and Tripartite Shareholders Agreement entered into between the plaintiff and the defendants. 6. It is submitted that in the Power Supply Agreement, there are only two parties, i.e. Plaintiff and the defendant No.1, whereas Shareholders' Agreement is tripartite Agreement. 7. It is also the case of the applicant/defendant No.1 that rights and obligations of the parties under these agreements are distinct and separate. 8. It is also the submission that as per the Power Supply Agreement, dated 10.11.2005, any dispute or differences arisen between the parties, is agreed to be resolved through arbitration i.e. to say that there is an arbitration clause, whereas there is no arbitration clause in the tripartite Shareholders' agreement. 9. 8. It is also the submission that as per the Power Supply Agreement, dated 10.11.2005, any dispute or differences arisen between the parties, is agreed to be resolved through arbitration i.e. to say that there is an arbitration clause, whereas there is no arbitration clause in the tripartite Shareholders' agreement. 9. It is submitted that under Order II Rule 3 of the Code of Civil Procedure, joinder of cause of action is permissible only if the lis between a plaintiff against the same defendant or same defendants jointly, which is not the case here. 10. That dispute under Power Supply Agreement is covered by Power Supply Agreement, dated 10.11.2005 which provides for settlement of dispute by arbitration, therefore parties should settle the dispute in accordance with the said article through arbitration. 11. On the pleading referred to above, it is prayed that the dispute raised by the plaintiff/non applicant under the Power Supply Agreement, dated 10.11.2005 be referred to arbitration in terms of Article 10 of Power Supply Agreement, dated 10.11.2005. 12. This application is opposed by the plaintiff/non applicant by pleading that M/s. Kanumuri Holdings Private Limited, defendant No.2 had requested the plaintiff to participate as one of the captive consumers in the Power plant of the applicant/defendant No.1, accordingly, the non applicant along with the applicant and the second respondent executed a Shareholders Agreement, dated 10.11.2005, thereby plaintiff has become a captive power consumer of the applicant. 13. In the Shareholders' Agreement, the defendant No.2 was described as Promoter Company and the defendant No.1 as the Implementing Company. At the relevant time, the second respondent held more than 74% of the shares in the applicant company. 14. The Shareholders agreement stipulated as under: a. All the parties to the suit are parties to the Shareholders' Agreement; b. The second respondent requested the plaintiff to contribute to the equity share capital of the applicant and participate as a captive consumer; c. The applicant and the respondent agreed to enter into a Power Supply Agreement for supply of power to the plaintiff as a captive consumer; d. The second respondent and the applicant were responsible for the implementation of the project. e. On the expiry of the Power Supply Agreement, if the plaintiff decided to transfer the shares, the first offer of sale of shares will be made to the second respondent or its nominee; f. The sale price of the share would be determined in accordance with clause 3 of the Shareholders Agreement; g. The applicant agreed and confirmed to allot 9,00,000 (nine lakhs only) equity shares of Rs.10/- each to the plaintiff; h. The applicant also guaranteed as assured return of 16% p.a. Return on the investment and i. The parties agreed that the Courts in Chennai alone shall have jurisdiction on any matters arising out of, or under, the Shareholders' Agreement. 15. It is submitted that it was in terms of the Shareholders' Agreement that Power Supply Agreement, dated 10.11.2005 was entered into in which second respondent was not a party. 16. It is pleaded by the plaintiff/non applicant that arbitration agreement is part of the Power Supply Agreement where the second respondent is not a party. 17. It is also submitted that the respondent No.2 has defaulted in performing their obligations as Promoter Company for supply of captive power to the captive consumer, i.e. Plaintiff through implementing Company. 18. It is the case of the plaintiff/non applicant that Power Supply Agreement provides terms and conditions of supply of power as captive consumer which does not cover the subject matter of the suit. 19. That since the second defendant is not a party to the arbitration agreement, the plaintiff has approached this Court for reliefs claimed in the suit. 20. The stand of the plaintiff/non applicant is that the subject matter of the suit solely being not the subject matter of the Power Supply Agreement, and keeping in view that it was on the representations of the applicant that the Shareholders Agreement and the Power Supply Agreement were concluded. The suit cannot be referred to arbitration. The averments in the application have been denied. 21. It is also the case of the plaintiff/non applicant that the rights and obligations on the parties cannot be determined under the Arbitration and Conciliation Act, even if the suit is based on separate cause of action. 22. The suit cannot be referred to arbitration. The averments in the application have been denied. 21. It is also the case of the plaintiff/non applicant that the rights and obligations on the parties cannot be determined under the Arbitration and Conciliation Act, even if the suit is based on separate cause of action. 22. Sec.8 of the Arbitration and Conciliation Act stipulates that when the matter is brought before the judicial authority, which is subject matter of arbitration agreement, then if a party applies not later than when submitting statement of substance of dispute, it shall be referred for arbitration. 23. The word "shall" makes it mandatory for Court to refer for arbitration on an application filed under Sec.8 of the Act. The only condition is that application under Sec.8 is to be accompanied by the original arbitration agreement or duly certified copy thereof. 24. In this case, defendant No.1/applicant has failed to attach the copy of the original agreement or duly certified copy thereto, but this defect can be ignored in view of the fact that the existence of arbitration agreement is not disputed, and that the plaintiff/non applicant has placed on record the Power Supply Agreement containing arbitration clause which reads as under: "ARTICLE ARBITRATION X.1 All disputes or differences between the parties arising out of or in connection with this Agreement shall be first tried to be settled through mutual negotiation. X.2 In the event that any dispute could not be resolved between the parties pursuant to article X.1 then such dispute shall be referred to and finally resolved by arbitration in accordance with the India Arbitration and Conciliation Act, 1996 (the "Act") and rules therein shall be applied to the extent that they are not repugnant to the Act. X.3 This agreement and the rights and obligations of the parties hereunder shall remain in full force and effect pending the award in such arbitration proceedings. X.4 The place of the Arbitration shall be Chennai, India and the language of the arbitration shall be English." 25. X.3 This agreement and the rights and obligations of the parties hereunder shall remain in full force and effect pending the award in such arbitration proceedings. X.4 The place of the Arbitration shall be Chennai, India and the language of the arbitration shall be English." 25. Section 45 of the Arbitration and Conciliation Act stipulates that notwithstanding anything contained in Part I of Code of Civil Procedure V of 1908, judicial authority ceased of the action in the matter in respect of which parties had made agreement referred to in Sec.44 was at the request of one of the parties or any person claiming through under him, referred the parties to arbitration, unless it finds that the agreement is null and void, inoperative or incapable of performing. 26. The Hon'ble Supreme Court while considering the ambit and scope of section 45 of the arbitration and Conciliation Act, 1996 in Chloro Controls (I) P. Ltd. vs. Severn Trent Water Purification Inc. & others (2012 STPL (Web) 540 SC) has considered the following questions: "(1) What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996 (for short 'the 1996 Act') ? (2) Whether the principles enunciated in the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya [ (2003) 5 SCC 531 ], is the correct exposition of law ? (3) Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement ? (4) Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act ? These questions are answered as under: "167. Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code. The expression be person claiming through or under by would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. These questions are answered as under: "167. Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code. The expression be person claiming through or under by would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 read with Schedule I. Reference of non-signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible. 168. In the facts of a given case, the Court is always vested with the power to delete the name of the parties who are neither necessary nor proper to the proceedings before the Court. In the cases of group companies or where various agreements constitute a composite transaction like mother agreement and all other agreements being ancillary to and for effective and complete implementation of the Mother Agreement, the court may have to make reference to arbitration even of the disputes existing between signatory or even non-signatory parties. However, the discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously." 27. The learned counsel for the plaintiff/non applicant vehemently contended, that this application deserves to be dismissed, as the dispute raised in the suit is partly covered by the arbitration agreement and is partly outside, and involves parties who are not parties to the arbitration agreement. Therefore, Sec.8 of the Arbitration and Conciliation Act is not attracted. 28. It was contended that the word "matter" as defined under section 8 of the Act indicates that the entire subject matter of the suit should be subject to arbitration agreement, as there is no provision under the Arbitration and Conciliation Act for bifurcating the suit into two parts; one to be referred for arbitration and other to be decided by civil Court. 29. In support of this contention reliance was placed by the learned counsel for the plaintiff /non applicant on the judgment of the Hon'ble Supreme Court in Sukanya Holdings (P) Ltd. vs. Jayesh H.Pandya and another [ (2003)5 SCC 531 ]. 30. 29. In support of this contention reliance was placed by the learned counsel for the plaintiff /non applicant on the judgment of the Hon'ble Supreme Court in Sukanya Holdings (P) Ltd. vs. Jayesh H.Pandya and another [ (2003)5 SCC 531 ]. 30. The learned counsel for the plaintiff/non applicant also vehemently contended that Power Supply Agreement was executed in view of the Shareholders' Agreement therefore, the rights under the Power Supply Agreement cannot be independently determined. Therefore, the application as framed being misconceived is liable to be rejected. 31. It is now well settled law that where an arbitration clause exist, the Court has mandatory duty to refer the dispute arising between contracting parties to arbitration and civil Court has no jurisdiction to continue with the suit, once an application under section 8 of the Arbitration and Conciliation Act is filed. 32. Reference in this regard can be made to the judgment of the Hon'ble Supreme Court in Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums, (2003)6 SCC 503 ) and Shin-Estu Chemical Co. Ltd. vs. M/s.Akash Optifibre Ltd. and another (2005)4 CTC 297). 33. The question to be decided in this case is "Whether it is open to a party to defeat an arbitration clause by joining different causes of action." 34. There is no dispute between the parties that the damages claimed against the defendant No.1 with regard to non supply of power are covered under the Power Supply agreement, dated 10.11.2005. 35. This agreement cannot be said to be subsidiary agreement merely because there is another agreement entered into between the parties, i.e. Shareholders agreement as the terms of both the agreement are totally different and do not overlap. 36. The learned Senior counsel for the defendant No.1/ applicant was right that under Order II Rule 3 C.P.C., the plaintiff can join in the same suit several causes of action against defendant or defendants jointly. This is not a case here, because admittedly, defendant No.2 is not a party to Power Supply Agreement. Neither any damages can be claimed from the defendant No.2 on this account. The mandatory statutory requirement to have the matter adjudicated through arbitration cannot be defeated by the plaintiff/non applicant by adding new defendant or adding different causes of action. 37. This is not a case here, because admittedly, defendant No.2 is not a party to Power Supply Agreement. Neither any damages can be claimed from the defendant No.2 on this account. The mandatory statutory requirement to have the matter adjudicated through arbitration cannot be defeated by the plaintiff/non applicant by adding new defendant or adding different causes of action. 37. The judgment in the case of Sukanya Holdings (P) Ltd. vs. Jayesh H.Pandya and another [ (2003)5 SCC 531 ] on which reliance was placed by the plaintiff/non applicant therefore, will have no application to the facts of the present case, as the cause of action to claim damages independent of breach of contract with regard to share purchase agreement. 38. Therefore, once it is not disputed that subject matter of dispute against the defendant No.1/applicant is covered by the arbitration clause and an application has been made under section 8 of the Act, before submitting to jurisdiction of this Court, this Court has mandatory duty to stay further proceedings and refer the dispute to arbitration. 39. For the reasons stated hereinabove, this application is allowed as prayed for. Proceedings in the suit against the defendant No.1 is ordered to be stayed.