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2019 DIGILAW 2027 (RAJ)

Deepesh Rajpal v. Krishna Killa

2019-07-23

ALOK SHARMA

body2019
JUDGMENT Alok Sharma, J. - The matter comes up on an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereafter 'the Act of 1996') for appointment of sole arbitrator to address the dispute between the applicant and the non applicant in terms of guarantee clause of the Co-founders Agreement dated 22.2.2016 between the applicant, the non applicant and one Rohit Kumar Mohta. 2. The relevant guarantee clause of the Co-founders Agreement in respect of which the dispute is sought to be referred by the applicant to the Arbitrator on the intervention of the Court reads as under: "With reference to the present shareholding on its ratio of the co-founders of Corner Store Technologies Pvt. Ltd., it is mutually agreed in harmony with the sanctity of the law amongst the co-founders, that Deepesh Rajpal (co-founder) is holding 1877 shares with Corner Store Technologies Pvt. Ltd. as on date, in addition to it, Deepesh will be allotted a number of 471 shares post next round of dilution from the ESOP pool of Corner Store Technologies Pvt. Ltd. on or, before 30th June, 2017 if, the above mutually agreed allotment does not happen till the stipulated period for whatever reasons, then Krishna Killa(cofounder) personally guarantees that he will provide the same number of allotted shares to Deepesh Raipal. This personal guarantee shall not be affected in case Krishna leaves the Company or acts fraudulently in order to evade the liability of paying the said amount of 471 shares to Deepesh. This mutually agreed guarantee has been explicitly provided by Krishna towards Deepesh for the said allotment and any breach to this specific provision will tantamount to material breach of this contract and subsequent arrangements / contracts signed and agreed between the co-founders, as well as co-founders of ConfigAware and Corner Store Technologies Pvt. Ltd will stand null and void." 3. The dispute resolution mechanism agreed to between the parties to the Co-founders Agreement in issue, containing the guarantee clause quoted here-in-above was as under: "This Agreement shall be governed by the laws of India and competent courts at Jaipur shall have an exclusive jurisdiction for the purpose of this Agreement. All Disputes shall be resolved as per the provisions of Arbitration & Conciliation Act, 1996. All Disputes shall be resolved as per the provisions of Arbitration & Conciliation Act, 1996. In the event of a dispute or difference ("Dispute") relating to any of the matters set out in this Agreement, the Parties shall discuss in good faith to resolve the Dispute. In case the Dispute is not settled within 15 (fifteen) calendar days, it shall first be referred 'to a sole arbitrator to be decided mutually between the Parties/co-founders or in case of disagreement as to the appointment of the sole arbitrator, to be referred to panel of arbitrators as appointed by the Court. The seat of arbitration shall be at Jaipur." 4. It has been submitted that in terms of the guarantee clause quoted above, no matter a subsequent Separation and Release Agreement (SRA) dated 8th March, 2017 to which the applicant alongwith the non applicant was a party and under which he exited Corner Store Technologies Private Ltd. (hereafter 'the Company') in respect of which the Co-founders Agreement was first entered into, the applicant is entitled to transfer of 471 shares in the company from the non applicant. It has been submitted that SRA dated 8th March, 2017 was in-fact only confined to the conditions of the cessation of the applicant's employment with Company and the transfer of 1877 shares then standing to his name to a third party. The applicant states that SRA dated 8th March, 2017 did not denude him of his rights under the guarantee of being benefited of 471 shares in the company under the Co-founders Agreement executed between the parties in the first instance. 5. The applicant submits that the non applicant has failed to comply with his obligation to the applicant in terms of guarantee clause of the Co-founders Agreement and refused to transfer 471 shares to him on the mischievous and misdirected ground that under clause 19 of the SRA dated 8th March, 2017 the applicant had purportedly agreed to treat the Co-founders' Agreement as null and void denuding himself for his own rights therein including the one under the guarantee clause. 6. 6. According to the applicant on a legal notice dated 13th April, 2018 to the non applicant requiring him to discharge his obligation under the guarantee clause of the Co-founders' Agreement for allotment / transfer of 471 shares to him, by reply dated 8th May, 2018, the non applicant reiterated his view that applicant's claim for 471 shares in the company was merit-less as the Co-founders' Agreement had been fully and completely superseded by SRA dated 8th March, 2017. It has been submitted that the applicant filed an application under Section 9 of the Act of 1996 before the Commercial Court, Jaipur to restrain the non applicant from alienating his shares in the company to the extent of 471 shares , whereupon the Commercial Court vide its order dated 8.8.2018 so restrained the non applicant. 7. It has been submitted that in the circumstances vide letter dated 21st August, 2018 a notice for appointment of an Arbitrator under the dispute resolution mechanism in the cofounder's agreement was sent to the non applicant but it remained unaddressed beyond the period of 30 days as prescribed in such situations under the Act of 1996. It has been submitted that thus an arbitral dispute between the parties relating to guarantee clause of the Co-founders' Agreement having arisen, the non applicant having failed to consent to the appointment of the Arbitrator proposed by the applicant, this application under Section 11 (6) of the Act of 1996 be allowed and an Arbitrator be appointed to enter into reference for adjudicating the dispute in issue. 8. Reply of denial has been filed by the non applicant. It has been submitted that the entire proceedings at the instance of the applicant with reference to Co-founders' Agreement dated 22.2.2016 and guarantee clause therein are completely misdirected. It has been submitted that the Co-founders' Agreement dated 22.2.2016 having been rendered null and void, following the subsequent SRA dated 8th March, 2017, to which the applicant as also the non applicant aside of Rohit Kumar Mohta and the Company were the parties, is non est and of no effect. The signing of the said SRA dated 8th March, 2017 is not in dispute. The signing of the said SRA dated 8th March, 2017 is not in dispute. Reference has been made to clause 19 of the SRA which categorically provides that the Co-founders' Agreement would stand superseded and terminated; none of the parties to the Cofounders' Agreement would have any right, claim, liability or obligation of any nature against the other; none of the provisions of the Co-founders' Agreement subsequent to the execution of the SRA dated 8th March, 2017 shall subsist; and that the parties to the Co-founders' Agreement themselves categorically agree that the Co-founders' Agreement would stand void. 9. Clause -19 of the SRA dated 8th March, 2017 has been reproduced verbatim in reply to the application and reads as under: "This Agreement (including all Schedules (s)) represents the entire agreement and understanding between the Parties relating to the subject matter hereof. Except for any surviving or ongoing obligations of the Outgoing Founder under the Employment Agreement /Shareholders Agreement, this Agreement supersedes and cancels any prior or oral or written agreement, representation, understanding, arrangement, communication or expression of intent relating to the subject matter of the Agreement (including but not limited to the Employment Agreement and the Shareholders Agreement (to the extent applicable to the Outgoing Founder)).There are no representations, agreements or inducements except as set forth as expressly in this Agreement. It is agreed that all liabilities of the Company whether current or contingent, under the Employment Agreement and the Shareholders Agreement shall cease to exist with respect to the Outgoing Founder and the Outgoing Founder shall have no remedy under any of the foregoing agreements. It is hereby agreed that the Outgoing Founder shall have the right to reflect himself as one of the Cofounders of the Company, in any correspondence concerning the Company (and wherever the context requires so), so long as he clarifies in each such correspondence that he has not been involved / engaged with the Company since the Employment Cessation Date. It is hereby agreed that the Outgoing Founder shall have the right to reflect himself as one of the Cofounders of the Company, in any correspondence concerning the Company (and wherever the context requires so), so long as he clarifies in each such correspondence that he has not been involved / engaged with the Company since the Employment Cessation Date. For the avoidance of doubt, it is hereby clarified that pursuant to the supersession and termination of the CoFounders' Agreement, or and from the closing date (per the terms of the Share Purchase Agreement), (i) none of the parties to CoFounders Agreement have (a) any rights thereunder or (b) any claims, liabilities or obligations of any nature against the other (ii) none of the provisions of the Co- Founders Agreement are valid and/or subsisting as on date; and (iii) the parties thereto acknowledge that the Co-Founders Agreement stands void." 10. In the context of the aforesaid, the categorical case of the non applicant is that in terms of clause 19 of the SRA dated 8th March, 2017 except for any surviving obligation under the Employment Agreement / Shareholders' Agreement, it cancelled all or any prior or oral or written agreement, representation, understanding, arrangement, communication or expression of intent relating to the subject matter of the SRA (including but not limited to the Employment Agreement and the Shareholders' Agreement - to the extent applicable to the Outgoing founder i.e. the applicant. It has further been pointed out that clause 13 of the SRA dated 8th March, 2017 clearly states that the applicant before executing the said SRA had the opportunity to consult attornies or other advisers of his choice and had not relied on the legal counsel of the company. It has further been submitted that it is beyond any question that the applicant had entered into the SRA with his own free Will and no promises or representation were made to him by any person including the non applicant inducing him to enter into the said SRA. It has also been submitted that in view of the aforesaid plain and clear recitations, the applicant cannot, for whatever its worth, even set up a case of the SRA dated 8th March, 2017 in respect of abandonment of his rights being induced by misrepresentation or vitiated by fraud. 11. It has also been submitted that in view of the aforesaid plain and clear recitations, the applicant cannot, for whatever its worth, even set up a case of the SRA dated 8th March, 2017 in respect of abandonment of his rights being induced by misrepresentation or vitiated by fraud. 11. According to the non applicant, construed together clauses 19 and 13 of the SRA make it pellucid that Co-founders' agreement stands cancelled and the non applicant has no obligation at all towards the applicant including under the guarantee clause of the said superseded Co-founders' Agreement dated 22.2.2016. In the circumstances, it has been prayed that the application for appointment of the Arbitrator, lacking as it does in the requisite legal foundation of a subsisting agreement between the parties and an arbitration clause be dismissed. 12. Heard. Considered. 13. The prime issue in this application is as to whether the CO-founders' Agreement dated 22.2.2016 and also its terms including the guarantee of 471 shares by the non applicant to the applicant between the applicant the non applicant and Rohit Kumar Mohta stands novated and wholly superseded by the subsequent SRA dated 8th March, 2017 signed by the applicant, non applicant, Rohit Kumar Mohta and the Company? 14. Section 62 of the Contract Act, 1872 deals with novation, recession and alteration of contract and states 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. Section 62 aforesaid has recently been considered by the Apex Court in the case of Chrisomar Corporation Versus MJR Steels Private Limited and Another, (2018) 16 SCC 117 . The Court has reiterated therein the well settled legal position that in terms of Section 62 where parties to a contract agree to substitute a completely different contract for an earlier one, the earlier contract would come to an end and it would not be necessary to abide by its terms. The Court then laid down a test, from the application of which it could be ascertained as to whether the performance of the original contract had come to an end on the execution of a subsequent one and it was therefore not necessary to perform the obligations under the earlier contract. The Court then laid down a test, from the application of which it could be ascertained as to whether the performance of the original contract had come to an end on the execution of a subsequent one and it was therefore not necessary to perform the obligations under the earlier contract. It held that for the purpose of determination of the question whether there was a novation of a contract the answer to seek would be whether the modifications of a prior contract by a subsequent one goes to the root of the original contract and change its essential character. The Court further held in para 39 that to hold that a contract that is altered in material particulars and falls within the ambit of Section 62 of the Act of 1872, it must be clear that the modified contract had an independent contractual force, distinct and separate from the original contract. 15. No doubt that the non applicant had guaranteed under the Co-founders' Agreement dated 22.2.2016 that he would provide the non-applicant's 471 shares in the company either in the next round of dilution from the ESOP Pool of the company on or before 30th June, 2017 or even otherwise and the guarantee would not be affected under any circumstance including of the applicant leaving the company or doing any act fraudulently to evade his liability of transferring 471 shares to the applicant. Yet subsequently the said Co-founders' Agreement has been altogether superseded by the SRA dated 8th March, 2017 with clause 19 thereof categorically rendering it null and void and of no consequence for all purposes including the liability of the applicant to the non applicant under the guarantee clause of the Cofounders' Agreement dated 22.2.2016. As pointed out by Mr. Shivangshu Nawal appearing for the non applicant, Clause 19 records that Co-founders' Agreement stood superseded and terminated and that none of the parties thereunder would have any right, liability, claim or obligation of any nature against others (underlining mine). Clause 13 of the SRA dated 8th March, 2017 also negates the applicant's allegation of fraud and misrepresentation in the execution of the SRA dated 8.3.2017 inasmuch it is categorically records that the applicant before entering the SRA had consulted his attorney or adviser of his choice and was not induced to rely upon the advise of the legal counsel of the company. It is unequivocably recorded that the applicant had entered the SRA with his own free will without any misrepresentation or false premises. 16. In the context of the clauses of the SRA dated 8.3.2017 to which both the applicant and the non applicant were parties, I am of the considered view that test for ascertaining the issue of novation of a contract as laid down by the Apex Court in the case of Chrisomar Corporation Versus MJR Steels Pvt. Ltd. (supra) is fully satisfied in the instant case. The SRA dated 8.3.2017 clearly evinces the clear intent amongst others of the applicant and the non applicant to completely supersede the Co-founders' Agreement dated 22.2.2016 and hence change the essential character of the relationship between the applicant and the non applicant from as earlier recorded in the Co-founders' Agreement dated 22.2.2016. The intent to abandon the earlier covenants including the one relating to guarantee of the non applicant to the applicant for transfer of 471 shares in the company is plain from the SRA dated 8.3.2017. My conclusion therefore is that in this view of the matter, the Co-founders' Agreement dated 22.2.2016 having been wholly and fully superseded and altered by the SRA dated 8.3.2017, no resort thereto either for the purpose of ascertainment of the applicant's rights viz-a-viz the non applicant or for the purpose of appointment of Arbitrator with reference to the dispute resolution mechanism therein provided can arise. 17. Resultantly, the application under Section 11(6) of the Act of 1996 under consideration is without merit and is liable to be dismissed. 18. It is accordingly dismissed.