Arbitration Request No. 33 of 2010

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE P.BHAVADASAN** ## **WEDNESDAY, THE 19TH DAY OF NOVEMBER 2014/28TH KARTHIKA, 1936** ## **AR.No. 33 of 2010** ## **----------------------** ## **APPLICANT:** **-----------------** **M/S.JRG SECURITIES LTD., JRG HOUSE, ASHOKA ROAD, KALOOR, KOCHIN - 682 017, REP. BY ITS COMPANY SECRETARY, MR.C.SYAMKUMAR.** **BY ADVS. SRI.SAJI VARGHESE SRI.ROHIT CHOUDHRY** ## **OPPOSITE PARTIES:** **----------------------------** - ***1. JIJI ANTONY, MADHAVATHU HOUSE, ARUNAPURAM.P.O., PALA, DISTIRCT KOTTAYAM, KERALA.(DELETED)** ## ***2. REGI JACOB, 5C, MANGALAM TOWERS,** **NH 47 BYPASS, VENNALA.P.O., ERNAKULAM, KERALA - 682 028.(DELETED)** **3. GIBY MATHEW, 7-1, TOC H RETREAT, TOC H SCHOOL ROAD, TOC H NAGAR, VYTILLA, KOZHI, KERALA - 682 019.** ## **4. MATHEW JACOB, TALAVYALIL HOUSE,** **PADAMUGAL, PALACHUVADU, KAKANAD.P.O., KOCHI, KERALA - 682 030.** **5. JOSE THOMAS, NEDUMKANAL HOUSE, PALA, DISTIRCT KOTTAYAM, KERALA - 686 575.** ***6. MINI JOSEPH, 5C, MANGALAM TOWERS, NH 47 BYPASS, VENNALA.P.O., ERNAKULAM, KERALA - 682 028.(DELETED)** ***R1, R2 & R6 DELETED FROM THE PARTY ARRAY AT THE RISK OF THE APPLICANT AS PER ORDER DATED 07.08.2014 IN IA.12/2013.** ## **R3 TO R5 BY ADVS. SRI.SATHISH NINAN** **SRI.SANTHOSH MATHEW** **SRI.JENNIS STEPHEN** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 19-11-2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **mbr/** ## **AR.No. 33 of 2010** ## **--------------------------** ## **APPENDIX** ## **PETITIONER'S ANNEXURE:** ## **--------------------------------------** ## **ANNEXURE A1 : COPY OF THE NON COMPETENT AGREEMENT DATED 29.4.09 BETWEEN THE APPLICANT AND OPPOSTE PARTIES.** **ANNEXURE A2 : COPY OF THE PETITION FILED BY THE OPPOSITE PARTIES BEFORE THE COMPANY LAW BOARD.** - **ANNEXURE A3 : TRUE COPY OF NOTICE DATED 14.6.10 INVOKING ARBITRATION CLAUSE, ISSUED BY THE APPLICANT.** - **ANNEXURE A3(A) : TRUE COPY OF THE ACKNOWLEDGEMENT OF RECEIPT OF ANNEXURE A3 BY THE OPPOSITE PARTIES.** **ANNEXURE A4 : TRUE COPY OF REPLY SENT BY OPPOSITE PARTY DATED 9.7.10.** - **ANNEXURE 5 : TRUE COPY OF THE REPLY FILED BY THE RESPONDENTS 1 AND 9 IN CP NO.44 OF 2010 BEFORE THE COMPANY LAW BOARD CHENNAI BRANCH.** ## **RESPONDENT'S ANNEXURES:** **-------------------------------------------** - **ANNEXURE R1(1) : TRUE COPY OF THE ENVELOPE RECENTLY RECEIVED FROM THE APPLICANT COMPANY.** **ANNEXURE R1(2) : PHOTO COPY OF THE ORDER PASSED BY THE COMPANY LAW BOARD, CHENNAI BENCH IN C.A.NO.92 OF 2010 IN C.P.NO.44 OF 2010 DATED 11.10.2010.** **/TRUE COPY** **P.S.TO JUDGE** **mbr/** ## **P.BHAVADASAN, J. ----------------------------------------------Arbitration Request No.33 OF 2010 ----------------------------------------------Dated this the 19[th] day of November, 2014.** ## **O R D E R** This is a petition filed under Section 11 of the Arbitration and Conciliation Act seeking to have an Arbitrator appointed. 2. At the time when the matter was taken up for hearing, learned counsel appearing for the petitioner submitted that the reliefs so far as respondents 1, 2 and 6 are concerned are not pressed and no relief is sought for as against them. 3. The facts absolutely necessary for the disposal of the petition are as follows: The applicant-Company is a public limited company incorporated under the Companies Act having its registered office at Cochin. It is engaged in the business of financial services. It is alleged that the opposite parties are the original promoters and subscribers to Memorandum of Association and they are, according to the petitioner, the erstwhile promoters. It is claimed that opposite Party Nos. 1 to 3 for themselves and on behalf of **A.R.No.33/2010** **2** respondents 4 to 6 entered into an agreement namely, noncompete agreement dated 29.04.2009 produced as Annexure A1. It is further alleged that the respondents 4 to 6 have also embraced the said agreement which contains the arbitration agreement and they are parties to the agreement by conduct. 4. They have moved a petition under the provisions of Sections 397/398 of the Companies Act seeking enforcement of the non-compete agreement. Finding that opposite parties have acted in contravention of the clause referred to in paragraph 7 of the petition, they are liable to return the consideration of Rs.500 lakhs along with interest at 24%. It is further alleged that there is violation of the provisions of the non compete agreement. Invoking clause 16 of the non-compete agreement dated 29.04.2009 and suggesting the names of Arbitrators, the applicant called upon the opposite party to concur upon either of the persons mentioned as Arbitrators to act as Arbitrator. 5. Presently, we are concerned with only the arbitrability as against respondents 3, 4 and 5. Among them, learned counsel appearing for the respondents conceded that arbitration **A.R.No.33/2010** **3** proceedings may be available as against the 3[rd] respondent and not as against respondents 4 and 5. As far as respondents 4 and 5 are concerned, the main point taken is that they are not parties to the arbitration agreement and therefore they do not qualify as parties going by the definition of parties as contained in Section 7 of the Act. These respondents are not original promoters to be covered by clause (h) of Annexure A2 and therefore, they do not fall within the ambit of arbitration clause covered by Annexure A1, the so called non-compete agreement. According to these respondents, the mere fact that they have approached the Company Law Board for certain reliefs will not bring them within the ambit of original promoters and nor do they claim any right as such and they are not covered by Annexure A1 agreement. They therefore pointed out that they are not bound by the arbitration agreement. For the above proposition, they relied on the decision in _**Indowind Energy Limited** vs._ _**Wescare (India) Limited and another**_ [(2010) 5 Supreme Court Cases 306]. 6. The short point that arises for consideration is whether respondents 4 and 5 are covered by Annexure A1 agreement and **A.R.No.33/2010** **4** are they liable to be proceeded against in the matter of arbitration. 7. Learned counsel appearing for the petitioner pointed out that by virtue of Section 7(4)(c) of the Arbitration and Conciliation Act, respondents 4 and 5 became parties to Annexure A1 agreement and therefore they are covered by the arbitration clause. To be more precise, it is contended that by filing Annexure A2 application before the Company Law Board in which respondents 4 and 5 are also parties, they accept the terms and conditions in Annexure A1 and therefore they are bound by the arbitration clause also. 8. Learned counsel appearing for the respondents, on the other hand, contended that in order to invoke Section 7(4)(c) of the Act there should be specific indication whereby one party alleges the existence of arbitration agreement and it is not disputed or denied by other party. The filing of Annexure A2 petition before the Company Law Board had nothing to do with Annexure A1 agreement and that is an independent cause of action. Further, it is contended that by no stretch of imagination, **A.R.No.33/2010** **5** respondents 4 and 5 could be termed as original promoters and if that be so, by fiction they cannot be deemed to be parties to the arbitration agreement. 9. There seems to be considerable force in the submissions made by the learned counsel appearing for the respondents. Before going into that, it may be useful to refer to the decision in _**Indowind Energy Limited** vs._ _**Wescare (India) Limited and another**_ [(2010) 5 Supreme Court Cases 306] wherein it was observed in paragraphs 15 and 20 as follows: “15. Wescare puts forth the agreement dated 24-2-2006 as an agreement signed by the parties containing an arbitration agreement but the said agreement is signed by Wescare and Subuthi and not by Indowind. It is not in dispute that there can be appointment of an arbitrator if there was any dispute between Wescare and Subuthi. The question is when Indowind is not a signatory to the agreement dated 24-2-2006, whether it can be considered to be a “party” to the arbitration agreement. In the absence of any document signed by the parties as contemplated under clause (a) of sub-section (4) of Section 7, and in the absence of existence of an arbitration **A.R.No.33/2010** **6** agreement as contemplated in clauses (b) or © of sub-section (4) of Section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under sub-section (5) of Section 7, the inescapable conclusion is that Indowind is not a party to the arbitration agreement. In the absence of an arbitration agreement between Wecare and Indowind, no claim against Indowind or no dispute with Indowind can be the subject matter of reference to an arbitrator. This is evident from a plain, simple and normal reading of Section 7 of the Act. 20. Wescare referred to several acts and transactions as also the conduct of Indowind to contend that an inference should be drawn that Indowind was a party to the agreement or that it had affirmed and approved the agreement or acted in terms of the agreement. An examination of the transactions between the parties to decide whether there is a valid contract or whether a particular party owed any obligation towards another party or whether any person had committed a breach of contract, will be possible in a suit or arbitration proceeding claiming damages or performance. But the issue **A.R.No.33/2010** **7** in a proceeding under Section 11 is not whether there was any contract between the parties or any breach thereof. A contract can be entered into even orally. A contract can be spelt out from correspondence or conduct. But an arbitration agreement is different from a contract. An arbitration agreement can come into existence only in the manner contemplated under Section 7. If Section 7 says that an arbitration agreement should be in writing, it will not be sufficient for the petitioner in an application under Section 11 to show that there existed an oral contract between the parties, or that Indowind had transacted with Wescare, or Wescare had performed certain acts with reference to Indowind, as proof of arbitration agreement”. 10. From the principles laid down in the above decision, it can be easily seen that respondents 4 and 5 are not covered by the arbitration clause. Admittedly, they are not parties to the agreement who fall within the ambit of Section 2(h) of the Act. What is contended is that having preferred Annexure A2 application before the Company Law Board, they shall be deemed to come within the ambit of promoters and therefore they **A.R.No.33/2010** **8** impliedly accepted Annexure A1. It is further contended that they have been seeking benefits under Annexure A1 and therefore also they are, by adoption, accepted the terms and conditions contained in Annexure A1. 11. Though the above argument may look attractive at the first blush, it is without any basis whatsoever. What is stated in Annexure A2-paragraph 6- sub paragraph (h) is with reference to original promoters who have accepted the non compete agreement. The petitioner has no case that respondents 4 and 5 fall within the ambit of original promoters. It cannot be easily inferred that a person who is not a signatory to the agreement can be made liable without being a party when he has neither by adoption nor otherwise accepted the agreement and to be bound by the terms of the agreement. There is no such conduct on the part of respondents 4 and 5 to warrant a conclusion that they have accepted the arbitration clause contained in Annexure A1. If that be so, prayer for arbitration as against respondents 4 and 5 is baseless and cannot be countenanced. **A.R.No.33/2010** **9** In the result this petition is disposed of as follows: i) The dispute between the petitioner and 3[rd] respondent in this petition is referred for arbitration. ii) Mr. Justice Basheer Ahmedkhan is appointed as Arbitrator. iii) The remuneration of the Arbitrator will be fixed by the Arbitrator in consultation with both parties. iv) The Arbitrator may make every endeavour to pass an order as expeditiously as possible, at any rate, within a period of six months from entering into Arbitration. Sd/- **P.BHAVADASAN JUDGE** smp // True Copy // P.A. to Judge.