SANCORP CONFECTIONARY PVT. LTD Vs. GUMLINK

JUDGEMENT

(1.) IA No.14432/2012 (under Order 39 Rule 1&2 CPC) The plaintiff No.1 M/s Sancorp Confectionary Pvt. Ltd. entered into a Joint Venture Agreement (JVA) with the defendant company on 15.12.2009, for setting up a Joint Venture Company (JVC). Pursuant to the said JVA, a company named Gum Pharma Pvt. Ltd. (JV Company) was incorporated, with the defendant and the plaintiff no.1 having equal shareholding. The plaintiff no.1 and defendant provided some initial funding to the JV Company and agreed that the remaining funding would be arranged, inter alia, by issue of Compulsorily Convertible Debentures (CCDs) in favour of the party providing funding to the JV Company. Thereafter, the defendant company arranged for remaining initial funding and a Debenture Subscription Agreement(DSA) dated 21.04.2010 was executed between JV Company and the defendant whereby the JV Company agreed to allot 46,68,678 CCDs for aggregate consideration of Rs.4,66,86,760/- to the defendant. The JV Company was required to file with the Reserve Bank to India (RBI) Form FC-GPR along with a certificate of Chartered Accountant specifying, inter alia, the conversion price for such CCDs. The said filing was done by JV Company on 07.05.2010.

(2.) The defendant served a notice of arbitration dated 2.4.2012 upon both the plaintiffs, forwarded by Singapore International Arbitration Centre (SIAC). It was stated in the notice that JV Company had become a party to the JVA by executing a Deed of Adherence dated 19.03.2010. It was alleged in the notice that this was the obligation of the JVC as well as the plaintiff before this Court to cause the JVC to ensure that the valuation specified in the Chartered Accountant certificate was reasonable, so that the conversion rate reflected a true value of the equity shares of the JVC that the CCDs would convert to when it was due. It was alleged in the notice that the plaintiff before this Court, at the back of the defendant filed Form FC-GPR, along with a Chartered Accountant Certificate in respect of the valuation of the JVC upon conversion of CCDs into equity, in a manner which would result in the receiving only 5.7% of the equity upon conversion, instead of claimant receiving approximately 24.14% of the equity shares of the JVC upon conversion. It was further alleged that the plaintiff before this Court (respondent in the arbitration proceedings) were involved in day-to-day operation of JVC when the valuation was carried out by the Chartered Accountant and that the defendant (claimant in the arbitration proceedings) were not even informed about the valuation and were kept in dark, when FC-GPR was filed with RBI. This, according to the plaintiff, was done to deprive it of its rightful equity shareholding in the JVC upon conversion of CCDs. The defendant before this Court sought an award directing the plaintiff before this Court to cause the JVC to re-value the conversion price in transparent manner at a reasonable basis.

(3.) The defendant invoked the arbitration clause contained in JV Agreement mentioned in the arbitration notice sent to the plaintiff. It is alleged in the plaint that on receipt of the notice, the plaintiff sent a response objecting to invocation of the arbitration against them, inter alia, on the ground that they had no role in issuance of CCDs and valuation of shares. However, without prejudice to its rights and contentions in this regard, the plaintiffs nominated the second arbitrator in the arbitral tribunal, who has since resigned on account of conflict of interest. The plaintiffs have challenged the scope and jurisdiction of the Arbitral Tribunal, inter alia, on the ground that the purported disputes were governed by the provisions of DSA executed between the defendant and JVC and were not governed by the terms of JVA. Thus, in nutshell, the case of the plaintiffs is that the disputes with respect to the conversion price of CCDs are between the JVC and the defendant and not between the plaintiff and the defendant as to CCDs were to be issued by the JVC and were governed by the terms of DSA to which the plaintiffs were not a party. The plaintiff received communication dated 19.9.2009 and 21.6.2012 from SIAC informing them that SIAC was in the process of constituting a arbitral tribunal and the parties would be free for raising objection before the said tribunal. The plaintiff also sought appointment of a committee of the Board, as per Rule 25.1 of SIAC Rules, to decide their objections as to existence, validity and the scope of the arbitration agreement or to the jurisdiction of SIAC over the claim. SIAC agreed to place the objections of the plaintiffs before the Committee of Board and vide communication dated 25.07.2012 informed them that the committee, on consideration of the relevant documents had come to a prima facie conclusion that the arbitration agreement under SIAC Rules may exist and asked the plaintiff to nominate their arbitrator. The copy of the decision of the Committee, however, was not provided to the plaintiffs who were informed that they may raise the said issue before the Tribunal, once it is constituted.