VOITH PAPER GMBH Vs. R. RAMASAMY AND OTHERS

JUDGEMENT

(1.) THESE two applications were jointly heard. Since the issue involved is identical, the two applications are being disposed of by a common order. These applications filed under section 8 of the Arbitration and Conciliation Act, 1996, are filed by the third respondent in the company petition seeking to refer the company petitions for adjudication by arbitration as agreed by the parties in the agreement dated October 11, 1995.

(2.) THE applicant is the third respondent in the company petition filed under sections 397, 402, 403 and 111 of the Companies Act, 1956 (hereinafter referred to as "the Act"). Originally M/s. Jagenberg Papertechnik GmbH was arrayed as the third respondent in the petition. The applicant herein filed an Application No. 27 of 2008 for getting substituted in the place of M/s. Jagenberg Papertechnik GmbH, and the application was allowed by this Bench and this applicant was substituted as the third respondent. The alleged cause of action in the company petition arises from the agreement entered into between the first petitioner in the company petition, respondent No. 1 (a demerged arm of M/s. Servall Engineering Industries Ltd. (SEIL, the original signatory) and M/s. Jagenberg (the original respondent No. 3). The said agreement dated October 11, 1995, has been brought on record by the petitioners in the company petition. Clause 35 of the agreement specifically provides that in the event of any dispute or difference arising between the parties, such dispute shall be referred to arbitration under the auspices of the International Chamber of Commerce, Paris, in accordance with the rules framed by it in this behalf. It is further provided that the venue of such arbitration shall be at Geneva or such other place as agreed between the parties. Respondent No. 3 is ready and willing to get the dispute adjudicated under the rules and procedures referred to above. Hence the applications.

(3.) SUBSEQUENT to the filing of the petition, as per order dated October 16, 2008, Voith Paper GmbH (hereafter to be referred as VP GmbH) was substituted in the place of Jagenberg with a categorical observation by the Bench that the substitution is without causing any prejudice to either of them. By order dated November 28, 2008, it was further clarified that the order dated October 16, 2008, is subject to the outcome of the main petition. Hence it is clear that the substitution was without a finding about the factum or validity of the claim of VP GmbH to be the successor to Jagenberg. The application for arbitration is liable to be dismissed. VP GmbH or Voith has not been held to be a legal successor to Jagenberg. VP GmbH was not impleaded as a party to the company petition. If VP GmbH has a right to get the subject -matter of company petition adjudicated in arbitration vis -a -vis the respondents herein, VP GmbH could have commenced such arbitration ignoring the company petition to which they were not even parties. They got substituted into these proceedings with a mala fide intention to get the matter again taken out of the forum where the litigation is pending. The sole intention is to delay the enquiry in the main petition. VP GmbH (respondent No. 2) is not a party to the joint venture agreement dated October 11, 1995, in which alone the arbitration clause is incorporated. Since VP GmbH is not held to be a legal successor to Jagenberg, they cannot invoke the arbitration clause. The claim of succession by VP GmbH is challenged in the company petition on the ground of violation of pre -emption terms, and violation of the FEMA. The pre -emption terms are incorporated in private agreement between the parties as well as in the articles of association of the company. The compliance or non -compliance with the articles is not an issue, which would come within the ambit of arbitration clause incorporated in the joint venture agreement. The pre -emption terms being incorporated in the articles, the issue concerning violation of pre -emption terms can be determined by this Board without reference to the agreement. There has been violation of the FEMA in the matter of equitable transfer of shares which cannot come within the scope of adjudication by an arbitrator appointed in terms of the joint venture agreement. The contentions that there is oppression and that Voith is liable to be surcharged for having competing business interest and in having secured equity stake in the company notwithstanding such competing interest are issues, which could be decided by the Board alone. An arbitrator is not capable of awarding equitable relief against an act of oppression and relies under section 402 of the Act. The arbitration application is filed by the third respondent only. Voith Paper Technology India Ltd., is not a party to the arbitration agreement, whereas it is a necessary party to the company petition since it is the constitution of the said entity in India as a joint venture between Voith and L & T, and Voith carrying on business through the said entity. It is alleged to be an act of oppression, and a ground to impugne the equitable transfer as violative of the FEMA. There are multiple grounds and issues, which are beyond the scope of arbitration. Neither the cause of action nor parties can be split up for a reference to arbitration. If the whole of the company petition cannot be referred to arbitration, the present application must necessarily fail. The contentions of this respondent is that the minutes of the meeting between Voith and the respondents constitute an agreement between the parties under which Voith has agreed to sell its equity holding in the company to the respondents. This agreement is not covered by any arbitration clause and so this issue cannot be referred to arbitration. The applicant has no intention to refer the matter to arbitration because no such relief was sought by them in the civil suit filed by these respondents. The applicants herein contested the suit by filing a written statement. Voith and Jagenberg are estopped from invoking arbitration clause. It is relevant to note that Voith has not come forward for arbitration. None of the prayers in the company petition are hit by the arbitration agreement. The cause of action pleaded by the petitioner in the company petition is not only violation of pre -emption terms incorporated in the agreement alone, but a comprehensive case based on violation of pre -emption terms in the articles, violation of the FEMA, breach of a subsequent understanding, breach of equity in engaging in competing line of business, etc. Voith is attempting to avoid an enquiry into the main petition on the apprehension that they would be exposed to violation of the FEMA, violation of pre -emption terms, violation of articles, etc. The applications are without any merit and only an abuse of the process of the court. It is therefore prayed to dismiss the applications with costs.