LAWS(CL)-2007-10-7

ENERCON GMBH Vs. ENERCON (INDIA) LTD. AND ORS.

Decided On October 29, 2007
Enercon Gmbh Appellant
V/S
Enercon (India) Ltd. And Ors. Respondents

JUDGEMENT

(1.) IN this order I am considering C.A. 494/2007 filed under Section 8 of the Arbitration and Conciliation Act 1996 (the Act)( originally filed under Section 45 of the Act and later amended to Section 8) seeking for referring the parties to the proceeding to Arbitration in terms of arbitration agreements. This application has been filed by the 2nd respondent in CP 121/2007 which has been filed under Sections 397/398 of the Act in respect of M/s Enercon (India) Limited. In addition, I am also considering the interim prayers sought by the petitioner (depending on the decision in the application).

(2.) THE facts of the case are: The respondents 2 to 8, known as Mehra group, incorporated the 1st respondent company (the company) on 10.5.1993, in the name of Wind World Power Limited. On 12.1.1994. They entered into a shareholders' agreement (SHA) with the petitioner, a German company, pursuant to which the name of the company was changed to Enercon (India) Limited with the main object to produce Wind Turbine Generators in collaboration with the petitioner. On the same day, i.e., 12.1.1994, pursuant to the SHA, the company and the petitioner also entered into a Technical Know how Agreement.(TKA) by which the petitioner had agreed to supply technical know how, information, assistance, supply of equipment and material etc to the company. The SHA is a comprehensive one covering capital structure, transfer and sale of shares, board meetings, directorships etc. It contains an arbitration clause also (Article XVI). Most of the terms, particularly relating to transfer of shares and directorship were thereafter incorporated into the Articles of the company. As per the terms of the SHA, Articles provide for equal representation of both the petitioner and Mehra group on the board of the company. Similarly, in line with the SHA, the Articles also provide that the MD of the company would be a nominee of Mehra group and the Chairman that of the petitioner. TKA also contains an arbitration clause (Clause 19). In terms of the SHA, the petitioner subscribed to 51% shares in the company while Mehra group subscribed to 49%. Thereafter, by another shareholders' agreement dated 19.6.1998 both the petitioner and Mehra group subscribed to further shares by which the petitioner's holding became 56% while that of the Mehra group to 44%. Presently, the Board consists of two nominees from each. While the nominees of Mehra group viz, respondent 2 is the MD and respondent 3 is the whole time director, the nominees of the petitioner viz. respondent No. 36 is the Chairman and respondent No. 37 is a director. The effective management of the company has been with that of the Mehra group right from the beginning. The company has 16 subsidiaries and 11 associated companies and they all have been arrayed as respondents 9 to 35.

(3.) MOVING CA 484/2007, Shri Dave, Sr. Advocate for Mehra group submitted: The disputes raised in the petition have arisen squarely out of the terms SHA and the TKA both of which contain arbitration clauses. The main prayer of the petitioner in the petition is removal of the 2nd and 3 rd respondents as MD and whole time director, respectively as also directions to Mehra group to sell their shares to the petitioner. In terms of Article 2(5) of the SHA, Mehra group is entitled to appoint one of its nominee as the MD with considerable powers of management and the right to remove its nominee is vested only with Mehra group in terms of Article 2.2 of SHA. Similarly, Article 5 of the SHA deals with the provision relating to transfer of shares and preemptive rights. This being the case, the main matters raised in the petition are matters covered in the SHA and therefore in terms of Section 8 of the Arbitration & Conciliation Act of 1996, the parties should be referred to arbitration. Similarly, regarding non payment of royalty which is one of the other allegations, TKA under which this claim has arisen, also provides for arbitration. The petitioner has alleged that is that royalty has not been paid on the basis of the alleged intellectual property licence agreement (IPLA) dated 29th September, 2006. The consistence stand of Mehra group is that no such agreement was ever entered into and it was only a draft agreement to be finalized later on and no such finality was given to the draft. Therefore, if the petitioner has any grievance relating to payment royalty, it has to seek remedy in an appropriate court of law and not through a petition under Sections 397/398. Since the Articles have been amended in consonance with the terms of the SUA., the petitioner cannot seek amendment to the Articles in a petition under Sections 397/398 and has to go before the arbitrator.