Vgp Marine Kingdom Pvt Ltd vs Kay Ellen Arnold

VGP Marine Kingdom Pvt Ltd & Anr. …Appellant(s)

Versus

Kay Ellen Arnold …Respondent(s)

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 05.08.2021 passed by the High

Court of Judicature at Madras in O.P. No. 304/2019, by

which, the High Court has dismissed the said application

under Section 11(6) of the Arbitration and Conciliation Act,

1996 (hereinafter referred to as the Act, 1996) and has

Signature Not Verified refused to appoint an arbitrator and refer the dispute to Digitally signed by NIRMALA NEGI Date: 2022.11.04 16:23:52 IST Reason: the arbitrator, original applicant has preferred the present

1 appeal.

2. That the appellants herein approached the High Court

under Section 11(6) of the Act, 1996 by way of O.P. No.

304/2019 to appoint an arbitrator so that the arbitral

tribunal can be constituted in terms of clause 17.1.2 of the

Share Subscription and Shareholders Agreement entered

into between the appellants and the respondent at Chennai

on 27.04.2016. By the impugned judgment and order the

High Court has dismissed the said application and refused

to appoint an arbitrator mainly on the grounds that at the

time when the application under Section 11(6) of the Act,

1996 was filed in the year 2019, the matter was already

referred to the arbitral tribunal with respect to agreement

dated 27.04.2016, subsequent amendment agreement

dated 06.12.2017 and addendum agreement dated

28.05.2018 and also on the ground that the proceedings

were pending before the National Company Law Tribunal

(NCLT) initiated by the respondent for various acts of

oppression and mismanagement as a minority shareholder.

3. Shri K.V. Viswanathan, learned Senior Advocate appearing

on behalf of the appellants has submitted that in the

2 present case there is a different Share Subscription and

Shareholders Agreement dated 27.04.2016 which contains

the arbitration clause in case of any dispute between the

parties (clause 17.1.2 of the Share Subscription and

Shareholders Agreement). It is further submitted that in

view of the dispute between the parties the appellants

issued notice of termination of the Second SHA

(Shareholders Agreement). It is submitted that thereafter

the appellants served a notice upon the respondent

invoking the arbitration clause 17.1.2. However, there was

a failure on the part of the respondent to nominate an

arbitrator which compelled and/or constrained the

appellants approaching the High Court for appointment of

an arbitrator under Section 11(6) of the Act, 1996. It is

vehemently submitted by Shri K.V. Viswanathan, learned

Senior Advocate appearing on behalf of the appellants that

the dispute between the parties is with respect to a

separate shareholders agreement and the said dispute was

the subject matter of another arbitral proceedings. It is

submitted that even the appellant was not a party to the

earlier arbitral proceedings.

3 3.1 Now so far as the proceedings pending before the NCLT

initiated by the respondent with respect to the oppression

and mismanagement as a minority shareholder is

concerned, pendency of such proceedings cannot be a

ground to not to refer the dispute between the parties and

appoint an arbitrator.

3.2 Making the above submissions and relying upon the

decision of this Court in the case of Vidya Drolia and Ors.

Vs. Durga Trading Corporation; (2021) 2 SCC 1

(paragraphs 147.9, 147.11 and 225), it is prayed to allow

the present appeal.

4. Learned counsel appearing on behalf of the respondent

relying upon the decisions of this Court in the cases of

Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd.,

(2011) 5 SCC 532, Chloro Controls India Private

Limited Vs. Severn Trent Water Purification Inc. and

Ors., (2013) 1 SCC 641 and Vidya Drolia (supra) and by

supporting the impugned judgment and order passed by

the High Court and even relying upon some of the

4 observations made by this Court in the case of Vidya

Drolia (supra) has prayed to dismiss the present appeal.

4.1 It is submitted that all the three agreements are/were

inter­linked and therefore, in view of earlier award with

respect to other two agreements the present dispute with

respect to the third agreement shall not be maintainable.

4.2 Making the above submissions it is prayed to dismiss the

present appeal.

5. Having heard learned counsel appearing on behalf of the

respective parties and considering the fact that Share

Subscription and Shareholders Agreement dated

27.04.2016 entered into between the appellants and the

respondent contains the arbitration clause in case of

dispute between the parties arising out of the said

agreement, we are of the opinion that the High Court

ought to have allowed the application under Section 11(6)

of the Act, 1996 and ought to have left the issue on

arbitrability of dispute between the parties to the

arbitrator.

5.1 Clause 17 of the Agreement which contains the dispute

resolution process/arbitration clause reads as under: ­ 5 “17. DISPUTE RESOLUTION

17.1. Dispute Resolution, Jurisdiction and Governing Law 17.1.1 The Parties agree that this Agreement shall be governed by and construed in accordance with the laws of India. If any question, dispute, controversy or claim shall at any time arise between the Parties inter se or between a Party(ies) and the Company, with respect to the validity, interpretation, implementation or alleged material breach of any provision of this Agreement or the rights or obligations of the Parties and the Company hereunder, or regarding any question including the question as to whether the termination of this Agreement by either Party has been legitimate, (collectively, "Dispute") then the Parties shall attempt to settle . such Dispute amicably between them by reference to the management of the Parties. In case of KEA, such management shall be represented by a Director, and in case of VGP, such management shall be represented by a Director.

17.l.2 In the event that such management representatives have not agreed upon a decision within thirty (30) Business Days after reference of the matter to them, then either Party may within thirty (30) Business Days after the first thirty (30) Business Days referenced above, give to the other Party, a notice of intention to submit the Dispute to arbitration under this Clause 17.

17.1.3 Upon issuance of such notice, the Dispute shall be referred to a board of three (3) arbitrators. Each Party shall be entitled to appoint one (1) arbitrator and the two (2) arbitrators so appointed by the Parties shall appoint the third arbitrator. The award of the arbitrators shall be final and binding on the Parties and the Company.

6 17.1.4 The seat of arbitration shall be Chennai and the language to be used in the arbitral proceedings in all instances shall be English.

17.I.5 The arbitration shall be governed by the provisions of the Indian Arbitration and Conciliation Act, 1996 (as amended from time to time and any statutory re­ enactment governing arbitrations).

17.I.6 The fees of the arbitrators shall be borne equally by the Parties. All other costs and expenses of the arbitration shall be borne by the Parties as the arbitrator may award.

17.l.7 Subject to Clauses 17.1.1 to 17.1.6, each Party submits to the exclusive jurisdiction of the courts of Chennai. Provided that, the Parties agree to submit to the exclusive jurisdiction of the competent courts as may be necessary for the enforcement of an arbitral award obtained in accordance with this Clause 17.

17.1.8 Notwithstanding any other provision of this Agreement, the rights and obligations of the Parties under this Clause shall survive termination of this Agreement.”

5.2 As observed hereinabove and from the impugned judgment

and order passed by the High Court it appears that the

High Court has refused to appoint an arbitrator, inter­alia,

on the ground that at the time when the application was

filed there were already arbitral proceedings pending

between the parties and the award was passed and also on

the ground that the proceedings were pending before the

NCLT at the instance of the respondent on the allegation of

7 mismanagement and oppression which was filed by the

respondent as minority shareholder.

5.3 So far as the first ground is concerned, at the outset it is

required to be noted that according to the appellant,

appellant was not a party to the said proceedings and the

present Share Subscription and Shareholders Agreement

dated 27.04.2016 is an independent agreement and it is

the case on behalf of the respondent that all the three

agreements are inter­linked and therefore, in view of the

above declared award with respect to the other two

agreements the present application shall not be

maintainable. As per the decision of this Court in the case

of Vidya Drolia (supra) unless on the facet it is found that

the dispute is not arbitrable and if it requires

further/deeper consideration, the dispute with respect to

the arbitrability should be left to the arbitrator. The

decision of this Court in the case of Vidya Drolia (supra) is

a three judges’ bench subsequent decision in which the

entire law on the scope and ambit of the Court at the stage

of application under Section 11(6) of the Act, 1996 has

been dealt with and considered by the Court. 8 5.4 So far as the second ground on which the High Court has

refused to refer the dispute between the parties and

appoint an arbitrator, namely that the proceedings at the

instance of the respondent as minority shareholder for

oppression and mismanagement is pending before the

NCLT is concerned, on the pendency of such proceedings

the application under Section 11(6) of the Act, 1996

cannot be dismissed. It should be left to the arbitrator to

consider the entire aspect. The dispute is with respect to

the Share Subscription and Shareholders Agreement

which is altogether different from the allegations of

mismanagement and oppression at the instance of

minority shareholder initiated by the respondent.

6. In view of the above and for the reasons stated above the

High Court has erred in dismissing the application under

Section 11(6) of the Act, 1996 and has erred in refusing to

appoint an arbitrator with respect to the dispute between

the parties with respect to the Share Subscription and

Shareholders Agreement dated 27.04.2016. The impugned

judgment and order passed by the High Court is set aside

9 and the application submitted by the appellants under

Section 11(6) of the Act, 1996 is hereby allowed. Shri

Justice K. Ravichandrabaabu Former Judge, Madras High

Court is hereby appointed as an Arbitrator to resolve the

dispute between the parties arising out of the Share

Subscription and Shareholders Agreement dated

27.04.2016. The issue with respect to the arbitrability of

the dispute is left to be decided by the learned Arbitrator.

The fees of the Arbitrator shall be decided by the learned

Arbitrator with the consent of the respective parties as per

the Schedule to the Act, 1996 as amended from time to

time. The present appeal is allowed accordingly.

………………………………….J. [M.R. SHAH]

NEW DELHI; ………………………………….J. NOVEMBER 04, 2022 [KRISHNA MURARI]

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