In ARBITRATION APPLICATION NO.59 OF 2022-BOM HC- Court can decline to make reference to arbitration only when it is satisfied that though arbitration agreement exists, yet dispute is non-existent and has become deadwood: Bombay HC Justice N.J. Jamadar [02-05-2022]

Read Order:D.K.Infrastructure Pvt. Ltd v. Kishore Agarwal and ors 

Tulip Kanth

Mumbai, May 05, 2022: The Bombay High Court has recently reiterated that the scope of enquiry under Section 11(6) of the Arbitration & Conciliation Act, 1996 is extremely limited.

Referring to the judgment of the Top  Court in DLF Home Developers Limited V/s. Rajapura Homes Pvt. Ltd. And Anr., the Bench of Justice N.J. Jamadar asserted, “The aforesaid pronouncement, in my considered view, reiterates both postulates; firstly, the scope of enquiry under Section 11(6) of the Act, 1996 is extremely limited and the Court has to examine the existence of the arbitration agreement and, secondly, the Court can decline to make a reference to arbitration only when it is positively satisfied that though the arbitration agreement exists, yet the dispute is non-existent and has become a deadwood.”

The Application in question had been filed under Section 11 of the Arbitration and Conciliation Act, 1996 to appoint an Arbitrator to arbitrate the disputes between the Petitioner and the Respondents which purportedly had arisen out of the Share Purchase Agreement dated June 29, 2017.

In this case, the Petitioner is a Company registered under the Companies Act, 1956. Jalore Jaswantpura BOT Project Private Limited (JJBPCompany) is a private limited company engaged in the business of construction of highways and roads. The Petitioner, Mr. Sandip Hirani and Mr. Suresh Hirani are the 100% shareholders of the JJBP Company. The Petitioner holds 5100 shares of the face value of Rs.10 each, Mr. Sandeep Hirani and Mr. Suresh Hirani holds 3,675 and 1,275 shares respectively. Mr. Sandeep Hirani and Mr. Suresh Hirani are also the directors of JJBP Company and the second respondent is the wife of the first Respondent.

The Respondents had entered into a Share Purchase Agreement with the Petitioner and Mr. Sandeep Hirani and Mr. Suresh Hirani (the Sellers), to purchase the entire shareholding i.e. 10,000 equity shares of JJBP Company. The agreement dated June 29,2017 provided that the Respondents would purchase 10000 shares of the Sellers for an amount of Rs.43,00,000 calculated at Rs.430 per equity share. The Share Purchase Agreement contained a mechanism for resolution of the disputes through arbitration.

The Respondents entered into a financial arrangement with Reliance Commercial Finance Limited (RCFL) and executed a letter of continuing guarantee with RCFL to grant to the said JJBP Company a rupee term loan to the extent of Rs.45,00,00,000 for the acquisition of BOT toll project. The Respondents had not cleared the entire liability in terms of the Share Purchase Agreement. The Petitioner Company had  received only a sum of Rs.32,93,52,150 towards the agreed amount. Since the Petitioner Company could not obtain the extension in terms of the sub-clause (b) and (c) of Clause 3 of the Share Purchase Agreement, even if a sum of Rs.6,80,00,000 was withheld on the said count, the Respondents owed a sum of Rs.17,32,47,850 to the Petitioner.

Hence, the Petitioner initially addressed Notices calling upon the Respondents to pay the balance consideration in terms of the Share Purchase Agreement. As the Notices did not elicit the desired response, the Petitioner invoked the arbitration by a Notice. The Petitioner suggested names of the three Arbitrators. The Respondents refused to accept the service of the Notice. Hence, the Petitioner was constrained to approach this Court under Section 11(6) of the Act to appoint an Arbitrator to arbitrate the disputes which have arisen between the parties.

The Bench noted that the amplitude of the disputes which the parties had agreed to resolve through arbitration under Clause 9 of the shares Purchase Agreement. The disputes which the parties agreed to refer werein connection with the validity, interpretation, implementation or any alleged breach of any provisions to the said Agreement or relating to any question with reference to or in connection with the said Agreement including the question as to whether the termination, if any, of agreement by either party, was legitimate. Evidently, the arbitration agreement was worded in widest possible terms. It subsumed within its fold all the disputes which, the parties conceived, might arise in relation to the Share Purchase Agreement.

It was opined that that JJBP, the company of which the shares were purchased by the Respondents under the Share Purchase Agreement, was a party thereto and yet under Clauses 3 and 6 of the said Agreement, the liability to discharge the outstanding debts of the creditors was explicitly incurred by the Respondent Nos.1 and 2 in the capacity of the purchasers. Conversely, the company had not agreed to discharge its liabilities to the existing creditors as named in Schedule III, including the Petitioner herein. Therefore, there was no substance in the submission that the dispute was essentially between JJBP Company and the Petitioner and for the discharge of the liability of the JJBP Company, the Respondents share holders could not be held individually liable.

According to the Bench, there existed an arbitration agreement. Secondly, on a prima facie review of the Share Purchase Agreement and the material on record, this Court was satisfied that disputes had arisen between the parties in connection with the Share Purchase Agreement. Thirdly, those disputes, prima facie, were amenable to the arbitration. And fourthly, as the law has now crystalised, the arbitrability of the disputes is also required to be determined by the Arbitral Tribunal. Thus, all the necessary elements to exercise the power under Section 11(6) of the Act, were adequately satisfied, added the Bench.

Thus, allowing the application, the Bench appointed Justice R.M.Savant, Former Judge of this Court as a Sole Arbitrator to adjudicate upon the claims and counter claims, if any, and/or all the disputes which arise out of the Share Purchase Agreement.