Company AppealNo.14 of 2011 · High Court · 2011

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 21.09.2011CORAM :THE HONOURABLE Mrs.JUSTICE R.BANUMATHIandTHE HONOURABLE Mr.JUSTICE B.RAJENDRANO.S.A.NO.295 OF 20111.IVRCL Infrastructure and Projects Limited,M-22/3RT, Vijayanagar ColonyHyderabad – 500 0572.IVRCL Assets and Holdings Limited,M-22/3RT, Vijayanagar ColonyHyderabad – 500 057.3.Chennai Water Desalination PlantHaving its registered office at 30A,South Phase, 6th Cross Road, Thiru V.Ka.Industrial Estate, Guindy, Chennai – 600 032. .... AppellantsVersusBEFESA AGUA, SAUCIF A 41290792 Avada Buhaire 241018 Sevilia Spain... RespondentPrayer: Original Side Appeal is filed under OrderXXVI Rule 1 of the O.S.Rules read with Clause 15 of the LettersPatent against the order dated 18.8.2011 in O.A.No.679 of 2011 on the file of this Court. For Appellants : Mr.R.MurariFor Respondent : Mr.Vineet SubramaniamJUDGMENTR.BANUMATHI,J.This Intra Court Appeal is filed challenging the order ofexparte interim injunction granted in O.A.No.679 of 2011 (18.8.2011)under Section 9 of the Arbitration and Conciliation Act. Withconsent of the learned counsel appearing for the appellants and the respondent, the main appeal itself was taken up for final disposal. https://hcservices.ecourts.gov.in/hcservices/

The 1st appellant and respondent Company having its HeadOffice at Spain have entered into a joint venture for the purpose of construction, start up maintenance during operation period of 25years of Desalination Plant. After award of International Tender by Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB),pursuant to the joint venture, the shareholders agreement was entered into between the 1st appellant and the respondent Company on31.8.2005. The Respondent is a shareholder holding a total of4,32,45,804 equity shares of value of Rs.10 each representing thetotal value of Rs.43,24,58,040/-. Appellants 1 and 2 are joint venture partners together holding 75 percent share in the 3rdappellant Company. To implement the project, parties have entered into various agreements on 5.1.2007 and as per these agreements, 3rdappellant has to produce 100,000 cubic metres of potable water in accordance with the requirements of the Bulk Water PurchaseAgreement that was entered into by the 1st appellant with CMWSSB.Due to various reasons, the target of the project could not be achieved and on extension by CMWSSB, the target was later achieved on 25.07.2010. Certain disputes have arisen between the 3rd appellant and CMWSSB, which were referred to Dispute Resolution Board and itis stated that the disputes are now pending arbitration.

Alleging acts of oppression and mismanagement, appellants1 and 2 have filed Company Petition in C.P.No.32 of 2011 before the Company Law Board under Sections 397 and 398 of the Companies Act on24.3.2011. In the said Company Petition, Respondent entered appearance and took time for filing counter to C.P.No.32 of 2011 and the matter was adjourned by four weeks thereafter to 24.4.2011. Theappellants have not filed the counter; but filed C.A.Nos.95-97 of2011 including the application under Section 45 of the Arbitrationand Conciliation Act for referring the dispute to the arbitration before International Chamber of Commerce. Appellants 1 and 2 have filed their counter in those applications and in the Company LawBoard, the matter came up on 27.06.2011 and was posted to 02.08.2011for hearing the C.As and C.P. On 27.7.2011, the respondent filed other applications in C.A.Nos.175-178 of 2011 seeking certain information like:- (i) copies of notices, Agenda, minutes of all the Board meetings; (ii) copies of Balance Sheet, income statement andother documents.

The respondent is also said to have filed Company AppealNo.14 of 2011 before the High Court seeking stay of the order of the Company Law Board dated 5.7.2011 allegedly on the basis that the respondent should not be required to file counter and the saidCompany Appeal No.14 of 2011 is pending. The appellants have filed adetailed counter pointing out that the said Company Appeal was not maintainable. It is stated that thereafter the respondent chose to https://hcservices.ecourts.gov.in/hcservices/ withdraw the appeal after filing and obtaining orders in O.A.No.679of 2011.

In respect of the Project agreements and also the shareholders agreement, the respondent is also said to have made two references to the ICC interalia seeking to pass an award that the appellants should respect and adhere to the express terms of Shareholders Agreement but not limited to the ongoing duty to furnish information or documentation to the claimant.

Even while matters are so pending before the Company Lawboard and the respondent was contesting the Company Petition and also filed number of applications, the respondent filed Petitionunder Section 9 of the Arbitration Act seeking Interim Injunctionrestraining the appellants 1 to 3 from acting in breach of their obligations under the Shareholders Agreement dated 31.8.2005 andother reliefs.

Observing that the respondent has made out a prima faciecase, by the impugned order, learned single Judge granted exparteinterim injunction holding as under:

8. As per Article 10.8 of the Shareholders Agreement, notwithstanding any other provisions, the party may seekinjunctive relief or specific performance with regard to the rights available under the Shareholders Agreement, during thependency of Arbitration Proceeding. According to the learned senior counsel appearing for the applicant even the objections raised and the same were not recorded in the Minutes of the Meeting of the Board of Directors for the reasons best known to them.9. Considering the facts and circumstances, supported by the materials available on record and the arguments advanced by the learned senior counsel appearing for the applicant, I am of the view that there is a prima facie case made out by the applicant and the balance of convenience is also in favour of the applicant and if interim injunction is not granted, it may cause irreparable legal injury to the applicant, as contended by the learned counsel appearing for the applicant and therefore I find it just and reasonable to grant interim injunction, as prayed for in the application fora period of three weeks. 10. The applicant is directed to comply with the provisions under Order 39 Rule 3 CPC.

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Challenging the impugned order, the learned counsel for appellant Mr.R.Murari has contended that the Company Law Board, ajudicial authority set up for the purpose of adjudicating disputes between the shareholders on the grounds of oppression and mismanagement, has already seized up the matter and respondent also filed number of applications submitting to the jurisdiction of the Company Law Board to decide the issue and while so not disclosing filing of applications before Company Law Board, the respondent has filed an application under Section 9 of the Arbitration and Conciliation Act covering essentially matters in respect of which it had moved an application before the Company Law Board. It was further submitted that when the matter is pending adjudication before the Company Law Board, the application under Section 9 is glaringly an after-thought and the learned Judge ought to have seenthe malafide conduct of the respondent, who started trail of correspondence only for the purpose of the application under Section9 of the Arbitration and Conciliation Act. In so far as the maintainability of the appeal against the exparte interim injunction, the learned counsel for appellant has submitted that the interim order granting exparte interim injunction affect the vital and valuable rights of the appellants causing a serious prejudice to them and therefore the appeal is maintainable under Clause 15 of the Letters Patent.

The appeal is opposed by the respondent mainly on the ground that as against the exparte interim injunction the appeal is not maintainable. Learned counsel for respondent would submit thatexparte interim injunction was granted only till 8.9.2011 and Order39 Rule 3 has been complied with and the appellants, having entered appearance in O.A.No.679 of 2011, ought to have taken steps for vacating the exparte interim injunction before the single Judge and the appeal is not maintainable. The main objection of the learned counsel for respondent is that as against an exparte interim injunction, an appeal is not maintainable under Clause 15 of the Letters Patent appeal, as such an order cannot be said to be a“judgment” within the meaning of Clause 15 of the Letters Patent. Insupport of his contention, he placed reliance upon several decisions of the Supreme Court as well as the High Court.

Clause 15 of the Letters Patent reads as follows: "15. Appeal from the Courts of original jurisdiction to the High Court in its appellate jurisdiction. -And we do further ordain that an appeal shall lie to the said High Court of Judicature at Madras from the judgment (not being a judgment passed in the https://hcservices.ecourts.gov.in/hcservices/ exercise of appellate jurisdiction in respect of adecree or order made in the exercise of appellate jurisdiction by a Court subject to the superintendence of the said High Court and not being an order made in the exercise of a revisionaljurisdiction, and not being a sentence or order passed or made in exercise of the power of superintendence under the provisions of Section 107of the Government of India Act, or in the exercise of criminal jurisdiction) of one Judge of the saidHigh Court or one Judge of any Division Court, pursuant to Section 108 of the Government of IndiaAct, and that notwithstanding anything herein-beforeprovided, an appeal shall lie to the said High Courtfrom a judgment of one Judge of the said High Courtor one Judge of any Division Court, pursuant to Section 108 of the Government of India Act made (onor after the first day of February, 1929) in the exercise of appellate jurisdiction in respect of adecree or order made in the exercise of appellate jurisdiction by a Court subject to the superintendence of the said High Court, where the Judge who passed the judgment declares that the case is a fit one for appeal, but that the right of appeal from other judgments of Judges of the saidHigh Court or of such Division Court shall be to Us,Our heirs or successors in Our or Their PrivyCouncil, as hereinafter provided.

The scope and meaning of the word “judgment” in Clause15 of the Letters Patent came up for consideration before the Honourable Supreme court in Shah Babulal Khimji v. Jayaben D. Kania,(1981) 4 SCC 8 = AIR 1981 SC 1786, wherein the Supreme Court hasheld as under: “113. .... The intention, therefore, of the givers of the letters patent was that the word “judgment” should receivea much wider and more liberal interpretation than the word“judgment” used in the Code of Civil Procedure. At the sametime, it cannot be said that any order passed by a trial Judgewould amount to a judgment; otherwise there will be no end to the number of orders which would be appealable under the letters patent. It seems to us that the word “judgment” has undoubtedly a concept of finality in a broader and not anarrower sense. In other words, a judgment can be of three kinds: (1) A final judgment.— A judgment which decides all the questions or issues in controversy so far as the trialJudge is concerned and leaves nothing else to be decided...... https://hcservices.ecourts.gov.in/hcservices/ (2) A preliminary judgment.—This kind of a judgment may take two forms—(a) where the trial Judge by an order dismisses the suit without going into the merits of the suit but only on a preliminary objection raised by the defendant or the party opposing on the ground that the suit is not maintainable. ..... (b) Another shape which a preliminary judgment may take is that where the trial Judge passes an order after hearing the preliminary objections raised by the defendant relating to maintainability of the suit, e.g., bar of jurisdiction, res judicata, a manifest defect in the suit, absence of notice under Section 80 and the like....... (3) Intermediary or interlocutory judgment.— Most of the interlocutory orders which contain the quality of finality are clearly specified in clauses (a) to (w) of Order 43 Rule 1and have already been held by us to be judgments within the meaning of the letters patent and, therefore, appealable.

The Order, which is appealable under Order 43 Rule 1C.P.C. can be held to be appealable under Clause 15 of LettersPatent. From the above judgment of the Supreme Court it is clear that even on an interlocutory order, which possesses the characteristics of finality and may adversely affect the valuable right of the parties and which works serious injustice to the parties concerned, can be considered as “judgment” to be appealableunder Letters Patent. In the above Judgment, the Supreme Courtsummarised various illustrations of such interim orders, which maybe treated as 'Judgment' within the meaning of Clause 15 of the Letters Patent. It is clear from the above Judgment of the ApexCourt that such interim orders could be “judgments”, which decide the matters of moment and affect the vital and valuable rights of https://hcservices.ecourts.gov.in/hcservices/ the parties and which work a serious injustice to the parties. Theratio of the above judgment was quoted with approval by the Hon'bleSupreme Court in Central Mine Planning and Design Institute Ltd. v.Union of India, (2001) 2 SCC 588 = AIR 2001 SC 883.

The question whether interlocutory orders areappealable under Clause 15 of the Letters Patent came up for consideration before the Division Benches of this Court in the case of R.RAGOPAL @ R.R.GOPAL @ NAKKHEERAN GOPAL VS. J.JAYALALITLHA, (AIR2006 MADRAS 142), and GREEN PEACE CONSTRUCTIONS PVT.LTD. VS.R.SHIVAKUMAR, (2011(1) CTC 48). In Nakkheeran's case, an exparteorder of injunction was under challenge in the Appeal. In GreenPeace Constructions' case, interim order of attachment was under challenge. In both the cases, relying upon Shah Babulal Khimji'scase, (AIR 1981 SC 1786), the Division Benches of this Court have held that interlocutory orders could be “judgments”, which decide the matter of moment or affect vital or valuable right of the parties, which work serious injustice to the parties. However, in the facts and circumstances of those cases, it was held that the interim injunction/order of attachment cannot be considered to be one of affecting vital and valuable rights of the appellant finally and in the facts and circumstances of those cases, the DivisionBenches held that the appeal under Clause 15 of the Letters Patentwas not maintainable.

Applying the law declared by the Apex Court in ShahBabulal Khimji's case, (AIR 1981 SC 1786), the facts of the present case are to be considered. In the joint venture company, appellants1 and 2 hold 75 percent share and the respondent is a shareholder to the extent of 25% holding a total of 4,32,45,804 equity shares ofpar value of Rs.10/- each representing a total value ofRs.43,24,58,040/-. As pointed out earlier, because of the differences between the parties alleging oppression and mismanagement, the appellants have filed Company Petition –C.P.No.32 of 2011 in March 2011 under Sections 397 and 398 of the Companies Act seeking for the following reliefs:-"1. declare that Joaquin Marin Fernandez DePierola and Carlos Cosin Fernandez, Directors of BEFESAInfrastructure India Private Limited, Chennai by reason of their several actions are unfit to act as directors of the Chennai Water Desalination Limited.2. Direct the BEFESA Agua, SAU, Spain to transfer in favour of IVRCL Infrastructure and Projects Limited, Hyderabad 2,59,47,483 shares held by it in the ChennaiWater Desalination Limited at a value equivalent to the fair value of shares as determined by the Board as at15.3.2010 and for this purpose to pass suitable directions for the appointment of an independent valuer to arrive ata fair value of the aforesaid 2,59,47,483 shares for the https://hcservices.ecourts.gov.in/hcservices/ purposes of such transfer.3. Direct the setting aside of the ShareholdersAgreement dated 31.08.2005 between the IVRCLInfrastructure and Projects Limited, Hyderabad and theBEFESA Agua, Spain and consequently direct the BEFESAAgua, Spain and/or its affiliates are not entitled to exercise any rights under such Shareholders Agreement.4. Surcharge BEFESA Agua, Spain, BEFESAInfrastructure India Pvt. Ltd., Chennai and Joaquin MarinFernandez De Pierola, and Carlos Cosin Fernandez, the Directors of BEFESA Infrastructure India Pvt. Ltd. in accordance with Section 406 of the Companies Act and direct the said Respondents jointly and severally to make good to the Chennai Water Desalination Limited the losses caused by them to the Company and as determined in such surcharge proceedings.”

In the Company Petition, appellants have also sought for the following interim reliefs:1. Restrain BEFESA Agua, Spain from exercising any rights in respect of 2,59,47,483 shares held by them in the Chennai Water Desalination Limited.2. Restrain the BEFESA Agua, Spain, BEFESAInfrastructure India Pvt. Ltd., Chennai and Joaquin MarinFernandez De Pierola, and Carlos Cosin Fernandez, the Directors of BEFESA Infrastructure India Pvt. Ltd. or any of the affiliates of the BEFESA Agua, Spain from exercising any rights under the Shareholders Agreement.3. Restrain Joaquin Marin Fernandez De Pierola, and Carlos Cosin Fernandez, the Directors of BEFESAInfrastructure India Pvt. Ltd. from functioning as directors of the Company”.

The Company Petition filed in March 2011 was adjourned by 4 weeks to 24.4.2011. In the Company Petition, the respondent entered appearance and filed various applications in C.A.Nos.95-97of 2011 including an application under Section 45 of the Arbitrationand Conciliation Act. The appellants 1 and 2 have filed counter in those applications and the matter came up before Company Law Boardon 27.6.2011 and was posted to 2.8.2011 for hearing of CompanyApplications and the Company Petition. By its Order dated 5.7.2011,the Company Law Board granted liberty to the respondent to file interim counter. On 27.7.2011, the respondent filed applications inC.A.Nos.175-178 of 2011 seeking information alleging that the information furnished was not provided, which respondent claimed as necessary for defending the Petition. https://hcservices.ecourts.gov.in/hcservices/

Only after filing of those applications in the CompanyPetition and the same were pending, on 17.8.2011, the respondent filed the Petition under Section 9 of the Arbitration Actsubstantially making the same allegations and seeking interim injunctions as under: "(i) Interim Injunction restraining the appellants1 to 3 from acting in breach of their obligations under the Shareholders Agreement dated 31.8.2005;(ii) Interim Injunction restraining the appellants1 to 3 from taking any action to restrict in any manner exercise of respondents right under the shareholders agreement dated 31.8.2005.

In paragraph No.25 of the Petition, respondent has averred that respondent is entitled to an order of mandatory injunction protecting its rights under the Shareholders Agreement. The interim injunction sought for appears to be a mandatory injunction couched in the form of a prohibitory injunction. Therelief under section 9 is intended only as a protective measure and under Section 9 of the Arbitration and Conciliation Act, the respondent cannot seek for a mandatory injunction. More so, anexparte mandatory injunction. By a careful reading of the reliefs, the reliefs sought for in the Petition under Section 9 of the Arbitration Act are exactly the issues raised in the Company LawBoard. It is in these circumstances, the question whether the impugned exparte interim injunction affects the valuable rights of the appellants to maintain this appeal is to be considered.

At the time when Petition under Section 9 of the Arbitration and Conciliation Act was filed, the respondent was fully aware of the Company Petition and was also vigorously pursuing the matter before the Company Law Board. As pointed out earlier, the respondent has taken out number of applications before the CompanyLaw Board and have also obtained the order on 5.7.2011 for filing interim counter. As pointed out earlier, the respondent has also filed applications in C.A.Nos.175-178 of 2011 seeking information allegedly not provided, which the respondent claimed, were necessary for defending the Petition by filing the counter. In the meanwhile, the respondent has also filed a Company appeal No.14 of 2011 before the High Court seeking stay of the order of the Company Law Boarddated 5.7.2011 allegedly on the basis that they should not be required to file a counter and interim orders were also granted in that matter.

Taking into consideration the pendency of the CompanyPetition before the Company Law Board from March 2011 and the fact that the respondent is vigorously pursuing the matter before the Company Law Board, in our considered view, the exparte interim order granted in the Section 9 application substantially affects the valuable rights of the appellant. In our considered view, theexparte interim order has the effect of stalling the proceedings before the Company Law Board and therefore has the trappings of“judgment” within the meaning of Order 43 Rule 1 CPC and therefore the appeal under Clause 15 of the Letters Patent is well maintainable. Since the exparte interim order substantially affects the valuable rights of the appellants and also has the effect of stalling the proceedings of the Company Law Board the, exparteinterim order dated 18.8.2011 granted by the learned single Judgein O.A.No.679 of 2011, which was subsequently extended on 13.9.2011has to be vacated.

The grievance of the respondent is that the appellants are convening meetings of the Board without adequate notice and despite respondent's protest, appellants have gone ahead with such meetings and that such meetings are wholly in violation of the mandatory provisions of the shareholders agreement regarding notice, quorum and affirmative votes required in respect of valid Boardmeetings and there is serious breach of law and of the ShareholdersAgreement. Per contra, learned counsel for appellants has submitted that all those points are squarely the issues raised before the Company Law Board. Learned counsel for the appellants would further contend that the Order under Section 9 of the Arbitration and https://hcservices.ecourts.gov.in/hcservices/ Conciliation Act is only intended as a measure of protection and no mandatory injunction could be granted thwarting the process of judicial authority/Company Law Board.

Since we are relegating the parties to go before the single Judge in Section 9 application, we do not propose to examine the merits of the arguments.