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Small Industries Development Bank of India, Chennai & Others v/s Creation Investments Equitas Holdings LLC A wholly owned subsidiary of Creation Investments Social Ventures Fund II LP, United States of America & Others

    O.A.No. 1137 of 2019 & A.Nos. 1979, 9728, 9729, 1316, 1315, 1981, 1317, 1983, 1984, 1985, 1980 & 1982 of 2020

    Decided On, 06 October 2020

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE N. SATHISH KUMAR

    For the Applicant: P.H. Arvindh Pandiyan Senior Counsel, Edward James, Advocate. For the Respondents: P.S. Raman, Senior Counsel, Vinod Kumar for M/s. J. Sagar Associates, Advocates.



Judgment Text

(Prayer in O.A.No.1137 of 2019, A.No.9728 of 2019: Application filed under XIV Rule 8 of Original Side Rules, 1956 r/w. Section 9 of the Arbitration and Conciliation Act, 1996.Prayer in A.No.1979, 1316, 1981, 1317, 1983, 1984, 1980, 9729 of 2020: Application filed under XIV Rule 8 of Original Side Rules, 1956 r/w. Section 9 (ii) (e) of the Arbitration and Conciliation Act, 1996 r/w. Section 151 of CPC.)Common Order:O.A.No.1137 of 2019 has been filed to pass an ex parte ad interim order of injunction restraining the respondents from dealing with and/or selling and/or transferring and/or disposing of and/or alienating and/or encumbering and/or creating third party interest in any manner whatsoever in respect of the shares held by the second respondent in Sonata Finance Private Limited, as detailed in the Judges Summons.2. A.No.1979 of 2020 has been filed to dismiss the Application No.9729 of 2019 filed by the applicant with exemplary costs.3. A.No.9728 of 2019 has been filed to direct the respondents 2 to 4 to furnish security in the form of a bank guarantee for the sum of Rs.76,77,69,577/- (Rupees Seventy six crore seventy seven lakhs sixty nine thousand five hundred seventy seven) together with interest at the rate of 11% (being the Current SIDBI Prime Lending Rate) calculated from 28/8/2019 till the date of furnishing such security or in the form of a deposit in cash in this Court and/or in any other form that Hon'ble Court may deem fit in order to secure recovery and realisation of the applicant's compensation under the Undertaking.4. A.No.9729 of 2019 has been filed(i). to pass an ex-parte ad interim order of injunction restraining the respondents from dealing with and/or selling and/or transferring and/or disposing of and/or alienating and/or encumbering and/or creating third party interest in any manner whatsoever in respect of the shares held by the respondent No.2 in Sonata Finance Private Limited, as detailed in the Schedule to the Judges Summons(ii). To direct the respondents Nos.2 to 4 to furnish security in the form of a bank guarantee for the sum of Rs.76,77,69,577/- (Rupees Seventy Six Crore Seventy Seven Lakhs Sixty Nine Thousand Five Hundred Seventy Seven) together with interest at the rate of 11% (being the Current SIDBI Prime Lending Rate) calculated from 28/8/2019 till the date of furnishing such security or in the form of a deposit in cash in this Court and/or in any other form that Hon'ble Court may deem fit in order to secure recovery and realisation of the applicant's compensation under the Undertaking.(iii). To direct the respondent Nos.2 to 4 to disclose on affidavit the matters in respect of the following (a). All assets of second respondent in India (including details of all investments held in India through special purpose vehicles/subsidiaries); (b). All bank accounts owned and operated by the second respondent along with latest bank statements; and (c). Amounts realized from the sale of 1,73,13,912 shares held by first respondent in Equitas Holdings Limited including dates of such sale and parties to whom the shares were sold.5. Application Nos.1315, 1316 of 2020 have been filed to dismiss Application No.9728 of 2019 filed by the applicant with exemplary costs.6. Application No.1315 of 2020 has been filed to dismiss O.A.No.1137 of 2019 filed by the applicant with exemplary costs.7. A.No.1981 of 2020 has been filed to vacate the order of ad interim injunction dated 19/12/2019 (which has been subsequently extended) restraining the second respondent from dealing with selling, transferring, alienating, disposing, encumbering or creating third party rights in respect of its shares held in Sonata.8. A.No.1317 of 2020 has been filed to dismiss A.No.9729 of 2019 filed by the applicant with exemplary costs.9. A.No.1983 of 2020 has been filed to dismiss A.No.9728 of 2019 filed by the applicant with exemplary costs.10. A.No.1984 of 2020 has been filed to dismiss A.No.9729 of 2019 filed by the applicant with exemplary costs.11. A.No.1985 of 2020 has been filed to dismiss A.No.9728 of 2019 filed by the applicant with exemplary costs.12. A.No.1980 of 2020 has been filed to dismiss O.A.No.1137 of 2019 filed by the applicant with exemplary costs.13. A.No.1982 of 2020 has been filed to dismiss O.A.No.1137 of 2019 filed by the applicant with exemplary costs.14. Brief facts leading to the filing of Original Application are as follows:-Small Industries Development Bank of India, applicant in O.A.No.1137 of 2019 and Creation Investments Equitas Holdings LLC/first respondent in O.A.No.1137 of 2019 entered into a Share Purchase Agreement dated 11/12/2013. A dispute arose between the applicant and first respondent that there is an arbitration Clause in SPA, which is Clause 11 that the arbitration Clause was invoked and it culminated in an Arbitral Award, dated 19/9/2016, being an award made by a Three Member Arbitral Tribunal, constituted by three Hon'ble former members of Bench of this Court by 2:1 majority.15. When A.No.5733 of 2016 has been filed to stay the operation of the Majority award, dated 19/9/2016, this Court vide, order, dated 8/11/2016, granted stay restraining from creating any encumbrance vis-a-vis 20,59,277 equity shares and 41,18,554 bonus shares till the next date of hearing. The above protection was granted, subject to the Creation Investments Equitas Holdings LLC, furnishing an undertaking to this Court, within a period of two weeks, from the date of the order, stating therein, that in case, there is a price variation in the value of the shares, which operates to the detriment of the SIDBI, then the Creation Investments Equitas Holdings LLC, shall compensate the SIDBI in monetary terms.16. When the matter came up before this Court on subsequent hearing, this Court, by an order, dated 31/1/2017, directed the applicant, in O.A.No.973 of 2016, to file a better undertaking, disclosing their financial holdings etc., and furnish the requisite particulars, to be duly stamped and attested and submitted to the respondent with a copy filed before this Court.17. In pursuant to the above order, undertaking affidavit was filed and sworn by Ken Vander Weele, Partner and Authorised Signatory of Creation Investments Equitas Holdings LLC, stating that if the applicant is unsuccessful, in the instant action, the applicant shall compensate the respondent in monetary terms, in the event that there is any price variation in the value of the shares, which operates to the detriment of the respondent.18. Original Petition No.812 of 2016 has been filed under Section 34 of the Arbitration and Conciliation Act, to set aside the Majority Award, dated 19/9/2016, passed by the Arbitral Tribunal. Vide, order, dated 11/7/2019, this Court has observed that the petitioner therein has not made out any ground available under Section 34 of the Act to interfere with the well reasoned Award passed by the Arbitral Tribunal. Further in pursuance of the orders dated 8/11/2016 and 31/1/2017, in the injunction application, the petitioner has also filed an undertaking before this Court that they will compensate the respondent in the event if there is any price variation in the value of the shares. It is for the respondent to work out their remedy to recover any loss sustained by them.19. Being aggrieved Small Industries Development of India has come forward to file O.A.No.1137 of 2019, for the relief stated supra.20. Creation Investments Social Ventures Fund II LP/second respondent in O.A.No.1137 of 2019 has filed a counter contending that the application under Section 9 of the Arbitration and Conciliation Act, 1996 is not maintainable. When there is no subsisting arbitration agreement between the parties, arbitration cannot be commenced. in the absence of any agreement between the parties. Clause 11 of the Share Purchase Agreement, dated 11/12/2013, executed between the applicant and first respondent in O.A.No.1137 of 2019, second respondent is not a party in that agreement. Only the first respondent undertook for any price fluctuation in the value of the Creation Investments Equitas Holdings LLC. Hence it is the contention that there is no arbitral agreement between the second respondent and applicant.21. It is the contention that first respondent in O.A.No.1137 of 2019 was a Delaware Limited Liability Company (Delaware LLC) incorporated under Delaware LLC Act. Delaware LLC Act governs the formation, dissolution, cancellation, the extent of rights and liabilities and first respondent's capacity to contract. First respondent was dissolved in terms of the Delaware LLC Act and a cancellation certificate certificate dated 31/7/2019, issued by the Secretary of State of Delware. Since the first respondent has ceased to exist, there is no enforceable arbitration agreement. Once the arbitration agreement contained in Clause 11 has ceased to exist, no arbitration can be commenced pursuant to the same, and if commenced, will be a nullity.Arbitration agreement contained in Clause 11 of the SPA provides for arbitration of disputes or claims between parties that arises out of or in connection with this Agreement.22. It is his further contention that second respondent is not a party to the arbitration agreement in the SPA. Admittedly, second respondent is not a signatory to the arbitration agreement contained in Clause 11. It is trite that arbitration proceedings can only be commenced against parties who have consented to the same, except in limited circumstances which do not exist in the present case.23. It is his further submission that second respondent will suffer irreparable injury, if the ad-interim injunction already granted by way of the order dated 19/12/2019 is continued and second respondent is restrained from dealing with its shares in Sonata. Second respondent has no liability towards applicant. Moreover, applicant is not entitled to any relief in Section 9 Application. No fraud was played by the second respondent and applicant has a remedy only before Delaware Courts.24. By stating the aforesaid facts, the applicant had filed an application to vacate the order of ad-interim injunction dated 19/12/2019, restraining the second respondent from dealing with selling, transferring, alienating, disposing, encumbering or creating third party rights in respect of its shares held in Sonata.25. Mr.P.S.Raman, learned Senior Counsel, for second respondent in main application and applicant in A.No.1316 of 2020 submitted as follows:-“Applicant has relied on the arbitration agreement contained in Clause 11 of the SPA for initiating the arbitration proceeding against the respondents. As the only counterparty, first respondent has ceased to exist, no underlying arbitration agreement exists, and no arbitration can be commenced. Since there cannot be an arbitration, no relief can be granted under Section 9 of the Arbitration Act.”26. Existence of a valid arbitration agreement goes to the root of the matter. It is trite in law that the competence of a arbitration tribunal to rule on its own jurisdiction under Section 16 of the Act is not exclusive. It only means that when issues of jurisdiction are raised before the arbitral tribunal, it can decide them. Before granting an order under Section 9, Court has to be satisfied that there is an enforceable arbitration agreement. In the instant case, this essential ingredient is lacking.27. There is no privity of contract between applicant and second respondent to resolve any disputes through arbitration. Second respondent was never a party to any of the proceedings, viz., (i). Undertaking and other documents submitted before the Court by the first respondent; (ii). First and second respondent having common signatories, i.e, respondents 3 and 4; and (iii). Third respondent's email signatures referring to second respondent, arbitration agreement under the SPA will not bind second respondent. It was never a part of any negotiation with the applicant, to sign any document submitted before this Court and this Court never directed the second respondent to submit an undertaking.28. The governing law of first respondent's corporate existence and second respondent's liability as one of 42 members/shareholders of first respondent is governed under Delaware LLC Act. Section 18-201 (b) and 18-303 of the Delaware LLC Act recognises second respondent's separate legal personality and that it does not have any liability towards the debt of first respondent respectively.29. A non-signatory can be made a party to an arbitration proceeding only through or under a valid arbitration agreement. As first respondent has ceased to exist, no valid arbitration agreement exists and therefore, the group of companies doctrine would be inapplicable in this situation.30. The applicant can seek recourse to various remedies against a limited liability company which has ceased to exist, such as first respondent, including revival of first respondent. Under Section 18-805 and 806 of the Delaware LLC Act, if the applicant is successful in reviving first respondent, it will have all remedies as known in law.31. No prima facie or balance of convenience exists in favour of the applicant and the applicant is not entitled to any interim relief. Second respondent will suffer irreparable injury if the ad-interim order is not vacated.32. Learned counsel appearing for the second respondent in support of the application to vacate the stay, submitted that there is no nexus between the second respondent and applicant. As far as the share purchase agreement, the first respondent is only a special purpose vehicle to make investment and hence it is the contention that the debt or liability of the subsidy company cannot be binding on the holding Company. The Holding Company and the subsidy company are distinct entities. In the year 2014 itself, about 42% of the shares held by the third parties. Hence it is the contention that as long as there is no agreement exists between R.1 and applicant, R.2 cannot be made liable for any liability by R.1 and Special Purchase Agreement is only between R.1 and the applicant. In the earlier occasion, the arbitration dispute commenced only between the applicant and first respondent and Section 34 application is also filed only by R.1 and therefore, it is the contention that there is no commonality of interest and interlinking of transaction between R.2 and R.1. Hence it is the submission that Group Companies Doctrine cannot be invoked in a given case and there is no commonality of interest or interlinking of transaction. R.2 is the stranger to SPA. Now the applicant cannot proceed against holding company. Shares of R.1 is already distributed on dissolution. In such a view of the matter, this application is not maintainable. No interim order would be passed against the second respondent.33. It is the contention that R.1 is no longer existence as a corporate body. Remedy of the applicant lies only before Delaware Courts. Hence it is the contention that even under the Delaware Court, applicant has a remedy to proceed against the Company which was resolved. Therefore, injunction already granted has to be vacated. Further it is his contention that the application is not maintainable. Therefore, it is his contention that arbitral proceedings reached finality between applicant and first respondent. Hence there cannot be existence of contract to arbitrate the matter once again.34. To substantiate his case, Mr.P.S.Raman, learned Senior Counsel relied on the following judgments:-(i). Chloro Control India (p) Ltd Vs. Severn Water Purification Inc & Ors {(2013) 1 SCC 641}(ii). Tata Engineering and Locomotives Co Ltd Vs. State of Bihar (AIR 1965 SC 40)(iii). 63 Moons Technologies Ltd Vs. Union of India (2019 SCC Online SC 642)(iv). Vodafone International Holdings B.V. Vs. Union of India {(2012) 6 SCC 613}(v). Shiv Dayal Kapoor & Ors Vs. Union of India & Ors (AIR 1963 P & H 538)(vi). Essar Oil Limited Vs. Hindustan Shipyard Limited and Ors {(2015) 10 SCC 642}(vii). S.N.Prasad Vs. Monnet Finance Ltd {(2011) 1 SCC 320}(viii). Gujarat Bottling Company Vs. Coca Cola Co. Ltd and Ors {(1995) 5 SCC 545}(ix). Stewart Matthew Vs. Christophe Laudamiel (Case No.5957-VCN}(x). Kevin Capone Vs. DLH Management (C.A.No.11687-VCG).35. Mr.Aravinth Pandiyan, learned Senior Counsel submitted that respondent Nos.1 and 2 are one and the same. Respondent No.1 is a subsidiary of Creation Investments and Social Ventures Fund II LP/second respondent. They both are founded by Patrick Fisher, third respondent. Share Purchase Agreement, dated 11/12/2013 was entered into between the applicant and first respondent. The sale and transfer of shares was subject to various conditions precedent in Clause 3.2 of the SPA which included receipt of approval from the Foreign Investment Promotion Board (FIPB). It is pertinent to note that in accordance with the SPA, the term of SPA was for a period of 90 days from the date of execution of the SPA, with the first respondent and the applicant having the option of mutually extending the SPA for a further period of 60 days, if regulatory approvals are pending.36. It is the contention that the conduct of the parties assumes significance in this case. Only when the interim orders passed directing to file an affidavit, fourth respondent has sworn the affidavit under the capacity as authorised representative of the first respondent. In fact, authorisation itself has signed by the third respondent. Hence it is the contention that conduct of the parties assumes significance in this case. By an order, dated 11/7/2019, this Court while dismissing the Original Petition No.812 of 2016 filed by the first respondent in A.No.9728 of 2019, under Section 34 of the Arbitration and Conciliation Act, 1996, held as follows:-“Therefore, the petitioner has not made out any ground available under Section 34 of the Arbitration and Conciliation Act to interfere the well reasoned Award passed by the Arbitral Tribunal. Further, in pursuance of the orders passed by this Court dated 8/11/2016 and 31/1/2017 in the injunction application, the petitioner has also filed an undertaking before this Court that they will compensate the respondent, in the event if there is any price variation in the value of the shares. In view of the same, it is for the respondent to work out their remedy to recover any loss sustained by them.37. First respondent, has been dissolved on 31/7/2019 and has ceased to exist as an entity, which was done at the behest of the second respondent, in order to defraud the applicant to avoid the consequences of the undertaking given before this Court. Admittedly, there was a price variation which has caused huge loss to the applicant. Only in order to avoid the first respondent Company was dissolved to escape from the liability. It is the contention that both the applicant and second respondent are one and the same. Therefore Court can lift the corporate veil to ascertain the role of the second respondent in the transactions in question as claimed by the petitioner in A.Nos.1315 of 2020.38. The entire dispute arise out of the SPA entered into between the parties and in order to escape from the liability, the parties cannot be allowed to go scot free. Conduct of such Foreign Companies will lead to the serious consequences in sale of shares in any Company. Therefore it is the contention that they already sent a notice for invoking the arbitration. Liability is not disputed and similarly they also filed an application before the Hon'ble Supreme Court for appointment of arbitrator. In such a view of the matter, it is his contention that interim order passed by this Court has to be continued till the arbitration is over and similarly respondents are also directed to furnish the details as prayed in the other applications.39. To substantiate his case, Mr. Aravindh Pandiyan relies on the following judgments:-(i). A.Ayyasamy Vs. A. Paramasivam and Others {(2016) 10 Supreme Court Cases 386.(ii). Rashid Raza Vs. Sadaf Akhtar{(2019) 8 Supreme Court Cases – 710(iii). Morris Vs. Harris (Pauper) {(1927) AC 252}(iv). Baytur.S.A. Vs. Finagro Holding S.A ([1992] CA 610, 1 Q B)(v). Chung Vs. Silver Dry Bulk Co Ltd [(2019) EWHC 1147 (Comm)(vi). Britton Vs. Co-op Banking Group 916 F.2d 1405; 1990 U.S.App.LEXIS 17801(vii). Rals International Pvt Ltd Vs. Cassa Di Risparmio Parma e Piacenza SpA {(2016) SGCA53(viii). Cheran Properties Vs. Kasturi and Sons {(2018) 16 SCC 413(ix). Mahanagar Telecom Nigam Ltd Vs. Canara Bank {(2019) SCC Online 995.(x). Arcelor Mittal India Vs. Satish Kumar Gupta {(2019) 2 SCC 1(xi). Union of India Vs. Salween Timber AIR 1969 SC 488(xii). Tarapore & Co Vs. Cochin Shipyard {(1984) 2 SCC 680}(xiii). Renusagar Power Co Vs. General Electric (1984) 4 SCC 67940. Learned Senior counsel would further submit that there is no agreement clause under Section 2 of the Arbitration Clause deals with the party. The party means party to an arbitration agreement and since R.2 is not a party, they cannot be made as a party herein.41. Heard both sides and I have perused the entire materials available on record.42. It is not disputed that R.1 was wholly owned subsidiary of R.2. The address of R.1 and R.2 are one and the same as could be seen from the cause title of both sides. It is also not disputed by R.2 that R.1 was a special purpose vehicle created by R.2 only for making investment. SPA came into existence between the applicant and R.1 on 11/12/203. Clause 11 deals with the contract governing reference to the dispute Resolution viz., Arbitration. As there was a dispute arose between the parties, i.e., R.1 and applicant, matter was referred to three member arbitrator. Three member Tribunal passed an award by 2 : 1 majority. The first defendant aggrieved over the award filed an application under Section 34 before this Court in O.P.No.812 of 2016. As indicated above, while granting an interim order, this Court directed R.1 to file an affidavit. Pursuant to the orders, undertaking was given by R.1 to adequately compensate in the event of price variation in the shares. Ultimately, the application viz., O.P.No.812 of 2016 was dismissed by this Court, by an order dated 11/7/2019, confirming the award passed by the majority members.43. It is also not disputed that no further appeal whatsoever was filed against the order of this Court. In the light of the admitted facts as narrated above, when the rival contentions are analysed it is the main contention of R.2 that he is no way connected with SPA and R.1 is formed as a special purpose vehicle only for the purpose of making some investment and R.2 has never a party to the agreement nor given undertaking etc. In this regard, when materials were perused, as stated above, the address of register office of R.1 and R.2 are one and the same. R.2 was originally wholly owned subsidiary of R.1. The fact that R.1 was immediately dissolved on 31/7/2019 within nineteen days of the award as confirmed by this Court is also not disputed.44. Though it is the contention of the learned Senior Counsel that R.2 has no way connected with R.1, such contention cannot be countenanced, for the following reasons:-In page No.251 of the typed set, e-mail communication exchanged by the third respondent indicates that the third respondent is a founder and Managing Partner of the first and second respondent. The letter sent by the third respondent dated 3/12/2019, indicated that he is aware of the entire proceedings. In fact, third respondent has made allegations against the applicant. In a nutshell, he sought an opportunity and in fact, sought an opportunity to mitigate the losses if any. The entire letter makes it very clear that the third respondent was controlling both the first and second respondent's Company. Therefore, it cannot be said that both are different entities.45. It is further to be noted that SPA entered into between applicant and first respondent also signed by the third respondent. Subsequent follow up correspondence indicate that only the third respondent founder and Managing Partner of both the first and second respondents communicated with the applicant. E-mail correspondence also filed in the typed set. Every correspondence between the applicant and first respondent is carried away by the third respondent as a founder and Managing Partner of first and second respondents and in fact, the claim is also filed by the third respondent.46. Challenging the arbitral award, the third respondent signed as authorised signatory of the first respondent and he has also filed O.As claiming to be a Manager and Authorised Signatory of the first respondent in Section 34 application. First time, he signed as Manager and authorised signatory whereas from the inception of SPA till the matter, reached to arbitration, in all the correspondences, he has shown himself as founder and Managing Partner of both first and second respondents. For the first time while seeking an order of injunction to stay the arbitral award, he changes his designation as authorised signatory of the first respondent.47. While passing an Order in O.A., this Court also by its Order dated 08.11.2006 directed to file an affidavit of undertaking. Only after direction was issued to file an undertaking to compensate the price variation, fourth respondent came into picture as a partner of the first respondent. Fourth respondent has filed another affidavit in pursuance to the orders of this Court, dated 30/1/2017. It is also to be noted that in the minutes, authorising the fourth respondent to be an authorised signatory of first respondent has also filed in the typed set. Same clearly show that as a Chairman of the first respondent, the third respondent has signed the minutes authorising the fourth respondent to sign and file an undertaking. The above Resolution proves the fact that only third respondent was the Chairman of the first respondent at the relevant point of time.48. A bare perusal of the above documents makes it very clear that in fact, third respondent was a founder, partner of first and second respondents, therefore, it cannot be said that there is no commonality of interest between the first and second respondents and there is no interlinking transaction. Right from the correspondences and SPA proceedings before arbitration and filing an application, challenging the award, only third respondent has actively participated as a founder partner of both the respondents 1 and 2. Only, when undertaking sought to be filed, the fourth respondent sought to be introduced, even when the Resolution passed in that regard, third respondent signed only as a Chairman of the 1st respondent.49. In this regard, in Ga-Hyun Chung Vs. Silver Dry Bulk Co. Ltd {2019} EWHC 1147 (COMM) in paragraph Section 278 of Delaware code provides :“278. Continuation of corporation after dissolution for purposes of suit and winding up affairs.”All Corporations, whether they expire by their own limitation or are otherwise dissolved, shall nevertheless be continued, for the term of 3 years from such expiration or dissolution or for such longer period as the Court of Chancery shall in its discretion direct, as bodies corporate for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, to discharge their liabilities and to distribute to their stockholders any remaining assets, but not for the purpose of continuing the business for which the corporation was organised. With respect to any action, suit or proceeding begun by or against the Corporation either prior to or within 3 years after the date of its expiration or dissolution, the action shall not abate by reason of the dissolution of the Corporation; the Corporation shall, solely for the purpose of such action, suit or proceeding, be continued as a body corporate beyond the three year period and until any judgments, orders or decrees therein shall be fully executed, without the necessity for any special discretion to that effect by the Court of Chancery.”50. The abovesaid judgment, referred to by Mr.P.S.Raman, learned Senior Counsel makes it very clear that even after dissolution, the Company can be continued for a term of three years from dissolution or for such longer period as the Court of Chancery shall in its discretion direct, as bodies corporate for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, to discharge their liabilities and to distribute to their stockholders any remaining assets, but not for the purpose of continuing the business for which the corporation was organized. With respect to any action, suit or proceeding begun by or against the corporation either prior to or within three years after the date of its expiration or dissolution, the action shall not abate by reason of the dissolution of the Corporation; the Corporation shall, solely for the purpose of such action, suit or proceeding, be continued as a body corporate beyond the three year period and until any judgments, orders or decrees therein shall be fully executed, without the necessity for any special direction to that effect by the Court of Chancery.51. Even though dissolution took place as per the Delaware Law, such Company can be wound up as per Section 376 of Companies Act, 2013, which reads as follows:-“376. Power to wind up foreign companies, although dissolved.— Where a body corporate incorporated outside India which has been carrying on business in India, ceases to carry on business in India, it may be wound up as an unregistered company under this Part, notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated.”52. Now, the main issue relates to the conduct of the second respondent. As discussed above, from the very inception every act of the first respondent is done by the second respondent. Therefore, there is an commonality of interest and interlinking transaction between both the Companies. First respondent was dissolved, within ninety days, after the award was passed that itself indicate that it has been done at the instigation of the second respondent which is all along aware of the arbitration proceedings and was a party to the proceeding, in order to avoid consequences the Company first respondent has been dissolved only the behest of the second respondent.53. In Cheran Properties Limited Vs. Kasturi and Sons Limited and Others {(2018) 16 Supreme Court Cases 413}, at paragraph 20, reads as follows:-“Both these decisions were prior to the three Judge Bench decision in Chloro Controls India (P) Ltd Vs. Severn Trent Water Purification Inc {(2013) 1 SCC 61}. In Chloro Conrols, this Court observed that ordinarily, an arbitration takes place between persons who have been parties to both the arbitration agreement and the substantive contract underlying it. English Law has evolved the “group of companies doctrine” under which an arbitration agreement entered into by a Company within a group of corporate entities can in certain circumstances bind non-signatory affiliates. The test as formulated by this Court, noticing the position in English law, is as follows:“71. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English law have, in certain cases, also applied the “group of companies doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement.”54. Conduct of the second respondent to dissolve the first respondent to avoid consequences and third respondent conduct from the very beginning makes it very clear that the agreement entered into between the first respondent and applicant also bind the second respondent holding Company of the first respondent.55. In Vodafone International Holdings BV Vs. Union of India and Another {(2012) 6 Supreme Court Cases 613}, in paragraph Nos.254, 255, 256, 258 and 259, the Hon'ble Apex Court held as follows:-“254. The Companies Act in India and all over the world have statutorily recognised subsidiary company as a separate legal entity. Section 2(47) of the Indian Companies Act 1956 defines "subsidiary company" or "subsidiary", a subsidiary company within the meaning of Section 4 of the Act. For the purpose of Indian Companies Act, a company shall be subject to the provisions of sub-section 3 of Section 4, be deemed to be subsidiary of another, subject to certain conditions, which includes holding of share capital in excess of 50% controlling the composition of Board of Directors and gaining status of subsidiary with respect to third company by holding company's subsidization of third company.255. A holding company is one which owns sufficient shares in the subsidiary company to determine who shall be its directors and how its affairs shall be conducted. Position in India and elsewhere is that the holding company controls a number of subsidiaries and respective businesses of companies within the group and manage and integrate as whole as though they are merely departments of one large undertaking owned by the holding company. But, the business of a subsidiary is not the business of the holding company (See Gramophone & Typewriter Ltd. v. Stanley, (1908-10) All ER Rep 833 at 837).256. Subsidiary companies are, therefore, the integral part of corporate structure. Activities of the companies over the years have grown enormously of its incorporation and outside and their structures have become more complex. Multi National Companies having large volume of business nationally or internationally will have to depend upon their subsidiary companies in the national and international level for better returns for the investors and for the growth of the company. When a holding company owns all of the voting stock of another company, the company is said to be a WOS of the parent company. Holding companies and their subsidiaries can create pyramids, whereby subsidiary owns a controlling interest in another company, thus becoming its parent company.258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any director if it so desires by a resolution in the General Body Meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary are allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries.259. The U.S. Supreme Court in United States v. Bestfoods 524 US 51 (1998) explained that it is a general principle of corporate law and legal systems that a parent corporation is not liable for the acts of its subsidiary, but the Court went on to explain that corporate veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, if the corporal form is misused to accomplish certain wrongful p

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urposes, when the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management etc. of a subsidiary is not sufficient to pierce the status of their relationship and, to hold parent company liable. InAdams v. Cape Industries Plc. (1991) 1 All ER 929, the Court of Appeal emphasized that it is appropriate to pierce the corporate veil where special circumstances exist indicating that it is mere fagade concealing true facts. “56. Of course, the Hon'ble Apex Court has laid down the law and held what is the difference between “holding company” and “subsidiary Company” and held that they are distinct entities and holding Company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. Absolutely, there is no dispute over the position of law. The fact remains that the first respondent and second respondent are one and the same both were operated by same person and dissolved to avoid legal consequences. The person who gave an undertaking before the Courts of Law cannot take advantage of the position of law holding that legal relationship between the holding Company and Subsidiary Companies. If both wholly owned subsidiary company and holding Company have acted as per law, the position of law certainly would applicable whereas the person has created such Companies only to defeat the rights of the parties outside the Countries from where such companies created. Therefore, in the given facts, principles laid down in the above judgment cannot be applied to defeat the rights and encourage fraudulent activities.57. Having given an undertaking, now respondents 1 and 2 cannot take a shelter under the legal position that there are two distinct legal entities and second respondent was non-signatory to the agreement. In fact, third respondent was a signatory to the agreement and he has signed for the first respondent. Therefore, second respondent which was founded by the third respondent is also certainly bound by the acts done by the first respondent.58. Accordingly, this Court, taking note of the fact that immediately after the award, within nineteen days, first respondent was dissolved in foreign Country to avoid consequences of huge payment. If the shares of the second respondent in India is allowed to be operated or dealt by the second respondent, the apprehension of the applicant that the second respondent also is capable of dealing with shares, in order to defeat the right is well founded. Accordingly, applicant has a prima facie case and balance of convenience also in their favour and if the shares are allowed to be dealt with both the first and second respondents fleeing the Country is more probable.59. In such a view of the matter, if injunction is not granted by this Court, there will be an irreparable loss. Accordingly, interim injunction passed by this Court is made absolute and the application filed for vacate stay is dismissed. If the Apex Court comes to the conclusion that this matter is not arbitrable, injunction stands vacated automatically from the date of the order of the Apex Court. Similarly, other applications also ordered and the respondents are directed to furnish the details, within a period of four weeks, from the date of receipt of a copy of this order. Continuation of these orders are subject to order that may be passed by the Hon'ble Apex Court in application filed in Application No.6954 of 2020 on 23.09.2020 under Section 11 of the Arbitration and Conciliation Act.60. In the result, the interim injunction granted in Original Application in O.A.No.1137 of 2019 is made absolute and the application is Ordered. In view of the same, Application in A.No.1981 of 2020 filed to vacate the interim injunction and Applications in A.Nos.1980, 1982, 1315 of 2020 filed to dismiss the O.A.No.1137 of 2019 are dismissed. Consequently, connected applications in A.Nos.1979, 1983, 1984, 1985, 9728, 9729, 1316, 1317 of 2020 are closed.
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