Punjab State Industrial Development Corporation vs M/s Arihant Corporation Ltd. and another

Hemant Gupta, J.—Petitioner and M/s Arihant Financial Services Limited, a company registered under the Companies Act, 1956 entered into an agreement on February, 17th 1992 for promoting a new company namely Arihant Threads Limited for setting up of the project of spinning mill at Goindwal Sahib, District Amritsar with a capacity of 25000 Spindles per annum. It is admitted that the name of Arihant Financial Services Limited has since been changed to Arihant Corporation Limited. In terms of clause 19 of the agreement, the respondent has the option to buy at any time, the equity shareholding of the petitioner but only after commencement of the commercial production whereas the respondent is bound to purchase the equity shareholding of the petitioner after the expiry of period of ten years from the date of commencement of the commercial production.

As per the undisputed facts, the commercial production of the company promoted commenced on 2.12.1996 and thus right to buy-back the equity shareholding of the petitioner arose on 1.12.2006 after the expiry of ten years. Since, the shareholding was not purchased in the manner agreed, the petitioner served a notice dated 16.10.2009 (Annexure P-4) and nominated its arbitrator. Since, respondents have failed to nominate its arbitrator, petitioner invoked the jurisdiction of this Court u/s 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of the arbitrator.

Learned Counsel for respondents has argued that M/s Arihant Threads Limited has approached the Board of Industrial and Financial Reconstruction (in short the ''BIFR'') constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 and an operating agency has been appointed by the Board for consideration of the rehabilitation scheme of the Company promoted. It is contended that if the Scheme is sanctioned which may include the reduction of share capital then that Scheme will override all other agreements, which will supersede even the agreement dated 17.2.1992 in terms of Section 32 of the above said Statute and which may have the affect on the equity contribution of the petitioner as well, therefore, at this stage, the arbitrator need not be appointed.

I have heard Learned Counsel for the parties and find that the petitioner''s right to seek the compliance of the agreement to seek buy-back of the shares in terms of the agreement is a existing dispute. Such dispute is required to be adjudicated upon in terms of Clause 29 of the agreement which reads as under: -

All differences and disputes between the parties hereto on any clause or matter herein contained or their respective rights, claims or liabilities hereunder or otherwise, howsoever, in relation to or arising out of this agreement, shall be referred to arbitration by two arbitrators (one to be appointed by each party) who shall, before proceeding with the reference, appoint an Umpire and such arbitration shall be governed by the Indian Arbitration Act, 1940 or any modification or re-enactment thereof for the time being in force.

The argument that there is a possibility of reduction of equity capital which may affect the agreement is wholly contingent and speculative. Such fact cannot be taken into consideration for deciding the question of appointment of an arbitrator at this stage. Such a eventuality may not arise at all. It may be stated that the question whether the Scheme if any sanctioned by the BIFR has the affect on the reduction of equity capital or on the other rights of the petitioner need not be examined in present proceedings nor arises for consideration at this stage. The parties shall have independent cause of action after any such order is passed.

Consequently, the present petition is allowed. Since, the petitioner has already nominated its arbitrator the respondents are directed to nominate its arbitrator within 30 days and the arbitrators of the parties will nominate their presiding arbitrator. Failure of appointment of the arbitrator within the prescribed time will entitle the petitioner to seek appointment of arbitrator by filing the miscellaneous application in the present petition. Disposed of.