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Civil Appeal No. 4540 of 2013 (Arising out of S.L.P. (C) No. 13120 of 2013), Criminal Appeal Nos. 731-733 of 2013 (Arising out of S.L.P. (Crl.) Nos. 1924-1926 of 2013) and Criminal Appeal Nos. 734-735 of 2013 (Arising out of S.L.P. (Crl.) Nos. 1947-1948 of 2013). Case: 1. Chandran Ratnaswami, 2. K.C. Palanisamy, 3. Paul Rivett Vs 1. K.C. Palanisamy and Ors., [Alongwith Criminal Appeal Nos. 736-737 of 2013 (Arising out of S.L.P. (Crl.) Nos. 3273-3274 of 2013) and Contempt Petition (Civil) No. 166 of 2013 in S.L.P. (Crl.) No. 9853 of 2010], 2. The State and Anr. etc., [Alongwith Civil Appeal Nos. 4537-4538 of 2013 (Arising out of S.L.P. (C) Nos. 11342-11343 of 2013)], 3. The State and Anr.. Supreme Court (India)

Judgment Cited in 10 Precedent Map Related
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Case NumberCivil Appeal No. 4540 of 2013 (Arising out of S.L.P. (C) No. 13120 of 2013), Criminal Appeal Nos. 731-733 of 2013 (Arising out of S.L.P. (Crl.) Nos. 1924-1926 of 2013) and Criminal Appeal Nos. 734-735 of 2013 (Arising out of S.L.P. (Crl.) Nos. 1947-1948 of 2013)
CounselFor Appellant: E.C. Agrawala, Adv. and For Respondents: Mahalakshmi Balaji and Company, Subramonium Prasad, AAG, M. Yogesh Kanna, A. Santha Kumaran, Sasi Kala and Senthil Jagadessan, Advs.
JudgesP. Sathasivam and M.Y. Eqbal, JJ.
IssueCompanies Act - Sections 397, 398, 402; Contract Act; Indian Penal Code (IPC) - Sections 109, 120B, 169, 384, 389, 405, 406, 408, 409, 420, 467, 468, 471, 472, 477(A); Code of Criminal Procedure (CrPC) - Sections 159, 203, 482; Negotiable Instruments Act - Section 138; Constitution of India - Articles 21, 226
Citation2013 (4) ABR 500, 2013 (V) AD 485 (SC), AIR 2013 SC 1952, 2013 CriLJ 2938, 2013 (7) SCALE 50, 2013 (6) SCC 740, JT 2013 (8) SC 42, 2013 (121) SCL 123 (SC)
Judgement DateMay 09, 2013
CourtSupreme Court (India)

Judgment:

M.Y. Eqbal, J.

1. Leave granted.

2. Since common questions of law are involved, these appeals have been heard together and are being disposed of by this common judgment. However, for the sake of convenience, the factual matrix giving rise to these cases as alleged in the civil appeal arising out of SLP(C) No. 13120 of 2013 is set out hereinafter.

3. The Appellant - Chandran Ratnaswami, alleged to have settled in Canada since 1974, is an officer of Hamblin Watsa Investment Counsel, a wholly-owned subsidiary of Fairfax Financial Holdings Limited (in short, "Fairfax") which is based in Canada and has also made investments in India worth more than USD 1 billion. The said Appellant is also a Director on the Boards of various renowned companies including ORE Holdings Limited (in short, "ORE"), a Fairfax Group company, based in Mauritius, and has to travel to India on business commitments. The said holding company, ORE on 30th January, 2004 entered into a Joint Venture Agreement (JVA) with CG Holdings Private Limited (Respondent No. 1 - K.C. Palanisamy's company) and N. Athappan (a Singapore citizen) for constructing and developing a hotel property, a shopping complex and an IT Park of the properties owned by Cherraan Properties Limited (CPL) and Vasantha Mills Limited (VML) (Respondent No. 1's companies). ORE invested Rs. 75 crores and got 45% in Cheran Enterprises Private Limited (CEPL). N. Athappan invested Rs. 4 crores and got 10% in CEPL. It is alleged that as CPL and VML have immovable assets, Respondent No. 1 transferred shares of CPL and VML to CEPL instead of bringing money and got 45% share holding in CEPL. Respondent No. 1 is alleged to have swindled the said Rs. 75 crores that was deposited in the bank account contrary to the JVA and transferred the immovable assets of CPL and VML, subsidiaries of CEPL. Thereupon, ORE filed Company Petition No. 76 of 2005 before the Company Law Board, Additional Principal Bench, Chennai (in short, "the CLB") on account of the alleged acts of oppression and mismanagement indulged in by Respondent No. 1. The Company Law Board by order dated 13th August, 2008 directed Respondent No. 1, CG Holdings Private Limited and CEPL to return the investment of ORE and N. Athappan amounting to Rs. 79 crores with 8% interest within one year, failing which the land of VML was to be transferred to ORE and N. Athappan. It was directed that once the aforementioned amount is paid, Respondent No. 1 would take control of CEPL and its subsidiaries. The Company Law Board held as under:

17. In view of the foregoing conclusions and in exercise of the powers under Sections 397 & 398 read with Section 402 and with a view to bringing to an end the grievances of CG Holdings, KCP, ORE and Athappan, the following order is passed:

CEPL shall return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively, together with simple interest at the rate of 8% per annum from the date of investment till the date of repayment within a period of 12 months in one or more instalments, commencing from 01.11.2008. While making the payment CEPL, CG Holdings and KCP shall ensure that at least 25% of the amount due is paid in every quarter. CEPL CG Holdings and KCP are at liberty to make use of the fixed deposit held by CEPL with the SBI, Erode Main Branch, free of any liens or encumbrances towards refund of the investments of ORE and Athappan. VML shall not alienate or sell any of its immoveable properties till full payment is made to ORE, in terms of this order. In the event of any failure to make the repayment within the specified time, CEPL CG Holdings, KCP and VML will duly convey the immovable properties of VML, namely, 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable laws, as consideration for reduction of capital and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG Holdings and KCP. CEPL is consequently authorized to reduce its share capital and in the meantime, operation of the impugned agreements is suspended, to expedite and ensure due completion of the modalities of exit by ORE and Athappan, thereby, bringing to an end the acts complained of in the present proceedings. CEPL shall ensure necessary statutory compliances till the whole process, in accordance with the aforesaid directions, is properly completed. The parties are at liberty to apply in the event of any difficulty in implementation of the smooth exist of ORE and Athappan from CEPL.

4. Cross appeals were filed by the parties before the High Court of Judicature at Madras and the High Court vide order dated 5th August, 2011 confirmed the order dated 13th August, 2008 passed by the CLB, in the following terms:

54. On analysis of various aspects, Company Law Board concluded that it was no longer possible for the parties to carry out joint venture business of CEPL as per the terms of JVA. Only to have smooth exit of ORE and Athappan, the Company Law Board passed the order directing CEPL to repay Rs. 75 Crores and Rs. 4 Crores invested by ORE Holdings and Athappan respectively. By perusal of the order of Company Law Board, in our considered view, Company Law Board has elaborately gone into the issues arisen between the parties even though those objections were filed under Sections 397 and 398 of the Companies Act. As demonstrated infra, there are commonality of issues raised in both the Company Petitions, O.S. No. 90 of 2007 and the petition filed before I.C.C. seeking for arbitration.

55. Criminal Cases: The learned Counsel for Appellants Mr. Karthik Seshadri contended that the purport of the criminal proceedings are different and initiating of criminal complaints does not amount to waiver of arbitration. of course, a party does not waive his right to invoke arbitration by filing criminal complaints. But what is relevant is the allegations in the plethora of criminal complaints filed at the instance of the Appellants/father of KCP/Respondents. Both parties have made serious allegations of cheating, forgery, falsification of records, etc., against one another. Even before the arbitral Tribunal, the same allegations are made. The Honourable Supreme Court and the Madras High Court have held that the arbitration is not the appropriate forum if allegations of fraud, misappropriation and complicated facts are involved.

xxx xxx xxx

84. By a careful reading of the order of Company Law Board in C.P. Nos. 65 and 76 of 2005, it is clear that the alleged breach of Clause 9.2 has been elaborately dealt with. Company Law Board dealt with not only the issues pertaining to the oppression and mismanagement of CEPL and also the larger issues arising between the parties. Only to ensure smooth exit of ORE and Athappan, the order dated 13.8.2008 came to be passed by the Company Law Board. It is pertinent to note that KCP had not challenged the said order of Company Law Board.

xxx xxx xxx

112. As pointed out earlier, several criminal cases have been filed and number of quash petitions also came to be filed. of course a party does not waive his right to invoke the arbitration of the dispute by filing of criminal complaints. When a party deliberately chooses not to adopt a particular course of action, the arbitration agreement becomes inoperative and as the parties have waived or abandoned the arbitration clause, by invoking the jurisdiction of Civil Court, the doctrine of wavier applies. The Appellants had the option to go before ICC even in 2005 but the Appellants chose to file C.P. No. 65 of 2005 and also stoutly defended C.P. No. 76 of 2005 filed by ORE Holdings. Even in C.P. No. 76 of 2005, the Appellants have not sought for reference to arbitration. By agitating the matter before the Company law Board for nearly two years, and filing the Civil Suit in O.S. No. 90 of 2007 before District Munsif's Court, Kangeyam, by their conduct the Appellants must be deemed to have given a go bye to the arbitration clause.

113. The parties have been engaged in pitched battle before the Company Law Board and orders were passed by the Company Law Board on 13.8.2008. When the matter was pending before the Company Law Board, the Company Law Board has passed interim orders at various stages. The learned Counsel for Plaintiffs would submit that even settlements/proposals have been made disclosing parties intentions and discovery process has been utilized. We find much force in the contention of the Respondents that Athappans and Ore have spent consideration time and money before the Company Law Board. In so far as O.S. No. 90 of 2007 pending before District Munsif's Court, Kangeyam, the suit is ready ripe for trial and the Respondents are diligently defending the same. Having initiated proceedings before various forums, cannot now seek to invoke arbitration as an additional remedy.

xxx xxx xxx

120. Company Appeal Nos. 21,25 to 27 and 29 of 2009: The gist of order in C.P. Nos. 65 and 76 of 2005 dated 13.8.2008 is that:

CEPL, KCP and C.G. Holdings were to return Rs. 75 Crores to ORE and Rs. 4 Crores to Athappan. The money was to be paid within a period of one year starting 1.11.2008 with 25 percent of the same, being paid every year.

CEPL, KCP and C.G. Holdings were to utilize Rs. 20 Crores maintained in the fixed deposit at State Bank of India, Erode to pay ORE and Athappan. In the event of failure to pay the money the property of VMC situated in Coimbatore is to be transferred to ORE and Athappan in the proportion of 17.15 acres and 7.80 acres respectively. Until then VML was refrained from dealing with the property.

On receipt of money, ORE and Athappan were to surrender their shares in CEPL and CEPL shall...

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