India: Between The Lines... November, 2020

I. Delhi HC: If the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it

The Hon'ble High Court of Delhi ("DHC") has in its judgement dated October 22, 2020 ("Judgement") in the matter of Sanjiv Prakash v. Seema Kukreja and Others [ARB. Pet. 4/2020], held that if the contract is superseded by another, the arbitration clause, being a component/part of the earlier contract, falls with it. In other words, if the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it.

Facts

The Petitioner is the son of Respondent No. 2 (the mother) and Respondent No. 3 (the father), and Respondent No. 1 is his sister, collectively the Petitioner and Respondents are addressed as "Prakash Family Members/Prakash Family". Asian Films Laboratories Private Limited was incorporated on December 09, 1971, by the Respondent No. 3 and the entire amount of the paidup capital was paid by him. He then distributed the shares to the family members. Subsequently, the name of the company was changed to ANI Media Private Limited on March 06, 1997 ("Company"). The Petitioner serves as the Managing Director and the Respondent No. 3 serves as the Chairman of the Company. The Company, in the year 1996, engaged in business relationship with Reuters Television Mauritius Limited, now named as Thomson Reuters Corporation Pte. Ltd. ("Reuters"). It was stated by the Petitioner that prior to the execution of the agreement with Reuters in 1996, an undated Memorandum of Understanding ("MoU") was entered into between the Prakash Family Members which constituted a special arrangement on succession plan and management scheme between the Prakash Family Members qua the Company.

On April 12, 1996, the Prakash Family Members entered into a Shareholders Agreement ("SHA") and a Share Purchase Agreement ("SPA") with Reuters, by which Reuters acquired 49% shares of the Company from the Prakash Family Members, who subsequently held 51% shareholding in the Company. It was stated by the Petitioner that the MoU was binding on the Prakash Family Members inter-se, while SHA was binding as between the Petitioner and the Respondents collectively addressed as "Prakash Family Shareholders" and Reuters. It was stated by the Petitioner that subsequently, the terms of the MoU were included in the Articles of Association of the Company on May 14, 1996 ("Articles of 1996") to recognize the special rights that were existing in the MoU. The Articles of 1996 continued to be operative till August 30, 2012, however, later the Company, due to regulatory concerns, adopted Articles of Association which did not reflect the special rights of any of the parties. The Company again adopted the Articles of 1996 on March 26, 2014, before adopting the Articles of Association as existed in the current form in September 2014.

In terms of the dispute between the parties it was stated by the Petitioner that the Respondent No. 3 was desirous of transferring his shares in the Company to the joint shareholding of himself and the Petitioner. In furtherance, on September 16, 2019, the Petitioner by his letter of lodgment to the Company, attached duly stamped and certified share transfer forms and original share certificate pertaining to the 4,28,100 shares. However, the Respondents No. 1 and 2 objected to the said transfer and also indicated a desire to have the shares of the Respondent No. 2 transferred to the joint names of Respondents No. 1 and 2, but the matter was deferred by the Board. On October 5, 2019, Respondent No. 3 moved a circular resolution for transfer of shares in consonance with the MoU. Subsequently a request was made by Respondent No. 2 on October 6, 2019 for transfer of 3,67,500 shares held by her to the joint shareholding of the Respondents No. 1 and 2. Correspondences were exchanged between Respondent No. 3, and Respondent No. 2 that the transfer request had not been properly made since the original stamped share transfer form and the original share certificates had not been lodged by Respondent No. 2. To this, Respondent No. 2 responded that she will produce the original share certificates at the time of transfer. In addition to the above, Respondent No. 3 and the Petitioner also sent e-mails reiterating that the proposal to transfer shares of Respondent No. 2 to the joint shareholding of the Respondents No. 1 and 2 was in breach of the terms of the MoU. To this, Respondent No. 2 responded that the MoU had been superseded. Thereafter, by e-mail dated October 12, 2019, the Respondents No. 1 and 2 assented to the transfer of the shares of the Respondent No.2 to the joint shareholding of the Respondents No. 1 and 2. Respondent No. 3 responded as the Chairman, stating that the circular resolution for the transfer of the shares of the Respondent No. 2 has not been initiated, and that the Company was still awaiting the original share certificates to be lodged in order to initiate the aforesaid transfer. Thereafter, Respondent No. 2 by e-mail dated November 11, 2019 marked to all directors, disputed the validity of the MoU and reiterated her demand of transferring the shares held by her to the joint shareholding of the Respondents No. 1 and 2.

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