M/S COMED CHEMICALS LTD v. C.N. RAMCHAND

M/S COMED CHEMICALS LTD v. C.N. RAMCHAND (ARBITRATION PETITION NO. 17 OF 2007) decided by C.K. THAKKER, J on November 07, 2008

Facts:
An MoU was signed between the M/s Comed Chemicals (Comed) and CN Ramchand (Ramchand) for “the development of products in the field of bio-industries and manufacturing and marketing of such products.” In consequence, Ramchand was appointed as Director (Technical) by Comed. Due to various grievances against Ramchand, including resignation before completion of the work undertaken by Ramchand in breach of the MoU, Comed initiated arbitration proceedings on August 12, 2005 as per Clause 12 of the MoU by appointing Ramesh H. Nanavati, a retired District Judge as arbitrator. Ramchand replied that he was not agreeable to the arbitrator proposed by the Company and instead proposed 3 names. When Comed filed a petition for appointment before the High Court, he contended that he was a British National. and therefore the arbitration would be `International Commercial Arbitration' as defined in Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 (Act) and under Section 11(9) of the Act the Chief Justice of India (CJI) would have the power to appoint an arbitrator. The application was withdrawn and Comed filed an application before the CJI

Decision

The CJI’s designate had to decide 3 issues:
Whether the disagreement amounted to ‘dispute’?
Whether the Agreement came within the purview of ‘Commerce’?
Whether Clause was an arbitration Clause or an Expert Determination Clause?

The Court allowed the petition and held that the Clause 12 of the MoU which read as follows was an arbitration clause:

If there be any dispute pertaining to meaning of this MoU or of any nature, will be solved and decided by appointing an independent Arbitrator acceptable to all the parties and if not solved by him can be referred to court of law and for which the jurisdiction will be Vadodara.

Further, the Court, citing R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co. & Anr., (1994) 4 SCC 541 and other judgments held:

It was held that the agreement to render consultancy service by the appellant to the respondent was `commercial' in nature and there was commercial relationship between the parties.

The Court went on to hold that if the Contract was a mere employment and the relationship between the parties was a master-servant relationship, the matter was inarbitrable. However

[I]f the respondent is engaged by the applicant Company to perform functions which are inextricably linked with functions which could be undertaken by a businessman or by a Company and such activities form an integral part of his activities, there is element of `commerce'. In that case, the provisions of the Act would clearly apply.
25. In the instant case, the respondent has been appointed as Director (Technical) and has been allotted 40% equity shares in the subsidiary Company (Comed Bio-Tech Ltd.). Over and above that, he was to be paid salary and other benefits in lieu of services rendered by him. Para 3 of the Agreement required the respondent to undertake certain responsibilities.
The applicant-Company wanted to venture into the field of bio-technology which was not previously chartered or traversed by it (novel bio-products). The respondent possessed special knowledge and to get the benefit of such research and expertise, an agreement had been entered into by the parties and respondent had been appointed Director of the subsidiary Company.
28. Now, it is well settled that a Director is not a mere employee or servant of the Company. Such Director may have to work also as an employee in a different capacity. I hold that the respondent was working in dual or double capacity, i.e. (i)as an employee, and (ii) as a Director. In the later capacity, however, he was the Chief Executive Officer of the subsidiary Company and had to look after all operational matters. The functions to be performed by him were supervisory and related to policy making decisions in the affairs of the Company, as observed by this Court in Ram Pershad. Any dispute between the applicant-Company and the respondent would, therefore, be covered by Clause 12 of the Agreement which provides for arbitration. Hence, the contention of the learned counsel for the respondent that the respondent was merely an employee and there was no element of business, trade or commerce has no substance and must be rejected.

The Court appointed Madhukar Fanse, retired Judge, City Civil Court, Ahmedabad as the sole arbitrator to decide the dispute between the parties