"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, February 28, 2014

Enercon v Enercon (Part I-Facts and Litigation History)


Enercon v Enercon is an example of the complexity of disputes arising out of joint venture arrangements. The proceedings culminating in the decision of the Supreme Court read like a screen play of a “mega-serial” (a hilarious explanatory definition of the term can be found here). This series of posts discusses the judgement.

Facts:

Two individuals of a business family (Appellants Nos. 2 & 3) entered into a joint venture arrangement with Enercon GmbH (hereafter “Enercon”) and set up Enercon (India) Ltd. (hereafter “Enercon India”) in 1994. The purpose of the company was to manufacture and sell wind turbine generators (hereafter “WTG”). Respondent 2 held the patent rights pertaining to the WTG technology. As a part of the said joint venture arrangement, several transactions were entered into:

Date
Agreement
Parties
12.01.94
Share Holding Agreement
Appellants 2 & 3, Enercon
12.01.94
Technical Know-How Agreement
Enercon India & Enercon
19.05.98
19.05.00
Supplementary Shareholding Agreements
Appellants 2 & 3, Enercon
19.05.00
Supplementary Technical Know-How Agreement
Enercon India & Enercon
23.05.06
Heads of Agreement (on a future agreement covering future technologies developed by Enercon & Respondent 2
Enercon India & Enercon
29.09.06
Agreed Principles (providing the basis for the final agreements to be executed.
Enercon India, Appellants 2 & 3 & Enercon
29.09.06
Intellectual Property Licence Agreement (IPLA)
Appellants 2 & 3, Enercon

Disputes arose between the parties as to whether the IPLA was in consonance with the Agreed Principles which led to unilateral suspension of supplies by Enercon to pressurize Appellants 2 & 3 to sell their shareholding in Enercon India to Enercon.

Legal Proceedings Post- Dispute:
Appellants 2 & 3 filed a derivative suit in September 2008 in the Bombay High Court seeking an order to resume supplies by Enercon. In response, Enercon filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (hereafter “1996”) seeking reference of the suit to arbitration in London in view of the arbitration clause. As on the date of the judgement, the suit was still pending. An interim order was passed in the suit seeking resumption of supplies. After complying with the interim order for some time, Enercon allegedly stopped complying with the same, against which Appellants 2 & 3 filed a contempt petition.

In March 2008, Enercon invoked arbitration contained in Clause 18.1 of the IPLA and nominated Mr. VV Veeder QC as its arbitrator. Enercon invited Appellants 2 and 3 to nominate an arbitrator on behalf of Enercon India. Appellants 2 & 3 contested the notice stating that the IPLA was not a concluded contract.

A fortnight later, Enercon filed an application in the English Commercial Court for constitution of the tribunal.

Enercon India and Appellants 2 & 3 filed a suit in the Daman civil court for declaration that the IPLA was not a concluded contract and that there was no arbitration agreement between the parties. In the said suit, the Respondents were ordered to maintain status quo as regards the English proceedings.

Enercon India nominated, without prejudice, a former judge of the Supreme Court as arbitrator in April 2008. In the same month, Enercon India’s nominee arbitrator Mr. Justice BP Jeevan Reddy wrote a letter stating that the arbitration clause was unworkable and that both the arbitrators were unable to appoint the third arbitrators. In August 2008, both arbitrators issued a joint statement reiterating the contents of Mr. Justice BP Jeevan Reddy’s letter.

Enercon then filed an application under Section 45 of the 1996 Act for referring the subject matter of the suit to arbitration which was dismissed. Subsequently, an application for injunction was filed by the Appellants restraining the Respondents from proceeding with the proceedings in the English Commercial Court and the same was allowed. Both the orders were appealed against. The Daman Appellate Court allowed the appeals. Writ Petitions were filed against these orders in the Bombay High Court. The High Court granted interim stay of the pursuit of the English proceedings.

Despite the same, the Respondents proceeded with the English proceedings where an interim anti-suit injunction was granted against the appellants from prosecuting the writ petitions before the Bombay High Court. An ex parte interim injunction was given by the same court restraining Enercon India from disposing of its assets. The English court decided the matter finally in March 2012 wherein it was held that the anti-suit of the Bombay High Court was in force. In addition, the anti-suit injunction against pursuit of proceedings in the Bombay High Court were discharged subject to the undertaking given by the appellants that the proceedings before the High Court would be expedited and concluded as early as possible and that the appellants would not seek further directions for interim relief from the Bombay High Court.

The Appellants filed an application before the High Court for expeditious listing and hearing of the writ petitions. Despite the same, the Respondents filed an application in the English Court for the appointment of the third arbitrator in June 2012. Since no action was taken on the application for expeditious hearing, the Appellants filed a special leave petition to the Supreme Court which requested(?) the High Court to take up the writ petitions. Subsequently, the Writ Petitions were dismissed on 5 October 2012. On the same date, the Respondents’ counsel issued a letter to the Appellants’ counsel for relisting of the application before the English Court for appointment of the third arbitrator. The Respondents also applied for antisuit injunction against filing of any  Special Leave Petition by the Appellants in the Supreme Court against dismissal of the Writ Petitions. The English court decided in November 2012 on the application. Following is a summary of the decision:

1) The Bombay High Court was concerned with the questions as to whether there was a binding arbitration agreement, whether the seat of the alleged arbitration agreement was London, and whether English Courts could exercise supervisory jurisdiction when the seat was not in England.
2) It would be confusing if the Supreme Court of India decided differently from what the English Court decides as regards these questions.
3) Consequently, the  decision of the Supreme Court should be awaited despite delays and difficulties involved.

Also, the Appellants filed an undertaking before the English Court that it would not seek injunction from the Indian courts unless it was determined that the seat was in India and that it would not seek injunction restraining the Respondents from pursuing proceedings instituted in the English High Court on grounds mentioned therein. An order was passed by the English courts in February 2013 on the basis of the undertaking.

In the same month, Special Leave Petitions were filed challenging the orders of the Bombay High court in the Writ Petitions.

We will discuss the judgement of the Supreme Court in the next post. Two inferences can be drawn from the above discussion: One, both parties would have spent several crores of rupees to pursue litigation in multiple fora in more than one country; two, it is apparent that the arbitrators (who are eminent jurists), the Indian and the English courts could not clearly state whether the seat of the arbitration as per the arbitration clause was London or was in India. What was the problem with the arbitration clause? What was the decision of the Supreme Court? These are aspects that would be discussed in the future posts on this topic. 

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