Arbitration Petition (L) No.324 of 2009

2nd May, 2009

Petitioner Counsel: Mr. VIRAG TULZAPURKAR,Mr. A. V. DAGA,Wadia Gandhy & Co.
Respondent Counsel: Mr. D. J. KHAMBATA,Mr. ROHAN RAJADHYAKSHA,AZB & Partners

Cases Cited:
Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals (P) Ltd., 2007 ALL SCR 2524 : (2007)7 S.C.C. 125 [Para 11,13]
Percept D'Mark (India) (P) Ltd. Vs. Zaheer Khan, (2006)4 S.C.C. 227 [Para 21]

JUDGMENT

JUDGMENT :- The Petitioner has invoked Section 9 of the Arbitration and Conciliation Act, 1996 (for short, "the Act"). There is an arbitration clause in the Employment Agreement between the parties dated 22nd May, 2007. Admittedly, there is an employer and employees relationship between the parties.

2. The Petitioner's personal service agreement in question was initially terminated by letter dated 13th February, 2009 w.e.f. 13th March, 2009 which subsequently modified by further letter dated 19th March, 2009 and 10th April, 2009 was made effective date for the alleged termination of the service.

3. The basic notice of termination refers a proposal for full and final settlement also. Admittedly, the Petitioner has not signed the same. The Petitioner has not accepted the full and final proposal. The Petitioner has resisted the termination notice in all respect and invoked the Arbitration clause as there arose dispute between the parties. The said Arbitration clause provides to resolve dispute, in Mumbai, as per the Rules of Arbitration of the International Chamber of Commerce (for short, "ICC"). The Petitioner has filed this Petition on 30th March, 2009.

4. A foreign company Lehman Brothers Holding Inc. (LBHI) (Lehman) of which Respondent No.1 (LBAPL) is a subsidiary, has filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code before the United States of Bankruptcy Court of Southern District of New York. On 22nd October, 2008 by an order ("Order No.1") the United States Bankruptcy Court for the Southern District of New York, approved a bidding procedures ("the Bidding Procedures") to govern the sale by Lehman and certain of its affiliates of the assets owned, held, or used primarily in connection with Lehman. On 3rd December, 2008, in accordance with the Bidding Procedures, an auction conducted and the bid submitted by one NBSH Acquisition LLC, an entity controlled by Neuberger Berman Holdings LLC, selected as the successful bid. On 22nd December, 2008, pursuant to above, by a subsequent order the Bankruptcy Court approved the sale to NBSH Acquisition, LLC.

5. As alleged, the Petitioner given to understand that in view of above, NBSH Acquisition LLC would, while taking over the Business (as defined in the said Unit Purchase Agreement) absorb the Petitioner and the Petitioner would thus be transferred/ employed with a proposed Indian entity to be incorporated by NBHL ("Indian Subsidiary Co.") but without discontinuation in service and on the same terms and conditions as those contained in the Employment Agreement, including payment of pending Award Payments.

6. The Petitioner, thereafter received the termination notice as referred above and therefore, the Petition, for securing the amount as described in the particular of claims. The Prayer clauses are also for appointment of a Court Receiver, injunction pending the Arbitration Proceedings. There is nothing to show that the Petitioner has proceeded to appoint an Arbitral Tribunal as per the ICC Rules except the letter.

7. The Petitioner's apprehension is basically in view of the proceedings initiated in the Foreign Court which the Respondents have not denied. But the submission of the Respondents is that admittedly, Respondent No.1 is the subsidiary company of the main company (Lehman). Both are separate entity. There is no material on record, to show that at present there is any such steps or action initiated against Respondent No.1 pursuance to the said proceedings. There is Respondent No.1's affidavit dated 21 April, 2009 refers to the various letters and communications to show that at present their properties are not at all concerned with the said proceedings. (Page 260 letter dated 17th April, 2009) The specific averments made as under :

"15. Further in this regard, I repeat and reiterate the contents of the Additional Reply wherein a joint letter has been addressed to LBAPL by both contracting parties to the UPA (LBHI and NBSH Acquisition LLC) stating that : "(i) LBAPL is not a party to and is not subject to any obligations under the UPA; (ii) neither NBSH Acquisition LLC nor any of its subsidiaries is required under the terms of the UPA to extend an offer of employment to the employees of LBAPL (including Vijay Agarwal); and (iii) the closing of the transactions as contemplated by the UPA does not involve LBAPL."

8. Relying on the basic averments made in the affidavit i.e. Sur-rejoinder of Respondent No.1 dated 21st April, 2009, it is submitted that if Respondent No.1 adopted proceedings in the nature of winding up, the sustainable claim against Respondent No.1 will be frustrated unless it is secured at this stage only. Those averments are as under :

"Therefore, given the circumstances, even if at all Respondent No.1 were to adopt proceedings in the nature of winding up proceedings etc., the Petitioner, if at all he has a sustainable claim against Respondent No.1 (which according to Respondent No.1 he does not), must stand with the remaining unsecured creditors of Respondent No.1 to make his claim. There is no reason the Petitioner should be given any preferential treatment by his present attempt to elevate and accord to himself the status of a 'secured creditor'. In other words, it is submitted that the present Petition is nothing but an attempt by the Petitioner to secure indirectly what he cannot secure directly, which is clearly impermissible-in-law."

9. Notably, Respondent No.1 by an affidavit dated 8th April, 2009, has placed on record its financial position as on January 31, 2009 (Para (a) at Page No.232) :

I say and submit that the ability of Respondent No.1 to discharge its obligations when they fall due is obvious from its financial statements, a copy of which is attached as Exhibit "A". Exhibit A is a copy of the unaudited Statement of Accounts of Respondent No.1 as on January 31, 2009, which clearly reflects the above. I say that as on January 31, 2009, the total assets of the Respondent No.1 are Rs.88,83,95,501 (Rupees Eighty Eight Crores Eighty Three Lakhs Ninety Five Thousand Five Hundred and on) of which, the total of the cash and bank balance available with Respondent No.1 is Rs.31,51,52,932 (Rupees Thirty One Crores Fifty One Lakhs Fifty Two Thousand Nine Hundred and Thirty Two). Therefore, it is submitted that the financial position of Respondent No.1 can satisfy any claim that the Petitioner may successfully bring against Respondent No.1 and the Petitioner has not placed on record any material to the contrary. This fact has even been expressly admitted by the Petitioner in paragraph 3.u of the Petition."

10. The Petitioner, however, by its rejoinder has opposed the same, but there is no proved contra material on record except the allegation and apprehension in view of the proceedings in Foreign Court, as well as, Respondent No.1's own statement as referred above. This itself is not sufficient to grant reliefs as prayed.

11. It is settled that while granting any protection or measure, in such proceeding under the Act, the Court needs to consider Order 38, Rule 5, Order 39, Rules 1 and 2 and Sections 14 and 41 of the Specific Relief Act. (Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals (P) Ltd. reported in (2007)7 S.C.C. 125 : [2007 ALL SCR 2524]). The relevant paragraphs with this regard are as under :

"It is true that Section 9 of the Act speaks of the Court by way of an interim measure passing an order for protection, for the preservation, interim custody or sale of any goods, which are the subject-matter of the arbitration agreement and such interim measure of protection as may appear to the court to be just and convenient."

"Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures under Section 9 of the Act."

12. In the present case admittedly it is the alleged termination of contract of personal service, if so, Section 14 read with Section 41 of Specific Relief Act, itself, prima facie goes against the Petitioner to grant any relief. Any dispute with regard to the breach of terms and conditions of personal service and in the present case when the agreement itself nowhere provides any right to continue with the contract or any fixed period clause. The agreement was admittedly on Will, therefore, such termination even if as alleged is illegal or invalid, just cannot be the reason to pass any interim protection or measure as sought in the present case. The Petitioner has factually not accepted full and final settlement terms as suggested and on the contrary, challenged the same on various grounds, alleging it to be illegal and invalid. Therefore, at this stage and on the material available, whether alleged termination is valid or not just cannot be gone into in Section 9 Petition, specially considering the nature of agreement between the parties. Such agreement is not enforcible. The Petitioner cannot claim continuity of service or employment. Therefore, only remedy is to claim compensation/damages.

13. The learned Sr. Counsel appearing for the Petitioner has relied on Paras 9 and 18 of Adhunik Steels Ltd. (Supra) which reads as under :

"9. Learned counsel also relied on International Commercial Arbitration in UNCITRAL Model Law Jurisdictions by Dr. Peter Binder, wherein it is stated :

"It is not compatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure."

It is further stated :

"In certain circumstances, especially where the Arbitral Tribunal has not yet been established, the issuance of interim measures by the court is the only way assets can be saved for a future arbitration. Otherwise, the claimant could end up with a worthless arbitral award due to the fact that the losing party has moved his attachable assets to a safe jurisdiction where they are out of reach of the claimant's seizure. The importance of such a provision in an arbitration law is therefore evident, and a comparison of the adopting jurisdictions shows that all jurisdictions include some kind of provision on the issue, all granting the parties permission to seek court-ordered interim measures."

18. The approach that at the initial stage, only the existence of an arbitration clause need be considered is not justified. In Siskina (Cargo Owners) V. Distos Compania Navieria SA (The Siskina) Lord Diplock explained the position : (All ER p.824f-g)

"A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependant on there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened, by him of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction."

He concluded : (All ER p.825a-b)

"To come within the sub-paragraph the injunction sought in the action must be part of the substantive relief to which the plaintiff's cause of action entitles him; and the thing that it is sought to restrain the foreign defendant from doing in England must amount to an invasion of some legal or equitable right belonging to the plaintiff in this country and enforceable here by the final judgment for an injunction."

14. These settled principles of law, as quoted above, need no further discussion or elaboration. But, we have to consider the facts and circumstances of each case also. The Court cannot over look the provisions of Specific Reliefs Act specially of Sections 14 and 41 as referred above.

15. An employee cannot be permitted to interfere with the commercial decision based upon the existing financial conditions and the respective policy decision of the company.

16. The learned counsel appearing for the Petitioner makes statement that Respondent No.1 recently i.e. after filing of this Petition paid amount of item Nos.2 and 3 of the particulars of the claims but the substantial amount i.e. Item Nos.1 and 4 are not yet paid. At this stage, there is material to show that Respondent No.1's financial condition is sufficient to cover the alleged claims of the Petitioner, if any. The requirement, therefore, to secure the amount of claims does not necessarily mean to pass interim orders/or grant protection as claimed, specially at the instance of the employee whose employment agreement is terminated. The Petitioner has challenged the averments made by Respondent No.1 with regard to their financial conditions, as well as, their statement of their possible steps to move up for voluntarily winding up. That itself is also not sufficient reason to pass order in favour of the Petitioner, as he has to stand on his leg first, considering the fact that it is the breach of employer - employees relationship contract/agreement and which is not yet decreed to enforce.

17. Considering the financial position of Respondent No.1 and further that they are not concerned with the main company Lehman and as all these facets of illegal termination or contractual relationship including accepted liability or payment can very well be taken care of by the Arbitral Tribunal that would be constituted pursuance to the agreement between the parties, no case is made out for any relief as prayed.

18. The proposal for the settlement was made to give finality to the dispute but that was not accepted. If, the other party failed to accept the settlement and if there is dispute raised, unless it is decided finally, it is difficult to accept that the proposed amount is due and payable and therefore, it should be secured even before the constitution of the Arbitral Tribunal.

19. The Respondents' averments made in paragraphs 25 to 28 of Preliminary affidavit dated 8th April, 2009, which is reproduced below including the statement in a letter dated 8th April, 2009 and in view of the reasoning given above, I am of the view that there is no sufficient material/reasons or justifications to pass any order of injunction or to appoint any Court Receiver.

"25. It is submitted that the Petitioner has admitted that the financial position of Respondent No.1 is strong enough to satisfy the Petitioners proposed claim. Further, apart from making bald, unsubstantiated, vague and unwarranted allegations which are nothing more than mere conjectures and surmises, the Petitioner has not placed on record any material to establish even a prima facie case of any apprehensions whatsoever that Respondent No.1 is likely to dispose of its assets or properties.

26. Further, the balance of conveniences is also against the Petitioner and in favour of the Respondent No.1 since the records (Exhibit A) of Respondent No.1 indicate that it is capable of discharging its obligations, if valid. Moreover, the Petitioner has failed to establish any urgency to avail itself of the discretionary reliefs sought for.

27. For the above mentioned reasons, it is also submitted that no irreparable injury or harm would be caused to the Petitioner if its request for relief is declined. In fact, it is submitted that irreparable injury and loss would be caused to Respondent No.1 if the relief sought for by the Respondent is granted as it would be too onerous for the Respondent No.1 that its assets/properties be secured at present when in fact there is no justifiable reason whatsoever for the Petitioner to apprehend that Respondent No.1 will not be in a position to satisfy any award that he may successfully obtain against it.

28. It is humbly submitted that the Petitioner has completely failed on each count to fulfill the tripartite test for granting of the discretionary reliefs sought for. Therefore, it is humbly submitted the Petitioner is not entitled to any of the reliefs sought for."

20. However, a liberty is granted to the Petitioner to file such application for such protection or security or for appropriate order before the Arbitral Tribunal, if constituted.

21. The Supreme Court in Percept D'Mark (India) (P) Ltd. Vs. Zaheer Khan & Anr., (2006)4 S.C.C. 227 has observed as under :

"64.(v) The principles which governs injunctive reliefs in such cases of contracts of a personal or fiduciary nature, such as management and agency contracts for sportsmen or performing artistes, are excellently summarised in a judgment of the Chancery Division in Page One Records Ltd. Vs. Birtton. In this case it was held that, although the appellant had established a prima facie case of breach of contract entitling them to damages, it did not follow that entire of them were entitled to the injunction sought; that the totality of the obligations between the parties gave rise to the fiduciary relationship and the injunction would not be granted, first, because the performance of the duties imposed on the appellant could not be enforced at the instance of the defendants and, second, because enforcements of the negative covenants would be tantamount to ordering specific performance of this contract of personal services by the appellant on pain of the group remaining idle and it would be wrong to put pressure on the defendants to continue to employ in the fiduciary capacity of a manager and agent someone in whom he had lost confidence."

22. Resultantly, the Petition is dismissed. No costs.

Petition dismissed.