India: General Case Laws

Ashapura Mine-chem Ltd. V. Gujarat Mineral Development Corporation

In the present case, Ashapura Mine-Chem Ltd. ("Appellant") and the Gujarat Mineral Development Corporation ("Respondent") entered into a Memorandum of Understanding ("MoU") to constitute a joint venture along with Chinese Company namely; "M/s. Qing TongXia Aluminium Group Company Ltd., Ningxia of China for the purpose of setting up an alumina plant in the Kutch District of Gujarat. The MoU also recorded that the Government of Gujarat had agreed to encourage and support the proposed joint venture for setting up of the alumina plant.

Subsequent to the execution of the MoU, a new Mineral Policy was introduced by the Government of Gujarat. In the light of the said new Mineral Policy various modifications in the terms and conditions of the MoU were required to be made by the parties.

Eventually, the Respondent decided to forthwith cancel the MoU in view of failure on part of the Appellant in complying with various terms and conditions of the MoU.

The Appellant invoked clause 27 ("Arbitration Clause") of the MoU and approached the High Court of Gujarat ("Gujarat High Court") under Section 11 of Arbitration and Conciliation Act, 1996 ("Arbitration Act") for appointment of an arbitrator.

The Gujarat High Court upon hearing both the parties observed that the parties had no consensus ad idem even with reference to the terms and conditions of the MoU and in these circumstances, there was no scope left to apply the relevant clauses to invoke arbitration under the MoU.

Aggrieved by the judgment of the Gujarat High Court, the Appellant approached the Supreme Court of India ("Supreme Court"). The primary issue before the Supreme Court was whether the MoU fructified into a full-fledged agreement or not and secondly whether the Arbitration Clause mentioned in the MoU survives and continues to bind the parties as a separate clause different from MoU."

The Supreme Court while deciding the matter, set aside the judgment of the Gujrat High Court and held that the Gujarat High Court failed to appreciate the legal position with respect to the validity of an arbitration agreement in the MoU, irrespective of the failure of the parties to reach a full-fledged agreement with respect to the various terms and conditions contained in the MoU for a joint venture. The Supreme Court observed that the Arbitration Clause contained in the MoU was an independent Arbitration Agreement and, therefore, even if the Respondent had chosen to terminate the MoU, the Arbitration Agreement would continue to be valid and consequently the parties were entitled to invoke the said Arbitration Clause. The Supreme Court emphasized on the concept of separability of the Arbitration Clause/Agreement and determined that it is a necessity to ensure that the intention of the parties to resolve the disputes by arbitration does not extinguishes with every challenge to the legality, validity, finality or breach of the underlying contract.

Krishna Textport & Capital Markets Ltd. V. Ila A. Agrawal & Ors

In the present case, a complaint was filed by the Krishna Textport & Capital Markets Ltd. ("Appellant") under Section 138 of Negotiable Instruments Act, 1881 (herein referred to as "Negotiable Instruments Act") on account of dishonour of cheque issued by M/S Indo French Bio Tech Enterprises Ltd to the Appellant which was returned by the bank with endorsement "Funds Insufficient".

The criminal Complaint filed by the appellant before the Additional Chief Metropolitan Magistrate was directed against M/S Indo French Bio Tech Enterprises Ltd. ("Company") and 12 of its directors including the Chairman and Managing Director of the Company.

The Metropolitan Magistrate took cognizance of the dispute and while deciding the matter convicted the Company but acquitted two of its directors of the offence punishable under Section 138 of the Negotiable Instruments Act, 1881. Relying on the judgment of the Division Bench of Madras High Court in B. Raman and Ors v. Shasun Chemicals and Drugs Ltd the Court observed that, statutory notice under Section 138 of the Act had not been issued to the two said Directors and hence no proceedings could be initiated against such Directors.

In response to the said verdict the aggrieved Appellant approached the High Court of Bombay ("Bombay High Court"), which dismissed the appeal while relying on judgment of Madras High Court in B. Raman & Ors. Vs. M/s. Shasun Chemicals and Drugs Ltd (supra)

Subsequently the Appellant approached the Supreme Court where the main question of law which arose was, "whether or not it was mandatory to send a notice to the directors to the company individually, despite having already sent a notice to the company in question, before a complaint could be filed against such directors along with the Company as per under Section 138 of the Negotiable Instruments Act, 1881"

The Supreme Court took into consideration the observations made by a Constitution Bench of this Court in Nathi Devi v. Radha Devi Gupta and observed that the interpretative function of the court is to discover the true legislative intent. It is trite that in interpreting a statute the court must, if the words are clear, plain, unambiguous and reasonably susceptible to only one meaning, give to the words that meaning, irrespective of the consequences. When the language is plain and unambiguous and admits of only one meaning, no question of construction of statute arises, for the Act speaks for itself.

The Supreme Court, while allowing the appeal set aside the order passed by the Bombay High Court held that, Section 138 of the NI Act does not admit of any necessity or scope for reading into it the requirement that the directors of the company in question must also be issued individual notices under Section 138 of the NI Act. Such directors who are in charge of affairs of the company and are responsible for the affairs of the company would be aware of the receipt of notice by the company under Section 138 and hence there was no requirement of issuance of separate notice to the Directors of the company. Therefore, neither on literal construction nor on the touch stone of purposive construction such requirement could or ought to be read into Section 138 of the NI Act.

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