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The Madras High Court has set aside an arbitration award passed by the Arbitral Tribunal to India Cements Ltd in a dispute between the Chennai –based cement manufacturer and Zuari Cement Ltd, a joint venture between Zuari Industires and French firm Ciments Francias.
The dispute is related to acquisition of Sri Vishnu Cements Ltd (SVCL), a subsidiary of India Cements by Zuari Cement Ltd in 2002. India Cements argued that the deal happened in two parts, one of the Share Purchase Agreement and the other, a marketing agreement.
Zuari Cement said that the marketing agreement should be considered as a separate agreement and since India Cements has not acted according to the terms of the agreement, including support to SVCL to achieve certain market share in a specific time-frame, it is not liable to pay the amount.
However, Tribunal said that India Cements could not support SVCL due to non-cooperation of Zuari Cement. The Tribunal decided that India Cements deserved to be granted 50% of the amount that was payable under the agreement, that is Rs 52.80 crore and passed an award of Rs 26.40 crore directing SVCL to pay the same.
In an order issued last month, Justice R S Ramanathan observed, "I have already held that without reference to Section 7(a)(ii) of the marketing agreement and without any basis, the Tribunal awarded 50% of the amount payable under the agreement and therefore, it is against the specific term in the contract, and it is unfair and unreasonable and therefore, the award is liable to be set aside."
The order added that India Cements Ltd has invoked the arbitration clause under share purchase agreement and made it clear its stand that they are claiming the amount only under the share purchase agreement. "Therefore, the claim is against the provisions of section 77 of the Companies Act," says the order.
Commenting on the order, a senior official from India Cements said, "We are awaiting the certified copy of High Court order. We will be filing an appeal before the division bench of High Court. We have been adviced that we have strong legal grounds for filing an appeal".
A mail sent to Zuari Cement did not elicit any response.
India Cements argued that besides the payment of price as per the share purchase agreement, the parties agreed that a sum of Rs 74.40 crore was payable by Zuari Cement and India Cements' specific case was that it was agreed by Zuari Cements that it would pay the money as part of the share purchase agreement and the marketing agreement was projected as a means to provide for the generation of funds by Zuari Cement.
Zuari argued that as per the marketing agreement, India Cements has to render marketing services to enable SVCL to achieve a marketshare of atleast 5.5% in the first 24 months of the agreement.
A sum of Rs 52.80 crore was payable for rendering marketing services whereby SVCL would achieve the specified market share for a period of two years commencing from the operation dated and such payment was called specified market share payment, it said.
The learned Arbitrator held that there is no violation of Section 11 of the Companies Act and held that marketing agreement is a separate agreement and it was executed by the companies after completion of the process of acquisition of ICL Group's share holding in SVCL by India Cements and what was to be paid under the agreement was an additional amount over and above the consideration amount fixed under the share purchase agreement and therefore, there is no question of violation of section 77 of the Companies Act.
In the petition filed by Zuari Cement with the High Court, retired Justice G T Nanavati, former judge of Supreme Court of India and Sole Arbitrator, was the second respondent.
According to the Annual Report 2002 of India Cements, the entire shareholdings of the company and ICL Securities Limited in SVCL, were sold effective from May 18, 2002 to Zuari Cement Ltd pursuant to an agreement for sale dated 10 th January 2002. The total sale consideration including for shares held by ICL Securities Limited, representing 94.70% of the share capital of SVCL was Rs 330.88 Crore.
