Disputes between two sets of people coming from diverse backgrounds although pursuing a common objective are inevitable at times due to various reasons ranging from ego, misunderstanding, personal objectives taking priority over common objective, ill motives, wrong advice or believing in self-developed notions. The parties knocking the door of the judicial forums are often entangled into cumbersome and costly litigation expecting that result would be in their favour. However, over a period of time, the scenario becomes clear which may not be a favourable outcome, as expected. We are hereunder attempting a series of issues handled by experts in the shareholders disputes like Ab Initio for a better understanding of the reader as to whether it is worthwhile to fight the legal battle or not.
CASE STUDY-1
(Dispute between Joint Venture Partners)
*This Case Study is a part of series of Articles dealing with disputes between Shareholders/Founders/Partners/Family Members resulting into various allegations and litigation before relevant forums.
Factual Matrix
- In the given case, a dispute arose between two Joint Venture (JV) partners running a successful JV, rendering specialised services for almost 10 years. The dispute had its genesis in triggering of a Put Option clause (A clause where one shareholder can offer his shareholding to another JV partner/shareholder/investor at a pre-agreed price allowing the option of exit at a certain pre-agreed date or timeline) in the agreement for Party A which was supposed to be honoured by Party B at a relevant point in time.
- However, due to certain unavoidable circumstances, the offer as given by Party A was not accepted by Party B resulting into a series of meetings and ultimately, the Parties agreed to extend the timeline of Put Option for another period. The new agreement, as entered into between the Parties, was so loosely drafted that it could have various meanings ultimately forcing the Parties to initiate arbitration proceedings against each other.
Problem Statement
Whether such a dispute could have been resolved in an expedite manner had there been an efficacious exit mechanism for Party A in the second agreement?
Analysis
- The arbitration proceedings, regardless of it being an effective dispute resolution mechanism, have a series of legs like section 9 proceedings (interim stay/relief during the arbitration process), Section 11 proceedings (where an arbitrator is appointed by the parties, failure to agree on arbitrator’s name mutually), filing of claim once arbitrator is appointed and challenging the jurisdiction and scope of the arbitrator’s powers.
- Lawyers love to take such simple civil proceedings to other relevant forums like NCLT (where one can challenge minority oppression and mismanagement). Other legal recourses like criminal complaints before magistrate courts, complaints before Registrar of companies (ROC) and Regional Director (RD) were explored by Party A to pressurise Party B to ultimately honour its Put Option with interest.
- Once arbitration, criminal and NCLT proceedings were initiated, both the Parties took best of legal advice to make sure that the other Party’s proceedings are either prolonged or burdened with counter claims, perjury applications etc.
Conclusion
A better sense prevailed and the Parties agreed to settle after fighting for 3 years where Party B honoured its commitment to Party A.
The loosely drafted second agreement could have been better drafted. A sound advice at the time of triggering of Put Option could have been taken by Party A so that the 5 years’ legal battle could have been avoided.
*Disclaimer: This article is not a legal advice and is published to understand the nuances of resolution process in case of a dispute between the Joint Venture partners.
