A.S. Naidu, J.
1. Being aggrieved by the order dated March 8, 2002, passed by the District Judge, Khurda, Bhubaneswar, in Arbitration MJC No. 522 of 2001, which was one under Section 9(ii) (d) and (e) of the Arbitration and Conciliation Act, 1996, the appellant has approached this Court under Section 37(a) of the said Act. The appellant assails the common order passed by the District Judge rejecting its petitions filed under Order 1, rule 10(2) and under Order 6, Rule 17 of the Code of Civil Procedure declining to implead (1) Orissa Power Generation Corporation (for short 'OPGC'); (2) AES, OPGC Holding, Mauritius ; and (3) AES (India) P. Ltd., as opposite parties in the aforesaid MJC, as well as for consequential amendment of the pleadings.
2. It is pertinent to mention here that the District Judge by a common order which is impugned in this appeal has rejected the aforesaid petitions under Order 1, Rule 10(2) and under Order 6, Rule 17 of the CPC while dismissing the MJC itself.
3. The appellant had filed a writ petition before this Court being W.P. (C) No. 2194 of 2003, invoking jurisdiction under Article 227 of the Constitution of India challenging the portion of the order impugned in this appeal rejecting its application under Order 1, Rule 10(2) and under Order 6, Rule 17 of the CPC. By judgment dated June 18, 2004, this Court held that as the order was a composite one and the same had been challenged in a statutory miscellaneous appeal, this Court did not go into the propriety or otherwise of the portion of the order dealing with rejection of the aforesaid petitions and disposed of the said writ petition (No. 2194 of 2003) observing that the prejudice, if any, caused to the petitioner flowing out of rejection of the said petitions could be set at naught in the appeal itself.
4. The appellant-GRID Corporation of Orissa (for short 'GRIDCO') is a Government company constituted under Section 617 of the Companies Act, 1956. It is governed under the Orissa Electricity Reforms Act, 1995, and is engaged in the business of bulk supply and transmission of electricity in the State of Orissa on the strength of a licence granted to it by the Orissa Electricity Regulatory Commission (for short 'OERC'), constituted under the aforesaid Reforms Act.
5. The Orissa State Electricity Board (for short 'OSEB'), statutory body constituted under Section 5 of the Electricity (Supply) Act, 1948, was engaged in the business of generation, transmission and distribution of electricity in the State of Orissa. The aforesaid Orissa Electricity Reforms Act of 1995, brought about restructure of electricity industry and rationalization of generation, transmission, distribution and supply of electricity in the State of Orissa. Pursuant to the said Reforms Act, the Government of Orissa constituted the OERC and vested in OERC the functions of granting licence and regulating the generation, transmission, distribution and retail supply of electricity in the State of Orissa. In consonance with the aforesaid Reforms Act, OSEB ceased to function and GRIDCO became its successor assuming the functions of transmission, distribution and bulk supply and retail supply of electricity in the State of Orissa. The functions of GRIDCO as regards distribution and retail supply of electricity was divided into four distribution zones and four independent companies were incorporated on November 19, 1997, viz., Western Electricity Supply Company (WESCO), North Electricity Supply Company (NESCO), South Electricity Supply Company (SOUTHCO) and Central Electricity Supply Company (CESCO). All these four companies were wholly-owned subsidiaries of GRIDCO and they carried on the distribution and retail supply of electricity after obtaining retail supply licence from OERC.
6. While matters stood thus, GRIDCO initiated a competitive bidding process for selecting private sector investors to invest in the business of distribution and retail supply of electricity. The consortium of AES Corporation of USA and Jyoti Structures Ltd., of Mumbai tendered their proposal for investing 51 per cent equity share in the distribution companies. The AES Corporation, respondent No. 1, was qualified as the technical and financial member and Jyoti Structures Limited as the Indian member in consonance with request for qualification (for short 'RFQ'). The offers were accepted by GRIDCO. Thereafter, the present respondents Nos. 1 and 2 established a joint venture company (for short 'JVCO') in which respondent No. 1, has 95 per cent equity share and respondent No. 2 has 5 per cent, equity share. It is stated that the JVCO was incorporated by respondents Nos. 1 and 2 as AES Orissa Distribution Private Limited, respondent No. 3, with its registered office in the State of Orissa under the Companies Act, 1956, with the objective of holding 51 per cent, equity share in CESCO. In consonance with the decision taken on August 31, 1999, an agreement in the name and style of 'share acquisition agreement' was executed. In pursuance of the said agreement, respondent No. 3, through the JVCO acquired 51 per cent, equity share in CESCO, while GRIDCO retained 39 per cent, and 10 per cent, was reserved to be held by Employees' Trust.
7. It is alleged by the appellant that AES Corporation committed a material breach of its obligation to support CESCO and though GRIDCO duly and faithfully and unconditionally furnished accommodation of Rs. 174 crores in the initial stage, AES Corporation did not provide the necessary finance required for the business of CESCO. Thus, dissensions cropped up among the parties. In spite of the agreement that the shares held by AES Corporation in CESCO could not be transferred in terms of the shareholders' agreement, respondents Nos. 1, 2 and 3 with an object of avoiding their obligation, created by the consortium under different agreements with the appellant proposed to sell away the shares held by them to third parties and wriggle out of their liability under the agreement and also the liability of paying Rs. 509.15 crores, lawfully payable to GRIDCO as on November 8, 2001, under the terms of the agreement by AES Corporation. The aforesaid dissension, according to the appellant, could not be resolved amicably and the dispute was referred to arbitration in consonance with clauses 28.3, 28.4 and 28.5 of the shareholders agreement.
8. Mr. Panigrahi, learned senior advocate appearing for the appellant, contended that as huge amounts are payable to the appellant by respondent No. 1, the AES Corporation and as the latter has no property worth-the-name in India except the shares in the company and as there was apprehension and likelihood that AES Corporation would transfer its shares under which eventuality it would not be possible for the appellant to realise/recover its dues from AES Corporation towards arrears of CESCO, the appellant filed an application under Section 9(ii) (d) and (e) of the Arbitration and Conciliation Act before the District Judge, Khurda, Bhubaneswar, praying for grant of ad interim injunction restraining the AES Corporation from selling away its shares in OPGC held through its subsidiaries, pending disposal of the arbitration case. The said petition was registered as Arbitration MJC No. 522 of 2001, before the learned District Judge, Cut-tack.
9. After receiving notice, a counter-affidavit was filed by respondent No. 1--the AES Corporation, inter alia, pleading as follows:
(1) that it does not own any share in OPGC ; and
(2) 49 per cent, in OPGC is held by distinct and independent legal entities which are unconnected with the dispute between the appellant and respondent No. 1, and as they are not impleaded as parties to the case, no order of injunction could be granted.
10. After receiving copy of the said counter-affidavit, the appellant filed an application under Order 1, Rule 10(2) of the CPC for impleading (1) OPGC, represented through its managing director; (2) AES, OPGC Limited, Mauritius represented through its chief executive ; and (3) AES India Private Limited through its chief executive as opposite parties Nos. 5, 6 and 7 respectively in the arbitration MJC. The appellant also filed another application under Order 6, Rule 17 of the CPC with a prayer to permit consequential amendments of the pleadings. The learned District Judge after going through the pleadings and hearing the parties by the impugned order came to the conclusion that as the parties sought to be impleaded as per the petition under Order 1, Rule 10 of the CPC were not parties to the agreement nor were they parties to the arbitration proceeding they could not be impleaded as parties in the arbitration MJC. The learned District Judge further observed that as the dispute between the parties centred round function of CESCO as agreed to between the parties in the share holders agreement dated August 3, 1999, and the shares held by subsidiaries of respondent No. 1, in OPGC are independent companies and are not parties to the proceeding initiated under Section 9 of the Arbitration and Conciliation Act was untenable. On the basis of such conclusions, the District Judge dismissed the petition filed under Section 9(ii) (d) and (e) of the Arbitration and Conciliation Act with the observation that the parties were bound by clause 6, i.e., the restriction of holding and transfer of shares in CESCO, of the shareholders agreement dated July 31, 1999.
11. Mr. Panigrahi strenuously argued that the District Judge has acted illegally and with material irregularity in not allowing the petition filed under Section 9 of the Arbitration and Conciliation Act. According to him, the court below has lost sight of the fact that in fact the subsidiaries of respondent No. 1, company are only name-lenders and that with an avowed oblique motive of wriggling out of the terms of the agreement the real owner has transferred its shares in favour of the parties sought to be impleaded. Mr. Panigrahi, further submitted that unless respondent No. 1 company and its subsidiaries are restrained from alienating its shares, the appellant shall suffer irreparable loss and shall be deprived of the fruits of the award in the arbitration proceeding. It is stated that the principle of lifting or piercing the veil is applicable to the present case, inasmuch as respondent No. 1, in order to frustrate any lawful action has transferred its shares in favour of other subsidiary companies which are mere name-lenders, and it is a fit case where the respondents as well as the parties sought to be impleaded as parties should be restrained from alienating any shares.
12. Mr. J. Gupta, earned Counsel appearing for respondent No. 1, AES Corporation, strongly repudiated the submission made by Mr. Panigrahi. He submitted that the arbitration proceeding is confined only to the parties to the agreement. An outsider which is not a party to the arbitration agreement or a party to the arbitration proceeding cannot be impleaded as a party in the arbitration MJC. In view of the aforesaid settled principle of law, the court below has rightly rejected the petition filed by the appellant under Order 1, Rule 10 of the CPC, seeking to implead some outsiders which are not parties to the arbitration proceeding.
13. Mr. Gupta further submitted that the District Judge has taken into consideration all the facts and circumstances of the case and has rightly rejected the petition filed under Section 9 of the Arbitration Act and as there is no illegality or irregularity in the impugned order, the same should not be interfered with by this court.
14. Though earned Counsel appearing for the parties have argued in extenso and raised several contentions, in view of the limited scope and ambit of the present miscellaneous appeal which is concerned only with regard to the interim arrangement sought to be made during pendency of the arbitration proceeding, in order to protect the interest of the parties and the subject-matter of the dispute in arbitration, I refrain from entering into the arena of controversy as the same may amount to pre-judging the issues which are sub judice in an international arbitration proceeding.
15. Section 9 of the Arbitration and Conciliation Act reads as follows:
9. Interim measures, etc. by court.--A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court
(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings ; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration ;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence ;
(d) interim injunction or the appointment of a receiver ;
(e) such other interim measure of protection as may appear to the court to be just and convenient,
and the court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
16. The said section vests power upon a court to pass necessary orders and/or interim injunction for preservation; interim custody or sale of any goods which are the subject-matter of a reference ; and/or for securing the amount in dispute in the arbitration. The power to pass orders with regard to interim measures should always be exercised by court for the purpose of safeguarding the interest of the parties to the arbitration proceeding so that the award is not frustrated.
17. The agreement entered into between the parties, a copy of which is annexure 5 to the miscellaneous appeal, stipulates under clause 2.3 as follows:
2.3. GRIDCO acknowledges that Orissa Power Corporation Limited, AES lb Valley Corporation and any other company in which AES has an interest are independent companies and GRIDCO and JVCO agree to treat such companies on an arms length basis as independent entities and in accordance with the terms of any contractual arrangements between GRIDCO and such companies.
18 Clause 6 of the agreement imposes restriction on the holding and transfer of shares and clause 6.1 reads as follows:
JVCO undertakes to GRIDCO not to sell, transfer, charge or encumber any of its shares or any interest in any such shares or agrees to do so from the date of this agreement until March 31, 2004, without the prior written consent of GRIDCO, which consent may not be unreasonably withheld from April 1, 2002, to March 31, 2004. The foregoing consent shall not be required for any pledge, charge or encumbrance placed upon the share to secure financing for CESCO.
19. A reading of clause 6 clearly reveals that the parties have undertaken not to sell, transfer, charge or encumber any of their shares or any interest in any of such shares from the date of the agreement without prior written consent of GRIDCO. Thus, there is a clear restriction.
20. The prayer made by the appellant under Section 9 of the Arbitration and Conciliation Act to restrain respondent No. 1, from alienating any of its shares was resisted by respondent No. 1, only on the ground that it is not holding any share. But then the fact remains, the shares are held by its subsidiaries. The court below has rejected the petition filed by the appellant to implead the subsidiaries of respondent No. 1, as parties to the MJC on the ground that they are not parties to the arbitration agreement or the arbitration proceeding. I do not find any illegality or irregularity in such conclusion arrived at by the court below. But then unless the lis is protected during lis pendens, it would not only cause great prejudice, but also irreparable loss to the appellant. The balance of convenience also tilts heavily in favour of the appellant. In such circumstances it is the inherent duty of the court to protect the lis so as to prevent any overt act by any of the parties. Admittedly, the dispute inter se between the parties has been referred to an international arbitration. The proceeding is pending and is likely to be completed shortly, as submitted at the Bar.
21. In the aforesaid scenario, in consonance with the provisions of Section 9 of the Arbitration and Conciliation Act and in variance with the order passed by the District Judge, I feel that ends of justice will be better served if respondent No. 1 and all others deriving right, title and interest in respect of the shares, and its agents and subsidiaries are restrained from alienating any of the shares till passing of award in the international arbitration proceeding, and I direct accordingly.
22. The miscellaneous appeal is disposed of. Parties to bear their own costs.