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2006 (6) TMI 209 - MADRAS HIGH COURTOppression and mismanagement - whether the decision of the CLB in rejecting the Company Applications in the Company Petition for referring the matter to arbitration under section 8 of Act, 1996 in the light of the subject-matter of agreement dated 19-7-2004 is correct or not? - HELD THAT:- By virtue of section 8 of the Act, 1996, it is mandatory for the judicial authority, before which an action has been brought in a matter, being the subject-matter of an arbitration agreement, to refer the parties for arbitration provided, (a) the application under this section is made any time before submitting the "first statement on the substance of the dispute" and (b) the judicial authority is satisfied that there is a valid arbitration agreement. Sub-section (3) provides that an arbitration may be commenced or continued and an arbitral award be made in spite of (a) application made under sub-section (1) and (b) pendency of the issue before the judicial authority. In the case on hand, the petitioner complained of the breach committed by the second respondent in discharging the liabilities of the Company taken over by him in terms of the agreement and in incurring an aggregate amount of Rs. 2.95 crores by it as on 31-7-2005 for and on behalf of the Company, but no relief has been claimed before the CLB in this behalf. The petitioner, in the Company Petition, on the other hand, made a claim of Rs. 31.74 crores against the second respondent spent by it in relation to operations and management of the Company and damages of Rs. 5 crores for breach of the contract which are covered under clauses 5 and 23A respectively of the agreement. These claims made by the petitioner before the Arbitral Tribunal are not urged before the CLB, in which case, the Arbitral Tribunal will adjudicate only these specific issues on which reference has been made by the petitioner. When there is an allegation of acts of oppression and mismanagement, the CLB is empowered to deal with it independently. It is also seen that the statement of claims filed by the petitioner before the Arbitral Tribunal deal rights and obligations of the parties to the agreement dated 19-7-2004 in relation to disposal of the petitioner’s (C.P. No. 50 of 2005) shareholding, controlling and management interest in the Company in favour of the second respondent. The non-performance of the obligations under the agreement in discharging the Company’s liabilities as per the schedules to the agreement on the respective due dates and the various acts done as well as undone pursuant to the agreement, are elaborately dealt in the statement of claims. The statement of claims filed by the petitioner before the Arbitration Tribunal deals with its grievances on account of non-fulfilment of the terms and conditions of the agreement by the second respondent, but the petitioner confines its reliefs only for recovery of the amounts spent for and on behalf of the Company and not for damages. In this context, the relevant recitals contained both in the statement of claims and the counterfiled before the Arbitration Tribunal have to be borne in mind. It cannot be said that the issues involved in the Arbitration Tribunal as well as the issues coming under sections 397 and 398 of the Act are two different issues and therefore, in view of the difference in nature of powers and the authority under section 8(3) of the Act, 1996, empowering the arbitrator to make an award even during the pendency of an application under section 8, there is no scope for any conflict in the decisions of the Arbitral Tribunal in respect of the proceedings referred to it. Whereas the scope of sections 397 and 398 of the Act in dealing with the above statutory obligations is distinct and the CLB has every jurisdiction to deal with it which is not coming under the purview of Clause 21 of the agreement which only indicates the dispute arising out of the agreement and relating to claims and counter claims - it would not be improper to say that the CLB has rightly rejected the Company Applications to refer the matter to the Arbitration Tribunal and accordingly, the decisions referred by the CLB in rejecting the applications are in conformity with the above legal position. Appeal dismissed.
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