TMI Blog2012 (5) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... arious rights on the parties including specific representation on the board of directors of respondent No. 4, right of first refusal, rights relating to further issue of shares, affirmative votes in relation to certain specific matters etc. It is submitted that respondents Nos. 1 and 2 reneged on their various obligations under the joint venture agreement. Pursuant thereto, the applicant was constrained to terminate the joint venture agreement vide its letter dated January 13, 2011. Consequent to the termination of the joint venture agreement, the special rights conferred on respondents Nos. 1 and 2 also came to an end. Therefore, a meeting of the board of directors of respondent No. 4 was convened on February 22, 2011, inter alia, to consider and discuss convening of an extraordinary general meeting to consider adoption of Table A of Schedule I of the Companies Act, 1956 as the new articles of association of respondent No. 4 and further to consider and discuss the reconstitution of the board of directors of respondent No. 4 by removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4. It is submitted that on February 24, 2011, an extraordinary general mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er clause 20 of the joint venture agreement. It is submitted that the total number of members of respondent No. 4 is 26 members. Respondents Nos. 1 and 2 constitute 2 in number out of total 26 members, in view thereof they do not meet the eligibility criteria as specified under section 399 of the Companies Act for filing the petition under sections 397 and 398. Hence, the petition is liable to be dismissed on this ground alone. The applicant states and submits that they have not filed their first statement in relation to the said petition before filing the present application. Learned counsel in support of his contention relied upon a decision of the Principal Bench reported in Naveen Kedia v. Chennai Power Generation Ltd. [1999] 95 Comp Cas 640. The Company Law Board is of the view that (page 652): However, after coming into force of the Arbitration and Conciliation Act, 1996, the legal position has changed, more particularly with reference to foreign arbitration. Now it is mandatory, by virtue of section 45 of this Act, that a judicial body will have to refer the parties to arbitration once it is seized of an action in respect of which the parties have made an agreement for arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia on the following reasons: (a) A scope of a company petition filed under sections 397 and 398 of the Companies Act, 1956 is distinct from the scope of an arbitration clause. Reliefs claimed in the present company petition cannot be granted by an arbitrator and can be granted by this hon'ble Board alone by virtue of sections 397, 398, 402 and 403 of the Companies Act, 1956. (b) A prima facie case of oppression and mismanagement has been made out by the petitioners against the respondents. The illegal acts of the applicant in terms of the petitioners and TBIL as stated in the company petition include illegally amending the articles of association and memorandum of association of TBIL, violating the articles of association and memorandum of association, illegally removing the directors representing the petitioners, illegally attempting to shift the registered office of the company, giving short and illegal notices to the board members represented by the petitioners and illegally proposing to transfer the shares of TBIL. The aforesaid acts amount to oppression and mismanagement and therefore, this hon'ble Board alone has the jurisdiction to deal with the same especi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the contract and the terms of the joint venture agreement on the false grounds that the shareholding of respondents Nos. 1 and 2 had fallen below 10 per cent. The respondents have communicated to the applicant and the other respondents stating that the purported unilateral terminal of the joint venture agreement was illegal and in violation of the terms of the joint venture agreement. The respondents illegally amended the articles of respondent No. 4 company which is further act of oppression of the minority share holder and also removal of directors representing respondents Nos. 1, 2 and 3 herein by passing invalid resolutions is illegal. Under article 19.6.2 of the joint venture agreement it has been expressly provided that the right of 1st refusal provided in the joint venture agreement even survives the termination of the agreement. It is submitted that the extraordinary general meeting dated February 24, 2011 was illegally held with a short notice of a single day and for discussion of agendas which were in gross oppression of the rights of the minority shareholders of respondent No. 4 as more particularly stated in the company petition. It is settled law that the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on agreement and it can be examined without reference to any of these agreements the question of relegating the parties to arbitration does not arise and accordingly, the application... is dismissed. (iii) In the matter of Dr. G.L. Purohit v. Dr. S.S. Agarwal [2011] 163 Comp Cas 205 (CLB). It is of the view that (page 231): Commonality of the subject-matter is a pre-requisite to invoke/apply section 8. It is noted that the subject-matter of the company petition is not the same as that of the memorandum of understanding between respondent No. 2 and petitioner No. 1 ...The arbitrator cannot grant relief of the nature specified in section 402 or 403 of the Act. (iv) In the matter of Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd. [2008] 142 Comp Cas 114: AIR 2008 SC 1594 paragraph 11. (v) In the matter of Sukanya Holdings P. Ltd. v. Jayesh H. Pandya, AIR 2003 SC 2252 paragraph 15. It is held (page 2255): The relevant language used in section 8 is-'in a matter which is the subject-matter of an arbitration agreement'. Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated by the company in the period after the said date of termination. The present application has been filed by respondent No. 5 (applicant herein) seeking direction from this Bench to refer the matter to arbitration as per clause 20 of the joint venture agreement and sought dismissal of the company petition with costs. The applicant contended that the whole petition is based on the allegation of breach of contract, i.e., joint venture agreement and all the reliefs that are sought are the subject-matter of the joint venture agreement. The applicant has made out their case and clearly stated in this application that the petition is not maintainable in view of the reason that the facts and reliefs are the subject-matter of the joint venture agreement. The relevant paras of application (C.A. No. 123 of 2011) are extracted hereunder for better appreciation: Paragraph 9: The applicant states and submit that from the above factual position it is clear that the adoption of new articles of association and removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4, are a direct outcome of the termination of the joint venture agreement by the applicant. Any dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel). 20. 1.5 When any dispute is under arbitration, except for the matters under dispute, the parties shall continue to exercise their remaining respective rights and fulfil their remaining respective obligations under this agreement. Paragraph 11: The applicant repeats and reiterates that for the grant of any of the reliefs as prayed for by respondents Nos. 1 to 3 in the said petition, the issue of the validity of the termination of the joint venture agreement has to be decided in accordance with the provisions of clause 20 of the joint venture agreement. In light thereof, the applicant states and submits that this hon'ble Board does not have the jurisdiction to entertain the said petition and to grant any of the reliefs as prayed for by applicants Nos. 1 to 3. The applicant therefore states and submits that this hon'ble Board ought to refer the parties to arbitration as specified and agreed to by the parties under clause 20 of the joint venture agreement. 6. The respondents in their reply contended that the applicant has not filed any application seeking deletion of petitioner No. 3, therefore they are necessary parties. It is further contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n action has been brought in respect of a matter is brought which is a subject-matter of arbitration agreement is under a duty to refer such a dispute to the mechanism agreed upon by the parties, and hence, the spirit of the provision as well as its true meaning has to be given due effect wherever the issue of reference under section 8 of the Act is being brought up. One of the objections of the respondents/petitioner is that the parties to the company petition and the parties to the joint venture agreement are not the same and hence the matter should not be referred to arbitration. A perusal of the cause title and the array of parties, it is seen that there are three petitioners. Out of three petitioners, petitioners Nos. 1 and 2 are only the shareholders and petitioner No. 3 is only a director of the respondent-company and not a shareholder. Per se, the company petition is filed under section 397/398 of the Companies Act and a person who is holding a directorship cannot seek any remedy by virtue of said provisions. Hence petitioner No. 3 being not a shareholder cannot be considered as a necessary party in view of the mandatory provisions of law. This leaves the position to petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement, and the articles of association of the company all of which contained a clause of arbitration. In these circumstances, the claim of the respondents that the subject-matter cannot be referred to arbitration is completely against the provisions of section 8 of the Arbitration and Conciliation Act. A strict interpretation of section 8 of the Act indicates that when the subject-matter before the judicial authority is the same as covered in arbitration agreement such judicial authority would be bound to refer to the parties to arbitration as held in Naveen Kedia v. Chennai Power Generation Ltd. (1999) 95 Comp Cas 640 and I fully agree with the said proposition. Section 8 of the Arbitration and Conciliation Act provides that a judicial authority before which an action is brought in a matter which is a subject-matter of arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. In the present case, the application being C.A. No. 123 of 2011 was filed in August, 2011 prior to submitting its first statement to the petition. Thus, in view of foregoing reasons, the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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