9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2006 (6) TMI 209 - HC - Companies LawOppression 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.
Issues Involved:
1. Maintainability of the Company Petition. 2. Applicability of the arbitration clause. 3. Allegations of oppression and mismanagement. 4. Jurisdiction of the Company Law Board (CLB) versus the Arbitration Tribunal. Issue-wise Detailed Analysis: 1. Maintainability of the Company Petition: The appellants argued that the Company Petition filed by the respondent was not maintainable and should be dismissed in limine because the grievances were covered by an agreement containing an arbitration clause. They contended that the petition was vexatious and amounted to forum shopping. However, the CLB found that the allegations of oppression and mismanagement were independent of the agreement and could be adjudicated without reference to its terms. The High Court upheld this view, stating that the reliefs sought in the Company Petition under Sections 397 and 398 of the Companies Act, 1956, could not be granted by an arbitrator and were within the statutory jurisdiction of the CLB. 2. Applicability of the Arbitration Clause: The appellants contended that the disputes should be referred to arbitration as per the agreement dated 19-7-2004, which contained an arbitration clause. The CLB, however, held that the grievances in the Company Petition did not emanate from the agreement and were not covered by the arbitration clause. The High Court agreed, noting that the statutory obligations and acts of oppression and mismanagement alleged by the petitioner were not directly related to the agreement. The court referenced the Supreme Court's decision in Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandey, which stated that the entire subject matter of the suit should be within the arbitration agreement for Section 8 of the Arbitration and Conciliation Act, 1996, to apply. 3. Allegations of Oppression and Mismanagement: The petitioner alleged various acts of oppression and mismanagement, including the failure to maintain the minimum statutory number of members, illegal pledging of assets, siphoning of funds, unauthorized increase in share capital, and statutory violations. The CLB found these allegations to be valid and independent of the agreement. The High Court supported this finding, emphasizing that the reliefs sought under Sections 397 and 398, read with Sections 402 and 403 of the Companies Act, 1956, were beyond the scope of the arbitration agreement and could only be adjudicated by the CLB. 4. Jurisdiction of the CLB versus the Arbitration Tribunal: The appellants argued that the CLB, being a judicial authority, was bound to refer the matter to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The CLB, however, held that its jurisdiction to deal with issues of oppression and mismanagement under the Companies Act could not be ousted by an arbitration agreement. The High Court concurred, stating that the statutory jurisdiction of the CLB was distinct and could not be overridden by an arbitration clause. The court noted that the Arbitration Tribunal could only adjudicate disputes arising directly from the agreement, while the CLB had the authority to address broader statutory issues. Conclusion: The High Court dismissed the appeal, affirming the CLB's decision to reject the applications for referring the matter to arbitration. The court directed the CLB to expeditiously dispose of the Company Petition in accordance with the law. The judgment emphasized the distinct jurisdictions of the CLB and the Arbitration Tribunal, highlighting that statutory obligations and issues of oppression and mismanagement under the Companies Act could not be arbitrated.
|
