TMI Blog1985 (12) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... n Kaur Gill Vanlaer, the daughter of R-2. The two sisters, Surjit and Adarsh (P-2 and R-2), migrated from India several years ago. They are said to have married two brothers in Panama, Central America, and thereafter continued to live together in the USA and India. P-1 was born to P-2 and was a foreign national. So also R-4 (the daughter of R-2) who married a Belgian and eventually settled down in Belgium was a foreign national. It appears that P-2 and R-2 went to America in 1968 for obtaining divorce from their husbands and, during the pendency of the litigation, conceived the idea of starting a business of purchasing ladies' garments from India and marketing them abroad. They were apparently successful and started carrying on business abroad in several names purchasing raw materials and garments from various parties in India. It was not long before the idea of starting an organisation in India occurred to the parties. On January 24, 1976, was formed the company, Saz International Pvt. Ltd. The authorised share capital of the company was kept at Rs. 10 lakhs, consisting of 10,000 shares of Rs. 100 each but to start with, the company had two shares of Rs. 100 each, one held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval to the allotment of 1,423 shares to P-2, 1,216 shares to R-2 and 940 shares to R-4, perhaps proportionately to the remittances received from them towards share capital. It appears that quarrels had developed between P-2 and R-2 in regard to the business in the USA. P-2 instituted a suit against R-2 in New York alleging mismanagement and misappropriation in the case of a firm called SAZ in which they were both partners. This action also had repercussions on the Indian scene. This firm was the primary outlet for the company's goods and, with the institution of this suit, the company suffered a severe set back and it is claimed by the petitioners that, after some of the events to be presently referred to, the respondent company has received absolutely no orders for purchases. Since the Indian company was under the control of P-1 as the managing director, the respondents had to do something to consolidate their position in relation to the affairs of the company. Thus, the events abroad also cast their shadow on the Indian scene. According to the petitioners, the respondents moved fast, on and from December 28, 1984, taking steps one after the other calculated to deprive the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 89 of 1985) came on for hearing before Anand J. on February 15, 1985. The learned judge did not want to deal with the case as the parties were known to him but it was represented to him that both parties were agreeable to an interim consent order. He, therefore, made an order in terms of a joint application filed before him regarding various things to be done one of the clauses of the consent order (clause 5) provided: "In case of any differences or any grievances between the parties, they shall consult Mr. P.H. Parekh and Mr. Kaura and they shall abide by the unanimous decisions taken by Mr. P. H. Parekh and Mr. Kaura". Mr. Parekh and Mr. Kaura were counsel for the petitioners and respondents respectively. A supplemental consent order was also passed by Anand J. on February 22, 1985. However, the negotiations for settlement that were going on between the parties failed and the matter was listed before Khanna, J. Subsequently, there were a number of interim applications filed in the petition, one of which was an application by the petitioners, C.A. No. 279 of 1985, filed on March 27, 1985, stating that talks of compromise had failed and praying that the orders of February 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard to the parties before the vacation. The parties, however, seek that the matter is quite urgent and this should be decided early. As such they have sought that the controversy as to the shareholding of respondent No. 1 be referred to Mr. Justice V.S. Deshpande, retired Chief Justice of this court, who should submit his report after permitting the parties to place such material before him as they may consider proper. The report be submitted by July 19, 1985. The determination of the shareholding will naturally involve the going into the holding of the meetings on December 28, 1984, January 1, 1985, and January 31, 1985. Since the petitioners are seeking amendment of the main petition with regard to the shareholding of petitioner No. 2, this aspect will also be gone into by him. He will also be entitled to go into forgeries, if any, committed in the account books or the minute books. Then, there are applications moved from the side of different workers of respondent No. 1 company. Mr. Justice Deshpande may also look into whether any amounts are available for payment to the workers and to report how much should be forthwith disbursed to them". The learned judge also refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile counter-affidavits, if any, and address arguments". At this stage, four applications were made in court being C.A's. Nos. 743 to 746 of 1985. In C.A. No. 743 of 1985 filed by the respondents, objection was taken to the order of the Commissioner dated August 7, 1985, as misconstruing the jurisdiction conferred on him by the order dated May 22, 1985, and as arrogating to himself powers and jurisdiction not conferred by the said order. The objection was that the petitioners were seeking to introduce matters extraneous to the reference by filing affidavits and documents "concerning not only the shareholders on the record of respondent No. 1 company and the alleged forgeries of minutes of the board of directors' meetings held on December 28, 1984, January 1, 1985, and January 31, 1985", but also the following, among others: ( i )the legal validity of the above Board meetings; ( ii )the authenticity and validity of the minutes of the above board meeting; ( iii )the legal validity of the share allotments made to P-2, R-2, and R-4; ( iv )the rectification of shareholders' register so as to delete the shares allotted to P-2, R-2 and R-4. It was prayed that the exact scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sections 25, 28 and 41 of the Arbitration Act. In this application, it was alleged that, under clause 5 of the consent order dated February 15, 1985, all differences between the parties were to be arbitrated upon by Mr. P.H. Parekh and Mr. Kaura, that the sole arbitrators had entered upon the arbitration and given an interim award on February 22, 1985, but that further proceedings remained incomplete due to the illness of Mr. Parekh. It was prayed that time be enlarged for the making of the award by these two persons. By CA No. 773 of 1985 filed simultaneously, it was prayed that the proceedings in CP No. 35 of 1985, including those before the commissioner should be stayed till the disposal of CA No. 774 of 1985. Notice was ordered on these applications for August 30, 1985. On August 30, 1985, all the applications were adjourned to September 9, 1985. The time limit placed for the commissioner's report earlier was removed and it was left to the commissioner to complete the hearing as soon as possible and submit his report. This was the stage of affairs when the hearings before the commissioner were taken up. On August 31, 1985, the commissioner disposed of an application fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, in the way the proceedings have gone on, the proceedings before Shri Deshpande should be allowed to continue. An allied question was whether in case the proceedings before Shri Deshpande are to continue, the respondents' application to amend their reply to the petition should be allowed and, if so, whether the controversy, as emerging from the amended pleadings, should also be referred for decision to Shri Deshpande. The other controversies can be taken up after this principal question is decided. I shall, therefore, first confine myself to C.As. Nos. 743, 746 and 869 of 1985 and shall defer the consideration of other applications, except C. As. Nos. 773 and 774 of 1985. So far as these two last applications are concerned, I am clearly of the view that they are not maintainable. The order dated February 15, 1985, does not constitute any reference of disputes between the parties to the arbitration of Shri Parekh and Shri Kaura. The order only endorsed a mutually arranged interim arrangement between the parties and clause 5 only provided that, if there were any difficulties in working out the arrangements, the parties may consult their respective lawyers and abide by their unani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanna J, dated May 22, 1985. The order starts with a reference to the undisputed position that P-1 holds 2,498 shares in the company and that the disputes between the parties arose as a result of the meetings alleged to have been held on December 28, 1984, January 1, 1985, and January 31, 1985. Though the petition admitted P-2 as the holder of 1,423 shares, the petitioners had subsequently sought amendment thereof so as to get deletion of this shareholding of P-2 in order to bring their case in consonance with the assertion that no such meeting was held. The learned judge, thus, noted that the main controversy was as to whether P-2, R-2 and R-4 were shareholders in the company. Since this would take a long time for a decision by the court and the parties were anxious that the matter should be heard early, they had sought a reference to Shri Deshpande. On the basis of this agreement, the issue, including the controversy raised by C. A. No. 551 of 1985, was sent for adjudication by Shri Deshpande. Though the order refers to a "report" by Shri Deshpande, the tenor and contents of the order and the person to whom the reference was made leave no doubt that the main controversy in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the existence of an arbitration clause which has been, or can be, invoked or, for that matter of the existence of an award, is a matter of judicial discretion. The court may well refuse to grant stay of the petition under sections 397 and 398 which the parties have sought, and the court can grant much wider and more appropriate relief. But this is not the same as saying that when a court is seized of proceedings under sections 397 and 398, its powers do not extend to the reference of some or all the points in controversy to arbitration particularly when, in the course of the proceedings, the parties agree to such a course. As pointed out by Kapur J. in the Delhi decisions cited, the scope of sections 21 and 34 of the Arbitration Act are completely different. While a court may not, and indeed will not, agree to stultify its powers under sections 397 to 403 merely because parties can have, or have had, recourse to arbitration, there is no reason why the court's very wide amplitude of powers under sections 397 to 403 should be read down to prohibit the reference by it, of some or all of the points in dispute before it, to arbitration. Its powers cannot be less in this regard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision to consider the validity of the meeting cannot justify an inference of bias or a conclusion that the arbitrator had made up his mind without hearing the parties. Nor do I see force in Mr. Saharya's objection that the contents of the arbitrator's report of September 3, 1985, prove bias on his part. He has done nothing in his report except to narrate, in the first part of it, all that has transpired before him and to discuss, in the second part, an issue that was debated before him as to the scope of his powers. The allegations in the letter written by R-2 and R-4 to the arbitrator are flimsy and tenuous and do not make out any bias or misconduct on the part of the arbitrator. That apart, it is open to either party to an arbitration, after the award is given, to ask that the award be set aside, if any bias or misconduct can be established. At this stage, I see none and I find no ground to recall the proceedings before the arbitrator or stay further proceedings before him. The application placed by the respondents before the arbitrator and sent by him to this court is, therefore, rejected and G. A. No. 869 of 1985 is allowed. Turning to C. A. No. 743 of 1985, I am unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendments of pleadings, particularly at initial stages, is very wide, but also because the petitioners themselves have sought an amendment of the petition seeking to withdraw an admission regarding an allotment made to P-1 on December 28, 1984, and this aspect has been referred to Shri Deshpande by Khanna J. I am inclined to accept the contention of Sri Saharya. It is true that there is a slight difference between the amendment sought by the petitioners and that sought by the respondents. In the original petition, the petitioners had challenged in clear terms the genuineness and validity of the meetings said to have been held on December 28, 1984, but, overlooking that P-2 had been allotted shares only at that meeting, had admitted that she was a shareholder of the company. This, they explained, was due to an oversight and ignorance as to what had happened, and they sought to amend the petition in this regard. On the other hand, the respondents are now seeking to attack an allotment made to the petitioner in 1978 which is not in issue in the petition and I am also inclined to agree with Sri Bhargava that the reason given for not taking up this plea, particularly when R-3 (who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed will not, therefore, form part of the reference. It could be included therein only by consent of both parties, failing which it can only be decided upon by this court. In fact, during the hearing of these applications, I suggested that both parties may agree to Shri Deshpande as an arbitrator on all issues including this one. Counsel for the respondents was agreeable to this course but counsel for the petitioners sought a decision in CA. No. 746 of 1985. I have, therefore, given my decision on this application. However, in the circumstances, I direct that when the proceedings are resumed before Shri Deshpande, the petitioners and the respondents should be asked to state in writing, within a time to be specified by him, whether they agree to his deciding this issue about the allotment of shares to P-1 and the calls made thereon in 1978 and 1979 or not. If they agree, he may proceed to decide this question also. If not, he may leave this issue undecided and it will be gone into by this court when the petition is heard after the arbitrator files his award in due course. I, however, hope that both parties will agree to this course as it will result in adjudication of all dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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