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TMI Blog2006 (6) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... KSL has already instituted the arbitration proceedings to resolve certain disputes, which are inter-connected with the acts complained of in the Company Petition. The CLB, upon hearing the arguments of both sides, has rejected the prayer of the applicants to refer the parties to arbitration in terms of section 8 of the Act, 1996 and dismissed the C.A. Nos. 154, 155 and 160 of 2005. Aggrieved by this order of the CLB, the present appeal. 2. For the purpose of easy comprehension, the parties are referred to as per their ranking in the Company Petition. 3. According to the petitioner in the Company Petition, the facts in nutshell, which led to the petition are that the first respondent Company incorporated in May 1994 as a 100 per cent subsidiary of the petitioner for the sole purpose of establishing, maintaining and conducting a Golf course-cum-beach resort could not achieve its main object and therefore, the petitioner entered into an agreement with the second respondent on 19-7-2004, regarding the taking over of the Company. Accordingly, the second respondent acquired 90 per cent shareholding, controlling and management interest in the Company for a lump sum consideration of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther offices to inspect the records and books of the Company, to authenticate the Minutes Book of the Board of Directors, the Minutes Book of the General Meetings, Share Register and other statutory records situated or which ought to be situated at the Registered Office of the Company. 5. The appellants who were the applicants in C.A. Nos. 154,155 and 160 of 2005 contended before the CLB and according to them, the Company Petition is not maintainable and it has to be dismissed in limine and in view of the acts complained of in the Company Petition are covered by the agreement, which contains arbitration clause, the parties must be referred to arbitration, without adjudicating the disputes by the CLB. It is their case that the petitioner in the Company Petition, pursuant to the agreement, transferred 90 per cent of its shares in the Company on receipt of Rs. 2.43 crores in favour of the second respondent (KCP) and the petitioner has to sell the remaining 10 per cent of its holding in the Company to the second respondent or his nominees and it cannot have any grievance in the affairs of the Company. The underlying object of the agreement is that the petitioner would cease to hold an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in law and the respondent herein is guilty of forum shopping and hence, the CLB ought to have rejected the Company Petition in limine, (c) the petition has been filed on the basis of an agreement dated 9-7-2004 which contains an arbitration clause whereby parties had agreed to refer all and any disputes arising out of the agreement to arbitration, (d) the relief sought for in the Company Petition in the case of oppression and mismanagement without any substantial issue involved in the petition is contrary to the provision contemplated under section 8 of the Act, 1996 as the issues involved are disputes which have to be referred to arbitration, (e) the CLB has failed to appreciate the fact that by virtue of the said Arbitration Agreement between the parties, the matters complained of ought to have been referred to the Arbitration Tribunal which had been constituted and it was a fact that the CLB was duly informed about the stage of the arbitration proceedings. Section 8 of the Act, 1996 requires any judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement to refer the parties to arbitration and the only requirement in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples laid down in the case of R. Balakrishnan v. Vijay Dairy & Farm Products (P.) Ltd. [2005] 59 SCL 667 (CLB - Chennai), (m) the CLB has committed a manifest error in judgment by stating that where allegations of oppression and mismanagement set out in the Company Petition can be adjudicated without reference to the terms of the agreement, the question of referring the parties to arbitration does not arise even if the agreement covers the same issue before the CLB, (n) the CLB has stated that the claims made by the Arbitration Tribunal are not urged before it and therefore, the Arbitration Tribunal will adjudicate only those issues on which reference has been made by the petitioner. Assuming that the issues before the CLB are not canvassed before the Arbitration Tribunal, the Tribunal will take up only those matters which have been specifically referred to it and it must be remembered that under section 8 of the Act, 1996, what the judicial authority is supposed to do is to refer the parties to arbitration, even if at a time when arbitration has not been commenced by the parties, (o) if the parties were allowed to go on agitating matters arising out of one single agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he language of section 8 of the Act, 1996 is quite unambiguous and peremptory in nature. In case where there is an arbitration clause in the agreement between the parties, it is obligatory on the part of the Court to refer the parties to arbitration. 11. The learned counsel for the appellants has placed further reliance on: (a) the decision of the Company Law Board in the case of Pinaki Das Gupta v. Maadhyam (P.) Ltd. [2003] 114 Comp. Cas. 346 2 wherein it was held that the matters covered in a proceeding under sections 397 and 398 are not outside the purview of the provisions of section 8 of the Act, 1996, if the requirements of the section are satisfied. (b) the decision of the Company Law Board in the case of Airtouch International (Mauritius) Ltd. v. R.P.G. Cellular Investments and Holdings (P.) Ltd. [2004] 121 Comp. Cas. 643 wherein it was held that when a party is able to establish that there does exist a bona fide dispute that has arisen from an existing arbitration agreement and that the Arbitration Tribunal can settle it by appropriate reliefs, the Company Law Board and any other judicial authority will have to refer the parties to arbitration. 12. Per contra, Mr. Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegalities committed by the Company, (e) the authorised share capital of the Company has been increased from Rs. 27 crores to Rs. 53 crores and the allotment of shares of Rs. 25 crores has been made in October 2004, without meeting the requirements of the Act and notice to the petitioner, (f) the second respondent and his nominees failed to discharge the liabilities, forming part of the consideration for the transfer of shares, in terms of the agreement dated 19-7-2004 and the petitioner was constrained to make various payments as on 31-7-2005 on behalf of the Company, an aggregate sum of Rs. 2.96 crores, (g) the Directors have disregarded several statutory provisions of the Act regarding convening of meetings, maintenance of books of account, allotment of shares and appointment of directors and the statutory records of the Company are not available at the Registered Office of the Company, as confirmed by the Commissioner appointed by the Bench, and (h) the affairs of the Company are being conducted with an intention to defraud its creditors, members or any other persons. 13. In respect of his contention, the learned Senior Counsel for the respondent has relied on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore it and the following decisions of the Supreme Court: (a) Airtouch International (Mauritius) Ltd.'s case (supra) (b) Canara Bank v. Scanomax India Ltd. [2000] 99 Comp. Cas. 285 (Punj. & Har.) (c) Pinaki Das Gupta's case (supra) (d) R. Balakrishnan's case ( supra) 18. Further, the CLB has gone through the relevant terms of the agreement dated 19-7-2004 containing arbitration clause as under:- (a) The issued, subscribed and paid-up capital of the Company of Rs. 3 crores as at 19-7-2004 consisting of 30,00,000 equity shares of Rs. 10 each shall be increased to Rs. 27 crores consisting of 2,70,00,000 equity shares of Rs. 10 each. Accordingly, the authorised capital of the Company shall be increased, on receipt of the requisite fee from the second respondent payable to the Registrar of Companies for the increase of such authorized capital (Clause 1) (b) The Company shall allot 2,40,00,000 equity shares of Rs. 10 each fully paid at par to the petitioner against book debts due by the Company to the petitioner (Clause 2) (c) The petitioner shall sell in favour of the second respondent and or his nominees 90 per cent of the total paid-up share capital of the Company, viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent to discharge his obligations under the agreement (Clause 23A). 19. The CLB has further gone through the agreement dated 19-7-2004 and as given due consideration to the terms and conditions for disposing of the petitioner's shareholding, controlling and management interest in the Company in favour of the second respondent. The CLB has also observed that the agreement envisages the rights and obligations of the parties in relation to the taking over of the business, assets and liabilities of the Company. It is found by the CLB that the grievances complained of in the Company Petition in relation to (a) failure of the second respondent to maintain the minimum statutory number of seven members in the Company, (b) pledge of the properties and assets of the Company in violation of the Foreign Exchange and Management Act, (c) promotion of a group of Companies for siphoning of the Company's funds, (d) increase of authorised share capital from Rs. 27 crores to Rs. 53 crores, (e) further allotment of shares of Rs. 25 crores without meeting the requirements of the Act, (f) loss of substratum of the Company on account of the attachment by the Income-tax Department, of the bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Sub-section (1) of section 8 provides that the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the Company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a Company is contained under the Companies Act and is conferred on the Court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a Company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the Company. That could obviously not be referred to arbitration and, therefore, the High Court, in our opinion, was right in rejecting the application." (p. 689) 23. In the case on hand, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, are elaborately dealt in the statement of claims. 24. In the light of the above discussion, it is seen that 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. In this connection, it is worth mentioning the allegations forming part of paragraph 5.2 of the statement of claims that the first claimant had preferred C.P. No. 50 of 2005 before the Company Law Board, Chennai for certain statutory reliefs different from those prayed for in the above claim. The respondents further reported in response to the allegations made in the statement of claims about the appointment of Commissioner by the CLB in the Company Petition for authentication of the Company's statutory records that "the proceedings before the Company Law Board are not relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requirements of the Act, loss of substratum of the Company on account of the attachment, by the Income- tax Department of the bank accounts/deposits amounting to Rs. 25 crores parked illegally by the second respondent and several statutory violations committed by the respondent group, are neither directly covered by nor emanated from the agreement dated 19-7-2004. 27. Therefore, in the light of the statutory obligations, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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