TMI Blog2016 (4) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of allegations concerning mismanagement and oppression of the petitioner as already set out in this judgment. A perusal of the various sub paras of para xxiii would reveal prima facie wholesome violation of various Articles of the Articles of Association’. In such a situation Hon’ble Bombay High Court in the case of Rakesh Malhotra (2014 (8) TMI 1050 - BOMBAY HIGH COURT) following the view taken by Hon’ble Supreme Court in Sukanya Holdings (P) Ltd.’s (2003 (4) TMI 435 - SUPREME COURT OF INDIA ) has held that bifurcation of a cause of action is impermissible. Therefore in cases filed u/s 397 and 398 of the Companies Act seeking some of the reliefs which invite a judgment in rem and some other which invite judgment in personam would not permit severe one cause of action from the other and disassemble such a petition. Therefore aforesaid arguments fails and is rejected. As a sequel to above discussion application filed u/s 8 of the Arbitration and Conciliation Act 1996 is dismissed. The respondent may file reply to the main petition within a period of four weeks and rejoinder if any be filed within two weeks thereafter. - CPNO.96(ND)2014 - - - Dated:- 18-3-2016 - M.M.KUMAR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be approved at AGM dated 2-9-2013. The Petitioner also sought direction for declaring that the transfer of share from Respondents No. 2 4 to Respondent No. 6 is null and void ab initio because it is against the Articles of Association of Respondent No. 1-company. 4. The prayers have teen made in the background facts stated in various paras of the petition asserting that non applicant-petitioner made an investment of ₹ 40,00,00,000/- Rs forty crores by subscribing to the equity shares and compulsory convertible preference share of the Respondent No. 1 company in accordance with the SSSA dated 18.08.2010 (Annexure P-3). The petitioner has subscribed to 6,25,000 fully paid-up equity shares of ₹ 10/- each of the Respondent No.1 company for cash at a premium of ₹ 310/- per equity shares for an aggregate consideration of ₹ 20,00,00,000/-. Thus the petitioner has invested a sum of ₹ 40,00,00,000/-. The preference shares were thus convertible at the option of the non applicant-petitioner any time after December 31.12.2012. If he did not exercise option then the preference shares were further compulsorily convertible on the 5th Anniversary of the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to the non applicant- petitioner. It has also been alleged that AGM approving the accounts in respect of financial year 2012-2013 was to be called. However, no notice of any such meeting was given to the non applicant-petitioner. There are further allegations that the Respondent No.1-company fails to convene the meeting of the Board of Directors for the quarter ending June 2013 in accordance with the provisions of the Articles of Association of respondent No. l-company despite notice and reminders. Eventually the legal notice was issued on May 7, 2014 which enlisted the breach of the terms of the SSSA committed by the Respondent No.1 company. The non applicant-petitioner terminated the SSSA in accordance with the terms of the Clause 15.3 thereof. Accordingly it further exercised the option contemplated under clause 16.1 of the SSSA and sent a request to the respondent to purchase all its equity shares and preference shares of Respondent No.1-company. Likewise rights in accordance with clause 12.3 and 12.6 of the SSSA and Articles 86 88 of Articles of Association of the company were exercised. On July 10, 2014 a notice was sent by the non applicant-petitioner for ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length and have perused the paper book with their able assistance. Learned counsel for the applicant-respondents has vehemently argued that: - (a) The company petition is nothing else but a ruse to enforce the contractual obligations emerging from the SSSA . The non applicant-petitioner are not entrepreneur and are rank investors. In fact the non applicant-petitioner wants their investment back. In that regard a reference has been to the order dated 9.9.2011 where the petitioner has expressed his desire to leave the company after receiving an amount of ₹ 100 Crores. Learned counsel has further argued that clause 19 of the SSSA concerning arbitration has already been invoked by the non applicant-petitioner and the proceedings are in progress before the learned Arbitrator Former Chief Justice of India Hon ble Dr. A. S. Anand. It has further been argued that on the ground that there is a breach of SSSA dated 18.8.2010 and violation of the provisions of Companies Act a notice was issued on 7.5.2010 (Annexure P-20) terminating the SSSA. Fundamentally it is a breach of agreement and claim of damages. There is no issue of mismanagement and oppression. Accordingly the matter n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent in collusion with each other has transferred equity shares among themselves in contravention of the provisions of Articles of Association of Respondent No. 1-company. Moreover no notice for approving the financial statement for the year 2012-2013 was issued to the petitioner who holds 25.15% shareholding in the respondent No. l-company. A number of similar averments have been given in para IIB of the primary submissions. It has been maintained that there are false allegations of a dressed up petition to enforce SSSA which falls within the domain of the Arbitrator in accordance with the provision of arbitration clause 19 of the SSSA . Conclusion: 11. Having heard the learned counsel for the parties and after perusing the record it would be first necessary to find out the law concerning the issue raised before me. A short question of law which emerges for determination in this application filed under section 8 of the Arbitration Act is: Whether the dispute raised in a properly filed petition under sections 397, 398, 402 and 403 of the Companies Act can be referred to arbitration in accordance with the agreement between the parties . 12. The proposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Company Law Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Company Law Board may, with view to bringing to an end or preventing the matters complained or apprehended, make such order as it thinks fit. 402. Powers of Company Law Board on application under section 397 or 398. Without prejudice to the generality of the powers of the Company Law Board under section 397 or 398, any order under either section may provide for- (a) the regulation of the conduct of the company s affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table in the circumstances of that case. It has also wide power to issue interim order. It is thus evident that the nature of powers enjoyed by the Company Law Board is alien to the powers of an Arbitrator. 14. Their lordship of the Hon ble Supreme Court has held in categorical terms in the case of Cosmosteels Private Ltd. v Jairam Das Gupta Ors [1978] 48 Comp Case 312 that the scheme of s. 397, 398 402 constitute a complete code in itself which is aimed at granting relief to a complainant who is victim of mismanagement or oppression including minority shareholders. It has further been held by Hon ble Supreme Court in the case of Haryana Telecom Ltd. (Supra) that the relief of winding up would not be covered by s. 8 of Arbitration Act and an Arbitrator appointed by the consent of the parties for that purpose would not be competent to do so. Some pertinent observations made by Hon ble Supreme Court reads as under:- 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 windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded in the following para which reads thus:- 61. As already noted above, the relief that has been sought by Group B cannot be granted by an Arbitrator and is available only under the provisions of Sections 397 and 398 read with Sections 402 and 403 from the Company Law Board, Moreover the statutory jurisdiction of the Company Law Board and the right of appeal against its orders cannot be ousted even by consent of parties. In this view of the matter, Mr. Aggarwal s argument based on the analogy of the Specific Relief Act and the Partnership Act and the judgments relied upon by him can have absolutely no applicability . 16. An elaborate and comprehensive analysis of the aforesaid provisions has been made by Bombay High Court in the case of Rakesh Malhotra (Supra). Banking on the view taken by Hon ble Supreme Court in case of Booz-Allen Hamilton Inc v SBI Home Finance Ltd. [2011] 5 SCC 532, the question examined by the learned single judge of Bombay High Court is whether the disputes are capable of settlement by arbitration or by their nature fall within the domain of a public fora. A distinction has thus been drawn opining that an arbitrator is a private person to sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly .on the property itself. (Vide Black s Law Dictionary.) 38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid, or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable. 39. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t large. An Arbitrator would not enjoy any jurisdiction to bind anyone else by a decision on whether a patent is valid, for no one else has mandated him to make such a decision. 19. The Bombay High Court also placed reliance on its earlier judgment rendered in the case of Bennet Coleman and Co. v. Union of India and Ors. (1977) 47 Comp Cas 92. With regard to the jurisdiction of the Company Law Board for issuing various orders u/s 402 it has been held that u/s 402 the powers of the Company Law Board are wide enough to resort to non-corporate management and to supplant corporate management in a whole or in part. The Company Law Board is clothed with the powers for the regulation of the company s future affairs keeping in view the previous oppression and mismanagement. The Hon ble Supreme Court has concluded that no purpose would be served by making reference to Arbitrator because it was difficult to see that a narrowly tailored arbitral proceedings would be sufficient in face of Company Law Board plenary and expansive powers which are Sufficient to redress and grant the far-reaching reliefs u/s. 397 and 398. 20. The other proposition of law culled out from the judgment of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply to be filed by respondents. A number of such allegations concerning oppression and mismanagement have been culled out in paras 5, 6 and 7 of this judgment and with a view to avoid repetition the same are not being restated here. However it is suffice to say that serious allegations have been levelled with regard to transfer of share belonging to Respondent No. 2 and 4 to Respondent No. 6 and those of Respondents No. 3 5 to Respondent No. 7. Prime facie such transfers as per allegations violate Article 74 and the provisions of Companies Act, 2013. Even the principle laid down in the judgment of Hon ble Supreme Court in the case of Dale Carrington v P.K. Prathapan (2005) 1 SCC 2012. Obviously all these matters would be alien to the area of jurisdiction of the arbitrator and have to be adjudicated by this Board. 24. There are pre-emptive rights of the Petitioner for receipt of share before transferring it to any outsider by virtue of provisions made in Article 22 of the Articles of Association and the procedure laid down in Articles 23 to 35. The Annual General Meeting as per averments appears to be held on 2.9.2013 in violation of Article 53 of the Articles of Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. 3. Consolidated quarterly financial statement within 45 (forty five) days of expiry of each quarter of financial year certified by the managing director/director of the company. 4. An annual budget for the next year, within 30 (thirty) days prior to the end of each financial year, 5. Any additional information as reasonable requested by the petitioner. Therefore in accordance with the aforementioned article 86, since March 2013, the respondents were supposed to provide the following to the petitioner:- 1. An audit annual financial statement at the end of the financial year 2012-13 and March 2014 2. Consolidated semi-annual financial statements for the period ending September 2013 and March 2014 3. Quarterly consolidated financial statements for the period ending March 2013, June 2013, September 2013, December 2013, March 2014 and June 2014. 4. Annual budget by March 1, 2013 for the financial year 2013-14 and by March 1, 2014 for the financial year 2014-15. 26. Even inspection of the books, records and other documents of Respondent No.1-company has been denied resulting in violation of Article 79. The non applicant-petitioner has filed various ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
