TMI Blog2016 (7) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... d any merit in lite contention of the petitioners. This Bench having opined that there is no oppression to invoke jurisdiction u/s 397/398, and this Bench being of the opinion that if at all the petitioners are aggrieved of breach or violation of the terms of the agreement, the petitioners have go before arbitration. - CA 128/C-II/2014 in CP 64 (ND) 2014 - - - Dated:- 23-2-2016 - B.S.V. PRAKASH KUMAR, J. For The Petitioner : Mr. Rajeev Virmani, Senior Advocate, Mr. Ananya Kumar and Ms. Pragya Chauhan, Advocates. For The Respondent : Mr. Arun Kathpalia, Mr. Samaksh Goyal, Mr. Gaurav Duggal, Mr. Samaksh Goyal, Advocates, Ms. Ritu Bhalla, Ms. Misha and Mr. Yajur Mittal, Advocates R1 filed this CA u/s 45 of Arbitration Conciliation Act, 1996 for referring the dispute raised in the Company Petition to Arbitration in terms of clause 23 of the Subscription and Shareholding Agreement (SSHA) dated 28-8-2010 as well as subsequent amendments to the same dated 4.7.2011, 28.09.2011 and the Memorandum of Agreement dated 18.05.2012 seeking dismissal of this CP as not maintainable for want of jurisdiction and refer the disputes to Arbitration in accordance with the Rules of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 on short notice as against the mandate of 14 days notice. In the Board Meeting dated 13.03.2014, the valuation report given by M/s. Sanjeev Sapra was unquestionably accepted by the members of Board on 13.03.2014, on the same day a resolution was passed approving the rights issue contrary to Article 77.5.3, the petitioners further say that they later came to know that shares were allotted to R2 on 20.05.2014 pursuant to the rights issue dated 13.03.2014. The petitioners submit that there was no board approval for future funding, the report of M/s Sanjeev Sapra was not authorised by the board to conduct such valuation, and he was not an investment banker to determine fair market value of the company in as much as that it did not satisfy the qualification criteria set out in Article 49.1.103 r/w Article 54.34 of AOA and M/s. Sanjeev Sapra did not follow the parameters/methodology set out in Article 95.2 r.w Article 49.1.79 of the AOA. The petitioners submit that when they got this company valued by American Appraisal India Pvt. Ltd. as on 26th December, 2014 share value as on 31.01.2014 has come around ₹ 230 which is far higher than the value of ₹ 53.22 assessed by M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in the Article of Association adding that in the event of any conflict between any of the provisions of SSHA and Memorandum of Article of Association, SSHA shall prevail over Articles of Association. In view of the same, R1 company prays this Bench for having the petitioners raised contractual disputes before Company Law Board u/s 397/398, this CP shall be dismissed as not maintainable for want of jurisdiction and direct the disputes to be referred to Arbitration in accordance with Rules of SIAC. 7. The petitioners filed reply to the application stating that this application is not maintainable and the parties to the present petition cannot be referred to arbitration for the reasons stated below: 8. This SSHA has been executed between the petitioners and R1 to R3 only. Respondents 4 to 8 and Performa respondents 9 to 13 are admittedly not parties to SSHA. For all the respondents in this CP not being parties to SSHA, the arbitration clause in that agreement is not binding upon Respondents 4 to 13; hence this case cannot be referred to arbitration. Though Arbitration Clause is covered in the SSHA. for the company not being referred in the dispute resolution procedure conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The undisputed facts of the case are that the petitioners are promoters and R2 is an investor joined into the company through a shareholders agreement (SSHA) dated 28.08.2010 by investing around ₹ 100 crores. The understanding in between these two groups to work jointly is the shareholders agreement entered between them. The understanding in between the petitioners and R1-3 did not remain there, they have further entered into amendments on 04.07.2011, 28.9.2011 and Memorandum of Agreement on 18.5.2012, and it was incorporated in Clause 50 of Articles of Association saying in the event of conflict in between the clauses of SSHA and Articles of Association, the clauses of SSHA shall prevail over AoA. If we see the series of agreements entered between the petitioners and respondents 1-3, it is clear that the functioning of the company has gone into the fold of terms and conditions agreed between the parties, rather by the articles of association. Whenever any third party comes into the company with huge investment crossing 50% stake in the company, they usually take the management into their hands, so is the case here. Initially it is an agreement that R2 could invest up t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 397, 398. It has to be shown that the conduct of the persons in the management is either prejudicial to the interest of the company or interest of the members of the company. Unless the conduct of the management amounts to oppression or mismanagement, the jurisdiction under section 397/398 cannot be invoked. Here in the present case, if the allegations of the petitioners, such as holding meetings on short notice, valuation of the company is not on fair market value and not in accordance with provisions of law, are closely looked into, I don't believe any of the actions of the respondents fall within the jurisdiction of 397/398, if any pleading is there saying the conduct of the Respondent amounts to oppression or mismanagement, it is a statement dressed up to mould it as a petition u/s 394 398. 12. As to holding meetings on short notice, it is not said any here how holding meetings on short notice has become oppression against the petitioners or mismanagement of the company. As I already said that mere violation of Articles of Association or provision of law cannot become oppression unless laced with malfeasance. It is known to the petitioners that compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as come in. To make an attempt that the valuation given by M/s Sanjeev Sapra is incorrect, the petitioners procured another valuation report purported to have been given by one American Appraisal India Pvt. Ltd, to show that the value of each share at ₹ 230 as on 31st March 2014. If at all R2 made an effort solely to dilute the shareholding of the petitioners, R2 would have not offered shares to the petitioners but that has not been done. For there being no allegation that petitioners are kept in dark over the affairs of the company, the allegations of violation of Articles of Association such as holding meetings with short notice, valuation of shares not in compliance with Articles of Association, even if assumed as correct, they are not good enough to invoke jurisdiction u/s 397/398. 14. Now the point for discussion is whether the subject matter in the CP falls within the arbitration clause and whether the company is governed by arbitration clause or not. For having this Bench already held that the valuation per share given by M/s Sanjeev Sapra will not amount to oppression under section 397, the only point left for consideration is whether invoking arbitration clause am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that the grievances of the petitioners is that notice issued for holding board meeting is improper and in violation of Articles 77.5.2 which is equivalent to clause 13.1.6.2 of the SSHA, that failure to mention the business of board meeting in the agenda (rights issue) is in violation of Article 77.5.3 which is equivalent to clause 13.1.6.3, that failure to circulate the minutes of meeting as soon as practicable is in violation of Article 77.5.6 equivalent to clause 13.1.6.6, that failure to give proper notice of EOGM to all the shareholders is in violation of Article 78.2 equivalent into clause 13.2.2 of the SSHA, that failure to follow methodology required for determining the manner of future funding is in violation of Articles 95.1/95.2 equivalent to clauses 16.2.1 and 16.2.2 and that failure to carry out valuation in terms of the methodology provided is in violation of Articles 95, 49.1.45, 49.1.79, 49.1.82 and 49.1.103 equivalent into clauses 16.2, 1.1.57, 1.1.103, 1 1.108 and 1.1.137 of the SSHA. So by seeing the equivalence in between the Articles of Association and the terms of SSHA, which arc purported to have been violated by the respondents, the purported violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parody of justice, more especially when arbitral authority is competent to look into the same allegations and pass award. When a party seeks reference to arbitration, obligation is cast upon the court to see whether any prima facie case made under 397/398, if not, then it shall forthwith refer the same to arbitration. For invoking jurisdiction under sections 397 398, the petitioners shall show that the conduct of the parties is oppressive towards the petitioners or the company, reflecting mismanagement of the company. Here for having this Bench noticed that no malice is found in the conduct of the respondents, the allegations of the petitioners being governed by Arbitration clause, this Bench hereby holds that it is a fit case to refer to Arbitration. 19. The petitioners counsel relied upon Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd. Ors., (2008) 4 SCC 91 to say that when the jurisdiction under 397/398 is invoked relating to affairs of the company that are not covered by arbitration agreement, application u/s 45 of the Arbitration and Conciliation Act, 1996 is not maintainable. 20. On reading of this judgement, it appears that the main point considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llotment, but I don't believe this ratio is applicable in this case, because Arbitral Tribunal has jurisdiction to make an observation over valuation report given by the valuer, if it finds such valuation is wrong, then it can invalidate it, therefore there is no such relief in the subject matter that can't be decided by Arbitral Tribunal. 24. Petitioners Counsel relied upon Rajendra Kumar Tekriwal v. Unique Construction Pvt. Ltd. (2009) 147 Comp Cas 737 (CLB); Griesheim GmbH v. Goyal MG Gases Pvt. Ltd. Ors. (2005)123 Comp Cas 280(CLB) and Gautam Kapur v. Limrose Engineering (2007) 137 Comp Cas 513 (CLB); Sporting Pastime India Ltd. v Kasturi Sons, (2007) 141 Comp Cas 111 (Mad) to say that articles alone govern the relationship between parties, breach of any of articles amount to oppression and mismanagement, here it is pertinent to note that these articles which the petitioners saying flouted are nothing but replication of the clauses of SSHA and amendments thereof. Moreover there is an article saving that the clauses of SSHA will prevail over the article in case of any inconsistency in between them. One should not get lost sight of one fact that these Respondents h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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