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2016 (7) TMI 853 - COMPANY LAW BOARD NEW DELHI

2016 (7) TMI 853 - COMPANY LAW BOARD NEW DELHI - TMI - Oppression V/S Arbitration - Whether the subject matter in this CP falls within the ambit of jurisdiction u/s 397, 398 r/w 402 & 403 or within the ambit of arbitration clause constituted in the SSHA arrived at between the parties - Held that:- The only persons, not parties to the Arbitration clause are R4-8 and Performa R9-13. R4 to R8 are nominee directors on behalf of R2, therefore, R2 being a party to the proceedings, it makes no differen .....

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n 45 of 1996 Act is neither governed by CPC nor is governed by part I of 1996 Act. Therefore, this Bench has not found 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 .....

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ing 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 Singapore International Arbitration Centre in pursuance of the Arbitration Clause as mentioned above. 2. Before going into this Application, I must say what the Company Petition is. The petitioners .....

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in an amount of ₹ 187.6 crores as share application money, to clear the loan liability of the company and to cater the working capital requirement as per business plan. Since this money had come into the company as share application money, R1 Company, first increased the authorised capital from ₹ 125 crores to ₹ 300 crores, in furtherance of it, rights issue was given for allotment of ₹ 4,63,72,645 equity shares with a rate of ₹ 53.22 (issue price) per share on pro .....

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g to their nominee director with respect to the money brought in by R2, in valuing the shares of the company without an; proper valuation and accepting such unfair and improper valuation as the basis for rights issue as to use the money unauthorizedly brought in by R2 to allot a substantial higher number of shares to it at such undervalued price by unfairly diluting the petitioners shareholding in the company. To perpetrate fraud upon the petitioners, the management in R1 held an EOGM on a short .....

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cle 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. .....

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P3 are unfairly deprived of their stake in the company and their position in the Board of Directors. 4. On seeing the petitioners filed this CP, R1 filed this CA saying that despite there being a dispute resolution mechanism provided for under Clause 23 of SSHA mandating to resolve disputes arising out of SSHA through negotiations, failing which, to resolve through arbitration at Singapore International Arbitration Centre (in short "SIAC"), and despite this arbitration clause was reite .....

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itioners, R2 and its nominee directors are parties to SSHA covered with Arbitration Clause, it can't be therefore said that R1 Company is not a party to Arbitration Clause 23. In the definition 'party' in SSHA, R1 Company is also referred as a party. It is further said in clause 11 of SSHA that "in the event of any of the provisions of the SSHA and Memorandum and Article of Association, the parties agree that the provisions of SSHA shall prevail". In clause 11.3 of SSHA, R1 .....

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s in violation of the terms and conditions of the shareholders agreement (SSHA) in as much as the Article of Association, these issues are opened to be raised before Arbitral Tribunal as envisaged under Section 45 of the Arbitration and Conciliation Act, 1996. The terms and conditions of Shareholders Agreement have been incorporated 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 pre .....

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rbitration 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 re .....

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Articles of Association, for this Arbitration Clause is out of the ambit of AOA, the disputes emanating out of violation of Articles cannot be referred on the premise arbitration clause is present in the SSHA. It is further stated that clause 23.5.2 of SSHA makes it clear that the disputes in between R2 (investor) and the promoters (petitioners) would be capable of reference to arbitration. If the disputes arc solely between R1 Company and the shareholders or inter sc between the persons referre .....

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on of the Board of Directors of the company, regulation of the affairs of the company. Since these reliefs can only be granted u/s 402 & 403 alone, such reliefs cannot be referred to the Arbitral Tribunal. As to regulation of the affairs of the company, if any dispute arose, it has to be dealt with under sections 397/398 for those rights are statutory rights given to the shareholders such as proper notice of rights issue of shares, violation of Articles of the company, allotment of shares de .....

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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 Associati .....

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ually take the management into their hands, so is the case here. Initially it is an agreement that R2 could invest up to a cap of 95%, in the process of it, this investor pumped in huge funds, 100 times to the fund initially put in by the petitioners. It is also not the ease of the petitioners that this company is running on the expertise of the petitioners. It is also not in dispute that the company has been in need of funds ever since the investor joined in this company. It is also not the cas .....

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he funds rising from time to time, R2 has kept on investing money in the company, in the process of it, R2 invested Rs. l89 crores as share application money in the month of September, 2013 to meet the loan liability and working capital requirements. It is not the case of the petitioners that allotments made to Respondent No. 2 were made without funds coming from R2. It is also not the case of the petitioners that the money brought in by R2 was not utilised for the requirements of the company. T .....

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ompetent person to value the shares of the company because he is not a qualified valuer with qualification criteria set out in Article 49.1.103. 11. The contention of the petitioners is, when violation of statutory rights is found, such dispute will then fall within the jurisdiction of CLB u/s 397 & 398, not before arbitral tribunal. It is pertinent to say that it is settled proposition of law that mere violation of law or any terms in between the parties will not automatically fall within t .....

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et 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 petiti .....

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n short notice but not without any notice. Yes, it could be understood that the action of R2 was oppressive, had R2 failed to make an offer of rights issue to the petitioners on pro rata basis. R2 indeed made an offer of rights issue to the petitioners, and even offered to allot shares to the petitioners on loan basis provided the petitioners accept the offer to pay the consideration along with interest. But the petitioners, instead of accepting such a generous offer come from R2, the petitioner .....

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the offer of rights issue, in past also when the petitioners failed to put the funds to meet the necessity of the company, R2 alone invested money by allotment. That allotment was made on the valuation report given by the same Mr. Sanjeev Sapra, now when the same M/s Sanjeev Sapra gave valuation report; the petitioners have taken it as grievance to file this CP. When the petitioners raised that M/s. Sanjeev Sapra valuation report is not in compliance with the Articles of Association, R1 Company .....

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they have never made any attempt to invest any money in the company except the money had already invested before R2 has 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 .....

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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 amounts to violation of Articles of Association. 15. Before taking this point since there is an arbitration clause in shareholders agreement it has to be seen whether that arbitration cla .....

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solved either by appointment of representative on either side or by referring the matter to arbitral tribunal situated at Singapore. It's a contract in between the parties of SSHA saying how many days notice is to be given for holding board meeting and holding shareholders meeting. 16. As to the contention of the petitioners saying that the parties in CP not being parties to SSHA inbuilt with arbitration clause, that clause of arbitration governing the covenants of the SSHA will not be bindi .....

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hether R4 to R8 are or arc not parties to the agreement. They arc in fact the persons representing the cause and interest of R2, R4 to R8 not being parties to the agreement will have no bearing in invoking arbitration clause, they being shown as Performa respondents, they are not even necessary and proper parties for adjudication of this CP itself, then how does it make sense to say that they not being parties to the SSHA, it can't be referred to arbitration. Moreover, reference under sectio .....

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f 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 .....

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petitioners are qua against the terms of SSHA arrived at between the petitioners and R1-3. Though, the petitioners have alleged that there arc many violations in holding meetings and making allotment to R2, they have not stated that those violations led to oppression against the petitioners except saving that for the shares being undervalued, more shares were allotted to R2 causing reduction in the petitioners shareholding. In a bid to testify the same, the petitioners procured a valuation repo .....

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t or close to every other company of same the kind, it all depends upon many factors. Here, the valuation given by M/s. Sanjeev Sapra is in confirmation with the valuation subsequently given by Deloitte, an independent valuer, world known company. The subject matter in the CP is governed by Arbitration Clause, therefore, it appears to me that it's a company petition dressed up to hold it out as case under 397/398 of the Companies Act 1956. Merely by seeing Valuation Report, if the company is .....

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are complete and main hearing is over, it is quite usual that the party who is doubtful of his/its case, will keep filing one or other application on one or other allegation until the other side comes to its knees for settlement with petitioner. If parties are made waiting for no reason, it is undoubtedly 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 t .....

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use, 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 .....

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company and the contesting respondents. In the case supra, therefore, Honourable Supreme Court held that dispute being not in between SML/PTL and MAZDA/SC, arbitration clause could not govern the dispute in between the company and contesting respondents. 21. But here in this case, any dispute that arose in terms of the SSHA, the parties agreed in between them to go for arbitration, for there being contractual agreement in between the parties about dispute resolution mechanism, they must opt for .....

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Counsel relied upon In Re: Kare P. Ltd. (Surendra Kumar Dhawan v. R. Vir) MANU/DE/0282/1974; Rakesh Malhotra v. Rajinder Kumar Malhotra MANU/MH/1309/2014; Sudarshan Chopra v. Company Law Board (2004) 137PLR12, to say that the grievance of the petitioner is for violation of statutory rights, which is incapable of being referred to Arbitration. To which, I have already held that, even if the case of the petitioners is assumed as correct, it will become violation of contractual rights, not any stat .....

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as 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 (200 .....

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of any inconsistency in between them. One should not get lost sight of one fact that these Respondents have come into the company believing that the petitioners would abide by every covenant agreed between the petitioners and Rl-3, with that belief only, R2 invested huge money. R1 Company had never seen such money when it was solely with the petitioners. This is like a partnership arrangement, now after having the Respondents infused huge money believing the petitioners would abide by the agree .....

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ions created between the parties in the SSHA will become statutory rights for having shown them in the Articles. In Sumitomo, for arbitration clause has limited it to a dispute in between SML/PTL and MAZDA/SC, that clause cannot be equated to this arbitration clause in the SSHA, because it is explicitly said am dispute in between the parties (company is also party), not limiting in between two parties as in the case of Sumitomo, hence the ratio decided in the cases supra not applicable to this c .....

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