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2010 (7) TMI 1115 - COMPANY LAW BOARD

2010 (7) TMI 1115 - COMPANY LAW BOARD - TMI - C.P. Nos. 78 and 79/ND/2009 - Dated:- 20-7-2010 - D.R. Deshmukh, J JUDGEMENT D.R. Deshmukh, J. (Chairman) - (1) This order governs C. A. No. 466 of 2009 filed in C. P. No. 78/ND of 2009 and C. A. No. 468 of 2009 filed in C. P. No. 79/ND of 2009 under Section 45 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as to "the Act") for referring the disputes arising out of C. P. Nos. 78/ND of 2009 and 79/ND of 2009 to arbitrati .....

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eforth "TOCL") is a joint venture between respondent No. 2 (henceforth "ADM") and petitioner No. 3 Tinna Finex Ltd. (henceforth "TFL"). In C. P. No. 78/ND of 2009 it is not disputed that a valid SUA dated April 21, 2004, has been executed between ADM, TOL and Bhupinder Singh representing the Tinna group. It is also not in dispute that the Company Law Board is a judicial authority as contemplated under Section 45 of the Act. Admittedly, at the inception, petitioner N .....

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tled by friendly negotiation and agreement between the parties shall be finally settled by arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by one or more arbitrators designated in conformity with those Rules. The arbitration proceedings shall be held in London, England and shall be conducted in the English language. Judgment upon the award rendered may be entered in any court of competent jurisdiction. (3) Counsel for b .....

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ty while TFL holds 40 per cent. In both matters covenants of the SHA provide for further increase of share capital, transfer and transmission of shares, appointment and removal of directors and managing director, conduct of board meetings and the meetings of the members. It also provides for incorporation of its covenants in the memorandum of articles of association of respondent No. 1 company. In both matters the petitioners have raised the following identical issues: (a) Removal of Vijay Sekhr .....

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Vijay Sekhri and Mr. Anil Sekhri as whole -time director. (v) Split of shares of the majority joint venture partners. (d) Transfer of shares by respondent No. 2 to its affiliates. (5) The petitioners have, in both petitions averred that the acts of respondent No. 2, i.e., ADM are in complete derogation of the covenants of the SHA which have been incorporated in the memorandum of association and the articles of association of the company. It is alleged that ADM, i.e., respondent No. 2 has been a .....

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arises out of and in connection with the alleged breach of the SHA dated April 21, 2004 and February 28, 1998, which contains an arbitration clause. The respondents have therefore prayed that the disputes and differences arising in C. P. Nos. 78/ND of 2009 and 79/ND of 2009 should be referred to arbitration in terms of clauses 20.12 and 21.12 of the SHA referred above. On the other hand the petitioners have opposed the application on the following grounds: (1) The respondents have, by making a .....

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e from the SHA and bifurcation of disputes is not permissible. (5) That a dispute under Section 397/398 of the Companies Act, 1956, is per se not arbitrable as the arbitrator has no jurisdiction to exercise the extraordinary powers conferred upon the Company Law Board under Section 402 of the Companies Act, 1956. (7) I have heard learned Counsel for the parties at length and have also perused the case law cited on either side. For the following reasons I am of the considered opinion that the dis .....

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o applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in Sub -section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under Sub -section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral .....

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isputes arising out of C. P. Nos. 78/ND of 2009 and 79/ND of 2009 are referred to arbitration it is necessary that the following conditions are satisfied: (a) An action should have been brought before a judicial authority. (b) The matter in action should be in respect of which the parties have entered into the SHA which contains an arbitration clause. (c) A party to the SHA should apply to the judicial authority. (d) Such application should be made not later than when submitting its first statem .....

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ng such a statement before the Company Law Board does not, in my considered opinion, amount to submitting their first statement on the substance of the dispute. The view taken by me is in conformity with the view taken by the Supreme Court of India in Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. : [2006] 7 SCC 275. The above statement made by the respondents at first appearance in the company petition can also not be regarded as such a step in aid of the proceedings under Chapter VI for the .....

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ction of Shri Ravinder Chabbra (C. A. No. 466 of 2009 in C. P. No. 78/ND of 2009) and Shri Rahul Garg (C. A. No. 468 of 2009 in C. P. No. 79/ND of 2009) instituting, signing and verifying the subject application and supporting affidavits on behalf of respondent No. 1 company in both petitions. In such a situation the decision in United Bank of India v. Naresh Kumar, [1997] 90 Comp Cas 329 :, AIR 1997 SC 3, sets the controversy at rest wherein it has been held that procedural defects which do not .....

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under Section 397 of the Companies Act, 1956, is a party to the SHA. In C. P. No. 79(ND) of 2009, respondent No. 1 the director of respondent No. 3 TFL is a signatory to the SHA dated February 14, 1998. In C. P. No. 78/ND of 2009, petitioners Nos. 3 to 8 are non signatories to the SHA dated April 21, 2004, which is signed by petitioner No. 1, Vijay Sekhri and petitioner No. 2 Anil Sekhri. Petitioner No. 4 Mrs. Rooma Sekhri is wife of petitioner No. 1 while petitioner Nos. 5 and 8 are their sons. .....

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No. 2 filed the company petition placing explicit reliance on the SHA and have claimed relief for breach thereof. In the petition paragraph IIA it is averred that the shareholdings in respondent No. 1 company has vested in petitioners Nos. 3 to 8 as per direction of Company Law Board dated June 9, 2009. (11) An arbitration agreement is a contract. The obligation to arbitrate a dispute is rooted in the contract. But this obligation is not always limited to the parties who signed the contract. Un .....

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atory. When a signatory admits that a non -signatory is not a party to a contract but himself involves the non -signatory to the dispute, the test of close relation to the dispute will be fulfilled and such involvement will bind the non -signatory to the forum selection clause. In the present case, the SHA was signed by petitioners Nos. 1 and 2 in their capacity as directors of the company. Petitioner No. 1 Vijay Sekhri was later appointed as managing director of respondent No. 1 company. This a .....

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the defence that at the time of signing the agreement, petitioner No. 3 to petitioner No. 8 were non signatories, is of no avail to the petitioners. Moreover, the facts and allegations presented by the petitioners both signatories and non -signatories are intertwined and therefore cannot be separated. To say that the arbitrator can decide the dispute concerning petitioner No. 1 and petitioner No. 2 as signatories and not for petitioner No. 3 to petitioner No. 8 as non -signatories would render .....

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titions do not emanate from the SHA and bifurcation of disputes not being permissible the parties ought not to be referred to arbitration under Section 45 of the Act. Reliance was placed on Sukanya Holdings Ltd. v. Jayesh H. Pandya : AIR 2003 SC 2252, by learned Counsel for the petitioner for the proposition that bifurcation of the subject -matter of an action brought before a judicial authority is not allowed. However in Everest Holding Ltd. v. Shyam Kumar Shrivastava : [2008] 14 Scale 294 : [2 .....

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s statutorily mandated to refer the matter to arbitration. What is necessary to be looked into therefor, inter alia, would be as to whether the subject -matter of the dispute is covered by the arbitration agreement or not... 45. Reliance placed by learned Counsel on Sukanya Holdings Ltd. v. Jayesh H. Pandya : [2003] 5 SCC 531 : AIR 2003 SC 2252, is misplaced. Therein, not only a suit for dissolution of the firm was filed, but a different cause of action had arisen in relation whereto apart from .....

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rators... 47. Such a question does not arise herein as the parties herein are parties to the arbitration agreement and the question in regard to the jurisdiction of the arbitrator if any, can be determined by the arbitrator himself in terms of Section 16 of the 1996 Act. In the light of the aforesaid factual and legal position it was held that there is a valid arbitration agreement between the parties as contained in the JVA, which the parties are required to adhere to and are bound by the same. .....

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in an action before a judicial authority raises the plea that there is an arbitration agreement and the subject -matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is c .....

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ute which arises in both petitions is the removal of Vijay Sekhri, petitioner No. 1 and the appointment of Prakasha Shenoy in his place as the managing director of respondent No. 1 company. As already stated above the covenants of the SHA provide for the powers of ADM relating to appointment or removal of the managing director of respondent No. 1 company. The petitioners have filed a copy of the e -mail sent by Vijay Sekhri, petitioner No. 1 to Dr. Klaus Peter Hopp of respondent No. 2 which show .....

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ants of the SHA and in both petitions the petitioners have placed explicit reliance on the shareholders' agreement and claimed relief for breach thereof. So far as the question of arbitrability of the disputes arising between the parties and the jurisdiction of the arbitrator to grant relief as contemplated under Section 402 of the Companies Act, 1956, is concerned in Everest Holding Ltd. v. Shyam Kumar Shrivastava : [2008] 14 Scale 294 : [2008] 16 SCC 774, the Supreme Court had observed as .....

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nd if it was not functional, in that event he could always find out the nature and status of its assets and can also issue direction and pass orders regarding dues and liabilities and also for taking recourse to appropriate remedy. It was held by the apex court that the disputes which arose out of the JVA, if referred to an arbitrator would not in any manner amount to bifurcation of causes of action or bifurcation of parties. Under Section 16 of the Act it is the arbitrator who is to rule on its .....

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tence of any other dispute outside the SHA. In Bhadresh Kantilal Shah v. Magotteaux International, [2000] 24 SCL 270 :, [2002] 111 Comp Cas 220, wherein this Board observed as follows (page 243 of 111 Comp Cas): Thus, we are not in a position to agree with Shri Chagla that, proceedings under Section 397/398 are outside the purview of Section 45 of the Arbitration Act... as it is quite possible that, in a given case, to avoid arbitration on disputes squarely traceable to the terms of an arbitrati .....

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bi Jhora Tea Co. Ltd. v. Barendra Krishna Bhowmick : [1980] 50 Comp Cas 771 (Cal), Cosmosteels Ltd. v. Jairam Das Gupta : [1978] 48 Comp Cas 312 (SC), Surendra Kumar Dhawan v. R. Vir, [1977] 47 Comp Cas 276 (Delhi), O. P. Gupta v. Shiv General Finance P. Ltd. : [1977] 47 Comp Cas 279 (Delhi) and Manavendra Chitnis v. Leela Chitnis Studios P. Ltd. : [1985] 58 Comp Cas 113 (Bom), in support of the following propositions: (a) The scope, jurisdiction and power under Section 397/398 of the Companies .....

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annot be exercised by an arbitrator. As stated above, in both company petitions the existence of an arbitration clause in the SHA is not disputed. Section 45 of the Act enjoins a judicial authority which the Company Law Board is, to refer the disputes to arbitration. The foundation for seeking reliefs in both petitions is the breach of the terms of the SHA. Therefore, under the SHA it is the arbitrator who has to adjudicate on the disputes arising out of the SHA and not the Company Law Board. Th .....

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20 above are not only distinguishable on facts but also prior to the Arbitration and Conciliation Act, 1996. The decision of the Division Bench of the Company Law Board in Naveen Kedia v. Chennai Power Generation Ltd., [1999] 95 Comp Cas 640, is a complete answer to the propositions raised by the petitioner's counsel. It was held as under (page 652): Having held that the matter before us is covered by arbitration, the next issue for consideration is whether we are bound to refer the parties .....

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rivate forum. The other ground is that a private forum namely in this case, the arbitrator, cannot grant the reliefs as sought for by the petitioners which can only be granted by us by virtue of the provisions of Section 402 of the Companies Act. Mr. Singh relied on a number of cases, which we have already indicated earlier, to state that, matters under Section 397/398 cannot be matters for arbitration. In all these cases, the issue that arose was whether a proceeding under Section 397/398 or pr .....

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used to exercise their discretion to stay the proceedings, in the cases cited by Shri Sarkar, the courts exercised the discretion to stay the proceedings. However, after the coming into force of Arbitration and Conciliation Act, 1996, the legal position has changed, more particularly with reference to foreign arbitration. Now it is mandatory, by virtue of Section 45 of this Act, that a judicial body will have to refer the parties to arbitration once it is seized of an action in respect of which .....

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ng performed. The Company Law Board is a judicial authority and this fact is not controverted. It has been seized of a matter in which, as elaborated earlier, there is an agreement between the parties for arbitration. The petitioners did not advance any arguments to convince us that the agreement is null and void, inoperative or incapable of being performed. They have only taken a stand, in reply to the application, that, referring the matter to arbitration would be expensive, time consuming and .....

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