TMI Blog2004 (5) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders in the company - the petitioner (2.52% shares), the 10th respondent (9.98% shares) and the 11th respondent (87.50% shares). 2. Both the groups had entered into a Shareholders' Agreement (SHA) and a Joint Venture Agreement on 4th July, 1997 wherein the rights and duties of the parties vis-a-vis the joint venture agreement as also their rights regarding the management of the company have been specified. In addition there is also an Escrow Agreement (EA) by which the shares held by the petitioner are kept in the custody of an escrow agent. In all these three agreements, there is a provision for arbitration in case of disputes arising out of these agreements. The petitioner had two nominees on the Board, namely, the 6th and the 9th respondents. The main complaints of the petitioner in the petition are that Board Meetings were being held without notice to the 6th and 9th respondents, that the 9th respondent has been removed as Chairman of the Board in a Board Meeting held on 15th May, 2002, and he was also removed as a director in the AGM held on 24th May,2002, that Article 40 of the AOA according to which the 9th respondent is to be a life time director has been amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was later on withdrawn without notice to the respondents. Therefore, it is a fit case where the parties should be relegated to arbitration in terms of Section 9 of the Arbitration Act. 5. Shri Sarkar appearing for the 1st respondent submitted: In addition to the SHA and JVA, the parties had entered into another escrow agreement dated 29th April 1998. While the petitioner and the 10th respondent are parties to the JVA and SHA, the parties to the escrow agreement are the company, the 11th respondent and the petitioner. Therefore all relevant parties, namely, the 3 shareholders and the company are covered by these agreements. The petitioner is a party to all the agreements. Even though the company is not a party to the SHA and JVA, yet, the company, being the creation by these agreements is willing to go for arbitration. In paragraph 18 of the petition, even the petitioner has averred The petitioner submits that the respondent No. 10 and the petitioner have entered into the shareholders ' agreement and joint venture agreement both dated 4th July, 1997 which were and continue to be valid, subsisting and binding between them. The petitioner and respondent No. 10 are bound b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amongst the petitioner, 10th and 11th respondents and the escrow agent, The main complaint of the petitioner in the petition relates to removal of the nominees of the petitioner from the Board. In the escrow agreement, there is no provision regarding directorship and therefore this agreement, having an arbitration clause has no relevance and that is why the petitioner has not referred to the same in the petition. It only relates to security for discharge of obligations by the petitioner. Even though in the shareholders' agreement wherein there are provisions relating to management of the company, yet, the company is not a party to that agreement and this petition has been filed making various allegations in the affairs of the company. It is to be noted that when the petitioner approached the Bombay High Court for interim relief, the same was refused on the sole ground that the company was not a party to the arbitration agreement. Further, one of the prayers in the petition is to direct rendering of accounts which is to be done by directors who are not parties to the shareholders' agreement. Further, in para 11(hh) of the petition, the petitioner has voiced its grievances r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el) and O.P. Gupta v. Shiv General Finance Private Ltd (47 CC 279), it has been held that even if there is a provision in the Articles for referring the disputes between the company and its directors or between the director themselves or between any members of the company or between the company and any person shall be referred to arbitration, would be void in terms of Section 9 of the Companies Act. Therefore, when there is no commonality of parties and when many allegations are not relating to matters covered under the arbitration agreement and when these allegations can be examined without reference to any of these agreements, the question of relegating the parties to arbitration docs not arise and as such this application should be dismissed. 8. In rejoinder, Shri Sarkar submitted: The 11th respondent is a wholly owned subsidiary of the 10th respondent and both collectively hold 97.5% shares in the company. When the petitioner himself asserts in its petition that the terms of the agreements are binding on the company and when the company is also willing to abide by the terms of the agreement, the present contention that the company is not a party to the shareholders' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a commercial, legal relationship to which the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 applies. The Arbitration and Conciliation Act 1996 or any other arbitration laws of India from time to time in force in India shall not apply to this clause and to the arbitration proceedings except for the purposes of enforcement of the foreign awards in India . This highlighted portion (by me) indicates that the parties have consciously agreed that the provisions of Arbitration Conciliation Act, 1996 are not applicable to the arbitration clause contained in these agreements except for the purposes of enforcing the foreign award. An Arbitration agreement is always consensual and contractual and the parties arc bound by the terms agreed upon. This application has been filed under Section 45 of the said Act. When the parties have expressly excluded the application of this Act in the matter of arbitration, whether, the parties can invoke any of the provisions of the sai'd Act, other than for the purposes of enforcing the foreign award, has not been explained by any counsel, perhaps because, this highlighted portion of the arbitration clause had no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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