TMI Blog2004 (2) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... ok over the reins as the Chief Executive of the Company. He too was gunned down on 12.5.1984. Petitioner Nos. 1 to 3, and petitioner Nos. 4 to 6 constitute a Hindu Undivided Family. Respondent No. 2 another son of Lala Jagat Narain is one of the share holders and the Chairman-cum/ Managing Director of the Company. Respondent No. 3 Smt. Swadesh Chopra is his wife whereas respondent Nos. 4 and 5 are their sons. The petitioners have been identified as Group A and respondent Nos. 2 to 6 as Group B in the pleadings as also in this judgment wherever the context and the flow of the narrative so requires. It is the case of Group A that till the year 1995, it held a majority of shares in the Company but that year, Vijay Kumar Chopra and his sons of Group B approached petitioner No. 1 seeking joint and equal representation for both the groups in the affairs of the Company. It is the case of Group A that in order to maintain cordial relations, petitioner No. 1 (Group A) agreed to surrender her family shares to respondent Nos. 2 to 6 (Group B) so as to equalise the share holding between them. A memorandum of family settlement. Annexure P2 dated 25.6.1995 was accordingly entered into between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter called 'the Act'). Group A also filed its reply on 13.9.1999 to the interim prayers without prejudice to their contention that the differences and disputes were referable to Arbitration. Several dates were taken by the parties to arrive at a settlement but the efforts did not fructify. It is further the case of Group A that while the efforts for a settlement were being made, Group B using the pending company petition as a camouflage began a fresh wave of terror against it. Group A accordingly moved an application before the Company Law Board seeking inter alia the appointment of an Administrator to manage the affairs of the Company and to maintain the status qua with regard to the assets of the Company, On 16.5.2000, Group A also moved an application under Section 8 of the Act and sought a reference of the dispute to the Arbitrator on the plea that no effective hearing had so far taken place before the Company Law Board. Group B filed a reply to this application whereas Group-A filed its rejoinder. Copies of the application, the reply and the rejoinder have been appended as Annexures P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the substance of the dispute and as the said reply had been filed without any request for reference to Arbitration, it had abandoned its claim thereto. It was further highlighted that Group A had in fact independently invoked the jurisdiction of the Company Law Board and had filed three applications, one under Section 402 of the Companies Act, another under Section 403 thereof seeking the appointment of an Administrator and a third on 2.3.2002 and that they too constituted the second, third and fourth statements of the substance of the dispute. Special reference was also made to the order dated 17.9.1991 of the Company Law Board and marked as Annexure R5/5. It was also pointed out that Group A had then instituted a suit in the Delhi High Court (being Suit No. 696 of 2002) seeking several reliefs in relation to the management and affairs of the Company. A copy of the plaint has been appended as Annexure R5/16 with the reply. It is the case of Group-B that this suit clearly pertained to the alleged violations made by it in the Shareholders Agreement dated 8.2.1997 and the Articles of Association of the Company, which both contained Clauses for reference to Arbitration. It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their first statement on the substance of dispute was correct. The Court also observed that as the Company, Hind Samachar Limited was not a party to the Arbitration Agreements, it could not be bound by it and as a petition under Sections 397, 398 and 402 of the Companies Act vitally affected the Company, the dispute was for this reason as well not referable to Arbitration. The Court also held that the word may used in the Arbitration Clause spelt out that there was no inflexible rule that all disputes were to be settled by Arbitration. The Court finally observed that as the Company Law Board had made the impugned order on 8.12.2000 and the matter had been pending in this Court in one form or another for several years, it would be unfair to relegate the parties to arbitration at this belated stage. The writ petition was accordingly dismissed. 6. Aggrieved thereby, the present Letters Patent Appeal has been filed. 7. Mr. Ashok Aggarwal, the learned Senior counsel for the appellants, has argued that the finding of the learned Single Judge that Group A had abandoned its claim to arbitration and had acquiesced to the jurisdiction of the Company Law Board by its conduct was erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh not required in the circumstances) had been complied with as an application had in fact been filed on 16.5.2000. Reliance for this argument has been placed on a Single Bench judgment of this Court in Param Pal Singh and Ors. v. Punjab State Ware House Corporation. Chandigarh and Ors., A.I.R. 2000 Punjab Haryana 53. It has further been argued that the word 'May' used in the Arbitration Clauses had to be read as 'Shall' and the reliance of the learned Single Judge and the Company Law Board on Wellington Associations Ltd., v. Kirit Mehta, (2000)4 Supreme Court Cases 272 was misplaced as the arbitration Clauses therein were couched in entirely different terminology. 8. As against this Mr. Kathpalia, the learned counsel for Group B has argued that the conditions for reference to Arbitration clearly did not exist as no objection with regard to the assumption of justification by the Company Law Board had been raised by Group A in that direction showing that it had abandoned its claim. It has been elucidated that Group A had in fact on four different occasions filed the substance of the dispute before the Company Law Board, the first on 13.9.1999; a second on 15.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Studios P. Ltd and Ors., 58 Company Cases 113. 10. Mr. Ashok Aggarwal while controverting Mr. Kathpalia's last argument has urged that as the Company Law Board had decided this issue in favour of Group A and had opined that such a dispute could be the subject matter of arbitration, this matter should not be allowed to be taken up in this appeal. He has in this connection also made a reference to Section 8 of the Act viz-a-viz the provisions of Section 34 of the Arbitration Act, 1940 (hereinafter referred to as the 'Old Act') and has argued that as no discretion had now been left with the judicial authority when an Arbitration Agreement existed, the matter ipso facto had to be referred to arbitration come what may and as per Section 16 of the Act, it was now for the Arbitrator alone to opine on the existence or otherwise of an arbitration clause. 11. We propose to take up all arguments seriatim. 12. The first argument with regard to the abandonment of the claim to arbitration and the acquiescence to the jurisdiction of the Company Law Board would be referable to Sections 7 and 8 of the Act. These Sections are reproduced hereunder;- 7. Arbitration agreement.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the substance of the dispute before the Judicial Authority. 14. We now examine on facts as to whether Group A had by word or conduct abandoned its claim to arbitration and had acquiesced to the assumption of jurisdiction by the Company Law Board. It is the admitted position that the formal application filed by Group A for reference of the dispute to arbitration was made on 16.5.2000 i.e., long after it had first appeared before the Company Law Board. We find from a perusal of the record that the petition had been filed before the Company Law Board on 17.8.1999 and had been listed for hearing on 20.8.1999 when Group A had also entered appearance. The case was thereafter adjourned to 27.8.1999 for consideration on the mater of interim relief but in the meanwhile, the Board made the following order on 24.8.1999, copy Annexure R5/1 with the writ petition. The respondents seek to file an application under Section 8 of the Arbitration Act. This may be done by 4.9.1999 and reply to be filed by 9.9.1999. The application will be heard along with the reaction of the respondents on our order dated 20.8.99 on 10th Sept. at 2.30 P.M. 15. The learned counsel for Group B therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petition filed by the Petitioners under Sections 397 and 398 read with Section 402 and 403 of the Companies act, 1956. It may however be pertinent to mention that as per the inter-se Agreement of the shareholders, any matters or questions, disputes or controversies that were ever to arise in relation the Shareholders Agreement of 08.02.97, ought to the endeavoured to be settled mutually by conciliation and through the involvement of members of Group A and B and thereafter if necessary by the course of arbitration. 18. It has been argued by Mr. Aggarwal that Group A had thus clearly reserved its right to file an application under Section 8 of the Act. We find this argument to be unacceptable. Admittedly there is a reference to the Shareholders Agreement dated 8.2.1997, which does have a Clause for arbitration but the reservation which is sought to be made does not pertain to this matter but is clearly related to the filing of a detailed reply to the application for interim relief and, if necessary, to the Company Petition filed under Sections 397 and 398 read with Sections 402 and 403 of the Companies act. The use of the word 'however' after the reference to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Articles of Association of the Company, which as per the plaintiffs (Group A) is the magna-carta of the dealings inter se. 21. It has then been contended by Mr. Aggarwal that as some urgent interim relief was sought by Group A, it had absolutely no option but to approach the Delhi High Court for that relief. We find this argument also to be rather specious for the reason that if its case was that the matter was referable to arbitration (as has now been contended) there was ample authority with the Arbitrators to grant interim relief in terms of Section 9 of the Act, as it was clearly visualised under that provision, and that in the ultimate analysis, the vacillation on its part was one of the factors, which had led to the rejection of the application under Section 8 of the ACE. It is also significant that an appeal against the order of the Company Law Board, Annexure P-1, was pending in this Court at that time. Mr. aggarwal has, however, placed reliance on Food Corporation of India's case (supra) to contend that a party, who waived or abandoned its claim to arbitration was required to unequivocally indicate its intention to do so and in the absence of such clear indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order has obviously come to the court in breach of the arbitration agreement. By obtaining an ex parte order, if it forces the other party to the agreement to suffer the order, or by merely contesting be imputed the intention of waiving the benefit of arbitration agreement, it would enjoy an undeserved advantage. Such could not be the underlying purpose of Section 34. Therefore, in our opinion, to effectuate the purpose underlying Section 34 the narrow construction of the expression taking any other steps in the proceedings as hereinabove set out appears to advance the object and purpose underlying Section 34 and the purpose for which the Act was enacted. 22. We find that this judgment does not advance Mr. Aggarwal's argument as it was dealing with the expression taking any other steps in the proceedings used in Section 34 of the Old Act under which there was great scope for ambiguity. 23. Mr. Kathapalia has, on the contrary, placed reliance on The State of Uttar Pradesh and Anr. v. Janki Saran Kailash Chandra and Anr., A.I.R. 1973 Supreme Court 2071, which also pertains to a discussion on Section 34 of the Old Act but which would nonetheless be pertinent even now on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the Madras High Court given a complete go-bye to the said arbitration agreement. It follows therefore that the said defendant is precluded from invoking the said arbitration agreement and from maintaining the present application. It is often stated that a party can blow hot and hotter but he is not entitled to blow hot and cold as the first defendant is now seeking to do. 10. xx xx xx xx xx 11. The party referred to in Section 8(1) to my mind is a party who is entitled to maintain the application thereunder. The party to the arbitration agreement who has himself instituted a suit is clearly not the party envisaged. The first defendant although a party to the said arbitration agreement has elected to institute the aforesaid suits in enforcement of its rights and as such it cannot be said to be a party within the meaning of that sub-section. It was submitted by the learned Counsel on behalf of the said defendant that the said defendant was not aware of its right to enforce the said arbitration agreement when it instituted the aforesaid suits in this Court and in the Madras High Court. I am not impressed by the said submission. By reason of its conduct in instituting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this score, this Court would be ioathe and slow to interfere in such a matter. We, on the contrary, find absolutely no reason to differ with the findings of fact recorded by the Company Law Board and the learned Single Judge. 30. This appeal could well be dismissed on the discussion above, but as the learned counsel have argued the matter in extenso, we have thought it fit to deal with all the issues that have been raised. 31. Mr. Aggarwal's second argument is a corollary of the first one and also flows from an interpretation of Section 8 of the Act and does, to some extent, overlap with the issue of abandonment dealt with above. It has been contended that under Sub-section (1) of Section 8, it was open to Group A to apply for referring the matter to arbitration not later than when submitting its first statement on the substance of the dispute and as the substance of the dispute had for the first time been set out in the application under Section 8 of the Act on 16.5.2000, it could not be said that Group A had either abandoned its claim to arbitration or had acquiesced to the proceedings before the Company Law Board. He has pointed out that the reply to the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the steps taken to settle outstanding issues. The second application is C.A. No. 7 of 2000 dated 13.1.2000 filed under Section 403 of the Companies Act making a prayer for interim relief on the plea that after the filing of the Company Petition, Group B had been indulging in oppression and mismanagement and violating the Shareholders Agreement which was prejudicial to the affairs of the Company. Details have accordingly been set out as to how by its conduct, the company was being adversely affected. The third is C.A. No. 440 of 2000 dated 3.3.2000 wherein full details with regard to the oppression and mismanagement at the hands of Group B has been brought out and it has been prayed that the Board be pleased to:- a) appoint an independent Administrator to supervise the working of the company with adequate powers to control the day to day working, pending further proceedings, as also; b) to disallow all cash transactions unless approved jointly by both groups in the shape of withdrawal from Banks by self cheque only; c) Receive proceeds of all sales of newsprint and aluminium scrap by cheque or demand draft only; d) The petitioners be restrained from removing the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court against the other party. 3) subject-matter of the action is the same as the subject matter of the arbitration agreement; 4) the other party moved the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by the court, once the other patty has submitted his first statement of defence. But, if the party two wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the court referring the parties to arbitration. 37. The last paragraph of the above quoted judgment clearly reveals that by the consent of the parties, the matter may be referred to arbitration even after the submission of the first statement of the party before the judicial authority and conversely by implication if a party objects to the application such a reference cannot be made. 38. It has also been contended by Mr. Aggarwal that Section 8 of the Act did not en visage any particular form in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original arbitration agreement, or a duly certified copy thereof. It is conceded position that no copy of the arbitration agreement has ever been filed by Group A. 40. Mr. Aggarwal has, however, contended that as the copy of the Arbitration Agreement had already been filed with the Company Petition, there was absolutely no need to file another copy with the reply dated 13.9.1999 or the application dated 16.5.2000. Reliance for this assertion has been placed on a Single Bench judgment of this Court in Parampal Singh's case (supra), Admittedly, the observations of the learned Single Judge do advance the argument but in the light of the judgments of the Hon'ble Supreme Court quoted above, which make the provisions of Sub-section (2) of Section 8 mandatory, we find that the aforesaid judgment does not lay down the correct law and must accordingly be overruled. 41. We are, therefore, clearly of the opinion that Group A not only abandoned its claim to seek arbitration but had even otherwise forfeited this right as it had submitted to arbitration before it had filed the first substance of its claim before the Company Law Board. 42. Mr. Kathpalia's reliance on Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the finding on this issue has been given by the Company Law Board in Group A's favour and it had been categorically held that the arbitration Clause could be enforced even with respect to a dispute raised in a petition under Sections 397 and 398 read with Section 402 of the Companies Act and that as this finding had not been seriously challenged before the learned Single Judge, it was not open to this Bench sitting in appeal to go into the matter and to arrive at a different conclusion. He has also urged that as per the admitted position and as per the understanding between the two Groups, the paid up capital of the Company was to be held equally between them to the extent of 48.8% each making a total of 97.6% in their hands whereas the balance 2.4% was in the hands of others and (uniess mutually agreed to in writing) the parties were restrained from disturbing this ratio, it was clear that the Company was in fact in the nature of a partnership and as such clearly subject to arbitration. In this connection he has referred to Section 20 of the Specific Relief Act, 1963 and to Section 40 of the Indian Partnership Act, 1932 as also to a judgment of the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup/Party shall be entitled to interlocutory relief from court to resent such transfer. (v) In pursuant to the agreed basic principles of the Agreement, Parties shall make concerted efforts to purchase 2.4% shares of the Company from the general public (other than from a member of Group A or Group-B defined as Others in Article 4 (b) above). If and when any share(s) is/are purchased from general public, the same shall be equally divided and owned by and between parties, so that at every point of time Group-A and Group-B have equal participation in the equity of the Company, If parties do not abide by the provisions of this Article then the aggrieved party shall have the right to approach the court of law and seek relief from the court and resent such transfer. Paragraph 190 of the Articles is also reproduced below;- 190. The parties shall make endeavour to settle by mutual conciliation any claim, dispute or controversy (dispute) arising out of or in relation to the shareholders agreement, including any dispute with respect to the existence or validity thereof, the interpretation thereof, the activities performed thereunder, or the material breach of any term(s) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby agreed that, if any dispute arises in connection with these presents, only Courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the Courts in Bombay. 5. It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1940 by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at Bombay. The Court construing the implication of the two clauses observed as under;- The words in Sub-section (i) of Section 7, means an agreement by the parties to submit to arbitration , in my opinion, postulate an agreement which necessarily or rather mandatorily requires the appointment of an arbitrator/arbitrators. Section 7 does not cover a case where the parties agree that they may go to a suit or that they may also go to arbitration. and then went on to conclude as under;- 21. Does Clause 5 amount to an arbitration clause as defined in Section 2(b) read with Section 7? I may here state t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it does not bar any judicial authority from determining as to whether the Arbitration Agreement exists or not. It would also be anomalous to hold that where there is a doubt with regard to the existence of an Arbitration Agreement, it is the Arbitrator and the Arbitrator alone, who could opine on the matter. This matter too has been decided in Wellington Associates Ltd's case (supra). 54. It is also clear from the observations of the Hon'ble Supreme Court aforequoted that before the matter can be referred to arbitration, the parties must all be present before the arbitrator. Admittedly in this case neither the Company nor the shareholders holding 2.4% of the shares are parties to any of the agreements signed between Groups A and B. 55. We now come to second of the two arguments referred to in the immediate preceding paragraphs. In this connection, we reproduce here Sections 397, 398, 402 and 403 of the Companies Act;- Section 397: 397. Application to Company Law Board for relief in cases of oppression.- (I) Any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest 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 modification of any agreement, howsoever arrived at between the company on the one hand; and any of the following persons, on the other, namely;- i) the managing director, ii) any other director. v) the manager, upon such terms and conditions as may, in the opinion of the Company Law Board, be just and equitable in all the circumstances of the case; e) the termination, setting aside or modification of any agreement between the company and any person not referred to in Clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consent of the parties for arbitration to retired Chief Justice of the Bombay High Court. As some proceedings with regard to the probate were also pending in Court, the question arose as to whether the Arbitrator could decide on the validity of the Will. The Hon'ble Supreme Court observed that it was only the probate court, whose order was appealable, which could decide this question the moreso, as the decision of the Arbitrator would deprive the losing party of the statutory right of appeal provided under Section 299 of the Indian Succession Act. The Court also observed that the argument as the parties had consented to the reference of the dispute to arbitration, no interference by the Court was called for, could be of no avail as consent could not confer jurisdiction nor there was any estoppel against a statute. We find that the aforesaid observations would clearly apply in the present case as well for the reasons already set out above. 57. The observations of the Hon'ble Supreme Court in Haryana Telecom Ltd. 's case (supra) are equally relevant. In the aforesaid case, the Hon'ble Supreme Court observed while construing the scope of Section 8 of the Act vis-a- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 397 or 398 are moved in the court. In either case, the article cannot be called into play for the purpose of staying the present proceedings. The application is accordingly rejected with costs. The costs I assess at ₹ 100/-. 59. Likewise in Surindra Kumar Dhawan's case (supra), it was held as under; This article shows that if there is a difference between the company and its directors or between the directors themselves or between any members of the company or between the company and any person, then the same will be referred to arbitration. The jurisdiction of the court under Sections 397 and 398 of the Companies Act, 1956 or under Section 433 is concerned with the management of the company in the special circumstances provided in Sections 397 and 398 or for winding up when the situation provided in Section 433 arises. This is a statutory jurisdiction which cannot be ousted by arbitration clause. 60. In Manavendra Chitnis's case (supra) it was observed as under;- It is abundantly clear that merely because there is an arbitration clause or an arbitration proceedings or for that matter an award, the Court's jurisdiction under Ss. 397 and 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
