TMI Blog1999 (1) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant (non-petitioner before the learned company judge) is commercially insolvent and is unable to discharge its liability to pay off the admitted debts in terms of the demand made by the respondent (petitioner before the learned company judge). In the said petition, it has been averred that the respondent had supplied poly cable wrap to the appellant between February 21, 1995, and August 31, 1996, in pursuance of various purchase orders placed by the latter but it failed to pay ₹ 2.09 crores with interest at the rate of 24 per cent. In support of its plea for winding up of the appellant, the respondent relied on letters, annexures P-3, dated December 12, 1996, P-5 dated December 31, 1996, and P-8 dated February 24, 1997, as well as the minutes of the meeting held between the officials of the two companies (annexure P-7) and the notice annexure P-9, dated June 18, 1997, sent by its counsel to the appellant under section 434 of the 1956 Act. It also relied on the letters, annexure P-4, dated December 25, 1996, and annexure P-6, dated January 7, 1997, written by the appellant admitting its liability to pay the amount due. 3. After service of the notice of Company Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up petition filed by the respondent cannot be treated as ousted by virtue of the arbitration clause contained in the purchase orders. Learned counsel argued that the arbitration clause cannot be invoked in this case because the appellant never disputed its liability to pay the amount in terms of the demand made by the respondent. Shri Chhibber relied on Tirlok Chand Jain v. Swastika Strips (P.) Ltd. [1990] 2 PLR 655; [1991] 70 Comp Cas 197 (P H); State of U. P. v. Janki Saran Kailash Chandra, AIR 1973 SC 2071 and Rachappa Guruadappa v. Gurusiddappa Nuraniappa AIR 1989 SC 635. 6. With a view to appreciate the respective contentions in the correct perspective, we may notice clause 14 of the purchase order and section 8 of the 1996 Act. The same read as under : Clause 14 of the purchase order : 14. Arbitration : Any dispute, questions of difference whatever shall arise between the suppliers and the purchaser in relation to or in connection with this order, the same shall be referred to arbitration within the meaning of the Indian Arbitration Act or any statutory mediatorial Act. Section 8 of the 1996 Act : Power to refer parties to arbitration where there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its liability to pay the amount demanded by the respondent. In the letter dated December 25, 1996, it conveyed its unequivocal willingness to pay the amount due subject to some clarification. In the letter dated January 7, 1997 (annexure P-6), the appellant conveyed to the respondent that the dues will be cleared most probably by the end of March, 1997. Before the learned company judge also, the appellant did not project the existence of any dispute or difference on the issue of payment of the dues to the respondent. Thus, there is no escape from the conclusion that the appellant did not have the occasion to invoke the arbitration clause for settlement of the dispute between the parties. As a logical corollary, it must be held that the order passed by the learned company judge does not suffer from any legal error. 9. In view of our abovementioned finding on the issue of applicability of section 8 of the 1996 Act, we do not consider it necessary to deal with the question whether by making request for adjournment for the purpose of filing of written statement, the appellant disentitled itself from invoking section 8 of the 1996 Act. 10. The judgments relied upon by learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to the arbitration agreement, in seeking the winding up it does not do so only on his own behalf but also on behalf of others, as observed in the earlier part of the judgment. It has been observed in O. P. Gupta v. Shiv General Finance (P.) Ltd. MANU/DE/0093/1975, that where there is an arbitration clause in the memorandum of association to refer any dispute amongst the members to the arbitrator, the party cannot seek the stay of proceedings under section 34 of the Arbitration Act in proceedings under sections 397 and 398 of the Act as section 9 of the Companies Act overrides the memorandum and articles, etc., which are contrary to the provisions of the Companies Act, secondly, on the ground that sections 397, 398 and section 434 deal with the jurisdiction for winding up or to regulate and manage the affairs of the company, is within the jurisdiction of the court and cannot be referred to the arbitration. It was further observed that it is the duty of the court to protect the interest of the creditors, etc., though a reference has been made that there have to be strong circumstances to stay the proceedings and refer them to the arbitrator. It is essentially for the court to dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Ltd. [1981] 51 Comp Cas 11 (P H) has observed on page 14 that the arbitration clause does not even, after referring the disputes to an arbitrator, take away the jurisdiction of the company court, for winding up. It has been categorically laid down that 'what is presupposed by learned counsel is that the mere existence of an arbitration clause in the agreement would take away the jurisdiction of the company court to entertain or dispose of any suit or proceeding and any claim made by or against the company. But this approach is not legally tenable'. It would be reasonable to infer from the observations made above that mere existence of an arbitration clause in an agreement by itself would not debar or oust the jurisdiction of the company court in proceedings for winding up nor would it make it incumbent upon the company court to stay the proceedings till the decision of the arbitrator. It has been observed by me in the earlier part of the judgment that the company court has much wider jurisdiction. It can go behind the award. The winding up order not only enures for the petitioner but also for other creditors. Other creditors cannot be bound by the agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to succeed on point of law, yet no absolute right vests in a party to the arbitration agreement to use the arbitration clause by itself as a shield to winding up. It is for the party invoking the arbitration clause for stay of the proceedings, to satisfy the court that there is an arbitration clause and there is a bona fide dispute between the parties to the agreement and also there is a prima facie bona fide defence available to the applicant which requires determination by the arbitrator before passing of the order for winding up of the company on the grounds envisaged by section 433 of the Act. It is the court's discretion to pass a suitable order as demanded in the facts and circumstances of each case, as observed in the earlier part of the judgment. Therefore, it must be treated as a settled proposition of law that the arbitration clause does not ipso facto oust the jurisdiction of the company court to entertain a winding up petition and the party invoking the arbitration clause for making a request to the company court to refer the matter to arbitration must satisfy the said court that there is a bona fide dispute between the parties to the agreement which requir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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