TMI Blog2014 (8) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... r Malhotra, Sapphire Properties Pvt. Ltd., RSM Properties Pvt. Ltd., Veena Rajinder Malhotra Versus Super-Max International Pvt. Ltd., Vidyut Metallics Pvt. Ltd., Abhishek Kumar, Jaanvi Tekchandani, Unique Properties Securities Pvt. Ltd. , Jasraj Bhagwandas Goyal, Talla Nageshwar Rao, Gopal krishna Vittal Nayak, Supermax International Pvt. Ltd., Alexandar G. Tone, Transauto Mechaids Pvt. Ltd., Rakesh Malhotra, Paresh Biharilal Vyas, Mohamed Hanif Mohamed Ismail Shaikh, Sunil Raj, Hanif Mohd Ismail Shaikh, Subhash D. Chaudhari, DhruRakesh Malhotra and Ors. Versus Rajinder Kumar Malhotra and Ors. G.S. Patel, J. For Appellant: D.D. Madon, Senior Advocate, Simil Purohit, Amol Baware, V.S. Charalwar, Udwadia Udeshi Argus Partners, Aspi Chinoy, Senior Advocate, J.P. Sen, Senior Advocate and M.S. Doctor, i/b Federal Rashmikant For Respondents: D.D. Madon, Senior Advocate, Simil Purohit, Amol Baware, V.S. Charalwar, Udwadia Udeshi Argus Partners, Aspi Chinoy, Senior Advocate, J.P. Sen, Senior Advocate and M.S. Doctor, i/b Federal Rashmikant JUDGMENT G.S. Patel, 1. Is a dispute brought before the Company Law Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 39 G. RKM s submissions regarding arbitration and the scope of Ss 397-402 of the Companies Act, 1956 ...................42 H. Rakesh s submissions regarding arbitration and the scope of Ss 397-402 of the Companies Act, 1956 ................... 79 I. Are disputes under Ss 397/398 and 402 of the Companies Act, 1956 arbitrable? ............................................89 J. The dressing up argument..................................................... 105 K. Was the CLB bound by the decision of the UK court? Section 13 of the CPC................................................................. 110 L. Maintainability of cross appeals/cross objections .......................137 M. The appointment of an observer by the CLB............................. 139 N. Conclusions final order ............................................................141 O. Stay of this order judgment..................................................... 143 List of authorities decisions cited ................................................ 150 continued/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive substantial funds in consideration. RKM, his wife and younger son would continue to hold the equity in these Indian companies. Private equity capital infusion into the overseas entities or holding companies was also envisaged. A consultancy/advisory firm was engaged. It identified a private equity investor. The principal object of the proposed restructuring was to allow RKM and Rajiv an exit from full-time involvement in the affairs of the Supermax group, while Rakesh was to assume control of the business. A Subscription and Shareholder Deed and, later, a Supplementary Deed were executed in 2010. The principal Deed had an arbitration clause providing for a London Court of International Arbitration in Geneva. There followed certain business restructuring agreements effecting the principal and supplementary agreements. Importantly, Rakesh was given sole authority to represent the Malhotra family in all these transactions. He also had sole bank account operating authority. Though Rajiv, too, had a similar authority, his was jointly with Rakesh. Clearly, the family had complete faith and trust in Rakesh. 6. RKM claims that Rakesh betrayed this trust. After the transfers w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and an attempt at 'dressing up' to evade an arbitration clause. 10. The Company Law Board also found that it was not bound by the earlier decision of 30th October 2012 of the UK Court, and that the disputes before it were covered by the arbitration clause. In view of my first finding, this issue would not arise and it was not, strictly speaking, necessary to decide it. But since I was addressed on these issues at great length I have addressed them as well. I have been unable to uphold the decision of the Company Law Board. I have found that the decision of the UK Court vacating the injunction was not covered by any of the exceptions to Section 13 of the Code of Civil Procedure, 1908; specifically, Section 13(c). It was, thus, binding on the Company Law Board. Consequently, and even independently, the Company Law Board's finding that the disputes before it were covered by the arbitration clause is incorrect in law. 11. As a result, I have dismissed Rakesh's appeals and allowed in part RKM's cross-objections/cross-appeals. 12. The Company Law Board in the impugned order also appointed a retired Judge of this Court as an independent Ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KM and Rajiv were to exit day-to-day involvement in the Supermax Group companies. Rakesh was to assume control of these. The restructuring envisaged private equity investment in the Supermax Group companies; and the RKM Companies were to transfer, sell or lease their assets, plants and businesses to the Supermax Group companies. The RKM Companies would receive, in consideration, substantial compensation from the infusion of private equity funds. Rakesh, for the Supermax Group, engaged a corporate financial advisory, one Allegro Capital Advisors Pvt. Ltd. ( Allegro ). Allegro, in turn, identified one Actis Emerging Markets 3 LP ( Actis ) as a source of private equity financing. Actis was to take an equity stake in SMOH, SMM and a new Indian company, Tigaksha Metallics Pvt. Ltd. ( TMPL ). 17. On 4th November 2010, a Subscription and Shareholder Deed ( SSD ) was executed between RKM, Rakesh, Rajiv, Actis and the controlling entities of the Supermax Group: Arvee Foundation, SMM, SMOH and TMPL. The SSD required Actis to bring in US$ 225 million for an equity subscription of 25-29.17% of the holding companies, SMOH and TMPL. The RKM Indian Companies (Transauto and its four subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llion was set aside in a separate account for a two-year period as a contingency fund to meet any claims raised by SPCPL. At about this time, the intellectual property holdings of SIPL were transferred to one Supermax IPR Holdings AG for US$ 20.13 million (about ₹ 90 crores). Unique sold its immovable property at Hyderabad for US$ 2.1 million (about ₹ 10.70 crores). As a result, the directors of the five Indian RKM Companies (the Five Transauto Companies), employees all, became the employees of the Supermax Group while continuing to be directors of the Indian RKM Companies. 20. Exactly five months after the SSD, almost to the day, on 4th March 2011, the parties executed a Supplemental Deed ( SD ). This amended some of the terms of the original SSD and added new ones. Taken together, the SSD and the SD (collectively, the SSD/SD ) now envisioned Rakesh being given control of the Supermax Group, with Actis, the private equity investor, holding 25-29.17% of the equity, as also the manufacturing units, assets and intellectual property rights, with RKM receiving US$ 53 million, or about ₹ 238 crores, in the RKM Companies that he controlled. 21. On 24t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany petitions (Company Petitions Nos. 11, 12, 13 and 14 of 2012) relating to Transauto, Unique, VMPL, SIPL in Mumbai and one Company Petition No. 14 of 2012 in relation to RCC before the CLB in Chennai. In these, RKM accused the directors of the Five Transauto Companies (all employees of Rakesh through the Supermax Group) of mismanagement and of acts oppressive to RKM, who held 100% of the equity of all five companies. Orders were also sought under Section 402 of the Companies Act, 1956, including for removal of the existing directors, appointment of new directors, setting aside the restructuring agreement and post-restructuring transactions. Wide interim orders were also sought, including, inter alia, restraining these directors and Rakesh from operating bank accounts, utilizing bank account balances, transferring assets and creating liabilities. 25. On 9th February 2012, the CLB Mumbai granted RKM ad-interim reliefs in all four petitions before it. The directors of those four Transauto companies were restrained from dealing with the assets of the companies, except for statutory and salary payments to employees. 26. On 15th February 2012, RKM issued a notice und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 2012, the continuance of the UK Court's anti-suit injunction meant that RKM could not move the CLB. 29. On 30th October 2012, Mr. Justice Walker of the Commercial Court in the Queen's Bench Division of the High Court of Justice, UK delivered a judgment on Rakesh's application for an injunction. It seems that the decision was first issued in draft and then finalized and ultimately issued in its final form on 9th January 2013. The decision is also available online at: http://www.bailii.org/ew/cases/EWHC/Comm/2012/3020.html) Walker J. held that the anti-suit injunction could not be allowed to continue. He found that RKM's Company Petitions only assailed post-transfer and post-restructuring dealings and transactions. On facts, he found that RKM was unaware of the securities and guarantees given by the Indian RKM Companies. He also held that, correctly read, Clause 18.10 of the SSD did not set out any agreement that Rakesh would be at liberty to use the funds of the Five Transauto Companies as he wished for the business of the restructured Supermax Group; and that Clause 41.1, which gave Rakesh wide authority on behalf of the Malhotra parties, was no carte b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that was done in a proceeding initiated by Rakesh. That finding was conclusive and binding, and Rakesh could not now re-agitate the same issue in another forum, having lost in the one of his choice. The third point of opposition was that, in and of themselves, petitions seeking reliefs under Sections 397 and 398 of the Companies Act, 1956, read with Section 402 could not be referred to arbitration at all. VIII. The impugned order 32. On 31st January 2013 came the impugned order. The CLB dismissed Rakesh's application for reference to arbitration under Section 45 of the Arbitration Act. RKM was allowed to reconstitute the boards of directors of three of the five companies (he had in late December 2012 held extraordinary general meetings to reconstitute the boards of SIPL and VMPL, but the CLB had ordered a status quo on those as well). The CLB appointed an independent Observer-cum-Facilitator on the Board of Directors of the Five Transauto Companies. I will examine the impugned order in some detail presently after completing the factual narrative. IX. The present Appeals 33. Rakesh filed the first four of the present group of appeals. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors and authorised signatories, as is Rakesh, of VMPL's bank accounts. 38. Company Petition No. 14 of 2012--the Supermax Petition: (RSM Properties Pvt. Ltd. v. SuperMax International Pvt. Ltd. Ors.) The Petitioner, RSM, is one of only two shareholders of SIPL. RSM itself is 100% owned by RKM and Rajiv (who hold 14,999 and one share respectively). The other shareholder of SIPL is Transauto, the 4th Respondent to this petition, with 99.9% of RSM's equity. Respondents Nos. 2 and 3 are directors. Respondents Nos. 5 to 9 are those with authority to operate the company's bank accounts; Rakesh is Respondent No. 6. 39. For completeness: the fifth petition (also numbered as Company Petition No. 14 of 2012) before the CLB Chennai is the RCC petition. The Petitioners are RKM, Rajiv's wife Kunika and Rajiv, being three of the company's four members. The fourth shareholder is Transauto. It holds 91.96% of RCC's equity, while RKM, Kunika and Rajiv hold the rest. Rakesh is the 8th Respondent, joined as the one authorised to operate RCC's bank accounts, as are Respondents Nos. 7, 10 and 11. The other respondents are directors. 40. The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d SIPL] deserves to be vacated? 43. Before me, almost the entirety of the discussion has been on the third of these. Clearly, this goes to the root of the matter. For, if the disputes raised in RKM's Company Petitions are not referable to arbitration at all, then Rakesh's Company Applications were correctly dismissed, and the CLB must then proceed with the Company Petitions on merits. The question of res-judicata speaks to the impermissibility of Rakesh seeking a reference to arbitration Walker J. having already held, on Rakesh's own application, that the disputes before the CLB fell outside the Arbitration Clause 43.2 of the SSD. Indeed, this is not an issue of res-judicata under Section 11 of the Code of Civil Procedure, 1908 so much as one under Section 13 of the Code. The issue arises only if it is held that the disputes raised and reliefs sought under sections 397, 398 and 402 of the Companies Act, 1956 are at all referable to arbitration in the first place. The maintainability question appears, at least from the CLB's order, to have been whether Rakesh's applications ought to be dismissed because the parties to the CLB petitions were not the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould perhaps set the arguments in what appears to me to be their correct logical sequence: (1) One, can disputes under sections 397 and 398 read with section 402 of the Companies Act, 1956, ever be referred to arbitration? (2) Two, if they cannot, the result is simple: the CLB must proceed with the petitions that are now before it, and no question then any longer arise of any reference to arbitration of those disputes, or even whether the arbitration clause is wide enough to cover these disputes and whether Walker J.'s decision was binding on the CLB. (3) Three, if, on the other hand, disputes under sections 397 and 398 read with section 402 of the Companies Act, 1956 are referable to arbitration, as Mr. Madon, learned Senior Counsel for Rakesh, suggests, then whether Walker J.'s decision concluded the question in such a way that the CLB could not even have considered it? and, consequently: (a) If the CLB was bound by Walker J.'s decision, then the same result as in (2) above must follow, i.e., that the CLB must proceed with the Company Petitions before it; (b) If the CLB was correct in holding that it was not bound by Walker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution while retaining others for a determination by the CLB. 50. First, the provisions of the statute. Sections 397, 398, 399 and 402 of the Companies Act, 1956 read: Sec. 397--Application to Company Law Board for relief in cases of oppression. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under subsection (1), the Company Law Board is of opinion (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Company Law Board may, with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorize any member or members of the company to apply to the Company Law Board under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of subsection (1) are not fulfilled. (5) The Central Government may, before authorizing any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Company Law Board dealing with the application may order such member or members to pay to any other person or persons who are parties to the application. Sec. 402--Powers of Company Law Board on application under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide. 5. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company. That could obviously not be referred to the arbitration and, therefore, the High Court, in our opinion was right in rejecting the application. (Emphasis supplied) 52. The same reasoning, Mr. Chinoy submits, must extend to every application under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is that of a Division Bench of this Court in Bennett Coleman Co. v. Union of India Ors. 1977(47) Comp Cas 92 The Court in that case was concerned inter alia with the powers of the court when acting in proceedings instituted under section 397 or 398 read with Section 402 of the Companies Act, 1956.5 In that case, the order under appeal had directed reconstitution of the Board of Directors. The Division Bench addressed the question of the ambit of the court's jurisdiction and amplitude of the orders under these sections. The submission before the Division Bench was that the court's powers under these sections must be ready as subject to other provisions of the Act dealing with normal corporate management. This submission was explicitly rejected as the court (in our case the CLB), the Division Bench held, has the power to supplant the entire corporate management or rather corporate mismanagement even by appointing an administrator or a special officer or a committee of advisors to take charge of the affairs of the company. The Division Bench specifically rejected the argument that the absence of a non-obstante clause in these sections was of any significance. The fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secretaries and treasurers; Chapter IV-A deals with powers of the Central Government to remove managerial personnel from office on the re-commendation of the Tribunal; Chapter V deals with arbitration, compromises, arrangements and reconstructions; Chapter VI, which includes sections 397 to 409, deals with prevention of oppression and mismanagement; Chapter VII deals with constitution and powers of advisory committee and Chapter VIII contains miscellaneous provisions. It will thus be seen that section 255 on which substantially the entire argument of Mr. Sen is based is to be found in Chapter II which deals with directors and the constitution of the board, through which agency the corporate management of the affairs of a company is usually undertaken, while Chapter VI, which contains material provisions from sections 397 to 409, deals with matters pertaining to prevention of oppression and mismanagement arising out of corporate management. In other words, it is very clear that Chapter II which includes section 255 deals with corporate management of a company through directors in normal circumstances, while Chapter VI deals with emergent situations or extraordinary circumstances whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers; if the legislature had desired that the court's powers while acting under section 397 and 398 read with section 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Under section 397 read with section 402 power has been conferred on the court to make such orders as it thinks fit if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up with a view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court's orders and directions issued thereunder must be in consonance with the other provisions of the Act. There is another aspect of sections 397, 398 and 402 which also shows that no such limitation as is sought to be suggested by Mr. Sen can be read on the court's power while acting under the sections. Section 397 clearly suggests that the court must come to the conclusion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up before any order could be passed by it. In other words, instead of destroying the corporate existence of a company the court has been enabled to continue its corporate existence by passing such orders as it thinks fit in order to achieve the objective of removing the oppression to any member or members of a company or to prevent the company's affairs from being conducted in a manner prejudicial t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 402 the court thought fit to have recourse to a mode of corporate type of management, for example, if the court felt proper to have a board of directors for future management, then such corporate mode of management to be provide by the court should conform to other provisions of the Act dealing with corporate management. It is not possible to accept this contention of Mr. Sen for two reasons. In the first place, if the court's power under these sections is wide enough to have the corporate management supplanted wholly or completely, it is difficult to understand why the court should not have power to make a partial inroad or encroachment and have a truncated form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to all the provisions dealing with corporate management. Secondly, it will all depend upon the facts and circumstances of each case as to how, in what manner and to what extent the court should allow the voice of the shareholders' directors on the board of directors to prevail over that of the other directors and we do not think that the court's powers in that behalf could in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, the two sets of circumstances in which the two sets of provisions would operate be mutually exclusive. Therefore, there is no question of a conflict necessarily arising between these two provisions and this, in our view, sufficiently explains the absence of a non-obstante clause in sections 397, 398 and 402 of the Act. It is true that while conferring powers on the Central Government to prevent oppression or mismanagement under section 408 a non-obstante clause has been used. But, indisputably, there is substantial difference between the powers conferred upon the court under section 397 and 398 read with section 402 and the powers conferred upon the Central Government under section 408, inasmuch as on the powers of the court no restrictions or limitations of any kind have been put while restrictions and limitations have been placed on the Government's power to grant relief in cases of oppression and mismanagement. Even the manner in which, the extent to which and the period for which relief could be granted by the Government has been indicated and on account of this the provisions of section 408 would necessarily come in conflict with the other provisions of the Act deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the effect of achieving the desired result. ... Having regard to the above discussion, we are clearly of the view that the court had jurisdiction to reconstitute the board in the manner done in this case and such board is not violative of section 255 of the Companies Act and we are also of the further view that the learned judge had ample powers to alter the original article 95 of respondent No. 1-company in the manner done by him while acting under section 398 read with section 402 of the Act. ... In the context of the above question Mr. Phadke invited out attention to three decisions having a bearing on the court's powers under section 402 of the Act, namely, Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao [1956] 26 Comp Cas 91 (SC), Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR 1962 Ori 202 and Richardson Cruddas Ltd. v. Haridas Mundra [1959] 29 Comp Cas 549 (Cal). In the first two cases the question had arisen about the nature and scope of the court's power under section 397 read with section 402 (equivalent to section 153C of the old Act) while in the last case a question had arisen about the court's power under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced and the same are not subject to section 255 or the other provisions of the Act dealing with normal corporate management. The court had ample powers to reconstitute the board in the manner done and to reframe article 95 in the manner done and neither the reconstituted board nor the reframed article 95 are violative of section 255 or section 408 of the Act. The orders passed and directions given by the learned judge cannot be said to be either illegal or without jurisdiction. The contention with regard to illegality of the impugned orders and directions, therefore, must fail. (Emphasis supplied) 54. Bennet Coleman is not, Mr. Chinoy readily accepts, an authority for the proposition that no proceeding under Sections 397-402 of the Companies Act, 1956 can ever be referred to arbitration. He cites it only to show the nature, ambit, extent and source of power invoked under those sections. What Bennet Coleman holds is, therefore, that the CLB is not trammelled in what it can and cannot do while exercising its powers under these sections. A private arbitral tribunal on the other hand is no such plenipotentiary; it enjoys no such plenary authority. It certainly canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not exist, one must look at the source of that power. If an arbitrator cannot pass an order under section 402 of the Companies Act, 1956, then the matter must remain with the CLB. The reliefs sought cannot be carved up or parsed. They cannot be reshaped, reformed, broken down or reassembled into something that was never intended. No amount of sleek drafting can allow a matter squarely within the frame of sections 397, 398 and 402 to migrate to a private arbitral forum. 57. The decision of the learned Single Judge of the Delhi High Court in O.P. Gupta v. Shiv General Finance (P.) Ltd. Ors. [1977] 47 Comp Cas 279 (Delhi) followed the previous decision in Surendra Kumar Dhawan, explicitly citing it. Not only did the learned Single Judge in terms held that the provisions of sections 397 and 398 are entirely beyond the purview of an arbitration, but he also said that where a party seeks protection against oppression and mismanagement by the majority, it is useless to direct that the matter be referred to an arbitrator. For, such an arbitrator could not possibly exercise any power or pass any order under sections 402 or 403 of the Companies Act, 1956. 58. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Corporation Ltd. v. Pinkcity Midway Petroleums AIR 2003 SC 2881 to suggest that an arbitration clause made it obligatory for a court to refer parties to arbitration and that since in the Sporting Pastime case there was such an arbitration clause, the CLB was bound to refer the parties to arbitration. This submission was opposed inter alia by relying on the decision of the Supreme Court in Haryana Telecom. The learned Single Judge held that the reliefs claimed in the company petition were incapable of being granted by an arbitrator and that the statutory jurisdiction of the CLB could not be ousted by consent of the parties. The scope of sections 397 and 398 of the Companies Act, 1956 is distinct and the CLB's jurisdiction to deal with these disputes cannot be ousted by arbitration clause. The learned Single Judge upheld the CLB's rejection of the company applications seeking a reference of the disputes to arbitration. The appeals under section 10F of the Companies Act, 1956 were dismissed. 60. A contrary decision, also placed by Mr. Chinoy, is that of a learned Single Judge of the Delhi High Court in Vijay Sekhri Ors. v. Union of India Ors. MANU/DE/3259/2010 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied sections. A matter under Sections 8 or 45 of the Arbitration Act must necessarily be one that can be referred to arbitration in the first place. For example, a matter under sections 433 and 434 read with Section 443 of the Companies Act, 1956 cannot be referred to arbitration. Similarly in a petition complaining of oppression and mismanagement, the matter is the one under sections 397 and 398. This, he submits, is what Haryana Telecom holds albeit in the context of a winding up petition. Bennett Coleman is a decision cited only to describe the nature of the power and to show that these sections dealing with oppression and mismanagement are not circumscribed by other provisions of the Companies Act, 1956. Section 402 must be read with sections 400 and 404 to 407. Section 406 makes applicable sections 539 to 544 which deal with offences antecedent to or in the course of winding up. These are very wide powers, and they are not only or always civil matters. The nature of the power under section 402 thus inherently means that such a matter cannot possibly be the subject of an arbitration agreement. It is not a question of what a party might or could have done or whether he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless barred. It is not possible to dress up a petition to get up of the arbitration clause.7 The court has a duty to hold the parties to the bargain they struck, including the arbitration clause. The CLB's jurisdiction is not in fact conferred by section 402 at all. It is conferred by sections 397 and 398. The fundamental mistake in Mr. Chinoy's approach, Mr. Madon submits, is in referring to the power or to the source of power. That is not relevant; what is of relevance is the dispute, for this is what is referred to arbitration. What an arbitrator can do in law with that dispute before him is another matter altogether. He may not in a given case be able to grant the same reliefs as the CLB might or to arrive at a resolution in the same manner or to the same extent as the CLB. This is wholly irrelevant. As long as the dispute is referable to arbitration, that reference must be made. This is the mandate of section 45 of the Arbitration Act. For, Mr. Madon submits, section 45 of the Arbitration Act makes no reference to relief or power but only to the dispute. 65. Mr. Madon submits that the Company Law Board while deciding this issue only considered the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clever drafting or even by resort to an abstract theory, that is, for all intents and purposes, an untenable plea for the ouster of jurisdiction of a civil court. 67. A civil court's jurisdictional exclusion is not to be readily inferred unless certain conditions apply. This has been decided by a five judge bench of the Supreme Court in Dhulabhai Ors. v. The State of Madhya Pradesh Anr. AIR 1969 SC 78. The Supreme Court in terms held that a civil court's jurisdiction is excluded where a statute gives finality to the orders of a special tribunal of competing jurisdiction, if there is an adequate remedy to do what civil court would normally do in a suit. This does not exclude that class of cases where the provisions of a given statute are not complied with or where a statutory tribunal has acted otherwise than in accordance with the fundamental principles of judicial procedure. However, where there is an express bar to a court's jurisdiction, an examination of the statutory scheme to determine the remedial statutory sufficiency is relevant but not determinative in sustaining the jurisdiction of a civil court. It is only where there is no express exclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the High Court under its Letters Patent was expressly or impliedly excluded in view of the provisions of the Arbitration Act. The Supreme Court held that like its predecessor, the 1940 Act, the 1996 Act, too, is a complete and exhaustive self-contained code. It carries with it a negative import that only those acts mentioned in the Act are permissible; acts or things not mentioned therein are impermissible. In other words, a Letters Patent appeal is excluded by the provisions of the 1996 Act. 70. The statutory imperative is, in Mr. Madon's submission, that full effect must necessarily be given to binding arbitration agreements. The Supreme Court's decision in World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.9 inter alia held that all civil courts must follow the legislative mandate of Sections 44 and 45 of the Arbitration Act. It is only if the agreement is null and void, inoperative or incapable of any performance that a court will not refer the parties to arbitration. This is the only situation in which a reference to arbitration can be declined. In the present case, nobody suggests that the arbitration agreement is null and void or is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no choice in the matter. This issue is no longer res integra, having been now concluded, most recently by Swiss Timing. It is, Mr. Madon submits, therefore wholly illogical to say that an action seeking an alternate remedy under Sections 397 and 398 by the same party under the same agreement cannot or should not be referred to arbitration, although, had that very party come to a civil court, the reference to arbitration was inevitable. 73. The authorities cited by Mr. Chinoy do not, Mr. Madon submits, establish his proposition at all. The reliance on Haryana Telecom is, Mr. Madon submits, wholly misdirected. That was a decision in a winding up proceeding. That is a proceeding in rem not a proceeding in personam. This means that even if a petitioning creditor in a winding up petition seeks to withdraw, any other creditor can stepped in and take his place. This is not possible in a proceeding under Sections 397 and 398. Bennett Coleman does not actually deal with the question at all. It only sets out what the CLB's powers are under Section 402. It does not address the question of jurisdiction. The decision of the learned Single Judge in Leela Chitnis Studios does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand Mr. Chinoy's submission to mean that Sections 397, 398 and 402 operated to exclude or oust the jurisdiction of a civil court at all. To the contrary: I understood him to say that a regular civil suit by a minority shareholder, one which is, as at least two Courts have said, among the time-honoured exceptions to the rule in Foss v. Harbottle , is always maintainable. In such a suit too, reliefs can be sought on a cause of action of oppression and mismanagement. CDS Financial Services makes it clear that it is no defence at all in such a suit to say that the Plaintiff should have gone to the CLB in a company petition under Sections 397 and 398. Mr. Chinoy's submission is directed rather at the nature and source of the power and the reliefs sought from the CLB in an oppression and mismanagement petition under Sections 397, 398 and their cognate sections of the Companies Act, 1956. Although a civil court can entertain an action in oppression and mismanagement, it cannot possibly exercise, even under Section 9 of the CPC, the kind of power with the CLB can under Section 402 of the Companies Act. Such a civil suit is almost always an action in personam. A Section 397/398 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration. (Emphasis supplied) 78. I would imagine that in itself this leads us to a clear distinction between what a civil court can do in a minority shareholder action and what specially-empowered authority like the CLB can do in a petition under Sections 397 and 398 of the Companies Act, 1956. Barring an express restriction on jurisdictional power, such as a probate action or one relating to a tenancy, an arbitral tribunal can do what a civil court can do. This is not true of the very special powers of the CLB under Sections 397, 398 and 402 of the Companies Act, 1956. 79. In particular if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement. But just as a petition cannot be 'dressed up' to evade an arbitration agreement, a bona fide petition, not one that is vexatious, oppressive or mala fide, and genuinely seeks broader reliefs to prevent acts of oppression and mismanagement cannot be, as it were, defrocked, its thesis unseated and its constituent elements so parsed, dissected and carved up as to drag it into an arbitral dispute only because there happens to be an arbitration agreement. The mistake, I believe, is in seeing every arbitration agreement as some catch-all, encyclopaedic repository for the entirety of the universe of disputes between parties. It is not necessarily so. Conceptually, too, a petition under Sections 397 and 398 of the Companies Act is not necessarily or always relatable to an arbitration agreement. It may speak to a pattern of conduct of clandestine non-contractual actions that result in the mismanagement of the company's affairs or in the oppression of the minority shareholders, or both. In such a petition, even if there is an arbitration agreement, it does not necessarily follow that every single act complained of must, ipso facto, relate to that arbitration agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if a tribunal purports to deal with them the resulting award will be unenforceable. These include matters where the type of remedy required is not one which an Arbitral Tribunal is empowered to give. The subsequent edition of Russell (23rd Edn., p. 470, Para 8.043) merely observes that English law does recognise that there are matters which cannot be decided by means of arbitration. 41. Mustill and Boyd in their Law and Practice of Commercial Arbitration in England (2nd Edn., 1989), have observed thus: In practice therefore, the question has not been whether a particular dispute is capable of settlement by arbitration, but whether it ought to be referred to arbitration or whether it has given rise to an enforceable award. No doubt for this reason, English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not. ... Second, the types of remedies which the arbitrator can award are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the State. For example, he cannot impose a fine or a term of imprisonment, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company. That could obviously not be referred to arbitration and, therefore, the High Court, in our opinion was right in rejecting the application. (emphasis supplied)10 83. Booz Allen arose in a suit that was held by the Supreme Court to be one for enforcement of a mortgage by a sale, a matter that would result in a judgment in rem, and consequently, one that was not arbitrable. To my mind, this decision alone fully answers Mr. Madon's submissions on Haryana Telecom and quite clearly supports Mr. Chinoy's postulate. Booz Allen also refers to the Supreme Court decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya 11 to affirm that a bifurcation of a cause of action in a suit is an impermissible procedure beyond the contemplation of the Arbitration Act. It must therefore follow that where a petition under Chapter VI of the Companies Act, 1956 seeks reliefs some of which are in the nature of reliefs in rem and others that are in personam, then it is not possible or permissible to sever one from the other and disassemble such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be answered in his favour. The disputes in a petition properly brought under Sections 397 and 398 read with Section 402 are not capable of being referred to arbitration, having regard to the nature and source of the power invoked. J. The Dressing Up Argument 86. Does this mean that the CLB cannot even entertain an application under Sections 8 or 45 of the Arbitration Act and must dismiss it in limine? After all, Mr. Madon's case is that an arbitration agreement is a primary legislative imperative. My acceptance of Mr. Chinoy's submission proceeds on the a priori basis that the Section 397 and 398 petition before the CLB is one that is properly brought, validly invoking the CLB's powers under Section 402 of the Companies Act, 1956. A petition that is merely 'dressed up' and seeks, in the guise of an oppression and mismanagement petition, to oust an arbitration clause, or a petition that is itself vexatious, oppressive, mala fide (or, at any rate, not bona fide) cannot be permitted to succeed. In assessing an allegation of 'dressing up', the Section 397 and 398 petition must be read as a whole, including its grounds and the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Emphasis supplied) 87. Thus, when the CLB finds in favour of the respondent on his showing that the entirety of the petition, including the reliefs sought, are within the scope of an arbitration agreement, it will dismiss the petition, thus guarding against the mischief of 'dressing up', a dishonest attempt to escape an arbitration clause. 88. I must confess that I had the gravest misgivings about Mr. Chinoy's submission, one that came in response to my query on this aspect, that this must necessarily mean that the CLB cannot even entertain an application under Sections 8 or 45 of the Arbitration Act. I thought that that submission to be overbroad. I so indicated. Mr. Chinoy urged me to reconsider. Once a petition under Chapter VI is dismissed, even on the ground that it is 'dressed up' to avoid an arbitration clause, he submits that there then remains nothing to 'refer to arbitration'. After all, it is the petition, with the disputes it raises, that would be referred to the private tribunal; therefore, if the petition is dismissed, there is nothing to refer to arbitration. 89. I have, at Mr. Chinoy's instance, given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mala fide, vexatious and 'dressed up' and that the reliefs sought are such as can be resolved by a private arbitral tribunal. To hold otherwise would be to say that even a dressed up petition cannot be referred to arbitration. I see no reason why the CLB should be denuded of its powers in that situation. It is, after all, a judicial authority within the meaning of the Arbitration Act. The jurisdictional exclusion of Section 402 cannot be extrapolated to a mischievous and 'dressed up' petition. That would be wholly contrary to Swiss Timing, Pinkcity, Fuerst Day Lawson and others. The injustice in such a case is manifest. It must follow, therefore, that the CLB always retains the power to refer the disputes in a petition that is mischievous, vexatious, mala fide and 'dressed up' to arbitration. K. Was the CLB bound by the decision of the UK court? Section 13 of The CPC; 92. Walker J. considered, in his extremely elaborate and careful decision, whether the disputes in the Company Petitions before the CLB were covered by the arbitration clause of the SSD/SD. Rakesh's case for injunction in the Commercial Court of the Queen's Bench Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (d) where the proceedings in which the judgment was obtained are opposed to natural justice; (e) where it has been obtained by fraud; (f) where it sustains a claim founded on a breach of any law in force in India. 96. For our purposes, the relevant clause is Section 13(c), it being the case that Walker J.'s decision is contrary to that of the Supreme Court in Chloro Controls. 97. There is no doubting the first proposition advanced by Mr. Chinoy that Section 13 of the CPC is always available as a defence. Chockalingam v. Duraiswami Ors., MANU/TN/0233/1927 : AIR 1928 Madras 327 Of greater relevance, however, is the decision of a Division Bench of this Court in Brijlal Ramjidas Anr. v. Govindram Gordhandas Seksaria Ors., MANU/MH/0114/1943 : AIR 1943 Bom 201 affirming the view of Chagla, J. (as he then was), sitting singly. The facts are interesting. Two merchants in Indore referred their disputes to the Prime Minister of the then state of Indore as an arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parcq of the Privy Council said: 8. Some difficulty has been occasioned in the interpretation of Section 13 by the definition of judgment contained in Section 2. Notwithstanding this definition, their Lordships agree with the learned Chief Justice that the expression foreign judgment in Section 13 must be understood to mean an adjudication by a foreign Court upon the matter before it. The Chief Justice pointed out that it would be quite impracticable to hold that 'a foreign judgment' means a statement by a foreign Judge of the reasons for his order, since if that were the meaning of 'judgment' the other section (viz. Section 13) would not apply to an order where no reasons were given. 12.... The matter which was directly adjudicated upon by the High Court of Indore was the validity of the award. The order of the Court, which was left standing after the appeal, was to the effect that the award had been properly filed and that the objections to it must be dismissed, and in their Lordships' opinion that order was a judgment within Section 13 of the Code of Civil Procedure, which is conclusive between the parties as to the validity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.)] 72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, intention of the parties is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties. 73. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for ach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitration jurisprudence. Even the ICCA's Guide to the Interpretation of the 1958 New York Convention also provides for such situation, stating that when the question arises as to whether binding a non-signatory to an arbitration agreement could be read as being in conflict with the requirement of written agreement under Article I of the Convention, the most compelling answer is no and the same is supported by a number of reasons. 103. Various legal bases may be applied to bind a non-signatory to an arbitration agreement: 103.1. The first theory is that of implied consent, third-party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. 103.2. The second theory includes the legal doctrines of agent-principal relations, apparent authority, piercing of veil (also called the alter ego ), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law. 104. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1856. 101. Correctly read, the basis of Mr. Justice Walker's finding that the CLB disputes are not covered by the arbitration Cl. 43.2 of the SSD is not that the parties to the SSD and to CLB petitions were dissimilar. In paragraph 26, this is mentioned but only as a factual narrative. 26. As noted above, Rakesh says that funds paid to the Transauto companies were to be at his disposal for working capital of the business. Ms. Weaver rightly points out that the Transauto companies are not parties to the SSD, that the SSD does not contain any express obligations or restrictions on them in relation to the payments received, that the SSD does not impose any express obligation on Mr. Malhotra senior or Rajiv as to how these payments are to be used once they have reached the Transauto companies, and that no provision in the SSD expressly requires the Transauto companies to provide any loan or other financial support to the Supermax Group. 102. This is in no sense a defence to the arbitrability claim based on dissimilarity of parties. Indeed, paragraphs 175 to 178 and 183(1) to (4) of Mr. Justice Walker's judgment make it clear that the basis of his fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. Unless the claims against the other respondents in India were vexatious or oppressive, the Indian petitioners would in my view be fully entitled to say that as between them and the relevant respondent there was no agreement to arbitrate. ... 183. Also for completeness I record here some comments on matters relied on by Rakesh in order to distinguish Stonehouse v. Jones. Mr. Calver asserted that none of the Californian claims in that case was founded on the relevant agreement: that seems to be equally true of the Indian claims in the present case. Mr. Calver added that there was no suggestion that the Californian claims could be defended on the merits. To my mind that had little if any relevance to the decision. As to the matters identified by Mr. Calver in his eight specific points of distinction, I deal with them in the same way as in the preceding section: (1) The complaint in India is mismanagement of assets in the Citibank accounts by allowing them to be used to guarantee loans to the new business --this is one of the complaints (as to which see below); it and the other complaints are legitimate matters for shareholders to raise in company law pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Justice Walker's decision is contrary to that of our Supreme Court in Chloro Controls, or even that the question of referrability to arbitration was decided on the basis that the parties to the SSD were not the parties before the CLB or vice-versa. Mr. Justice Walker's decision on the question of referrability was decided expressly on the basis that the issues raised before the CLB fell outside the scope of the arbitration clause 43.2 in the SSD. 104. What Mr. Madon urges, based on paras 71 to 73 and 94 to 96 of Chloro Controls, is that whether or not there was an overarching (in the words of Chloro Controls, a mother ) agreement was a finding of fact by the CLB, one that is not assailable in a Section 10F appeal. Further, Mr. Justice Walker himself noted in paragraph 181 that it was for the CLB to decide whether or not the matter before it should be referred to arbitration. 181. I do not rule out the possibility that this court might grant an injunction restraining Mr. Malhotra senior and Rajiv from raising certain issues only in the Indian petitions. As it seems to me, however, in the ordinary course it would be for the Company Law Board to reach a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouping, it is difficult to see how the directors and bank account authorised signatories could ever be said to be claiming through Rakesh. They were certainly acting at his instance. They were not parties to the SSD, and could never have been. The SSD does not concern them, and they are not bound by any arbitration clause. There is no mother agreement in play here. The relief sought is their removal. The directors, and very possibly the authorised signatories too, were in a position where they had two masters but served well only one. They were directors of RKM's companies, but employed, post-restructuring, by Rakesh. RKM and Mrs. Veena Malhotra wholly owned Transauto. Between them, these three along with Rajiv and Mrs. Kunika Malhotra wholly controlled every one of the other first respondent companies (with Rakesh having a negligible holding in one respondent company). Yet the directors of these companies acted in a way that was contrary to the interests of the only shareholders and owners. As Mr. Justice Walker points out, most egregious of all is the refusal of these directors to disclose information and accounts to the effective owners and only shareholders of the first r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the central discussion in Swiss Timing. The first, though, was whether the disputes arose out of or relating to the agreement in question. This was dispensed with in short order in paragraph 15 (of the SCC report): 15. It is evident from the counter-affidavit filed by the respondents that the disputes have arisen between the parties out of or relating to the agreement dated 11-3-2010. On the one hand, the respondent disputes the claims made by the petitioner and on the other, it takes the plea that efforts were made to amicably put a closure to the agreement . I, therefore, do not find any merit in the submission of the respondent that the petition is not maintainable for non-compliance with Clause 38.3 of the dispute resolution clause. 111. Now if it is shown that the disputes in question in this case do not arise from or relate to the arbitration agreement, or that this question has been previously decided in a judgment that is conclusive on the point, then even on a fair reading of Swiss Timing, there is no question of reference to disputes to arbitration. 112. Equally dispiriting in the impugned order is the analysis of Chloro Controls, the SSD and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the frame of the SSD's arbitration clause. Mr. Chinoy is, I believe, entirely justified in describing this as perversity on a question of fact. 115. As the Supreme Court said in Dale Carrington Invt. (P) Ltd. v. P.K. Prathapan: (2005) 1 SCC 212 36. Section 10F refers to an appeal being filed on a question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and, therefore, the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for the appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration clause and, second, that the disputes were not referable to arbitration, implying that the petition was not dressed up to avoid the arbitration clause. These findings cannot possibly coexist. 119. Mr. Madon is correct in saying that an order referring parties to arbitration is not appealable. However, in the view that I have taken, a reference to arbitration can only be made by the CLB where it dismisses the oppression and mismanagement petition before it, i.e., when it finds that the disputes lie outside Section 402 of the Companies Act and are within the ambit of an arbitration clause. Ordinarily, Mr. Madon would have been justified in contending that once it is held that the disputes are within an arbitration clause, a reference to arbitration must follow and that order is not appealable. In this case, though, the CLB has done not one or the other. It has done both: held that the disputes are arbitrable being within the arbitration clause and at the same time that such disputes are not arbitrable being within the frame of Section 402. It could not have arrived at these mutually exclusive findings. A dispute cannot both be arbitrable and not arbitrable. It is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing deployment of the Transauto companies' funds in payment of consultancy fees and the liabilities foisted on those companies for bank facilities and loans granted to SPCPL, the newly-formed Indian company under Rakesh's control. To limit the observer-cum-facilitator to supervising the fair, smooth and transparent running of the respondent companies was one thing. To charge him with the doing of that which had, admittedly, already been done was, at the very least, pointless. The CLB does, as Mr. Chinoy says, have very wide and sweeping powers. But those powers, by their very nature, demand that they be used judiciously and carefully. 123. Mr. Chinoy is correct in his submission, therefore, that there was no warrant whatever for the appointment of an observer-cum-facilitator as made. N. Conclusions Final Order 124. I will return now to the questions for determination I framed earlier. (a) As to whether the disputes in a petition properly brought under Sections 397 and 398 read with Section 402 of the Companies Act, 1956 can be referred to arbitration, the answer is no, subject to the caveat that I have noted regarding a mala fid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions. 129. Mr. Madon refers to the various interim orders passed by the CLB. The first in time is a set of four orders (one on each petition) dated 9th February 2012 inter alia restraining the four respondent companies from utilizing their funds except for salaries and statutory payments and secondly from disposing of any assets. A later order of 7th November 2012 directed the maintenance of status quo as regards the shareholding, the constitution of the board of directors and the fixed assets of the companies. In addition, the interim orders of 9th February 2012 were continued. As I have noted in Section C of this judgment, this was followed by an order of 19th November 2012 that clarified that there was no injunction as regards Transauto's board of directors, but that it would continue for the other three companies. Mr. Madon then points out the order of this Court on admission of these petitions, passed on 7th February 2013, by which the CLB's orders of 9th February 2012 and 7th November 2012 were continued. This, he says, was clarificatory. 130. Now in the impugned order of 31st January 2013, the CLB has only permitted the reconstitution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the previous interim orders at least as regards the reconstitution of the boards. 133. Mr. Madon's response is two-fold. First, that the earlier interim orders were modified by the impugned order only to the extent of the question of reconstitution of the boards; the remaining portion, regarding the shareholding and fixed assets is unchanged and unchallenged. Also, he says, his challenge in these appeals is against the rejection of Rakesh's application for reference to arbitration. Implicit in that is, necessarily, a challenge to the order permitting a reconstitution of the four respondent companies' boards. 134. Between these rival submissions, where lies the greater equity? That, I believe, is the only question I must ask myself. Mr. Madon is not wrong in saying that a given state of affairs having continued for considerable period of time, and without objection or application for modification by the other side, a brief continuance is unexceptionable. But that argument, compelling though it is at first glance, only scratches the surface. Even given that the fabric of such separations or restructurings is seldom smooth and unwrinkled, there are tear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 136. In Mr. Madon's formulation I fear there is much that is lost in translation. Mr. Madon speaks of the crippling effect a reconstitution of the four respondent companies' boards will have on Rakesh's SuperMax group companies should the contracts between the two be terminated by the former. What does this mean except that Rakesh continues to believe (presumably on the basis of his assertion of an oral agreement or common understanding) that he has unfettered control and use of, and access to, the funds of the Transauto companies. To allow them a situation where they might compromise on contracts with companies in his own group is inequitable; but it matters not a whit that those very contracts expose the four respondent companies to very considerable financial risk, and even possibly ruin. Rakesh's Supermax companies must be protected and ring-fenced, even if this comes at the cost of the RKM-controlled four Indian Transauto companies. That they might as a result be placed in severe financial distress is apparently irrelevant. In a word: Rakesh must have the SuperMax group. He must also have the safety provided by the funds of the RKM Transauto group. RKM's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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