Fiduciary breach in a one-sided distributorship agreement can make the contract voidable and defeat its arbitration clause.

Article notes that applications under section 20 of the Arbitration Act are governed by Article 137 of the Limitation Act, so claims arising from defaults within three years of the application remain within time, while earlier portions may be left to the arbitrator after reference. It also explains that a director's fiduciary duty requires acting in the company's interest, and mere disclosure of interest does not validate a one-sided distributorship agreement that secures personal advantage and harms the company. On that reasoning, such an agreement is voidable at the company's instance, and an arbitration clause embedded in it does not survive avoidance.

---

---

Issues: (i) Whether the application under section 20 of the Arbitration Act was barred by limitation; (ii) Whether the agreement appointing the respondents as distributors was valid and enforceable, or was vitiated by fiduciary breach and unfairness so as to entitle the company to avoid it.

Issue (i): Whether the application under section 20 of the Arbitration Act was barred by limitation.

Analysis: Article 137 of the Schedule to the Limitation Act, 1963 governs applications under section 20 of the Arbitration Act. Even on the appellant's own case that limitation commenced with each default in payment, defaults occurring within three years of the application remained in time. Questions relating to any earlier portion of the claim were left for the arbitrator, once reference was made.

Conclusion: The application was not barred by limitation.

Issue (ii): Whether the agreement appointing the respondents as distributors was valid and enforceable, or was vitiated by fiduciary breach and unfairness so as to entitle the company to avoid it.

Analysis: A director stands in a fiduciary position and must act for the company's benefit, avoiding self-interest and conflict. Although disclosure of interest was made at the board meeting, that formality did not validate a transaction whose terms were heavily one-sided and worked to the detriment of the company. The agreement imposed a substantial minimum payment, shifted expenses back to the company, and conferred benefits on firms connected with interested directors. The arrangement was found to be not a genuine commercial bargain but one designed to secure personal advantage at the company's expense, making the contract voidable at the instance of the company. As the arbitration clause formed part of that agreement, it could not survive once the agreement itself was avoided.

Conclusion: The agreement was vitiated and voidable, and the company was entitled to avoid it.

Final Conclusion: The appeal succeeded, the order directing reference to arbitration was set aside, and the respondents' application under section 20 of the Arbitration Act was dismissed.

Ratio Decidendi: Disclosure of a director's interest does not save a transaction that, judged by fiduciary standards, is entered into for the director's personal advantage and to the company's detriment; such a contract is voidable at the company's instance, and an arbitration clause embedded in an avoided agreement does not survive.

---