Arbitration clause did not cover the entire share dispute, so stay of Company Law Board proceedings was refused.

A dispute over rectification of the register of members and title to shares was only partly covered by a wide arbitration clause in a share sale agreement. The question whether the purchaser acquired title under the contract was referable to arbitration, but the company's own removal of the purchaser's name from the register on the ground of alleged lack of RBI approval had to be examined separately and was outside the arbitration agreement; the company was also not a party to that agreement. Stay of the Company Law Board proceedings under section 34 of the Arbitration Act, 1940 was therefore not warranted, because the matter involved non-arbitrable issues, a necessary non-signatory party, and no sufficient ground for discretionary stay.

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Issues: (i) whether the dispute concerning rectification of the register of members and title to shares was wholly referable to the arbitration clause in the share sale agreement; (ii) whether proceedings before the Company Law Board should be stayed under section 34 of the Arbitration Act, 1940.

Issue (i): whether the dispute concerning rectification of the register of members and title to shares was wholly referable to the arbitration clause in the share sale agreement.

Analysis: The agreement contained a wide arbitration clause covering disputes arising out of or in connection with it, and the question whether the purchaser had acquired title under the contract was capable of being referred to arbitration. However, the proceedings before the Company Law Board were not confined to that issue alone. They also required examination of whether the company's own action in removing the purchaser's name from the register of members was justified on the stated ground of lack of RBI approval. That issue arose from the company's action and was outside the arbitration agreement. The company whose action was challenged was also not a party to the arbitration agreement.

Conclusion: The dispute was only partly covered by the arbitration clause and was not wholly referable to arbitration.

Issue (ii): whether proceedings before the Company Law Board should be stayed under section 34 of the Arbitration Act, 1940.

Analysis: Stay under section 34 was discretionary. Even though one aspect of the dispute fell within the arbitration clause, the proceeding before the Company Law Board also involved issues outside the clause and involved a necessary party who was not bound by the arbitration agreement. The arbitration contemplated a foreign tribunal, but the contract was entered into and performed in India, the evidence was located in India, and the claim arose in India. In these circumstances, no sufficient ground existed to exercise discretion in favour of a stay.

Conclusion: The request for stay was rightly refused.

Final Conclusion: The appeal failed because the proceeding before the Company Law Board was not confined to arbitrable issues and the discretionary power to stay the matter was not warranted.

Ratio Decidendi: Where a proceeding includes issues beyond the arbitration agreement and involves a necessary party who is not bound by that agreement, a stay under section 34 of the Arbitration Act, 1940 is not justified as a matter of discretion.

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