1996 (10) TMI 372 - HC - Companies Law

Arbitration clause upheld as valid and enforceable, petition dismissed as time-barred.

The court dismissed the petition challenging the validity of the arbitration clause, holding it valid, enforceable, and binding. The petition was ... Arbitration agreement - Validity of, Directors - Validity of acts of Issues Involved:1. Legality, enforceability, and binding nature of the arbitration agreement.2. Basis of the arbitration agreement's legal and valid status.3. Limitation period for the petition under section 33.4. Maintainability of the petition under section 33.5. Entitlement of the petitioner to the reliefs sought.6. Relief to which the petitioner is entitled.Issue-wise Detailed Analysis:Issue No. 4: Maintainability of the PetitionDr. Ghosh, counsel for the respondents, argued that under section 33 of the Arbitration Act, a contract cannot be declared invalid or set aside. He highlighted that the petitioner challenged the entire contract, not just the arbitration clause, referencing the Calcutta High Court decision in *State of Bombay v. Adamjee Hajee Dawood & Co.* and the Supreme Court decision in *Orient Transport Co. v. Jaya Bharat Credit & Investment Co. Ltd.*, which held that only the arbitration agreement could be challenged under section 33. The petitioner's counsel, Mr. Shakdhar, countered by stating that a civil suit would not lie to challenge the existence or validity of an arbitration agreement, referencing decisions in *Khardah Ltd. v. Raymon Co. (India) (P.) Ltd.*, *Waverly Jute Mills Co. Ltd. v. Raymon Co. (India) (P.) Ltd.*, *U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P.) Ltd.*, and *Renusagar Power Co. v. General Electric Co.*. The court found that the petitioner primarily challenged the entire contract and not independently the arbitration agreement. However, considering the arguments, the court decided to address the issue of the arbitration agreement's applicability.Issue No. 3: Limitation Period for the PetitionThe lease agreements were entered into in 1983, 1984, and 1986, and the petition under sections 32 and 33 was filed in March 1993. The limitation period for filing such an application is three years, as per article 137 of the Limitation Act. The respondent argued that the petition was time-barred, as the petitioner had knowledge of the lease agreements and the arbitration reference by 1990. The petitioner claimed that the present management only gained full control in November 1988 and had no prior knowledge of the agreements. The court held that the petitioner, being a legal entity, had knowledge of the agreements and the arbitration proceedings by 1988 and 1990, respectively. Therefore, the petition filed in 1993 was barred by limitation.Issues Nos. 1 and 2: Legality and Validity of the Arbitration AgreementThe petitioner argued that the lease agreements and the arbitration clauses were invalid as they were not executed by an authorized person and were signed by the same individual on behalf of both companies. The respondent countered by citing the articles of association and a letter from the chairman authorizing the execution of the agreements. The court found that the articles of association empowered directors to enter into contracts and that the agreements were ratified by the petitioner's actions, such as making rental payments. The court also referenced the doctrine of indoor management and the principle that one person can enter into an agreement with himself and others, as upheld in *LIC v. India Automobiles & Co.*. Thus, the arbitration agreements were deemed valid and binding.Issues Nos. 5 and 6: Entitlement to ReliefsGiven the findings on the previous issues, the court concluded that the petitioner was not entitled to any relief. The lease agreements and the arbitration clauses were valid and binding, and the petition was dismissed with costs.Conclusion:The petition challenging the validity and existence of the arbitration clause was dismissed. The court held that the arbitration agreements were valid, enforceable, and binding, and the petition was barred by limitation. The petitioner's claims were not upheld, and no relief was granted.