Arbitration clause in shareholders' agreement bound signatories and non-signatories, requiring referral of company-law disputes to arbitration.

A judicial authority must refer parties to arbitration under Section 45 where a valid arbitration agreement exists and no statutory disqualification is shown. An application filed before any first statement on the substance of the dispute was held timely, and procedural objections were cured by ratification. The arbitration clause also bound non-signatory petitioners because their claims were directly connected to the shareholders' agreement and could not be meaningfully separated from the signatories' claims. Disputes framed as oppression and mismanagement under Sections 397, 398 and 402 were still referable to arbitration because the controversy arose from the agreement and no separate non-arbitrable dispute justified refusal of reference.

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Issues: (i) Whether the application for reference to arbitration was maintainable before filing of the first statement on the substance of the dispute. (ii) Whether parties who were not signatories to the shareholders' agreement could be bound by its arbitration clause. (iii) Whether disputes under Sections 397 and 398 of the Companies Act, 1956, involving reliefs under Section 402, were nevertheless referable to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996, and whether bifurcation of causes of action or parties barred such reference.

Issue (i): Whether the application for reference to arbitration was maintainable before filing of the first statement on the substance of the dispute.

Analysis: Section 45 requires a judicial authority to refer parties to arbitration when a valid arbitration agreement exists, unless the agreement is null and void, inoperative, or incapable of being performed. The application was filed before any first statement on the substance of the dispute was submitted. A preliminary offer to buy out the petitioners did not amount to a substantive statement on the dispute. Procedural objections relating to signatures on the application were cured by ratification and could not defeat the request for reference.

Conclusion: The application was held to be timely and maintainable, in favour of the respondents.

Issue (ii): Whether parties who were not signatories to the shareholders' agreement could be bound by its arbitration clause.

Analysis: The agreement was relied upon by all petitioners as the foundation of relief. Some petitioners were non-signatories only because they were not members when the company came into existence, but their interests and claims were directly connected with the agreement and the company created under it. The factual and legal assertions of signatories and non-signatories were intertwined, and the dispute could not be meaningfully separated for different fora. On these facts, the arbitration clause extended to them.

Conclusion: The arbitration agreement was held binding even on the non-signatory petitioners, against the petitioners.

Issue (iii): Whether disputes under Sections 397 and 398 of the Companies Act, 1956, involving reliefs under Section 402, were nevertheless referable to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996, and whether bifurcation of causes of action or parties barred such reference.

Analysis: The substratum of both company petitions was breach of the shareholders' agreement, which contained an arbitration clause. The disputes concerning removal and appointment of the managing director and the challenged circular resolutions were all traced to that agreement. The possibility that an arbitrator cannot order winding up or exercise every power under Section 402 did not prevent reference of the contractual disputes to arbitration. The court also found no separate non-arbitrable dispute warranting refusal of reference, and no impermissible bifurcation arose because the entire controversy was anchored in the arbitration agreement. Under Section 45, the judicial authority had no discretion once the statutory conditions were satisfied.

Conclusion: The disputes were held arbitrable and were required to be referred to arbitration, against the petitioners.

Final Conclusion: The company petitions were displaced by the mandatory arbitral forum because the disputes arose from a valid arbitration agreement and fell within its scope.

Ratio Decidendi: Where a valid foreign-seated arbitration agreement covers the substance of the dispute, and none of the statutory disqualifications under Section 45 are established, the judicial authority must refer the parties to arbitration even if the disputes are framed under company-law oppression and mismanagement provisions.

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