2004 (2) TMI 707 - HC - Companies Law

Arbitration Claim Abandoned: Court Rules CLB Jurisdiction Prevails, Dismissing Appeal for Reliefs Beyond Arbitrator's Scope.

The Ct. concluded that Group A abandoned its arbitration claim by engaging with the Company Law Board (CLB) and filing a suit in the Delhi HC, thus ... Oppression and mismanagement - challenged the order of the Company Law Board - Abandonment of the claim to arbitration and the acquiescence to the jurisdiction of the Company Law Board - violations made by it in the Shareholders Agreement - Whether Group A had by word or conduct abandoned its claim - Applicability of Provisions of Sections 397 and 398 read with Sections 402 and 403 - Printing and publishing of newspapers, journals, magazines. HELD THAT:- We find from a perusal of Section 8 that it rigidly fixes the time by which the party claiming arbitration must raise the issue before the Judicial Authority. It is in this background that we have examined the four documents filed by Group A, which are on record. The first is the reply dated 13.9.1999 to the application for interim relief. We observe that the substance of the dispute has been clearly set out in the course of a long and lengthy pleading. Likewise we have perused the application for appointment of an Administrator filed under Section 402 of the Companies Act (C.A. No. 294 of 1999 dated 15.12.1999) by Group A wherein it has been alleged that Group B had been violating the Shareholders Agreement and Articles of Association and also narrating the steps taken to settle outstanding issues. The second application is C.A. No. 7 of 2000 dated 13.1.2000 filed under Section 403 of the Companies Act making a prayer for interim relief on the plea that after the filing of the Company Petition, Group B had been indulging in oppression and mismanagement and violating the Shareholders Agreement which was prejudicial to the affairs of the Company. Details have accordingly been set out as to how by its conduct, the company was being adversely affected. The third is C.A. No. 440 of 2000 dated 3.3.2000 wherein full details with regard to the oppression and mismanagement at the hands of Group B has been brought out and it has been prayed that the Board. We have also perused the application filed on 16.5.2000. It is the case of Group A that it is this application which contained the substance of the dispute. We find that this application is exclusively a repetition of what had already been said in the four documents referred to herein above. The application under Section 8 of the Act is also significant for yet another reason. There is yet another angle to this agreement. Sub-section (2) of Section 8 of the Act is couched in the negative but is imperative in terms when it says that the application referred to in Sub-section (1) 'Shall not be entertained unless it is accompanied by the original arbitration agreement, or a duly certified copy thereof.' It is conceded position that no copy of the arbitration agreement has ever been filed by Group A. We are, therefore, clearly of the opinion that Group A not only abandoned its claim to seek arbitration but had even otherwise forfeited this right as it had submitted to arbitration before it had filed the first substance of its claim before the Company Law Board. Applicability of Provisions of Sections 397 and 398 read with Sections 402 and 403 - It is true that the Company Law Board following its precedents, has given a finding that a dispute under Sections 397 and 398 of the Companies Act could be a subject matter for arbitration. We agree with Mr. Aggarwal when he says that though the decision of the Company Law Board can not be said to be binding on this Court but it would still have great persuasive value and must be given due consideration. We, however, find that Mr. Aggarwal's argument that as this issue had not been seriously debated before the learned Single Judge, this Court should stay its hands in this Letters Patent Appeal, is clearly unwarranted. It has to be borne in mind that the matter in the writ petition before the learned Single Judge was in the nature of a first appeal and the present proceedings are in the nature of a second appeal. Moreover, we find that this I technical consideration cannot shackle the writ jurisdiction of this Court in what is I purely a question of law. It is true that as per the documents on record the shares of the two contesting groups come to 97.6% but the fact remains that the balance 2.4% is in the hands of other persons. As held by the Hon'ble Supreme Court in Cosmosteels Pvt. Ltd. and Ors. v. Jairam Das Gupta and Ors.[1977 (12) TMI 92 - SUPREME COURT], Company Cases 312, the Scheme of Sections 397, 398 and 402 appear to constitute a Code by itself for granting relief to oppressed minority shareholders. It is also clear that the interest of the 2.4% minority shareholders and the Company could be, prejudicially affected if the matters were put to Arbitration and finally decided by the arbitrator, whereas an order made by the Company Law Board under Sections 397, 398, 402 and 403 would be appealable u/s 10F of the companies Act. These aspects become relevant in the light of the observations in Chiranjilal Shriial Goenka's case [1993 (3) TMI 354 - SUPREME COURT]. In this matter, the question of the probate of a will was referred by the consent of the parties for arbitration to retired Chief Justice of the Bombay High Court. As some proceedings with regard to the probate were also pending in Court, the question arose as to whether the Arbitrator could decide on the validity of the Will. We find that the aforesaid observations would clearly apply in the present case as well for the reasons already set out above. Issues Involved:1. Abandonment of Arbitration Claim2. Jurisdiction of Company Law Board3. Interpretation of Arbitration Clause4. Applicability of Sections 397, 398, 402, and 403 of the Companies ActSummary:1. Abandonment of Arbitration Claim:The Court examined whether Group A had abandoned its claim to arbitration by its conduct and acquiesced to the jurisdiction of the Company Law Board. It was found that Group A had not filed a formal application for arbitration until 16.5.2000, long after it had first appeared before the Company Law Board. The Court noted that Group A had explicitly stated on 17.9.1999 that the matter be finally heard by the Company Law Board, indicating an abandonment of the arbitration claim. The Court also observed that Group A's subsequent actions, including filing a suit in the Delhi High Court, confirmed its intention to abandon arbitration.2. Jurisdiction of Company Law Board:The Court held that Group A had acquiesced to the jurisdiction of the Company Law Board by filing several applications and making statements on the substance of the dispute before filing the formal arbitration application. The Court emphasized that under Section 8 of the Arbitration and Conciliation Act, 1996, the application for arbitration must be made before submitting the first statement on the substance of the dispute. Group A's actions were found to constitute a submission to the jurisdiction of the Company Law Board.3. Interpretation of Arbitration Clause:The Court interpreted the arbitration clause in the Shareholders Agreement and Articles of Association. It concluded that the use of the word 'may' in the arbitration clause indicated that arbitration was not the sole remedy available to the parties. The Court relied on the Supreme Court's judgment in Wellington Associates Ltd. v. Kirit Mehta, which held that the word 'may' does not mandate arbitration as the exclusive remedy.4. Applicability of Sections 397, 398, 402, and 403 of the Companies Act:The Court examined whether the dispute under Sections 397 and 398 of the Companies Act could be referred to arbitration. It held that the reliefs sought under these sections, such as regulation of the company's affairs and termination of agreements, could not be granted by an arbitrator. The Court emphasized that the statutory jurisdiction of the Company Law Board and the right of appeal under Section 10F of the Companies Act could not be ousted by an arbitration agreement. The Court also noted that the Company and minority shareholders were not parties to the arbitration agreement, further precluding arbitration.Conclusion:The Court affirmed the judgment of the learned Single Judge, holding that Group A had abandoned its claim to arbitration and acquiesced to the jurisdiction of the Company Law Board. The appeal was dismissed, and the statutory jurisdiction of the Company Law Board under Sections 397, 398, 402, and 403 of the Companies Act was upheld.