Arbitration Agreement Deemed Incomplete and Unenforceable by Board. Counter to Company Petition Required.

The application to refer the subject matter of the company petition to arbitration was dismissed. The Board held that the arbitration agreement was incomplete and unenforceable, the parties lacked commonality, and the subject matter of the company petition could not be resolved through arbitration. The respondents were directed to file their counter to the company petition within three weeks.

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Issues Involved:
1. Whether the subject matter of the company petition should be referred to arbitration.
2. Commonality of parties between the arbitration agreement and the company petition.
3. The scope of the arbitration agreement in relation to the subject matter of the company petition.
4. Timeliness and bona fides of the application under section 8 of the Arbitration and Conciliation Act, 1996.
5. Whether the reliefs sought in the company petition can be adjudicated through arbitration.

Detailed Analysis:

1. Reference to Arbitration:
The applicant sought to refer the subject matter of the company petition to arbitration based on an arbitration clause in the Articles of Association and the Shareholders Agreement (SHA) dated 30.07.2008. The applicant argued that the disputes, including issues of share allotment and director removal, were covered under the arbitration agreement. The respondents opposed, asserting that the application aimed to deprive them of their right to file a petition under sections 397, 398, and 237 of the Companies Act, 1956, and that the arbitration agreement did not cover the subject matter of the company petition.

2. Commonality of Parties:
The respondents contended that the arbitration agreement lacked commonality of parties with the company petition. The SHA involved multiple parties, including investors and promoters, some of whom were not parties to the current application. The Board found that not all promoters listed in the SHA had signed the agreement, rendering it incomplete and unenforceable. Therefore, the commonality of parties required under section 8 of the Arbitration and Conciliation Act was not satisfied.

3. Scope of Arbitration Agreement:
The Board analyzed whether the disputes in the company petition fell within the scope of the arbitration agreement. The petitioners alleged acts of oppression, such as improper share allotment and director removal, which were not explicitly covered by the SHA. The Board noted that the reliefs sought in the company petition, including reinstatement of directors and investigation into company affairs, could not be resolved through arbitration. The statutory provisions under sections 397 to 403 of the Companies Act, 1956, provided exclusive jurisdiction to the Company Law Board (CLB) for such matters.

4. Timeliness and Bona Fides:
The Board observed that the application under section 8 was filed belatedly, after significant delays and without a satisfactory explanation. The respondents had not filed a counter to the main petition despite sufficient time being granted. The Board concluded that the application was not made in good faith and was an attempt to delay proceedings.

5. Reliefs Sought in Company Petition:
The reliefs sought in the company petition included cancellation of share allotments, reinstatement of directors, and investigation into company affairs. These reliefs were beyond the scope of arbitration and fell under the exclusive jurisdiction of the CLB. The Board emphasized that statutory provisions could not be overridden by arbitration agreements, as per section 9 of the Companies Act, 1956.

Conclusion:
The application to refer the subject matter of the company petition to arbitration was dismissed. The Board held that the arbitration agreement was incomplete and unenforceable, the parties lacked commonality, and the subject matter of the company petition could not be resolved through arbitration. The respondents were directed to file their counter to the company petition within three weeks.

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