2017 (1) TMI 1662 - Tri - Companies Law

Validity of arbitration agreements in shareholders' agreements confirmed, disputes deemed arbitrable under Section 8.

The tribunal confirmed the existence of valid arbitration agreements in the shareholders' agreements between the parties. It found commonality in the ... Arbitration proceedings - responsibility of completion of the project conditions within the stipulated time to the satisfaction of Dalmia group was originally entrusted with Bawri group - whether the arbitration agreements are required to be rejected for not being certified in accordance with the prescription of law? - HELD THAT:- Section 76 of the Evidence Act, therefore, clearly shows that only the public documents are to be certified by public servants. But section 76 further shows only certain classes of the public servants, as indicated in that section itself, are allowed to do the job. An essential corollary to such a proposition is that a public servant, in his capacity as public servant, cannot certify a document which is private one. The well apparent fact that in their section 9 application, the petitioners themselves admitted that they have sold their shareholding in the company to the Dalmia group on 'as-is-where-is basis 'makes such a conclusion inevitable. On considering such submission in the light of the materials on record, I have found to concur with such claim of the applicants. It goes without saying that observations made herein are only for the purpose of deciding issues as to whether the disputes should be referred to arbitrator and necessarily, same cannot be made applicable to any proceeding which the parties to this proceeding have already initiated or may have initiated in future. The tribunal would, therefore, proceed to decide the matter on the basis of materials placed before it - petition disposed off. Issues Involved:1. Existence of a valid arbitration agreement.2. Commonality of the subject matter in arbitration and the company petition.3. Commonality of the parties in the arbitration agreement and the company petition.4. Compliance with Section 7(3) and 7(4) of the Arbitration and Conciliation Act, 1996.5. Compliance with Section 8(2) of the Arbitration and Conciliation Act, 1996.6. Arbitrability of the reliefs sought in the company petition.7. Whether the company petition is a dressed-up petition to avoid arbitration.8. Whether violations of the Articles of Association (AoA) can be referred to arbitration.Detailed Analysis:1. Existence of a Valid Arbitration AgreementThe tribunal confirmed the existence of valid arbitration agreements in the shareholders' agreements (SHA-I and SHA-II) between the parties. The petitioners had annexed copies of these agreements with their petition, and the agreements contained arbitration clauses. The tribunal concluded that the existence of valid arbitration agreements was proved beyond doubt.2. Commonality of the Subject MatterThe tribunal found that the subject matter in the company petition and the arbitration agreements were the same. The allegations in the company petition were directly related to breaches of various clauses in SHA-I and SHA-II, making them contractual disputes rather than management disputes. The tribunal noted that the core of the disputes was the alleged failure of the Bawri group to complete project conditions as stipulated in SHA-I, which led to a series of subsequent disputes.3. Commonality of the PartiesThe tribunal concluded that the parties in the arbitration agreements and the company petition were identical. The petitioners' argument that there was no commonality because additional parties were involved was rejected. The tribunal held that the petitioner Nos. 10 to 15 were not integral to the Bawri group and were added only to frustrate the arbitration agreement. Similarly, respondent Nos. 3 to 25 were found to be part and parcel of the Dalmia group.4. Compliance with Section 7(3) and 7(4)The tribunal found no violation of Section 7(3) and 7(4) of the Arbitration and Conciliation Act, 1996. The agreements were in writing and signed by the necessary parties. The tribunal rejected the petitioners' argument that the agreements were not valid because not all parties signed them, noting that the agreements were signed by representatives of the Bawri and Dalmia groups, who had the authority to do so.5. Compliance with Section 8(2)The tribunal held that the application under Section 8 of the Arbitration and Conciliation Act, 1996, was valid despite the original or certified copies of the agreements being submitted after the initial filing. The tribunal referred to the Supreme Court's decision in Ananthesh Bhakta v. Nayana Bhakta, which clarified that the original or certified copy of the arbitration agreement must be available when the application is considered, not necessarily when it is filed.6. Arbitrability of the Reliefs SoughtThe tribunal concluded that the reliefs sought in the company petition could be granted by an arbitrator. The tribunal noted that the disputes were commercial in nature and related to breaches of the SHAs, which could be resolved through arbitration. The tribunal rejected the petitioners' argument that the reliefs were management disputes that could only be adjudicated by the Company Law Board (CLB).7. Dressed-Up PetitionThe tribunal found that the company petition was a dressed-up petition designed to avoid arbitration. The tribunal noted that the petitioners attempted to mask contractual disputes as management disputes. The tribunal emphasized that the substance of the petition, not its form, determines its nature, and in this case, the substance revealed commercial disputes suitable for arbitration.8. Violations of the Articles of AssociationThe tribunal held that violations of the Articles of Association, which mirrored the SHAs, could be referred to arbitration. The tribunal referred to previous decisions, including Airtouch International (Marutius) Ltd. v. RPG Cellular Investment & Holding (P.) Ltd., which supported the referral of disputes to arbitration even when they involved breaches of the AoA.ConclusionThe tribunal allowed the application under Section 8 of the Arbitration and Conciliation Act, 1996, referring the parties to arbitration to resolve their disputes. The interim orders were vacated, and the company petition was disposed of. The tribunal emphasized that its observations were specific to the decision on referring the disputes to arbitration and would not apply to any other proceedings initiated by the parties.