2004 (2) TMI 723 - Board - Companies Law

Application to Refer Matter to Arbitration Dismissed Due to Lack of Commonality

The Company Law Board dismissed the application to refer the matter to arbitration, citing the lack of commonality of parties and the ability to examine ... - Issues Involved:1. Allegations of oppression and mismanagement under Sections 397/398 of the Companies Act, 1956.2. Application of Section 8 of the Arbitration and Conciliation Act, 1996.3. Commonality of parties in the arbitration agreement and the proceedings.4. Jurisdiction of the Company Law Board versus the Arbitrator.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The petitioners, substantial shareholders of M/S Limrose Engineering Works Private Limited, alleged oppression and mismanagement in the company's affairs. They claimed that the 1st and 2nd petitioners were illegally removed as directors, shares were issued exclusively to the respondents' group, and the 3rd, 4th, and 5th respondents were co-opted as directors. The petitioners argued that these actions violated the Memorandum of Understanding (MOU) agreed upon by the Kapur family, which stipulated maintaining the status quo until the MOU was fully implemented.2. Application of Section 8 of the Arbitration and Conciliation Act, 1996:The 2nd respondent sought to refer the disputes to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, citing the arbitration clause in the MOU. The arbitrator, Shri Justice Ahmedi, had already commenced proceedings and issued orders regarding the status quo of directorship and shareholding. The respondents argued that the Company Law Board (CLB) should not proceed with the petition as the arbitrator had jurisdiction over the matter.3. Commonality of Parties in the Arbitration Agreement and the Proceedings:The petitioners contended that the company, M/S Limrose, and certain petitioners and respondents were not parties to the MOU, and thus, the arbitration clause did not bind them. They argued that the CLB was the appropriate forum to address the allegations of oppression and mismanagement, as the company was not a signatory to the MOU. The CLB noted that the MOU was signed exclusively by the male members of the Kapur family and did not legally bind the company without formal authority from the Board or members.4. Jurisdiction of the Company Law Board versus the Arbitrator:The CLB examined whether the allegations of oppression and mismanagement could be adjudicated without reference to the MOU. It concluded that the proper forum to address such allegations was the CLB, as it had broader powers under Section 402 of the Companies Act, 1956, to grant relief. The CLB also noted that the arbitrator's jurisdiction was limited to the terms of the MOU, while the CLB could address the broader issue of oppression in a family company.Conclusion:The CLB dismissed the application to refer the matter to arbitration, citing the lack of commonality of parties and the ability to examine the allegations of oppression without reference to the MOU. The respondents were directed to file their replies to the petition, and the case was scheduled for a hearing on 6.5.2004.