1944 (1) TMI 13 - HC - Companies Law

High Court clarifies company arbitration rules pre-amendment. District Court jurisdiction emphasized.

Catholic Bank Ltd., Versus FPS. Albuquerque

The Full Bench of the High Court of Madras held that before the amendment by the Arbitration Act, 1940, Section 152 of the Indian Companies Act, 1913, ... Words & Phrases Issues Involved:1. Jurisdiction of the Subordinate Judge's Court to enforce the arbitration award.2. Interpretation of Section 152 of the Indian Companies Act, 1913.3. Applicability of the Indian Arbitration Act, 1899, versus the Civil Procedure Code for company arbitrations.4. The mandatory nature of the term 'may' in Section 152 of the Indian Companies Act, 1913.Detailed Analysis:1. Jurisdiction of the Subordinate Judge's Court to Enforce the Arbitration Award:The appellant, a bank, sought to enforce an arbitration award through the Subordinate Judge's Court. The respondent objected, arguing that only the District Court had jurisdiction under the Indian Arbitration Act, 1899. The Subordinate Judge upheld this objection, following the Calcutta High Court's decision in Jhirighat Native Tea Co. Ltd. v. Bopal Chandra Gupta, which held that companies must arbitrate under the Indian Arbitration Act, 1899, and not under the Civil Procedure Code.2. Interpretation of Section 152 of the Indian Companies Act, 1913:The core issue was whether Section 152 of the Indian Companies Act, 1913, mandated that companies could only arbitrate under the Indian Arbitration Act, 1899. The section states that a company 'may by written agreement refer to arbitration, in accordance with the Indian Arbitration Act, 1899.' The interpretation of the word 'may' was crucial-whether it implied a mandatory or permissive action.3. Applicability of the Indian Arbitration Act, 1899, Versus the Civil Procedure Code for Company Arbitrations:The judgment explored whether companies were restricted to the arbitration procedures under the Indian Arbitration Act, 1899, or if they could also utilize the procedures under the Civil Procedure Code. The Lahore High Court had previously held that Section 152 was merely enabling, allowing companies to choose either path. However, the Calcutta High Court disagreed, asserting that Section 152 mandated arbitration under the Indian Arbitration Act, 1899.4. The Mandatory Nature of the Term 'May' in Section 152 of the Indian Companies Act, 1913:The judgment delved into whether 'may' in Section 152 should be interpreted as 'must.' The court referred to Jessel, M.R.'s principle that when a statute provides a specific affirmative power, it implies a negative-that no other method is permissible. The court concluded that 'may' in this context was indeed mandatory, meaning companies must arbitrate under the Indian Arbitration Act, 1899.Judgment:The Full Bench of the High Court of Madras, consisting of Sir Lionel Leach, C.J., Lakshmana Rao, and Krishnaswamy Ayyangar, JJ., delivered the following judgment:Jurisdiction and Applicability:The court held that Section 152 of the Indian Companies Act, 1913, before its amendment by the Arbitration Act, 1940, confined company arbitrations to the Indian Arbitration Act, 1899. This meant that companies could not opt for arbitration under the Civil Procedure Code. Consequently, the Subordinate Judge's Court did not have jurisdiction to enforce the arbitration award; only the District Court did.Interpretation of 'May':The court found that 'may' in Section 152 should be read as 'must,' making it obligatory for companies to arbitrate under the Indian Arbitration Act, 1899. This interpretation aligned with the intention to place companies on a special footing regarding arbitration, distinct from private persons.Legislative Intent:The court emphasized that the legislative intent was to protect the public and ensure companies operated within specified limits. The Companies Act, 1913, aimed to consolidate and amend laws relating to trading companies, indicating an exhaustive approach that included arbitration procedures.Conclusion:The court concluded that after the enactment of the Indian Companies Act, 1913, and before the Indian Arbitration Act, 1940, came into force, a company could only enter into arbitration under the provisions of the Indian Arbitration Act, 1899. This interpretation excluded companies from the scope of Schedule II of the Civil Procedure Code.The costs of the reference were to be made costs in the appeal.