1980 (9) TMI 179 - HC - Companies Law

Arbitration Agreement Survives Winding-Up: Court Retains Jurisdiction

The court held that the arbitration agreement continues to bind the company post-winding up. The court retains the authority to decide whether to refer a ... Winding up – Suits stayed on winding-up order Issues Involved:1. Whether an arbitration agreement to which the company was a party continues to bind the company subsequent to the order of winding up as it did before.Summary:Issue 1: Binding Nature of Arbitration Agreement Post-Winding UpMaruti Ltd. (In liquidation) filed a petition u/s 446(2) of the Companies Act, 1956, read with rule 9 of the Companies (Court) Rules, 1959, for a claim of Rs. 36,000 against M/s. B. G. Shirke & Co. (P.) Ltd., and others. The respondents filed an application u/s 34 of the Arbitration Act, 1940, seeking a stay of the proceedings and directing the petitioner to resort to arbitration as per the lease deed agreement.The core question was whether an arbitration agreement continues to bind the company after a winding-up order. The petitioner contended that the official liquidator is not bound by the arbitration clause post-liquidation, as the court has exclusive jurisdiction u/s 446(2) of the Act. Conversely, the respondents argued that the arbitration clause remains binding and is not repugnant to section 446(2), as arbitration can proceed with the court's permission.Upon analysis, the court concluded that the arbitration clause does not oust the jurisdiction of the company court. The court retains the authority to decide whether to refer a matter to arbitration or not. The arbitration agreement continues to bind the company post-winding up, as the company remains a legal entity with its rights and liabilities intact. This view aligns with the Gujarat High Court's judgment in Star Trading Corporation v. Rajratna Naranbhai Mills Co. Ltd., which stated that an arbitration agreement is not superseded by a winding-up order and continues to bind the company.The court distinguished this case from the Allahabad High Court's judgment in Dehra Dun Mussoorie Tramway Co. Ltd., where no pre-existing arbitration agreement was involved. The court held that the arbitration clause in the agreement does not impinge upon the court's jurisdiction and that it is for the court to decide whether to try the dispute or stay the action in favor of arbitration.As a result, the court held that the arbitration agreement continues to bind the company post-winding up, and it is within the court's discretion to refer the matter to arbitration or not.B. S. Dhillon, J.'I agree.