TaxTMI 
TaxTMI 
2015 (12) TMI 1378
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....nt dated 18.09.2001 suggesting that disputes concerning sections 397, 398, 402 and 403 of the companies Act cannot be referred for arbitration. The applicant-respondents No. 2 to 4 have filed rejoinder reiterating their assertion made in the application. Facts in brief 3. In order to appreciate the legal issue and the rival contentions raised by learned counsel for the parties it would be appropriate to cull out few facts and the dispute raised by the non-applicant-petitioner in the company petition. The petitioner and the respondent No. 2 (being the proprietor of M/s. A V International, Kanpur) entered into a Memorandum of Understanding dated 17.7.2001 [for brevity 'MOU'] for the purpose of setting up a 100% export oriented Unit [for brevity 'EOU'] as a joint venture at Kanpur. The object of joint venture was manufacturing, trading and packing of braided, woven and twisted narrow fabrics and other hardware metal components etc. According to MOU the ratio of equity between the non-applicant-petitioner (Dutch Party) and the applicant-respondent (Indian party) in the joint venture company was to be maintained at 51:49 respectively. A copy of the MOU dated 17.07.2001....
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....was to be nominated by the Petitioner No. 1. Notice of 45 days excluding the date of dispatch and receipt of the notice before the meeting of the Board of Directors was required to be issued. This provision was made keeping in view the convenience of Dutch party as it was ordinary residents in Netherland and required to apply for VISA and make other arrangements to travel to India. Under Article 7 certain other decisions were required to be taken unanimously or by special majority only. Some of those provisions are as under:- "(a) Changes in the Joint Venture Agreement, Memorandum of Association or Articles of Association, This decision shall have to be confirmed by a unanimous decision of the General meeting in which all the shareholders are present. (b) Changes in the proportion of share capital as set out in article 3 paragraph 3. This decision shall have be to confirmed by a unanimous decision of the General Meeting in which all the shareholders are present. (c) Changes in the criterion of the constitution of the Board of Directors and the election of the Chairman and Managing Director as set out in article 6 paragraph 1,3 and 4. This decision shall have to be confirmed b....
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.... necessary for smooth functioning of the respondent No. 1 company. After some correspondence a meeting of the Board of Directors was held on 08.01.2014 after issuing notice of the said meeting on 24.12.2013. There was no representation from Dutch Party in that meeting. In the aforesaid meeting a resolution was passed allotting 25,000 equity shares of Rs. 10/- each of the Respondent No. 1-company to the Director-Respondent No. 3. It reduced ration of the shareholding of the Petitioner No. 1-Dutch party from 51% to 46.75%. The resolution has been placed on record [Annexure p-20]. Again a resolution was passed on 05.05.2014 by the Board of Directors removing the petitioner as Director in Respondent No. 1-Company w.e.f. 01.04.2014. According to another resolution passed by the Board of Directors on 05.05.2014 under s. 184(l) of the Companies Act, 2013 the notices of disclosure of director's interest of Respondent No. 2 to 4 were received and the same were recorded in the register of contracts or arrangements maintained pursuant to section 189 of the said Act. Even 13th Annual General Meeting of the members of the Respondent No. 1-Company was held on 30.09.2014. These meetings again....
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....Nos.1 & 2 as Directors of the Respondent No. 1 company; E. In the alternative to prayer D, permit the petitioners to nominate 3 directors on the Board of the Respondent No. 1 company; F. Declare that the termination notice dated 24.12.2013 allegedly terminating the Joint Venture Agreement and other associated Agreements to be illegal and void; G. Declare the said Joint Venture Agreement and other associated Agreements to be valid and binding on all parties; H. Declare as null and void and set aside any decision taken or resolution passed by the Respondent Nos. 1 to 4 in contravention of the Joint Venture Agreement; I. Permanent injunction be granted restraining the Respondent Nos. 1 to 4 including their respective heirs, legal representatives, employees, servants, agents, assigns and/or any person/s claiming through them from transferring, selling, alienating, disposing off, licensing, sub-letting and/or creating third party rights/interests in any manner whatsoever in respect of fixed and movable and immovable assets of the Respondent No. 1 company without the leave of this Board; J. Permanent injunction be granted retraining the Respondent Nos. 1 to 4 from altering the shareholdi....
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....however controverted the submissions advanced by the applicant-respondent and has argued that ordinarily the arbitration would not be permissible in a petition filed u/ss. 397, 398, 402 and 403. In that regard heavy reliance has been placed on a judgment of the Bombay High Court in the case of Rakesh Malhotra v. Rajinder Kumar Malhotra. A reference was also made to the view taken by Punjab and Haryana High Court in the case of Sudarshan Chopra v. Company Law Board 2004 (2) ARBLR 241 (P&H) and judgment of Delhi High Court in the case of O.P Gupta V. Shiv General Finance (P) Ltd. 47 Comp case 279, Surendra Kumar Dhawan and Anr. v. R. Vir and Ors. 47 Company case 276. Having heard the learned counsel I find that there is no absolute bar to refer a dispute to an arbitrator raised in a petition filed u/ss. 397, 398, 402 and 403 of the Companies Act, 1956 provided the dispute is arbitrable. The judgments relied by the learned counsel carve out certain exceptions. Therefore an exercise is required to be undertaken as to whether the present petition u/ss. 397, 398, 402 and 403 of the Companies Act, 1956 would fall within the parameter of a reference to a arbitrator or it is beyond. Durin....
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....provision for arbitration provided by Article 18 of the JV agreement dated 18.9.2001 and the dispute raised in the company petition is liable to be referred to the sole arbitrator to be appointed by both the parties by their mutual consent. All requirements of law for referring the dispute to arbitration stand fulfilled. According to the learned counsel all the allegations with regard to 'oppression' and 'mismanagement' are covered by Article 18 and there is no Issue left for adjudication before this forum. Once the aforesaid position is clear then the matter has to be sent to sole arbitration of a mutually agreed arbitrator. In support of his submission Mr. Nayyer has placed reliance on para 27 of the judgment of the Hon'ble Supreme Court rendered in the case of Everest Holding Ltd. v. Shyam Kumar Srivastava & Ors., (2008) 16 SCC 774. Reliance has also been placed on the Judgment of Delhi High Court rendered in the case of Vijay Sekhri & Ors. v. Union of India & Ors. (2011) 163 Comp Cas 195 (Delhi). 11. Another submission made by Mr. Nayyer is that the relief claimed in the company petition can also be granted by the Arbitrator. According to the learned counse....
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....ute raised in a properly filed petition under sections 397, 398, 402 and 403 of the Companies Act can be referred to arbitration in accordance with the agreement between the parties' The proposition of law raised in this case is no longer res-integra. It would however be profitable to peruse sections 397, 398, 402 and 403 of the Companies Act so as to understand the nature of power enjoyed by the Company Law Board and the same is as follows:- 397. Application to Company Law Board for relief in cases of oppression:- (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the court is of opinion- (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such me....
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....mbers thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely:- (i) the managing director, (ii) any other director, (iii) the managing agent, (iv) the secretaries and treasurers, and (v) the manager, upon such terms and conditions as may, in the opinion of the Company Law Board be just and equitable in all the circumstances of the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the....
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....r money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company. That could obviously not be referred A to the arbitration and, therefore, the High Court, in our opinion was right in rejecting the application.' 16. Similar view has been expressed by Delhi High Court in the case of O.P. Gupta v. Sffiv General Finance (P) Ltd. & Ors. [1977] 47 Comp Case 279. It has been held that no Arbitrator can possibly give relief to an aggrieved party which is postulated by ss. 397 and 398 and he would be unable to pass any order u/s 402 and 403 of the Companies Act. It has further been held in the context of s. 9(b) of the Companies Act that any provision in any memorandum, article or agr....
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....whether the disputes are capable of settlement by arbitration or by their nature fail within the domain of a public fora. A distinction has thus been drawn opining that an arbitrator is a private person to settle the disputes whereas courts like Company Law Board are a public fora. Another aspect highlighted by the Bombay High Court again based on the judgment rendered in the case of Booz-Allen & Hamilton Inc. (supra) is distinction in law between right in rem and the right in personam. The following pertinent paras from the judgment of Hon'ble Supreme Court have direct bearing on the issue before this Board which are as under:- '35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proce....
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....ing unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable. 39. The Act does not specifically exclude any category of disputes as being not arbitrable. Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if the court finds that "the subject- matter of the dispute is not capable of settlement by arbitration under the law for the time being in force". 40. Russell on Arbitration (22nd Edn.) observed thus (p. 28, Para 2.007): "Not all matters are capable of being referred to arbitration. As a matter of English law certain matters are reserved for the court alone and if a tribunal purports to deal with them the resulting award will be unenforceable. These include matters where the type of remedy required is not one which an Arbitral Tribunal is empowered to give." The subsequent edition of Russell (23rd Edn., p. 470, Para 8.043) merely observes that English law does recognise that there are matters which cannot be decided by means of arbitration. 41. Mustill and Boyd in their Law....
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....d plenary and expansive powers which are sufficient to redress and grant the far-reaching reliefs u/ss. 397 and 398. 22. The other proportion on law culled out from the judgment of the Hon'ble Supreme Court in Sukanay Holdings (P) Ltd. v. Jayesh H. Pandya (2003) 5 SCC 531 by the Bombay High Court is to affirm that a bifurcation of a cause of action is impermissible procedure beyond the contemplation of the Arbitration Act. Accordingly it has been held that where the petition u/ss. 397 and 398 of the Companies Act has been filed by seeking reliefs some of which invite a judgment in rem and other are in personam then it is not possible or permissible to sever one from the other and disassemble such a petition. The basis rationale has been adopted by Bombay High Court in para 124(a) which is as under:- "124 (a) As to whether the disputes in a petition properly brought under Sections 397 and 398 read with Section 402 of the Companies Act, 1956 can be referred to arbitration, the answer is no, subject to the caveat that I have noted regarding a mala fide, vexatious or oppressive petition and one that is merely 'dressing up' to avoid an arbitration clause" 23. It is perti....