TaxTMI 
TaxTMI 
2016 (4) TMI 876
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion have already been brought before the Arbitral Tribunal at the instance of petitioner-non applicant and the arbitrate is in progress. Therefore no adjudication of the same issues would be permissible in the company petition. 2. Notice of the application was issued. The non applicant-petitioner filed reply opposing the prayer for leaving the dispute, to be decided by the Arbitral Tribunal in terms of clause 19 of 'SSSA' suggesting that disputes concerning oppression and mismanagement under sections 397, 397, 402 & 403 of the Companies Act, 1956 cannot be referred to arbitration. Rejoinder has also been filed. 3. In order to find out the answer to the basic question whether the company petition is a ruse to harass the respondents and whether the petition is dressed up in such a manner as to seek similar relief which is available to the parties before the Arbitrator, It would be necessary to briefly notice the prayers made by the non applicant-petitioner. A declaration has been sought from this Board that actions of the Respondents are oppressive and amount to mismanagement u/s 397, 398 etc. of the Companies Act, 1956, A further prayer has also been made to issue directions a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....25000 500000 25.18 There are at present seven directors namely Mr. Ajay Kumar Bishnoi, Mr. Amul Gabrani, Mr Arvind Kumar Bishnoi, Mr. Aditya Garbrani, Mr. Suresh Kumar Goenka, Mr. C.V. Narsimhan and Mr. JP. Singh (Nominee director of the petitioner). The non applicant-petitioner claims to have funded the business of the subsidiary of the Respondent No.1-company namely Tecpro Infra Projects Ltd, Edappally, Ernakulam. As per the terms of agreement dated 18.8.2010 the affairs of the subsidiary were also subjected to the supervision of the Board of the Respondent No. 1-Company. 5. It is alleged that after 31.03.2013 respondent No. 2 to Respondent No 5 stopped communicating with the non applicant-petitioner and also stopped reverting to the communications sent by him to respondent No.1-company, Respondent No 2 to Respondent No.5 have refrained from providing any information in respect of the financial and operational affairs of the respondent No.1 company to the non applicant- petitioner. It has also been alleged that AGM approving the accounts in respect of financial year 2012-2013 was to be called. However, no notice of any such meeting was given to the non appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eting of Respondent No.1 company was to be considered complete only when representative of the petitioner was present as provided by Article 53 of Articles of Association and the meeting held on 2.9.2013 fails to fulfil, the aforesaid obligation which thus ultra vires the Article of Association The records concerning aforesaid subsidiary company are also not been showed. 7. There are allegations of related party transaction which according to Article 91 required prior consent and approval from the Board of Directors of Respondent No. 1 company. No approval had ever been taken and a copy of the Annual return concerning its subsidiary company namely Techpro Systems Ltd. has been placed on record (P-36) 8. On the basis of the aforesaid facts and circumstances the petitioner-non applicant has asserted that there is wholesome mismanagement and oppression. Arguments: Applicant-Respondents 9. I have heard the learned counsel for the parties at a considerable length and have perused the paper book with their able assistance. Learned counsel for the applicant-respondents has vehemently argued that: - (a) The company petition is nothing else but a ruse to enforce the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on applicant-petitioners are not interested in running the affairs of the company which is evident from the interlocutory order dated 9.9.2014 passed by this Board regarding the statement of non applicant-petitioner demanding a sum of Rs. 100 Crores for leaving the company because they are basically investors. Arguments: Non applicant Petitioner 10. Learned counsel for the non-applicant petitioner has argued that the relief claimed in the petition filed u/s 397, 398 read with sections 402 cannot be granted by an Arbitrator in the arbitration proceedings as the acts of oppression and mismanagement cannot be subject matter of proceeding before Arbitrator. Referring to a number of acts of mismanagement and oppression and ignoring the participation of the petitioner in the affairs of the company it has been urged that such a oppression can be dealt with by the Company Law Board alone in the present proceeding, As an illustration it has been pointed out that applicant-respondent in collusion with each other has transferred equity shares among themselves in contravention of the provisions of Articles of Association of Respondent No. 1-company. Moreover no notice for approving the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y member of a company who complain- (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or (b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, or of its managing agent or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; 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 applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d be mode. 403. Interim order by Company Law Board. Pending the making by it of a final order under section 397 or 398, as the case may be, Company Law Board may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs, upon such terms and conditions as appear to it to be just and equitable. 13. A bare perusal of aforesaid provision would reveal that Company Law Board enjoys wide powers to adopt correctional mechanism where the affairs of the company are being conducted in a manner prejudicial to the interest of the General Public or in a manner oppressive to any Member(s) and/or shareholders of the company. A close scrutiny of section 402 would show that Company Law Board is clothed with wide powers of regulating the affairs of the company and it is competent to terminate, set-aside or modify any agreement arrive at between the company on the one hand and any of the person like Managing Director and the other Director or the Manager on the other on such terms and conditions as may appear to be just and equitable in the circumstances of that case. It has also wide power to issue in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en the ratio of the judgment is applied to the facts of the case in hand. The Delhi High Court went on to observe that such an article providing for arbitration would be void. It has been suggested that a repugnancy of such a nature can be resolved by holding that such an article is wholly void when tested on the touch stone of section 9(b) of the Companies Act or that by declaring that the articles does not apply when the proceedings under sections 397 and 398 are initiated before the Company Law Board. In any case article 18 cannot operate for the purposes of staying the proceedings in a properly instituted petition u/s 397 & 398 read with 402 & 403 of the Companies Act. Similar view has been expressed in the case of Surindra Kumar Dhawan v. R. Vir & Ors. 47 comp case 276 and Manavendra Chitnis & Another v Leela Chitnis Studios P. Ltd. 58 Comp Caes 113. 15. The aforesaid judgments rendered by Hon'ble Supreme Court and Delhi High Court have been followed and applied by a Division Bench of the Punjab & Haryana High Court in the case of Sudarshan Chopra v. CLB [2004] 2 ARBLR 241. The view of the Division Bench stands concluded in the following para which reads thus:- "61....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (n) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. 37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest prot....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., but whether it ought to be referred to arbitration or whether it has given rise to an enforceable award. No doubt for this reason, English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not. ..." 17. Thus Bombay High Court in Rakesh Malhotra's case (supra) apparently followed the rationale of public and private fora. Keeping in view the nature of rights Involved for adjudication in a petition filed under sections 397 and 398 of the Companies Act such disputes touch upon the larger public interest and status of a company. The right are determined by the judicial forum which results into a judgement in rem. These factors bring the disputes out of the purview of arbitrability. 18. The High Court further held that the types of reliefs which an Arbitrator can award are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state. For example an Arbitrator cannot impose a fine or a term of imprisonment, convict a person for contempt or issue a writ of subpoena. It cannot also make an award which is binding on third party or affects the publi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court on 10.9.2014 and it has expressly been stated that 'No stay. The matter may proceed before the Company Law Board in accordance with law.' 21. I have prefaced this judgment with legal principles emerging on the issue raised before this Court, These principles were also applied by this court in the another case namely M/s Christianus Muller & ors v. M/s A & C Braid & Rope Company Pvt. Ltd. Ors. (CP No.109(ND)/2014, CA No. 170/C.1/2014 decided on 5.10.2015). It would now be appropriate to closely examine various paragraphs of the petition and the averments made therein to find out as to whether this is a dressed up petition. 22. It has remained undisputed that the petitioner holds 6,25,000 fully paid-up equity shares of Rs. 10 lacs and 500,000 preference shares. The total percentage of its shareholding works out to be 25.18%. The Petitioner enjoys the privilege of nominating one director on the Board which comprise of total seven members. 23. There is a list of wholesome violation of various Articles of Association which indicate that the matter falls prima facie within the parameter laid down by the provisions of sections 397 and 398 of the Act which of course is subje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his court is whether the present petition is a dressed up petition or it is properly drafted petition u/s 397 and 398 read with section 402 of the Companies Act. The present petition alleges various acts of oppression and mismanagement which could be probed only by this Board and would not fall within the jurisdiction of an arbitrator appointed by the parties. 25. There are allegations of violating Article 66 as the meeting for the quarter ending on June 2013, September 2014, December 2013, March 2014 and June 2014 had not been called despite issuance of requisition by the petitioner for convening meeting of Board of Directors. There are further auctions of violating provisions of Articles 72, 74 and 86. In terms of Article 86 of the Articles of Association obligations are cast upon Respondent No.1 company and its subsidiaries to provide the petitioner the following information :- 1. Audited consolidated annual financial statement within 120 (one hundred twenty) days after the end of financial years, 2. Consolidated semi-annual financial statements within 60 (sixty) days after the expiry of every six monthly period in a financial year certified by the managing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rest and put an end to oppression of an individual member. It has already been observed that the scheme of sections 397, 398 & 402 constitutes a complete code in itself and no Arbitrator can possibly give relief to an aggrieved party like the petitioner in terms of section 402 and 403 of the Companies Act, (see. Cosmosteels Private Ltd. and O.P. Gupta Judgement (supra). 28. In Rakesh Malhotra's case (supra)) it has also been pointed out that the judgment in a petition like the one in hand would be judgment in rem as against the judgment of personam. The Arbitral Tribunal are necessarily private forum voluntarily chosen by the parties and therefore the remedy in present proceedings is a public law remedy whereas the remedy of arbitration is in the area of private law. These principles when apply to the facts of the present case do not leave any manner of doubt that the petition in hand is not a dressed up petition and application filed under section 8 by the applicant-respondent is not acceptable. 29. The arguments that there are averments which clearly indicate breach of terms of SSSA and claim for damage should have been made before the arbitrator have not impressed me becau....